Proxy Statement (definitive) (def 14a)

Date : 10/03/2019 @ 8:01PM
Source : Edgar (US Regulatory)
Stock : Accuray Incorporated (ARAY)
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Proxy Statement (definitive) (def 14a)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No.     )

 

Filed by the Registrant

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

 

Preliminary Proxy Statement

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material under §240.14a‑12

 

ACCURAY INCORPORATED

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

 

No fee required.

 

 

Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11.

 

 

 

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

 

 

Fee paid previously with preliminary materials.

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

 

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 

 

 

 


 

NOTICE OF

2019 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON NOVEMBER 15, 2019

To our Stockholders:

You are cordially invited to attend the 2019 Annual Meeting of Stockholders, and any adjournment, postponement or other delay thereof (the “Annual Meeting”), of Accuray Incorporated, a Delaware corporation (“Accuray” or the “Company”), which will be held at the Company’s headquarters located at 1310 Chesapeake Terrace, Sunnyvale, California 94089 on Friday, November 15, 2019 at 9:00 am PST. We are holding the Annual Meeting for the following purposes:

 

1.

To elect two Class I directors named in the proxy statement to hold office until our 2022 Annual Meeting of Stockholders, or until their respective successors have been duly elected or appointed;

 

2.

Advisory vote to approve the compensation of our named executive officers;

 

3.

To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2020; and

 

4.

To transact any other business as may properly come before the Annual Meeting, including any motion to adjourn to a later date to permit further solicitation of proxies, if necessary, or any adjournment or postponement of the meeting.

These items of business to be transacted at the Annual Meeting are more fully described in the proxy statement (the “Proxy Statement”) that accompanies this Notice of 2019 Annual Meeting of Stockholders. The Annual Meeting will begin promptly at 9:00 a.m. PST and check‑in will begin at 8:30 a.m. PST. Only holders of record and beneficial owners of shares of our common stock at the close of business on September 19, 2019, the record date, are entitled to notice of, to attend, and to vote at the Annual Meeting. If you are a beneficial owner and wish to vote in person at the Annual Meeting, you must obtain a “legal proxy” from the bank, broker or other nominee that holds your shares, giving you the right to vote your shares at the Annual Meeting.

It is important that you use this opportunity to take part in the affairs of Accuray by voting on the business to come before the stockholders at the Annual Meeting. After reading the Proxy Statement and Annual Report on Form 10‑K for the fiscal year ended June 30, 2019 (the “Annual Report”), you are urged to cast your vote as promptly as possible. If you are accessing the Proxy Statement and Annual Report using notice and access, you will have received a Notice of Internet Availability of Proxy Materials and should vote by telephone or over the Internet. If you have received your proxy materials by mail, please promptly sign, date and return the enclosed proxy card in the prepaid envelope provided to you or vote by telephone or over the Internet to ensure that your shares are represented at the Annual Meeting. For more information, see “Why did I receive a Notice of Internet Availability of Proxy Materials?” in the Proxy Statement.

All stockholders are cordially invited to attend the Annual Meeting in person. Even if you plan to attend the Annual Meeting, please cast your vote as promptly as possible by telephone, Internet or by signing and dating your proxy card and returning it promptly. This will ensure that your vote will be counted if you later decide not to, or are unable to, attend the Annual Meeting. Even if you have given your proxy, you may still attend and vote in person at the Annual Meeting.

 

By order of the Board of Directors,

 

 

 

/s/ Joshua H. Levine

 

Joshua H. Levine

President and Chief Executive Officer

 

 

Sunnyvale, California

October 3, 2019

 

 


Table Of Contents

 

Page

Questions And Answers Regarding This Solicitation And Voting At The Annual Meeting

1

Proposal One—Election Of Directors

7

Classes of our Board

7

Director Nominees—Class I Directors

7

Continuing Directors—Class II and Class III Directors

8

Non-Continuing Director

10

Board of Directors’ Recommendation

11

Proposal Two—Advisory Vote to Approve the Compensation of our Named Executive Officers (“Say‑on‑Pay Vote”)

12

Summary of Fiscal 2019 Executive Compensation Program

12

Board of Directors’ Recommendation

14

Proposal Three—Ratification Of Appointment Of Independent Registered Public Accounting Firm

15

Audit and Non‑Audit Services

15

Audit Committee Pre‑Approval Policies and Procedures

16

Board of Directors’ Recommendation

16

Audit Committee Report

17

Compensation Discussion And Analysis

18

Compensation Committee Report

41

Executive Compensation

42

Fiscal 2019 Summary Compensation Table

42

Grants of Plan‑Based Awards for Fiscal 2019 Table

43

Outstanding Equity Awards at Fiscal 2019 Year‑End Table

44

Option Exercises and Stock Vested During Fiscal 2019 Table

46

Potential Payments and Benefits Upon Termination or Change in Control

47

CEO Pay Ratio

52

Compensation Of Non‑Employee Directors

54

Director Compensation Table for Fiscal 2019

54

Cash Compensation

55

Equity Compensation

55

Equity Compensation Plan Information

56

Security Ownership

57

Security Ownership of Certain Beneficial Owners and Management

57

Delinquent Section 16(a) Reports

59

Corporate Governance And Board Of Directors Matters

60

Executive Officers

65

Certain Relationships And Related Transactions

66

Where You Can Find Additional Information

67

Other Matters

69

 

 

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PROXY STATEMENT FOR

ACCURAY INCORPORATED

2019 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON NOVEMBER 15, 2019

 

 

This proxy statement (“Proxy Statement”) is furnished to our stockholders of record as of the close of business on September 19, 2019 (the “Record Date”), in connection with the solicitation of proxies by our Board of Directors (the “Board”) for use in connection with our 2019 Annual Meeting of Stockholders, and any adjournment, postponement or other delay thereof (the “Annual Meeting”), to be held at the Company’s headquarters located at 1310 Chesapeake Terrace, Sunnyvale, California 94089 on Friday, November 15, 2019, at 9:00 a.m. PST. This Proxy Statement and the proxy card are first being made available to our stockholders on or about October 3, 2019. Our Company’s fiscal year ended on June 30, 2019.

Questions And Answers Regarding This Solicitation

And Voting At The Annual Meeting

 

Why did I receive a Notice of Internet Availability of Proxy Materials?

We are pleased to again be using the U.S. Securities and Exchange Commission (the “SEC”) rule that allows companies to furnish proxy materials to their stockholders primarily over the Internet instead of mailing printed copies of those materials to each stockholder. On October 3, 2019, we mailed to our stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials, including this Proxy Statement and our Annual Report on Form 10‑K (the “Annual Report”), online. The Notice of Internet Availability of Proxy Materials also instructs you as to how to vote over the Internet or by telephone.

 

 

 

This process is designed to expedite stockholders’ receipt of proxy materials, lower the cost of the Annual Meeting, and help conserve natural resources. However, if you would prefer to receive printed proxy materials or your proxy materials by email and have not previously elected to do so, please follow the instructions included in the Notice of Internet Availability of Proxy Materials to submit your request. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e‑mail unless you elect otherwise. If you received your Annual Meeting materials via e‑mail, the e‑mail contained voting instructions and links to access the Annual Report and the Proxy Statement online at: https://materials.proxyvote.com/004397.

 

 

1


Why am I receiving these proxy materials?

You are receiving this Proxy Statement because you were a stockholder of record or beneficial owner at the close of business on the Record Date. As such, you are invited to attend our Annual Meeting and are entitled to vote on the items of business described in this Proxy Statement. This Proxy Statement contains important information about the Annual Meeting and the items of business to be transacted at the Annual Meeting. You are strongly encouraged to read this Proxy Statement and Annual Report, which include information that you may find useful in determining how to vote.

 

 

Who is entitled to attend and vote at the Annual Meeting?

Stockholders as of the Record Date are entitled to attend and to vote at the Annual Meeting.

 

 

How many shares are outstanding?

On the Record Date, 88,781,260 shares of our common stock were issued and outstanding. Each share of common stock outstanding on the Record Date is entitled to one vote on each item brought before the stockholders at the Annual Meeting. We do not have cumulative voting for directors.

 

 

How many shares must be present or represented to conduct business at the Annual Meeting (that is, what constitutes a quorum)?

The presence at the Annual Meeting, in person or represented by proxy, of the holders of at least a majority of the shares of our common stock issued and outstanding as of the Record Date and entitled to vote at the Annual Meeting will constitute a quorum for the transaction of business. If, however, a quorum is not present, in person or represented by proxy, then no business shall be conducted and the chairperson of the Annual Meeting may adjourn the Annual Meeting until a later time.

 

 

What items of business will be voted on at the Annual Meeting?

The items of business to be voted on at the Annual Meeting are as follows:

 

 

 

1.

The election of two Class I directors named in the Proxy Statement to hold office until our 2022 Annual Meeting of Stockholders, or until their respective successors have been duly elected or appointed;

 

 

 

 

2.

An advisory vote to approve the compensation of our named executive officers; and

 

 

 

 

3.

The ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2020.

 

 

What happens if additional matters are presented at the Annual Meeting?

The only items of business that our Board intends to present at the Annual Meeting are set forth in this Proxy Statement. As of the date of this Proxy Statement, no stockholder has advised us of the intent to present any other matter, and we are not aware of any other matters to be presented at the Annual Meeting. However, if any other matter or matters are properly brought before the Annual Meeting, the person(s) named as your proxyholder(s) or you, if you are attending in person, will have the discretion to vote your shares on such matters in accordance with their best judgment and as they deem advisable.

 

 

2


What shares can I vote at the Annual Meeting?

You may vote all of the shares you owned as of the Record Date, including shares held directly in your name as the stockholder of record and all shares held for you as the beneficial owner through a broker or other nominee, such as a bank.

 

 

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

Most of our stockholders hold their shares through a bank, broker or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those beneficially owned.

 

 

 

Stockholders of Record.  If your shares are registered directly in your name with our transfer agent, Computershare, you are considered, with respect to those shares, the stockholder of record, and we are sending our proxy materials directly to you. As the stockholder of record, you have the right to vote in person or direct a proxyholder to vote your shares on your behalf at the Annual Meeting by following the procedures set forth in the Notice for voting over the Internet or by telephone, or if you have received printed proxy materials, by signing and dating the enclosed proxy card and returning it to us in the enclosed postage-paid return envelope.

 

 

 

Beneficial Owner.  If your shares are held by a bank, broker or other nominee, you are considered the beneficial owner of those shares and they are considered to be held in street name for your account. Proxy materials are made available to you together with a voting instruction card by delivery to your bank, broker or other nominee. As the beneficial owner, you have the right to direct your bank, broker or other nominee to vote your shares as you instruct with your voting instruction card. The bank, broker or other nominee will vote your shares at the Annual Meeting as you have instructed on your voting instruction card. As a beneficial owner, you may also vote in person at the Annual Meeting, but only after you obtain and present a “legal proxy” from your bank, broker or other nominee, giving you the right to vote your shares at the Annual Meeting.

 

 

How can I vote my shares without attending the Annual Meeting?

If you hold shares directly as the stockholder of record, you may direct how your shares are voted without attending the Annual Meeting by voting on the Internet, by phone or by proxy card. If you provide specific instructions with regard to items of business to be voted on at the Annual Meeting, your shares will be voted as you instruct on those items. If you just sign your proxy card with no further instructions, or if you submit your proxy by telephone or internet, but do not direct your vote on particular items, your shares will be voted in accordance with the Board’s recommendation on those items. If you hold your shares in street name as a beneficial owner, you may generally vote on the Internet, by phone or by submitting a voting instruction card to your bank, broker or other nominee. If you do not instruct your bank, broker or other nominee how to vote your shares, your bank, broker or other nominee will only be able to vote your shares with respect to the routine matter of the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2020. Please see “What is a broker non‑vote?” below.

3


 

 

How can I attend the Annual Meeting?

Whether you hold shares in your name as the stockholder of record or beneficially own shares held in street name, you should be prepared to present photo identification for admittance to the Annual Meeting. Please also note that if you are a street name holder, you will need to provide proof of beneficial ownership as of the Record Date, such as your most recent brokerage account statement, a copy of the voting instruction card provided by your bank, broker or other nominee, or other similar evidence of ownership for admittance to the Annual Meeting. The Annual Meeting will begin promptly at 9:00 a.m. PST. Check‑in will begin at 8:30 a.m. PST. However, if you are a street name holder, you may not vote at the Annual Meeting unless you have obtained a “legal proxy” from your broker, bank or other nominee.

 

 

 

Even if you plan to attend the Annual Meeting, we recommend that you also vote by Internet, telephone or sign and date the proxy card or voting instruction card and return it promptly in order to ensure that your vote will be counted if you later decide not to, or are unable to, attend the Annual Meeting.

 

 

Can I change my vote or revoke my proxy?

You may change your vote or revoke your proxy at any time prior to the vote at the Annual Meeting. If you are the stockholder of record, you may change your vote by (i) submitting a new proxy bearing a later date (including voting again by internet or telephone), which automatically revokes your earlier proxy, (ii) providing a written notice of revocation to our Corporate Secretary at our principal executive offices prior to the Annual Meeting, or (iii) attending the Annual Meeting and voting in person. However, attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically so request. If you are a beneficial owner, you may generally change your vote by voting again by Internet, phone or submitting a new, later-dated voting instruction card to your bank, broker or other nominee. However, you should contact your bank, broker or other nominee for specific instructions.

 

 

What is a “broker non‑vote”?

Brokers that hold shares in street name for the benefit of their clients, banks, brokers and other nominees have the discretion to vote such shares on routine matters only. At the Annual Meeting, only the ratification of the appointment of our independent registered public accounting firm is considered a routine matter. Therefore, if you do not otherwise instruct your bank, broker or other nominee on how to vote your shares, your bank, broker or other nominee may vote your shares on this matter only. Your bank, broker or other nominee will not be able to vote your shares for the election of two Class I directors, the advisory vote to approve the compensation of our named executive officers, or any other matters properly brought before the Annual Meeting without your specific instruction because these are not considered routine matters. A “broker non‑vote” occurs when a broker or other nominee does not receive timely instructions from the beneficial owner and therefore cannot vote such shares on the matter.

 

 

4


How are broker non‑votes counted?

Broker non‑votes will be counted as present at the Annual Meeting for the purpose of determining the presence or absence of a quorum for the transaction of business, but they will not be considered to be present and entitled to vote or votes cast for purposes of tabulating the voting results for any non‑routine matter. Accordingly, broker non‑votes, if any, will have no effect on the outcome of the votes at the Annual Meeting.

 

 

What happens if the Annual Meeting is adjourned?

If our Annual Meeting is adjourned until another time and information about the time and location that the meeting will be continued is announced at the time of adjournment, no additional notice will be provided, unless the adjournment is for more than 30 days, in which case a notice of the time and location will be given to each stockholder of record entitled to vote at the Annual Meeting. Any items of business that might have been properly transacted at the Annual Meeting may be transacted after any adjournment.

 

 

Who will serve as inspector of elections?

A representative of Computershare, our transfer agent, will tabulate the votes and act as Inspector of Elections at the Annual Meeting.

 

 

What should I do in the event that I receive more than one set of proxy materials?

You may receive more than one copy of the Notice of Internet Availability of Proxy Materials or more than one set of these proxy solicitation materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card from each brokerage account in which you hold shares. In addition, if you are a stockholder of record and your shares are registered in more than one name, you may receive more than one Notice of Internet Availability of Proxy Materials or proxy card. Please vote over the Internet, by telephone, or sign, date and return each proxy card and voting instruction card that you receive to ensure that all of your shares are voted.

 

 

 

We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, we deliver a single copy of the Notice of Internet Availability of Proxy Materials and, if applicable, the proxy materials to multiple stockholders who share the same address unless we received contrary instructions from one or more of the stockholders. This procedure reduces our printing costs, mailing costs and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Please see “Stockholders Sharing the Same Address” for further information regarding householding and how to request additional copies of the materials or enroll in householding.

 

 

5


Who is soliciting my vote and who will bear the costs of this solicitation?

The proxy is being solicited on behalf of our Board. The Company will bear the entire cost of solicitation of proxies, including preparation, Internet posting, assembly, printing and mailing of this Proxy Statement. In addition to solicitation by mail, our directors, officers and employees may also solicit proxies in person, by telephone, by electronic mail or by other means of communication. We will not pay any additional compensation to our directors, officers or other employees for soliciting proxies. We have retained MacKenzie Partners, Inc. to assist in the solicitation of proxies for a fee of approximately $15,000 plus reasonable out‑of‑pocket costs and expenses. Copies of the proxy materials will be furnished to banks, brokers and other nominees holding beneficially owned shares of our common stock, who will forward the proxy materials to the beneficial owners. We are required to reimburse brokers and other nominees for the costs of forwarding the proxy materials.

 

 

Where can I find the voting results of the Annual Meeting?

We intend to announce preliminary voting results at the Annual Meeting and publish the final voting results in a Current Report on Form 8‑K filed with the SEC within four business days following the Annual Meeting.

 

 

What is the deadline for submitting proposals for consideration at next year’s Annual Meeting of stockholders or to nominate individuals to serve as directors?

As a stockholder, you may be entitled to present proposals for action at a future annual meeting of stockholders, including director nominations. Please refer to “—Stockholder Proposals” and “—Recommendations and Nominations of Director Candidates” below.

 

6


Proposal One

Election Of Directors

Classes of Our Board

Our Amended and Restated Certificate of Incorporation provides that our Board shall be divided into three classes, designated Class I, Class II and Class III, with each class serving for staggered three‑year terms. Our Board currently consists of nine directors: three Class I directors, three Class II directors and three Class III directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. Proxies cannot be voted for more than three persons.

Robert S. Weiss, one of our Class I directors, is not standing for re-election at the Annual Meeting. We thank Mr. Weiss for his service to our company and board of directors.

The following information is provided for each of the nominees and continuing directors: name, class in which each director or nominee serves, age as of August 31, 2019 and length of service on our Board.

 

Name

 

Term

Expires

 

Age

 

 

Director

Since

Class I Directors/Nominees

 

 

 

 

 

 

 

 

Richard Pettingill

 

2019

 

 

71

 

 

2012

Joseph E. Whitters

 

2019

 

 

61

 

 

2018

Class II Directors

 

 

 

 

 

 

 

 

Louis J. Lavigne, Jr.

 

2020

 

 

71

 

 

2009

Beverly Huss

 

2020

 

 

59

 

 

2018

Jack Goldstein, Ph.D.

 

2020

 

 

72

 

 

2010

Class III Directors

 

 

 

 

 

 

 

 

Elizabeth Dávila

 

2021

 

 

75

 

 

2008

Joshua H. Levine

 

2021

 

 

61

 

 

2012

James M. Hindman

 

2021

 

 

58

 

 

2019

 

Listed below are the biographies of each director nominee, continuing director and non-continuing director. The biographies include information regarding each director’s service as a director of the Company, business experience and principal occupations for at least the past five years, director positions at public companies held currently or at any time for at least the past five years, and, other than with respect to any non-continuing director, the experiences, qualifications, attributes or skills that led the Nominating and Corporate Governance Committee of the Board (the “Nominating and Corporate Governance Committee”) to recommend, and the Board to determine, that the person should serve as a director for the Company. There are no family relationships among any of our directors or executive officers.

Director Nominees—Class I Directors

Our Board has nominated Messrs. Pettingill and Whitters for election as Class I directors. Each nominee for director has consented to being named in this Proxy Statement and has indicated a willingness to serve if elected. If a nominee is unavailable for election, the persons named as proxyholders will use their discretion to vote for any substitute nominee in accordance with their best judgment, as they deem advisable.

Richard Pettingill has served as a member of our Board since May 2012. Mr. Pettingill served as the President and Chief Executive Officer of Allina Hospitals and Clinics, Minnesota’s largest healthcare organization, from 2002 until his retirement in 2009. While in this role, he also served on the board of directors of the Minnesota Hospital Association and the Minnesota Business Partnership. Prior to joining Allina Hospitals and Clinics, Mr. Pettingill served as President and Chief Executive Officer of the California Division of Kaiser Foundation Health Plans and Hospitals, one of the largest not‑for‑profit managed healthcare companies in the United States, from 1996 to 2002. Mr. Pettingill currently serves on the board of directors of Hanger, Inc., an orthotic and prosthetic solutions company. Within the last five years, Mr. Pettingill has also served on the board of directors of the following public companies: Tenet Healthcare Corporation, a medical services provider, and MAKO Surgical Corp., a medical device company that was acquired by Stryker Corporation in 2013. Mr. Pettingill received a bachelor’s degree from San Diego State University and a master’s degree in health care administration from San Jose State University. He served as a 2010 Fellow in the Advanced Leadership Initiative program at Harvard University.

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As the former Chief Executive Officer of a major hospital system and a member of other public company boards, Mr. Pettingill has extensive leadership experience in the healthcare industry, including experience in the areas of business development, strategy and corporate governance, and can represent the customer perspective.

Joseph E. Whitters has served as a member of our Board since July 2018. Mr. Whitters has been an advisor/consultant to Frazier Healthcare, a private equity firm, since 2005. From 1986 to 2005, Mr. Whitters served in various capacities with First Health Group Corp., a publicly traded managed care company, most recently as its Chief Financial Officer. He also previously served as the Controller for United Healthcare Corp. from 1984 to 1986. Prior to that, Mr. Whitters served as the Manager of Accounting and Taxation for Overland Express, a publicly traded trucking company, and he began his career in public accounting with Peat Marwick (now KPMG). Mr. Whitters currently serves as a member of the board of directors of PRGX Global, Inc., a provider of recovery audit and spend analytics services and Cutera, Inc., a provider of laser and energy-based aesthetic systems. In the past five years, Mr. Whitters served on the boards of directors and audit committees of various public companies, including InfuSystem Holdings, Inc., a provider of infusion pumps and related products and services, Analogic Corporation, a healthcare and security technology solutions company and Air Methods Corp., an air medical transportation and air tourism company that was acquired by American Securities LLC in 2017. Mr. Whitters has also been an advisor or board member of several private companies. Mr. Whitters holds a B.A. in Accounting from Luther College.

As a former Chief Financial Officer with significant public company governance experience in the medical technology and medical device industry, Mr. Whitters brings to our Board extensive experience in finance, accounting, public company governance, operations and strategy.

If elected, Messrs. Pettingill and Whitters will hold office as Class I directors until our 2022 Annual Meeting of Stockholders and until their successors are duly elected and qualified.

Continuing Directors—Class II and Class III Directors

Louis J. Lavigne, Jr. has served as a member of our Board since September 2009 and as the Chairperson of our Board since April 2010. Mr. Lavigne currently serves as a Managing Director of Lavrite, LLC, a management consulting firm specializing in the areas of corporate finance, accounting, growth strategy and management. He also currently serves as a member of the board of directors of Alector, Inc., a public biopharmaceutical company; DocuSign Inc., a public eSignature transaction management company; Zynga, Inc., a publicly held leading provider of social electronic games and Rodan & Fields, LLC, a private skincare company. In the past, Mr. Lavigne has also served on the public company board of directors of BMC Software, Inc., an independent systems software vendor that was acquired by a private investor group in 2013; Allergan, Inc., a technology‑driven, global health care company that provides specialty pharmaceutical products worldwide, from 2005 to 2015; Assertio Therapeutics, Inc., a specialty pharmaceutical company, from 2013 to 2019; and Novocure Limited, an oncology company, from 2013 to 2018. Mr. Lavigne also served on the private company board of directors of Puppet, Inc., an information technology cloud automation system management company, from 2015 to 2019. From 1983 to 2005, Mr. Lavigne served in various executive capacities with Genentech, Inc., a biotechnology healthcare company, namely, Executive Vice President and Chief Financial Officer from 1997 to 2005; Senior Vice President and Chief Financial Officer from 1994 to 1997; Vice President and Chief Financial Officer from 1988 to 1994; Vice President from 1986 to 1988; and Controller from 1983 to 1986. Mr. Lavigne was named the Best CFO in Biotech in 2005 in the Institutional Investor Survey and in June 2006 he received the Bay Area CFO of the Year‑Hall of Fame Lifetime Achievement Award. He is a member of the Board of UCSF Benioff Children’s Hospitals and their foundation. Mr. Lavigne holds a B.S. in Finance from Babson College and a M.B.A. from Temple University.

As a former Chief Financial Officer of a large, complex publicly traded company in the healthcare industry, and a current and former member of several public company boards, Mr. Lavigne brings to our Board extensive experience in business operations and management, strategy, finance, accounting and public company governance.

Beverly A. Huss has served as a member of our Board since January 2018. Since September 2013, she has served as President and Chief Executive Officer of Qool Therapeutics, Inc. (“Qool”), formerly Thermocure, Inc., a development stage company focused on creating a novel non-invasive device for the preservation of tissue following a heart attack, stroke, traumatic brain injury and other medical conditions. Prior to joining Qool, Ms. Huss was

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President and Chief Executive Officer at Vibrynt, Inc., an early-stage medical device company, from January 2006 through March 2013. Prior to that, she held multiple senior level leadership positions at Guidant Corporation from 1986 to 2005, including, most recently as President, Endovascular Solutions, and prior to that Vice President of Global Marketing for Vascular Intervention. Ms. Huss began her career as a Metallurgical Engineer in 1982. Ms. Huss currently serves on the board of directors of Qool, Madorra, a privately-held medical device company developing solutions to improve quality of life after menopause, and Kalera Medical, a privately-held developer of devices designed to remove kidney stone fragments. Her prior public company board experience includes Artes Medical, Wright Medical Group and Dade Behring Holdings, Inc. Ms. Huss holds a M.S. in technology management from Pepperdine University and a B.S. in metallurgical engineering from the University of Illinois.

As a current Chief Executive Officer with more than 25 years of management experience in the medical device industry, and a current and former member of several public and private company boards, Ms. Huss brings to our Board extensive experience in the medical device industry, including experience in the areas of business operations, management and corporate governance.

Jack Goldstein, Ph.D., has served as a member of our Board since May 2010. Dr. Goldstein has been an independent consultant since 2006 specializing in human medical diagnostics, biopharmaceuticals and medical devices. He served as President and Chief Operating Officer of Chiron Corporation from 2004 until its acquisition by Novartis in 2006, and from 2002 to 2004 he served as President of Chiron’s Blood Testing Division. From 2000 to 2002, he was a general partner at Windamere Venture Partners, a private venture capital investment fund. From 1997 to 2001, he served as President and Chief Executive Officer at Applied Imaging Corporation, and from 1999 until 2002, he also served as Chairman of the Board of Applied Imaging. From 1986 to 1997, Dr. Goldstein served in various executive positions at Johnson & Johnson, including President of Ortho Diagnostic Systems and Executive Vice President of Professional Diagnostics. Dr. Goldstein previously served as Chairman of the Board of Directors of OncoGenex Pharmaceuticals, Inc., a drug discovery and development company, from March 2010 until August 2017, and served as an independent director of Counsyl, Inc., a private medical genetics testing company, from April 2016 until May 2017. Dr. Goldstein holds a B.A. in biology from Rider University and an M.S. in immunology and a Ph.D. in microbiology from St. John’s University.

As a former executive of several life sciences companies and member of other health care industry public company boards, Dr. Goldstein has extensive industry experience in management, strategy, operations, business development and capital equipment sales and marketing. Dr. Goldstein also has relevant scientific, research and development and manufacturing expertise.

Elizabeth Dávila has served as a member of our Board since February 2008. She also served as Vice Chairperson of our Board from September 2008 through November 2017. Ms. Dávila was the former Chairman and Chief Executive Officer of VISX, Incorporated (“VISX”), a manufacturer of laser vision correction systems, which was acquired by Advanced Medical Optics in May 2005. Prior to becoming Chairman and Chief Executive Officer of VISX in 2001, she served as President and Chief Operating Officer of VISX from 1999 to 2001 and as Executive Vice President and Chief Operating Officer from 1995 to 1999. Ms. Dávila currently serves as a member of the board of directors of Afaxys, Inc., a private company that supplies family planning providers with pharmaceuticals and supplies and in the past five years has served as a member of the board of directors of NuGEN Technologies, Inc., a private company that develops and commercializes rapid, high‑sensitivity and high‑throughput amplification and labeling systems for genomic analysis, which was acquired by the Tecan Group in September 2018. Ms. Dávila holds a B.S. in Chemistry from St. Mary’s College in Notre Dame, Indiana, a M.S. in Chemistry from the University of Notre Dame and a M.B.A. from Stanford University.

As a former Chief Executive Officer of VISX and a current and former member of multiple public and private company boards, Ms. Dávila has extensive healthcare industry experience in management, business development, operations, strategy and capital equipment sales.

Joshua H. Levine has served as our President and Chief Executive Officer and as a member of our Board since October 2012. He has been the President, Chief Executive Officer, and a director of two other publicly traded global medical device firms, including Mentor Corporation, a surgical implant/medical device manufacturer in the aesthetics space from 2004 to 2009, and, prior to joining Accuray, with Immucor Corporation, a diagnostics manufacturer of automated instrumentation and reagents used in blood transfusion procedures. Mr. Levine currently

9


serves on the Board of Directors of Natus Medical Incorporated, a provider of medical devices, software and services for the newborn care, neurology, sleep, hearing and balance markets. Mr. Levine holds a B.A. from the University of Arizona.

Mr. Levine brings diverse, global healthcare industry experience and a strong track record of creating and unlocking strategic value for the companies he has led. Mr. Levine’s qualifications to serve on our Board include, among other skills and qualifications, his strategic business development skills, commercial leadership experience and executive vision. In addition, Mr. Levine brings expertise in the medical device and medical technology industries from years of experience as a chief executive officer with two other publicly traded, small cap medical device manufacturing companies.

James M. Hindman has served as a member of our Board since September 2019. Mr. Hindman had served in various positions at Allergan, Inc. (“Allergan”), a multi-specialty healthcare company, from 1984 to March 2015, where he held positions of increasing responsibility, including most recently as the Executive Vice President and Chief Financial Officer of Allergan from August 2014 to March 2015. Mr. Hindman served as Senior Vice President of Treasury, Risk and Investor Relations from March 2002 to August 2014, and, from 1984 to 2002, Mr. Hindman served a variety of other finance positions at Allergan, including Senior Vice President, Finance and Controller; Vice President, Finance; Vice President, Financial Planning and Analysis; and Assistant Corporate Controller. Mr. Hindman currently serves on the board of Millendo Therapeutics, Inc., a public biotechnology company; Sienna Biopharmaceuticals, Inc., a clinical-stage medical dermatology and aesthetics company; and Aatru Medical, a private medical device company. He has also provided financial consulting services to Cidara Therapeutics, Inc., a public biotechnology company, since July 2015, and to RANI Therapeutics, a privately held biotechnology company, from December 2017 to December 2018. Mr. Hindman currently serves as a member of the Board of Regents at Loyola Marymount University and serves as a member of the Dean’s Executive Council for the College of Business Administration at Loyola Marymount University. Mr. Hindman holds a B.S. in Accounting from Loyola Marymount University and a M.B.A. from Pepperdine University. He is a Certified Public Accountant in the state of California (inactive).

As a former Chief Financial Officer of a publicly traded global healthcare company with significant financial experience in the medical device industry, Mr. Hindman brings to our Board extensive experience in business development, strategy, financial planning and reporting, and public company governance.

Non-Continuing Director

Robert S. Weiss has served as a member of our Board since January 2007. Since 1996, Mr. Weiss has served on the board of directors of The Cooper Companies, Inc., or Cooper, a global specialty medical products company. He also served as Chief Executive Officer and President of Cooper from November 2007 through April 2018 and March 2008 through April 2018, respectively. Mr. Weiss has served in various senior executive management positions with Cooper beginning in 1989. From January 2005 through October 2007, Mr. Weiss served as the Executive Vice President and Chief Operating Officer of Cooper, and from March 2007 to March 2008, he also served as President of CooperVision, Cooper’s contact lens subsidiary. Prior to that, he served as Cooper’s Chief Financial Officer from September 1989 to January 2005 and held the additional title of Executive Vice President from October 1995 until November 2007. From March 1984 until October 1995, he served at Cooper in various other roles, including Senior Vice President, Vice President and Corporate Controller. Mr. Weiss also serves on the board of trustees of the University of Scranton. Mr. Weiss holds a B.S. in Accounting from the University of Scranton.

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Under our Corporate Governance Guidelines, in advance of his or her nomination, each director submits a contingent, irrevocable resignation that the Board may accept if that director fails to be elected by a majority of votes cast. In that situation, our Nominating and Corporate Governance Committee would make a recommendation to the Board about whether to accept such resignation, which the Board will promptly consider. The Nominating and Corporate Governance Committee and the Board may consider any factors they deem relevant in deciding whether to accept a directors resignation.

How Votes Are Counted

Stockholders are not entitled to cumulate their votes in the election of directors or with respect to any matter submitted to a vote of the stockholders. To be elected, directors must receive a majority of votes cast, meaning that the number of shares voted “For” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. You may vote either “For” or “Against” each director nominee or you may abstain. Abstentions will not be counted for purposes of determining the number of votes cast with respect to the election of such a director, and thus will have no effect on the outcome of the vote. Broker non‑votes will have no effect on the outcome of the vote.

Board of Directors’ Recommendation

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE TWO NOMINEES FOR CLASS I DIRECTOR LISTED ABOVE.

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Proposal Two

Advisory Vote To Approve The

Compensation Of Our Named Executive Officers

(“Say‑on‑Pay” Vote)

General

We are submitting to our stockholders for approval, on an advisory (non‑binding) basis, the compensation of our named executive officers (“NEOs,” or each, an “NEO”) as disclosed in this Proxy Statement in accordance with the SEC’s rules (a “say‑on‑pay” vote). This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. In this proposal, we are asking our stockholders to provide advisory approval of the compensation of our NEOs, as such compensation is described in “Compensation Discussion and Analysis,” the tabular disclosure regarding such compensation, and the accompanying narrative disclosure set forth in this Proxy Statement. We have held a say-on-pay vote annually since our first say-on-pay vote in 2011 and our next say-on-pay vote will be held at next year’s annual meeting of stockholders.

The Compensation Committee of our Board (the “Compensation Committee”) considers the results of each annual stockholder advisory vote on the compensation of our NEOs and stockholder feedback on our executive compensation program. At our 2018 Annual Meeting of Stockholders, approximately 87.9% of votes cast were voted in favor of the compensation of our then-named executive officers and, indirectly, our executive compensation program. The Compensation Committee viewed these results as continued support for our executive compensation program and, as a result, continued to apply the same general principles and philosophy as in the prior fiscal year to our executive compensation programs, policies and practices for fiscal 2019 and kept such programs consistent with the prior fiscal year, other than the recalibration of our long-term incentive compensation program, which is discussed in more detail in “Compensation Discussion and Analysis” below.

Summary of Fiscal 2019 Executive Compensation Program

Our executive compensation program is designed to enable us to attract, retain, motivate and appropriately reward the individuals who can help us successfully execute our business strategy and promote the best interests of our stockholders. In deciding how to vote on this proposal, the Board urges you to consider the following factors, which are more fully discussed in “Compensation Discussion and Analysis” below:

 

We provide reasonable base salaries.  We target our NEO base salaries at the middle of the competitive market (as reported in the Radford April 2018 High‑Tech Industry Survey) for companies with $200 million to $500 million in annual revenue and based on an analysis of the compensation practices of a peer group of 13 medical device companies with whom we compete for executive talent, which are in our industry sector and/or which have comparable financial and organizational characteristics. In an effort to maintain this positioning and to appropriately reflect executive performance and responsibilities in fiscal 2019, the base salaries for certain of our NEOs were moderately increased, including an increase of approximately 2.0% for our Chief Executive Officer (“CEO”), whose last base salary increase was in fiscal 2017. Certain other NEOs received larger increases to their base salaries as a result of taking on additional responsibilities or a promotion.

 

We link pay to performance.

 

The fiscal 2019 annual bonus pool was funded, in accordance with the funding methodology established at the beginning of the year, at approximately 101.8% of the target level. Each NEO’s annual cash incentive award was based solely on our actual performance as measured against three distinct performance measures and the Compensation Committee did not exercise any discretion to decrease the award for any executive. Accordingly, for fiscal 2019, each NEO who was eligible to receive an annual bonus (other than our CEO) received approximately 101.8% of his target cash incentive award opportunity, ranging from $225,233 to $427,000, with our CEO receiving an annual bonus of $880,346.

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Our executives, including our NEOs, were granted stock options under our long-term incentive compensation program in fiscal 2019. Stock options, which are granted with exercise prices equal to the fair market value of our common stock on the date of grant, reward our executives only to the extent that our stock price increases following the date of grant and stockholders realize value. We believe the direct linkage between executive reward and stockholder value creation resulting from appreciation-based awards like stock options provides the appropriate alignment between executive interests and stockholder interests as well as pay for performance. In addition, given that unexercised options under our 2016 Equity Incentive Plan do not expire for up to ten years following the date of grant so long as the grantee remains a service provider to the Company, we believe that options can have a greater retentive effect and provide a longer-term incentive to our executives to perform well and maximize stockholder value when compared to other equity awards that expire in shorter time periods. Accordingly, for fiscal 2019, each NEO, other than our CEO, was granted an option to purchase shares of our common stock ranging from 208,100 shares to 374,000 shares, with our CEO receiving an option to purchase 1,625,000 shares of our common stock. Please see “—Long-term Incentive Compensation” below for additional information regarding our long-term incentive compensation program.

 

With respect to the market stock unit (“MSU”) awards granted in fiscal 2016 and 2017, the Compensation Committee calculated the number of shares of our common stock earned using a sliding scale based on stock price performance above and below the Russell 2000 Index, up to a maximum of 150% of the target number of shares. Each of the MSU awards granted in fiscal 2016 and 2017 had two performance periods, beginning on November 1, 2015 for those granted in fiscal 2016 and November 1, 2016 for those granted in fiscal 2017. The first performance period for the awards granted in fiscal 2016 ended October 31, 2017 and the second performance period ended on October 31, 2018. The first performance period for the MSU awards granted in fiscal 2017 ended October 31, 2018 and the second performance period ends on October 31, 2019. For the second performance period related to the MSU awards granted in fiscal 2016 and the first performance period related to the MSU awards granted in fiscal 2017, the Compensation Committee determined that the performance requirements were not met and all shares reserved for issuance with respect to the second and first performance period under the fiscal 2016 MSU (“2016 MSU Program”) program and fiscal 2017 MSU program (“2017 MSU Program”), respectively, were cancelled.

 

We have reasonable employment agreements.  Each NEO’s employment agreement has reasonable post‑employment cash payment and benefit levels and contains a “double trigger” acceleration provision for unvested and unearned equity awards in the event of a change in control of the Company. For the terms of the employment agreements for our CEO and the other NEOs, please refer to the information set forth under “—Employment, Change in Control and Severance Arrangements”.

 

We mitigate unnecessary compensation‑related risk.  We have implemented robust Board and management‑level processes to identify compensation‑related risks, and we mitigate undue risk with business controls, including limits on payout levels under our annual cash incentive award plan and a compensation recovery (“clawback”) policy that applies to both our annual cash incentive award and long‑term incentive compensation plans.

 

We have strong corporate governance standards.  The Compensation Committee has retained an independent compensation consultant and makes use of various analytical tools as part of its annual executive compensation review.

 

We have adopted stock ownership requirements.  The Compensation Committee believes it is important for our executives, including our NEOs, and non‑employee directors to hold a minimum amount of our equity securities in order to align their interests with those of our stockholders. Consistent with this belief, we have adopted stock ownership requirements for our executives and non‑employee directors. All of our executives and non‑employee directors are in compliance with these stock ownership requirements or are on track to be in compliance within the applicable timeframe specified in such requirements.

13


 

No hedging or pledging transactions allowed.  Our insider trading policy prohibits all of our employees, including our NEOs, and non‑employee directors from engaging any speculative transactions in Company securities, including purchasing on margin, holding Company securities in margin accounts, purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds), engaging in short sales, engaging in transactions in derivative securities or engaging in any other forms of hedging transactions. Our employees, including our NEOs, and our non‑employee directors are also prohibited from pledging or using Company securities as collateral for loans.

 

We do NOT engage in the following compensation practices:

 

We generally do not provide perquisites or other personal benefits to our NEOs, except for those who are employed internationally in accordance with local customs.

 

We do not currently offer pension arrangements, retirement plans (other than our Section 401(k) employee savings plan), or nonqualified deferred compensation plans or arrangements to our senior executives, including our NEOs, except for those who are employed internationally in accordance with local customs and regulations.

 

We do not provide excise tax gross‑ups.

The Compensation Committee will continue to analyze our executive compensation policies and practices and adjust them as appropriate to reflect our performance and competitive needs.

How Votes Are Counted

The proposal requires the affirmative vote of a majority of shares present at the Annual Meeting, in person or by proxy, and entitled to vote on the proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the same effect as a vote against the proposal. Broker non‑votes, if any, will have no effect on the outcome of the vote.

Because your vote is advisory, it will not be binding on the Board or the Compensation Committee. However, the Compensation Committee, which is responsible for designing and approving our executive compensation program, and the Board value the opinions expressed by our stockholders and will consider the outcome of the vote when making future compensation decisions for our NEOs.

Board’s Recommendation

Based on the information provided above and within “Compensation Discussion and Analysis” in this Proxy Statement, we request that you indicate your support for our executive compensation philosophy, policies and practices by voting in favor of the following resolution:

Resolved, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s NEOs as described in the Company’s 2019 Proxy Statement, including the Compensation Discussion and Analysis, the compensation tables, and the other narrative compensation disclosures.”

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DESCRIBED IN THIS PROXY STATEMENT.

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Proposal Three

Ratification Of Appointment

Of Independent Registered Public Accounting Firm

General

The Audit Committee of our Board (the “Audit Committee”) has selected Grant Thornton LLP as our independent registered public accounting firm to perform the audit of our consolidated financial statements for the fiscal year ending June 30, 2020. Grant Thornton LLP has audited our consolidated financial statements since fiscal year 2007.

Stockholder ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2020 is not required by law, the Nasdaq Stock Market (“Nasdaq”) listing requirements, our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws (“Bylaws”). However, our Board is submitting the selection of Grant Thornton LLP to our stockholders for ratification as a matter of good corporate governance and practice. If the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether or not to retain Grant Thornton LLP. Even if the selection is ratified, we may appoint a different independent registered public accounting firm during the fiscal year if the Audit Committee determines that such a change would be in the best interests of our Company and our stockholders.

Representatives of Grant Thornton LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions from our stockholders.

Audit and Non-Audit Services

The Audit Committee is directly responsible for the appointment, compensation and oversight of our independent auditors. The Audit Committee retained Grant Thornton LLP to audit our consolidated financial statements for the fiscal year ended June 30, 2019. The estimated aggregate fees billed by Grant Thornton LLP for all services relating to fiscal 2019 and 2018 are as follows:

 

 

 

Fiscal Year

Ended June 30,

 

Service Category

 

2019

 

 

2018

 

Audit Fees(1)

 

$

2,300,550

 

 

$

2,274,006

 

Audit Related Fees

 

 

 

 

 

 

Tax Fees

 

 

12,797

 

 

 

 

All Other Fees

 

 

 

 

 

 

Total

 

$

2,313,347

 

 

$

2,274,006

 

 

(1)

Audit fees primarily consist of fees for professional services performed for the audit of our consolidated annual financial statements and the review of our unaudited quarterly financial statements. Audit fees also include fees for the audit of our internal controls over financial reporting in accordance with Section 404 of the Sarbanes‑Oxley Act of 2002, issuance of consents and fees for statutory audits.

In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit of our consolidated financial statements included in our Annual Report, for the review of our financial statements included in our quarterly reports on Form 10‑Q, for the review of registration statements and issuance of consents and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements except those not required by statute or regulation; “audit‑related fees” are fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements, including attestation services that are not required by statute or regulation; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees for any services not included in the first three categories.

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Audit Committee Pre-Approval Policies and Procedures

The Audit Committee pre‑approves all audit and permissible non‑audit services provided by the independent registered public accounting firm. These services may include audit services, audit‑related services and tax services, as well as, to a very limited extent, specifically designated non‑audit services that, in the opinion of the Audit Committee, will not impair the independence of the registered public accounting firm. Pre‑approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre‑approval, including the fees for the services performed to date. In addition, the Audit Committee also may pre‑approve particular services on a case‑by‑case basis, as required.

How Votes Are Counted

The proposal requires the affirmative vote of a majority of shares present at the Annual Meeting, in person or by proxy, and entitled to vote on the proposal. Abstentions will be treated as being present and entitled to vote on the proposal and, therefore, will have the same effect as a vote against the proposal. Broker non‑votes, if any, will have no effect on the outcome of the vote.

Board of Directors’ Recommendation

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2020.

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Audit Committee Report

The Audit Committee is responsible for overseeing our accounting and financial reporting processes and internal control systems, the appointment, compensation, retention and oversight of Grant Thornton LLP, our independent registered public accounting firm, and audits of our financial statements, all pursuant to the Audit Committee’s written charter. Grant Thornton LLP reports directly to the Audit Committee. The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties and to receive appropriate funding, as determined by the Audit Committee, from our Company for such advice and assistance.

Management is responsible for preparing our financial statements and for our financial reporting processes, accounting policies, systems of internal controls and disclosure controls and procedures. For our fiscal year ended June 30, 2019, Grant Thornton LLP was responsible for expressing an opinion on the effectiveness of our internal control over financial reporting. Grant Thornton LLP was also responsible for performing an independent audit and expressing an opinion on the conformity of our audited financial statements with accounting principles generally accepted in the United States. In this context, the Audit Committee hereby reports as follows:

 

1.

The Audit Committee has reviewed and discussed our audited financial statements for fiscal 2019 with our management.

 

2.

The Audit Committee has discussed with Grant Thornton LLP the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301, Communications with Audit Committees, and Rule 2‑07 of SEC Regulation S‑X.

 

3.

The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with Grant Thornton LLP its independence.

 

4.

Based on the review and discussions referred to in paragraphs (1) through (3) above, the Audit Committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10‑K for the fiscal year ended June 30, 2019, for filing with the SEC.

Audit Committee Of The Board Of Directors

Joseph E. Whitters, Chairperson

Elizabeth Dávila

Robert S. Weiss

The foregoing Audit Committee report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under these acts, except to the extent we incorporate by reference into such filings.

17


Compensation Discussion And Analysis

Introduction

This Compensation Discussion and Analysis provides information regarding the fiscal 2019 compensation program for our Named Executive Officers (“NEOs”), which includes our principal executive officer, our principal financial officer, our former principal financial officer and our other three most highly-compensated executive officers who at fiscal year‑end were as follows:

 

Current NEOs

 

Title

Joshua H. Levine

 

President and Chief Executive Officer (“CEO”)

Shigeyuki (“Shig”) Hamamatsu (1)

 

Senior Vice President and Chief Financial Officer (“CFO”)

Andy Kirkpatrick

 

Senior Vice President, Chief Operations Officer

Patrick Spine

 

Senior Vice President, Chief Administrative Officer

 

(1)

Mr. Hamamatsu was appointed as our CFO effective November 19, 2018

 

Former NEOs

 

Title

Kevin Waters (1)

 

Former Senior Vice President, Chief Financial Officer

Lionel Hadjadjeba (2)

 

Former Senior Vice President, Chief Commercial Officer

 

(1)

Mr. Waters resigned from the Company effective October 1, 2018

 

(2)

Mr. Hadjadjeba was terminated from the Company effective August 31, 2019

This Compensation Discussion and Analysis describes the material elements of our executive compensation program during fiscal 2019. It also provides an overview of our executive compensation philosophy, including our principal compensation policies and practices. Finally, it analyzes how and why the Compensation Committee arrived at its specific compensation decisions for our NEOs in fiscal 2019 and discusses the key factors that the Compensation Committee considered in determining NEO compensation, which included stockholder feedback and the results of our 2018 say-on-pay vote.

Executive Summary

Fiscal 2019 Business Highlights

In fiscal 2019, we achieved improved financial results, including the following:

 

Recorded the first full year of operating profit since 2011, the year in which we acquired TomoTherapy Incorporated;

 

Implemented a cost-savings initiative designed to save $15 million;

 

Generated gross system dollars into backlog of $346.4 million (measured on a constant foreign currency basis using exchange rates set in the fourth quarter of fiscal 2018), which was 104% of the pre-established target level under our Company Bonus Plan;

 

Achieved total revenue of $425.3 million (measured on a constant foreign currency basis using exchange rates set in the fourth quarter of fiscal 2018), which was 100% of the pre-established target level under our Company Bonus Plan and represented a twelve percent increase compared to the prior fiscal year (without adjusting for currency fluctuation); and

 

Achieved adjusted EBITDA (excluding bonus accrual and certain other costs) of $40.5 million, which was 95% of the pre-established target level under our Company Bonus Plan.

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In addition, during the third quarter of fiscal 2019, in furtherance of our growth strategy, we entered into a joint venture contract with CNNC High Energy Equipment (Tianjin) Co., Ltd, a subsidiary of China Isotope and Radiation Corporation, through our subsidiary, Accuray Asia Limited. Pursuant to the joint venture contract (the “Joint Venture Contract”), we established the joint venture entity, CNNC Accuray (Tianjin) Medical Technology Co., Ltd (the “JV”), in which we own a 49% interest. We believe that China represents one of the largest growth opportunities for radiation therapy systems and, accordingly, is a significant component of our long-term growth strategy. The JV was formed to sell and eventually manufacture our radiation oncology systems in China and is intended to expand our presence in China by helping meet critical market demand resulting from the issuance of new license quotas by the China Ministry of Health for Class A and Class B radiation systems and to also address longer-term unmet needs. While the JV began selling products in China in July 2019 after receipt of the requisite licensure, we expect that successfully operationalizing and managing the JV will continue to require significant dedication from our employees, including our NEOs.

The impact of our performance on the fiscal 2019 annual cash incentive award opportunities of our NEOs is described in the next section and further discussed under the heading “Fiscal 2019 Cash Incentive Award Opportunities and Payouts” below.

Fiscal 2018 Say on Pay Vote and Stockholder Engagement

Our Board and management are committed to maintaining sound and effective compensation and governance programs, with policies and programs reflecting best practices and geared to building value for our stockholders. At our 2018 Annual Meeting of Stockholders, approximately 87.9% of votes cast were voted in favor of the compensation of our then-named executive officers and, indirectly, our executive compensation program.  

In evaluating our compensation program and practices for fiscal 2019, the Compensation Committee was mindful of the results of our fiscal 2018 say-on pay vote as well as other discussions with stockholders. Taking in account stockholder feedback and historical voting results, as well as other factors described in “—Long-term Incentive Compensation” below, the Compensation Committee recalibrated the long-term incentive compensation program for fiscal 2019 to provide for greater focus on long-term share price appreciation to more closely align the interests of our executives to the long-term interests of stockholders and promote retention. The Compensation Committee otherwise continued to apply the same general principles and philosophy as in the prior fiscal year in determining other components of executive compensation.

We continue to have periodic ongoing discussions with our stockholders to understand their perspectives and to communicate on a variety of corporate governance topics, including our executive compensation practices. The Company’s executive officers have directly engaged stockholders in many diverse ways, including quarterly conference calls; numerous investor meetings, which included in-person sessions and telephone calls with stockholders; presentations at various investor and industry conferences and individual meetings initiated by both the Company and stockholders. We strive to make these events an open forum to actively engage our stockholders in dialogue about all matters, from our financial and operational trends to governance issues, including executive compensation. These interactions allow investors the opportunity to meet, ask questions of, and provide advice to, our executive team. We value the insights gained from our discussion with our stockholders and find them to be helpful even when points of view vary. The Compensation Committee, as well as the independent members of our Board, consider stockholder feedback when adopting policies affecting our executive compensation program. We will continue to seek opportunities for dialogue with our stockholders on executive compensation and other matters on an ongoing basis.

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Fiscal 2019 Executive Compensation Highlights

Based on its desire to incentivize our senior leadership team for fiscal 2019, which it believes embodies the appropriate experience and skills to successfully execute our long-term business objectives, and to address significant retention concerns in light of the voluntary departures of three of our senior executives in fiscal 2019, including our former CFO and our former General Counsel, the Compensation Committee (and, in the case of our CEO, the independent members of our Board) took the following actions with respect to the compensation of our NEOs:

 

Base Salaries

 

As part of its annual compensation review, annual base salaries for certain of our NEOs were moderately increased, including an increase of approximately 2.0% for our CEO, whose last base salary increase was in fiscal 2017. Certain other NEOs received larger increases to their base salaries as a result of taking on additional responsibilities or a promotion.

Annual Cash Incentive Awards

 

Selected gross orders to backlog, revenue and adjusted EBITDA as the performance measures for our Company Bonus Plan for fiscal 2019.

 

Based on our actual performance with respect to such measures, determined that the fiscal 2019 annual cash incentive award payouts under our Company Bonus Plan for our NEOs, collectively, equaled approximately 101.8% of their aggregate target annual cash incentive award opportunity.

 

For fiscal 2019, our NEOs (other than our CEO) received annual cash incentive award payouts in amounts ranging from $225,233 to $427,000, with our CEO receiving a payout in the amount of $880,346.

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Annual “Refresh” Equity Awards

 

Recalibrated our long-term incentive compensation program with respect to our NEOs to provide fiscal 2019 “refresh” equity awards solely in the form of options to purchase shares of our common stock.

 

Granted the fiscal 2019 “refresh” option awards to our NEOs with a higher grant date fair value in fiscal 2019 with a view that “refresh” equity grants to such NEOs in fiscal 2020 would have a lower grant date fair value than such awards would otherwise have had.

 

Specifically, our NEOs (other than our CEO) received annual “refresh” awards consisting of options to purchase shares of our common stock at an exercise price of $4.10 per share in amounts ranging from 208,100 shares to 374,000 shares of our common stock. Our CEO received an annual “refresh” award consisting of an option to purchase 1,625,000 shares of our common stock at an exercise price of $4.10 per share.

 

Rationales for using options and providing a higher grant date fair value in fiscal 2019 include:

Driving an immediate, strong alignment between our NEOs’ interests and the interests of our stockholders by (i) using an equity vehicle that does not allow our NEOs to realize value unless our stock price increases and (ii) tying a significant portion of our NEOs’ total direct compensation to such equity vehicle;

Providing greater motivation to our NEOs in fiscal 2019 to effectively execute our near-term and long-term growth strategy, including executing the Joint Venture Contract and establishing the JV in China prior to the end of fiscal 2019; and

Providing meaningful retention to our NEOs, especially in light of the recent voluntary resignations of senior executives discussed in more detail below, through (i) a “refresh” award with a higher grant date fair value in fiscal 2019 relative to fiscal 2020 and (ii) the use of option awards having a four-year vesting schedule and an expiration date up to ten years from the date of grant, which the Compensation Committee believed would have greater long-term retentive effects compared to other equity award types that have shorter vesting or performance periods and settle or expire earlier.

Retention Equity Award

 

Following the voluntary resignation of Mr. Waters, our former CFO, Mr. Hamamatsu and other key employees of the Company received a grant of restricted stock units (“RSUs”) as part of the Company’s retention efforts. Mr. Hamamatsu’s retention RSU grant covered 25,000 RSUs and was made in August 2018.

“Pay-for-Performance”

We believe that there should be a strong relationship between pay and performance, and our executive compensation program reflects this belief. In particular, annual cash incentive award opportunities and long-term incentive compensation in the form of equity awards represent a majority of the target total direct compensation opportunities of our executive officers, including our NEOs, as reflected in the charts below. These variable compensation elements are considered “at risk” as they are directly dependent upon the achievement of pre-established performance objectives and/or stock price performance.

We have structured our annual cash incentive opportunities to focus on the achievement of specific short-term financial performance goals that are aligned with our business strategy and will further our longer-term growth objectives. As such, our annual Company Bonus Plan only funds if we achieve multiple pre-established financial performance objectives, placing our NEOs’ target annual cash incentive opportunities entirely at risk.

Our long-term incentive compensation program, which previously focused on a mixture of performance-based awards, service-based awards and appreciation-based awards was adjusted for fiscal 2019 to be comprised entirely of appreciation-based options to purchase shares of our common stock. The Compensation Committee believes that options have greater retentive value than the other forms of equity awards that have historically been granted to our executives and are also a highly effective performance-based vehicle for delivering long-term incentive compensation as our executive officers realize value from the awards only if our stock price increases over time and sustains such increase through the options’ four-year vesting period. Further discussion of our long-term incentive compensation program can be found in “—Long-term Incentive Compensation” below.

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The following charts illustrate the breakdown of the fiscal 2019 target total direct compensation opportunities for our NEOs between base salary, target annual cash incentive opportunities and long-term incentive compensation in the form of equity awards, which are further discussed under the heading “Compensation Elements” below.

 

 

 

 

The following chart illustrates the allocation of the fiscal 2019 target and realized direct compensation for our NEOs between salary, annual cash incentive opportunities and long-term incentive compensation in the form of equity awards. Based on our financial performance in fiscal 2019 relative to the financial performance measures set forth in our Company Bonus Plan, a significant portion of the “at‑risk” cash compensation of our NEOs was earned because we achieved the pre-determined performance metrics. As a result, the Company Bonus Plan was funded at approximately 101.8% of target and each NEO received a corresponding percentage of his target annual cash incentive award opportunity. In contrast, due to our stock price performance, which faced downward pressure resulting in part from industry conditions, none of the appreciation-based stock options granted during or prior to fiscal 2019 to our NEOs, including our CEO, were in-the-money based on the closing price of our common stock on June 28, 2019, the last business day of our fiscal 2019, demonstrating the option awards’ strong alignment between stockholder value creation and executive compensation.


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In addition, as a result, at least in part, of our performance in fiscal 2019, no shares of our common stock were earned or issued with respect to (i) the second performance period (beginning on November 1, 2015 and ending on October 31, 2018) under our fiscal 2016 MSU program and (ii) the first performance period (beginning on November 1, 2016 and ending on October 31, 2018) under our fiscal 2017 MSU program.  

 

 

Target total direct compensation in the chart above includes base salary, target annual cash incentive award opportunity and the grant date fair value of equity awards but excludes other compensation as reported in the Fiscal 2019 Summary Compensation Table under “Executive Compensation” below. Realized compensation includes base salary paid, the actual cash incentive award paid and the value of time‑based RSUs granted prior to, but vesting in, fiscal 2019. None of the MSUs granted in fiscal 2016 or fiscal 2017 were earned for the performance period ending in fiscal 2019 and no stock options were exercised by our executive officers, other than options exercised by our former CFO after his departure from the Company. Further, at the highest point of our stock price in fiscal 2019, approximately 13% of the total options outstanding held by our CEO would have generated realizable value to our CEO, amounting to approximately $0.78 per share of net realizable value, based on a weighted average exercise price of $4.62 per share. In contrast, on June 28, 2019, the last business day of fiscal 2019, our closing stock price was $3.87 and none of the options outstanding held by our CEO would have generated any realizable value.

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What Guides Our Program

Compensation Philosophy

To achieve our objectives, we need a highly talented and seasoned management team with the integrity, skills and dedication necessary to oversee a dynamic and growing organization and the vision to anticipate and respond to future market developments. Our executive officers must be capable of fulfilling our long‑term business strategy, including expanding the growth of our products into the market.

Accordingly, the overarching compensation philosophy approved by the Compensation Committee for fiscal 2019 was grounded in the following principles and objectives:

 

Pay for Performance

 

Emphasize “variable” pay that is tied to the achievement of specific, pre-established performance objectives or stock price appreciation over “fixed” pay

Stockholder Alignment

 

Effectively align our executives’ interests with the interests of our stockholders by focusing on long-term equity incentives that correlate with sustainable long-term value growth for our stockholders

Attract, Retain and Motivate

 

Attract, retain and motivate talented executives who can develop, implement and deliver on long-term value creation strategies

Balance the Short- and Long-Term Perspective

 

Provide a balance of short-term cash incentive bonuses to motivate execution of near-term objectives while also placing a heavier emphasis on long-term equity compensation to focus our executives on our long term strategic and financial goals

Market Competitiveness

 

Use industry appropriate compensation packages that are competitive with those made available to executives at companies with which we compete for executive talent

 

Consistent with this philosophy, a significant portion of our NEOs’ target total direct compensation in fiscal 2019 was comprised of variable cash incentives (i.e., annual bonus opportunities) and equity‑based compensation, consisting of stock options, in order to align compensation with our business performance and the long‑term interests of our stockholders.

The compensation ultimately earned by our NEOs in fiscal 2019 reflects the fact that we achieved our financial performance objectives for fiscal 2019 under our Company Bonus Plan. As a result of our financial performance in fiscal 2019 compared to our annual operating plan, above‑target annual cash incentive awards were earned by our NEOs in accordance with the terms of our Company Bonus Plan (described below). In contrast, as a result of our stock price performance, the equity-based compensation granted in fiscal 2019 did not have any realizable value as of June 28, 2019, the last business day of fiscal 2019, even assuming such awards were exercisable on such date and no shares of our common stock were earned or issued in respect of (i) the second performance period beginning on November 1, 2015 and ending on October 31, 2018 under the 2016 MSU Program and (ii) the first performance period beginning on November 1, 2016 and ending on October 31, 2018 under the 2017 MSU Program.

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Compensation Elements

During fiscal 2019, the compensation of our executive officers, including our NEOs, consisted of the following elements:

 

Element

 

Primary Objectives

Base Salary

 

Fairly and competitively compensate our executive officers

Provide a stable component to the compensation program

Annual Cash Incentives

 

Reinforce performance-based culture

Provide executive officers incentive to achieve challenging corporate performance objectives

Align corporate performance objectives with our business strategy

Long-Term Incentive Compensation

 

Align executive officer interests to those of our stockholders

Serve as an important retention tool in a highly competitive environment

Incentivize future performance of our executive officers to execute our long-term strategy and create value for stockholders

Reward past corporate and individual performance

Governance Standards and Executive Compensation Practices

We maintain sound corporate governance standards as reflected in our executive compensation policies and practices. The following policies and practices were in effect in fiscal 2019:

 

What We Do

 

What We Do Not Do

Double-Trigger Equity Acceleration

 

No-Single Trigger Change in Control Arrangements

Clawback Policy

 

No Special Perquisites

Stock Ownership Requirements

 

No Special Retirement Plans

Annual Risk Assessment and Say-on-Pay Vote

 

No Option Backdating or Repricing

Independent Compensation Consultant

 

No Hedging or Pledging

Independent Compensation Committee

 

No Tax Gross Ups

 

 

No Current Equity Compensation Plans with Evergreen Provisions

 

 

No Guaranteed Base Salary Increases

 

 

No Compensation Committee Interlock

 

 

“Double-Trigger” Equity Acceleration. Our executive officers’ employment agreements contain “double trigger” acceleration provisions for equity awards, which requires both a change in control of the Company and an involuntary termination of employment before the vesting of outstanding and unvested equity awards is accelerated.

 

Compensation Recovery (“Clawback”) Policy. Each of our Company Bonus Plan, 2007 Incentive Award Plan, and the 2016 Equity Incentive Plan include provisions allowing for potential recovery of performance‑based or incentive compensation paid to our executive officers if (i) we are required to restate our financial results or materially reduce publicly disclosed backlog figures and (ii) the compensation received by our executive officers who received awards under such plans is greater than would have been paid or awarded if calculated based on the restated financial results or the materially reduced backlog figures.

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Stock Ownership Requirements. We have adopted stock ownership requirements for our executive officers and non‑employee directors. All of our executive officers and non‑employee directors are in compliance with these stock ownership requirements or are on track to be in compliance within the applicable timeframe specified in such requirements.

 

Annual Risk Assessments and Say-on-Pay Vote. The Compensation Committee directs our independent compensation consultant to conduct an annual review of our compensation policies and practices and respective risk profiles as described in “Corporate Governance and Board of Directors Matters—Compensation Risk Considerations” below. In addition, we hold say-on-pay votes annually, which the Compensation Committee reviews to determine support of our executive compensation program as described in “Proposal Two—Advisory Vote to Approve the Compensation of Our Name Executive Officers” above.

 

Independent Compensation Consultant. The Compensation Committee has engaged its own independent compensation consultant.

 

Independent Compensation Committee. Each member of our Compensation Committee is independent under the applicable rules and regulations of the Securities and Exchange Commission, Nasdaq and the Internal Revenue Code applicable to Compensation Committee members.

 

No Single-Trigger Change in Control Arrangements. We do not provide our executive officers with single trigger change in control severance benefits.

 

No Special Perquisites. Generally, we do not provide perquisites or other personal benefits to our senior executives, including our NEOs, except for Mr. Hadjadjeba who was employed by our Swiss subsidiary and received certain perquisites and other personal benefits in accordance with local custom. Our executive officers participate in our broad‑based company‑sponsored health and welfare benefits programs on the same basis as our other full‑time, salaried employees.

 

No Special Retirement Plans. We do not currently offer pension arrangements, retirement plans (other than our Section 401(k) employee savings plan) or nonqualified deferred compensation plans or arrangements to our senior executives, including our NEOs, except for Mr. Hadjadjeba who was employed by our Swiss subsidiary and received contributions to a pension fund in accordance with local custom and regulations.

 

No Option Backdating or Repricing. We do not allow backdating or repricing of our option awards.

 

No Hedging or Pledging. Our insider trading policy prohibits our employees, including our NEOs, and our non-employee directors from engaging any speculative transactions in our securities, including purchasing on margin, holding Company securities in margin accounts, purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds), engaging in short sales, engaging in transactions in derivative securities or engaging in any other forms of hedging transactions. Our employees, including our NEOs, and our non-employee directors are also prohibited from pledging or using our securities as collateral for loans.

 

No Tax “Gross-Ups.” We do not provide excise tax “gross-ups” to our executive officers under any circumstances.

 

No Current Equity Compensation Plans with Evergreen Provisions. Our current equity compensation plans do not contain evergreen provisions.

 

No Guaranteed Base Salary Increases. We do not guarantee our executive officers base salary increases.

 

No Compensation Committee Interlock. There is no interlock among our Compensation Committee members as described in “Corporate Governance and Board of Directors Matters—Compensation Committee Interlocks and Insider Participation.

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Compensation Setting Process

Role of Compensation Committee and the Board

The Compensation Committee oversees our executive compensation philosophy and administers our executive compensation program. The Compensation Committee is responsible for reviewing the performance and approving the compensation of our executive officers, including our NEOs (other than our CEO). The independent members of our Board are responsible for reviewing the performance of our CEO and approving his compensation. The Compensation Committee is also responsible for reviewing and recommending to the Board the compensation of our non‑employee directors and establishing and regularly reviewing the compensation and benefits policies for our executive officers. For additional information on the Compensation Committee, including the scope of its authority, see “Corporate Governance and Board of Directors Matters—Compensation Committee,” below.

At the beginning of each fiscal year, the Board, after consulting with management, establishes our corporate performance objectives, and the Compensation Committee, after consulting with management, reviews and approves the individual performance objectives for each executive officer (other than our CEO) and makes decisions with respect to any base salary adjustment, target annual cash incentive award opportunities and equity awards for our executive officers, including our NEOs (other than our CEO), for the upcoming fiscal year. The independent members of the Board, based on the recommendations of the Compensation Committee, approve the individual performance objectives for our CEO and make decisions with respect to his base salary adjustment, target annual cash incentive award opportunity and equity awards. After the end of the fiscal year, the Compensation Committee assesses the performance of our executive officers, including our NEOs (other than our CEO), to determine the payouts for the annual cash incentive award opportunities for the previous year, and the independent members of the Board assess the performance of our CEO to determine his annual cash incentive award payout in light of the previously established performance objectives.

Role of Management

To aid in its deliberations, each fiscal year our CEO provides recommendations to the Compensation Committee regarding the individual compensation elements for each of our executive officers, including our NEOs (other than himself). Prior to formulating these recommendations, our CEO conducts an annual performance review of our other executive officers to evaluate their performance for the prior fiscal year based on the objectives previously established by the Compensation Committee. Our CEO then presents the results of these evaluations, along with his recommendations with regard to their compensation for the current fiscal year, including base salary adjustments, target annual cash incentive award opportunities and payouts and equity awards, to the Compensation Committee for its consideration. In advance of making such recommendations, our CEO often reviews market data provided by the Compensation Committee’s independent compensation consultant and takes into consideration such factors as our compensation philosophy, achievement of individual performance goals and objectives and internal pay equity.

Our CEO also assists the Board in formulating our performance objectives for that fiscal year and the Compensation Committee in developing the individual performance objectives for each executive officer. The Compensation Committee reviews, discusses and modifies such recommendations as they deem appropriate and then recommends to the Board for approval.

Similarly, our CEO’s performance is reviewed annually by the Compensation Committee as well as the other independent members of the Board as part of their deliberations with respect to his compensation. The Compensation Committee makes recommendations regarding the compensation of our CEO to the independent members of the Board, who approve all elements of our CEO’s compensation.

Typically, our CEO is present at Compensation Committee meetings where executive compensation and corporate and individual performance are discussed and evaluated (except when his own compensation and performance are determined or reviewed). From time to time, our CFO, General Counsel and Chief Administrative Officer, who oversees our Human Resources function, may also attend Compensation Committee meetings at which executive compensation matters are discussed and participate in those discussions (except when their own compensation and performance are discussed).

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Role of Independent Compensation Consultant

The Compensation Committee has retained Compensia, Inc. (“Compensia”) as its advisor to provide advice with respect to our executive and non‑employee director compensation programs. Compensia advises the Compensation Committee with respect to trends in executive compensation, the development of the Peer Group (as defined below), the determination of compensation programs, the assessment of competitive pay levels and mix (for example, the proportion of fixed pay to incentive pay and the proportion of annual cash pay to long‑term incentive pay) and setting compensation levels. Compensia also consults with the Compensation Committee to formulate and design new programs to better align management performance with the interests of our stockholders.

Compensia did not perform any other services for us or the Compensation Committee in fiscal 2019. Based on its review, the Compensation Committee has determined that Compensia’s services did not raise any conflict of interest and, after consideration of the factors set forth in the rules of the Securities and Exchange Commission and the Nasdaq Listing Rules, determined that Compensia was independent within the meaning of those rules.

Peer Group

For fiscal 2019, the Compensation Committee determined the compensation of our executive officers, including our NEOs, including the allocation between cash and equity compensation based on an analysis of the data reflected in the Radford April 2018 High‑Tech Industry Survey (the “Radford Survey”) for companies with $200 million to $500 million in annual revenue, as well as an assessment of our performance and compensation practices against a peer group of 13 medical device companies (the “Peer Group”) with whom we compete for executive talent, which are in our industry sector or which have comparable financial and organizational characteristics (collectively, the “Relevant Market Data”). The Peer Group of 13 medical device companies was recommended by Compensia and submitted to the Compensation Committee for its review and approval. The final Peer Group for fiscal 2019 was approved by the Compensation Committee in September 2018.

The criteria used to develop the fiscal 2019 Peer Group include the following:

Primary Factors:

 

Similar business focus (i.e., companies that develop and design highly technical medical devices);

 

Annual total revenue of approximately $200 million to $500 million; and

 

Headquartered in the United States.

Secondary Factors:

 

Employee population of up to approximately three and a half times our number of employees; and

 

Market capitalization of up to approximately four times our market capitalization.

As a result of certain changes in the criteria used to develop the fiscal 2019 Peer Group, the composition of the peer group significantly changed from the prior fiscal year. The fiscal 2019 Peer Group is set forth below:

 

AngioDynamics, Inc.

Lantheus Holdings, Inc.

NxStage Medical, Inc.

CONMED Corporation

Meridian Bioscience Inc.

Orthofix International N.V.

Cutera, Inc.

Merit Medical Systems, Inc.

RTI Surgical Holdings, Inc.

Endologix Inc.

Natus Medical Incorporated

ViewRay, Inc.

K2M Group Holdings, Inc.

 

 

 

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The following table summarizes our relative positioning to the fiscal 2019 Peer Group when the Compensation Committee conducted its annual review of our executive compensation program at the end of fiscal 2018.

 

Criteria

 

Accuray

FY 2018

 

 

Target for

Peer Group

 

2019 Peer Group

Median (Data as

of 6/30/18)

 

Revenue ($MM)

 

$

405

 

 

0.5x - 2.5x

 

$

329

 

Market Capitalization ($MM)

 

$

330

 

 

0.5x - 4.0x

 

$

798

 

Employees

 

 

998

 

 

0.5x - 3.5x

 

 

858

 

 

The Compensation Committee annually reviews the composition of the Peer Group to ensure it is the most relevant set of companies to use for comparison purposes.

In evaluating the base salaries of our executive officers for fiscal 2019, establishing target annual cash incentive award opportunities and granting equity awards, the Compensation Committee reviewed the Relevant Market Data to inform its decisions on individual compensation elements, in particular the competitive reasonableness of such elements and to ensure that its decisions were consistent with our compensation philosophy and strategy. While the Compensation Committee considered the Relevant Market Data, it did not make its decisions solely based on targeting compensation to specific benchmarks against the Relevant Market Data. Instead, the Compensation Committee took an approach consistent with its intention to (i) set performance objectives for cash incentive compensation so that target level payouts would only be made if our executive officers and the Company performed at a superior level that would be difficult to achieve and (ii) provide our executive officers with the ability to earn above‑market compensation for exceptional performance that furthered our long-term financial and strategic goals.

Tally Sheets

As part of our annual executive compensation approval process, with the assistance of Compensia, the Compensation Committee reviews each executive officer’s compensation history for the past five years or, if an executive officer was hired within the past five years, since his or her date of hire, including each compensation element and how it compared to the Relevant Market Data for the fiscal year. The Compensation Committee also reviews tally sheets setting forth the expected value of annual compensation and benefits for each NEO, including base salaries, potential annual cash incentive payouts and minimum and maximum levels, long‑term incentive compensation, including the mix of equity awards and the number of shares of our common stock subject to outstanding stock options, RSU and MSU awards granted, including the fair value at grant, and the annualized cost of other benefits.

These tally sheets also set forth the accumulated value of the compensation and benefits for each NEO, including the accumulated value of equity awards and the accumulated value of potential payouts under different separation from employment scenarios, including under our post‑employment compensation arrangements. Reviewing tally sheets each year facilitates the Compensation Committee’s evaluation of the reasonableness of the total accumulated value of the compensation and benefits provided to each NEO. For fiscal 2019, the tally sheets served to assist the Compensation Committee and, in the case of our CEO, the independent members of the Board, in understanding the total annual compensation opportunity for each executive officer and relative compensation among our executive officers, but did not affect any specific decision relating to our NEOs’ compensation.

Fiscal 2019 Executive Compensation Program in Detail

Base Salary

We believe that a competitive base salary is the essential foundation to providing an appropriate total direct compensation package for our executive officers, including our NEOs. We use base salary to fairly and competitively compensate our executive officers for the jobs we ask them to perform. We view base salary as the most stable component of our executive compensation program, as this amount is not at risk.

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The Compensation Committee and, in the case of our CEO, the independent members of the Board, makes adjustments to base salary when it believes there is a deviation from market based on a review of the Relevant Market Data, when an individual is promoted or assumes an increase in responsibility or when the Compensation Committee determines that an individual’s performance warrants an adjustment. The Compensation Committee reviews the base salary levels of our executive officers each year to determine whether an adjustment is warranted.

For fiscal 2019, the Compensation Committee (and, in the case of our CEO, the independent members of our Board) increased the base salaries of our NEOs (including our CEO) from their final fiscal 2018 salary levels, as shown below:

 

Named Executive Officer

 

NEO Status

 

Fiscal 2018

Base Salary

 

 

Fiscal 2019

Base Salary(1)

 

 

% Change

 

Joshua H. Levine

 

Current NEO

 

$

710,000

 

 

$

724,200

 

 

 

2.0

%

Shig Hamamatsu(2)

 

Current NEO

 

$

325,000

 

 

$

405,000

 

 

 

24.6

%

Andy Kirkpatrick

 

Current NEO

 

$

395,000

 

 

$

415,000

 

 

 

5.1

%

Patrick Spine(3)

 

Current NEO

 

$

350,000

 

 

$

375,000

 

 

 

7.1

%

 

(1)

Fiscal 2019 base salaries set forth in this table were effective October 1, 2018, other than Mr. Hamamatsu, whose base salary increases are described in footnote (2) below.

(2)

Mr. Hamamatsu joined the Company as Vice President, Chief Accounting Officer in September 2017 with a base salary of $325,000, which was subsequently raised to $375,000 effective July 1, 2018. Effective November 19, 2018, Mr. Hamamatsu’s base salary was increased to $395,000 in connection with his promotion to Chief Financial Officer. Effective June 1, 2019, Mr. Hamamatsu’s base salary was increased to $405,000.

(3)

Mr. Spine joined the Company as Senior Vice President, Human Resources in April 2018 with a base salary of $350,000. Effective October 1, 2018, Mr. Spine’s base salary was increased to $375,000 in connection with his increased responsibilities for his new role as Chief Administrative Officer.

 

Named Executive Officer

 

NEO Status

 

Fiscal 2018

Base Salary

 

 

Fiscal 2019

Base Salary(1)

 

 

% Change

 

Kevin Waters(2)

 

Former NEO

 

$

435,000

 

 

$

435,000

 

 

 

 

Lionel Hadjadjeba(3)

 

Former NEO

 

$

555,074

 

 

$

560,654

 

 

 

1.0

%

 

(1)

Fiscal 2019 base salaries set forth in this table were effective October 1, 2018.

(2)

Mr. Waters resigned from the Company effective October 1, 2018 and as such, did not receive an increase in base salary for fiscal 2019.

(3)

Mr. Hadjadjeba’s base salary was paid in Swiss Francs. Mr. Hadjadjeba’s base salary was CHF 551,972 at the end of fiscal 2018. Effective October 1, 2018 and through the remainder of fiscal 2019, Mr. Hadjadjeba’s base salary was CHF 557,520. The amounts set forth in the table above for Mr. Hadjadjeba reflect the conversion from CHF to U.S. dollars using the average exchange rate of 1.00562 for fiscal 2019. Mr. Hadjadjeba’s employment with the Company was terminated effective August 31, 2019.

The annual base salaries paid to our NEOs are reported in the Fiscal 2019 Summary Compensation Table under “Executive Compensation” below.

Annual Cash Incentives

Annual cash incentive awards under our Company Bonus Plan serve to reinforce our performance‑based culture. The Compensation Committee believes in providing our executive officers, including our NEOs, with a target total cash compensation opportunity above the market median tied to the achievement of challenging, pre‑established corporate performance objectives that are aligned with our business strategy. Historically, due to the challenging nature of the objectives that the Compensation Committee established, payouts under our Company Bonus Plan have averaged approximately 46% of their target level from fiscal 2013 through fiscal 2018. As with base salary, each executive officer’s target annual cash incentive award opportunity is set with reference to his performance over the previous fiscal year as evaluated by our CEO or, in the case of our CEO, the independent

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members of the Board, his experience and responsibilities, the critical nature of his position relative to our success, our retention needs, the Relevant Market Data and our CEO’s recommendation with respect to our other NEOs.

At the beginning of each fiscal year, the Compensation Committee reviews and approves the corporate performance measures and related target levels for the current fiscal year’s annual cash incentive awards and reviews and approves the target annual cash incentive award opportunity for each executive officer, including our NEOs, but excluding our CEO, whose target annual cash incentive award opportunity is reviewed and approved by the independent members of the Board. The table below sets forth, for fiscal 2018 and fiscal 2019, the target annual cash incentive award opportunity for each of our NEOs as a percentage of base salary and in absolute dollars. The Compensation Committee recognizes that the performance of certain of our NEOs has a greater potential to directly impact the successful implementation of our overall strategy and achievement of our financial and strategic performance and, given that the Company Bonus Plan only includes corporate performance objectives, the Compensation Committee believes it is appropriate that the target annual cash incentive award opportunities of these executive officers should be higher than the opportunities of other executive officers.

Fiscal 2019 Company Bonus Plan Target Annual Cash Incentive Award Opportunities

 

 

 

 

 

Fiscal 2018 Target

 

 

Fiscal 2019 Target

 

Named Executive Officer

 

NEO Status

 

(%)

 

 

($)

 

 

(%)

 

 

($)

 

Joshua H. Levine

 

Current NEO

 

 

120

 

 

 

852,000

 

 

 

120

 

 

 

864,780

 

Shig Hamamatsu(1)

 

Current NEO

 

 

35

 

 

 

113,750

 

 

 

65.7

 

 

 

255,000

 

Andy Kirkpatrick

 

Current NEO

 

 

60

 

 

 

237,000

 

 

 

75

 

 

 

307,500

 

Patrick Spine(2)

 

Current NEO

 

 

50

 

 

 

175,000

 

 

 

60

 

 

 

221,250

 

 

(1)

Mr. Hamamatsu joined the Company as Vice President, Chief Accounting Officer in September 2017 with a target annual cash incentive award opportunity of 35% of base salary, which was increased to 50% of base salary effective July 1, 2018. Effective November 19, 2018, Mr. Hamamatsu’s target annual cash incentive award opportunity was increased to 75% of base salary in connection with his promotion to Chief Financial Officer. Mr. Hamamatsu’s target annual cash incentive award opportunity for fiscal 2019 was pro-rated based on the number of days before and after his appointment as Chief Financial Officer.

(2)

Mr. Spine joined the Company as Senior Vice President, Human Resources in April 2018 with a target annual cash incentive award opportunity of 50% of base salary.

 

 

 

 

 

Fiscal 2018 Target

 

 

Fiscal 2019 Target

 

Named Executive Officer

 

NEO Status

 

(%)

 

 

($)

 

 

(%)

 

 

($)

 

Kevin Waters(1)

 

Former NEO

 

 

60

 

 

 

261,000

 

 

N/A

 

 

N/A

 

Lionel Hadjadjeba(2)

 

Former NEO

 

 

60

 

 

 

341,261

 

 

 

75

 

 

 

419,450

 

 

(1)

Mr. Waters resigned from the Company effective October 1, 2018 and as such, a target annual cash incentive award opportunity for fiscal 2019 was not approved for him.

(2)

Mr. Hadjadjeba’s target annual cash incentive award opportunity was paid in Swiss Francs. The amounts set forth in the table above reflect the conversion from CHF to U.S. dollars using the average exchange rate of 1.00562 for fiscal 2019. Mr. Hadjadjeba’s employment with the Company was terminated effective August 31, 2019.

Fiscal 2019 Company Bonus Plan Performance Objectives

All employees, including our NEOs, are eligible to participate in the Company Bonus Plan, which was adopted by the Compensation Committee. For fiscal 2019, our annual cash incentive awards were designed to reward our executive officers, including our NEOs, based solely on our financial performance. In establishing the fiscal 2019 cash incentive award program for our executive officers, including our NEOs, the Compensation Committee determined that their award opportunities should be directly linked to achieving multiple corporate financial performance objectives.

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The bonus pool under the Company Bonus Plan would fund only if the corporate financial performance objectives established by the Compensation Committee were achieved at pre‑established threshold levels. Accordingly, if the bonus pool did not fund, no executive officer would be entitled to any annual cash incentive award payout under the Company Bonus Plan, regardless of his individual performance.

To the extent that the bonus pool was funded, the Company Bonus Plan entitled each executive officer to an actual cash incentive award payout as determined by the formula below, provided that the Compensation Committee could exercise negative discretion to reduce the overall funding percentage and/or to reduce any individual award payout:

For fiscal 2019, the Compensation Committee established three corporate financial performance measures: gross system dollars into backlog, total revenue and adjusted EBITDA for purposes of the Company Bonus Plan. These performance measures were applied in the same manner to all of our executive officers, including our NEOs. The Compensation Committee established target levels and minimum funding thresholds with respect to each performance measure, thereby requiring that we achieve the minimum threshold set for each measure in order for any funding to occur with respect to that measure. The performance measures and their relative weightings, target levels and minimum funding thresholds for fiscal 2019, as well as the actual performance attained, were as follows:

 

Performance Measure

 

Weighting

 

 

Target

 

Threshold

 

Actual Results

 

% Plan

Attained

 

 

% Weighted

Funding

 

Gross System Dollars into Backlog

 

 

40

%

 

$331.5 million

 

$298.3 million

 

$346.4 million

 

 

104

 

 

 

43.60

 

Total Revenue

 

 

40

%

 

$425.0 million

 

$382.5 million

 

$425.3 million

 

 

100

 

 

 

40.04

 

Adjusted EBITDA

 

 

20

%

 

$42.5 million

 

$31.8 million

 

$40.5 million

 

 

95

 

 

 

18.14

 

 

Each performance measure other than adjusted EBITDA was calculated on a GAAP basis, consistent with the GAAP financial measures reported in our quarterly earnings releases adjusted for constant currency. For purposes of the Company Bonus Plan, “adjusted EBITDA,” a non‑GAAP financial measure, was calculated by excluding any bonus accrual amounts and foreign exchange fluctuations. All three measures were measured on a constant foreign currency basis using exchange rates set in the fourth quarter of fiscal 2018. The Compensation Committee could, in its discretion, approve exclusions in the nature of one‑time occurrences, extraordinary items or events outside management’s control. To be reported in our backlog, an order must have met our fiscal 2019 backlog criteria as disclosed in our Annual Report on Form 10‑K.

In August 2019, the Compensation Committee assessed corporate performance with respect to each of the three performance measures and determined whether threshold performance had been achieved for each measure. The funding with respect to each performance measure was based on a funding slope in a straight line from 50% at the minimum threshold level, to 100%, at the target level. In the event any of the performance measures was achieved at greater than the target level, the funding would also be based on a straight line from 100% at the target level to the maximum funding opportunity at 120% funding for the total revenue and gross dollars into backlog measures and 150% funding for the adjusted EBITDA measure.

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Based on our actual corporate performance results, the funding methodology resulted in funding of the bonus pool at approximately 101.8% of the target level. Based on this performance level, the target annual cash incentive award opportunities and actual payouts made to our NEOs in fiscal 2020 for fiscal 2019 performance were as follows:

Fiscal 2019 Company Bonus Plan Payouts

 

 

 

 

 

Target Annual Cash

Incentive Award

Opportunity

 

 

Fiscal 2019

Total Actual

Payout

 

Named Executive Officer

 

NEO Status

 

(%)

 

 

($)

 

 

($)(1)

 

Joshua H. Levine

 

Current NEO

 

 

120

 

 

 

864,780

 

 

 

880,346

 

Shig Hamamatsu

 

Current NEO

 

 

65.7

 

 

 

255,000

 

 

 

259,590

 

Andy Kirkpatrick

 

Current NEO

 

 

75

 

 

 

307,500

 

 

 

313,035

 

Patrick Spine

 

Current NEO

 

 

60

 

 

 

221,250

 

 

 

225,233

 

 

(1)

The fiscal 2019 total actual payout for each NEO was derived by multiplying the approximate 101.8% funding level by the gross cash wages (base salary) earned by such NEO during fiscal 2019 as calculated in accordance with the Company Bonus Plan.

 

 

 

 

 

Target Annual Cash

Incentive Award

Opportunity

 

 

Fiscal 2019

Total Actual

Payout

 

Named Executive Officer

 

NEO Status

 

(%)

 

 

($)

 

 

($)(1)

 

Kevin Waters(2)

 

Former NEO

 

N/A

 

 

N/A

 

 

 

 

Lionel Hadjadjeba(3)

 

Former NEO

 

 

75

 

 

 

419,450

 

 

 

427,000

 

 

(1)

The fiscal 2019 total actual payout for each NEO was derived by multiplying the approximate 101.8% funding level by the gross cash wages (base salary) earned by such NEO during fiscal 2019 as calculated in accordance with the Company Bonus Plan.

(2)

Mr. Waters resigned from the Company effective October 1, 2018 and, as such, did not receive any actual payout under the Company Bonus Plan for fiscal 2019.

(3)

Mr. Hadjadjeba’s target annual cash incentive award opportunity is paid in Swiss Francs. The amounts set forth in the table above reflect the conversion from CHF to U.S. dollars using the average exchange rate of 1.005621 for fiscal 2019. Mr. Hadjadjeba’s employment with the Company was terminated effective August 31, 2019. Mr. Hadjadjeba’s fiscal 2019 actual payout was paid pursuant to a Separation Agreement and General Release entered into between Mr. Hadjadjeba and Accuray International Sàrl, a subsidiary of the Company. Please see “Certain Relationships and Related Transactions” for information regarding the Separation Agreement and General Release.

The annual cash incentive award payouts for fiscal 2019 performance made to our NEOs are reported in the Fiscal 2019 Summary Compensation Table under “Executive Compensation” below.

Long-Term Incentive Compensation

We believe that long-term incentive compensation in the form of equity awards provide a strong alignment between the interests of our stockholders and our executive officers, including our NEOs, and serve as an important retention tool, especially given the highly competitive environment in which we compete to attract and retain talent. Accordingly, the Compensation Committee seeks to motivate and retain our executive officers through the use of equity awards consistent with the reasonable management of our overall equity compensation expense and stockholder dilution. The Compensation Committee and, in the case of our CEO, the independent members of the Board, grants equity awards to our executive officers, including our NEOs, at the beginning of each fiscal year, as a reward for past corporate and individual performance, as an incentive for future performance and to satisfy our retention objectives.

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In the past, our executive officers have been granted service-based RSU awards, performance-based equity in the form of MSU awards, including MSUs that have performance periods that continue through October 2020, and appreciation-based stock options, all of which, to the extent they remain outstanding, continue to provide incentive to our executive officers to drive stockholder value over the relevant vesting or performance period, as applicable.

For fiscal 2019, given the desire to (i) drive alignment between executive interests and the interests of our stockholders, (ii) properly incentivize our executive officers to effectively execute our growth strategy, including our near-term and long-term growth strategy in China with our JV and (iii) retain our executive officers in light of recent voluntary resignations of senior executives discussed in more detail below, the Compensation Committee, and in the case of our CEO, the independent members of the Board, granted equity awards under our long-term incentive compensation program to our executive officers, including our NEOs, entirely in form of options to purchase shares of our common stock. In coming to the decision to grant solely options, the Compensation Committee and, in the case of our CEO, the Board, also considered (i) the equity mix and holdings of each of our executives, including the estimated unvested retention value of such awards, and (ii) the equity grant policies and practices of our Peer Group.

The Compensation Committee and, in the case of our CEO, the independent members of the Board, did evaluate the use of RSUs and MSUs in fiscal 2019 but elected not to use these forms of equity compensation during the fiscal year. Instead, they elected to use stock options, which they believe more closely aligns the interests of executives with our stockholders relative to full-value awards like RSUs and MSUs because our executives realize value from options only if our stock price increases following the date of grant. In addition, the Compensation Committee and, in the case of our CEO, the independent members of the Board, believe that options served as a better long-term retention tool relative to RSUs and MSU awards given that options carry potential value through their expiration dates, which can be up to ten years from the date of grant, rather than merely through the awards’ vesting or performance periods. They believed that this extended time period over which our executive officers can potentially realize value provides added incentive for them to work harder over a longer period of time to execute on our long-term strategy and create value for stockholders while also providing meaningful retentive value by tying any potential realizable benefit to increases in our stock price over a reasonable time period whereby the executives can effectuate our growth strategy. In contrast, the Company historically granted RSU awards with a four year vesting period and MSU awards with two and three year performance periods. After the settlement or cancellation of such awards at the end of their vesting or performance periods, as applicable, the Compensation Committee determined that such awards have relatively less retentive effect or incentivizing value for driving superior performance results over a time horizon greater than the typical vesting or performance period of RSU or MSU awards. As a result, and taking into consideration the then-current equity mix and holdings of our NEOs, it was determined that stock options would provide the most meaningful incentive to our executive officers to align their interests with long-term stockholder value and stock price appreciation while also delivering valuable retentive effects. Consistent with the Compensation Committee’s and the Board’s intent to align executive interests with those of our stockholders, the options granted to our executive officers in fiscal 2019 did not have any realizable value as of the last business day in fiscal 2019 due to our stock price performance notwithstanding our overall improved fiscal performance in fiscal 2019 relative to the prior fiscal year.

Historically, the size of an executive officer’s equity award is determined by the Compensation Committee and, in the case of our CEO, the independent members of the Board, after considering his performance against his individual goals and objectives over the last fiscal year as evaluated by our CEO (or, in the case of our CEO, as evaluated by the independent members of our Board), an evaluation of his target total direct compensation, an evaluation of his accumulated equity holdings, the critical nature of his position relative to our success, our retention needs, the Relevant Market Data, internal equity, role hierarchy and such other factors as the Compensation Committee or the independent members of the Board, as applicable, determines relevant. In fiscal 2019, three of our senior executives voluntarily resigned from the Company, including our former CFO and former General Counsel. As a result, in addition to the factors discussed above, retention was of a greater concern in fiscal 2019 and played a greater role in the determining the size of each executive officer’s equity awards, including the CEO. In determining the fiscal 2019 equity grants, the Compensation Committee, and in the case of our CEO, the independent members of the Board, intended to provide a meaningful incentive to our executive officers by granting options with a higher grant date fair value in fiscal 2019 with a view that equity grants in fiscal 2020 would have a lower grant date fair value, thereby providing greater motivation to our executive officers in fiscal 2019 to execute on our growth strategy, including executing our joint venture strategy in China, and to increase our stock price and stockholder value.

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In addition, outside of our long-term incentive compensation program, we granted Mr. Hamamatsu a retention grant of RSUs, as discussed in further detail below.

Fiscal 2019 Annual “Refresh” Equity Awards

For fiscal 2019, our CEO recommended equity award amounts to the Compensation Committee for each of our executive officers, including each of our other NEOs, other than himself. The Compensation Committee reviewed our CEO’s recommendations and, after assessing each of the factors described above, determined the equity awards to be granted for each executive officer as set forth below.

For our CEO, the independent members of our Board assessed his individual performance and the factors described above to determine the equity awards to be granted to him and granted him an option to purchase shares of our common stock as set forth below.

Retention Awards

Following the voluntary resignation of Mr. Waters, our former CFO, Mr. Hamamatsu and other key employees of the Company received a grant of RSUs as part of the Company’s retention efforts and in recognition of increased responsibilities allocated to such employees. Mr. Hamamatsu’s retention RSU grant covered 25,000 RSUs and was made in August 2018. This grant vests as to 100% of the RSUs on December 31, 2019, subject to Mr. Hamamatsu’s continued service through such date.

Fiscal 2019 NEO Equity Awards

In fiscal 2019, each NEO received an option to purchase shares of our common stock in the following amounts:

 

Name

 

NEO Status

 

Stock Options

(#)(1)

 

Joshua Levine

 

Current NEO

 

 

1,625,000

 

Shig Hamamatsu(2)

 

Current NEO

 

 

345,000

 

Andy Kirkpatrick

 

Current NEO

 

 

374,000

 

Patrick Spine

 

Current NEO

 

 

208,100

 

 

(1)

25% of the shares subject to each stock option vests and becomes exercisable on November 30, 2019 and the remainder vest monthly at the rate of 1/48th of the original number of shares over the 36-month period beginning on November 30, 2019.

(2)

In August 2018, Mr. Hamamatsu also received a retention grant of 25,000 RSUs in connection the Company’s retention efforts following the voluntary resignation of Mr. Waters, our former CFO.  

 

Name

 

NEO Status

 

Stock Options

(#)(1)

 

Kevin Waters(2)

 

Former NEO

 

 

 

Lionel Hadjadjeba(3)

 

Former NEO

 

 

374,000

 

 

(1)

25% of the shares subject to each stock option vests and becomes exercisable on November 30, 2019 and the remainder vest monthly at the rate of 1/48th of the original number of shares over the 36-month period beginning on November 30, 2019.

(2)

Mr. Waters resigned from the Company effective October 1, 2018 and as such, was not granted any options for fiscal 2019.  

(3)

Mr. Hadjadjeba was terminated from the Company effective August 31, 2019 and all of the shares subject to the option granted to him in fiscal 2019 have been returned to the 2016 Equity Incentive Plan.

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Previously‑Granted MSU Awards

From fiscal 2013 through fiscal 2018, the Compensation Committee approved a Market Stock Unit program for each such fiscal year for our executive officers, including our NEOs (each, an “MSU Program”). The MSU Programs provided for the grant of MSUs to our executive officers thereby providing for the opportunity to earn shares of our common stock based on our actual total stockholder return ("TSR") as measured against the Russell 2000 Index over two-year and three-year performance periods. In fiscal 2019, no MSUs were granted, however our executive officers, including our NEOs, continued to have outstanding MSU awards granted under the fiscal 2016 MSU Program, the fiscal 2017 MSU Program, and the 2018 MSU Program, the second performance period of which ends on October 31, 2020.

For each MSU award previously granted, 50% of the shares of our common stock subject to the award will be earned at the end of each performance period, subject to meeting minimum performance thresholds and following an upward or downward adjustment based on our actual performance. The MSU Programs use the Russell 2000 Index as the performance benchmark and requires that our TSR meet that of the Russell 2000 Index for each performance period in order for the target number of shares of our common stock allocated to that performance period to be earned by each participating executive officer. The actual number of shares earned is calculated on a sliding scale based on stock price performance above and below the Russell 2000 Index, up to a maximum of 150% of the target number of shares. Beginning in fiscal 2017, we provided that no shares above target may be earned if our stock price performance is negative. For purposes of the MSU Programs, TSR is measured as the average closing price of our common stock for the last fiscal quarter of the performance period (adjusted for dividends, if any) less the average closing price of our common stock for the fiscal quarter preceding the performance period divided by the average closing price for the fiscal quarter preceding the performance period.

With respect to the second performance period of the 2016 MSU Program, which ended October 31, 2018, the Compensation Committee determined that, based on a comparison of our TSR relative to the TSR of the Russell 2000 Index, the shares of our common stock subject to the awards had not been earned and, accordingly, the MSUs associated with the second performance period were cancelled.

With respect to the first performance period of the 2017 MSU Program, which ended October 31, 2018, the Compensation Committee determined that, based on a comparison of our TSR relative to the TSR of the Russell 2000 Index, the shares of our common stock subject to the awards had not been earned and, accordingly, the MSUs associated with the first performance period were cancelled.

The equity awards granted to our NEOs in fiscal 2019 are reported in the Fiscal 2019 Summary Compensation Table under “Executive Compensation” below. Additional information about these awards, including the number of shares of our common stock subject to each award and the award’s grant date fair value and applicable vesting schedules, is reported in the Grants of Plan‑Based Awards For Fiscal 2019 Table under “Executive Compensation” below.

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Other Compensation Practices and Policies that Align Our NEOs to our Stockholders

Stock Ownership Requirements

The Board has adopted Corporate Governance Guidelines to help ensure that we are managed in the best long‑term interests of our stockholders, to promote effective functioning of the Board and its committees and to provide a flexible framework within which the Board may conduct its oversight of our business. The Corporate Governance Guidelines require that our executive officers and non‑employee members of the Board own shares of our common stock as follows:

 

Non‑Employee Directors:  the number of shares having a value equal to at least three times the non‑employee director’s regular annual cash retainer (excluding any committee retainer);

 

Chief Executive Officer:  the greater of (a) the number of shares having a value equal to three times his annual base salary and (b) 175,000 shares;

 

Chief Financial Officer and Chief Commercial Officer:  the greater of (a) the number of shares having a value equal to one times his annual base salary and (b) 40,000 shares; and

 

All Other Executive Officers:  the greater of (a) the number of shares having a value equal to one times his or her annual base salary and (b) 17,500 shares.

Our executive officers and non-employee directors have five years from the date of election or appointment to attain such ownership levels. We expect each executive officer and non‑employee director to retain at least 25% of the net shares of our common stock he or she receives pursuant to all equity awards granted by us (excluding shares sold to cover (i) the exercise price of any stock options and/or (ii) associated withholding and other taxes), until the foregoing ownership levels are achieved. As of the last day of fiscal 2019, all of our NEOs and all of our non‑employee directors were in compliance with such stock ownership requirements or were on track to be in compliance within the appropriate timeframe.

Compensation Recovery (“Clawback”) Policy

The Company Bonus Plan, 2007 Incentive Award Plan, and the 2016 Equity Incentive Plan each include a compensation recovery (“clawback”) provision, which provides that, in the event we are required to restate our financial results or materially reduce publicly disclosed backlog figures, the Board will review the conduct of our executive officers in relation to the restatement. If it determines that an executive officer has engaged in misconduct, or otherwise violated our Code of Conduct and Ethics, and that such misconduct or violation contributed to the restatement or to the improper inclusion of a proposed system sale in publicly disclosed backlog, then the Board may, in its discretion, take appropriate action to remedy the misconduct or violation, including, without limitation, seeking reimbursement of any portion of any performance‑based or incentive compensation paid or awarded to the executive officer that is greater than what would have been paid or awarded if calculated based on the restated financial results or materially reduced backlog figures, to the extent not prohibited by governing law. These provisions will be updated and revised consistent with any changes in applicable laws, including the adoption of rules implementing Section 954 of the Dodd‑Frank Wall Street Reform and Consumer Protection Act.

Insider Trading, Anti‑Hedging and Pledging Policy

We maintain an insider trading policy that prohibits trading in shares of our common stock while in possession of material, non‑public information, unless trading is in connection with a previously established Exchange Act Rule 10b5‑1 plan, or if sold automatically by us on the date of vesting to cover and pay the withholding tax requirements in accordance with Company policy.

In addition, our insider trading policy prohibits all of our employees, including our executive officers, consultants and our non‑employee Board members from engaging any speculative transactions in our securities, including purchasing on margin, holding Company securities in margin accounts, purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds), engaging in short sales, engaging in transactions in put options, call options or other derivative securities, or engaging in any other forms of hedging transactions.

37


Our employees, including our executive officers, consultants and the non‑employee Board members are also prohibited from pledging or using our securities as collateral for loans.

Equity Award Grant Practices

Historically, the Compensation Committee has granted stock options, RSU awards and/or performance‑based equity awards (PSUs or MSUs) to our employees, including our executive officers, when they first join us. Typically, new hire stock options, RSU awards and performance‑based equity awards are granted at the first meeting of the Compensation Committee in the month following an employee’s first day of employment.

Follow‑on awards are considered as part of our fiscal review process. We do not seek to time the grant of stock options, RSU awards or performance‑based equity awards to take advantage of information, either positive or negative, about the Company that has not been publicly disclosed.

We grant stock options with an exercise price that is equal to the fair market value of a share of our common stock on the date of grant. We do not have a policy of granting stock options with an exercise price that is less than the fair market value of our common stock. The exercise price for our stock options is based on the closing price per share of our common stock as reported on the NASDAQ Global Select Market on the date of grant.

Other Benefits

Post‑Employment Compensation—Retirement Plans

Other than our tax‑qualified Section 401(k) employee savings plan described in the following paragraph and our Swiss pension plan that is generally available to our Swiss employees, including Mr. Hadjadjeba, we do not currently maintain, nor do we have plans to provide, pension arrangements, retirement plans or nonqualified deferred compensation plans or arrangements for our executive officers, including our NEOs.

We maintain a tax‑qualified Section 401(k) employee savings plan that provides all regular employees with an opportunity to save for retirement on a tax‑advantaged basis. Under this plan, participants may elect to defer a portion of their annual compensation on a pre‑tax basis and have it contributed to the plan subject to applicable annual Internal Revenue Code limits. Pre‑tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to such participant’s directions. We match 50% of each participant’s contributions to the plan, up to a maximum contribution by a participant of six percent of his or her base salary per year. One hundred percent of our matching contributions made to the Section 401(k) employee savings plan on behalf of an employee vest on the first anniversary of such employee’s service. As a tax‑qualified retirement plan, contributions to the plan and earnings on those contributions are not taxable to participants until distributed from the plan and all contributions are deductible by us when made.

We view this plan as serving two important objectives. First, it encourages our executive officers, including our NEOs, and other employees to commit to long‑term service with us. Second, it enables them to save a portion of their annual compensation for their eventual retirement.

Given that the amounts set aside for retirement under the plan are largely drawn from participants’ annual compensation and our matching contribution is modest, the Compensation Committee does not consider plan participation when making compensation decisions for our executive officers, including our NEOs.

Health, Welfare, and Other Employee Benefits (including Perquisites)

We provide health and welfare benefits to our executive officers, including our NEOs, on the same terms and conditions as all of our full‑time, salaried employees. These benefits include group medical, life and disability insurance.

In circumstances where we are recruiting a candidate who would have to move to accept our job offer, we may agree to reimburse certain of such employee’s relocation expenses.

38


Generally, we do not provide perquisites or other personal benefits to our executive officers, including our NEOs, except for those who are employed internationally in accordance with local customs and regulations. To the extent that any NEO was granted a perquisite or other personal benefit that is subject to disclosure, such perquisite or other personal benefit has been reported in the Fiscal 2019 Summary Compensation Table below.

Employment, Change in Control and Severance Arrangements

Effective January 1, 2018, we entered into amended and restated employment agreements with each of our then-current executive officers, including Messrs. Levine, Kirkpatrick, Waters and Hadjadjeba, to document the material terms and conditions of each executive officer’s employment, including his or her annual base salary and target annual cash incentive award opportunity. We entered into substantially similar employment agreements with Messrs. Spine and Hamamatsu in June 30, 2018 and November 19, 2018, respectively, in connection with their appointments as executive officers. Each executive officer’s employment agreement has a three year term (with automatic successive three year term renewal unless we or the executive officer provides timely notice of non‑renewal) and specifies the payments and benefits that each executive officer will receive upon a potential termination of his employment under certain circumstances, including in connection with a change in control of the Company. Mr. Hamamatsu and Mr. Spine’s employment agreements have terms that are less than three years to harmonize the expiration of the initial terms of their agreements with the initial terms of the other executive officers who executed their agreements on January 1, 2018. In addition, these agreements protect our interests in the event of a termination of employment by stipulating the rights and responsibilities of the parties and prohibiting these individuals from engaging in certain specific activities harmful to us, including disclosing our confidential information, soliciting our employees and engaging in certain competitive business activities.

These post‑employment compensation arrangements were provided for the following reasons:

 

Assist us in retaining talented executives in a competitive market;

 

Permit our executive officers to focus on our business;

 

Eliminate any potential personal bias of an executive officer against a transaction that is in our best interests and the best interests of our stockholders;

 

Avoid the need for, and costs associated with, individually negotiating severance payments and benefits with our executive officers at the time of termination of employment; and

 

Provide us with the flexibility needed to react to a continually changing business environment.

The Compensation Committee believes that these agreements serve several other important objectives. First, they provide a desired level of transparency, both within and outside the Company. They also assure our executive officers that their severance payments and benefits are based on a consistent framework that differentiates the level of payments and benefits between individuals based on their position and level of responsibility. In addition, this approach is easier for us to administer.

Generally, our executive officers, including our NEOs, are eligible for severance payments and benefits in the event of the termination of their employment by us without “cause” or by the executive officer for “good reason,” in each case, provided that the executive officer executes a general release of claims in favor of the Company. In addition, our executive officers, including our NEOs, are eligible for certain enhanced severance payments and benefits in the event such termination of employment without cause or resignation for good reason occurs within three months prior to or 12 months following a change in control of the Company (i.e., a “double-trigger” arrangement). Further, our executive officers, including our NEOs, are not entitled to a “gross-up” payment for excise taxes in connection with a change in control of the Company. We believe that the agreements offer payments and benefits that are generally comparable to the payments and benefits of similarly situated executives at the companies in our compensation peer group.

For additional information, see “—Executive Compensation—Potential Payments and Benefits Upon Termination or Change in Control” below.

39


Tax and Accounting Considerations  

Section 162(m)—Deductibility of Executive Compensation

Generally, Section 162(m) of the Internal Revenue Code disallows a tax deduction to any publicly-held corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive officer and certain other highly compensated executive officers. For tax years beginning before January 1, 2018, remuneration in excess of $1 million was exempt from this limit and, therefore, could be deducted if it qualified as “performance-based compensation” within the meaning of Section 162(m).

The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017 that has not been subsequently materially modified. The Compensation Committee seeks to operate our executive compensation program to maximize the deductibility of the remuneration paid to our NEOs to the extent that it believes that doing so is in our best interests. Consequently, in determining which compensation elements are to be paid to our executive officers, and how they are weighted, the Compensation Committee takes into account whether a particular form of compensation will be deductible under Section 162(m), but retains discretion to award compensation that is not deductible under Section 162(m) if it believes that doing so is in the best interests of the Company and our stockholders.

While we cannot predict how the $1 million deduction limit may impact our executive compensation program in future years, the Compensation Committee intends to maintain an approach to executive compensation that strongly links pay to performance. However, the Compensation Committee may, in its judgment, authorize and pay compensation that is not fully tax deductible when it believes that such compensation is in the best interests of the Company and our stockholders.

Accounting for Stock-Based Compensation

We follow ASC Topic 718 for our stock-based awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options, RSU awards and performance-based equity awards (PSUs and MSUs), based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our NEOs may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.

For performance unit awards, stock-based compensation expense recognized may be adjusted over the performance period based on interim estimates of performance against their pre-established performance objectives.

40


Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and contained in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee Of The Board Of Directors

Louis J. Lavigne, Jr., Chairperson

Elizabeth Dávila

Jack Goldstein, Ph.D.

Beverly A. Huss

The foregoing Compensation Committee Report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under these acts, except to the extent that we expressly incorporate it by reference into such filings.

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Executive Compensation

Fiscal 2019 Summary Compensation Table

The following table sets forth the compensation for each of fiscal years 2019, 2018 and 2017 paid to and earned by the following persons, who we refer to as our named executive officers or NEOs:

 

our principal executive officer;

 

our principal financial officer during such fiscal year;

 

our former principal financial officer during such fiscal year; and

 

our three other most highly compensated executive officers who were serving as executive officers at the end of fiscal 2019.

 

Name and Principal Position

 

Year

 

Salary ($)(1)

 

 

Bonus ($)

 

 

Stock

Awards

($)(2)

 

 

Option

Awards

($)(2)

 

 

Non-Equity

Incentive

Plan

Compensation

($)(3)

 

 

All Other

Compensation

($)(4)

 

 

Total ($)

 

Joshua H. Levine,

 

2019

 

 

720,650

 

 

 

 

 

 

 

 

 

3,035,338

 

 

 

880,346

 

 

 

8,658

 

 

 

4,644,992

 

President and Chief

 

2018

 

 

710,000

 

 

 

 

 

 

1,537,255

 

 

 

518,357

 

 

 

570,840

 

 

 

16,323

 

 

 

3,352,774

 

Executive Officer

 

2017

 

 

707,216

 

 

 

 

 

 

1,686,838

 

 

 

662,904

 

 

 

297,031

 

 

 

19,488

 

 

 

3,373,477

 

Shig Hamamatsu,(5)

 

2019

 

 

388,077

 

 

 

 

 

 

100,000

 

 

 

644,426

 

 

 

259,590

 

 

 

8,598

 

 

 

1,400,691

 

Senior Vice President,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kevin Waters,(6)

 

2019

 

 

110,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

93,109

 

 

 

203,532

 

Senior Vice President,

 

2018

 

 

435,000

 

 

 

 

 

 

524,615

 

 

 

188,985

 

 

 

174,870

 

 

 

9,050

 

 

 

1,332,520

 

Former Chief Financial Officer

 

2017

 

 

386,827

 

 

 

 

 

 

524,868

 

 

 

206,280

 

 

 

81,234

 

 

 

8,758

 

 

 

1,207,966

 

Lionel Hadjadjeba,(7)

 

2019

 

 

559,266

 

 

 

 

 

 

 

 

 

698,595

 

 

 

427,000

 

 

 

192,531

 

 

 

1,877,391

 

Former Senior Vice President,

 

2018

 

 

568,769

 

 

 

 

 

 

403,550

 

 

 

145,373

 

 

 

228,657

 

 

 

166,474

 

 

 

1,512,822

 

Chief Commercial Officer

 

2017

 

 

551,816

 

 

 

 

 

 

306,402

 

 

 

120,312

 

 

 

99,796

 

 

 

141,745

 

 

 

1,220,070

 

Andy Kirkpatrick,

 

2019

 

 

410,000

 

 

 

 

 

 

 

 

 

698,595

 

 

 

313,035

 

 

 

8,824

 

 

 

1,430,454

 

Senior Vice President,

 

2018

 

 

395,000

 

 

 

 

 

 

262,108

 

 

 

94,368

 

 

 

158,790

 

 

 

8,943

 

 

 

919,209

 

Chief Operations Officer

 

2017

 

 

356,712

 

 

 

 

 

 

312,333

 

 

 

122,688

 

 

 

74,910

 

 

 

9,016

 

 

 

875,658

 

Patrick Spine,(5)

 

2019

 

 

368,750

 

 

100,000(8)

 

 

 

 

 

 

388,710

 

 

 

225,233

 

 

 

5,634

 

 

 

1,088,326

 

Senior Vice President,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Administrative Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts reported in this column represent the base salary amounts actually paid to each NEO during each respective fiscal year.

(2)

The amounts reported in this column represent the aggregate grant date fair value of stock options and stock awards granted in each respective fiscal year as determined in accordance with FASB ASC Topic 718. These amounts may not actually reflect to the actual value that will be realized by our NEOs. The assumptions used to calculate the value of stock awards and stock options are set forth under Note 1 and Note 12 of the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10‑K for the fiscal year ended June 30, 2019.

(3)

The amounts reported in this column represent the annual cash incentive awards earned under our Company Bonus Plan for each fiscal year. Amounts earned in any fiscal year are actually paid in the following fiscal year.

(4)

The amounts reported in the “All Other Compensation” column for fiscal 2019 consist of the following:

42


 

Name

 

Company

matching

contribution

to 401(k)

Plan

($)

 

 

Life

insurance

premiums

paid by the

Company

($)

 

 

Consulting

Fees

($)

 

 

Company

contribution

to Life

Insurance /

Pension

Fund

($)

 

 

Corporate

Housing

Expenses

($)

 

 

Personal Tax

Advisory

Services

($)

 

 

Car

Allowance

($)

 

Joshua Levine

 

 

7,950

 

 

 

708