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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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The following table sets forth information as of March 28, 2020, with respect to the beneficial ownership of shares of our common stock by:
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•
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each person or group known to us to be the beneficial owner of more than five percent of our common stock;
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•
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each of our named executive officers; and
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•
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all of our current directors and executive officers as a group.
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This table is based upon information supplied by officers, directors and principal stockholders and a review of Schedules 13D and 13G, if any, filed with the SEC. Other than as set forth below, we are not aware of any other beneficial owner of more than five percent of our common stock as of March 28, 2020. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership is based on 54,115,411 shares of common stock outstanding as of March 28, 2020, adjusted as required by rules promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to equity awards that are either currently exercisable, or that will become exercisable or otherwise vest on or before May 29, 2020, which is 60 days after March 28, 2020. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Masimo Corporation, 52 Discovery, Irvine, California 92618.
89
| 2020 Proxy Statement
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Beneficial Ownership of
Common Stock
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Name
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Number of
Shares
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Percent of
Class(1)
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Named Executive Officers and Directors:
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Joe Kiani(2)
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|
5,387,401
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9.7
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%
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|
Micah Young(3)
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|
3,534
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|
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*
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|
Bilal Muhsin(4)
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|
93,621
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|
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*
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|
|
Tom McClenahan(5)
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|
78,885
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*
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Anand Sampath(6)
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|
112,403
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|
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*
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Steven J. Barker, Ph.D., M.D.(7)
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|
82,245
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*
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H Michael Cohen
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—
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*
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Sanford Fitch(8)
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90,245
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*
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Thomas Harkin(9)
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6,381
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*
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|
Adam Mikkelson(10)
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2,996
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*
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|
Craig Reynolds(11)
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|
102,996
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*
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Julie A. Shimer, Ph.D.
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—
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*
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Total Shares Beneficially Owned By Current Executive Officers and Directors (15 persons)(12)
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6,153,035
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11.0
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%
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5% Stockholders:
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Joe Kiani(2)
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5,387,401
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9.7
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%
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BlackRock, Inc.(15)
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|
6,544,721
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12.1
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%
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The Vanguard Group(16)
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|
4,514,303
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8.3
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%
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FMR, LLC(17)
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|
4,706,036
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8.7
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%
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______________
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(1)
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For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of shares of common stock outstanding as of March 28, 2020, plus the number of shares of common stock that such person or group had the right to acquire within 60 days after March 28, 2020.
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(2)
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Comprised of 159,241 shares held directly, 2,283,453 shares held in two trusts for which Mr. Kiani is the sole trustee, 1,491,209 shares held in four trusts for which Mr. Kiani is not the trustee, 9,000 shares held by an immediate family member of Mr. Kiani for which Mr. Kiani shares voting and dispositive power, options to purchase 1,434,130 shares of Masimo common stock that were exercisable as of March 28, 2020 or that have or will become exercisable within 60 days after March 28, 2020, and 10,368 shares held for the Reporting Person’s account under the Masimo Retirement Savings Plan. As of March 28, 2020, an aggregate of 400,000 shares of common stock owned by a family trust and beneficially owned by Mr. Kiani were pledged as collateral for a personal loan. See “Executive Compensation—Compensation Discussion and Analysis—Other Compensation Policies and Practices—Hedging and Pledging Policies” on page 67 of this Proxy Statement.
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(3)
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Comprised of options to purchase 3,534 shares of common stock that are exercisable within 60 days after March 28, 2020.
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(4)
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Comprised of options to purchase 93,621 shares of common stock that are exercisable within 60 days after March 28, 2020.
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(5)
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Comprised of 6,264 shares of common stock held directly and options to purchase 72,621 shares of common stock that are exercisable within 60 days after March 28, 2020.
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(6)
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Comprised of 13,782 shares of common stock held directly and options to purchase 98,621 shares of common stock that are exercisable within 60 days after March 28, 2020.
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(7)
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Comprised of 66,245 shares of common stock held directly and options to purchase 16,000 shares of common stock that are exercisable within 60 days after March 28, 2020.
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(8)
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Comprised of 44,245 shares of common stock held directly and options to purchase 46,000 shares of common stock that are exercisable within 60 days after March 28, 2020.
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(9)
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Comprised of 6,381 shares of common stock held directly.
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(10)
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Comprised of 2,996 shares of common stock held directly.
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(11)
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Comprised of 2,996 shares of common stock held directly and options to purchase 100,000 shares of common stock that are exercisable within 60 days after March 28, 2020.
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90
| 2020 Proxy Statement
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(12)
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Comprised of shares included under “Named Executive Officers and Directors”, 87,465 shares of common stock owned directly by three of our other executive officers and options to purchase an aggregate of 104,863 shares of common stock held by three of our other executive officers that are exercisable within 60 days after March 28, 2020. Subsequent to March 28, 2020, an aggregate of 65,000 shares of common stock owned by a family trust and beneficially owned by Mr. Yongsam Lee, one of the three of our other executive officers, were pledged as collateral for a personal loan. See “Executive Compensation—Compensation Discussion and Analysis—Other Compensation Policies and Practices—Hedging and Pledging Policies” on page 67 of this Proxy Statement.
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|
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(15)
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BlackRock, Inc. (“BlackRock”) filed a Schedule 13G/A on February 4, 2020, reporting that it had sole voting power with respect to 6,356,926 shares, sole dispositive power with respect to 6,544,721 shares, and beneficial ownership of an aggregate of 6,544,721 shares in its capacity as a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) under the Exchange Act. BlackRock’s address is 55 East 52nd Street, New York, New York 10055.
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(16)
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The Vanguard Group (“Vanguard”) filed a Schedule 13G/A on February 12, 2020, reporting that it had sole voting power with respect to 27,981 shares, shared voting power with respect to 12,813 shares, sole dispositive power with respect to 4,479,952 shares, shared dispositive power with respect to 34,351 shares and beneficial ownership of an aggregate of 4,514,303 shares in its capacity as an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E) under the Exchange Act. Vanguard’s address is 100 Vanguard Blvd., Malvern, PA 19355.
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(17)
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FMR, LLC (“FMR”) filed a Schedule 13G on February 7, 2020, reporting that it had sole voting power with respect to 347,065 shares, sole dispositive power with respect to an aggregate of 4,706,036 shares and beneficial ownership of an aggregate of 4,706,036 shares in its capacity as a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) under the Exchange Act. FMR’s address is 245 Summer Street, Boston, Massachusetts 02210.
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91
| 2020 Proxy Statement
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
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The following table sets forth additional information as of December 28, 2019 with respect to the shares of common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements in effect as of December 28, 2019. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options and the number of shares remaining available for future grant, excluding the shares to be issued upon exercise of outstanding options.
Equity Compensation Plan Information
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|
|
Plan Category
|
|
Number of securities to be issued upon exercise
of outstanding options, warrants and rights (a)(1)
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|
Weighted-average exercise price
of outstanding options, warrants and rights(2)
|
|
Number of securities
available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
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|
|
Equity compensation plans approved by stockholders(3)
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|
7,623,640
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|
|
$
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54.23
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|
|
3,155,124
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|
|
|
Equity compensation plans not approved by stock holders(4)
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|
—
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|
|
—
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|
|
—
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|
|
Total
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|
7,623,640
|
|
|
$
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54.23
|
|
|
3,155,124
|
|
|
______________
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|
|
|
(1)
|
Includes 2,796,749 RSUs and PSUs that were unvested and outstanding as of December 28, 2019.
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|
|
|
|
(2)
|
The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding stock options and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs and PSUs, which have no exercise price.
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|
|
|
|
(3)
|
Comprised of the 2007 Stock Incentive Plan and the 2017 Equity Incentive Plan.
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|
|
|
|
(4)
|
As of December 28, 2019, we did not have any equity compensation plans that were not approved by our stockholders.
|
We maintain a stock ownership policy for our executive officers to align their interests with the interests of our stockholders, as follows:
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|
|
Stock Ownership Guidelines
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|
|
|
|
|
|
|
|
|
|
|
|
l
|
Reflects a market value multiple of base salary
|
|
l
|
Reviewed annually by the Nominating, Compliance and Governance Committee
|
92
| 2020 Proxy Statement
For purposes of our policy, an executive officer’s base salary during any calendar year is deemed to be his or her base salary as of the close of business on December 31st of the immediately preceding year.
Further, for purposes of calculating ownership under our policy, the following equity in the Company is included, whether vested or unvested: (i) shares of our common stock held directly by the executive officer or in a trust for the benefit of the executive officer or his or her family; (ii) shares of our common stock held by the executive officer jointly with, or separately by, his or her spouse and/or children sharing the same household as him or her; (iii) shares of our common stock held by the executive officer through a profit sharing, savings or deferral plan; and (iv) restricted stock or phantom stock held by the executive officer. Shares of our common stock subject to outstanding and unexercised stock options and unearned performance share awards are not included in the calculation.
Under our policy, if an executive officer fails to meet or, in unique circumstances, fails to show sustained progress toward meeting his or her target ownership level, the Compensation Committee may reduce future LTI equity awards and/or make payments of future annual and/or long-term cash incentive payouts in the form of shares of our common stock and/or impose other penalties. The Compensation Committee also retains the discretion not to levy penalties for non-compliance.
Our executive officers are expected to reach their target ownership level by the later of (i) March 2017 (if he or she was an executive officer in January 2012, the date when the stock ownership policy was adopted); or (ii) March 1st of the sixth calendar year following the date he or she first becomes an executive officer (if he or she was not an executive officer in January 2012), and to hold at least such minimum value in shares of our common stock for so long as applicable. As of the date hereof, each of the NEOs to whom the stock ownership requirements was applicable is in compliance with the stock ownership policy.
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|
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|
|
NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP POLICY
|
In February 2016, our Nominating, Compliance and Corporate Governance Committee adopted a stock ownership policy that is applicable to each of our non-employee directors. Our Nominating, Compliance and Corporate Governance Committee believes this policy is an important tool in aligning the interests of our non-employee directors with the long-term interests of our stockholders.
The policy requires that our non-employee directors hold shares of Masimo stock with a value equal to at least $250,000. For purposes of calculating ownership under this policy, the following sources are included, whether vested or unvested: (i) shares of our common stock held directly by the non-employee director or in a trust for the benefit of the non-employee director or his family; (ii) shares of our common stock held by the non-employee director jointly with, or separately by, the non-employee director’s spouse and/or children sharing the same household as the non-employee director; (iii) shares of our common stock held by the non-employee director through a profit sharing, savings or deferral plan; and (iv) restricted stock or phantom stock held by the non-employee director. Stock options, unvested RSU awards and unearned PSU awards are not included in the calculation.
To give our non-employee directors time to comply with our stock ownership policy, our Nominating, Compliance and Corporate Governance Committee determined that our non-employee directors have until the later of March 1, 2021 or the five-year anniversary of their appointment as a director to comply with these guidelines.
93
| 2020 Proxy Statement
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|
PROPOSAL:
|
|
TO ELECT TWO CLASS I DIRECTORS AS NAMED IN OUR PROXY STATEMENT
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|
|
1
|
|
|
Overview
The term of office for Class I Directors expires in 2020. Based on the recommendation of our Nominating, Compliance and Corporate Governance Committee, the Board has nominated Julie A. Shimer, Ph.D. and Mr. H Michael Cohen for election to the Board as Class I Directors. If elected at the Annual Meeting, each of Julie A. Shimer, Ph.D. and Mr. H Michael Cohen would serve until the 2023 Annual Meeting of Stockholders and until his or her successor is elected and qualified or, if sooner, until his or her death, resignation or removal.
Our Bylaws provide for a majority voting standard for uncontested elections of directors. This standard states that in uncontested director elections, a director nominee will be elected only if the number of votes cast “For” the nominee exceeds the number of votes cast “Against” the nominee. Under our Bylaws, in the event an incumbent nominee does not receive a majority of the votes cast for the incumbent director’s re-election, the incumbent director is required to promptly tender his resignation to the Board. Our Nominating, Compliance and Corporate Governance Committee will then make a recommendation to the full Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. Our Board will then decide whether to accept or reject the resignation, taking into account the Nominating, Compliance and Corporate Governance Committee’s recommendation. The determination of our Board and the rationale behind the decision will be publicly disclosed (by a press release, a filing with the SEC or other broadly disseminated means of communication) within 90 days from the date of the certification of the election results of our Annual Meeting. If the incumbent director’s resignation is not accepted by our Board, the director will continue to serve until his successor is duly elected, or his earlier resignation or removal. If a director’s resignation is accepted by our Board, then our Board may fill any resulting vacancy or decrease the size of the Board.
Nominees
The Nominating, Compliance and Corporate Governance Committee recommends, and the Board nominated, the following individuals for election for a three-year (Class I) term expiring at the 2023 Annual Meeting of Stockholders:
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|
|
|
|
|
|
Nominees
|
|
Term in Office
|
|
Julie A. Shimer, Ph.D.
|
|
Class I - Continuing in Office Until the 2020 Annual Meeting of the Stockholders
|
|
H Michael Cohen
|
|
Class I - Continuing in Office Until the 2020 Annual Meeting of the Stockholders
|
The nominees have agreed to serve as directors if elected. We have no reason to believe that the nominees will be unable to serve. The section titled “Board of Directors” beginning on page 20 of this Proxy Statement contains the nominees’ biographies.
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|
þ
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE NAMED ABOVE.
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94
| 2020 Proxy Statement
The following directors will remain in office until the date specified below:
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|
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|
|
Current Directors
|
|
Class and Remaining Term in Office
|
|
Thomas Harkin
|
|
Class II - Continuing in Office Until the 2021 Annual Meeting of the Stockholders
|
|
Joe Kiani
|
|
Class II - Continuing in Office Until the 2021 Annual Meeting of the Stockholders
|
|
Adam Mikkelson
|
|
Class III - Continuing in Office Until the 2022 Annual Meeting of the Stockholders
|
|
Craig Reynolds
|
|
Class III - Continuing in Office Until the 2022 Annual Meeting of the Stockholders
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95
| 2020 Proxy Statement
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PROPOSAL:
|
|
TO RATIFY THE SELECTION OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JANUARY 2, 2021
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2
|
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|
The Audit Committee of our Board has selected Grant Thornton LLP (“Grant Thornton”) as our independent registered public accounting firm for the fiscal year ending January 2, 2021, and has further directed that management submit the selection of our independent registered public accounting firm for ratification by the stockholders at the Annual Meeting.
Grant Thornton was appointed as our independent registered public accounting firm in July 2006 and has reported on our consolidated financial statements for years 2005 through 2019. The decision to select Grant Thornton as our independent registered public accounting firm for fiscal year 2020 (ending January 2, 2021) was recommended by our Audit Committee and approved by our Board.
Representatives of Grant Thornton are expected to be present at the Annual Meeting. The representatives of Grant Thornton will be able to make a statement at the meeting if they wish and will be available to respond to appropriate questions.
Neither our Bylaws nor other governing documents or law require that our stockholders ratify the selection of Grant Thornton as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of Grant Thornton to the stockholders for ratification as a matter of good corporate practice. If our stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of different independent registered public accounting firms at any time during the year if it determines that such a change would be in the best interests of Masimo and our stockholders.
Although our stockholders are not required to ratify the selection of Grant Thornton as our independent registered public accounting firm, because we have submitted the ratification of our registered public accounting firm for approval by stockholders, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and voting at the Annual Meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) will be required to ratify the selection of Grant Thornton as our independent registered public accounting firm for the fiscal year ending January 2, 2021.
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þ
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JANUARY 2, 2021.
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96
| 2020 Proxy Statement
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PROPOSAL:
|
|
TO PROVIDE AN ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
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|
3
|
|
|
Our Board of Directors requests that our stockholders approve the compensation of our Named Executive Officers pursuant to Section 14A of the Exchange Act, as described in this Proxy Statement in the section titled “Compensation Discussion and Analysis” beginning on page 46, and the compensation tables beginning on page 71, and any related narrative discussion contained throughout this Proxy Statement. This vote is advisory and not binding on the Company, but the Board of Directors values the opinions of our stockholders and will consider the outcome of the vote in determining our executive compensation programs.
“Say-on-Pay Vote”
Our Board maintains a pay for performance philosophy that forms the foundation for all of the Compensation Committee’s decisions regarding executive compensation. In addition, our compensation programs are designed to facilitate strong corporate governance, foster collaboration and support our short and long-term strategy.
The Compensation Discussion and Analysis portion of this Proxy Statement contains a detailed description of our executive compensation philosophy and programs, including the compensation decisions the Compensation Committee has made under those programs and the factors considered in making those decisions. Our stockholders have affirmed their support of our programs in our outreach discussions and in the last several year’s Say on Pay results. We believe that we have created a compensation program deserving of stockholder support.
In light of the above, we believe that the compensation of our named executive officers for fiscal 2019 was appropriate and reasonable, as well as reflective of our performance for the year. Accordingly, the following resolution will be submitted for a stockholder vote at the Annual Meeting:
“RESOLVED, that the stockholders of Masimo Corporation approve, on an advisory basis, our named executive officer compensation for fiscal 2019, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, in this Proxy Statement.”
This stockholder vote on named executive officer compensation is merely advisory and will not be binding upon us, our Board or our Compensation Committee. The outcome of the vote will not require us, our Board or our Compensation Committee to take any action or overrule any decision by the Company, our Board or the Compensation Committee. However, our Board and Compensation Committee value the opinions of our stockholders and will consider the outcome of the vote when making future executive compensation decisions.
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|
þ
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS
DESCRIBED IN THIS PROXY STATEMENT.
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97
| 2020 Proxy Statement
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|
|
PROPOSAL:
|
|
TO APPROVE AN AMENDMENT TO OUR 2017 EQUITY INCENTIVE PLAN
|
|
|
4
|
|
|
We are asking our stockholders to approve an amendment to our 2017 Equity Incentive Plan (the “2017 Equity Plan”), to increase the number of shares authorized for issuance under the 2017 Equity Plan by an additional 2,500,000 shares, and to eliminate provisions that were included for the purpose of permitting awards to qualify for the performance-based compensation exemption under Section 162(m). Our continuing ability to offer equity incentive awards under the 2017 Equity Plan is critical to our ability to attract, motivate and retain qualified personnel in light of the highly competitive market for employee talent in which we operate.
Our Board has determined that it is in the best interests of the Company and its stockholders to approve this proposal. Our Board has approved the amendment to the 2017 Equity Plan, including the increase of the available shares thereunder and the elimination of provisions that were included for the purpose of permitting awards to qualify for the performance-based compensation exemption under Section 162(m), subject to stockholder approval, and recommends that stockholders vote in favor of this proposal. If our stockholders approve this proposal, the amendment to our 2017 Equity Plan will become effective as of the date of stockholder approval. If our stockholders do not approve this proposal, the amendment to our 2017 Equity Plan will not take effect and our 2017 Equity Plan will continue in its current form.
The remainder of this proposal, when referring to the 2017 Equity Plan, refers to the amended 2017 Equity Plan as if this proposal is approved by our stockholders, unless otherwise specified or the context otherwise references the 2017 Equity Plan prior to the amendment.
Background
The 2017 Equity Plan was initially adopted by the Board on March 17, 2017, and our stockholders approved it on June 1, 2017. The initial share reserve under the 2017 Equity Plan was 5,000,000 shares. In addition, if any award granted under the 2017 Equity Plan expires or becomes unexercisable without having been exercised in full, it is surrendered pursuant to an Exchange Program (as defined in the 2017 Equity Plan) approved by our stockholders or is forfeited to or repurchased by the Company, the unpurchased or forfeited or repurchased shares subject to such award will become available for future grant or issuance under the 2017 Equity Plan.
As of March 30, 2020, approximately 1,864,090 shares remained available for grant under the 2017 Equity Plan. The Board believes that additional Shares are necessary to meet our anticipated equity compensation needs. The proposed share increase is expected to last approximately two to three years. This estimate is based on a forecast that takes into account our anticipated rate of growth in hiring, an estimated range of our stock price over time, and our historical forfeiture rates, as well as the number of shares we have available for grant under the 2017 Equity Plan.
In addition, Section 162(m) disallows public companies a tax deduction for federal income tax purposes of compensation in excess of $1 million paid to their chief executive officer, the chief financial officer and three other most highly-compensated executive officers in any taxable year. The exemption from Section 162(m)’s deduction limit for performance-based compensation was repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered officers in excess of $1 million will generally not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. In light of this, the amended 2017 Equity Plan eliminates provisions that were included solely for the purpose of permitting awards to qualify for the performance-based compensation exemption under Section 162(m).
98
| 2020 Proxy Statement
Why Our Board Recommends That You Approve the Proposed Amendment
Equity Award is a Key Component of Our Compensation Program
As discussed in the “Compensation Discussion and Analysis” section, our compensation program is designed to attract and retain the most talented employees within our industry and motivate them to perform at the highest level while executing our long-term strategy. The Board believes that the future success of the Company depends on our ability to attract and retain the best available employees, directors and other service providers (collectively, “personnel”) and that the ability to grant equity awards is a necessary and powerful recruiting and retention tool for the Company. Our personnel are our most valuable assets. As discussed under “Compensation Discussion Analysis-Components of our Compensation Program” above, the Board believes that equity awards motivate high levels of performance, align the interests of our personnel and stockholders by giving our personnel an opportunity to hold an ownership stake in the Company, and provide an effective means of recognizing their contributions to the success of the Company.
Our 2017 Equity Plan Needs Additional Shares to Meet Our Demand
Over the last three fiscal years, we granted equity awards representing a total of 2.8 million shares. This level of share usage would deplete the proposed shares available under the 2017 Equity Plan by the end of 2022, although we cannot predict the level of future equity awards. We also intend for the share reserve to have a sufficient number of shares in the event that we hire senior level employees in the next few years, in order to be able to provide a competitive new hire package to recruit them to join us. We believe that the increased share reserve as described above will be sufficient to help us continue to achieve our goals of attracting, motivating and retaining new personnel, including senior level employees.
As competition for senior management, engineers and field sales personnel intensifies, we may not be able to attract and retain qualified personnel without adequate compensation. One alternative to using equity awards would be to significantly increase cash compensation. We do not believe this approach would be advisable. As a high-growth company, we believe that a combination of equity and cash compensation is better for attracting, retaining and motivating employees. Any significant increase in cash compensation in lieu of equity awards would reduce the cash otherwise available for operations and investment in our business. Furthermore, we do not believe a cash-oriented program would have the same long-term retention value or serve to align employees’ interests to those of our stockholders.
Our Equity Awards are Performance-Based
The aim of our executive compensation program is to tie the pay of our Named Executive Officers to both their own and the Company’s performance. In 2019, 75% of the equity awards granted to our Chief Executive Officer, and 52% of the equity awards granted to our other Named Executive Officers, were performance-based.
We Manage Our 2017 Equity Plan Thoughtfully
We manage our long-term stockholder dilution by limiting the number of equity awards granted to what we believe is an appropriate amount of equity necessary to attract, reward and retain employees. Our burn rate, which we define as the number of shares subject to equity awards granted in a fiscal year divided by the weighted average shares outstanding for that fiscal year, averaged 1.6% for fiscal years 2017 through 2019. See the chart below for our three-year burn rates.
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We Are Committed to Promote Good Compensation and Governance Practices
Our 2017 Equity Plan contains provisions that protect the interests of stockholders and are generally accepted to be “best practices.” Key features of the 2017 Equity Plan include:
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Administrator Independence. The 2017 Equity Plan will be administered by the Compensation Committee of the Board, which is comprised entirely of independent, non-employee directors (subject to the Compensation Committee’s discretion to make certain delegations of authority according to the terms of the 2017 Equity Plan).
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Broad-Based Eligibility for Equity Awards. We grant equity awards to a broad range of our employees. By doing so, we align employee interests with those of our stockholders. Approximately 36% of all outstanding equity awards, on a share basis, as of March 30, 2020 were held by employees who are not Named Executive Officers.
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No “Evergreen” Provision. The 2017 Equity Plan does not contain an annual “evergreen” provision that increases the number of shares available for issuance each year. The 2017 Equity Plan authorizes a fixed number of shares, so that stockholder approval is required to increase the maximum number of shares that may be issued subject to awards under the 2017 Equity Plan.
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No Repricing Without Stockholder Approval. Stock options and stock appreciation rights granted under the 2017 Equity Plan may not be repriced without stockholder approval of an “Exchange Program”.
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No Liberal Recycling of Shares. Shares used to pay the exercise price of an award, any shares withheld for taxes and any shares reacquired by us on the open market or otherwise using cash proceeds from the exercise of options will not be available again for grant under the 2017 Equity Plan. The 2017 Equity Plan share reserve will also be reduced by the full amount of shares exercised pursuant to stock appreciation rights, regardless of the actual number of shares issued under the award.
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Annual Limits on Awards. The 2017 Equity Plan includes a maximum number of shares subject to awards, and a maximum value of cash awards, that could be granted or payable in each fiscal year of the Company to any individual. The 2017 Equity Plan also includes a separate maximum number of shares subject to awards that could be granted in each fiscal year of the Company to non-employee members of the Board. These maximums were originally included in order to make awards that qualify for exemption from Section 162(m), but we have determined to retain them even though the exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed.
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Minimum Vesting. The 2017 Equity Plan includes the minimum vesting requirements described below under “Administration”, and does not provide for automatic vesting of outstanding equity awards based solely on the occurrence of a change in control unless awards are not assumed or substituted for in connection with the change in control.
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Cancellation and Recapture of Awards. The 2017 Equity Plan permits the Administrator to reduce, cancel and/or recoup awards granted under the 2017 Equity Plan upon the occurrence of certain events such as conduct by a participant that is detrimental to the business or reputation of the Company.
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Negative Discretion. The 2017 Equity Plan permits the Administrator to exercise negative discretion to reduce or eliminate the amount of the performance units, performance shares or performance bonuses earned by a participant if, in the Administrator’s sole discretion, such reduction or elimination is appropriate.
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Limited Transferability. In general, awards under the 2017 Equity Plan may not be sold, pledged, assigned, transferred or otherwise encumbered by the person to whom they are granted, other than by will or by the laws of descent or distribution, unless approved by the Administrator.
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Awards subject to Clawback. All awards are subject to the provisions of any clawback policy implemented by us, including, without limitation, any clawback policy adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.
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No Tax Gross-Ups. The 2017 Equity Plan does not provide for, or authorize, any tax gross-ups.
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No Discounted Stock Options or Stock Appreciation Rights. The 2017 Equity Plan generally prohibits the grant of options or stock appreciation rights with an exercise or base price less than 100% of the fair market value of our common stock on the date of grant.
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The 2017 Equity Plan is attached as Appendix C to this Proxy Statement. The following summary of the 2017 Equity Plan does not contain all of the terms and conditions of the 2017 Equity Plan, and is qualified in its entirety by reference to the 2017 Equity Plan. You should refer to Appendix C for the full terms and conditions of the 2017 Equity Plan.
Summary of the 2017 Equity Plan
General
The purposes of the 2017 Equity Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, Board members and consultants, and to promote the success of our business. These incentives are provided through the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares, performance bonus awards and other stock or cash awards as the Administrator determines.
Authorized Shares
Subject to the adjustment provisions in the 2017 Equity Plan, the 2017 Equity Plan will consist of 7,500,000 total authorized shares of our common stock after giving effect to the 2,500,000 share increase in the number of shares authorized for issuance under this proposal.The shares available for issuance under the 2017 Equity Plan may be authorized, but unissued, or reacquired common stock of the Company.
If any award granted under the 2017 Equity Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an Exchange Program approved by our stockholders or is forfeited to or repurchased by the Company, the unpurchased or forfeited or repurchased shares subject to such award will become available for future grant or issuance under the 2017 Equity Plan. With respect to stock appreciation rights, all of the shares of common stock covered by the award (that is, shares actually issued pursuant to a stock appreciation right, as well as the shares that represent payment of the exercise price) will cease to be available under the 2017 Equity Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholding obligations of an award will not become available for future grant or issuance under the 2017 Equity Plan. Payment of cash rather than shares pursuant to an award will not reduce the number of shares available for issuance under the 2017 Equity Plan. Subject to the adjustment provisions of the 2017 Equity Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options is the total number of shares reserved for issuance as described above plus, to the extent permitted by the incentive stock option rules, the number of shares that become available for issuance under the 2017 Equity Plan, as set forth in this paragraph.
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Individual Award Limitations
The maximum number of shares of our common stock and/or dollars that may be granted or issued under the 2017 Equity Plan to any one individual (other than a non-employee director) during a fiscal year of the Company is as follows: (i) the maximum number of shares subject to stock-based awards other than stock options and stock appreciation rights granted to any one individual shall not exceed 3,000,000 shares (subject to adjustment for recapitalizations, stock splits, reorganizations, reclassifications and other events, as set forth in the 2017 Equity Plan), (ii) the maximum number of shares subject to awards that are stock-based awards in the form of stock options and stock appreciation rights shall not exceed 3,000,000 shares (subject to adjustment for recapitalizations, stock splits, reorganizations, reclassifications and other events, as set forth in the 2017 Equity Plan), and (iii) the maximum amount of cash or cash payments that may be received by any one individual shall not exceed $3,000,000.
Non-employee Director Award Limitations
The 2017 Equity Plan provides that the total compensation payable to a non-employee director in any fiscal year, other than such non-employee director’s first year of service as a non-employee director, for service as a non-employee director will be limited to $400,000, with the compensation resulting from awards determined based on the grant date fair value of such awards. A non-employee director may receive up to an additional $3,000,000 in compensation during his or her first year of service as a non-employee director.
Administration
The 2017 Equity Plan will be administered by the Administrator, which refers collectively to the Board and any committee (or committees) of the Board that is comprised of individuals that satisfy the requirements of applicable laws. To make grants to certain officers and key employees intended to be an exempt transaction under Rule 16b-3 of the Securities Exchange Act of 1934, as amended (“Rule 16b-3”), the members of the committee must qualify as “non-employee directors” under Rule 16b-3. The Administrator may delegate day-to-day administration of the 2017 Equity Plan, and any of the functions assigned to it, to one or more individuals.
Subject to the terms of the 2017 Equity Plan, among other things, the Administrator has the power and the sole discretion to determine the fair market value of a share of the Company’s common stock for purposes of the 2017 Equity Plan, to select the employees, consultants and directors who will receive awards, to determine the terms and conditions of awards (including 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 of common stock relating thereto), to modify or amend an award subject to the restrictions of the 2017 Equity Plan, and to interpret the provisions of the 2017 Equity Plan and outstanding awards. The Administrator may allow a participant to defer the receipt of payment of cash or delivery of shares under an award. The Administrator may approve award agreements for use under the 2017 Equity Plan and make rules and regulations, including rules and regulations relating to sub-plans established for the purpose of satisfying foreign laws (or qualifying for favorable tax treatment under them). The Administrator also may institute and determine the terms and conditions of an exchange program (with the prior consent of our stockholders). The Administrator may make all other determinations deemed necessary or advisable for administering the 2017 Equity Plan. The Administrator’s determinations will be final and binding on all participants and holders of awards and will be given the maximum deference permitted by law. The 2017 Equity Plan is governed by Delaware law and includes provisions designed to expedite the assertion and resolution of claims, as well as to assure compliance with applicable data privacy laws.
The 2017 Equity Plan provides that awards granted under the 2017 Equity Plan to service providers in their capacities as employees must generally vest over a period of not less than one year following the date of grant; however, awards that result in the issuance of an aggregate of up to 5% of the shares available under the 2017 Equity Plan may be granted to any one or more of our service providers without respect to such minimum vesting provisions.
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No Repricings Without Stockholder Approval
The Administrator may not implement any Exchange Program whereby the exercise prices of outstanding awards may be increased or reduced, outstanding awards may be surrendered or cancelled in exchange for cash or awards with a higher or lower exercise price, or outstanding awards may be transferred to a financial institution or other person or entity selected by the Administrator, unless it is approved by our stockholders.
Eligibility
Awards may be granted to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. However, incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary of the Company. As of March 30, 2020, there were approximately 1,800 employees (including eight executive officers), 200 consultants/contractors and 7 non-employee directors who were eligible to receive awards under the 2017 Equity Plan.
Options
Each option is evidenced by a stock option agreement that specifies the exercise price, the term of the option, forms of consideration for exercise and such other terms and conditions as the Administrator determines. The exercise price per share of each option granted under the 2017 Equity Plan may not be less than the fair market value of a share of our common stock on the date of grant, and an incentive stock option granted to a person who at the time of grant owns stock of the Company representing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company (a “Ten Percent Stockholder”) must have an exercise price per share equal to at least 110% of the fair market value of a share on the date of grant. Generally, the fair market value of our common stock is the closing price of our common stock on the Nasdaq Global Select Market on the relevant date.
Options will be exercisable at such times and under such conditions as are determined by the Administrator and as set forth in the applicable award agreement. An option is deemed exercised when the Company receives notice of exercise and full payment for the shares to be exercised, together with applicable tax withholdings. Until shares subject to an option are issued, the participant will have no rights to vote or receive dividends or any other rights as a stockholder with respect to such shares. The maximum term of an option will be specified in the award agreement; however, an incentive stock option granted to a Ten Percent Stockholder must have a term not exceeding five years.
Restricted Stock
Awards of restricted stock are rights to receive or purchase shares, which vest in accordance with the terms and conditions established by the Administrator in its sole discretion. Each restricted stock award granted will be evidenced by an award agreement specifying the number of shares subject to the award, any period of restriction and other terms and conditions of the award, as determined by the Administrator.
Restricted stock awards may (but are not required to) be subject to vesting conditions, as the Administrator specifies, and the shares acquired may not be transferred by the participant until the vesting conditions (if any) are satisfied. During any period of restriction, the participant has full voting rights and will be entitled to receive dividends and other distributions with respect to the shares subject to the restricted stock unless the Administrator determines otherwise. Such dividends and other distributions, if any, will be subject to the same restrictions as the shares of restricted stock on which they were paid. The Administrator, in its sole discretion, may reduce or waive any vesting criteria or accelerate the time at which any restrictions will lapse or be removed. Unless otherwise provided by the Administrator, a participant will forfeit any shares of restricted stock as to which the restrictions have not lapsed prior to the participant’s termination of service.
Restricted Stock Units
Restricted stock units represent a right to receive shares at a future date as set forth in the participant’s award agreement. Each restricted stock unit granted under the 2017 Equity Plan will be evidenced by an award agreement that specifies the number of restricted stock units subject to the award, vesting criteria, the form of payout and other terms and conditions of the award, as determined by the Administrator.
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Restricted stock units will result in a payment to a participant only if the performance goals or other vesting criteria the Administrator may establish are achieved or the awards otherwise vest. Earned restricted stock units will be settled, in the sole discretion of the Administrator, in the form of cash, shares or in a combination of cash and shares. The Administrator may establish vesting criteria in its discretion, which may be 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, which may include the performance goals listed below, and, depending on the extent to which the vesting criteria are met, will determine the number of restricted stock units to be paid out to participants.
After the grant of a restricted stock unit award, 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. A participant will forfeit any unearned shares subject to restricted stock units as of the date set forth in the award agreement.
Stock Appreciation Rights
A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of the shares underlying the award between the date of grant and the date of exercise. Upon exercise of a stock appreciation right, the holder of the award will be entitled to receive 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 by (ii) the number of exercised shares. We may pay the amount of the appreciation in cash, in shares or in some combination of cash and shares.
Each stock appreciation right granted under the 2017 Equity Plan will be evidenced by an award agreement specifying the exercise price and the other terms and conditions of the award, as determined by the Administrator. The exercise price per share of each stock appreciation right may not be less than the fair market value of a share on the date of grant. The term of a stock appreciation right will be no more than ten years from the date of grant.
Performance Units, Performance Shares and Performance Bonus Awards
Performance units, performance shares and performance bonus awards are awards that will result in a payment to a participant if specified performance goals are achieved during a specified performance period. Each performance unit will have an initial value determined 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.
Each award of performance units, performance shares or performance bonus awards granted under the 2017 Equity Plan will be evidenced by an award agreement specifying the number of performance units or shares or the amount of the performance bonus award (as applicable), the vesting conditions (as applicable), the performance period and other terms and conditions of the award, as determined by the Administrator. 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. Earned performance units and performance shares will be paid, in the sole discretion of the Administrator, in the form of cash, shares or in a combination of cash and shares. Earned performance bonus awards will be paid in cash.
The Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units, shares or bonus awards and accelerate the time at which any restrictions will lapse or be removed. In addition, the Administrator may reduce or eliminate the amount of the performance units, performance shares or performance bonus award earned by a participant through the use of negative discretion if, in the Administrator’s sole discretion, such reduction or elimination is appropriate. A participant will forfeit any performance units, performance shares or performance bonus awards that are unearned or unvested as of the date set forth in the award agreement.
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Dividend Equivalents
A dividend equivalent is a credit payable in cash or shares, as determined by the Administrator, to the account of a participant in an amount equal to the cash dividends paid on shares subject to an award other than restricted stock or unexercised stock appreciation rights. The Administrator, in its sole discretion, may provide in the participant’s award agreement that the participant will be entitled to receive dividend equivalents on shares subject to an award having a record date prior to the date on which the shares are settled or forfeited. The Administrator will determine the terms and conditions of any dividend equivalents credited to an award under the 2017 Equity Plan. In the event of a dividend or distribution paid in shares or any other adjustment made upon a change in the capital structure of the Company, appropriate adjustments will be made to a participant’s award so that it represents the right to receive, upon settlement, any new, substituted or additional securities or other property (other than normal cash dividends) to which the participant would be entitled by reason of the shares issuable upon settlement of the award and any new, substituted or additional securities or other property will be subject to the same vesting conditions as are applicable to the award. Dividend equivalents are subject to the same individual award limitations (described below) that apply to awards of restricted stock units, performance shares, performance units or performance bonus awards, to which the dividend equivalents relate.
Other Awards
The 2017 Equity Plan permits the Administrator to grant other stock or cash awards under the 2017 Equity Plan subject to the terms and conditions determined by the Administrator.
Adjustments Upon Certain Events
In the event of any dividend or other distribution (whether in the form of cash, shares, other securities or other property, but excepting normal cash dividends), recapitalization, stock split, reverse stock split, reorganization, reincorporation, reclassification, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares or other securities of the Company, or other change in the corporate structure affecting the Company’s common stock occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2017 Equity Plan, will adjust the number and class of shares that may be delivered under the 2017 Equity Plan, and/or the number, class and price of shares of stock subject to outstanding awards, and the individual award limitations (as described above).
Performance Goals
The Administrator (in its discretion) may make performance goals applicable to an award recipient with respect to any award granted in its discretion, including but not limited to one or more of the performance goals listed below. Prior to the implementation of the Tax Cuts and Jobs Act that was signed into law on December 22, 2017, if the Administrator desired that an award of restricted stock, restricted stock units, performance shares, performance units or performance bonus awards under the 2017 Equity Plan qualify as performance-based compensation under Section 162(m), then the award had to satisfy certain procedural requirements and be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) and could provide for a targeted level or levels of achievement, including one or more of the following measures: research and development milestones; business divestitures and acquisitions; cash flow; cash position and cash equivalents; collaboration arrangements; collaboration progression; credit rating; customer service; earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings); earnings per share; economic value added; employee retention; employee satisfaction; expenses, including expense reduction; financing events; gross margin; growth with respect to any of the foregoing measures; growth in bookings; growth in revenues; growth in stockholder value relative to the moving average of the S&P 500 Index or another index; internal rate of return; inventory balance; inventory turnover ratio; market share; net income; net profit; net sales; new product development; new product invention or innovation; number of customers; operating cash flow; operating expenses; operating income; operating margin; pre-tax profit; product approvals; product sales; productivity; projects in development; regulatory filings and/or approvals; return on assets; return on capital; return on stockholder equity; return on investment; return on sales; revenue (which may include product, royalty, licensing, total and/or other revenue); revenue growth; sales growth; sales results; stock price;
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strategic transactions; time to market; total stockholder return; ratio of debt to debt plus equity; ratio of operating earnings to capital spending; working capital; and objective operating goals, objective employee metrics, and other objective financial or other metrics relating to the progress of the Company or to a subsidiary, division or department thereof. The performance goals may differ from participant to participant and from award to award. Any criteria used may be measured (as applicable), in absolute terms, in combination with another performance goal or goals, in relative terms, on a per-share or per-capita basis, against the performance of the Company as a whole or a segment of the Company and/or on a pre-tax or after-tax basis. As a result of the implementation of the Tax Cuts and Jobs Act, we are not able to take a deduction for any compensation in excess of $1 million that is paid to a covered officer. Accordingly, awards granted under the 2017 Equity Plan and subject to achievement of performance goals do not need to comply with the conditions described herein pursuant to Section 162(m) and may be subject to the performance goals applicable listed above as well as any additional measures or metrics deemed appropriate by the Administrator. The performance goals applicable to awards may differ from participant to participant and from award to award. The Administrator, in its discretion, determines whether and the extent to which any performance goals are or are not satisfied and to which awards subject to performance goals are earned or settled, including whether any significant elements or items shall be included in or excluded from the calculation of any performance goals with respect to any awards or participants.
Transferability of Awards
Unless the Administrator determines otherwise, awards granted under the 2017 Equity Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, and awards may be exercised, during the lifetime of the participant, only by the participant.
Change in Control
In the event of a merger or “change in control” of the Company (as defined in the 2017 Equity Plan), the Administrator will have authority to determine the treatment of outstanding awards, including, without limitation, that outstanding awards be continued by the Company (if the Company is a surviving corporation) or awards be assumed or substituted by the successor corporation or a parent or subsidiary of the successor corporation. The Administrator will not be required to treat all outstanding awards similarly.
If the successor corporation does not assume or substitute outstanding awards, options and stock appreciation rights will become fully vested and exercisable, all restrictions on restricted stock and restricted stock units will lapse and, with respect to awards with performance-based vesting, unless determined otherwise by the Administrator, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed 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 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.
If the successor corporation assumes or substitutes outstanding awards held by a non-employee director and the non-employee director’s status as a director of the Company or a director of the successor company terminates other than upon voluntary resignation by the non-employee director (unless such resignation is at the request of the acquirer), then his or her options and stock appreciation rights will fully vest and become immediately exercisable, all restrictions on restricted stock and restricted stock units held by such non-employee director will lapse, and all performance goals or other vesting requirements will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met.
Dissolution or Liquidation
In the event of the Company’s proposed dissolution or liquidation, the Administrator will notify each participant as soon as practicable prior to the effective date of such proposed transaction. An award will terminate immediately prior to consummation of such proposed transaction to the extent the award has not been previously exercised (in the case of stock options and stock appreciation rights) or has not been settled through an issuance of shares or a cash payment to the participant (in the case of other awards).
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Forfeiture of Awards
The Administrator may provide in an award agreement that an award granted under the 2017 Equity Plan is subject to reduction, cancellation, forfeiture or recoupment upon certain specified events, such as (without limitation) fraud, breach of a fiduciary duty, restatement of financial statements as a result of fraud or willful errors or omissions, termination of employment for cause, violation of material policies of the Company and/or a subsidiary of the Company, breach of non-competition, confidentiality or other restrictive covenants that may apply to the participant, or other conduct by the participant that is detrimental to the business or reputation of the Company and/or its subsidiaries. The Administrator may also require awards granted under the 2017 Equity Plan to be reduced, cancelled, forfeited or subject to recoupment to the extent required by applicable laws.
Duration, Amendment and Termination
The 2017 Equity Plan will automatically terminate ten years from the date of its initial approval by our stockholders, unless terminated at an earlier time by the Administrator. The Administrator may terminate, amend or suspend the 2017 Equity Plan at any time; however, the 2017 Equity Plan requires the Company to obtain stockholder approval for any amendment to the extent necessary and desirable to comply with applicable laws. No termination or amendment may materially impair the rights of any participant unless either mutually agreed otherwise between the participant and the Administrator or for limited other reasons as set forth in the 2017 Equity Plan.
Summary of U.S. Federal Income Tax Consequences
The following paragraphs are intended as a summary of the U.S. federal income tax consequences to U.S. taxpayers and the Company of equity awards granted under the 2017 Equity Plan. This summary does not attempt to describe all possible federal or other tax consequences of such grants or tax consequences based on particular circumstances. In addition, it does not describe any state, local or non-U.S. tax consequences. Tax consequences for any particular individual may be different.
Incentive Stock Options
A participant recognizes no taxable income as the result of the grant of an incentive stock option that qualifies under Section 422 of the Code, nor as the result of its exercise (unless the participant is subject to the alternative minimum tax). If the participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two-year or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option.
Nonstatutory Stock Options
A participant generally recognizes no taxable income on the date of grant of a nonstatutory stock option with an exercise price equal to the fair market value of the underlying stock on the date of grant. Upon the exercise of a nonstatutory stock option, the participant generally will recognize ordinary income equal to the excess of the fair market value of the shares on the exercise date over the exercise price of the option. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any subsequent gain or loss, generally based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss.
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Stock Appreciation Rights
A participant generally recognizes no taxable income on the date of grant of a stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the date of grant. Upon exercise of the stock appreciation right, the participant generally will be required to include as ordinary income an amount equal to the sum of the amount of any cash received and the fair market value of any shares received upon the exercise. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of the shares would be treated as long-term or short-term capital gain or loss, depending on the holding period.
Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Performance Bonus Awards and Other Stock-based Awards
A participant generally will not have taxable income at the time an award of restricted stock, restricted stock units, performance shares, performance unit or other stock-based award is granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. However, the recipient of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value of the shares underlying the award (less any cash paid for the shares) on the date the award is granted. A participant generally will not have taxable income at the time a performance bonus award is granted. Instead, he or she will recognize ordinary income in the first taxable year in which the performance bonus award is paid to the participant.
Section 409A of the Code
Section 409A of the Code (“Section 409A”) provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 2017 Equity Plan with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with the provisions of Section 409A, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
Tax Effect for the Company
We generally will be entitled to a tax deduction in connection with an award under the 2017 Equity Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option).
Section 162(m) limits a publicly traded company’s federal income tax deduction for compensation in excess of $1 million paid to its Named Executive Officers. Prior to the Tax Cuts and Jobs Act, compensation that satisfied conditions set forth under Section 162(m) to qualify as “performance-based compensation” was not subject to the limitation, and the limitation did not apply to compensation paid to the Chief Financial Officer. The Tax Cuts and Jobs Act eliminated the performance-based compensation exception beginning January 1, 2018, but provided a transition rule with respect to compensation which is provided pursuant to a written binding contract that was in effect on November 2, 2017 and that was not materially modified after that date. With the elimination of the exemption for performance-based compensation, we expect that we will be unable to deduct all compensation in excess of $1 million paid to our Named Executive Officers, other than previously granted awards that are subject to and comply with the transition rules, and therefore the 2017 Equity Plan no longer includes provisions that were included for the purpose of permitting awards to qualify for the performance-based compensation exemption under Section 162(m).
108
| 2020 Proxy Statement
Number of Awards Granted to Employees, Directors and Consultants
The number of awards that an employee, Board member or consultant may receive under the 2017 Equity Plan is in the discretion of the Administrator and therefore cannot be determined in advance. For illustrative purposes only, the following table sets forth (i) the aggregate number of shares subject to options granted under the 2017 Equity Plan during the last fiscal year to our named executive officers, to all current executive officers, as a group, to all directors who are not executive officers, as a group, and to all employees who are not executive officers, as a group, (ii) the average per share exercise price of such options, (iii) the aggregate number of shares subject to awards of restricted share units and performance share units granted under the 2017 Equity Plan during the last fiscal year to our named executive officers, to all executive officers, as a group, to all directors who are not executive officers, as a group, and to all employees who are not executive officers, as a group, and (iv) the dollar value of such restricted share and performance share unit awards based on $159.49 per share, which was the closing price per share of our common stock on the Nasdaq Global Select Market on December 27, 2019, the last trading day of our 2019 fiscal year.
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Name of Individual or Group and Position
|
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Number of Shares
Subject to Options (#)
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|
Average Per Share
Exercise Price ($)
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Number of Shares
Subject to Restricted Stock Units
and Performance Share Units (#)
|
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Dollar Value of Shares
Subject to Restricted Stock Units ($)(1)
and Performance Share Units ($)(2)
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Joe Kiani, Chief Executive Officer & Chairman
|
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72,355
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$
|
133.50
|
|
|
67,415
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|
|
$
|
10,752,018
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Micah Young, Executive Vice President, Chief Financial Officer
|
|
7,235
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|
|
133.50
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|
|
6,741
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|
|
1,075,122
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Bilal Muhsin, Chief Operating Officer
|
|
57,235
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|
|
136.87
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|
|
6,741
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|
|
1,075,122
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|
Tom McClenahan, Executive Vice President, General Counsel & Corporate Secretary
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|
7,235
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|
|
133.50
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|
|
6,741
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|
|
1,075,122
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|
Anand Sampath, Executive Vice President, Operations & Clinical Research
|
|
7,235
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|
|
133.50
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|
|
6,741
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|
|
1,075,122
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All current executive officers, as a group (8 persons)
|
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173,000
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|
|
134.25
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|
|
114,602
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18,277,873
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All directors who are not executive officers, as a group
|
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—
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|
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—
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|
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9,128
|
|
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1,455,825
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All employees who are not executive officers, as a group
|
|
371,441
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|
|
139.43
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|
|
99,549
|
|
|
15,877,070
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|
______________________
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(1)
|
For RSUs, amounts reflect the fair value of the award as of the last day of fiscal year 2019. Actual payout value will depend on the market value of our common stock on a date in the future when an award vests.
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(2)
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For PSUs, amounts reflect the fair value of the award as of the grant date assuming achievement of the “target” performance achievement level. Regardless of the value on the grant date, the actual value will depend on the market value of our common stock on a date in the future when an award vests or stock option is exercised. As described below, the PSUs earned will range from 50% - 200% of target based on the achievement of performance goals, which vests in the form of shares of our common stock following the conclusion of the performance period.
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þ
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO OUR 2017 EQUITY INCENTIVE PLAN.
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109
| 2020 Proxy Statement
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PROPOSAL:
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TO APPROVE AN AMENDMENT TO OUR EXECTUIVE BONUS INCENTIVE PLAN
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5
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We are asking our stockholders to approve an amendment to the Masimo Corporation Executive Bonus Incentive Plan (the “Bonus Plan”) to eliminate provisions that were included for the purpose of permitting awards granted pursuant thereto to qualify for the performance-based compensation exemption under Section 162(m).
Our Board has determined that it is in the best interests of the Company and its stockholders to approve this proposal. Our Board has approved the amendment to the Bonus Plan to eliminate provisions that were included for the purpose of permitting awards to qualify for the performance-based compensation exemption under Section 162(m), subject to stockholder approval, and recommends that stockholders vote in favor of this proposal. If our stockholders approve this proposal, the amendment to our Bonus Plan will become effective as of the date of stockholder approval. If our stockholders do not approve this proposal, the amendment to our Bonus Plan will not take effect and our Bonus Plan will continue in its current form.
The remainder of this proposal, when referring to the Bonus Plan, refers to the amended Bonus Plan as if this proposal is approved by our stockholders, unless otherwise specified or the context otherwise references the Bonus Plan prior to the amendment.
Background
The Bonus Plan was initially adopted by our Compensation Committee on March 17, 2017, and our stockholders approved it on June 1, 2017. Section 162(m) disallows public companies a tax deduction for federal income tax purposes of compensation in excess of $1 million paid to their chief executive officer, the chief financial officer and three other most highly-compensated executive officers in any taxable year. The exemption from Section 162(m)’s deduction limit for performance-based compensation was repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered officers in excess of $1 million will generally not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. In light of this, the amended Bonus Plan eliminates provisions that were included solely for the purpose of permitting awards granted pursuant to the Bonus Plan to qualify for the performance-based compensation exemption under Section 162(m).
Why Our Board Recommends That You Approve the Proposed Amendment
Our Board has approved the amendment to the Bonus Plan to eliminate provisions that were included solely for the purpose of permitting awards to qualify for the performance-based compensation exemption under Section 162(m). As noted above, compensation paid to our executive officers pursuant to the Bonus Plan will no longer qualify for the exemption under Section 162(m) and therefore the provisions proposed to be eliminated are no longer relevant, applicable or necessary under the Bonus Plan. In any event, all of the Bonus Plan awards proposed for fiscal year 2020 (as described under “Awards Granted to Certain Individuals and Groups” below) will be effective regardless of whether our stockholders approve the amendment to the Bonus Plan as the amendment does not have any impact on such awards.
Summary of the Executive Bonus Incentive Plan
The Bonus Plan is attached as Appendix D to this Proxy Statement. The following summary of the Bonus Plan does not contain all of the terms and conditions of the Bonus Plan, and is qualified in its entirety by reference to the Bonus Plan. You should refer to Appendix D for the full terms and conditions of the Bonus Plan.
110
| 2020 Proxy Statement
Purpose
The purpose of the Bonus Plan is to motivate key executives to perform to the best of their abilities and to achieve the Company’s objectives. The Bonus Plan accomplishes this by paying awards under the Bonus Plan only after the achievement of the specified goals. As described above, only bonus awards payable pursuant to a written binding contract that was in effect on November 2, 2017, and is not materially modified after that date will potentially be deductible to us under the “performance-based” compensation exception to Section 162(m).
Eligibility to Participate; Performance Period
The Bonus Plan is and will be administered by our Compensation Committee or such other committee designated by our Board. Our Compensation Committee initially selects the length of the performance period (which may not be less than one fiscal year), and which of our employees (and employees of our affiliates) are and will be eligible to receive awards under the Bonus Plan. Special plan provisions allow for participation by newly-hired employees and separately address promotions, transfers and changes in status. The actual number of employees who will be eligible to receive an award during any particular year cannot be determined in advance because our Compensation Committee has discretion to select the participants. However, it is currently expected that between one and ten individuals will participate in the Bonus Plan in any performance period. As of March 30, 2020, there were eight individuals participating in the Bonus Plan for fiscal 2020.
Target Awards and Performance Goals
For each performance period associated with Bonus Plan awards, our Compensation Committee assigns each participant a threshold, target, and/or maximum award, and the performance goal or goals that must be achieved before an award actually will be paid to the participant. The participant’s threshold, target, and maximum award levels may or may not be expressed as a percentage of his or her base salary. The performance goals require the achievement of objectives for one or more of the following measures: research and development milestones; business divestitures and acquisitions; cash flow; cash position and cash equivalents; collaboration arrangements; collaboration progression; credit rating; customer service; earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings); net income per diluted share; economic value added; employee retention; employee satisfaction; expenses, including expense reduction; financing events; gross margin; growth with respect to any of the foregoing measures; growth in bookings; growth in revenues; growth in stockholder value relative to the moving average of the S&P 500 Index or another index; internal rate of return; inventory balance; inventory turnover ratio; market share; net income; net profit; net sales; new product development; new product invention or innovation; number of customers; operating cash flow; operating expenses; operating income; operating margin; pre-tax profit; product approvals; product sales; productivity; projects in development; regulatory filings and/or approvals; return on assets; return on capital; return on stockholder equity; return on investment; return on sales; revenue (which may include product, royalty, licensing, total and/or other revenue); revenue or sales growth or objectives (including for a specific product or products); sales results; stock price; strategic transactions; time to market; total stockholder return; ratio of debt to debt plus equity; ratio of operating earnings to capital spending; working capital; and objective operating goals, objective employee metrics, and other objective financial or other metrics relating to the progress of the Company or to any of its subsidiaries, divisions or departments.
Our Compensation Committee will determine whether any significant element(s) will be included in or excluded from the calculation of any performance goal with respect to any participant. The performance goals may differ from participant to participant and from award to award, may be used alone or in combination, may be used to measure our performance as a whole or the performance of one of our business units, and may be measured relative to a peer group or index.
111
| 2020 Proxy Statement
Actual Awards
After the performance period ends, our Compensation Committee approves the extent to which the pre-established performance goals actually were achieved or exceeded. The actual award that is payable to a participant is determined using a formula that increases or decreases the participant’s target award based on the level of actual performance attained. However, the Bonus Plan limits actual awards to a maximum of $5 million per participant in any fiscal year, even if the formula otherwise indicates a larger award. If there are multiple performance periods ending in the same fiscal year, the aggregate amount paid with respect to all performance periods occurring within that fiscal year cannot exceed the maximum specified in the previous sentence.
Actual awards are paid in cash as soon as administratively practicable, but no later than the dates set forth in the Bonus Plan. Under certain circumstances, our Compensation Committee has discretion to pay out all or part of an award if a participant terminates employment or in the event of a change of control of the Company. In addition, our Compensation Committee has the authority under the Bonus Plan to reserve to itself the discretion to pay bonuses in installments subject to vesting conditions, as well as pay less, but not more, than the amount otherwise payable pursuant to the performance formula that determines actual awards.
Forfeiture of Awards
Our Compensation Committee may provide in an award agreement that an award granted under the Bonus Plan is subject to reduction, cancellation, forfeiture or recoupment upon certain specified events, such as (without limitation) fraud, breach of a fiduciary duty, restatement of financial statements as a result of fraud or willful errors or omissions, termination of employment for cause, violation of material policies of the Company and/or a subsidiary of the Company, breach of non-competition, confidentiality or other restrictive covenants that may apply to the participant, or other conduct by the participant that is detrimental to the business or reputation of the Company and/or its subsidiaries. Our Compensation Committee may also require awards granted under the Bonus Plan to be reduced, cancelled, forfeited or subject to recoupment to the extent required by applicable laws.
Administration, Amendment and Termination
Our Compensation Committee administers the Bonus Plan. Members of our Compensation Committee must qualify as non-employee directors as defined in Rule 16b-3. Subject to the terms of the Bonus Plan, our Compensation Committee has sole discretion to:
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•
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determine the length of performance periods;
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•
|
select the employees who will receive awards;
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•
|
determine the target award for each participant;
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•
|
determine the performance goals that must be achieved before any actual awards are paid;
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•
|
determine a formula to determine the actual award (if any) payable to each participant; and
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•
|
interpret the provisions of the Bonus Plan.
|
The Bonus Plan designates Delaware law as controlling and includes provisions designed to expedite the assertion and resolution of claims, as well as to assure compliance with applicable data privacy laws. The Board or our Compensation Committee may amend or terminate the Bonus Plan at any time and for any reason. The amendment or termination of the Bonus Plan will not, without the consent of the participants, materially alter or impair any rights or obligations under any awards granted under the Bonus Plan (except to the extent necessary to conform with Section 409A of the Code or applicable laws).
Federal Income Tax Consequences
Under present federal income tax law, participants will recognize ordinary income equal to the amount of the award received in the year of receipt. That income will be subject to applicable income and employment tax withholding by the Company. If and to the extent that the Bonus Plan payments satisfy the requirements of the transition relief rule under Section 162(m) and otherwise satisfy the requirements for deductibility under federal income tax law, we will receive a deduction for the amount constituting ordinary income to the participant.
112
| 2020 Proxy Statement
Awards Granted to Certain Individuals and Groups
The following table sets forth certain information regarding performance-based cash incentives awarded in March 2020 for each of the named executive officers, and for all current executive officers as a group. The awards are for performance for fiscal 2020 and are shown as a percentage of the participant’s base salary in effect as of March 12, 2020, the date of grant of the award.
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Threshold
Level
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Plan
|
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Target
|
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Above Target
|
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Maximum
|
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Named Executive Officer or Group
|
|
%
|
Amount
|
|
%
|
Amount
|
|
%
|
Amount
|
|
%
|
Amount
|
|
%
|
Amount
|
|
Joe Kiani
|
|
0
|
0
|
|
100%
|
$ 1,125,510
|
|
|
100%
|
$ 1,125,510
|
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|
150%
|
$ 1,688,265
|
|
|
200%
|
$ 2,251,020
|
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|
Micah Young
|
|
0
|
0
|
|
50
|
214,803
|
|
|
50
|
214,803
|
|
|
75
|
322,204
|
|
|
100
|
429,605
|
|
|
Bilal Muhsin
|
|
0
|
0
|
|
50
|
275,000
|
|
|
50
|
275,000
|
|
|
75
|
412,500
|
|
|
100
|
550,000
|
|
|
Tom McClenahan
|
|
0
|
0
|
|
50
|
213,847
|
|
|
50
|
213,847
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|
|
75
|
320,771
|
|
|
100
|
427,694
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|
|
Anand Sampath
|
|
0
|
0
|
|
50
|
229,473
|
|
|
50
|
229,473
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|
|
75
|
344,210
|
|
|
100
|
458,946
|
|
|
All of our current executive officers as a group (8 persons)
|
|
0
|
0
|
|
64
|
2,644,879
|
|
|
64
|
2,644,879
|
|
|
95
|
3,967,319
|
|
|
127
|
5,289,758
|
|
______________
|
|
|
|
(1)
|
Based on the participant’s base salary in effect as of March 12, 2020, the date of grant of the award. The base salary used for purposes of calculating bonuses payable under the Bonus Plan for fiscal 2020 is expected to be greater than the base salary in effect as of March 12, 2020.
|
Each of the awards covered in the table above was determined according to a formula based on our adjusted product revenues and adjusted non-GAAP operating margin for fiscal 2020, as adjusted in accordance with the Bonus Plan. The annual cash bonus, if any, based on these two performance measures for 2020 will be paid in early 2021. All of the Bonus Plan awards described above will be effective regardless of whether our stockholders approve the amendment to the Bonus Plan as the amendment does not have any impact on such awards.
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|
þ
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO OUR EXECUTIVE BONUS INCENTIVE PLAN.
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113
| 2020 Proxy Statement
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TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
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RELATED PERSON TRANSACTIONS POLICY AND PROCEDURES
|
We adopted a written Related Person Transactions Policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of transactions with related persons. For purposes of our policy only, a “related person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we (including any of our subsidiaries) and any “related person” were, are or will be participants involving an amount that exceeds $120,000. For purposes of the policy, a related person is:
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•
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any person who is or was a director or executive of ours since the beginning of our immediately preceding fiscal year or an immediate family member of, or person sharing a household with, any of the foregoing individuals;
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•
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any person known by us to be the beneficial owner of more than five percent of any class of our outstanding voting securities or, if the beneficial owner is an individual, an immediate family member of, or person sharing a household with, any of the foregoing individuals; and
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•
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any firm, corporation or other entity in which any of the foregoing individuals is employed or is a general partner or principal or in a similar position, or in which any of the foregoing individuals has a five percent or greater beneficial interest.
|
Under the policy, prior to entering into a related person transaction, our legal department must present information regarding the proposed related person transaction to our Nominating, Compliance and Corporate Governance Committee for approval at its next regularly scheduled meeting (or, where our legal department, in consultation with our CEO or Chief Financial Officer, determines that it is not practicable to or desirable to wait until the next meeting of the Nominating, Compliance and Corporate Governance Committee, to the Chairperson of our Nominating, Compliance and Corporate Governance Committee, who is authorized under the policy to act on behalf of the Nominating, Compliance and Corporate Governance Committee with respect to matters covered by the policy between meetings of the Nominating, Compliance and Corporate Governance Committee).
To identify proposed related person transactions in advance, our legal department relies on information supplied by our directors, executive officers or business unit or function/department leader responsible for the proposed related person transaction. In considering related person transactions, the Nominating, Compliance and Corporate Governance Committee (or the Chairperson of the Nominating, Compliance and Corporate Governance Committee) takes into account all relevant facts and circumstances related to the proposed transaction. In the event a member of the Nominating, Compliance and Corporate Governance Committee, or any immediate family member or affiliate of a member of the Nominating, Compliance and Corporate Governance Committee is the related person, such member of the Nominating, Compliance and Corporate Governance Committee is prohibited from participating in any review, consideration or approval of the related person transaction. The policy requires that the Nominating, Compliance and Corporate Governance Committee will only approve a related person transaction if it determines that the transaction is in, or is not inconsistent with, our best interests and the best interests of our stockholders.
Under the policy, the following related person transactions are deemed to be pre-approved by the Nominating, Compliance and Corporate Governance Committee regardless of the amount involved:
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•
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employment and compensation of our executive officers, subject to certain exceptions;
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•
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compensation of our directors, subject to certain exceptions;
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•
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certain transactions between us and an unrelated third party entity in which the related person’s only relationship with the third party is as an employee (other than an executive officer), director or beneficial owner of less than 10% of the other entity’s shares, subject to certain limitations;
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•
|
certain contributions to the Masimo Foundation and certain other charitable contributions; and
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114
| 2020 Proxy Statement
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•
|
transactions in which all of our stockholders receive the same benefit on a pro rata basis.
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The policy also permits our Nominating, Compliance and Corporate Governance Committee to ratify, amend, rescind or terminate any related person transaction that is not pre-approved in accordance with the terms above.
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TRANSACTIONS WITH RELATED PERSONS
|
The following is a description of transactions or series of transactions since December 29, 2018, or any currently proposed transaction, to which we were or are to be a participant in which the amount involved in the transaction or series of transactions exceeds $120,000, and in which any of our directors, executive officers or persons who we know held more than five percent of any class of our capital stock, including their immediate family members, had or will have a direct or indirect material interest, other than compensation arrangements that are described under “Executive Compensation—Employment Contract and Severance Arrangements” above.
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CERCACOR LABORATORIES, INC.
|
Cercacor is an independent entity spun off from us to our stockholders in 1998. Joe Kiani, our Chairman and CEO, is also the Chairman and CEO of Cercacor. Mr. Kiani receives a separate salary and equity compensation from Cercacor in his capacity as an employee of Cercacor.
We are a party to the Cross-Licensing Agreement with Cercacor, which governs each party’s rights to certain of the intellectual property held by the two companies. To date, we have developed and commercially released devices that measure carbon monoxide, methemoglobin and hemoglobin using licensed rainbow® technology. Pursuant to the Cross-Licensing Agreement, we are currently subject to certain specific minimum royalty payment obligations of $5.0 million per year. Actual aggregate royalty payment liabilities payable to Cercacor were approximately $12.1 million for fiscal 2019.
We have also entered into the Services Agreement with Cercacor, which governs certain general and administrative services we provide to Cercacor. Pursuant to the Services Agreement, Cercacor paid us approximately $0.2 million for general and administrative services related to fiscal 2019.
In December 2019, we entered into a new lease agreement with Cercacor for approximately 34,000 square feet of office, research and development space at one of our owned facilities in Irvine, California (“Cercacor Lease”). The Cercacor Lease expires on December 31, 2024. In March 2016, we entered into a sublease with Cercacor, pursuant to which we subleased approximately 16,830 square feet of excess office and laboratory space located at 40 Parker, Irvine, California to Cercacor (“Cercacor Sublease”). The Cercacor Sublease began on May 1, 2016 and expired on December 15, 2019. We recognized approximately $0.4 million of combined lease and sublease income pursuant to the Cercacor Lease and Cercacor Sublease during fiscal 2019.
Prior to our initial public offering in August 2007, our stockholders owned approximately 99.9% of the outstanding capital stock of Cercacor, and we believe that as of March 28, 2020, a number of stockholders of Cercacor continued to own shares of our common stock. Mr. Kiani is the only stockholder of Cercacor who owns 5% or more of Masimo’s outstanding voting stock.
115
| 2020 Proxy Statement
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MASIMO FOUNDATION FOR ETHICS, INNOVATION AND COMPETITION IN HEALTHCARE
|
Joe Kiani is also the Chairman and one of his family members is a Director of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (the “Masimo Foundation”), a non-profit organization which was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. Our Executive Vice President (“EVP”) and Chief Financial Officer serves as the Treasurer of the Masimo Foundation and our EVP, General Counsel and Corporate Secretary serves as the Secretary of the Masimo Foundation. For the fiscal year ended December 28, 2019, we made cash contributions of approximately $1.0 million to the Masimo Foundation, a portion of which was, in turn, indirectly contributed by the Masimo Foundation to the Patient Safety Movement Foundation (“PSMF”) by a donor advised fund. In addition, for the year ended December 28, 2019, we made various in-kind contributions to the Masimo Foundation, mainly in the form of donated administrative services.
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PATIENT SAFETY MOVEMENT FOUNDATION
|
The Patient Safety Movement Foundation is a non-profit organization which was founded in 2013 to work with hospitals, medical technology companies and patient advocates to unite the healthcare ecosystem and eliminate the more than 200,000 U.S. preventable hospital deaths that occur every year. Joe Kiani is also a director of PSMF. During the fiscal year ended December 28, 2019, we contributed approximately $35,000 to the PSMF, as well as various in-kind contributions, mainly in the form of donated administrative services.
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INDEMNIFICATION AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
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We have entered into indemnity agreements with our directors and executive officers under which we agreed to indemnify those individuals under the circumstances and to the extent provided for in the agreements, for expenses, damages, judgments, fines, settlements and any other amounts they may be required to pay in actions, suits or proceedings which they are or may be made a party or threatened to be made a party by reason of their position as a director, officer or other agent of ours, and otherwise to the fullest extent permitted under Delaware law and our Bylaws. We also have an insurance policy covering our directors and executive officers with respect to certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or otherwise. We believe that these provisions and insurance coverage are necessary to attract and retain qualified directors, officers and other key employees.
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QUESTIONS AND ANSWERS YOU MAY HAVE ABOUT THESE PROXY MATERIALS AND VOTING
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1. Why am I receiving these materials?
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We sent you this Proxy Statement and the enclosed proxy card because the Board of Directors (the “Board”) of Masimo Corporation (sometimes referred to as “we”, “Masimo” or the “Company”) is soliciting your proxy to vote at the 2020 Annual Meeting of Stockholders, or any adjournment or postponement thereof (the “Annual Meeting”). You are invited to attend the Annual Meeting and we request that you vote on the proposals described in this Proxy Statement. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card or submit your proxy through the internet or by telephone according to the instructions contained in the enclosed proxy card.
The Notice of Internet Availability of Proxy Materials containing instructions on how to access this Proxy Statement and our annual report is first being mailed on or about April 20, 2020 to all stockholders entitled to receive notice of and to vote at the Annual Meeting.
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2. When and where will the Annual Meeting be held?
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The Annual Meeting will be held on May 29, 2020, at 2:00 p.m. Pacific Time at our offices located at 52 Discovery, Irvine, California 92618. Directions to our offices are set forth on the back of this Proxy Statement.
We are actively monitoring COVID-19 developments and related public health concerns and developing contingency plans in the event any changes to the date, time or location of the Annual Meeting are deemed necessary or appropriate. The health and well-being of our employees and stockholders are important. If we determine to make any change in the date, time or location, or to hold the Annual Meeting virtually by remote communication, an announcement of such changes will be made through a press release and we will post details at www.envisionreports.com/masi and/or www.masimo.com that will also be filed with the SEC as proxy materials. Please check www.envisionreports.com/masi and/or www.masimo.com in advance of the date of the Annual Meeting if you are planning to attend in person. If we elect to hold a virtual meeting, this will not have any impact on your ability to vote by proxy using the enclosed proxy card, vote by proxy on the internet or vote by proxy over the telephone, each as explained in this Proxy Statement. As always, we encourage you to vote your shares prior to the Annual Meeting.
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3. Who can vote at the Annual Meeting?
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Only stockholders of record at the close of business on March 30, 2020 will be entitled to vote at the Annual Meeting. At the close of business on this record date, there were 54,115,411 shares of common stock outstanding and entitled to vote and no shares of preferred stock outstanding or entitled to vote. The holders of common stock will have one vote for each share of common stock they owned as of the close of business on March 30, 2020.
Stockholder of Record: Shares Registered in Your Name
If at the close of business on March 30, 2020, your shares of common stock were registered directly in your name with our transfer agent, Computershare Trust Company, N.A., then you are the stockholder of record for these shares. As a stockholder of record, you may vote either in person at the Annual Meeting or by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to complete and return the enclosed proxy card or submit your proxy through the internet or by telephone by following the instructions provided in the proxy card to ensure that your vote is counted.
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Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Agent
If at the close of business on March 30, 2020, your shares of common stock were held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker, bank or other agent regarding how to vote the shares in your account. Certain of these institutions offer the ability to direct your agent how to vote through the internet or by telephone. You are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy issued in your name from your broker, bank or other agent considered the stockholder of record of the shares.
There are five matters scheduled for a vote at the Annual Meeting:
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To elect the Class I nominees for director to serve until our 2023 Annual Meeting of Stockholders or until their successors are duly elected and qualified;
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To ratify the selection of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending January 2, 2021;
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To vote on an advisory resolution to approve named executive officer compensation;
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To approve an amendment to our 2017 Equity Incentive Plan; and
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To approve an amendment to our Executive Bonus Incentive Plan.
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5. Will there be any other items of business on the agenda?
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Aside from the election of the Class I Directors, the ratification of the selection of our independent registered public accounting firm, the advisory vote to approve the compensation of our named executive officers, the amendment to our 2017 Equity Incentive Plan, and the amendment to our Executive Bonus Incentive Plan, the Board knows of no matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all proxies received by the Board will be voted with respect thereto in accordance with the judgment of the persons named as attorneys-in-fact in the proxies.
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6. What is the Masimo Board’s voting recommendation?
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Masimo’s Board recommends that you vote your shares:
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“For” each of the Class I Director nominees;
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“For” the ratification of the selection of Grant Thornton LLP as Masimo’s independent registered public accounting firm for the fiscal year ending January 2, 2021; and
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“For” the approval of our named executive officer compensation.
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“For” the approval of an amendment to our 2017 Equity Incentive Plan.
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“For” the approval of an amendment to our Executive Bonus Incentive Plan.
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For Proposal No. 1, you may vote “For” or “Against” a director nominee or abstain from voting. For Proposal Nos. 2, 3, 4 and 5 you may vote “For” or “Against” or abstain from voting. The procedures for voting are described below, based upon your form of ownership.
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Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at the Annual Meeting. We will give you a ballot when you arrive.
If you do not wish to vote in person or you will not be attending the Annual Meeting, you may vote by proxy. You may vote by proxy using the enclosed proxy card, vote by proxy on the internet or vote by proxy over the telephone. The procedures for voting by proxy are as follows:
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To vote by proxy using the enclosed proxy card, complete, sign and date your proxy card and return it promptly in the envelope provided.
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To vote by proxy on the internet, go to www.envisionreports.com/MASI and follow the instructions set forth on the internet site.
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To vote by proxy over the telephone, dial the toll-free telephone number listed on your proxy card under the heading “vote by telephone” using a touch-tone telephone and follow the recorded instructions.
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If you vote by proxy, your vote must be received by 11:00 p.m. Pacific Time on May 26, 2020, to be counted.
We provide internet and telephone proxy voting with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet and telephone access, such as usage charges from internet access providers and telephone companies.
Beneficial Owner: Shares Registered in the Name of Your Broker, Bank or Other Agent
If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Masimo. To ensure that your vote is counted, simply complete and mail the proxy card or, if provided by your agent, follow the instructions for submitting your proxy through the internet or by telephone. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank or other agent in whose name the shares are registered. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy card.
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8. How do I vote my Masimo shares held through the Masimo Retirement Savings Plan?
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If you hold shares of Masimo common stock through the Masimo Retirement Savings Plan (the “Savings Plan”) as of the record date, your proxy will also serve as a voting instruction for Fidelity Management Trust Company (“Fidelity”), which serves as the administrator of the Savings Plan, with respect to shares of Masimo common stock that you hold through the Savings Plan. You should sign the proxy card and return it in the enclosed envelope, or you may submit your proxy over the internet or by telephone by following the instructions on the enclosed proxy card. Fidelity will vote your Savings Plan shares as of the record date in the manner directed in the last timely voting instructions that are received from you. If voting instructions are not received from you by 11:00 p.m. Pacific Time on May 25, 2020, Fidelity will vote your Savings Plan shares as of the record date in the same manner, proportionally, as it votes the other shares of common stock for which proper and timely voting instructions of other Savings Plan participants have been received by Fidelity. You may change or revoke previously given voting instructions in any of the ways described under the question “Can I change my vote after submitting my proxy?”; however, your revocation or changed voting instructions must be received no later than 11:00 p.m. Pacific Time on May 25, 2020 or else we will not be able to timely notify Fidelity of your revoked or changed voting instructions.
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9. How many votes do I have?
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On each matter to be voted upon, holders of common stock will have one vote for each share of common stock they owned as of the close of business on March 30, 2020, the record date for the Annual Meeting.
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10. Will my vote be kept confidential?
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Proxies, ballots and voting tabulations are handled on a confidential basis to protect your voting privacy. This information will not be disclosed, except as required by law.
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11. Who is paying for this proxy solicitation?
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We will bear the cost of soliciting proxies for the Annual Meeting. We will ask banks, brokerage houses, fiduciaries and custodians holding shares of Masimo common stock in their names for others to send proxy materials to and obtain proxies from the beneficial owners of such shares, and we will reimburse them for their reasonable expenses in doing so. We and our directors, officers and regular employees may solicit proxies by mail, personally, by telephone or by other appropriate means. No additional compensation will be paid to directors, officers or other regular employees for such services.
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12. Why did I receive a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of a full set of proxy materials
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In accordance with the rules of the SEC, we have elected to furnish our proxy materials, including this Proxy Statement and our annual report, primarily via the Internet. Stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail by following the instructions contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials on the Internet to help reduce the environmental impact of our annual meetings of stockholders.
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13. What does it mean if I receive more than one Notice?
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If you receive more than one Notice, your shares may be registered in more than one name or in different accounts. Please follow the voting instructions on each Notice to ensure that all of your shares are voted.
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14. Can I change my vote after submitting my proxy?
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Yes. You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are a stockholder of record, you may revoke your proxy in any one of four ways:
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You may submit another properly completed and executed proxy card with a later date;
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You may submit a new proxy through the internet or by telephone (1-800-652-VOTE) (your latest internet or telephone instructions submitted prior to the deadline will be followed);
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You may send a written notice that you are revoking your proxy to our Corporate Secretary, c/o Masimo Corporation, 52 Discovery, Irvine, California 92618, by the deadline; or
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You may attend the Annual Meeting and vote in person. However, simply attending the Annual Meeting will not, by itself, revoke your proxy.
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If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, follow the voting instructions from that organization included with these proxy materials, or contact that organization to determine how you may revoke your proxy.
Votes will be counted by the inspector of election appointed for the Annual Meeting.
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15. How are my shares voted if I give no specific instruction?
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We must vote your shares as you have instructed. If there is a matter on which a stockholder of record has given no specific instruction but has authorized us generally to vote the shares, they will be voted as follows:
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“For” the election of each of the Class I director nominees;
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“For” the ratification of the selection of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending January 2, 2021; and
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“For” the approval of our named executive officer compensation.
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“For” the approval of an amendment to our 2017 Equity Incentive Plan.
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“For” the approval of an amendment to our Executive Bonus Incentive Plan.
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This authorization would exist, for example, if a stockholder of record merely signs, dates and returns the proxy card but does not indicate how its shares are to be voted on one or more proposals. If other matters properly come before the Annual Meeting and you do not provide specific voting instructions, your shares will be voted at the discretion of the proxies.
If your shares are held in street name, see “What is a broker non-vote?” below regarding the ability of brokers, banks and other such holders of record to vote the uninstructed shares of their customers or other beneficial owners in their discretion and regarding broker non-votes.
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16. What is a broker non-vote?
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Under rules that govern brokers, banks and others who have record ownership of company stock held in brokerage accounts for their clients who beneficially own the shares, these brokers, banks and other such holders who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”) but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). Only the ratification of auditors is considered a discretionary matter at the Annual Meeting under these rules. A broker may return a proxy card on behalf of a beneficial owner from whom the broker has not received voting instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. The broker’s inability to vote with respect to the non-discretionary matters for which the broker has not received voting instructions from the beneficial owner is referred to as a “broker non-vote.”
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17. What are the voting requirements that apply to the proposals discussed in this Proxy Statement?
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Proposals
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Vote
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Discretionary
Voting
Allowed?
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1. Election of Directors
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Majority Cast
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No
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2. Ratification of Auditors
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Majority Cast
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Yes
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3. Advisory Vote to Approve the Compensation of our Named Executive Officers
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Majority Cast
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No
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4. Approval of an Amendment to our 2017 Equity Incentive Plan
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Majority Cast
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No
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5. Approval of an Amendment to our Executive Bonus Incentive Plan
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Majority Cast
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No
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A “majority cast”, with regard to the election of a director, means the number of votes cast “for” a nominee’s election must exceed the number of votes cast “against” such nominee’s election. A “majority cast”, with regard to the ratification of auditors, the advisory vote to approve our named executive compensation, the vote to approve an amendment to our 2017 Equity Incentive Plan and the vote to approve an amendment to our Executive Bonus Incentive Plan, means the number of votes cast “for” the proposal must exceed the number of votes cast “against” such proposal.
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“Discretionary voting” occurs when a broker, bank or other holder of record does not receive voting instructions from the beneficial owner and votes those shares at its discretion on any proposal as to which rules permit such broker, bank or other holder of record to vote. As noted above, when brokers, banks and other holders of record are not permitted under the rules to vote the beneficial owner’s shares, the affected shares are referred to as “broker non-votes.”
Although the vote on Proposal No. 3 is advisory and non-binding, as provided by law, our Board will review the results of the vote and, consistent with our record of stockholder engagement, will consider the results in making future decisions concerning executive compensation.
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18. What is the effect of abstentions and broker non-votes?
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Abstentions: Under Delaware law (under which Masimo is incorporated), abstentions are counted as shares present and entitled to vote at the Annual Meeting, but they are not counted as shares cast. Therefore, abstentions will have no effect on Proposal No. 1—Election of Directors; Proposal No. 2—Ratification of Auditors; Proposal No. 3—Advisory Vote to Approve the Compensation of our Named Executive Officers; Proposal No. 4—Approval of an Amendment to our 2017 Equity Incentive Plan and Proposal No. 5—Approval of an Amendment to our Executive Bonus Incentive Plan.
Broker Non-Votes: As a result of a change in rules related to discretionary voting and broker non-votes, brokers, banks and other such record holders are no longer permitted to vote the uninstructed shares of their customers on a discretionary basis in the election of directors or on named executive officer compensation matters. Because broker non-votes are not considered under Delaware law to be entitled to vote at the Annual Meeting, they will have no effect on the outcome of the vote on: Proposal No. 1—Election of Directors, Proposal No. 3—Advisory Vote to Approve the Compensation of our Named Executive Officers, Proposal No. 4—Approval of an Amendment to our 2017 Equity Incentive Plan and Proposal No. 5—Approval of an Amendment to our Executive Bonus Incentive Plan.
As a result, if you hold your shares in street name and you do not instruct your broker, bank or other such holder how to vote your shares in the election of directors or the advisory vote related to the approval of our executive compensation program, no votes will be cast on your behalf on these proposals. Therefore, it is critical that you indicate your vote on these proposals if you want your vote to be counted. Proposal No. 2, the proposal to ratify the selection of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending January 2, 2021, should be considered a discretionary matter. Therefore, your broker, bank or other such holder will be able to vote on this proposal even if it does not receive instructions from you, so long as it holds your shares in its name.
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19. What happens if an incumbent director nominee does not receive a majority of the votes cast for his re-election?
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Our Bylaws require that if an incumbent director nominee does not receive a majority of the votes cast for his re-election, such incumbent nominee is to promptly tender his resignation to the Board. Our Nominating, Compliance and Corporate Governance Committee will then make a recommendation to the full Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. Our Board will then decide whether to accept or reject the resignation, taking into account the Nominating, Compliance and Corporate Governance Committee’s recommendation. The determination of our Board and the rationale behind the decision will be publicly disclosed (by a press release, a filing with the Securities and Exchange Commission (the “SEC”) or other broadly disseminated means of communication) within 90 days from the date of the certification of the election results of our Annual Meeting. If the incumbent director’s resignation is not accepted by our Board, the director will continue to serve until his successor is duly elected, or his earlier resignation or removal. If a director’s resignation is accepted by our Board, then our Board may fill any resulting vacancy or decrease the size of the Board.
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20. What is the quorum requirement?
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A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of our outstanding shares of common stock are represented by votes at the Annual Meeting or by proxy. At the close of business on March 30, 2020, the record date for the Annual Meeting, there were 54,115,411 shares of common stock outstanding. Thus, a total of 54,115,411 shares are entitled to vote at the Annual Meeting and holders of common stock representing at least 27,057,707 votes must be represented at the Annual Meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or if one is submitted on your behalf by your broker, bank or other agent) or if you vote in person at the Annual Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairman of the meeting or the stockholders holding a majority of the shares present at the Annual Meeting may adjourn the Annual Meeting to another date.
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21. Who will count the votes?
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The votes will be counted, tabulated and certified by Computershare Trust Company, N.A., the transfer agent and registrar for our common stock.
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22. Do Masimo’s officers and directors have an interest in any of the matters to be acted upon at the Annual Meeting?
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Dr. Shimer and Mr. H Michael Cohen have an interest in Proposal No. 1—Election of Directors, as each nominee is currently a member of the Board. Members of the Board and our executive officers do not have any interest in Proposal No. 2—Ratification of Auditors. Our executive officers have an interest in Proposal No. 3—Advisory Vote to Approve the Compensation of our Named Executive Officers, as compensation for some of our executive officers is subject to this vote and in Proposal No. 5—Approval of an Amendment to our Executive Bonus Incentive Plan, as our executive officers will be eligible to receive awards under the terms of our Executive Bonus Incentive Plan. Additionally, members of the Board and our executive officers will be eligible to receive awards under the terms of our 2017 Equity Incentive Plan, and they therefore have a substantial interest in Proposal No. 4—Approval of an Amendment to our 2017 Equity Incentive Plan.
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23. Is Masimo Corporation’s Annual Report on Form 10-K part of the proxy materials?
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Our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as filed with the SEC on February 19, 2020, is available at www.envisionreports.com/MASI. This document constitutes our Annual Report to Stockholders, and is being made available to all stockholders entitled to receive notice of and to vote at the Annual Meeting. Except as otherwise stated, the Annual Report on Form 10-K is not incorporated into this Proxy Statement and should not be considered proxy solicitation material.
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24. How can I find out the results of the voting at the Annual Meeting?
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Voting results are expected to be announced at the Annual Meeting and will also be disclosed in a Current Report on Form 8-K (the “Form 8-K”) that we will file with the SEC within four business days of the date of the Annual Meeting. In the event the results disclosed in the Form 8-K are preliminary, we will subsequently amend the Form 8-K to report the final voting results within four business days of the date that such results are known.
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25. When are stockholder proposals due for next year’s annual meeting of stockholders?
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Stockholders may submit proposals on matters appropriate for stockholder action at our 2021 Annual Meeting of Stockholders (“2021 Annual Meeting of Stockholders”) consistent with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). To be considered for inclusion in proxy materials for our 2021 Annual Meeting of Stockholders, a stockholder proposal must be submitted in writing no later than December 21, 2020 to our Corporate Secretary at 52 Discovery, Irvine, California 92618. However, if the date of the 2021 Annual Meeting of Stockholders is convened more than 30 days before, or delayed by more than 30 days after, May 29, 2021, to be considered for inclusion in proxy materials for our 2021 Annual Meeting of Stockholders, a stockholder proposal must be submitted in writing to our Corporate Secretary at 52 Discovery, Irvine, California 92618 a reasonable time before we begin to print and send our proxy materials for our 2021 Annual Meeting of Stockholders.
If you wish to submit a proposal that is not to be included in the proxy materials for our 2021 Annual Meeting of Stockholders, your proposal generally must be submitted in writing to the same address no later than March 6, 2021, but no earlier than February 4, 2021. However, if the date of the 2021 Annual Meeting of Stockholders is convened more than 30 days before, or delayed by more than 30 days after, May 29, 2021, a stockholder proposal that is not to be included in the proxy materials for our 2021 Annual Meeting of Stockholders must be submitted in writing to our Corporate Secretary at 52 Discovery, Irvine, California 92618 not later than the close of business on the later of (1) the 90th day before the date of the 2021 Annual Meeting of Stockholders, or (2) the 10th day following the day on which we first publicly announce (by press release or disclosure in a filing with the SEC) the date of the 2021 Annual Meeting of Stockholders.
In addition, our Bylaws contain “proxy access” provisions (“Proxy Access Bylaw”) that permit a stockholder or group of stockholders to include director candidates that they intend to nominate in our annual meeting proxy statement and on our proxy card, provided that the stockholder ownership, notice and other requirements set forth in our Bylaws are satisfied. To be timely for our 2021 Annual Meeting of Stockholders, the required notice under our Proxy Access Bylaw must be received by the Corporate Secretary at the address set forth above not earlier than November 21, 2020 and not later than December 21, 2020. However, if the date of the 2021 Annual Meeting of Stockholders is advanced by more than 30 days prior to, or delayed by more than 30 days after May 29, 2021, then notice under the Proxy Access Bylaw must be received by the later of the close of business on the 180th day prior to the 2020 Annual Meeting of Stockholders, or the 10th day following the day on which public announcement of the date of such annual meeting is first made.
The requirements for providing advance notice of business or nominations under our Proxy Access Bylaw as summarized above are qualified in their entirety by our Bylaws, which we recommend that you read in order to comply with the applicable requirements. Failure to timely deliver notice in accordance with our Bylaws or to satisfy the other requirements of our Bylaws may result in a proposal or nomination not being presented at our annual meeting of stockholders. You may refer to the copy of our Bylaws most recently filed with the SEC and available at www.sec.gov.
We are sending only one Notice of Internet Availability of Proxy Materials to “street name” stockholders who share a single address unless we received contrary instructions from any stockholder at that address. This practice, known as “householding”, is designed to reduce our printing and postage costs. However, if you are residing at such an address and wish to receive a separate Notice of Internet Availability of Proxy Materials you may request them by calling our Corporate Secretary at (949) 297-7000, or by submitting a request in writing to our Corporate Secretary, c/o Masimo Corporation, 52 Discovery, Irvine, California 92618, and we will promptly deliver a separate Notice of Internet Availability of Proxy Materials to you. If you are receiving multiple copies of our annual report and proxy statement, you can request householding by contacting the Corporate Secretary in the same manner described above.
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| 2020 Proxy Statement
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ANNUAL REPORT ON FORM 10-K
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A copy of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as filed with the SEC on February 19, 2020, is available without charge upon written request to Corporate Secretary, c/o Masimo Corporation, 52 Discovery, Irvine, California 92618.
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 29, 2020:
The Proxy Statement, the Form 10-K and the Proxy Card are available at:
www.envisionreports.com/MASI
The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
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By Order of the Board of Directors
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Chairman & Chief Executive Officer
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April 15, 2020
You are cordially invited to attend the annual meeting. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy or submit your proxy through the internet or by telephone as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience if you wish to submit your proxy by mail. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.
125
| 2020 Proxy Statement
APPENDIX A
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results or that these items are not indicative of the Company’s on-going core operating performance.
The Company has presented the following non-GAAP measures to assist investors in understanding the Company’s financial performance for fiscal 2019: (i) constant currency product revenue growth percentage, (ii) non-GAAP net income, (iii) non-GAAP diluted earnings per share, (iv) non-GAAP earnings per share and (v) non-GAAP operating margin.
Management believes constant currency product revenue growth percentage, non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross profit, non-GAAP operating income and non-GAAP adjusted EBITDA are important measures in the evaluation of the Company’s performance and uses these measures to better understand and evaluate our business.
The non-GAAP financial measures reflect adjustments for the following items, as well as the related income tax effects thereof:
Constant currency adjustments. Some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating our product revenue growth rates on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and the related constant currency adjustments for calculation of our product revenue growth rate will continue to occur in future periods.
Royalty and other revenue, net of related costs. We derive royalty and other revenue, net of related costs, from certain non-recurring contractual arrangements that we do not expect to continue in the future. We believe the exclusion of royalty and other revenue, net of related costs, associated with these non-recurring revenue streams is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis.
Acquisition-related costs, including depreciation and amortization. In the event we acquire, invest in or divest certain business operations, there may be non-recurring gains, losses or expenses that will be recognized related to the assets and/or liabilities sold or acquired that are not representative of normal on-going cash flows. Furthermore, there may be depreciation and amortization related to the revaluation of assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) to fair value through purchase accounting related to value created by the seller prior to the acquisition/strategic investment that does not reflect the normal on-going costs of operating our core business. We believe
A-1
| 2020 Proxy Statement
that exclusion of these gains, losses or costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods.
Litigation damages, awards and settlements. In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds. We believe that exclusion of these gains (net of any related costs incurred in the period the award or settlement is recognized) and losses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses and gains are generally unrelated to our core business and/or infrequent in nature.
Non-operating other (income) expense. We are exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables related to certain customer sales agreements, product costs and other operating expenses. As the Company does not actively hedge these currency exposures, changes in the underlying currency rates relative to the U.S. Dollar may result in realized and unrealized foreign currency gains and losses between the time these receivables and payables arise and the time that they are settled in cash. Since such realized and unrealized foreign currency gains and losses are the result of macro-economic factors and can vary significantly from one period to the next, we believe that exclusion of such realized and unrealized gains and losses are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Realized and unrealized foreign currency gains and losses are likely to recur in future periods.
Excess tax benefits from stock-based compensation. Current authoritative accounting guidance requires that excess tax benefits or costs recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. Since we cannot control or predict when stock option awards will be exercised or the price at which such awards will be exercised, the impact of such guidance can create significant volatility in our effective tax rate from one period to the next. We believe that exclusion of these excess tax benefits or costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. These excess tax benefits or costs will generally recur in future periods as long as we continue to issue equity awards to our employees.
Tax impacts that may not be representative of the ongoing results of our core operations. From time-to-time, we may experience significant non-recurring tax events, such as changes in tax laws and regulations or the derecognition of uncertain tax positions related to non-recurring transactions due to the expiration of the applicable statutes of limitations. We believe that exclusion of such tax charges or benefits is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these tax items are unrelated to our core business and generally unique and non-recurring in nature.
These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs or benefits associated with the operations of the Company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies.
A-2
| 2020 Proxy Statement
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APPENDIX A
SUPPLEMENTAL FINANCIAL INFORMATION
RECONCILIATION OF GAAP PRODUCT REVENUE TO
CONSTANT CURRENCY PRODUCT REVENUE
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Fiscal 2019
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Fiscal 2018
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Fiscal 2017
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(unaudited in thousands, except percentages)
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$
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$
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$
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GAAP product revenue
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$
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936,408
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$
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829,874
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$
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738,242
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Non-GAAP constant currency adjustments:
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Constant currency F/X adjustments
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6,702
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—
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—
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Total non-GAAP product revenue adjustments
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6,702
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—
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—
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Constant currency product revenue
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$
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943,110
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$
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829,874
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$
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738,242
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Product revenue growth %:
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GAAP
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12.8
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%
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Constant currency
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13.6
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%
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APPENDIX A
SUPPLEMENTAL FINANCIAL INFORMATION
RECONCILIATION OF GAAP OPERATING MARGIN TO
NON-GAAP OPERATING MARGIN(1)
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Fiscal 2019
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Fiscal 2018
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Fiscal 2017
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(unaudited in thousands, except percentages)
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$
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$
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$
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GAAP operating margin
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$
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221,216
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$
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208,044
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$
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183,787
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Non-GAAP adjustments:
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Royalty and other revenue, net of related costs
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(1,262
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)
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(27,704
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)
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(48,384
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)
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Acquisition/strategic investment related costs
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4,729
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1,442
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|
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1,597
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Litigation damages, awards and settlements
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—
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425
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—
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Total non-GAAP adjustments for operating income/margin
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3,467
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(25,838
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)
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(46,787
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)
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Non-GAAP operating income/margin
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$
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224,683
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$
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182,206
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$
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136,999
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GAAP operating margin %
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23.6
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%
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24.2
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%
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23.3
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%
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Non-GAAP operating margin %
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24.0
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%
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22.0
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%
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18.6
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%
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_______________
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(1)
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May not foot due to rounding.
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A-3
| 2020 Proxy Statement
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APPENDIX A
SUPPLEMENTAL FINANCIAL INFORMATION
RECONCILIATION OF GAAP NET INCOME AND NET INCOME PER DILUTED SHARE TO
NON-GAAP NET INCOME AND NET INCOME PER DILUTED SHARE(1)
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Fiscal 2019
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Fiscal 2018
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Fiscal 2017
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(in thousands, except earnings per share)
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$
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Per Diluted Share
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$
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Per Diluted Share
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$
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Per Diluted Share
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GAAP net income
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$
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196,216
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|
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$
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3.44
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|
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$
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193,543
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|
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$
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3.45
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|
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$
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124,789
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|
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$
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2.23
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|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
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Royalty and other revenue, net of related costs
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(1,262
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)
|
|
(0.02
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)
|
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(27,704
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)
|
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(0.49
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)
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(48,384
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)
|
|
(0.87
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)
|
|
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Acquisition/strategic investment related costs
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|
4,729
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|
|
0.08
|
|
|
1,442
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|
|
0.03
|
|
|
1,597
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0.03
|
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|
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Litigation damages, awards and settlements
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—
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|
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—
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|
|
425
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|
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0.01
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|
|
—
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|
|
—
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Non-operating other (income) expense
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627
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0.01
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2,027
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|
|
0.04
|
|
|
270
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|
|
—
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Tax impact of pre-tax non-GAAP adjustments above
|
|
(689
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)
|
|
(0.01
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)
|
|
5,532
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|
|
0.10
|
|
|
16,100
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|
|
0.29
|
|
|
|
Excess tax benefits from stock-based compensation
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|
(15,692
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)
|
|
(0.27
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)
|
|
(22,036
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)
|
|
(0.39
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)
|
|
(39,242
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)
|
|
(0.70
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)
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Tax impact of expiration of certain statutes of limitations related to unique and non-recurring tax positions
|
|
—
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|
|
—
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|
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(4,169
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)
|
|
(0.07
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)
|
|
—
|
|
|
—
|
|
|
|
2017 U.S. Tax Reform
|
|
—
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|
|
—
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|
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(675
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)
|
|
(0.01
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)
|
|
41,392
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|
|
0.74
|
|
|
|
|
Total non-GAAP adjustments
|
|
(12,286
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)
|
|
(0.22
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)
|
|
(45,157
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)
|
|
(0.81
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)
|
|
(28,267
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)
|
|
(0.51
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)
|
|
Non-GAAP net income
|
|
$
|
183,930
|
|
|
$
|
3.22
|
|
|
$
|
148,385
|
|
|
$
|
2.65
|
|
|
$
|
96,520
|
|
|
$
|
1.73
|
|
|
Weighted average shares outstanding-diluted
|
|
|
|
57,100
|
|
|
|
|
56,039
|
|
|
|
|
55,874
|
|
|
Non-GAAP EPS growth
|
|
|
|
21.5
|
%
|
|
|
|
|
|
|
|
|
________________
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(1)
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May not foot due to rounding.
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A-4
| 2020 Proxy Statement
APPENDIX B
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
FOR FISCAL 2019 EXECUTIVE BONUS INCENTIVE PLAN
The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with GAAP. These non-GAAP financial measures make adjustments for the items described below. Management and the Compensation Committee believe that adjustments assist the Compensation Committee and investors in assessing true Company performance against Adjusted Product Revenue and non-GAAP EPS targets that were established under the fiscal 2019 Executive Bonus Incentive Plan based on the fiscal 2019 business plan that existed at the time the performance targets were established on March 16, 2019.
Fiscal 2019 Product Revenue and non-GAAP EPS reflect adjustment for the following items, as well as the related income tax effects thereof, if any:
Plan F/X adjustments. Some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. Similarly, certain of our product costs and operating expenses, and the related balance sheet payables and accruals, are denominated in foreign currencies other than the U.S. Dollar. These foreign currency revenues, costs and expenses, receivables, payables and accruals, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. The Compensation Committee believes that comparing these foreign currency denominated revenues, costs and expenses by holding the exchange rates constant with the rates in effect at the time the 2019 business plan was established is necessary to truly assess actual performance against fiscal 2019 performance targets under the fiscal 2019 Executive Bonus Incentive Plan.
Acquisition-related costs, including depreciation and amortization. In the event we acquire, invest in or divest certain business operations, there may be non-recurring gains, losses or expenses that will be recognized related to the assets and/or liabilities sold or acquired that are not representative of normal on-going cash flows. Furthermore, there may be depreciation and amortization related to the revaluation of assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) to fair value through purchase accounting related to value created by the seller prior to the acquisition/strategic investment that does not reflect the normal on-going costs of operating our core business. We believe that exclusion of these gains, losses or costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods.
Litigation damages, awards and settlements. In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds. We believe that exclusion of these gains (net of any related costs incurred in the period the award or settlement is recognized) and losses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses and gains are generally unrelated to our core business and/or infrequent in nature.
Non-operating other (income) expense. We are exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables related to certain customer sales agreements, product costs and other operating expenses. As the Company does not actively hedge these currency exposures, changes in the underlying currency rates relative to the U.S. Dollar may result in realized and unrealized foreign currency
B-1
| 2020 Proxy Statement
gains and losses between the time these receivables and payables arise and the time that they are settled in cash. Since such realized and unrealized foreign currency gains and losses are the result of macro-economic factors and can vary significantly from one period to the next, we believe that exclusion of such realized and unrealized gains and losses are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Realized and unrealized foreign currency gains and losses are likely to recur in future periods.
Excess tax benefits from stock-based compensation. Current authoritative accounting guidance requires that excess tax benefits or costs recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. Since we cannot control or predict when stock option awards will be exercised or the price at which such awards will be exercised, the impact of such guidance can create significant volatility in our effective tax rate from one period to the next. We believe that exclusion of these excess tax benefits or costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. These excess tax benefits or costs will generally recur in future periods as long as we continue to issue equity awards to our employees.
Tax impacts that may not be representative of the ongoing results of our core operations. From time-to-time, we may experience significant non-recurring tax events, such as changes in tax laws and regulations or the derecognition of uncertain tax positions related to non-recurring transactions due to the expiration of the applicable statutes of limitations. We believe that exclusion of such tax charges or benefits is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these tax items are unrelated to our core business and generally unique and non-recurring in nature.
These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs or benefits associated with the operations of the Company’s business as determined in accordance with GAAP. Therefore, investors should consider these supplemental non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures presented by the Company may be different from non-GAAP financial measures used by other companies.
B-2
| 2020 Proxy Statement
|
APPENDIX B
SUPPLEMENTAL FINANCIAL INFORMATION
FOR FISCAL 2019 EXECUTIVE BONUS INCENTIVE PLAN
RECONCILIATION OF GAAP PRODUCT REVENUE TO ADJUSTED PRODUCT REVENUE
(unaudited)
|
|
|
|
|
|
|
|
|
(in millions)
|
Fiscal 2019
|
|
GAAP product revenues
|
|
$
|
936.4
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
F/X adjustments to plan rates
|
|
(0.3
|
)
|
|
|
Total Non-GAAP adjustments
|
|
(0.3
|
)
|
|
Adjusted product revenue for fiscal 2019 Executive Bonus Incentive Plan
|
|
$
|
936.1
|
|
|
APPENDIX B
SUPPLEMENTAL FINANCIAL INFORMATION
FOR FISCAL 2019 EXECUTIVE BONUS INCENTIVE PLAN
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP EARNINGS PER SHARE(EPS)(1)
(unaudited)
|
|
|
|
|
|
|
|
|
|
(in dollars)
|
|
Fiscal 2019
|
|
GAAP EPS
|
|
$
|
3.44
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
Royalty and other revenue, net of related costs
|
|
(0.02
|
)
|
|
|
Acquisition/strategic investment related costs
|
|
0.08
|
|
|
|
Litigation damages, awards and settlements
|
|
—
|
|
|
|
Non-operating other (income) expense
|
|
0.01
|
|
|
|
Tax impact of pre-tax Non-GAAP adjustments above
|
|
(0.01
|
)
|
|
|
Excess tax benefits from stock-based compensation
|
|
(0.27
|
)
|
|
|
Tax impact of expiration of certain statutes of limitations related to unique and non-recurring tax positions
|
|
—
|
|
|
|
2017 U.S. Tax Reform
|
|
—
|
|
|
|
|
Total Non-GAAP adjustments
|
|
(0.22
|
)
|
|
Subtotal
|
|
3.22
|
|
|
|
|
F/X adjustments to plan rates
|
|
(0.01
|
)
|
|
Adjusted Non-GAAP EPS for fiscal 2019 Executive Bonus Incentive Plan
|
|
$
|
3.21
|
|
________________
|
|
|
|
(1)
|
May not foot due to rounding.
|
B-3
| 2020 Proxy Statement
APPENDIX C
2017 EQUITY INCENTIVE PLAN
1.Purposes of this Plan. The purposes of this Plan are:
|
|
|
|
•
|
to attract and retain the best available personnel for positions of substantial responsibility;
|
|
|
|
|
•
|
to provide additional incentive to Employees, Directors and Consultants;
|
|
|
|
|
•
|
to promote the success of the Company’s business; and
|
|
|
|
|
•
|
to replace the Masimo Corporation 2007 Stock Incentive Plan (the “Existing Plan”).
|
This Plan permits the grant to any Service Provider of any Awards other than Incentive Stock Options. This Plan also permits the grant to Employees of Incentive Stock Options. No further grants shall occur under the Existing Plan following stockholder approval of this Plan.
2.Definitions. The following definitions are used in this Plan:
(a)“Administrator” means the Board or any of its Committees that will be administering this Plan, in accordance with Section 4.
(b)“Applicable Laws” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to United States (“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, only to the extent applicable with respect to an Award, the tax, securities or exchange control laws of any jurisdictions other than the U.S. where Awards are, or will be, granted under this Plan. Reference to a section of an Applicable Law or regulation related to that section shall include such section or regulation, any valid regulation issued under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(c)“Award” means, individually or collectively, a grant under this Plan of Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, Performance Bonus Awards and other stock or cash awards as the Administrator may determine.
(d)“Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to an Award granted under this Plan. The Award Agreement is subject to the terms and conditions of this Plan.
(e)“Board” means the Board of Directors of the Company.
(f)“Change in Control” means the occurrence of any of the following events:
(i)A change in the ownership of the Company which 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 already held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, however, that for purposes of this clause (i), (A) the acquisition of beneficial ownership of additional stock by any one Person who is considered to beneficially own more than 50% of the total voting power of the stock of the Company will not be considered a Change in Control; and (B) if the stockholders 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 50% or more of the total voting power of the stock of the Company or of the ultimate
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parent entity of the Company, such event will not be considered a Change in Control under this clause (i). For purposes of this clause (i), indirect beneficial ownership will 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 that occurs on the date that 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 prior to the date of the appointment or election. For purposes of this clause (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 12 month period ending on the date of the most recent acquisition by such Person) assets from the Company that have a total gross fair market value equal to or more than 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 stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 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, 50% or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, 50% of the total value or voting power of which is owned, directly or indirectly, by a Person described in clause (B)(3) of this subsection (iii). For purposes of this clause (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 other provisions of this definition, a transaction will not be a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A.
Further and for the avoidance of doubt, a transaction will not be 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.
(g)“Code” means the U.S. Internal Revenue Code of 1986, as amended.
(h)“Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board or a duly authorized committee of the Board, in accordance with Section 4.
(i)“Common Stock” means the common stock, par value $0.001 per share, of the Company.
(j)“Company” means Masimo Corporation, a Delaware corporation, or any successor thereto.
(k)“Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render bona fide services to such entity; provided that the services:
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(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. A Consultant must be a person to whom the issuance of Shares registered on Form S-8 promulgated under the Securities Act is permitted.
(l)“Date of Grant” means, 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.
(m)“Director” means a member of the Board.
(n)“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.
(o)“Dividend Equivalent” means a credit, payable in cash or Shares, made at the discretion of the Administrator or as otherwise provided by this Plan, to the account of a Participant in an amount equal to the cash dividends paid on one Share for each Share represented by an Award held by such Participant. Dividend Equivalents may be subject to the same vesting restrictions as the related Shares subject to an Award, at the discretion of the Administrator.
(p)“Employee” means any natural person, including Officers and Directors, providing services as an employee of the Company or of any Parent or Subsidiary. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute status as an “Employee” within the meaning of this Plan.
(q)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(r)“Exchange Act Section 16(b)” means Section 16(b) of the Exchange Act.
(s)“Exchange Program” means a program subject to stockholder approval as set forth in Section 4(b)(xvii) 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, and/or (ii) the exercise price of an outstanding Award is increased or reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(t)“Fair Market Value” means, as of any date, the value of a Share determined as follows:
(i)If the Common Stock is listed on any established stock exchange or a national market system, including without limitation, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of The Nasdaq Stock Market LLC or the New York Stock Exchange, Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii)If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, the Fair Market Value will be the closing sales price for the Common Stock as quoted on the principal exchange or system on which the Common Stock is listed on the date of determination, or, if selling prices are not reported, the Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such
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bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii)In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
Notwithstanding the foregoing, if the determination date for the Fair Market Value occurs on a weekend, holiday or other non-Trading Day, the Fair Market Value will be the price as determined under subsections (i) through (ii) above on the immediately preceding Trading Day, unless otherwise determined by the Administrator. In addition, for purposes of determining the fair market value for any reason other than the determination of the exercise price of an Option or Stock Appreciation Right, the fair market value will be determined by the Administrator in a manner compliant with Applicable Laws and applied consistently for such purpose. Note that the determination of fair market value for purposes of tax withholding may be made in the Administrator’s sole discretion subject to Applicable Laws and is not required to be consistent with the determination of fair market value for other purposes.
(u)“Fiscal Year” means the fiscal year of the Company.
(v)“Full-Value Awards” means all Awards other than Options and Stock Appreciation Rights.
(w)“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.
(x)“Negative Discretion” means the discretion authorized by this Plan to be applied by the Administrator to eliminate or reduce the size of a Performance Unit, Performance Share or Performance Bonus Award in accordance with Section 10(d) of this Plan.
(y)“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(z)“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
(aa)“Option” means an Incentive Stock Option or Nonstatutory Stock Option.
(bb) “Outside Director” means a Director who is not an Employee.
(cc) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(dd) “Participant” means the holder of an outstanding Award.
(ee) “Performance Bonus Award” means an Award denominated in cash that may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant to Sections 10 and 12.
(ab) (ff) “Performance Period” means the time period of any Fiscal Year of the Company or such other period as determined by the Administrator in its sole discretion during which the Performance Goals must be met.
(gg) “Performance Share” means an Award denominated in Shares that may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant to Sections 10 and 12.
(hh) “Performance Unit” means an Award that may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine and which
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may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Sections 10 and 12.
(ii) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock is 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, the achievement of Performance Goals or other vesting criteria as determined by the Administrator.
(jj) “Plan” means this 2017 Equity Incentive Plan, as may be amended or restated from time to time.
(kk) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 7.
(ll) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(mm) “Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(nn) “Service Provider” means an Employee, Director or Consultant.
(oo) “Share” means a share of Common Stock, as adjusted in accordance with Section 16.
(pp) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a Stock Appreciation Right.
(qq) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(rr) “Successor Corporation” has the meaning given to such term in Section 16(c).
(ss) “Trading Day” means a day on which the applicable stock exchange or national market system is open for trading.
3.Stock Subject to this Plan.
(a)Stock Subject to this Plan. Subject to the provisions of Section 16, the maximum aggregate number of Shares that may be awarded and sold under this Plan is 7,500,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.
(b)Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to the Company, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights the forfeited Shares) which were subject thereto will become available for future grant or sale under this Plan (unless this Plan has terminated). With respect to Stock Appreciation Rights, all of the Shares covered by the Award (that is, Shares actually issued pursuant to a Stock Appreciation Right, as well as the Shares that represent payment of the exercise price) will cease to be available under this Plan. Shares that actually have been issued under this Plan under any Award will not revert to this Plan and will not become available for future distribution under this Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock are forfeited to the Company, such Shares will become available for future grant under this Plan. Shares: (i) used to pay the exercise price of an Award, (ii) used to satisfy the tax withholding obligations related to an Award, or (iii) reacquired by the Company on the open market or
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otherwise using cash proceeds from the exercise of Options will not become available for future grant or sale under this Plan. To the extent an Award under this Plan is paid out in cash rather than Shares, such cash payment will not reduce the number of Shares available for issuance under this Plan. Subject to adjustment as provided in Section 16, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal 200% of the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under this Plan pursuant to this Section 3(b).
(c)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 this Plan.
(d)Substitute Awards. If the Committee grants Awards in substitution for stock compensation awards outstanding under a plan maintained by an entity acquired by or consolidated with the Company, the grant of those substitute Awards will not decrease the number of Shares available for issuance under this Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under this Plan).
(e)Vesting Limitation. Notwithstanding any other provision of this Plan to the contrary, Awards shall become vested no faster than a period of not less than one year following the Date of Grant; provided, however, that, notwithstanding the foregoing, Awards that result in the issuance of an aggregate of up to 5% of the Shares available pursuant to Section 3(a) may be granted without respect to such minimum vesting provisions; and provided further that, for purposes of Awards to Outside Directors, a vesting period will be deemed to be one year if it runs from the date of one annual meeting of the Company’s stockholders to the next annual meeting of the Company’s stockholders.
(f)Annual Limits. The following maximums are imposed under this Plan with respect to each Fiscal Year: (i) the maximum number of Shares subject to stock-based Full-Value Awards granted to any one Participant (other than an Outside Director) in any Fiscal Year shall not exceed 3,000,000 Shares, (ii) the maximum number of Shares subject to Awards that are not stock-based Full-Value Awards granted to any one Participant (other than an Outside Director) in any Fiscal Year shall not exceed 3,000,000 Shares, and (iii) the maximum amount of cash or cash payments that may be received in any Fiscal Year by any one Participant (other than an Outside Director) shall not exceed $3,000,000.
4.Administration of this Plan.
(a)Procedure. Other than as provided herein, this Plan will be administered by (A) the Board, or (B) a Committee.
(i)Multiple Administrative Bodies. Different Administrators may administer this Plan with respect to different groups of Service Providers.
(ii)Further Delegation. To the extent permitted by Applicable Laws, the Board or a Committee may delegate to one or more Officers the authority to grant Options, Stock Appreciation Rights and other Awards to Employees who are not Officers; provided that the delegation of authority must specify any limitations on such authority, including the total number of Shares that may be subject to the Awards granted by such Officer(s). Such delegation may be revoked by the Board or a Committee, as applicable. Any such Awards will be granted pursuant to the form of Award Agreement most recently approved for use by the Board or a Committee consisting solely of Directors, unless the resolutions delegating the authority to the Officer(s) permit such Officer(s) to use a different form of Award Agreement approved by the Board or a Committee consisting solely of Directors.
(iii)Delegation of Authority for Day-to-Day Administration. Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-
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day administration of this Plan and any of the functions assigned to it in this Plan. Such delegation may be revoked at any time.
(b)Powers of the Administrator. Subject to the provisions of this 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 and to determine 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 this Plan;
(v)to determine the terms and conditions, not inconsistent with the terms of this 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 this Plan and Awards granted pursuant to this Plan;
(vii)to prescribe, amend and rescind rules and regulations relating to this Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable non-U.S. laws or for qualifying for favorable tax treatment under applicable non-U.S. laws;
(viii)to modify or amend each Award (subject to Section 20(c)), including, but not limited to, the discretionary authority to extend the post-termination exercisability period of Awards and to extend the maximum term of an Option;
(ix)to require, as a condition precedent to the grant, vesting, exercise, settlement and/or issuance of Shares pursuant to any Award, that a Participant agree to execute a general release of claims (in any form that the Administrator may require, in its sole and absolute discretion, which form may include any other provisions, e.g., confidentiality and restrictions on competition, that are found in general claims release agreements that the Company utilizes or expects to utilize);
(x)in the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting, settlement or exercise of Award, such as a system using an internet website or interactive voice response, to implement paperless documentation, granting, settlement or exercise of Awards by a Participant to permit the use of such an automated system;
(xi)to allow Participants to satisfy tax withholding obligations in such manner as prescribed in Section 17;
(xii)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;
(xiii)subject to Section 7(g) and Section 11, to determine whether Awards (other than Options and Stock Appreciation Rights) will be adjusted for Dividend Equivalents;
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(xiv)to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that otherwise would be due to such Participant under an Award pursuant to such procedures as the Administrator may determine;
(xv)to impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers;
(xvi)to require that a Participant’s rights, payments and benefits with respect to an Award (including amounts received upon the settlement or exercise of 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, as may be specified in an Award Agreement at the time of the Award, or later if (A) Applicable Laws require the Company to adopt a policy requiring such reduction, cancellation, forfeiture or recoupment, or (B) pursuant to an amendment of an outstanding Award;
(xvii)to institute and determine the terms and conditions of an Exchange Program; provided that the Administrator shall not implement an Exchange Program without the approval of the holders of a majority of the Shares that are present in person or represented by proxy and entitled to vote at any annual or special meeting of stockholders of the Company; and
(xviii)to make all other determinations deemed necessary or advisable for administering this Plan.
(c)Local Law Adjustments and Sub-Plans. To facilitate the making of any grant of an Award, the Administrator may adopt rules and provide for such special terms for Awards to Participants who are located within the U.S., non-U.S. nationals, or who are employed by the Company or any of its affiliates outside of the U.S. as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Without limiting the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding the conversion of local currency, taxes, withholding procedures and handling of stock certificates or book entries which vary with the customs and requirements of particular countries. The Administrator may adopt sub-plans and establish escrow accounts and trusts, and settle Awards in cash in lieu of shares, as may be appropriate, required or applicable to particular locations and countries.
(d)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 law. The validity of any such determination, interpretation, construction, decision or finding of fact shall not be given de novo review if challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly made in bad faith or materially affected by fraud.
(e)Claims Limitations Period. Any Participant who believes he or she is being denied any benefit or right under this Plan or under any Award may file a written claim with the Compensation Committee of the Board (the “Compensation Committee”). Any claim must be delivered to the Compensation Committee within 45 days of the specific event giving rise to the claim. Untimely claims will not be processed and shall be deemed denied. The Compensation Committee will notify the Participant of its decision in writing as soon as administratively practicable. Claims not responded to by the Compensation Committee in writing within 120 days of the date the written claim is delivered to the Compensation Committee shall be deemed denied. The Compensation Committee’s decision, including any deemed denial, is final, binding and conclusive on all persons. No lawsuit relating to this Plan may be filed before a written claim is filed with the Compensation Committee and is denied or deemed denied, and any permitted lawsuit must be filed within one year of such denial or deemed denial or be forever barred.
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5.Termination of Status.
(a)Unless a Participant is on a leave of absence approved by the Company as set forth in Section 14, the Participant’s status as a Service Provider will end at midnight at the end of the last day in the primary work location in which the Participant actively provides services for the Company or any Parent or Subsidiary (the “Termination of Status Date”). The Administrator has the sole discretion to determine the date on which a Participant stops actively providing services and whether a Participant may still be considered to be providing services while on a leave of absence; provided that the Administrator may delegate this decision, other than with respect to Officers, to the Company’s senior human resources officer.
(b)Such termination of status as a Service Provider will occur regardless of the reason for such termination, even if the termination is later found to be invalid, in breach of employment laws in the jurisdiction where the Participant is providing services, or in violation of the terms of the Participant’s employment or service agreement, if any such agreement exists.
(c)Unless otherwise expressly provided in an Award Agreement or otherwise determined by the Administrator, a Participant’s right to vest in any Award under this Plan will cease as of the Termination of Status Date and will not be extended by any notice period, whether arising under contract, statute or common law, including any period of “garden leave” or similar period mandated under employment laws in the jurisdiction in which the Participant is providing services.
6.Stock Options.
(a)Limitations. 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 on the Date of Grant.
(b)Number of Shares. The Administrator will have complete discretion to determine the number of Shares subject to, the vesting schedule of, and any other considerations for Options granted to any Participant.
(c)Term of Option. The Administrator will determine the term of each Option in its sole discretion; provided, however, that the term will be no more than 10 years from the Date of Grant thereof. 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 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary (a “10% Holder”), the term of the Incentive Stock Option will be no more than five years from the Date of Grant thereof. If an otherwise-intended Incentive Stock Option granted to a 10% Holder fails to meet the applicable requirements of Section 422 of the Code, the Option shall be a Nonstatutory Stock Option.
(d)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, but will be no less than 100% of the Fair Market Value per Share on the Date of Grant. In addition, in the case of an Incentive Stock Option granted to a 10% Holder, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the Date of Grant. If an otherwise-intended Incentive Stock Option granted to a 10% Holder fails to meet the applicable requirements of Section 422 of the Code, the Option shall be a Nonstatutory Stock Option. Notwithstanding the foregoing, Options may be granted with a per Share exercise price of
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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)Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. The acceptable form of consideration for exercising an Option may consist of any combination of: (A) cash; (B) check; (C) promissory note, to the extent permitted by Applicable Laws; (D) subject to the sole and absolute discretion of the Administrator, if Participant is a U.S. employee, surrender of other Shares, provided that such Shares have a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided further that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion (to the extent not prohibited by the Administrator, this shall include the ability to tender Shares to exercise the Option and then to use the Shares received upon exercise to exercise the Option with respect to additional Shares); (E) consideration received by the Company under a broker-assisted (or other) cashless exercise program implemented by the Company in connection with this Plan; (F) if the Option is a Nonstatutory Stock Option, subject to the consent of the Company at the time of exercise, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise of the Option by the largest whole number of shares with a fair market value that does not exceed the aggregate exercise price of the Shares as to which such Option will be exercised; provided that Participant must pay any remaining balance of the aggregate exercise price of the Shares as to which such Option will be exercised that is not satisfied by the “net exercise” in cash or other permitted form of payment; and (G) such other form of legal consideration as specified in the Award Agreement for the Option (provided that other forms of consideration may only be approved by the Board or a Committee consisting solely of Directors).
(e)Exercise of Option.
(i)Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will vest and be exercisable according to the terms of this 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.
(1)An Option will be deemed exercised when the Company receives: (A) notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (B) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration authorized by the Administrator and permitted by the Award Agreement and this Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. 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 16.
(2)Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of this Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii)Termination of Relationship as a Service Provider Other than as a Result of Disability or Death. If a Participant ceases to be a Service Provider other than as a result of Disability or death, 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
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time in the Award Agreement, the Option will remain exercisable for ninety (90) days following the Participant’s termination. 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 this Plan on the date that is thirty (30) days following the Participant’s termination. If after termination the Participant does not exercise his or her Option within the time period specified herein, the Option will terminate, and the Shares covered by such Option will revert to this 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 12 months following the Participant’s termination. 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 this Plan on the date that is thirty (30) days following the Participant’s termination. If after termination the Participant does not exercise his or her Option within the time period specified herein, the Option will terminate, and the Shares covered by such Option will revert to this 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 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 12 months following the Participant’s death. Unless otherwise provided by the Administrator, if at the time of death the 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 this Plan on the date that is thirty (30) days following the Participant’s termination. If the Option is not so exercised within the time period specified herein, the Option will terminate, and the Shares covered by such Option will revert to this Plan.
(v)Black-out Periods. Notwithstanding any contrary terms within this Plan or any Award Agreement, the Administrator shall have the sole and absolute discretion to impose a “blackout” period on the exercise of any Option or Stock Appreciation Right, as well as the settlement of any Award, with respect to any or all Participants (including those whose employment has ended) to the extent that the Administrator determines that doing so is either desirable or required in order to comply with any black-out period imposed under applicable securities laws. If there is a blackout period under the Company’s insider trading or equivalent policy or Applicable Law (or an Administrator-imposed blackout period) that prohibits the buying or selling of Shares during any part of the ten-day period before the expiration of any Option or Stock Appreciation Right based on the termination of a Participant’s employment, the period for exercising the Option or Stock Appreciation Right shall be extended until ten days beyond when such blackout period ends. Notwithstanding any provision in this Plan or within an Award Agreement, no Option or Stock Appreciation Right shall ever be exercisable after the expiration date of its original term as set forth in the Award Agreement.
(f)Tolling of Expiration.
(i)If exercising an Option prior to its expiration is not permitted because of Applicable Laws, other than the rules of any stock exchange or quotation system on which the Common Stock is listed or quoted, the Option will remain exercisable until 30 days after the first date on which such exercise would no longer be prevented by such provisions. If this extension of the exercise period would result in the Option remaining exercisable past its expiration date, then such Option will remain exercisable
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only until the end of the earlier of (A) the 30th day after which its exercise would not be prevented by Applicable Laws, and (B) its expiration date based on its original term as set forth in the Award Agreement.
(ii)Notwithstanding Section 6(f)(i), a Participant’s Award Agreement may provide that if the exercise of the Option following the termination of Participant’s status as a Service Provider (other than upon the Participant’s Disability or death) would result in liability under Exchange Act Section 16(b), then the Option will terminate on the earlier of (A) the expiration of the term of the Option set forth in the Award Agreement, or (B) the tenth day after the last date on which such exercise would result in such liability under Exchange Act Section 16(b).
(iii)Notwithstanding Section 6(f)(i), a Participant’s Award Agreement may provide that if the exercise of the Option following the termination of the Participant’s status as a Service Provider (other than upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of Shares would violate Applicable Laws, then the Option will terminate on the later of (A) the expiration of the term of the Option set forth in the Award Agreement, or (B) the expiration of a period of ninety (90) days after the termination of the Participant’s status as a Service Provider during which the exercise of the Option would not be in violation of such Applicable Laws.
(g)Maximum Period of Exercisability. Notwithstanding the provisions of Sections 6(e) and (f) or any other provision in the Plan, in no event shall an Option be exercisable more than ten years from the Date of Grant thereof.
7.Restricted Stock.
(a)Grant of Restricted Stock. Subject to the terms and provisions of this 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 (if any), the number of Shares granted and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.
(c)Transferability. Except as provided in the Award Agreement, 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 this 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 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. Unless otherwise provided in an Award Agreement, during the Period of Restriction, Service Providers holding Shares of Restricted Stock will not be entitled to accrue dividends and other distributions paid with respect to such Shares; provided that in no event will Service Providers holding Shares of Restricted Stock be entitled to actually receive dividends,
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payments or other distributions paid with respect to Shares of Restricted Stock prior to the time the applicable Period of Restriction lapses.
(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 such Shares will revert to this Plan.
8.Restricted Stock Units.
(a)Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms and conditions as the Administrator, in its sole discretion, will determine, including all terms, conditions and restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 8(d), may be left to the discretion of the Administrator.
(b)Vesting Criteria and Other Terms. 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. Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(c)Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as specified in the Award Agreement. 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. 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.
(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. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares or a combination of cash and Shares. Shares represented by Restricted Stock Units that are fully paid in cash again will be available for grant under this Plan.
(e)Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
9.Stock Appreciation Rights.
(a)Grant of Stock Appreciation Rights. Subject to the terms and conditions of this Plan, a Stock Appreciation Right 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. The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Service Provider.
(c)Exercise Price and Other Terms. The Administrator, subject to the provisions of this Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under this Plan; provided, however, that the per Share exercise price of a Stock Appreciation Right will be not less than 100% of the Fair Market Value of a Share on the Date of Grant.
(d)Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation
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Right, the conditions of exercise and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e)Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under this 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 rules of Section 6(e), Sections 6(f)(ii) and (iii), and Section 6(g) also will apply to Stock Appreciation Rights.
(f)Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount (the “Payout 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 Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares (which, on the date of exercise, have an aggregate fair market value equal to the Payout Amount) or in some combination of cash and Shares that have an aggregate value equal to the Payout Amount.
10.Performance Units, Performance Shares and Performance Bonus Awards.
(a)Grant of Performance Units/Shares. Performance Units, Performance Shares and Performance Bonus Awards 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 and Performance Shares, and the amount of the Performance Bonus Award, granted to each Participant.
(b)Value of Performance Units and Performance 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. 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, Performance Shares and Performance Bonus Awards that will be paid out to the Participant. Each Award of Performance Units, Performance Shares and Performance Bonus Awards 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 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.
(d)Earning of Performance Units, Performance Shares and Performance Bonus Awards. After the applicable Performance Period has ended, a holder of Performance Units, Performance Shares or Performance Bonus Awards will be entitled to receive a payout of the number of Performance Units, Performance Shares or cash 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. Subject to Section 3(e), after the grant of a Performance Unit, Performance Share or Performance Bonus Award, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit, Performance Share or Performance Bonus Award. In addition, notwithstanding the foregoing, the Administrator can exercise Negative Discretion if provided in an Award Agreement.
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(e)Form and Timing of Payment of Performance Units, Performance Shares and Performance Bonus Awards. Payment of earned Performance Units, Performance Shares and Performance Bonus Awards will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units and Performance Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units or Performance Shares at the close of the applicable Performance Period) or in a combination of cash and Shares. Earned Performance Bonus Awards will be paid in cash.
(f)Cancellation of Performance Units and Performance Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units and Performance Shares will be forfeited to the Company, and will revert to this Plan.
11.Dividend Equivalents. The Administrator, in its discretion, may provide in the Award Agreement evidencing any Award that the Participant will be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Shares having a record date prior to the date on which the Awards are settled or forfeited. The Dividend Equivalents, if any, will be credited to an Award in such manner and subject to such terms and conditions as determined by the Administrator in its sole discretion. In the event of a dividend or distribution paid in Shares or any other adjustment made upon a change in the capital structure of the Company as described in Section 16, appropriate adjustments will be made to the Participant’s Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would be entitled by reason of the consideration issuable upon settlement of the Award, and all such new, substituted or additional securities or other property will be immediately subject to the same vesting and settlement conditions as are applicable to the Award. Notwithstanding anything in this Plan to the contrary, in no event will Service Providers holding an Award that is unvested or subject to a Period of Restriction be entitled to actually receive dividends, payments or other distributions paid with respect to such Award prior to the time the Award vests and the applicable Period of Restriction lapses.
12.Performance-Based Compensation. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Performance Bonus Awards and other incentives under this Plan may be made subject to the attainment of performance goals as determined by the Administrator (in its discretion) (“Performance Goals”). As determined by the Administrator, the Performance Goals applicable to an Award may provide for a targeted level or levels of achievement of one or more performance criteria, which may include the following: research and development milestones; business divestitures and acquisitions; cash flow; cash position and cash equivalents; collaboration arrangements; collaboration progression; credit rating; customer service; earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings); net income per diluted share; economic value added; employee retention; employee satisfaction; expenses, including expense reduction; financing events; gross margin; growth with respect to any of the foregoing measures; growth in bookings; growth in revenues; growth in stockholder value relative to the moving average of the S&P 500 Index or another index; internal rate of return; inventory balance; inventory turnover ratio; market share; net income; net profit; net sales; new product development; new product invention or innovation; number of customers; operating cash flow; operating expenses; operating income; operating margin; pre-tax profit; product approvals; product sales; productivity; projects in development; regulatory filings and/or approvals; return on assets; return on capital; return on stockholder equity; return on investment; return on sales; revenue (which may include product, royalty, licensing, total and/or other revenue); revenue growth; sales growth; sales results; stock price; strategic transactions; time to market; total stockholder return; ratio of debt to debt plus equity; ratio of operating earnings to capital spending; working capital; and objective operating goals, objective employee metrics, and other objective financial or other metrics relating to the progress of the Company or to a Subsidiary, division or department thereof, or any other criteria as determined by the Administrator in its discretion. Any criteria used may be measured, as applicable, (i) in absolute terms, (ii) in combination with another Performance Goal or Goals (for example, but not by way of limitation, as a ratio or matrix), (iii) in relative terms (including, but not limited to, results for other periods, passage of time and/
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or against another company or companies or an index or indices), (iv) on a per-share or per-capita basis, (v) against the performance of the Company as a whole or a segment of the Company (including, but not limited to, any combination of the Company and any subsidiary, division, business unit, joint venture and/or other segment), and/or (vi) on a pre-tax or after-tax basis. The Performance Goals may differ from Participant to Participant and from Award to Award. The Administrator will determine whether any significant element(s) will be included in or excluded from the calculation of any Performance Goal with respect to any Participant. In all other respects, Performance Goals will be calculated in accordance with the Company’s financial statements, U.S. generally accepted accounting principles or under a methodology established by the Administrator prior to the issuance of an Award. Evaluation of performance may include or exclude events or items as specified by the Committee in its sole discretion, including, without limitation, the following unusual or nonrecurring events: (A) asset write downs; (B) litigation, investigation or claim expenses, judgments or settlements; (C) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (D) any reorganization and restructuring programs; (E) extraordinary nonrecurring items as described in Financial Accounting Standards Board Accounting Standards Codification 225-20 “Extraordinary and Unusual Items” and/or in the management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report on Form 10-K for the applicable Fiscal Year; (F) acquisitions or divestitures; (G) foreign exchange gains and losses; (H) tariffs; (I) royalties; and (J) gains on stock option exercises.
13.Outside Director Limitations. The total compensation payable to an Outside Director for any Fiscal Year, other than such Outside Director’s first year of service as an Outside Director, for service as an Outside Director will be limited to $400,000, with the compensation resulting from Awards determined based on the grant date fair value of such Awards as determined under U.S. generally accepted accounting principles. An Outside Director may receive up to an additional $3,000,000 in compensation during his or her first year of service as an Outside Director.
14.Leaves of Absence/Transfer Between Locations/Change of Status.
(a)General Rule. Unless the Administrator provides otherwise, or except as otherwise required by Applicable Laws, vesting of Awards granted under this Plan will be suspended during any unpaid leave of absence. A Participant 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 or any Parent or Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, 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, on the date that is ninety (90) days following the first day of such leave of absence, any Incentive Stock Option held by such Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
(b)Protected Leaves.
(i)Any leave of absence by a Participant will be subject to any Applicable Laws that apply to leaves of absence.
(ii)For a Participant on a military leave, if required by Applicable Laws, vesting will continue for the longest period that vesting continues under any other statutory or Company-approved leave of absence. When a Participant returns from military leave (under conditions that would entitle him or her to such protection under the Uniformed Services Employment and Reemployment Rights Act), the Participant will be given vesting credit to the same extent as if the Participant had continued to provide services to the Company or any Parent or Subsidiary, as applicable, through the military leave.
(c)Changes in Status. If a Participant who is an Employee has a reduction in hours worked, the Administrator may unilaterally:
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(i)make a corresponding reduction in the number of Shares or cash amount subject to any portion of an Award that is scheduled to vest or become payable after the date of such reduction in hours; and
(ii)in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award.
If any such reduction occurs, the Participant will have no right to any portion of the Award that is reduced or extended.
(d)Determinations. The effect of a Company-approved leave of absence, a transfer or a Participant’s reduction in hours of employment or service on the vesting of an Award shall be determined, under policies reviewed by the Administrator, by the Company’s senior human resources officer or other person performing that function or, with respect to Directors or Officers, by the Compensation Committee, and any such determination will be final.
15.Transferability of Awards.
(a)General Rule. Unless determined otherwise by the Administrator, or unless otherwise required by Applicable Laws, an Award may not be sold, pledged, encumbered, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution, or other than to (or in favor of) the Company or a Subsidiary, and each Award may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, the Award will be limited by any additional terms and conditions imposed by the Administrator and will in any event not be transferable for consideration other than to the Company or a Subsidiary. Any unauthorized transfer of an Award will be void.
(b)Domestic Relations Orders. If approved by the Administrator, an Award may be transferred under a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulations Section 1.421-1(b)(2). An Incentive Stock Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(c)Limited Transfers for the Benefit of Family Members. The Administrator may permit an Award or Share issued under this Plan to be assigned or transferred, subject to the applicable limitations set forth in the General Instructions to Form S-8 Registration Statement under the Securities Act, if applicable, and any other Applicable Laws.
(d)Award Terms Apply to Transferees. Any individual or entity to whom an Award is transferred will be subject to all of the terms and conditions applicable to the Participant who transferred the Award, including the terms and conditions in this Plan and the Award Agreement. If a transferred Award is unvested, then the service of the Participant will continue to determine whether the Award will vest and any applicable expiration date.
16.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, but excepting normal cash dividends), recapitalization, stock split, reverse stock split, reorganization, reincorporation, reclassification, 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 this Plan, will adjust the number and class of Shares that may be delivered under this Plan and/or the number, class and price of Shares covered by each outstanding Award, and the numerical Share limits in Sections 3.
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(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 an Option or Stock Appreciation Right previously has not been exercised (or any other Award has not been settled), each Award will terminate immediately prior to the consummation of such proposed action.
(c)Change in Control. In the event of a merger or Change in Control, each outstanding Award will be treated as the Administrator determines, on an Award-by-Award basis, including, without limitation, that (i) outstanding Awards may be continued by the Company, if the Company is a surviving corporation; (ii) Awards may be assumed, or substantially equivalent Awards may be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) (the “Successor Corporation”) with appropriate adjustments as to the number and kind of shares and prices; (iii) upon written notice to a Participant, the Participant’s Awards may terminate upon or immediately prior to the consummation of such Change in Control; (iv) outstanding Awards may vest and become exercisable, realizable or payable, or restrictions applicable to an Award may lapse, in whole or in part prior to or upon consummation of such Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger or Change in Control; (v) (A) an Award may terminate in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment), or (B) an Award may be replaced with other rights or property selected by the Administrator in its sole discretion; or (vi) any combination of the foregoing. In taking any of the actions permitted under this Section 16(c), 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, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all 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 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.
For the purposes of this Section 16(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 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, 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 Unit or Performance Share, for each Share subject to such Award (or in the case of Performance Units denominated in dollars, the number of implied shares determined by dividing the value of the Performance Units 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 equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.
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The Administrator will have the authority to modify Awards in connection with a Change in Control: (w) in a manner that causes them to lose their tax-preferred status; (x) to terminate any right a Participant has to exercise an Option prior to vesting in the Shares subject to the Option (i.e., “early exercise”), so that following the closing of the transaction the Option may only be exercised to the extent it is vested; (y) to reduce the exercise price subject to the Award in a manner that is disproportionate to the increase in the number of Shares subject to the Award, as long as the amount that would be received upon exercise of the Award immediately before and immediately following the closing of the transaction is equivalent and the adjustment complies with Treasury Regulations Section 1.409A-1(b)(v)(D); and (z) to suspend a Participant’s right to exercise an Option or Stock Appreciation Right during a limited period of time preceding and/or following the closing of the transaction without the Participant’s consent if such suspension is administratively necessary or advisable to permit the closing of the transaction.
Notwithstanding anything in this Section 16(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, that a modification to such performance goals only to reflect the Successor Corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
(d)Outside Director Awards. With respect to Awards granted to an Outside Director 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 (unless such resignation is at the request of the acquirer), 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 underlying such Award, including those Shares which otherwise would not be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met.
17.Tax Matters.
(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 withholding obligations 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, non-U.S. or other taxes (including the Participant’s social tax obligations) required to be withheld and any employer tax liability shifted to a Participant 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 (B) 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 (or at such other rate as may be permitted by the Company from time to time, not to exceed the maximum statutory tax rate), (iii) delivering to the Company already-owned Shares having a fair market value equal to the minimum statutory amount required to be withheld (or at such other rate as may be permitted by the Company from time to time, not to exceed the maximum statutory tax rate), (iv) engaging in a broker-assisted (or other) cashless exercise program implemented by the Company in connection with this Plan, (v) engaging in a sell-to-cover transaction or (vi) any combination of the foregoing, or (B) require a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) engaging in a sell-to-cover transaction. The fair market value of the Shares to be withheld or delivered will be determined as of the date the taxes must 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.
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(c)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 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. This Plan and each Award Agreement under this Plan are 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. This Section 17(c) is not a guarantee to any Participant of the consequences of his or her Awards and in no event will the Company reimburse or indemnify any Participant for any taxes that may be imposed upon such Participant as a result of Code Section 409A or otherwise.
18.No Effect on Employment or Service. Neither this Plan nor any Award will be interpreted as forming an employment or service relationship with the Company or any Parent or Subsidiary. Further, neither this Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or any Parent or Subsidiary, nor will they interfere in any way with the Participant’s right or right of the Company or any Parent or Subsidiary, as applicable, to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
19.Term of Plan. This Plan will become effective upon its approval by the Company’s stockholders. It will continue in effect for a term of ten years from the date it is approved by the Company’s stockholders, unless terminated earlier under Section 20. This Plan will be subject to approval by the Company’s stockholders within 12 months after the date this Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
20.Amendment and Termination of this Plan.
(a)Amendment and Termination. The Board may at any time amend, alter, suspend or terminate this 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.
(c)Consent of Participants Generally Required. Subject to Section 20(d) below, no amendment, alteration, suspension or termination of this Plan or an Award granted under this Plan will materially impair the rights of any Participant, unless otherwise mutually agreed between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of this Plan will not affect the Administrator’s ability to exercise the powers granted to it regarding Awards granted under this Plan prior to such termination.
(d)Exceptions to Consent Requirement. A Participant’s rights will not be deemed to have been impaired by any amendment, alteration, suspension or termination of this Plan if the Administrator, in its sole discretion, determines that such amendment, alteration, suspension or termination, taken as a whole, does not materially impair such Participant’s rights. Furthermore, subject to any limitations of Applicable Laws, the Administrator may amend the terms of any one or more Awards without the affected Participant’s consent, even if it does materially impair the Participant’s right, if such amendment is done:
(i)to maintain the qualified status of the Award as an Incentive Stock Option under Code Section 422;
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(ii)to change the terms of an Incentive Stock Option, if such change results in impairment of the Award only because it impairs the qualified status of the Award as an Incentive Stock Option under Code Section 422;
(iii)to clarify the manner of exemption from, or to bring the Award into compliance with, Code Section 409A; or
(iv)to comply with other Applicable Laws.
(e) Prior Awards. Any Award issued prior to [the date that the Company’s stockholders approve the proposed amendment] (the “Amendment Date”) that is intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code shall continue to be governed by the Plan as in effect prior to the Amendment Date.
21.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. If required by the Administrator, issuance will be further subject to the approval of counsel for the Company with respect to such compliance. The inability of the Company to obtain authority from any regulatory body having jurisdiction over any such exercise, issuance, or delivery or to complete or comply with the requirements of any Applicable Laws will relieve the Company of any liability regarding the failure to issue or deliver Shares as to which such authority, registration, qualification or rule compliance was not obtained, and the Administrator reserves the authority, without the consent of a Participant, to terminate or cancel Awards with or without consideration in such a situation.
(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.
22.Failure to Accept Award. If a Participant has not accepted an Award or has not taken all administrative and other steps (e.g., setting up an account with a broker designated by the Company) necessary for the Company to issue Shares upon the vesting, exercise or settlement of an Award prior to the 90th day after the Date of Grant, then the Award may be cancelled on such date and the Shares subject to such Award immediately will revert to this Plan for no additional consideration, unless otherwise provided by the Administrator.
23.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. Such events may include, but will not be limited to, fraud, breach of a fiduciary duty, restatement of financial statements as a result of fraud or willful errors or omissions, termination of employment for cause, violation of material Company and/or Subsidiary policies, breach of non-competition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Subsidiaries.
24.Recoupment of Awards.
(a)General. Unless otherwise specifically provided in an Award Agreement, and to the extent permitted or required by Applicable Law, the Administrator may, in its sole and absolute discretion, without obtaining the approval or consent of the Company’s stockholders or of any Participant, require that any Participant reimburse the Company for all or any portion of any Awards granted to such Participant (or
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the income recognized by the Participant in connection with any settled Award) (“Reimbursement”), if and to the extent:
(i)the granting, vesting or payment of such Award (or any portion thereof) was predicated upon the achievement of certain financial results that were subsequently the subject of a material financial restatement;
(ii)in the Administrator’s view, the Participant either benefited from a calculation that later proves to be materially inaccurate, or engaged in fraud or misconduct that caused or partially caused the need for a material financial restatement by the Company or any of its affiliates; and
(iii)a lower granting, vesting or payment of such Award would have occurred if not for the conduct described in clause (ii) above.
In each instance, the Administrator may, to the extent practicable and allowable or required under Applicable Law, require Reimbursement; provided that the Company will not seek Reimbursement with respect to any such Awards that were paid or vested more than three (3) years prior to the first date of the applicable restatement period.
(b)Mandatory Recoupment. Notwithstanding any other provision of this Plan, all Awards (whenever granted) will be subject to recoupment in accordance with any clawback policy that is both (A) in effect at any time while the Award is outstanding, and (B) established in order to comply with (i) the listing standards of any securities exchange, trading market or automated quotation system on which the Company’s securities are listed, quoted or traded, or (ii) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including but not limited to Section 10D of the Exchange Act, or any other Applicable Law. No recovery of compensation under any clawback policy or provisions imposed under this paragraph will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company or otherwise. Any Participant who receives and accepts an Award shall be deemed automatically to have consented and agreed to the foregoing clawback terms.
25.Unfunded Plan. This Plan shall be unfunded. No provision of this Plan or any Award or Award Agreement shall require the Company or any Parent or Subsidiary, for the purpose of satisfying any obligations under this Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company or any Parent or Subsidiary maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under this Plan other than as unsecured general creditors of the Company or any Parent or Subsidiary, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees or consultants, as applicable, under Applicable Laws.
26.Limits of Liability. Any liability of the Company or any Parent or Subsidiary to any Participant with respect to an Award shall be based solely upon contractual obligations created by this Plan and the Award Agreement. Neither the Company or any Parent or Subsidiary, nor any member of the Board or of the Committee, nor any other person participating in any determination of any question under this Plan, or in the interpretation, administration or application of this Plan, shall have any liability to any party for any action taken, or not taken, in good faith under this Plan. The Company, its Parent and its Subsidiaries shall pay or reimburse any of the foregoing who in good faith take action on behalf of this Plan, for all expenses incurred with respect to their good faith performance of duties on behalf of this Plan, and, to the fullest extent allowable under Applicable Law, shall indemnify each and every one of them for any claims, liabilities and costs (including reasonable attorney’s fees) arising out of their good faith performance of duties on behalf of this Plan. The Company and any Parent or Subsidiary may, but shall not be required to, obtain liability insurance for this purpose.
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27.Choice of Law; Choice of Forum. This Plan, all Awards and all determinations made and actions taken under this Plan, to the extent not otherwise governed by the laws of the U.S., will be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that arises under this Plan, a Participant’s acceptance of an Award is his or her consent to the jurisdiction of the State of Delaware, and agree that any such litigation will be conducted in the Delaware Court of Chancery, or the federal courts for the U.S. for the District of Delaware, and no other courts, regardless of where a Participant’s services are performed.
28.Awards for Compensation Purposes Only. This Plan is not intended to constitute an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
29.Data Privacy. As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 29 by and among, as applicable, the Company and any Parent or Subsidiary for the purpose of implementing, administering, and managing this Plan and Awards and the Participant’s participation in this Plan. In furtherance of such implementation, administration, and management, the Company and any Parent or Subsidiary may hold certain personal information about a Participant, including, but not limited to, the Participant’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any Parent or Subsidiary, and details of all Awards (collectively, the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of this Plan and Awards and the Participant’s participation in this Plan, the Company and any Parent or Subsidiary may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of this Plan and Awards and the Participant’s participation in this Plan. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of this Plan and Awards and the Participant’s participation in this Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as is necessary to implement, administer and manage this Plan and Awards and the Participant’s participation in this Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting the Participant’s local human resources representative. The Company may cancel the Participant’s eligibility to participate in this Plan, and in the Administrator’s sole and absolute discretion, the Participant may forfeit any outstanding Awards, if the Participant refuses, or withdraws, the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.
30.Captions; Section References. Captions are provided herein for convenience only, and will not serve as a basis for interpretation or construction of this Plan. Unless otherwise expressly provided in this Plan, references to a “Section” or to “Sections” in this Plan shall mean a Section or Sections, respectively, of this Plan.
31.Electronic Delivery. Any reference herein to a “written” agreement or document or a notice delivered “in writing” will include any agreement, document or notice delivered electronically, posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which the Participant has access) or, filed publicly by the Company at www.sec.gov (or any successor website thereto).
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32.Repricing of Stock Options or Stock Appreciation Rights. Except as provided in Section 16, any amendment to this Plan or any Award Agreement that results in the repricing of an Option or Stock Appreciation Right issued under this Plan shall not be effective without prior approval of the stockholders of the Company. For this purpose, repricing includes a reduction in the exercise price of an Option or Stock Appreciation Right or the cancellation of an Option or Stock Appreciation Right in exchange for cash, Options or Stock Appreciation Rights with an exercise price less than the exercise price of the cancelled Option or Stock Appreciation Right, other awards under this Plan or any other consideration provided by the Company.
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APPENDIX D
EXECUTIVE BONUS INCENTIVE PLAN
SECTION 1
BACKGROUND, PURPOSE AND DURATION
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1.1
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Effective Date. The Plan will become effective upon approval by the Board or the
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Committee,
1.2 Purpose of the Plan. The Plan is intended to increase stockholder value and the success of the Company by motivating key executives (1) to perform to the best of their abilities, and (2) to achieve the Company’s objectives. The Plan’s goals are to be achieved by providing such executives with incentive awards based on the achievement of goals relating to the performance of the Company.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context:
2.1 “Actual Award” means as to any Performance Period, the actual cash award (if any) payable to a Participant for the Performance Period pursuant to the Plan. Each Actual Award is determined by the Payout Formula for the Performance Period, subject to the Committee’s authority under Section 3.6 to eliminate or reduce such award otherwise determined by the Payout Formula. For purposes of applying the Maximum Level limitation, the Actual Award will be deemed to have been determined on the last day of the applicable Performance Period, so that if there are multiple Performance Periods ending in a particular Fiscal Year, in no event may the Actual Awards with respect to all such Performance Periods in the aggregate exceed the Maximum Level.
2.2 “Affiliate” means any corporation or other entity (including, but not limited to,
subsidiaries, partnerships and joint ventures) controlled by the Company.
2.3 “Applicable Law” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to United States (“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, only to the extent applicable with respect to an Award, the tax, securities or exchange control laws of any jurisdictions other than the U.S. where Awards are, or will be, granted under this Plan. Reference to a section of an Applicable Law or regulation related to that section shall include such section or regulation, any valid regulation issued under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
2.4 “Award” means a written award by the Committee that specifies a Threshold Level, Target Level, and/or a Maximum Level (or additional levels) for an Actual Award that a Participant may earn pursuant to the Plan and the associated Award Agreement (if any).
2.5 “Award Agreement” means a written agreement governing an Award granted to a Participant that is executed by and between the Company and such Participant.
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2.6 “Base Salary” means as to any Performance Period, unless the Committee provides otherwise when establishing the Threshold Level, Target Level and/or Maximum Level, the Participant’s annualized salary rate on the last day of the Performance Period. Such Base Salary shall be before both (a) deductions for taxes or benefits, and (b) deferrals of compensation pursuant to Company-sponsored plans. For the avoidance of doubt, “Base Salary” does not include performance-based cash incentives, commissions, equity compensation, incentive or other compensation.
2.7 “Board” means the Board of Directors of the Company.
2.8 “Change in Control” means the occurrence of any of the following events:
(i) A change in the ownership of the Company which 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 already held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), (A) the acquisition of beneficial ownership of additional stock by any one Person who is considered to beneficially own more than 50% of the total voting power of the stock of the Company will not be considered a Change in Control; and (B) if the stockholders 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 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 will not be considered a Change in Control under this subsection (i). For purposes of this subsection (i), indirect beneficial ownership will 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 that occurs on the date that 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 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 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 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 stockholders immediately after the transfer; or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock; (2) an entity, 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, 50% or more of the total value or voting power of all the outstanding stock of the Company; or (4) an entity, 50% of the total value or voting power of which is owned,
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directly or indirectly, by a Person described in clause (B)(3) of this subsection (iii). 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 a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A. Further and for the avoidance of doubt, a transaction will not be a Change in Control if: (A) its sole purpose is to change the state of the Company’s incorporation; or (B) 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.
2.9 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
2.10 “Committee” means the Compensation Committee of the Board, or such other committee as may be designated by the Board to administer the Plan. A majority of the members of the Committee shall constitute a quorum, and the act of a majority of its members present at a meeting at which a quorum is present shall be the act of the Committee.
2.11 “Common Stock” means the common stock of the Company.
2.12 “Company” means Masimo Corporation, a Delaware corporation, or any
successor thereto.
2.13 “Director” means a member of the Board.
2.14 “Disability” means total and permanent disability as defined in Section 22(e)(3) of
the Code; provided that the Committee in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Committee from time to time.
2.15 “Employee” means any person, including an Officer, providing services as an employee of the Company or of any Affiliate. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute status as an “Employee” within the meaning of this Plan.
2.16 “Exchange Act” shall mean the Securities Exchange of 1934, as amended.
2.17 “Fiscal Year” means a fiscal year of the Company.
2.18 “GAAP” means U.S. generally accepted accounting principles.
2.19 “Maximum Level” means as to any Participant for any Fiscal Year, (a) two hundred percent (200%) of the Participant’s Base Salary, or (b) such lesser maximum dollar amount, not to
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exceed $5,000,000, in either case that is set forth in an Award Agreement with respect to a particular Award.
2.20 “Negative Discretion” means the discretion authorized by this Plan to be applied pursuant to Section 3.6.
2.21 “Officer” means a natural person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
2.22 “Participant” means, with respect to a Performance Period, each Employee who has been selected by the Committee for participation in the Plan for such Performance Period.
2.23 “Payout Formula” means as to any Performance Period, the formula or payout matrix established by the Committee pursuant to Section 3.4 in order to determine the Actual Awards (if any) to be paid to Participants. The formula or matrix may differ from Participant to Participant, and may provide for payments in installments after the Performance Period based on vesting conditions (which may include, without limitation, Performance Goals and/or continuation of employment in good standing) that apply after the end of the Performance Period.
2.24 “Performance Goals” means the goal(s) (or combined goal(s)) determined by the Committee (in its discretion) to be applicable to a Participant for an Award for a Performance Period. As determined by the Committee, the Performance Goals for any Threshold Level, Target Level and/or Maximum Level applicable to a Participant must provide for a targeted level or levels of achievement using one or more of the following measures: research and development milestones; business divestitures and acquisitions; cash flow; cash position and cash equivalents; collaboration arrangements; collaboration progression; credit rating; customer service; earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings); earnings per share; economic value added; employee retention; employee satisfaction; expenses, including expense reduction; financing events; gross margin; growth with respect to any of the foregoing measures; growth in bookings; growth in revenues; growth in stockholder value relative to the moving average of the S&P 500 Index or another index; internal rate of return; inventory balance; inventory turnover ratio; market share; net income; net profit; net sales; new product development; new product invention or innovation; number of customers; operating cash flow; operating expenses; operating income; operating margin; pre-tax profit; product approvals; product sales; productivity; projects in development; regulatory filings and/or approvals; return on assets; return on capital; return on stockholder equity; return on investment; return on sales; revenue (which may include product, royalty, licensing, total and/or other revenue); revenue or sales growth or objectives (including for a specific product or products); sales results; stock price; strategic transactions; time to market; total stockholder return; ratio of debt to debt plus equity; ratio of operating earnings to capital spending; working capital; and objective operating goals, objective employee metrics, and other objective financial or other metrics relating to the progress of the Company or to a subsidiary, division or department thereof. Any criteria used may be measured, as applicable, (i) in absolute terms, (ii) in combination with another Performance Goal or Goals (for example, but not by way of limitation, as a ratio or matrix), (iii) in relative terms (including, but not limited to, results for other periods, passage of time and/or against another company or companies or an index or indices), (iv) on a per-share or per-capita basis, (v) against the performance of the Company as a whole or a segment of the Company (including, but not limited to, any combination of the Company and any subsidiary, division, business unit, joint venture and/or other segment), and/or (vi) on a pre-tax or after-tax basis. The Performance Goals may differ from Participant to Participant and from Award
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to Award. The Committee will determine whether any significant element(s) will be included in or excluded from the calculation of any Performance Goal with respect to any Participant. In all other respects, Performance Goals will be calculated in accordance with the Company’s financial statements, GAAP or under a methodology established by the Committee prior to the issuance of an Award. Evaluation of performance may include or exclude events or items as specified by the Committee in its sole and absolute discretion, including, without limitation, the following unusual or nonrecurring events: (A) asset write downs; (B) litigation, investigation or claim expenses, judgments or settlements; (C) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (D) any reorganization and restructuring programs; (E) extraordinary nonrecurring items as described in Financial Accounting Standards Board Accounting Standards Codification 225-20 “Extraordinary and Unusual Items” and/or in the management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report on Form 10-K for the applicable Fiscal Year (as may be amended or restated); (F) acquisitions or divestitures; (G) foreign exchange gains and losses; (H) tariffs; (I) royalties; and (J) gains on stock option exercises.
2.25 “Performance Period” means any Fiscal Year or such other period as determined by the Committee in its sole and absolute discretion.
2.26 “Plan” means the Masimo Corporation Executive Bonus Incentive Plan, as set forth in this instrument and as may be amended or restated from time to time.
2.27 “Target Level” means the target level of an Award payable under the Plan to a Participant for the Performance Period, which may but shall not be required to be expressed as a percentage of his or her Base Salary, as determined by the Committee in accordance with Section 3.3.
2.28 “Termination of Employment” means a cessation of the employee-employer relationship between a Participant and the Company or an Affiliate for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, retirement, or the disaffiliation of an Affiliate, but excluding any such termination where there is a simultaneous reemployment by the Company or an Affiliate.
2.29 “Threshold Level” means the threshold level of an Award payable under the Plan to a Participant achieving the lowest acceptable performance for the Performance Period, which may but shall not be required to be expressed as a percentage of his or her Base Salary, as determined by the Committee in accordance with Section 3.3.
SECTION 3
SELECTION OF PARTICIPANTS AND
DETERMINATION OF AWARDS
3.1 Selection of Participants. The Committee, in its sole and absolute discretion, shall select the Employees who shall be Participants for any Performance Period. Participation in the Plan is in the sole and absolute discretion of the Committee, and on a Performance Period by Performance Period basis. Accordingly, an Employee who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for participation in any subsequent or other Performance Period.
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3.2 Determination of Performance Goals. The Committee, in its sole and absolute discretion, shall establish the Performance Goals for each Participant for the Performance Period. Such Performance Goals shall be set forth in writing.
3.3 Determination of Threshold Level, Target Level and/or Maximum Level. The Committee, in its sole and absolute discretion, shall establish a Threshold Level, Target Level, and/or Maximum Level for each Participant, and each shall be set forth in writing.
3.4 Determination of Payout Formula or Payout Formulae. The Committee, in its sole and absolute discretion, shall establish a Payout Formula or Payout Formulae for purposes of determining the Actual Award (if any) payable to each Participant. Each Payout Formula shall (a) be in writing, (b) be based on a comparison of actual performance to the Performance Goals, and (c) provide for the payment of a Participant’s Actual Award at the Threshold Level, Target Level, or Maximum Level (or such intermediate level as is required under an Award Agreement) if the associated Performance Goals for the Performance Period are achieved. Notwithstanding the preceding, in no event shall a Participant’s Actual Award(s) for any Fiscal Year exceed the Maximum Level.
3.5 Date for Determinations; Award Agreements. The Committee shall make final determinations under Section 3.1 through 3.4. In its sole and absolute discretion, the Committee may set forth the terms and conditions for Awards in written notices to affected Participants (or in agreements with them), and may condition the effectiveness of an Award on the affected Participant’s execution of a written acceptance within a time specified by the Committee in writing.
3.6 Determination of Actual Awards. As soon as reasonably practicable following the finalization of the Company’s financial statements or receipt of the report of the independent registered public accounting firm of the Company on the Company’s financial statements for a Performance Period consisting of one or more Fiscal Years covered by the financial statements or other accounting finalizing of the Company’s financial results for any Performance Period and receipt of the report of the Company’s senior management, the Committee shall approve the extent to which the Performance Goals applicable to each Participant for the Performance Period were achieved or exceeded. The Actual Award for each Participant shall be determined by applying the Payout Formula to the level of actual performance that has been approved by the Committee. Notwithstanding any contrary provision of the Plan, the Committee, through the exercise of Negative Discretion to the extent provided in the applicable Award Agreement, may (a) eliminate or reduce the Actual Award payable to any Participant below that which otherwise would be payable under the Payout Formula, and (b) 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 (c) 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, provided that any such Actual Award must be subject to attainment of the Performance Goals and application of the Payout Formula for the Performance Period.
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SECTION 4
PAYMENT OF AWARDS
4.1 Right to Receive Payment. No Participant shall accrue or become entitled to an Actual Award unless that Participant remains employed in good standing with the Company, as determined by the Committee in its sole and absolute discretion, until the time of its payment pursuant to Section 4.2. Accordingly, no Actual Award shall be paid to a Participant who has a Termination of Employment prior to the payment date for such Actual Award, provided that the Committee shall have the complete discretion to pay a full or partial Actual Award (based on the amount determined under Section 3.6) to any Participant or Participants whose Termination of Employment occurs after commencement of the Performance Period due to the Participant’s death, Disability, or other event or circumstance established by the Committee.
4.2 Timing of Payment. Payment of each Actual Award (if any) shall be made in the calendar year that follows the end of the Performance Period, with such payment to occur as soon
as practical following the determination and approval of the Actual Award as set forth in Section 3.6; provided that the Committee may permit Participants to elect to defer payment of their Actual Awards in a manner satisfying the requirements of Section 409A of the Code. Notwithstanding the foregoing, and absent an election to defer payment in a manner satisfying the requirements of Section 409A of the Code, if the Committee has imposed vesting conditions that apply after the end of the Performance Period, the Committee shall make payments, by no later than March 15 of the calendar year following the year in which the vesting condition is satisfied or upon such earlier date so that payment qualifies as a “short term deferral” for purposes of Section 409A of the Code, of all or the portion of the Actual Award that has become vested on such date. In no event will interest or other earnings be accrued or paid on Actual Awards, whether paid in a lump sum or in installments over a vesting period. To the extent vesting has not occurred on or prior to a Participant’s Termination of Employment, the Participant shall have no further rights under the Plan and shall forfeit all outstanding Awards hereunder on such date of Termination of Employment.
It is the intent that this Plan comply with the requirements of Code Section 409A so that none of the payments to be provided hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to so comply.
4.3 Form of Payment. Each Actual Award shall be paid in cash (or its equivalent) in
a single lump sum, unless otherwise deferred in accordance with Section 4.2.
4.4 Payment in the Event of Death. If a Participant dies prior to the payment of an Actual Award earned by him or her prior to such Participant’s death for a prior Performance Period, the Actual Award shall be paid to his or her estate.
4.5 Pro Rata Payment for New Hires; Promotions; Change in Status.
(a) New Hires. Any individual who is newly-hired or becomes an Employee during a Performance Period and who is selected by the Committee to be a Participant shall be eligible to receive a pro rata portion of the Award to which he or she could have been entitled if he or she had been employed for the full Performance Period, based on the number of full months during the Performance Period during which he or she holds an Award and calculated on the basis of such Participant’s Base Salary received for the Performance Period. Any Actual Award shall be paid at the time and in the manner set forth in this Section 4.
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(b) Promotions and Transfers. In the case of a promotion or transfer from a position where a Participant had received an Award or was eligible to receive an Award under this Plan for a Performance Period to a position where such Participant is eligible for a lower Actual Award (but not a higher one), such Participant shall complete his or her participation in the prior position until the end of the complete month containing his or her date of promotion or transfer, prior to participating in the Performance Period for the transferred or promoted position. The overall Actual Award (if any) payable to such Participant will be pro-rated for both Performance Periods. In calculating the pro-rated amount, (i) the prior Performance Period will be prorated using the Participant’s Base Salary immediately prior to the date of promotion or transfer, and (ii) the subsequent Performance Period will be pro-rated using the Participant’s Base Salary at the end of the Performance Period. If a Participant is transferred to a lateral position (i.e., the same job grade or level), then the Actual Award will not be pro-rated based on the lateral change in position.
(c) Change in Status. Subject to the terms of any applicable Award Agreement, Participants who are eligible for participation at the beginning of a Performance Period, but who subsequently become ineligible to participate during the Performance Period may be eligible, in the sole Negative Discretion of the Committee, to receive a pro-rated portion of an Actual Award (if any) based on the number of full months completed during such Performance Period.
SECTION 5
ADMINISTRATION
5.1 Committee is the Administrator. The Plan shall be administered by the Committee. The Committee shall consist of not less than two (2) members of the Board. The members of the Committee shall be appointed from time to time by, and serve at the pleasure of, the Board. Each member of the Committee shall qualify as a “nonemployee director” as defined in Rule 16b-3 of the Exchange Act. If it is later determined that one or more members of the Committee do not so qualify, actions taken by the Committee prior to such determination shall be valid despite such failure to qualify.
5.2 Committee Authority. It shall be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to, without limiting Section 7, (a) determine which Employees shall be granted Awards, (b) prescribe the terms and conditions of Awards, (c) construe and interpret the Plan and the Awards, (d) exercise Negative Discretion pursuant to Section 3.6, (e) maintain complete and accurate records of all Plan transactions and Awards and other data in the manner necessary for proper administration of the Plan, (f) enforce the terms of the Plan, (g) review claims and render decisions on claims for benefits under the Plan, and (h) perform any and all other acts necessary or appropriate for the proper management and administration of the Plan.
5.3 Local Law Adjustments. Without limiting Section 5.2, to facilitate the making of any grant of an Award, the Committee may adopt rules and provide for such special terms applicable to Participants who are located within the United States, who are non-U.S. nationals, or who are employed by the Company or any of its Affiliates outside of the United States as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Without limiting the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding the conversion of local currency, taxes, withholding procedures and handling
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of stock certificates or book entries which vary with the customs and requirements of particular countries. The Committee may adopt sub-plans and establish escrow accounts and trusts, as may be appropriate, required or applicable to particular locations and countries.
5.4 Decisions Binding. The Committee’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 law. The validity of any such determination, interpretation, construction, decision or finding of fact shall not be given de novo review if challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly made in bad faith or materially affected by fraud.
5.5 Claims Limitations Period. Any Employee who believes he or she is being denied any benefit or right under this Plan or under any Award may file a written claim with the Committee. Any claim must be delivered to the Committee within 45 days of the specific event giving rise to the claim. Untimely claims will not be processed and shall be deemed denied. The Committee will notify the Employee of its decision in writing as soon as administratively practicable. Claims not responded to by the Committee in writing within 120 days of the date the written claim is delivered to the Committee shall be deemed denied. The Committee’s decision, including any deemed denial, is final, binding and conclusive on all persons. No lawsuit relating to this Plan may be filed before a written claim is filed with the Committee and is denied or deemed denied, and any permitted lawsuit must be filed within one year of such denial or deemed denial or be forever barred.
5.6 Delegation by the Committee. The Committee, in its sole and absolute discretion
and on such terms and conditions as it may provide, may delegate all or part of its authority and
powers under the Plan to one or more Directors and/or Officers.
SECTION 6
GENERAL PROVISIONS
6.1 Tax Withholding. The Company shall withhold applicable taxes from any Actual Award, including any federal, state and local taxes (including, but not limited to, the Participant’s FICA and SDI obligations).
6.2 No Effect on Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Employee’s employment or service at any time, with or without cause. For purposes of the Plan, transfer of employment of an Employee between the Company and any one of its Affiliates (or between Affiliates) shall not be deemed a Termination of Employment. Employment with the Company and its Affiliates is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a Performance Period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect which such treatment might have upon him or her as an employee or a Participant.
6.3 Participation. No Employee shall have the right to be selected to receive an Award, or, having been so selected, to be selected to receive a future Award.
6.4 Successors. All obligations of the Company under the Plan and with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor
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is the result of a Change in Control or direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
6.5 Beneficiary Designations. If permitted by the Committee, a Participant may name a beneficiary or beneficiaries to whom any Award shall be paid in the event of the Participant’s death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.
6.6 Nontransferability of Awards. No Award may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated other than by will, by the laws of descent and distribution, or to the limited extent provided in Section 6.5. All rights with respect to an Award granted to a Participant shall be available during such Participant’s lifetime only to the Participant.
6.7 Forfeiture Events. The Committee 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. Such events may include, but will not be limited to, fraud, breach of a fiduciary duty, restatement of financial statements as a result of fraud or willful errors or omissions, termination of employment for cause, violation of material Company and/or subsidiary policies, breach of non-competition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its subsidiaries, in each case as determined by the Committee in its sole and absolute discretion. The Committee may also require the application of this Section with respect to any Award previously granted to a Participant even without any specified terms being included in any applicable Award Agreement to the extent required under Applicable Laws. No reduction, cancellation, forfeiture or recoupment effected pursuant to this Section 6.7 will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company or otherwise. Any Participant who receives an Actual Award shall be deemed automatically to have consented and agreed to the foregoing terms set forth in this Section 6.7.
6.8 Recoupment of Awards.
(a) General. Without limiting Section 6.7, unless otherwise specifically provided in an Award Agreement, and to the extent permitted or required by Applicable Law, the Committee may, in its sole and absolute discretion, without obtaining the approval or consent of the Company’s stockholders or of any Participant, require that any Participant reimburse the Company for all or any portion of any Awards granted to such Participant (or the income recognized by the Participant in connection with any settled Award) (“Reimbursement”), if and to the extent:
(i) the granting, vesting or payment of such Award (or any portion thereof) was predicated upon the achievement of certain financial results that were subsequently the subject of a material financial restatement;
(ii) in the Committee’s view, the Participant either benefited from a calculation that later proves to be materially inaccurate, or engaged in fraud or misconduct that caused or partially caused the need for a material financial restatement by the Company or any of its Affiliates; and
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(iii) a lower granting, vesting or payment of such Award would have occurred if not for the conduct described in clause (ii) above.
In each instance, the Committee may, to the extent practicable and allowable or required under Applicable Law, require Reimbursement; provided that the Company will not seek Reimbursement with respect to any such Awards that were paid more than three (3) years prior to the first date of the applicable restatement period.
(b) Mandatory Recoupment. Notwithstanding any other provision of this Plan, all Awards (whenever granted) will be subject to recoupment in accordance with any clawback policy that is both in effect at any time while the Award is outstanding, and any additional policy established in order to comply with (i) the listing standards of any securities exchange, trading market or automated quotation system on which the Company’s securities are listed, quoted or traded, or (ii) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including but not limited to Section 10D of the Exchange Act, or any other Applicable Law. No recovery of compensation under any clawback policy or provisions imposed under this Section 6.8 will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company or otherwise. Any Participant who receives an Actual Award shall be deemed automatically to have consented and agreed to the foregoing clawback terms set forth in this Section 6.8.
6.9 Unfunded Plan. Each Actual Award that may become payable under the Plan shall be paid solely from the general assets of the Company. This Plan shall be unfunded. No provision of this Plan or any Award or Award Agreement shall require the Company or any Affiliate, for the purpose of satisfying any obligations under this Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company or any Affiliate maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Nothing in this Plan shall be construed to create a trust or to establish or evidence any Participant’s claim of any right to payment of an Actual Award other than as an unsecured general creditor with respect to any payment to which he or she may be entitled.
6.10 Limits of Liability; Indemnification. Any liability of the Company or any Affiliate to any Participant with respect to an Award shall be based solely upon contractual obligations created by this Plan and the Award Agreement. Neither the Company or any Affiliate, nor any member of the Board or of the Committee, nor any other person participating in any determination of any question under this Plan, or in the interpretation, administration or application of this Plan, shall have any liability to any party for any action taken, or not taken, in good faith under this Plan. The Company and its Affiliates shall pay or reimburse any of the foregoing who in good faith take action on behalf of this Plan, for any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her with respect to this Plan, and, to the fullest extent allowable under Applicable Law, shall indemnify each and every one of them for any claims, liabilities and costs (including reasonable attorney’s fees) arising out of their good faith performance of duties on behalf of this Plan. The Company and any Affiliate may, but shall not be required to, obtain liability insurance for this purpose. The foregoing right of indemnification shall be in addition to any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
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6.11 Choice of Law; Choice of Forum. This Plan, all Awards, all Award Agreements and all determinations made and actions taken under this Plan, to the extent not otherwise governed by the laws of the United States, will be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that arises under this Plan or any Agreement, a Participant’s acceptance of an Award is his or her consent to the jurisdiction of the State of Delaware, and thereby such Participant shall be deemed to agree that any such litigation will be conducted in the Delaware Court of Chancery, or the federal courts for the United States for the District of Delaware, and no other courts, regardless of where a Participant’s services are performed.
6.12 Awards for Compensation Purposes Only. This Plan is not intended to constitute an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
6.13 Data Privacy. As a condition of receipt of any Award under the Plan, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section by and among, as applicable, the Company and any Affiliate for the purpose of implementing, administering, and managing this Plan and awards and the Participant’s participation in this Plan. In furtherance of such implementation, administration, and management, the Company and any Affiliate may hold certain personal information about a Participant, including, but not limited to, the Participant’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any Affiliate, and details of all awards (collectively, the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of this Plan and Awards and the Participant’s participation in this Plan, the Company and any Affiliate may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of this Plan and Awards and the Participant’s participation in this Plan. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of this Plan and Awards and the Participant’s participation in this Plan. The Data related to a Participant will be held only as long as is necessary to implement, administer and manage this Plan and Awards and the Participant’s participation in this Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting the Participant’s local human resources representative. The Company may cancel the Participant’s eligibility to participate in this Plan, and in the Committee’s sole and absolute discretion, the Participant will forfeit any outstanding Awards, if the Participant refuses, or withdraws, the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.
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SECTION 7
AMENDMENT, TERMINATION AND DURATION
7.1 Amendment, Suspension or Termination. The Committee, in its sole and absolute discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. No Award may be granted pursuant to the Plan during any period of suspension or after termination of the Plan.
7.2 Consent of Participants Generally Required. Subject to Section 7.3, no amendment, alteration, suspension or termination of this Plan or an Award will materially impair the rights of any Participant unless otherwise mutually agreed between the Participant and the Company, which agreement must be in writing and signed by the Participant and the Company. Termination of this Plan will not affect the Committee’s ability to exercise the powers granted to it regarding Awards granted under this Plan prior to such termination.
7.3 Exceptions to Consent Requirement. A Participant’s rights will not be deemed to have been impaired by any amendment, alteration, suspension or termination of this Plan if the Committee, in its sole and absolute discretion, determines that such amendment, alteration, suspension or termination, taken as a whole, does not materially impair such Participant’s rights under this Plan or any outstanding Award. Furthermore, subject to any limitations of Applicable Laws, the Committee may amend the terms of any one or more Awards without the affected Participant’s consent, even if it does materially impair the Participant’s rights under this Plan or such Awards, if such amendment is done:
(i) to clarify the manner of exemption from, or to bring an Award into compliance with, Code Section 409A; or
(ii) to comply with other Applicable Laws.
7.4 Duration of the Plan.The Plan shall commence on the date specified herein, and subject to Section 7.1 (regarding the Committee’s right to amend or terminate the Plan), shall remain in effect thereafter through the Company’s 2022 Annual Meeting of Stockholders.
SECTION 8
LEGAL CONSTRUCTION
8.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
8.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
8.3 Requirements of Law. The granting and payment of Awards under the Plan shall be subject to all Applicable Laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
8.4 Captions; Section References. Captions in this Plan are provided herein for convenience only, and will not serve as a basis for interpretation or construction of this Plan. Unless
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otherwise expressly provided in this Plan, references to a “Section” or to “Sections” in this Plan shall mean a Section or Sections, respectively, of this Plan.
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PROXY CARD AND DIRECTIONS
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DIRECTIONS TO THE 2020 ANNUAL MEETING OF THE STOCKHOLDERS OF MASIMO CORPORATION
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Masimo Corporation
52 Discovery
Irvine, California 92618
(949) 297-7000
From the North (Los Angeles/Long Beach/John Wayne Airport)
Take 405 Fwy South. Take SAND CANYON AVE exit.
Turn Left on SAND CANYON AVE—go 4.6 miles
Turn Right on BARRANCA PKWY—go 1.7 miles
Turn Left on DISCOVERY—go 0.3 miles
Arrive at 52 DISCOVERY, IRVINE, on the Right
From the South (San Diego and points South of Irvine)
Take 5 Fwy North. Take ALTON PKWY exit.
Turn Left on ALTON PKWY—go 0.4 miles.
Turn Right on IRVINE CENTER DRIVE—go 0.8 miles
Turn Left on DISCOVERY—go 0.1 miles
Arrive at 52 DISCOVERY, IRVINE, on the Left
From the East (Riverside County)
Take the 91 Fwy West or the 55 Fwy South
Take 5 Fwy South. Take exit for California 133S towards Laguna Beach
Keep right for BARRANCA PKWY—go 0.6 miles
Turn Right on BARRANCA PKWY—go 0.1 miles
Turn Right on DISCOVERY—go 0.3 miles
Arrive at 52 DISCOVERY, IRVINE, on the Right
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PROXY CARD AND DIRECTIONS
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Electronic Voting Instructions
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the internet or telephone must be received by 11:00 p.m., Pacific Time, on May 26, 2020
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Vote by internet
• Go to www.envisionreports.com/MASI
• Or scan the QR code with your smartphone
• Follow the steps outlined on the secure website
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Vote by telephone
• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone. There is NO CHARGE to you for the call.
• Follow the instructions provided by the recorded message
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Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.
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PROXY CARD AND DIRECTIONS
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
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THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR IN PROPOSAL NO. 1, FOR THE APPROVAL OF PROPOSAL NO. 2, FOR THE APPROVAL OF PROPOSAL NO. 3, FOR THE APPROVAL OF PROPOSAL NO. 4 AND FOR THE APPROVAL OF PROPOSAL NO. 5.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
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The Board of Directors recommends a vote FOR each of the following proposals:
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For
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Against
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Abstain
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1.
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To elect two Class I Directors as named in our Proxy Statement:
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- Julie A. Shimer, Ph.D.
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- H Michael Cohen
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To ratify the selection of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 2, 2021.
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To provide an advisory vote to approve the compensation of our named executive officers.
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Approval of an amendment to our 2017 Equity Incentive Plan.
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5.
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Approval of an amendment to our Executive Bonus Incentive Plan.
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NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment of postponement thereof.
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This proxy is governed by the laws of the State of Delaware.
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PROXY CARD AND DIRECTIONS
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Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
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Please sign exactly as your name or names appear hereon. When signing as attorney-in-fact, executor, administrator, trustee or guardian, please give your full title as such. If shares are held jointly, each holder must sign. If the signer is a corporation, please give the full corporate name and have a duly authorized officer sign, stating his or her title. If the signer is a partnership, please sign in the partnership’s name by an authorized person.
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Date (mm/dd/yyyy) — Please print date below.
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Signature 1 — Please keep signature within the box.
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Signature 2 — Please keep signature within the box.
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/ /
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01GPJD
You can view the Annual Report and Proxy Statement on the internet at www.masimo.com
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
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PROXY CARD AND DIRECTIONS
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Proxy — MASIMO CORPORATION
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ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 29, 2020 MASIMO CORPORATION
52 DISCOVERY, IRVINE, CALIFORNIA 92618