UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Securities Exchange Act of 1934
(Amendment No. )
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FLIR SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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The Worlds Sixth Sense
27700 SW Parkway Avenue Wilsonville, Oregon 97070 (503) 498-3547 |
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
Date and Time: |
Friday, April 19, 2019 |
Place: |
FLIR Systems, Inc. | |||
9:00 a.m. |
27700 SW Parkway Avenue | |||||
Pacific Time
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Wilsonville, Oregon 97070
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Dear Fellow Shareholder,
It is my pleasure to invite you to attend the Annual Meeting of Shareholders of FLIR Systems, Inc. The following items are on the agenda:
1. | Election of Directors. We will vote to elect the eleven director nominees identified in the attached proxy statement, each for a one-year term expiring in 2020. |
2. | KPMG Ratification. We will vote to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. |
3. | Advisory Vote on Executive Compensation. We will hold an advisory vote on executive compensation. |
4. | Approve the 2019 Employee Stock Purchase Plan. We will vote to approve the 2019 Employee Stock Purchase Plan (ESPP). |
5. | Other Business. We will transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. |
The record date is February 22, 2019. Holders of 135,476,898 FLIR shares at the close of business on this date are entitled to notice of and to vote at the Annual Meeting.
We expect to mail to our shareholders a notice that proxy materials are available online on or about March 8, 2019. These materials will contain instructions on how to access the proxy statement for our annual meeting and our annual report to shareholders. The notice also will provide instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of proxy materials by mail. This proxy statement and our 2018 annual report on Form 10-K can be accessed directly at www.flir.com/about/investor-relations.
Earl R. Lewis
Chairman of the Board of Directors
Wilsonville, Oregon
March 8, 2019
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Your vote is important! Please vote. The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K are available at www.flir.com/about/investor-relations and www.proxyvote.com.
IT IS IMPORTANT THAT PROXIES BE COMPLETED AND SUBMITTED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SUBMIT YOUR VOTE BY PROXY VIA THE INTERNET, BY TELEPHONE OR BY MAIL IN THE ENCLOSED POSTAGE-PAID ENVELOPE IN ACCORDANCE WITH THE ACCOMPANYING INSTRUCTIONS.
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PROXY STATEMENT SUMMARY |
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This summary sets forth certain performance highlights and provides an overview of the more detailed information contained later in this report. It sets forth the proposals to be voted on. You should read the entire proxy statement before casting your vote. In this proxy statement, the terms FLIR, we, and our and the Company refer to FLIR Systems, Inc.
Highlights of FLIRs Performance
Business highlights for 2018 include the following:
The FLIR
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2018 marked the first full year under our new chief executive officer, Jim Cannon, and executive management team and our realignment into three business units: Government and Defense, Industrial and Commercial. In addition, we began implementation of The FLIR Method, an operating methodology based on LEAN principles in a learning environment of continuous operational improvement to increase operational efficiencies, provide a foundation for profitability and consistent earnings growth and exceed shareholder expectations. We believe that some of the operational improvements during 2018 are the result of implementation of the FLIR method.
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Revenue |
During 2018, Revenue was $1.78 Billion, compared to $1.80 Billion for 2017, a decrease of 1.4% compared to prior year, which included $140 million of revenue from the small and medium-sized (SMB) security products business which was divested in February 2018.
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Operating
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Operating margin is defined as the Companys operating income divided by revenue for the same period. During 2018, we achieved GAAP operating margin of 17.9% compared to 16.1% in 2017 based on generally accepted accounting principles (GAAP).
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Earnings Per |
2018 GAAP earnings per diluted share were $2.01 compared to $0.77 in 2017. GAAP net earnings in 2018 were negatively impacted by pre-tax charges of $23.3 million associated with export compliance matters including a penalty accrued in connection with a consent agreement, a pre-tax charge of $13.7 million for the loss on sale of business, and other items, partially offset by discrete tax benefits including the release of a $33.1 million previously recorded unrecognized tax position. GAAP net earnings in 2017 were negatively impacted by discrete tax charges of $94.4 million related to the U.S. Tax Cuts and Jobs Act, as well as a $23.6 million pre-tax loss on assets held for sale.
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2019 PROXY STATEMENT | FLIR | i |
CORPORATE GOVERNANCE AND RELATED MATTERS |
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CORPORATE GOVERNANCE AND RELATED MATTERS
What We Heard From Shareholders
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What FLIR Did
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Guaranteed annual incentive payments, despite their being limited to threshold and coinciding with hiring decisions, should not be provided. |
Entered into an amended employment agreement with Mr. Cannon that eliminated the guaranteed annual incentive payment for 2018 that had been provided in Mr. Cannons new hire employment agreement. Mr. Cannons 2018 annual incentive plan payment was based on achievement of the performance metrics under the 2018 AIP. See 2018 Target Cash Incentives & Actual Payments Received on page 25.
Actual Company performance during 2017 resulted in an annual incentive payout for Mr. Cannon that was in excess of the 2017 guaranteed amount |
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Disliked prior practice of providing payout for partial term performance (banking) feature in performance-based RSU design with a preference for complete, multi-year performance cycles. |
Established full three-year performance cycles, eliminating banking. |
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Growth should be a focus in incentive plan goals. |
Established target performance goals for the 2018 AIP and the performance-based RSUs that were designed to provide target payout only if we achieve significant growth and improvement over prior year performance. |
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Majority of pay should be variable and at least half of the annual LTI awards should be delivered in performance-based RSUs. |
In 2018, 89% of the annual target total direct compensation for our CEO was variable (i.e., at-risk) and 73% of the annual target total direct compensation, on average, for our other NEOs was variable.
Performance-based RSUs comprised 50% of the 2018 long-term incentive grants to our NEOs. For our CEO, inclusive of his Leadership Performance Award, performance-based RSUs comprised 67% of his 2018 long-term incentive grants. |
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Additional input on desired incentive plan metrics and other executive compensation program features. |
The Compensation Committee reviews and evaluates our executive compensation program on an annual basis and we take all shareholder feedback and input into account when developing and approving the Companys executive compensation program.
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2019 PROXY STATEMENT | FLIR | 1 |
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CORPORATE GOVERNANCE AND RELATED MATTERS | |
Name
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Audit
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Corporate
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Compensation
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Ethics and
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James J. Cannon
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John D. Carter
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Chair
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William W. Crouch
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Catherine A. Halligan
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Chair1
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Earl R. Lewis
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Angus L. Macdonald
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Chair2
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Michael T. Smith
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Cathy A. Stauffer
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Robert S. Tyrer
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John W. Wood, Jr.
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Steven E. Wynne
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Chair
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1 | Ms. Halligan became Chair of the Compensation Committee succeeding Mr. Macdonald beginning with the Compensation Committees July 2018 meeting. |
2 | Mr. Macdonald became Chair of the Audit Committee succeeding Mr. Smith beginning with the Audit Committees July 2018 meeting. Prior to becoming Chair of the Audit Committee, Mr. Macdonald was Chair of the Compensation Committee. |
3 | Mr. Tyrer became a member of the Audit Committee beginning with the Audit Committees October 2018 meeting. |
2 | FLIR | 2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND RELATED MATTERS |
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2019 PROXY STATEMENT | FLIR | 3 |
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CORPORATE GOVERNANCE AND RELATED MATTERS | |
4 | FLIR | 2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND RELATED MATTERS |
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In recommending the director nominees for the Board of Directors, the Corporate Governance Committee and Board of Directors considered the backgrounds, experiences, expertise, skill sets and viewpoints of each of the director nominees and the overall composition of the Board. Certain characteristics of our director nominees are highlighted below:
The Board of Directors nominates the following individuals to serve on the Board.
Nominees:
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Age
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Director Since
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Position Held with FLIR
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James J. Cannon
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48
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2017
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Director and Chief Executive Officer
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John D. Carter
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73
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2003
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Director
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William W. Crouch
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77
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2005
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Director
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Catherine A. Halligan
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56
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2014
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Director
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Earl R. Lewis
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75
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1999
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Chairman of the Board of Directors
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Angus L. Macdonald
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64
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2001
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Director
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Michael T. Smith
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75
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2002
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Director
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Cathy A. Stauffer
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59
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2014
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Director
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Robert S. Tyrer
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61
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2017
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Director
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John W. Wood, Jr.
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75
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2009
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Director
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Steven E. Wynne
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67
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1999
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Director
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2019 PROXY STATEMENT | FLIR | 5 |
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CORPORATE GOVERNANCE AND RELATED MATTERS | |
Nominees
James J Cannon
Age: 48 Director Since: 2017 Position Held: President, CEO and Director
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Mr. Cannon has served as a director of the Company since June 2017. Previously, Mr. Cannon was an employee of Stanley Black & Decker, Inc. since 2001, most recently as President, Stanley Security, North America & Emerging Markets, since October 2014. Previously, Mr. Cannon was President of Stanley Oil & Gas from August 2012 to October 2014, President of Stanley Industrial & Automotive Repair, Europe and Latin America, from July 2011 to August 2012, and President of Stanley Industrial and Automotive Repair, North America from February 2009 to July 2011. Prior to that, from 1989 to 1999, Mr. Cannon served in the United States Army in various locations around the World as an infantryman and armor officer, including Operations Desert Shield and Desert Storm in Iraq, where he was awarded a Combat Infantrymans Badge. Mr. Cannon is a graduate of the University of Tennessee, Chattanooga, with a B.S. in Business Administration/Marketing. Mr. Cannon is a member of the Board of Directors of Lydall, Inc. Mr. Cannons experience in the United States Army, prior executive experience and his position as Chief Executive Officer provide the knowledge and expertise to understand and offer guidance regarding the Companys business operations, technologies and markets. | |||
John D. Carter
Age: 73 Director Since: 2003 Position Held: Director
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Mr. Carter has served as a director of the Company since August 2003. From 2002 to 2005, Mr. Carter was a principal in the consulting firm of Imeson & Carter, which specialized in transportation and international business transactions. Mr. Carter served as President and Chief Executive Officer of Schnitzer Steel Industries Inc., a metals recycling company, from May 2005 to November 2008. Since December 1, 2008, Mr. Carter has served as Chairman of the Board of Directors of Schnitzer Steel Industries, Inc. From 1982 to 2002, Mr. Carter served in a variety of senior management capacities at Bechtel Group, Inc. Mr. Carter is a member of the Board of Directors and Chairman of the Audit Committee of Northwest Natural Holdings. He received his BA in History from Stanford University and his JD from Harvard Law School. In addition to his legal experience gained while practicing law, Mr. Carter brings many years of senior executive management experience, most recently as president and chief executive officer of a multi-billion dollar public company. This combination of legal and management experience enables Mr. Carter to provide guidance to the Company in the areas of legal risk oversight, enterprise risk management, corporate governance, financial management and corporate strategic planning. | |||
General William W. Crouch (United States ArmyRetired)
Age: 77 Director Since: 2005 Position Held: Director |
General Crouch has served as a director of the Company since May 2005. General Crouch retired from the United States Army in 1999 following a 36-year career during which he served in numerous roles including Commanding GeneralEighth Army and Chief of Staff, United Nations Command and United States Forces Korea; Commander in Chief, United States Army, Europe; Commanding General, NATO Implementation (later Stabilization) Force, Bosnia/Herzegovina; and the United States Armys 27th Vice Chief of Staff. Until 2010, he served as one of five generals who oversaw the Armys Battle Command Training Program. In October 2000, General Crouch was named co-chair of the USS COLE Commission, which was formed to examine the terrorist attack on the USS COLE. He has served as a Distinguished Senior Fellow with the Center for Civil Military Operations at the United States Naval Postgraduate School, and serves on the Board of the Keck Institute for International and Strategic Studies at Claremont McKenna College. He received a B.A. in Civil Government from Claremont McKenna College, and a M.A. in History from Texas Christian University. He holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. General Crouchs career as an Army officer and continuing interest in the United States military afford the Company significant insight into the Companys important military customers in terms of strategic and tactical doctrines and how the Companys products should be developed and adapted to facilitate the implementation of these doctrines. General Crouch also possesses an understanding of the political and military realities in certain global regions in which the Companys products are employed. In addition, General Crouchs experience in senior leadership roles in large Army commands enables him to offer guidance on the leadership of complex organizations such as the Company.
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Catherine A. Halligan
Age: 56 Director Since: 2014 Position Held: Director |
Ms. Halligan has served as a director of the Company since March 2014. Ms. Halligan has served as Advisor to Narvar, a provider of supply chain and post purchase optimization SaaS technology, since 2013. Previously, Ms. Halligan was an Advisor to PowerReviews Inc., a leading social commerce network, from January to March 2012 and Senior Vice President Sales and Marketing from July 2010 to January 2012. Prior to joining PowerReviews Inc., Ms. Halligan held several executive level positions with prominent retailers. From 2005 to 2010, Ms. Halligan served in various executive positions with Walmart, a retailer, including as Vice President Market Development, Global eCommerce from 2009 to 2010 and as Chief Marketing Officer of Walmart.com from 2007 to 2009 along with other executive roles from 2005 to 2009. From 2000 to 2005, Ms. Halligan was an associate partner at Prophet, a management consulting firm. From 1996 to 1999, Ms. Halligan held retail management positions with Williams Sonoma Inc., including Vice President and General Manager, Internet and Vice President, Marketing. Ms. Halligan also has previous executive marketing retail experience with Blue Nile, Inc. and the Gymboree Corporation. Ms. Halligan began her career as a Marketing and Planning Analyst for Lands End from 1987 to 1991. Since January 2012, Ms. Halligan has served as an independent director at Ulta Beauty, where she chairs the Compensation Committee and is a member of the Nominating and Governance Committee, and previously served for two years on the Audit Committee. Ms. Halligan is also on the board of Ferguson plc, a FTSE 100 company, and is a member of the Audit, Nomination and Remuneration Committees. With over 20 years of experience in marketing, digital and e-commerce within the retail industry, Ms. Halligan provides significant expertise with respect to strategic marketing issues, Internet technology and omnichannel business capabilities. |
6 | FLIR | 2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND RELATED MATTERS |
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Earl R. Lewis
Age: 75 Director Since: 1999 Position Held: Chairman of the Board of Directors |
Mr. Lewis served as Chairman, President and Chief Executive Officer of the Company from November 2000 until his retirement in May 2013 as President and Chief Executive Officer. He continues to serve as Chairman of the Board. Mr. Lewis was initially elected to the Board in June 1999 in connection with the acquisition of Spectra Physics AB (which at the time owned approximately 35% of the Company) by Thermo Instrument Systems, Inc. Prior to joining FLIR, Mr. Lewis served in various capacities at Thermo Instrument Systems, Inc., with his last role as President and Chief Executive Officer. Mr. Lewis is a member of the Board of Directors of NxStage Medical, Inc. Mr. Lewis is a Trustee of Clarkson University and New Hampton School. Mr. Lewis holds a B.S. from Clarkson College of Technology and has attended post-graduate programs at the University of Buffalo, Northeastern University and Harvard University. Mr. Lewis holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Mr. Lewis leadership of the Company in the past decade affords him a deep understanding of the Companys technology and operations, as well as the markets in which the Company operates. Mr. Lewis prior service in executive management positions and his past and present service on other boards of directors, including public company boards, enable him to provide insight and guidance in an array of areas including global operations and strategic planning, enterprise risk management, and corporate governance. Mr. Lewis has played, and continues to play, an active role in the Companys financial management and corporate development, including merger and acquisition activity.
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Angus L. Macdonald
Age: 64 Director Since: 2001 Position Held: Director |
Mr. Macdonald has served as a director of the Company since April 2001. In 2000, Mr. Macdonald founded and is currently President of Venture Technology Merchants, LLC, an advisory and merchant banking firm to growth companies regarding capital formation, corporate development and strategy. From 1996 to 2000, Mr. Macdonald was Senior Vice President and headed Special Situations in the health care equities research group at Lehman Brothers, Inc. Prior to joining Lehman Brothers, Mr. Macdonald was a senior securities analyst at Fahnestock, Inc. (now Oppenheimer). He holds a B.A. from the University of Pennsylvania and an MBA from Cranfield University, U.K., and has attended post graduate courses at Harvard Business School including specific programs on Compensation Committee and also Audit Committee best practices. Mr. Macdonald holds an Advanced Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Through his more than 30 years of experience in investment and merchant banking, Mr. Macdonald has developed extensive expertise in corporate development strategies for technology enterprises such as the Company as well as in financial structuring and strategy. Mr. Macdonalds years of experience in the financial services sector benchmarking and comparing best practices operationally as well as from an executive management and compensation perspective, provide the Company with insight into the value creation impacts of various financial and operational strategies. These skills enable him to successfully serve as a member of the Companys Audit and Compensation Committees and to provide insight to the Company in the development of its financial management, capital deployment, employee compensation and executive retention strategies.
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Michael T. Smith
Age: 75 Director Since: 2002 Position Held: Director |
Mr. Smith has served as a director of the Company since July 2002. From 1997 until his retirement in May 2001, Mr. Smith was Chairman of the Board and Chief Executive Officer of Hughes Electronics Corporation. From 1985 until 1997, he served in a variety of capacities for Hughes, including Vice Chairman of Hughes Electronics, Chairman of Hughes Missile Systems and Chairman of Hughes Aircraft Company. Prior to joining Hughes in 1985, Mr. Smith spent nearly 20 years with General Motors in a variety of financial management positions. Mr. Smith is also a director of Teledyne Technologies Incorporated, WABCO Holdings Inc., and Zero Gravity Solutions. He was previously a director of Ingram Micro. Mr. Smith holds a B.A. from Providence College and an MBA from Babson College. He also served as an officer in the United States Army. Throughout his career, Mr. Smith has had extensive financial and general management experience, including service as the chief executive officer of a large public company. These skills and experiences qualify him to serve as the Companys Audit Committee financial expert and also provide the Company with expertise in corporate governance, enterprise risk management and strategic planning as well as in the areas of global operations and corporate strategic development.
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2019 PROXY STATEMENT | FLIR | 7 |
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CORPORATE GOVERNANCE AND RELATED MATTERS | |
Cathy A. Stauffer
Age: 59 Director Since: 2014 Position Held: Director |
Ms. Stauffer has served as a director of the Company since March 2014. From September 2005 to 2016 Ms. Stauffer owned and operated her own consulting company, Cathy Stauffer Consulting, providing strategic advice to CEOs and public and private companies primarily focused on new technology and changing consumer and commercial markets. In 2010, Ms. Stauffer also served as the Executive Vice President of Market Development for Premier Retail Networks, a Technicolor owned digital media company. From 2004 to 2005, Ms. Stauffer served as Senior Vice President Marketing and Chief Marketing Officer for Gateway Computers, a global personal computer and consumer electronics company. Beginning in 1977, Ms. Stauffer served in multiple capacities, including as President and EVP of Merchandising and Marketing for The Good Guys, Inc., a consumer electronics specialty retailer where she was closely involved in every new consumer technology launch from the compact disc player to the smart phone. Ms. Stauffer also currently serves as the Chairman of Beverages & More, Inc., a leading specialty retailer of alcoholic beverages and related products. In addition, Ms. Stauffer is a NACD Board Leadership Fellow and has earned the CERT Certificate in Cybersecurity Oversight awarded by the Software Engineering Institute of Carnegie Mellon University. Ms. Stauffers over three decades of broad and deep operating experience across a variety of industries and disciplines, brings technology innovation, marketing, communications and strategic partnership expertise that affords the Board valuable insight related to consumer and commercial technology business, new market development, marketing and customer experience.
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Robert S. Tyrer
Age: 61 Director Since: 2017 Position Held: Director |
Mr. Tyrer has served as a director of the Company since October 2017. Mr. Tyrer is currently the co- president of The Cohen Group, a business advisory firm providing strategic advice and assistance in business development, regulatory affairs, deal sourcing, and capital raising activities, a position he has held since 2001. Previously, he served as the Chief of Staff to the United States Secretary of Defense William Cohen from 1997-2001, where he provided strategic advice on all aspects of national security and acted as the primary liaison between the Department of Defense and Congress, the White House, other Federal agencies and private industry. Prior to entering the Pentagon, Mr. Tyrer served 21 years on Capitol Hill in a variety of congressional staff roles, including Chief of Staff to then-Senator William Cohen of Maine from 1989-1996 and campaign manager for U.S. Senator Susan Collins in her successful 1996 U.S. Senate campaign. Mr. Tyrer is a graduate of the University of Maine and a member of the Advisory Board of the University of Maines School of Policy and International Affairs. He is a Senior Adviser at the Center for Strategic and International Studies in Washington, DC. He served as a member of the board of directors of EDO Corporation, a military and commercial products and professional services company, for four years until the company was purchased by ITT Corporation in 2007. Mr. Tyrer also served on the Board of Directors of Clean Air Power, a publicly-traded company based in the United Kingdom, from 2014 until it was acquired in 2015. He is also a member of the Advisory Board of the Public Diplomacy Collaborative at the John F. Kennedy School of Government at Harvard University. Mr. Tyrers experience in government, politics, business and consulting makes him uniquely qualified to offer guidance regarding the Companys business operations, technologies and markets, particularly as it relates to government procurement and defense.
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John W. Wood, Jr.
Age: 75 Director Since: 2009 Position Held: Director |
Mr. Wood has served as a director of the Company since May 2009. Mr. Wood served as Chief Executive Officer of Analogic Corporation, a leading designer and manufacturer of medical imaging and security systems, from 2003 to 2006. Prior to joining Analogic, Mr. Wood held senior executive positions over a 22-year career at Thermo Electron Corporation. He served as President of Peek Ltd., a division of Thermo Electron Corporation, and as a Senior Vice President of the parent company. He previously served as President and Chief Executive Officer of Thermedics, a subsidiary of Thermo Electron Corporation. Mr. Wood is a director of American Superconductor Corporation. Mr. Wood earned a Bachelors degree in Electrical Engineering from Louisiana Tech University and a Masters degree in Electrical Engineering from Massachusetts Institute of Technology. Mr. Wood holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Through his academic training and his extensive executive experience with companies in relevant industries, Mr. Wood possesses the knowledge and expertise to understand and offer guidance regarding the Companys technologies and markets. In addition, as the former chief executive officer of a public company, Mr. Wood is qualified to provide leadership in the areas of corporate governance, operations and enterprise risk management.
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8 | FLIR | 2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND RELATED MATTERS |
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Steven E. Wynne
Age: 67 Director Since: 1999 Position Held: Director |
Mr. Wynne has served as a director of the Company since November 1999. Since July 2012, Mr. Wynne has served as an Executive Vice President of Health Services Group, Inc., a diversified insurance and pharmacy company, where he previously served as Senior Vice President, from February 2010 to January 2011. From January 2011 through July 2012, he served as Executive Vice- President of JELD-WEN, Inc., an international manufacturer of doors and windows. From March 2004 through March 2007, Mr. Wynne was President and Chief Executive Officer of SBI International, Ltd., parent company of sports apparel and footwear company Fila. From August 2001 through March 2002, and from April 2003 through February 2004, Mr. Wynne was a partner in the Portland, Oregon law firm of Ater Wynne LLP. Mr. Wynne served as acting Senior Vice President and General Counsel of the Company from April 2002 through March 2003. Mr. Wynne was formerly Chairman and Chief Executive Officer of eteamz.com, an online community serving amateur athletics, from June 2000 until its sale to Active.com in January 2001. From February 1995 to March 2000, Mr. Wynne served as President and Chief Executive Officer of adidas America, Inc. Prior to that time, he was a partner in the law firm of Ater Wynne LLP. Mr. Wynne received an undergraduate degree and a J.D. from Willamette University. Mr. Wynne also serves on the boards of directors of JELD-WEN Holding, Inc., Pendleton Woolen Mills, Lone Rock Resources and Northwest Natural Gas Company (a subsidiary of Northwest Holdings). Mr. Wynne has been associated with the Company in a variety of capacities since 1983, including prior service as its outside counsel. By virtue of this extensive relationship, Mr. Wynne has developed a high degree of familiarity with the Companys operations, risks and opportunities. In addition, Mr. Wynnes legal training and senior executive leadership experience with other companies qualify him to provide insight and guidance as a member of the Companys Audit Committee, as well as in the areas of corporate governance, strategic planning and enterprise risk management. |
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that shareholders vote FOR the election of each of its nominees for director. If a quorum is present, a director nominee will be elected if the number of votes cast FOR the nominee exceeds the number of votes cast AGAINST such nominee. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting, but will have no effect on the election of directors. See Corporate Governance and Related MattersNominees for information about the qualifications of the nominees.
2019 PROXY STATEMENT | FLIR | 9 |
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MANAGEMENT | |
The executive officers of the Company for 2018 are as follows:
Nominees:
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Age
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Position
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James J. Cannon
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48
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Chief Executive Officer
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Carol P. Lowe
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53
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Executive Vice President and Chief Financial Officer
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Todd M. DuChene
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55
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Senior Vice President, General Counsel, Secretary, and Chief Ethics and Compliance Officer
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Jeffrey D. Frank
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62
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Senior Vice President, Global Product Strategy
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Anthony D. Buffum
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37
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Senior Vice President, Chief Human Resources Officer
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Information concerning the principal occupations and business experience during at least the past five years of Mr. Cannon is set forth under Corporate Governance and Related MattersNominees. Information concerning the principal occupations and business experience during at least the past five years of the executive officers of the Company who are not also directors of the Company is set forth below.
Carol P. Lowe
Age: 53 Position Held: Executive Vice President and Chief Financial Officer
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Ms. Lowe has been Executive Vice President and Chief Financial Officer since November 2017. Previously, Ms. Lowe served as Senior Vice President and Chief Financial Officer at Sealed Air Corporation (NYSE: SEE). Ms. Lowe also worked for Carlisle Companies Inc. for over ten years in numerous executive leadership positions, including President of two business units and Chief Financial Officer. Ms. Lowe also served as a board member of Cytec Industries, Inc. from 2007 to 2015, and currently serves on the board of EMCOR Group, Inc., where she is a member of the Audit Committee. She received her Bachelor of Science degree in accounting from the University of North Carolina Charlotte and an MBA from the Fuqua School of Business at Duke University. | |||
Todd M. DuChene
Age: 55 Position Held: Senior Vice President, General Counsel, Secretary and Chief Ethics and Compliance Officer
|
Mr. DuChene joined FLIR in September 2014 as its Senior Vice President, General Counsel and Secretary. Prior to joining FLIR, Mr. DuChene served as Executive Vice President, General Counsel and Secretary of Nuance Communications, Inc., a leading provider of speech recognition and related technology to enterprise, healthcare and mobile and consumer customers, where he was responsible for the legal, intellectual property, corporate governance and regulatory activities of the company, from October 2011 to September 2014. Previously, Mr. DuChene served as Senior Vice President, General Counsel and Secretary of National Semiconductor Corporation from January 2008 to October 2011, prior to its acquisition by Texas Instruments Inc. In addition, Mr. DuChene has served as General Counsel to each of Solectron Corporation, Fisher Scientific International Inc. (now ThermoFisher Scientific), and OfficeMax, Inc. Mr. DuChene began his legal career as a corporate lawyer with BakerHostetler in Cleveland, Ohio in 1988. Mr. DuChene is a graduate of The College of Wooster, Wooster, Ohio and the University of Michigan Law School. |
10 | FLIR | 2019 PROXY STATEMENT |
MANAGEMENT |
| |
Jeffrey D. Frank
Age: 62 Position Held: Senior Vice President, Global Product Strategy
|
Prior to his promotion to Senior Vice President, Global Product Strategy in January 2014, Mr. Frank had served as the Companys Vice President, Global Product Strategy since May 2013. Mr. Frank previously served as Vice President of Product Strategy for the Companys Commercial Systems Division from December 2004 to May 2013. Prior to joining FLIR, Mr. Frank was a founder and served as Vice President of Business Development for Indigo Systems, Inc. commencing with that companys inception in 1997. Mr. Frank joined FLIR upon Indigos acquisition by FLIR in 2004. Previously, Mr. Frank was Vice President of Business Development for Raytheon Corporation from 1994 to 1997, and for Amber Engineering from 1987 to 1994 prior to Ambers acquisition by Raytheon Corporation. | |||
Anthony D. Buffum
Age: 37 Position Held: Senior Vice President, Chief Human Resources Officer
|
Mr. Buffum has been Senior Vice President and Chief Human Resources (HR) Officer since October 2018. Previously, Mr. Buffum served as Vice President of Human Resources for Stanley Security (Global), a division of Stanley Black & Decker, from January 2018 to October 2018; Vice President Human Resources Stanley Security, North America, from January 2015 to December 2017; Vice President, Human Resources, Industrial & Automotive Repair (Global), a division of Stanley Black & Decker from October 2012 to December 2014 and prior to that as Vice President Human Resources, Industrial and Automotive Repair, North America, Asia and Europe Markets from June 2012 to October 2012. Mr. Buffum started his career at General Electric in 2003 as part of its Human Resources Leadership Program and earned his Bachelor of Science degree in Industrial and Labor Relations from Cornell University. |
2019 PROXY STATEMENT | FLIR | 11 |
|
LETTER TO SHAREHOLDERS | |
Thank you for your investment in FLIR Systems, Inc. We are committed to pay practices designed to maximize principles of good governance and to strengthen the alignment between Company management and Company stakeholders, particularly our shareholders. Our program design and actual payments made to our management seek to provide competitive compensation for superior performance with the majority of executive compensation at risk and contingent on achievement of pre-established metrics over a long-term period.
In order to demonstrate our commitment to shareholders, at our 2017 annual meeting of shareholders, we adopted an annual say-on-pay vote from our previously shareholder approved every three-year vote. At our 2018 annual meeting, our say-on-pay vote achieved a majority vote of our shareholders but did not achieve the level of support consistent with our prior say-on-pay votes.
As a result, immediately prior to the 2018 vote and during the fall/winter of 2018 and the first quarter of 2019 we engaged in an extensive shareholder outreach program to elicit shareholder feedback on Company performance, governance, and pay practices, and to highlight to shareholders the significant changes we made in our compensation program for 2018 and the continuing enhancements planned for 2019. During this outreach, we contacted our top 65 institutional shareholders, representing approximately 72% of our outstanding shares as of December 31, 2018. We held telephonic meetings with every shareholder who responded positively to our outreach efforts.
As a result of our shareholder outreach during 2018, our 2018 compensation program design featured the following shareholder identified improvements:
Annual Incentive Plan
| Replaced 2017 metrics of Adjusted EPS, Revenue, and Adjusted Operating Cash Flow goals with 2018 metrics of Organic Revenue Growth (50%), Adjusted Operating Margin (30%), and Working Capital Turnover (20%). We note that these same metrics have been established for 2019; and |
| The metrics established for 2018 (and for 2019) at target are: |
| Increase in Organic Revenue Growth (as defined in our Compensation Discussion and Analysis beginning on page 26). |
| Increase in Adjusted Operating Margin (as defined in our Compensation Discussion and Analysis beginning on page 26). |
| Increase in Working Capital Turnover (as defined in our Compensation Discussion and Analysis beginning on page 26). |
with threshold, target and maximum metrics set at levels that require our management team to achieve significant operational improvement over prior year performance to achieve target payouts.
Long-Term Incentive Plan (2018 and 2019)
| Eliminated the use of Stock Options for executive and senior officers; |
| 50% of the long-term incentive award opportunity is at-risk through the use of performance-based restricted stock units (PRSUs) with three-year cliff vesting and 50% is time-based RSUs vesting ratably over a three-year period; |
| Replaced the 2017 PRSU performance metrics of Operating Income and Revenue with Adjusted EBITDA using a three-year CAGR (50%) and Organic Revenue using a three-year CAGR (50%). Target levels of achievement for these new metrics over a three-year period are tied to challenging cumulative annual growth rates and operational efficiencies not achieved by the Company in its recent history; and |
| Established full three-year performance cycles, without partial vesting or any annual interim performance assessment. |
In addition to the above, on April 24, 2018, as a result of the Board of Directors assessment of Mr. Cannons accomplishments, Company performance and the strategic plan he developed and has been executing on since his hire (in June 2017), the Company entered into an amended employment agreement with Mr. Cannon to secure his commitment to the Company over the long-term. The intent of this amended employment agreement was to further incent Mr. Cannon in the execution of the Companys strategic plan to enhance shareholder value and to ensure long-term executive leadership stability as we continue to progress on our strategic plan. See Employment Agreements on page 30.
12 | FLIR | 2019 PROXY STATEMENT |
MANAGEMENT |
| |
Key details of Mr. Cannons amended employment agreement are:
| Elimination of a partial guaranteed bonus payment for 2018 that was included in Mr. Cannons new hire employment agreement (originally included to compensate Mr. Cannon for loss of bonus due to his mid-year start date). Our intent to provide a guaranteed partial bonus had been an expressed concern of certain of our shareholders during the shareholder outreach. We note that actual Company performance to plan during 2017 (of which Mr. Cannon played a significant role) resulted in a bonus payment for Mr. Cannon in excess of the 2017 guaranteed amount, eliminating the impact of or need for the guaranteed payment. Additional details are provided under Employment Agreements on page 30. |
| A leadership performance-based RSU award to create even greater alignment between Mr. Cannon and long-term value creation and extend the typical vesting period to enhance the retentiveness of the award. These performance-based RSUs have the same three-year CAGR Organic Revenue and adjusted EBITDA metrics as Mr. Cannons other 2018 equity performance-based awards but are subject to the additional requirement that Mr. Cannon remain as CEO through the fourth anniversary of the grant (for 50% of any earned shares) and through the fifth anniversary of the grant (for the remaining 50% of earned shares, if any) to vest. |
Shareholders provided their views on a number of items. Below we have summarized specific feedback we received and the actions we took in response:
What We Heard From Shareholders
|
What FLIR Did
|
|||
Guaranteed annual incentive payments, despite their being limited to threshold and coinciding with hiring decisions, should not be provided. |
Entered into an amended employment agreement with Mr. Cannon that eliminated the guaranteed annual incentive payment for 2018 that had been provided in Mr. Cannons new hire employment agreement. Mr. Cannons 2018 annual incentive plan payment was based on achievement of the performance metrics under the 2018 AIP. See 2018 Target Cash Incentives & Actual Payments Received on page 25.
Actual Company performance during 2017 resulted in an annual incentive payout for Mr. Cannon that was in excess of the 2017 guaranteed amount |
|||
Disliked prior practice of providing payout for partial term performance (banking) feature in performance-based RSU design with a preference for complete, multi-year performance cycles. |
Established full three-year performance cycles, eliminating banking. |
|||
Growth should be a focus in incentive plan goals. |
Established target performance goals for the 2018 AIP and the performance-based RSUs that were designed to provide targeted payout only if we achieve significant growth and improvement over prior year performance. |
|||
Majority of pay should be variable and at least half of the annual LTI awards should be delivered in performance-based RSUs. |
In 2018, 89% of the annual target total direct compensation for our CEO was variable (i.e., at-risk) and 73% of the annual target total direct compensation, on average, for our other NEOs was variable.
Performance-based RSUs comprised 50% of the 2018 long-term incentive grants to our NEOs. For our CEO, inclusive of his Leadership Performance Award, performance-based RSUs comprised 67% of his 2018 long-term incentive grants. |
|||
Additional input on desired incentive plan metrics and other executive compensation program features. |
The Compensation Committee reviews and evaluates our executive compensation program on an annual basis and we take all shareholder feedback and input into account when developing and approving the Companys executive compensation program.
|
We believe these compensation design enhancements have corresponded to significant improvement in the Companys performance and business operations.
Proposal 3: Advisory Vote on Executive Compensation or say-on-pay begins on page 50 of this proxy statement. The Board of Directors unanimously recommends that shareholders vote FOR this proposal. Please review the information contained elsewhere in this proxy statement under Compensation Discussion and Analysis beginning on page 15 and under Proposal 3: Advisory Vote on Executive Compensation on page 50. We are confident that our programs are designed to motivate our executives and pay for performance that is aligned with shareholder interests.
2019 PROXY STATEMENT | FLIR | 13 |
|
MANAGEMENT | |
In closing, we would like to thank our shareholders for their investment in FLIR and their engagement with us during the past year. Your insight and candor were most appreciated. We value the support and input of our shareholders, your investment in FLIR, and we look forward to continuing to have an open dialogue.
Sincerely,
Catherine A. Halligan, Chair of the Compensation Committee
General William W. Crouch
Angus L. Macdonald
Cathy A. Stauffer
Michael T. Smith
14 | FLIR | 2019 PROXY STATEMENT |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
Total Shareholder Return5 Year
16 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
2018 Executive Compensation Highlights
In response to shareholder communication concerning executive compensation during our shareholder outreach and as part of our regular review of compensation program design to enhance business performance and align executive compensation with shareholder expectations, the Compensation Committee approved a number of significant changes to our executive compensation programs for 2018. These changes were responsive to shareholders and more closely aligned executive compensation with organizational changes, business strategy and implementation of TFM and included the following:
What We Changed |
|
Why We Changed |
| |||||
|
Established performance goals for growth in Organic Revenue, Adjusted Operating Margin, and Working Capital Turnover. These measures replaced those used in our 2017 program: Adjusted EPS, Revenue and Operating Cash Flow. |
To focus executives on improving returns from robust R&D spending; to continue to augment pricing discipline and cost controls; and to improve cash flow by improving working capital turnover. |
||||||
|
Established a three-year performance measurement period and eliminated the banking feature from our old design. Replaced Operating Income and Revenue with Adjusted EBITDA CAGR and Organic Revenue CAGR as the performance goals. |
Shareholder requests for three-year measurement periods; established a comprehensive performance metric commonly used for market comparison; and to capture and measure long-term value creation, while creating more direct alignment between management and shareholders over the multi-year period.
|
||||||
|
Provided modest increases (approximately 3%) for most executives and, as described in more detail below, provided a larger increase to our CEO. |
To maintain market-competitiveness consistent with our 50th percentile target market positioning. |
||||||
2019 PROXY STATEMENT | FLIR | 17 |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
18 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
2019 PROXY STATEMENT | FLIR | 19 |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
20 | FLIR | 2019 PROXY STATEMENT |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
Fiscal 2018 Peer Group
AMETEK |
KLA-Tencor |
Perkin Elmer |
Trimble | |||
Bio-Rad Laboratories |
MKS Instruments |
Rockwell Collins |
Viavi Solutions (formerly JDSU) | |||
Curtiss Wright |
Moog |
Roper Technologies |
Waters Corporation | |||
Esterline Technologies |
National Instruments |
Teledyne Technologies |
||||
HEICO |
OSI Systems |
Teradyne |
22 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
2019 PROXY STATEMENT | FLIR | 23 |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
Components of our Executive Compensation Program
Our executive compensation program consists of the following four primary components:
Compensation Component |
Purpose |
|||
Base Salary |
To compensate our executive officers for their day-to-day efforts based on demonstrated experience, competencies, and performance.
|
|||
Annual Cash Incentives |
To motivate and reward achievement of our annual strategic goals and be paid only if we achieve our short-term goals, consistent with our pay for performance philosophy.
|
|||
Long-Term Equity Incentives |
To align our executive officers interests with the long-term interests of our shareholders and to achieve our retention objectives through multi-year vesting requirements and through performance-based vesting requirements linked to our long-term strategic goals.
|
|||
Benefits (including post-employment compensation arrangements) |
To retain our executive officers and reduce the degree to which the possible loss of employment might affect our executives willingness to take risks or enter into strategic relationships and transactions that, while potentially beneficial to our shareholders, might result in the termination of the executives employment.
|
24 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
2019 PROXY STATEMENT | FLIR | 25 |
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COMPENSATION DISCUSSION AND ANALYSIS | |
AIP Formula
Performance Metric |
Description of Performance Metric | |||
Organic Revenue |
Organic Revenue is defined as the Companys total revenue, as determined under GAAP and recorded in the Companys audited financial statements, excluding the impact of current year acquisitions, dispositions and the translation impact of foreign currency rate changes. The Organic Revenue target established was $1.743 billion, representing a 5.0% increase compared to the Companys GAAP revenue for 2017 excluding $140 million of revenue attributed to the security products businesses divested in February of 2018. The incentive amount payable with respect to this metric is increased or decreased, as the case may be, by 10% for every 1% increase or decrease in actual Organic Revenue versus the target, provided that the amount payable is zero when actual Company Organic Revenue for 2018 is less than the 2017 baseline metric. |
|||
Adjusted Operating Margin |
Adjusted Operating Margin is calculated as Adjusted Operating Income divided by Organic Revenue for the same period. Adjusted Operating Margin is defined as Adjusted non-GAAP earnings from operations divided by Organic Revenue. Adjusted non-GAAP earnings from operations is defined as non-GAAP earnings from operations (defined as GAAP earnings from operations excluding amortization of acquired intangible assets, purchase accounting adjustments, restructuring charges, acquisition related expenses, loss on sale of business, executive transition costs, export compliance matters and other) divided by Organic Revenue. The 2018 Adjusted Operating Margin target was 22.43%, representing a 53 basis point improvement over the 2017 baseline metric. For every 10 basis point increase or decrease in Adjusted Operating Margin versus the target, the multiplier increases or decreases, as applicable, by 10%, provided that the multiplier is zero when Adjusted Operating Margin is less than the baseline metric in 2017. |
|||
Working Capital Turnover |
Working Capital Turnover is calculated as revenue divided by the trailing five-quarter average of the Companys net working capital balances comprised of accounts receivable, inventories, demonstration assets, and accounts payable, excluding the impact of current year acquisitions and dispositions. The Working Capital Turnover target established was approximately 0.5x greater than the actual Working Capital Turnover for 2017. The incentive amount payable with respect to this metric is increased or decreased, as the case may be, by 10% for every 0.1x increase or decrease in actual Working Capital Turnover versus the target, provided that the amount payable is zero when actual Working Capital Turnover for 2018 is less than the baseline metric in 2017. |
26 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
The table below sets forth the threshold, target, and maximum levels of each performance metric, as well as the multiplier that would be applied to the portion of the eligible cash incentive upon achievement of this performance metric.
2018 Annual Incentive Plan Matrix
Threshold 0% Funding |
Target 100% Funding |
Maximum 200% Funding |
||||||||||
Organic Revenue |
$ | 1.660 billion or less | $ | 1.743 billion | $ | 1.917 billion or greater | ||||||
Adjusted Operating Margin |
21.9% or less | 22.4 | % | 23.4% or greater | ||||||||
Working Capital Turnover |
2.60x or less | 3.10x | 4.10x or more |
AIP Award Decisions
In February 2019, the Compensation Committee assessed performance against the performance metrics under the 2018 AIP. The table below illustrates the formula for measuring achievement against each metric and our actual achievement under the 2018 AIP.
2018 AIP Officer Matrix
Achievement | Funding Percentage Achieved |
Weighting | Weighted Payout |
|||||||||||||
Organic Revenue |
$ | 1.759 billion | 109.3 | % | 50 | % | 54.6 | % | ||||||||
Adjusted Operating Margin |
23.12 | % | 169.0 | % | 30 | % | 50.7 | % | ||||||||
Working Capital Turnover |
2.82x | 72.0 | % | 20 | % | 14.4 | % | |||||||||
AIP Payout |
119.7 | % |
2019 PROXY STATEMENT | FLIR | 27 |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
28 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
The chart below describes the formula for determining the number of shares subject to the performance-based RSU grants that may vest.
Achievement Level |
Adjusted (weighted 50%) |
Organic (weighted 50%) |
Payout | |||||||||
Below Threshold |
<3.0 | % | <2.5 | % | 0 | % | ||||||
Threshold |
3.0 | % | 2.5 | % | 60 | % | ||||||
Target |
6.5 | % | 5.0 | % | 100 | % | ||||||
Maximum |
9.0 | % or > | 7.5 | % or > | 200 | % |
2019 PROXY STATEMENT | FLIR | 29 |
|
COMPENSATION DISCUSSION AND ANALYSIS | |
30 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS |
| |
2019 PROXY STATEMENT | FLIR | 31 |
COMPENSATION OF NAMED EXECUTIVE OFFICERS |
| |
COMPENSATION OF NAMED EXECUTIVE OFFICERS
2018 Summary Compensation Table
The following table summarizes compensation for our CEO, CFO and our other NEOs for the years ended December 31, 2018 and, to the extent required under the SEC executive compensation disclosure rules, December 31, 2017 and December 31, 2016.
Name and Principal Position |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($)(1) |
Option Awards ($)(2) |
Non-Equity Incentive Plan Compensation ($)(3) |
All Other Compensation ($)(4) |
Total ($) |
||||||||||||||||||||||||
James J. Cannon(5) President and Chief Executive Officer |
2018 | $ | 850,000 | $ | | $ | 5,849,988 | $ | | $ | 1,119,600 | $ | 140,258 | $ | 7,959,846 | |||||||||||||||||
2017 | 390,385 | 3,496,869(6) | 4,596,224 | 483,288 | 7,700 | 10,807 | 8,985,273 | |||||||||||||||||||||||||
Carol P. Lowe(7) Executive Vice President, and |
2018 | 650,000 | 2,500,000(7) | 1,750,018 | | 661,600 | 21,174 | 5,582,792 | ||||||||||||||||||||||||
2017 | 50,000 | | 2,499,989 | | | 1,751 | 2,551,740 | |||||||||||||||||||||||||
Todd M. DuChene Senior Vice President, General |
2018 | 432,215 | | 850,011 | | 389,700 | 33,184 | 1,705,110 | ||||||||||||||||||||||||
2017 | 420,661 | | 887,743 | 213,733 | 291,100 | 30,174 | 1,843,141 | |||||||||||||||||||||||||
2016 | 408,085 | | 584,500 | 371,840 | 147,200 | 30,134 | 1,541,759 | |||||||||||||||||||||||||
Jeffrey D. Frank Senior Vice President, |
2018 | 346,569 | | 549,992 | | 250,000 | 35,048 | 1,181,609 | ||||||||||||||||||||||||
2017 | 337,300 | | 654,987 | 135,788 | 186,700 | 37,662 | 1,352,437 | |||||||||||||||||||||||||
2016 | 328,123 | | 365,325 | 232,400 | 94,500 | 39,205 | 1,059,553 | |||||||||||||||||||||||||
Anthony D. Buffum(8) Chief Human Resources Officer |
2018 | 77,000 | 460,000(8) | 755,016 | | 62,100 | 7,391 | 1,361,507 |
(1) | Represents the aggregate grant date fair value for time-based, market-based and performance-based RSUs, as applicable, granted in 2018, 2017 and 2016. The amounts reported in this column are calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (FASB ASC Topic 718). For additional information regarding the calculation of the grant date fair value of the RSU awards, see Note 1 to the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. For the performance-based RSUs granted in 2016, the likelihood of achieving the market conditions and performance criteria required for vesting were included in the determination of the grant date fair value of the RSUs. |
For the performance-based RSUs granted in 2018, assuming that each NEO achieves the highest level of performance under the 2018 program, the values related to these awards in the 2018 Grants of Plan Based Awards Table would double to $7,850,002, $1,750,000 $850,049, $549,988, and $114,970 for Messrs. Cannon, Lowe, DuChene, Frank and Buffum, respectively, and increase the amounts in the 2018 Summary Compensation Table accordingly. |
(2) | Represents the aggregate grant date fair value for stock options granted in 2017 and 2016. In accordance with FASB ASC Topic 718, the aggregate grant date fair value for these awards is determined using the Black-Scholes option pricing model. For additional information regarding the calculation of the grant date fair value of the stock option awards, see Note 1 to the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. |
(3) | Represents amounts earned under our AIP with respect to the specified year. The 2018 AIP and performance metrics are described in the Compensation Discussion and Analysis under Annual Incentive Compensation. |
(4) | Represents actual cash expenses incurred by the Company and includes car allowances, Company matching contributions under our 401(k) plan, group life insurance premiums, and other personal benefits. Details are described in the All Other Compensation Table shown below. |
(5) | Mr. Cannon joined the Company on June 19, 2017. |
(6) | For Mr. Cannon, represents his one-time, cash payment of $3,146,869, which was intended to compensate him for the loss of unvested stock options scheduled to vest over the short term and other incentives he was granted pursuant to his employment with his previous employer and forfeited because of his joining the Company and $350,000 of his total earned 2017 AIP payment of $357,700 representing the amount guaranteed Mr. Cannon for 2017. Actual 2017 performance determined a bonus payment for Mr. Cannon in excess of his guaranteed amount rendering the guarantee meaningless. Mr. Cannons current amended employment agreement currently has no guaranteed payment other than base salary. |
(7) | Ms. Lowe joined the Company on November 27, 2017 as the Companys Chief Financial Officer. Bonus amount for 2018 represents her one-time cash payment to compensate her for loss of unvested stock options scheduled to vest over the short-term and other incentives forfeited because of her leaving her former employer. |
(8) | Mr. Buffum joined the Company on October 11, 2018. His bonus amount represents his one-time cash payment to compensate him for loss of cash bonus and unvested equity awards forfeited because of his leaving his former employer. |
2019 PROXY STATEMENT | FLIR | 33 |
|
COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
2018 All Other Compensation Table
The following table provides the components of the amounts shown for 2018 in the All Other Compensation column of the 2018 Summary Compensation Table.
Name |
Car Allowance ($) |
Company Contributions under 401(k) Plan ($) |
Group Life Insurance Premiums ($) |
Other Personal Benefits ($) |
Total ($) | |||||||||||||||
James J. Cannon |
$ | 18,000 | $ | 8,500 | $ | 2,070 | $ | 111,688 | (1) | $ | 140,258 | |||||||||
Carol P. Lowe |
18,000 | | 3,174 | | 21,174 | |||||||||||||||
Todd M. DuChene |
18,000 | 9,250 | 5,934 | | 33,184 | |||||||||||||||
Jeffrey D. Frank |
18,000 | 9,250 | 7,798 | | 35,048 | |||||||||||||||
Anthony D. Buffum |
4,154 | 2,962 | 275 | | 7,391 |
(1) | Amounts include $109,388 for temporary housing and house hunting expenses and $2,300 for personal use of Company aircraft for Mr. Cannon and his family. |
2018 Grants of Plan-Based Awards
The following Grants of Plan-Based Awards table provides information regarding non-equity incentive plan awards and equity- based awards granted to our NEOs during the year ended December 31, 2018. The equity-based awards were granted under the FLIR Systems, Inc. 2011 Stock Incentive Plan, while the non-equity incentive plan awards were granted under the FLIR Systems, Inc. 2012 Executive Bonus Plan.
Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts |
All Other (#) |
All Other Option Awards; Number of Securities Underlying Options (#) |
Exercise or Base Price of Option Awards ($/Sh) |
Grant Date Fair Value of Stock and Option Awards ($) |
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Name |
Grant Date | Approval Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
||||||||||||||||||||||||||||||||||||||
James J. Cannon |
|
4/27/18(2) 4/27/18(3) 4/27/18(4) |
|
|
2/7/18 4/18/18 4/18/18 4/18/18 |
|
$467,500 |
$ | 935,000 | $ | 1,870,000 | |
21,979 23,215 |
|
|
36,632 38,692 |
|
|
73,267 77,384 |
|
|
36,218 |
|
| | $
|
1,924,987 1,925,012 1,999,989 |
| ||||||||||||||||||
Carol P. Lowe |
|
4/27/18(2) 4/27/18(3) |
|
|
2/7/18 4/18/18 4/18/18 |
|
276,250 |
552,500 | 1,105,000 | 9,991 | 16,651 | 33,302 |
|
16,463 |
|
| | |
875,008 875,010 |
| ||||||||||||||||||||||||||
Todd M. DuChene |
|
4/27/18(2) 4/27/18(3) |
|
|
2/7/18 4/18/18 4/18/18 |
|
162,750 |
325,500 | 651,000 | 4,853 | 8,088 | 16,176 |
|
7,996 |
|
| | |
424,987 425,024 |
| ||||||||||||||||||||||||||
Jeffrey D. Frank |
|
4/27/18(2) 4/27/18(3) |
|
|
2/7/18 4/18/18 4/18/18 |
|
104,400 |
208,800 | 417,600 | 3,140 | 5,233 | 10,466 |
|
5,174 |
|
| | |
274,998 274,994 |
| ||||||||||||||||||||||||||
Anthony D. Buffum |
|
10/18/18(5) 11/1/18(6) 11/1/18(7) |
|
|
8/16/18 8/16/18 8/16/18 8/16/18 |
|
25,950 |
51,900 | 103,800 | 746 | 1,244 | 2,486 |
|
11,539 1,234 |
|
| | |
639,953 57,578 57,485 |
|
(1) | Represents the target awards under the AIP. The Compensation Committee approved the AIP grants on February 7, 2018, except for the target award for Mr. Buffum, which was approved on August 16, 2018. See the Annual Incentive Compensation section of Compensation Discussion and Analysis on page 25 for details on the AIP. |
(2) | The Compensation Committee approved the time-based RSU grants on April 18, 2018. The time-based RSU grants were issued on April 27, 2018, which was the second trading day after the date of the Companys public earnings announcement for the first quarter. These time-based RSU grants vest over a three-year period, in three equal installments on April 27, 2019, 2020 and 2021. In accordance with FASB ASC Topic 718, the grant date fair value for these awards was $53.15, which was the closing market price of our Common Stock on the date of grant, discounted by the net present value of our quarterly dividends. |
(3) | The Compensation Committee approved the performance-based RSU grants on April 18, 2018. The performance-based RSU grants were issued on April 27, 2018, which was the second trading day after the date of the Companys public earnings announcement for the first quarter. These performance-based RSU grants vest on April 27, 2021 based 50% on the Companys 3-year CAGR organic revenue growth and 50% on the 3-year CAGR Adjusted EBITDA Growth from January 1, 2018 through December 31, 2020. The 3-year CAGR organic revenue growth and 3-year CAGR Adjusted EBITDA Growth used to determine vesting for the performance-based RSUs is described in the Compensation Discussion and Analysis under Long-Term Incentive Program. The grant date fair value of |
34 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION OF NAMED EXECUTIVE OFFICERS |
| |
$52.55 per performance-based RSU is calculated in accordance with FASB ASC Topic 718 based on the probable satisfaction of the performance conditions. The assumptions made in determining the grant date fair value of each performance-based RSU grant are disclosed in Note 1 to the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. |
(4) | The Compensation Committee approved this leadership performance-based grant on April 18, 2018. The performance-based RSU grant vests on April 27, 2021 based 50% on the Companys 3-year CAGR organic revenue growth and 50% on the 3-year CAGR adjusted EBITDA growth and is subject to the additional vesting requirements of continued employment through the fourth anniversary of the grant date (50%) and 50% through to the fifth anniversary of the grant date. In accordance with FASB ASC Topic 718, the grant date fair value for this award was $51.69, which was the closing market price of our Common Stock on the date of grant, discounted by the net present value of our quarterly dividends. |
(5) | The Compensation Committee approved the time-based RSU grant on August 16, 2018. The time-based RSU grant was issued on October 18, 2018. This time-based RSU grant will vest over a three-year period, in three equal installments on October 18, 2019, 2020 and 2021. In accordance with FASB ASC Topic 718, the grant date fair value for this award was $55.46, which was the closing market price of our Common Stock on the date of grant, discounted by the net present value of our quarterly dividends. |
(6) | The Compensation Committee approved the time-based RSU grant on August 16, 2018. The time-based RSU grant was issued on November 1, 2018. This time-based RSU grant will vest over a three-year period, in three installments on April 27, 2019, 2020 and 2021. In accordance with FASB ASC Topic 718, the grant date fair value for this award was $46.66, which was the closing market price of our Common Stock on the date of grant, discounted by the net present value of our quarterly dividends. |
(7) | The Compensation Committee approved the performance based RSU grants on August 16, 2018. The performance based RSU grants were issued on November 1, 2018, which was the second trading day after the Companys public earnings announcement for the third quarter. This performance-based RSU grant vests on April 27, 2021 based 50% on the Companys 3-year CAGR organic revenue growth and 50% on the 3-year CAGR adjusted EBITDA Growth from January 1, 2018 through December 31, 2020. The operating margin metric to be used to determine vesting for the performance-based RSUs is described in the Compensation Discussion and Analysis under Long-Term Incentive Program. The grant date fair value of $46.21 per performance-based RSU is calculated in accordance with FASB ASC Topic 718 based on the probable satisfaction of the performance conditions. The assumptions made in determining the grant date fair value of each performance-based RSU grant are disclosed in Note 1 to the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. |
2019 PROXY STATEMENT | FLIR | 35 |
|
COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
Outstanding Equity Awards at Fiscal Year-End 2018
The following Outstanding Equity Awards at Fiscal Year-End 2018 table summarizes the equity awards we have made to our NEOs, which were outstanding as of December 31, 2018.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Equity Incentive Plan Awards: | ||||||||||||||||||||||||||||||||
Name |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#) |
Option ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Been Vested (#) |
Market Value of Shares or Units of Stock That Have Not Been Vested ($)(1) |
Number of (#) |
Market or ($)(1) |
||||||||||||||||||||||||
James J. Cannon |
19,790 | 39,582 | (2) | $ | 35.17 | 6/26/27 | ||||||||||||||||||||||||||
9,480 | (3) | $ | 412,759 | |||||||||||||||||||||||||||||
67,305 | (5) | 2,930,460 | ||||||||||||||||||||||||||||||
36,218 | (7) | 1,576,932 | ||||||||||||||||||||||||||||||
28,810 | (4) | $ | 1,254,387 | |||||||||||||||||||||||||||||
36,632 | (6) | 1,594,957 | ||||||||||||||||||||||||||||||
38,692 | (8) | 1,684,650 | ||||||||||||||||||||||||||||||
Carol P. Lowe |
36,311 | (9) | 1,580,981 | |||||||||||||||||||||||||||||
16,463 | (7) | 716,799 | ||||||||||||||||||||||||||||||
16,651 | (6) | 724,985 | ||||||||||||||||||||||||||||||
Todd M. DuChene |
57,000 | | 32.51 | 10/28/24 | ||||||||||||||||||||||||||||
55,118 | | 31.15 | 4/28/25 | |||||||||||||||||||||||||||||
42,666 | 21,334 | (10) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
8,236 | 16,473 | (11) | 36.73 | 4/28/27 | ||||||||||||||||||||||||||||
7,996 | (7) | 348,146 | ||||||||||||||||||||||||||||||
4,246 | (12) | 184,871 | ||||||||||||||||||||||||||||||
3,985 | (13) | 173,507 | ||||||||||||||||||||||||||||||
4,220 | (14) | 183,739 | ||||||||||||||||||||||||||||||
4,350 | (15) | 189,399 | ||||||||||||||||||||||||||||||
19,302 | (16) | 840,409 | ||||||||||||||||||||||||||||||
8,088 | (6) | 352,152 | ||||||||||||||||||||||||||||||
Jeffrey D. Frank |
6,748 | | 22.30 | 5/1/22 | ||||||||||||||||||||||||||||
4,130 | | 31.89 | 7/29/23 | |||||||||||||||||||||||||||||
28,600 | | 33.86 | 4/29/24 | |||||||||||||||||||||||||||||
26,666 | 13,334 | (10) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
5,232 | 10,466 | (11) | 36.73 | 4/28/27 | ||||||||||||||||||||||||||||
5,174 | (7) | 225,276 | ||||||||||||||||||||||||||||||
2,654 | (12) | 115,555 | ||||||||||||||||||||||||||||||
2,532 | (13) | 110,243 | ||||||||||||||||||||||||||||||
2,638 | (14) | 114,859 | ||||||||||||||||||||||||||||||
2,719 | (15) | 118,385 | ||||||||||||||||||||||||||||||
14,870 | (16) | 647,440 | ||||||||||||||||||||||||||||||
5,233 | (6) | 227,845 | ||||||||||||||||||||||||||||||
Anthony D. Buffum |
11,539 | (17) | 502,408 | |||||||||||||||||||||||||||||
1,234 | (18) | 53,728 | ||||||||||||||||||||||||||||||
1,244 | (19) | 54,164 |
(1) | Based on the closing market price of our Common Stock as of December 31, 2018 ($43.54), as reported on NASDAQ. |
(2) | Time-based stock options granted on June 26, 2017 that will vest in two equal installments on June 26, 2019 and 2020. |
(3) | Time-based RSUs granted on June 26, 2017 that vest in two equal installments on June 26, 2019 and 2020. |
(4) | Performance-based RSUs granted on June 26, 2017 that will vest on April 28, 2020 based on the Companys non-GAAP adjusted operating margin performance for the three-year period beginning January 1, 2017. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
(5) | Time-based RSUs granted on June 26, 2017 that vest in three equal installments on December 6, 2019, 2020 and 2021. |
(6) | Performance-based RSUs granted on April 27, 2018 that will vest on April 27, 2021 based 50% on the Companys 3-year CAGR organic revenue growth and 50% on the 3-year CAGR adjusted EBITDA Growth. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
(7) | Time-based RSUs granted April 27, 2018 that vest in three equal installments on April 27, 2019, 2020, and 2021. |
(8) | Performance-based RSUs granted on April 27, 2018 to the CEO as a leadership performance grant that will vest in two equal installments on April 27, 2022 and 2023 based 50% on the Companys 3-year CAGR organic growth and 50% on the 3-year CAGR adjusted EBITDA and is subject to the additional vesting requirement of continued employment through the fourth anniversary of the grant date for 50% of the shares earned and through the fifth anniversary of the grant date for the remaining 50% of the shares earned. The maximum number of shares that can be earned is 200% of the target number of shares. |
(9) | Time based RSUs granted on November 27, 2017 that will vest in two equal installments on November 27, 2019 and 2020. |
(10) | Time-based stock options granted on April 28, 2016 that will vest on April 28, 2019. |
36 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION OF NAMED EXECUTIVE OFFICERS |
| |
(11) | Time-based stock options granted on April 28, 2017 that will vest in two equal installments on April 28, 2019 and 2020. |
(12) | Time-based RSUs granted on April 28, 2016 that will vest on April 28, 2019. |
(13) | Time-based RSUs granted on April 28, 2017 that will vest in two equal installments on April 28, 2019 and 2020. |
(14) | Performance-based RSUs granted on April 28, 2016 that will vest on May 1, 2019 based on the Companys return on invested capital (ROIC) performance for the three-year period beginning January 1, 2016. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
(15) | Market-based RSUs granted on April 28, 2016 that will vest on May 1, 2019 based on the Companys relative TSR performance versus the S&P 500 for the three-year period beginning May 1, 2016. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
(16) | Performance-based RSUs granted on April 28, 2017 that will vest on April 28, 2020 based on the Companys non-GAAP adjusted operating margin performance for the three-year period beginning January 1, 2017. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
(17) | Time based RSUs granted on October 18, 2018 that will vest in three equal installments on October 18, 2019, 2020 and 2021. |
(18) | Time-based RSUs granted on November 1, 2018 that will vest in three equal installments on April 27, 2019, 2020 and 2021. |
(19) | Performance-based RSUs granted on November 1, 2018 that will vest on April 27, 2021 based 50% on the Companys 3-year CAGR organic revenue growth and 50% on the 3-year CAGR adjusted EBITDA growth. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
2019 PROXY STATEMENT | FLIR | 37 |
|
COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
2018 Option Exercises and Stock Vested
The following Option Exercises and Stock Vested table provides additional information about the value realized by our NEOs on the exercise of outstanding stock options and the vesting of RSUs during the year ended December 31, 2018.
Name
|
Option Awards (1)
|
Stock Awards (2)
|
||||||||||||||
Number
of
|
Value
|
Number of
|
Value
|
|||||||||||||
James J. Cannon |
|
|
|
$ |
|
|
|
31,592 |
|
$ |
1,448,826 |
| ||||
Carol P. Lowe |
|
|
|
|
|
|
|
18,155 |
|
|
809,168 |
| ||||
Todd M. DuChene |
|
3,000 |
|
|
81,068 |
|
|
29,834 |
|
|
1,597,423 |
| ||||
Jeffrey D. Frank |
|
46,712 |
|
|
1,424,633 |
|
|
18,095 |
(3) |
|
970,463 |
| ||||
Anthony D. Buffum |
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The value realized upon exercise represents the difference between the exercise price per share of the stock option and the sales price or the fair market value of each share of our Common Stock multiplied by the number of shares exercised. The exercise price of each stock option was equal to the closing price of our Common Stock as reported on NASDAQ on the date of grant. |
(2) | The value realized on vesting was determined by multiplying the number of RSUs vesting by the closing price of our Common Stock as reported on NASDAQ on the vesting date. |
(3) | Included are 2,824 shares that vested on April 29, 2018 for which distribution has been deferred until June 1, 2020 and 11,352 shares that vested May 1, 2018 for which distribution has been deferred until June 1, 2021. The total value realized on vesting of these deferred units is $759,692. |
38 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION OF NAMED EXECUTIVE OFFICERS |
| |
2018 Non-Qualified Deferred Compensation
The following Non-Qualified Deferred Compensation table provides information regarding the contributions made and the aggregate earnings recognized during the year ended December 31, 2018, and the account balances as of December 31, 2018 for our NEOs under the NQDC plan and the stock deferral plan.
Name
|
Executive
|
Registrant
|
Aggregate
|
Aggregate
|
Aggregate
|
|||||||||||||||
James J. Cannon |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Carol P. Lowe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Todd M. DuChene |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Jeffrey D. Frank |
|
352,350 |
(2) |
|
|
|
|
(78,739) |
(3) |
|
|
|
|
924,220 |
| |||||
|
759,692 |
(4) |
|
|
|
|
(153,781) |
(5) |
|
|
|
|
873,321 |
| ||||||
Anthony D. Buffum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | These amounts are not reported in the 2018 Summary Compensation Table on page 33. |
(2) | These amounts are reported as Salary or Non-Equity Incentive Plan Compensation in the 2018 Summary Compensation Table on page 33. |
(3) | Earnings from Compensation deferred under the NQDC. |
(4) | Includes the value of 2,824 shares that vested on April 29, 2018 and 11,352 shares that vested on May 1, 2018 for which distribution was deferred. |
(5) | Includes the value of dividends received for shares whose distribution was deferred under the stock deferral plan. |
We implemented the NQDC plan in order to provide highly compensated employees with an additional savings option. NEOs can defer up to 50% of salary and up to 100% of AIP compensation. Participants elect the timing and method of distribution during the annual enrollment period. Distribution options include a lump sum or annual installments. The deferred compensation and investment earnings are held as a Company asset within a rabbi trust. Participants have a menu of market-based investment options from which to choose to invest their contributions.
In addition, we have a Stock Deferral Plan that provides highly compensated employees the ability to defer the receipt of RSUs after vesting. Participants may elect to defer the distribution for up to 10 years from the grant date and must make the election to defer in accordance with Section 409A of the Code.
2019 PROXY STATEMENT | FLIR | 39 |
|
COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
Potential Payments upon Termination or Change of Control
We entered into certain agreements and maintain certain plans that will require us to provide compensation to our NEOs in the event of a termination of employment or a termination in connection with a change of control of the Company. The following tables show potential payments to our NEOs assuming a December 31, 2018 termination date and, where applicable, using the closing market price of our Common Stock as of December 31, 2018 of $43.54, as reported on NASDAQ.
James J. Cannon
|
||||||||||||
Executive Benefits and Payments Upon Termination
|
Termination
|
Termination
|
Termination
|
|||||||||
Severance payment (1) |
|
$2,635,000 |
|
|
$850,000 |
|
|
$ 3,570,000 |
| |||
Continued health coverage (2) |
|
25,925 |
|
|
39,665 |
| ||||||
Accelerated vesting (3) |
|
9,785,446 |
|
|
9,785,446 |
| ||||||
Total |
|
$12,446,371 |
|
|
$850,000 |
|
|
$13,395,111 |
|
Carol P. Lowe
|
||||||||
Executive Benefits and Payments Upon Termination
|
Termination
|
Termination
|
||||||
Severance payment (4) |
|
$1,202,500 |
|
|
$2,405,000 |
| ||
Continued health coverage (2) |
|
21,951 |
|
|
33,585 |
| ||
Accelerated vesting (3) |
|
3,022,765 |
|
|
3,022,765 |
| ||
Total |
|
$4,247,216 |
|
|
$5,461,350 |
|
Todd M. DuChene
|
||||||||
Executive Benefits and Payments Upon Termination
|
Termination
|
Termination
|
||||||
Severance payment (5) |
|
$ 759,500 |
|
|
$1,291,176 |
| ||
Continued health coverage (2) |
|
23,631 |
|
|
36,155 |
| ||
Accelerated vesting (3) |
|
1,835,579 |
|
|
2,657,266 |
| ||
Total |
|
$2,618,710 |
|
|
$3,984,597 |
|
40 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION OF NAMED EXECUTIVE OFFICERS |
| |
Jeffrey D. Frank
|
||||||||
Executive Benefits and Payments Upon Termination
|
Termination
|
Termination
|
||||||
Severance payment (5) |
$ |
556,800 |
|
$ |
965,069 |
| ||
Continued health coverage (2) |
|
23,631 |
|
|
36,155 |
| ||
Accelerated vesting (3) |
|
1,239,375 |
|
|
1,801,418 |
| ||
Total |
$ |
1,819,806 |
|
$ |
2,802,642 |
|
Anthony D. Buffum
|
||||||||
Executive Benefits and Payments Upon Termination
|
Termination
|
Termination
|
||||||
Severance payment (6) |
$ |
385,000 |
|
$ |
1,232,000 |
| ||
Continued health coverage (2) |
|
25,925 |
|
|
39,665 |
| ||
Accelerated vesting (3) |
|
556,136 |
|
|
610,300 |
| ||
Total |
$ |
967,061 |
|
$ |
1,881,965 |
|
(1) | Severance Payment: In the event that Mr. Cannons employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, he will be entitled to continuation of base salary for two years and a lump sum payment equal to his AIP target. In the event Mr. Cannons employment is involuntarily terminated by the Company in connection with a change of control, he will be entitled to a lump sum payment equal to 200% of his base salary and target AIP. In the event Mr. Cannons employment terminates due to his death, his beneficiary is entitled to a lump sum payment equal to one years base salary. In the event of Mr. Cannons disability he is entitled to be paid his base salary through the twelfth (12th) month of the period constituting a disability. |
(2) | Post-Termination Health Care Benefits: In the event the NEOs employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, the NEO will be reimbursed for health coverage costs under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended COBRA, for a period of 12 months. In the event an NEOs employment is involuntarily terminated by the Company in connection with a change of control, the NEO and the NEOs family are entitled to health care benefits equal to what they received while the NEO was employed by the Company for 18 months after termination. The calculations assume an annual increase in healthcare premiums of 10%. |
(3) | Stock Options and RSUs: In the event an NEOs employment is involuntarily terminated by the Company without cause, or the employee resigns for Good Reason/Constructive Termination, the NEO will be entitled to immediate vesting on all unvested time-based equity awards and performance-based equity awards that have achieved the performance measures as of the date of termination. For Mr. Cannon in the event his employment is involuntarily terminated by the Company without cause or resigns for Good Reason/Constructive Termination or is involuntarily terminated by the Company in connection with a change of control, performance-based equity awards for any measurement period that has not yet closed shall vest subject to proration as to the percentage of the awards that have achieved the performance measures as of the termination date. In the event an NEOs employment is involuntarily terminated by the Company or by the employee for Good Reason/Constructive Termination in connection with a change of control all equity-awards will vest at target. The value in the table assumes that the target number of shares will be earned. See the Outstanding Equity Awards at Fiscal Year-End 2018 table for additional details. |
2019 PROXY STATEMENT | FLIR | 41 |
|
COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
(4) | Severance Payment: In the event Ms. Lowes employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, she will be entitled to payments for one year that are equal to the sum of her base salary and target AIP. In the event Ms. Lowes employment is involuntarily terminated by the Company in connection with a change of control, she will be entitled to a lump sum payment equal to 200% of her base salary and target AIP. |
(5) | Severance Payment: In the event the NEOs employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, the NEO will be entitled to payments for one year that are equal to the sum of the NEOs base salary and target AIP. In the event the NEOs employment is involuntarily terminated by the Company in connection with a change of control, the NEO will be entitled to a lump sum payment equal to 200% of the NEOs base salary and actual AIP for the two most recent taxable years before the date on which the change of control occurred. |
(6) | Severance Payment: In the event Mr. Buffum is involuntarily terminated by the Company other than for cause, he will be entitled to payments for one year that are equal to the sum of his base salary. In the event Mr. Buffums employment is involuntarily terminated by the Company in connection with a change of control, he will be entitled to a lump sum payment equal to 200% of his base salary and target AIP. |
42 | FLIR | 2019 PROXY STATEMENT |
COMPENSATION OF NAMED EXECUTIVE OFFICERS |
| |
2019 PROXY STATEMENT | FLIR | 43 |
|
DIRECTOR COMPENSATION | |
Name |
Fees Earned ($) |
Stock Awards |
Option Awards |
All Other Compensation ($)(3) |
Total ($) | ||||||||||||||||||||
Earl R. Lewis |
$ | 175,000 | $ | 159,990 | $ | | $ | | $ | 334,990 | |||||||||||||||
John D. Carter |
90,000 | 159,990 | | $ | 10,474 | (3) | 260,464 | ||||||||||||||||||
William W. Crouch |
95,000 | |
159,990 |
| | 254,990 | |||||||||||||||||||
Catherine A. Halligan |
95,000 | 159,990 | | | 254,990 | ||||||||||||||||||||
Angus L. Macdonald |
105,000 | 159,990 | | | 264,990 | ||||||||||||||||||||
Michael T. Smith |
100,000 | 159,990 | | | 259,990 | ||||||||||||||||||||
Cathy A. Stauffer |
85,000 | 159,990 | | | 244,990 | ||||||||||||||||||||
Robert S. Tyrer |
80,000 | 159,990 | | | 239,990 | ||||||||||||||||||||
John W. Wood, Jr. |
85,000 | 159,990 | | | 244,990 | ||||||||||||||||||||
Steven E. Wynne |
95,000 | 159,990 | | | 254,990 |
(1) | Represents the grant date fair value for time-based RSUs granted in 2018. In accordance with FASB ASC Topic 718, the value used to calculate the grant date fair value for these awards is the closing market price of our Common Stock on the date of grant, discounted by the net present value of quarterly dividends. For additional information regarding the calculation of the grant date fair value of the RSU awards, see Note 1 to the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. The number of unvested RSUs outstanding at December 31, 2018 is 2,976 for each director. |
(2) | No options were issued to Directors in 2018. Aggregate number of stock options outstanding at December 31, 2018 is as follows: Mr. Lewis793,606; Mr. Carter109,176; General Crouch34,470; Ms. Halligan49,306; Mr. Macdonald87,876; Mr. Smith122,776; Ms. Stauffer49,306; Mr. Tyrer0; Mr. Wood122,776 and Mr. Wynne106,176. |
(3) | Represents the cost of Company approved spouse travel. |
44 | FLIR | 2019 PROXY STATEMENT |
EQUITY COMPENSATION PLAN INFORMATION |
| |
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2018 with respect to the shares of the Companys Common Stock that may be issued under the Companys existing equity compensation plans.
A | B | C | ||||||||||
Plan Category |
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1) |
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) |
Number of Securities for Future Issuance |
|||||||||
Equity Compensation Plans Approved by Shareholders(4) |
3,906,889 | $29.67 | 6,382,113 |
(1) | Excludes purchase rights accruing under the Companys 2009 Employee Stock Purchase Plan (the Purchase Plan). Under the Purchase Plan, each eligible employee may purchase shares of Common Stock at semi-annual intervals at a purchase price per share equal to 85% of the lower of (i) the fair market value of the Common Stock on the enrollment date for the offering period in which that semi-annual purchase date occurs, or (ii) the fair market value of the Common Stock on the semi-annual purchase date. |
(2) | The calculation of weighted average exercise price does not include RSUs. |
(3) | Includes shares available for future issuance under the Purchase Plan. As of December 31, 2018, an aggregate of 2,838,418 shares of Common Stock were available for issuance under the Purchase Plan. |
(4) | Consists of the Companys 2002 Stock Incentive Plan, 2011 Stock Incentive Plan and the Purchase Plan. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
2019 PROXY STATEMENT | FLIR | 45 |
|
STOCK OWNED BY MANAGEMENT | |
Name |
Shares of Common Stock Beneficially Owned(1) |
Percent of Common Stock Outstanding | ||||
Earl R. Lewis |
1,258,545 | 1% | ||||
John D. Carter |
144,617 | *% | ||||
William W. Crouch |
48,252 | *% | ||||
Catherine A. Halligan |
56,819 | *% | ||||
Angus L. MacDonald |
103,661 | *% | ||||
Michael T. Smith |
225,466 | *% | ||||
Cathy A. Stauffer |
54,422 | *% | ||||
Robert S. Tyrer |
2,976 | *% | ||||
John W. Wood, Jr. |
146,893 | *% | ||||
Steven E. Wynne |
127,825 | *% | ||||
James J. Cannon |
31,862 | *% | ||||
Todd M. DuChene |
220,902 | *% | ||||
Jeffrey D. Frank |
25,050 | *% | ||||
Carol P. Lowe |
15,481 | *% | ||||
Anthony D. Buffum |
411 | *% | ||||
Directors and executive officers as a group (16 persons) |
2,470,373 | 2% |
* | Less than one percent (1%) |
(1) | Applicable percentage of ownership is based on 135,613,252 shares of FLIR Common Stock outstanding as of March 1, 2019. Beneficial ownership is determined in accordance with rules of the SEC, and includes voting power and investment power with respect to shares. None of the shares held by our directors or NEOs are pledged as security. Shares issuable upon the exercise of outstanding stock options that are currently exercisable or become exercisable within 60 days from March 1, 2019 and upon the vesting of RSU awards within 60 days from March 1, 2019 are considered outstanding for the purpose of calculating the percentage of Common Stock owned by such person, but not for the purpose of calculating the percentage of Common Stock owned by any other person. The numbers of shares listed in the table above include shares that are issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days from March 1, 2019 and upon the vesting of RSU awards within 60 days of March 1, 2019, as follows: Mr. Lewis564,482; Mr. Carter112,152; General Crouch37,446; Ms. Halligan52,282; Mr. Macdonald90,852; Mr. Smith125,752; Ms. Stauffer52,282; Mr. Tyrer0; Mr. Wood125,752; Mr. Wynne112,152; Mr. Cannon31,862; Mr. DuChene201,493; Mr. Frank24,211; Ms. Lowe5,487; Mr. Buffum411 and all directors and executive officers as a group1,543,919. |
46 | FLIR | 2019 PROXY STATEMENT |
STOCK OWNED BY PRINCIPAL SHAREHOLDERS |
| |
STOCK OWNED BY PRINCIPAL SHAREHOLDERS
Name and Address of Beneficial Owner
|
Shares of
|
Percent
of
|
||||||
The Vanguard Group(2) 100 Vanguard Blvd. Malvern, PA 19355
|
15,099,711 | 11 | % | |||||
BlackRock, Inc.(3) 55 East 52nd Street New York, NY 10055
|
9,967,753 | 7 | % |
(1) | Applicable percentage of ownership is based on 135,515,782 shares of FLIR Common Stock outstanding as of December 31, 2018. |
(2) | This information as to beneficial ownership is based on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 11, 2019. The Schedule 13G/A states that, as of December 31, 2018, The Vanguard Group is the beneficial owner of 15,099,711 shares of Common Stock as to which The Vanguard Group has sole dispositive power over 14,904,177 of such shares and shared dispositive power over 195,534 of such shares. The Vanguard Group has sole voting power over 161,402 shares and shared voting power over 44,341 shares. |
(3) | This information as to beneficial ownership is based on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 4, 2019. The Schedule 13G/A states that, as of December 31, 2018, BlackRock, Inc. is the beneficial owner of 9,967,753 shares of Common Stock as to which BlackRock, Inc. has sole dispositive power over 9,967,753 of such shares and sole voting power over 8,802,894 shares. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
2019 PROXY STATEMENT | FLIR | 47 |
|
PROPOSAL 1 | |
ELECTION OF DIRECTORS
Nominees: |
Age | Director Since | Position Held with FLIR | ||||||||||||
James J. Cannon
|
48
|
2017
|
Director and Chief Executive Officer
| ||||||||||||
John D. Carter
|
73
|
2003
|
Director
| ||||||||||||
William W. Crouch
|
77
|
2005
|
Director
| ||||||||||||
Catherine A. Halligan
|
56
|
2014
|
Director
| ||||||||||||
Earl R. Lewis
|
75
|
1999
|
Chairman of the Board of Directors
| ||||||||||||
Angus L. Macdonald
|
64
|
2001
|
Director
| ||||||||||||
Michael T. Smith
|
75
|
2002
|
Director
| ||||||||||||
Cathy A. Stauffer
|
59
|
2014
|
Director
| ||||||||||||
Robert S. Tyrer
|
61
|
2017
|
Director
| ||||||||||||
John W. Wood, Jr.
|
75
|
2009
|
Director
| ||||||||||||
Steven E. Wynne
|
67
|
1999
|
Director
|
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that shareholders vote FOR the election of each of its nominees for director. If a quorum is present, a director nominee will be elected if the number of votes cast FOR the nominee exceeds the number of votes cast AGAINST such nominee. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting, but will have no effect on the election of directors. See Corporate Governance and Related MattersNominees for information about the qualifications of the nominees.
48 | FLIR | 2019 PROXY STATEMENT |
|
PROPOSAL 4 | |
52 | FLIR | 2019 PROXY STATEMENT |
PROPOSAL 4 |
| |
2019 PROXY STATEMENT | FLIR | 53 |
|
PROPOSAL 4 | |
Name of Individual or Identity of Group and Position |
Number of (#) |
Weighted | ||||||||
James J. Cannon President and Chief Executive Officer |
|
| ||||||||
Carol P. Lowe Executive VP and Chief Financial Officer |
|
| ||||||||
Todd M. DuChene Senior VP, General Counsel and Secretary |
| | ||||||||
Jeffrey D. Frank Senior VP, Global Product Strategy |
501 | $39.47 | ||||||||
Anthony D. Buffum Chief Human Resources Officer |
| | ||||||||
All current executive officers as a group |
501 |
$39.47 | ||||||||
All current directors who are not executive officers as a group(1) |
|
| ||||||||
All other employees (including all current officers who are not executive officers) as a group |
139,232 |
$39.47 |
(1) | Non-employee directors were not eligible to participate in the 2009 Employee Stock Purchase Plan and are not eligible to participate in the ESPP. |
54 | FLIR | 2019 PROXY STATEMENT |
PROPOSAL 4 |
| |
2019 PROXY STATEMENT | FLIR | 55 |
Appendix A: Unaudited Reconciliation of Non-GAAP Adjusted Financial Measures
(in thousands, except per share amounts)
Year Ended December 31, |
||||||||
2018 | 2017 | |||||||
Earnings from operations: |
||||||||
GAAP earnings from operations |
$ | 318,606 | $ | 289,961 | ||||
Amortization of acquired intangible assets |
24,524 | 27,391 | ||||||
Purchase accounting adjustments |
| 1,992 | ||||||
Restructuring charges |
8,203 | 625 | ||||||
Acquisition related expenses |
6,674 | 2,014 | ||||||
Loss on sale of business |
13,708 | 23,588 | ||||||
Executive transition costs |
6,748 | 13,524 | ||||||
Export compliance matters |
23,278 | | ||||||
Other |
1,946 | 4,389 | ||||||
|
|
|
|
|||||
Non-GAAP earnings from operations |
$ | 403,687 | $ | 363,484 | ||||
Operating margin: |
||||||||
GAAP operating margin |
17.9 | % | 16.1 | % | ||||
Cumulative effect of non-GAAP Adjustments |
4.8 | % | 4.1 | % | ||||
|
|
|
|
|||||
Non-GAAP operating margin |
22.7 | % | 20.2 | % | ||||
Net earnings: |
||||||||
GAAP net earnings |
$ | 282,425 | $ | 107,223 | ||||
Amortization of acquired intangible assets |
24,524 | 27,391 | ||||||
Purchase accounting adjustments |
| 1,992 | ||||||
Restructuring charges |
8,203 | 625 | ||||||
Acquisition related expenses |
6,674 | 2,014 | ||||||
Loss on sale of business |
13,708 | 23,588 | ||||||
Executive transition costs |
6,824 | 13,524 | ||||||
Export compliance matters |
23,278 | | ||||||
Other |
1,946 | 3,681 | ||||||
Estimated tax benefit of non-GAAP adjustments |
(17,457 | ) | (18,480 | ) | ||||
Discrete tax items, net |
(38,279 | ) | 101,014 | |||||
|
|
|
|
|||||
Non-GAAP net earnings |
$ | 311,846 | $ | 262,572 | ||||
Earnings Per Diluted Share: |
||||||||
GAAP earnings per diluted share |
$ | 2.01 | $ | 0.77 | ||||
Cumulative effect of non-GAAP Adjustments |
0.21 | 1.11 | ||||||
|
|
|
|
|||||
Non-GAAP earnings per diluted share |
$ | 2.22 | $ | 1.88 | ||||
Weighted average diluted shares outstanding: |
140,209 | 139,646 |
Explanation of Non-GAAP Financial Measures
We report our financial results in accordance with United States generally accepted accounting principles (GAAP). As a supplement to our GAAP financial results, this document contains some or all of the following non-GAAP financial measures: (i) non-GAAP operating earnings/income, (ii) non-GAAP operating margin (defined as non-GAAP operating income divided by revenue), (iii) non-GAAP net earnings/income, and (iv) non-GAAP earnings per diluted share (EPS). These non-GAAP measures of financial performance are not prepared in accordance with GAAP and computational methods may differ from those used by other companies. Additionally, these non-GAAP measures should not be considered a substitute for any other performance measure determined in accordance with GAAP and the Company cautions investors and potential investors to consider these measures in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. Each of the non-GAAP measures is adjusted from GAAP results and are outlined in the GAAP to Non-GAAP Reconciliation tables included within this appendix.
In calculating non-GAAP financial measures, we exclude certain items (including gains and losses) to facilitate a review of the comparability of our core operating performance on a period-to-period basis. The excluded items represent amortization of acquired intangible assets, purchase accounting adjustments, restructuring charges, acquisition related expenses, loss on sale
2019 PROXY STATEMENT | FLIR | A-1 |
of business, executive transition costs, export compliance matters, discrete tax items, and other items we do not consider to be directly related to our core operating performance. We use non-GAAP measures internally to evaluate the core operating performance of our business, for comparison with forecasts and strategic plans, for calculating return on investment, and as a factor for determining incentive compensation for certain employees. Accordingly, supplementing GAAP financial results with these non-GAAP financial measures enables the comparison of our ongoing operating results in a manner consistent with the metrics reviewed by management. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by facilitating:
| the comparability of our ongoing operating results over the periods presented; |
| the ability to identify trends in our underlying business; and |
| the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures. |
The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:
| Amortization of acquired intangible assets. GAAP accounting requires that intangible assets are recorded at fair value as of the date of acquisition and amortized over their estimated useful lives. The timing and magnitude of our acquisition transactions and maturities of the businesses acquired will cause our operating results to vary from period to period, making comparison to past performance difficult for investors. |
| Purchase accounting adjustments. Included in our GAAP financial measures are purchase accounting adjustments, required by GAAP to adjust inventory balances to fair value at the time of acquisition. These non-cash charges are not reflective of our ongoing operations and can vary significantly in any given period driven by variability in our acquisition activity. |
| Acquisition related expenses. Included in our GAAP financial measures are acquisition related expenses, consisting of external expenses resulting directly from acquisition related activities, including due diligence, legal, valuation, tax and audit services. The timing and nature of our acquisition activity can vary significantly from period to period impacting comparability of operating results from one period to another. These transaction-specific costs can vary significantly in amount and timing and are not indicative of our core operating performance. |
| Restructuring charges. Included in our GAAP financial measures are restructuring charges which are primarily for employee compensation resulting from reductions in employee headcount and facilities exit and lease termination costs in connection with Company reorganization and restructuring activities. We believe that excluding these costs provides greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and facilitates comparison with the results of other companies in our industry. |
| Loss on sale of business. We recognized a loss, representing the difference between the carrying value and expected sales proceeds, associated with the divestiture of the retail and SMB security products business of the Commercial business unit. We excluded this loss for purposes of calculating certain non-GAAP measures. This adjustment facilitates an alternative evaluation of our current operating performance and comparisons to past operating results consistent with the metrics reviewed by management |
| Executive transition costs. Executive transition costs primarily include costs associated with separation and severance agreements of the Companys former CEO, COO, CHRO and other former members of the executive management team; professional services expenses associated with the transition of the former CEO, CFO, and CHRO including recruitment fees, legal services and other related costs, as well as sign-on cash bonus payments to the current CEO and others reporting to the CEO; partially offset by benefits associated with stock compensation reversals for share-based awards forfeited upon the departures of the former CEO, COO, CFO, CHRO and other former members of the executive management team. |
| Export compliance matters. Export Compliance Matters refer to costs incurred for compliance and remediation activities to address and improve certain historical practices associated with U.S. and international trade control laws and regulations. Such costs include a DDTC estimated penalty associated with an administrative agreement with the U.S. Department of State (the Consent Agreement), expenses associated with retention of a Special Compliance Officer, remedial actions and new or enhanced compliance program initiatives and implementations as required by the terms of the Consent Agreement or otherwise necessary to remedy and achieve full compliance with U.S. and international trade control laws and regulations. These costs are excluded from our non-GAAP measures because they are not representative of the ongoing operating costs of our compliance programs and are exclusive of sustaining costs we have incurred and expect to incur during and beyond the term of Consent Agreement. |
| Other. Other charges include product remediation charges associated with certain SkyWatch surveillance towers and certain long-term contract adjustments related to contracts completed by companies acquired by FLIR prior to their acquisition. We exclude other charges from our non-GAAP measures because we do not believe such costs are representative of our ongoing operations. |
A-2 | FLIR | 2019 PROXY STATEMENT |
| Estimated tax effect of non-GAAP adjustments. This amount adjusts the provision for income taxes to reflect the effect of the previously listed non-GAAP adjustments on non-GAAP net income. We estimate the tax effect of the adjustment items by applying the Companys overall estimated effective tax rate, excluding significant discrete items, to the pretax amount. |
| Discrete tax items, net. Included in our GAAP financial measures are income tax expenses and benefits related to discrete events or transactions that are not representative of the Companys estimated tax rate related to ongoing operations. These discrete tax items can vary significantly from period to period impacting the comparability of our earnings from one period to another. Discrete tax items include charges and reversals of provisions associated with certain unrecognized tax benefits, benefits or charges associated with the windfalls or shortfalls resulting from vesting and exercise activity of share-based compensation, benefits associated with the reversal of previously recorded valuation allowances against certain deferred tax assets, and other discrete items not included in the annual effective tax rate associated with our ongoing operations. We exclude discrete tax items from our non-GAAP measures because we do not believe such expenses or benefits reflect the performance of our ongoing operations. |
2019 PROXY STATEMENT | FLIR | A-3 |
Appendix B: FLIR Systems, Inc. 2019 Employee Stock Purchase Plan
(Effective April 19, 2019)
1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Companies with an opportunity to purchase Common Stock through accumulated Contributions. The Company intends for the Plan to have two components: a component that is intended to qualify as an employee stock purchase plan under Section 423 of the Code (the 423 Component) and a component that is not intended to qualify as an employee stock purchase plan under Section 423 of the Code (the Non-423 Component). The provisions of the 423 Component, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. An option to purchase shares of Common Stock under the Non-423 Component will be granted pursuant to rules, procedures, or sub-plans adopted by the Administrator designed to achieve tax, securities laws, or other objectives for Eligible Employees and the Company. Except as otherwise provided herein, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
2. Definitions.
(a) Administrator means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b) Affiliate means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c) Applicable Laws means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where options are, or will be, granted under the Plan.
(d) Board means the Board of Directors of the Company.
(e) Change of Control means the occurrence of any of the following events:
(i) A change in the ownership of the Company that occurs on the date that any one person, or more than one person acting as a group (Person), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change of Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Companys voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change of Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii) A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change of Control; or
(iii) A change in the ownership of a substantial portion of the Companys assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Companys assets: (A) a transfer to an entity that is controlled by the Companys stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Companys stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For
2019 PROXY STATEMENT | FLIR | B-1 |
purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this Section 2(e), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change of Control unless the transaction qualifies as a change of control event within the meaning of Section 409A.
Further and for the avoidance of doubt, a transaction will not constitute a Change of Control if: (i) its primary purpose is to change the jurisdiction of the Companys incorporation, or (ii) its primary purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction.
(f) Code means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code will include such section, any valid regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g) Committee means a committee of the Board appointed in accordance with Section 14 hereof.
(h) Common Stock means the common stock of the Company.
(i) Company means FLIR Systems, Inc., an Oregon corporation, or any successor thereto.
(j) Compensation includes an Eligible Employees base straight time gross earnings, overtime, shift premium, and commissions (to the extent such commissions are an integral, recurring part of compensation) but excludes payments for incentive compensation, bonuses, equity compensation income and other similar compensation. The Administrator, in its discretion, may, on a uniform and nondiscriminatory basis, establish a different definition of Compensation for any Offering Period that has not yet begun.
(k) Contributions means the payroll deductions and other additional payments that the Company may permit to be made by a Participant to fund the exercise of options granted pursuant to the Plan.
(l) Designated Company means any Subsidiary or Affiliate of the Company that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies, provided, however that at any given time, a Subsidiary that is a Designated Company under the 423 Component will not be a Designated Company under the Non-423 Component.
(m) Director means a member of the Board.
(n) Eligible Employee means any individual who is a common law employee providing services to the Company or a Designated Company and is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year by the Employer, or any lesser number of hours per week and/or number of months in any calendar year established by the Administrator (if required under applicable local law) for purposes of any separate Offering or the Non-423 Component. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves or is legally protected under Applicable Laws. Where the period of leave exceeds three (3) months and the individuals right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date in an Offering, determine (on a uniform and nondiscriminatory basis or as otherwise permitted by Treasury Regulation Section 1.423-2) that the definition of Eligible Employee will or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (iii) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Offering in an identical manner to all highly compensated individuals of the Employer whose Eligible Employees are participating in that Offering. Each exclusion will be applied with respect to an Offering in a manner complying with U.S. Treasury Regulation Section 1.423-2(e)(2)(ii).
(o) Employer means the employer of the applicable Eligible Employee(s).
(p) Enrollment Date means the first Trading Day of an Offering Period.
(q) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.
B-2 | FLIR | 2019 PROXY STATEMENT |
(r) Exercise Date means the last Trading Day of the Purchase Period. Notwithstanding the foregoing, in the event that an Offering Period is terminated prior to its expiration pursuant to Section 20(a), the Administrator, in its sole discretion, may determine that any Purchase Period also terminating under such Offering Period will terminate without options being exercised on the Exercise Date that otherwise would have occurred on the last Trading Day of such Purchase Period.
(s) Fair Market Value means, as of any date, the closing sales price for Common Stock as quoted on any established stock exchange or national market system (including without limitation the New York Stock Exchange, NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market) on which the Common Stock is listed on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable. If the determination date for the Fair Market Value occurs on a non-trading day (i.e., a weekend or holiday), the Fair Market Value will be such price on the immediately preceding trading day, unless otherwise determined by the Administrator. In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
The determination of fair market value for purposes of tax withholding may be made in the Administrators discretion subject to Applicable Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
(t) Fiscal Year means a fiscal year of the Company.
(u) New Exercise Date means a new Exercise Date if the Administrator shortens any Offering Period then in progress.
(v) Offering means an offer under the Plan of an option that may be exercised during an Offering Period as further described in Section 4. For purposes of the Plan, the Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible Employees of one or more Employers will participate, even if the dates of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. To the extent permitted by U.S. Treasury Regulation Section 1.423-2(a)(1), the terms of each Offering need not be identical provided that the terms of the Plan and an Offering together satisfy U.S. Treasury Regulation Section 1.423-2(a)(2) and (a)(3).
(w) Offering Periods means the periods of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after May 1 and November 1 of each year and terminating on the last Trading Day on or before October 31 and April 30, approximately six (6) months later. The duration and timing of Offering Periods may be changed pursuant to Sections 4, 20 and 30.
(x) Parent means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(y) Participant means an Eligible Employee that participates in the Plan.
(z) Plan means this FLIR Systems, Inc. 2019 Employee Stock Purchase Plan.
(aa) Purchase Period means the period or periods during an Offering Period during which shares of Common Stock may be purchased on a Participants behalf in accordance with the terms of the Plan. Unless the Administrator provides otherwise, Purchase Periods for all other Offering Periods will (i) commence on the first Trading Day on or after May 1 and November 1 and (ii) terminate on the last Trading Day on or before October 31 of the same year and April 30 of the following year, respectively.
(bb) Purchase Price means an amount equal to eighty-five percent (85%) of the Fair Market Value on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be determined for subsequent Offering Periods by the Administrator subject to compliance with Section 423 of the Code (or any successor rule or provision or any other Applicable Law, regulation or stock exchange rule) or pursuant to Section 20.
(cc) Subsidiary means a subsidiary corporation, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(dd) Trading Day means a day on which the national stock exchange upon which the Common Stock is listed is open for trading.
(ee) U.S. Treasury Regulations means the Treasury regulations of the Code. Reference to a specific Treasury Regulation will include such Treasury Regulation, the section of the Code under which such regulation was promulgated, and any comparable provision of any future legislation or regulation amending, supplementing, or superseding such Section or regulation.
3. Eligibility.
(a) First Offering Period. Any individual who both (i) is an Eligible Employee on the Enrollment Date for the first Offering Period under the Plan, and (ii) was a participant in the final purchase period under the Companys expiring 2009 Employee
2019 PROXY STATEMENT | FLIR | B-3 |
Stock Purchase Plan, automatically will be enrolled in the first Offering Period under the Plan. The election of any such Participant under the 2009 Employee Stock Purchase Plan (for example, with respect to amount of contributions) for the last offering period under such plan automatically will carry over to the first Offering Period under the Plan, unless the Participant elects otherwise in the form and manner specified by the Administrator. Any other individual who is an Eligible Employee immediately prior to the first Offering Period will be eligible to participate in the Plan, subject to the requirements of Section 5.
(b) Subsequent Offering Periods. Any Eligible Employee on any Enrollment Date for any Offering Period after the first Offering Period under the Plan will be eligible to participate in the Plan, subject to the requirements of Section 5.
(c) Non-U.S. Employees. Eligible Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate Section 423 of the Code. In the case of the Non-423 Component, Eligible Employees may be excluded from participation in the Plan or an Offering if the Administrator determines that participation of such Eligible Employees is not advisable or practicable.
(d) Limitations. Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate, which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
4. Offering Periods. The Plan will be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 1 and November 1 of each year, or on such other dates as the Administrator will determine. The Administrator will have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future Offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter; provided, however, that no Offering Period may last more than twenty-seven (27) months.
5. Participation. An Eligible Employee may participate in the Plan pursuant to Section 3(b) by properly following an electronic or other enrollment procedure determined by the Administrator, in either case on or before a date determined by the Administrator prior to an applicable Enrollment Date.
6. Contributions.
(a) At the time a Participant enrolls in the Plan pursuant to Section 5, he or she will elect to have Contributions (in the form of payroll deductions or otherwise, to the extent permitted by the Administrator) made on each pay day during the Offering Period in an amount not exceeding ten percent (10%) of the Compensation that he or she receives on the pay day (for illustrative purposes, should a pay day occur on an Exercise Date, a Participant will have any Contributions made on such day applied to his or her account under the then-current Purchase Period or Offering Period). Unless otherwise determined by the Administrator on a prospective and uniform and nondiscriminatory basis, the aggregate amount of Contributions for any Participant for an Offering Period shall not exceed $10,625. The Administrator, in its discretion, may, on a prospective and uniform and nondiscriminatory basis, establish a different maximum amount or percentage of Compensation that may be contributed under the Plan. In addition, the Administrator, in its sole discretion, may permit all Participants in a specified Offering to contribute amounts to the Plan through payment by cash, check or other means set forth in the applicable election prior to each Exercise Date of each Purchase Period. A Participants election will remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(b) In the event Contributions are made in the form of payroll deductions, such payroll deductions for a Participant will commence on the first pay day following the Enrollment Date and will end on the last pay day on or prior to the last Exercise Date of such Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof.
(c) All Contributions made for a Participant will be credited to his or her account under the Plan and Contributions will be made in whole percentages of his or her Compensation only. A Participant may not make any additional payments into such account.
B-4 | FLIR | 2019 PROXY STATEMENT |
(d) A Participant may discontinue his or her participation in the Plan as provided under Section 10. Unless otherwise determined by the Administrator, during a Purchase Period a Participant may: (i) not increase the rate of his or her Contributions, (ii) may decrease the rate of his or her Contributions a maximum of one (1) time, (iii) decrease his or her Contributions to zero percent (0%) (even if the Participant previously decreased his or her Contributions to a rate above zero (0%)). Any such permitted change during a Purchase Period requires the Participant to) properly complete and submit a new election as to Contribution rate in the form and manner and by the deadline prescribed by the Administrator, which in all cases must be prior to an applicable Exercise Date. If a Participant has not followed such procedures to change the rate of Contributions, the rate of his or her Contributions will continue at the originally elected rate throughout the Purchase Period and future Offering Periods and Purchase Periods (unless the Participants participation is terminated as provided in Sections 10 or 11). The Administrator may, in its sole discretion, amend the nature and/or number of Contribution rate changes that may be made by Participants during any Offering Period or Purchase Period and may establish other conditions or limitations as it deems appropriate for Plan administration. Any change in the rate of Contributions made pursuant to this Section 6(d) will be effective as of the first (1st) full payroll period following ten (10) business days after the date on which the change is made by the Participant (unless the Administrator, in its sole discretion, elects to process a given change in payroll deduction rate more quickly).
(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(d), a Participants Contributions may be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section 423(b)(8) of the Code and Section 3(d) hereof, Contributions will recommence at the rate originally elected by the Participant effective as of the beginning of the first Purchase Period scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10.
(f) Notwithstanding any provisions to the contrary in the Plan, the Administrator may allow Participants to participate in the Plan via cash contributions instead of payroll deductions if (i) payroll deductions are not permitted under applicable local law, (ii) the Administrator determines that cash contributions are permissible under Section 423 of the Code; or (iii) the Participants are participating in the Non-423 Component.
(g) At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of (or any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for the Companys or Employers federal, state, local or any other tax liability payable to any authority including taxes imposed by jurisdictions outside of the U.S., national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock (or any other time that a taxable event related to the Plan occurs). At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participants compensation the amount necessary for the Company or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee. In addition, the Company or the Employer may, but will not be obligated to, withhold from the proceeds of the sale of Common Stock or any other method of withholding the Company or the Employer deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
7. Grant of Option. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Eligible Employees Contributions accumulated prior to such Exercise Date and retained in the Eligible Employees account as of the Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase during each Purchase Period more than the number of shares of Common Stock determined by dividing $12,500 by the Fair Market Value of a share of Common Stock on the first date of each Offering Period (subject to any adjustment pursuant to Section 19) and provided further that such purchase will be subject to the limitations set forth in Sections 3(d) and 13. The Eligible Employee may accept the grant of such option by electing to participate in the Plan in accordance with the requirements of Section 5. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchase during each Purchase Period. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10. The option will expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stock will be exercised automatically on each Exercise Date, and the maximum number of full shares subject to the option will be purchased for such Participant at the applicable Purchase Price with the accumulated Contributions from his or her account. No fractional shares of Common Stock will be purchased; any Contributions accumulated in a Participants account, which are not sufficient to purchase a full share will be retained in the Participants account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the Participant as provided in Section 10.
2019 PROXY STATEMENT | FLIR | B-5 |
Any other funds left over in a Participants account after the Exercise Date will be returned to the Participant. During a Participants lifetime, a Participants option to purchase shares hereunder is exercisable only by him or her.
(b) If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20. The Company may make a pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Companys stockholders subsequent to such Enrollment Date.
9. Delivery. As soon as reasonably practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each Participant of the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. The Administrator (in its sole discretion) may require that shares not be sold or transferred for a designated period after the Exercise Date, pursuant to such rules as the Administrator may establish from time to time. The Company may permit or require that shares be deposited directly with a broker designated by the Company or to a designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may require that shares be retained with such broker or agent (that is, not transferred to another broker or agent and/or to any other individual or entity, as determined by the Company) for a designated period of time and/or may establish procedures or rules to permit tracking of disqualifying dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.
10. Withdrawal.
(a) A Participant may withdraw all but not less than all the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by (i) submitting to the Companys stock administration office (or its designee) a notice of withdrawal in the form and manner and by the deadline determined by the Administrator for such purpose. All of the Participants Contributions credited to his or her account will be paid to such Participant promptly after receipt of notice of withdrawal and such Participants option for the Offering Period will be automatically terminated, and no further Contributions for the purchase of shares will be made for such Offering Period. If a Participant withdraws from an Offering Period, Contributions will not resume at the beginning of the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.
(b) A Participants withdrawal from an Offering Period will not have any effect on his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or in succeeding Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
11. Termination of Employment. Upon a Participants ceasing to be an Eligible Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to such Participants account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15, and such Participants option will be automatically terminated. Unless otherwise provided by the Administrator, a Participant whose employment transfers between entities through a termination with an immediate rehire (with no break in service) by the Company or a Designated Company will not be treated as terminated under the Plan; however, if a Participant transfers from an Offering under the 423 Component to the Non-423 Component, the exercise of the option will be qualified under the 423 Component only to the extent it complies with Section 423 of the Code, unless otherwise provided by the Administrator.
12. Interest. No interest will accrue on the Contributions of a participant in the Plan, except as may be required by Applicable Law, as determined by the Company, and if so required by the laws of a particular jurisdiction, will apply to all Participants in the relevant Offering under the 423 Component, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f).
B-6 | FLIR | 2019 PROXY STATEMENT |
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of Common Stock that will be made available for sale under the Plan will be 1.5 million shares of Common Stock.
(b) Until the shares of Common Stock are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will have only the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder will exist with respect to such shares.
(c) Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse.
14. Administration. The Plan will be administered by the Board or a Committee appointed by the Board, which Committee will be constituted to comply with Applicable Laws. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to delegate ministerial duties to any of the Companys employees, to designate separate Offerings under the Plan, to designate Subsidiaries and Affiliates of the Company as participating in the 423 Component or Non-423 Component, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures that it deems necessary for the administration of the Plan (including, without limitation, to adopt such procedures and sub-plans as are necessary or appropriate to permit the participation in the Plan by employees who are foreign nationals or employed outside the U.S., the terms of which sub-plans may take precedence over other provisions of this Plan, with the exception of Section 13(a) hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan will govern the operation of such sub-plan). Unless otherwise determined by the Administrator, the Eligible Employees eligible to participate in each sub-plan will participate in a separate Offering or in the Non-423 Component. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding eligibility to participate, the definition of Compensation, handling of Contributions, making of Contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that vary with applicable local requirements. The Administrator also is authorized to determine that, to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f), the terms of an option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the Plan or the same Offering to employees resident solely in the U.S. Every finding, decision, and determination made by the Administrator will, to the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) If permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participants account under the Plan in the event of such Participants death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, if permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any cash from the Participants account under the Plan in the event of such Participants death prior to exercise of the option. If a Participant is married and the designated beneficiary is not the spouse, spousal consent will be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant at any time by notice in a form determined by the Administrator. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participants death, the Company will deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
(c) All beneficiary designations will be in such form and manner as the Administrator may designate from time to time. Notwithstanding Sections 15(a) and (b) above, the Company and/or the Administrator may decide not to permit such designations by Participants in non-U.S. jurisdictions to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
16. Transferability. Neither Contributions credited to a Participants account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
2019 PROXY STATEMENT | FLIR | B-7 |
17. Use of Funds. The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be obligated to segregate such Contributions except under Offerings or for Participants in the Non-423 Component for which Applicable Laws require that Contributions to the Plan by Participants be segregated from the Companys general corporate funds and/or deposited with an independent third party. Until shares of Common Stock are issued, Participants will have only the rights of an unsecured creditor with respect to such shares.
18. Reports. Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to participating Eligible Employees at least annually, which statements will set forth the amounts of Contributions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
19. Adjustments, Dissolution, Liquidation, Merger, or Change of Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, the Administrator, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and the numerical limits of Sections 7 and 13.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Companys proposed dissolution or liquidation. The Administrator will notify each Participant in writing or electronically, prior to the New Exercise Date, that the Exercise Date for the Participants option has been changed to the New Exercise Date and that the Participants option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
(c) Merger or Change of Control. In the event of a merger or Change of Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date on which such Offering Period will end. The New Exercise Date will occur before the date of the Companys proposed merger or Change of Control. The Administrator will notify each Participant in writing or electronically prior to the New Exercise Date, that the Exercise Date for the Participants option has been changed to the New Exercise Date and that the Participants option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the Administrator in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 19). If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon, except as otherwise required under Applicable Laws, as further set forth in Section 12 hereof) as soon as administratively practicable.
(b) Without stockholder consent and without limiting Section 20(a), the Administrator will be entitled to change the Offering Periods or Purchase Periods, designate separate Offerings, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit Contributions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Companys processing of properly completed Contribution elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with Contribution amounts, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan.
B-8 | FLIR | 2019 PROXY STATEMENT |
(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i) amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
(ii) altering the Purchase Price for any Offering Period or Purchase Period including an Offering Period or Purchase Period underway at the time of the change in Purchase Price;
(iii) shortening any Offering Period or Purchase Period by setting a New Exercise Date, including an Offering Period or Purchase Period underway at the time of the Administrator action;
(iv) reducing the maximum percentage of Compensation a Participant may elect to set aside as Contributions; and
(v) reducing the maximum number of shares of Common Stock a Participant may purchase during any Offering Period or Purchase Period.
Such modifications or amendments will not require stockholder approval or the consent of any Participants.
21. Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the U.S. Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
23. Code Section 409A. The 423 Component of the Plan is exempt from the application of Code Section 409A and any ambiguities herein will be interpreted to so be exempt from Code Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Code Section 409A or that any provision in the Plan would cause an option under the Plan to be subject to Code Section 409A, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participants consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Code Section 409A, but only to the extent any such amendments or action by the Administrator would not violate Code Section 409A. Notwithstanding the foregoing, the Company will have no liability to a Participant or any other party if the option to purchase Common Stock under the Plan that is intended to be exempt from or compliant with Code Section 409A is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with Code Section 409A.
24. Term of Plan. The Plan will become effective upon its adoption by the Board. It will continue in effect until April 30, 2029, unless sooner terminated under Section 20.
25. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
26. Governing Law. The Plan will be governed by, and construed in accordance with, the laws of the State of Oregon (except its choice-of-law provisions).
27. No Right to Employment. Participation in the Plan by a Participant will not be construed as giving a Participant the right to be retained as an employee of the Company or a Subsidiary or Affiliate of the Company, as applicable. Further, the Company or a Subsidiary or Affiliate of the Company may dismiss a Participant from employment at any time, free from any liability or any claim under the Plan.
2019 PROXY STATEMENT | FLIR | B-9 |
28. Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
29. Compliance with Applicable Laws. The terms of this Plan are intended to comply with all Applicable Laws and will be construed accordingly.
B-10 | FLIR | 2019 PROXY STATEMENT |
FLIR Systems, Inc. 27700 SW Parkway Avenue Wilsonville, Oregon 97070