UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities
Exchange Act of 1934
Filed by the Registrant
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Filed by a party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to § 240.14a-12
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ev3 Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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3033 Campus Drive
Plymouth, Minnesota 55441
April 9, 2010
Dear Fellow Stockholders:
We are pleased to invite you to join us for the ev3 Inc. Annual Meeting of Stockholders to be held
on Tuesday, May 25, 2010, at 2:00 p.m., local time, at our new corporate offices located at 3033
Campus Drive, Plymouth, Minnesota 55441. Details about the meeting, nominees for election to the
Board of Directors and other matters to be acted on at the meeting are presented in the Notice of
Annual Meeting of Stockholders and proxy statement that follow.
It is important that your shares be represented at the meeting, regardless of the number of shares
you hold and whether you plan to attend the meeting in person. Accordingly, please exercise your
right to vote by following the instructions for voting on the Notice Regarding the Availability of
Proxy Materials you received for the meeting or, if you received a paper copy of the proxy
materials, by completing, signing, dating and returning your proxy card or by using Internet or
telephone voting as described in the proxy statement.
We are again pleased this year to take advantage of the Securities and Exchange Commission rules
that allow issuers to furnish proxy materials to their stockholders on the Internet. We believe
these rules allow us to provide our stockholders with the information they need, while lowering the
costs of delivery and reducing the environmental impact of our meeting.
On behalf of ev3s Board of Directors and management, it is our pleasure to express our
appreciation for your continued support.
Sincerely,
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/s/ Robert J. Palmisano
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/s/ Daniel J. Levangie
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Daniel J. Levangie
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President and Chief Executive Officer
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Chairman of the Board
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Your vote is important. Please exercise your right to vote as soon as possible by following the
instructions for voting on the Notice Regarding the Availability of Proxy Materials you received
for the meeting or, if you received a paper copy of the proxy materials, by completing, signing,
dating and returning your proxy card or by using Internet or telephone voting as described in the
proxy statement. By doing so, you may save us the expense of additional solicitation.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2010
To the Stockholders of ev3 Inc.:
The Annual Meeting of Stockholders of ev3 Inc., a Delaware corporation, will be held on
Tuesday, May 25, 2010, at 2:00 p.m., local time, at ev3s corporate offices at 3033 Campus Drive,
Plymouth, Minnesota 55441 for the following purposes:
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To elect three directors, each to serve for a term of three years.
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2.
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To consider a proposal to approve the ev3 Inc. Third Amended and Restated 2005
Incentive Plan.
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3.
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To consider a proposal to approve the ev3 Inc. Amended and Restated Employee
Stock Purchase Plan.
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4.
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To consider a proposal to ratify the selection of Ernst & Young LLP as our
independent registered public accounting firm for the year ending December 31, 2010.
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5.
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To transact such other business as may properly come before the meeting or any
adjournment of the meeting.
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Only stockholders of record at the close of business on March 29, 2010 will be entitled to
notice of, and to vote at, the meeting and any adjournments thereof. A stockholder list will be
available at ev3s corporate offices beginning May 14, 2010 during normal business hours for
examination by any stockholder registered on ev3s stock ledger as of the record date for any
purpose germane to the annual meeting.
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By Order of the Board of Directors,
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/s/ Kevin M. Klemz
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Kevin M. Klemz
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Senior Vice President, Secretary and
Chief Legal Officer
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April 9, 2010
Plymouth, Minnesota
TABLE OF CONTENTS
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3033 Campus Drive
Plymouth, Minnesota 55441
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2010
The board of directors of ev3 Inc. is soliciting your proxy for use at the 2010 Annual Meeting of
Stockholders to be held on Tuesday, May 25, 2010. The board of directors expects to make available
to our stockholders beginning on or about April 9, 2010 the Notice of Annual Meeting of
Stockholders, this proxy statement and a form of proxy on the Internet or has sent these materials
to stockholders.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
Our proxy statement and annual report to stockholders, which includes our annual report on Form
10-K, are available at
www.proxyvote.com/ev3
. Pursuant to rules adopted by the Securities and
Exchange Commission, or SEC, we have elected to provide access to our proxy materials over the
Internet. Accordingly, we are sending a Notice Regarding the Availability of Proxy Materials to
certain of our stockholders of record and beneficial owners (excluding those stockholders of record
and beneficial owners who previously have requested that they receive electronic or paper copies of
our proxy materials). All stockholders have the ability to access our proxy materials on the
website referred to in the Notice Regarding the Availability of Proxy Materials or request to
receive a printed set of our proxy materials. Instructions on how to access our proxy materials
over the Internet or to request a printed copy may be found in the Notice Regarding the
Availability of Proxy Materials. In addition, stockholders may request to receive proxy materials
in printed form by mail or electronically by e-mail on an ongoing basis. We believe that this
process should expedite your receipt of our proxy materials, lower the costs of our Annual Meeting
and reduce the environmental impact of our meeting.
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Date, Time, Place and Purposes of Meeting
The Annual Meeting of Stockholders of ev3 Inc. will be held on Tuesday, May 25, 2010, at 2:00 p.m.,
local time, at ev3s corporate offices located at 3033 Campus Drive, Plymouth, Minnesota 55441, for
the purposes set forth in the Notice of Annual Meeting of Stockholders.
Who Can Vote
Stockholders of record at the close of business on March 29, 2010 will be entitled to notice of and
to vote at the meeting or any adjournment of the Annual Meeting. As of that date, there were
112,945,011 shares of our common stock outstanding. Each share of our common stock is entitled to
one vote on each matter to be voted on at the Annual Meeting. Stockholders are not entitled to
cumulate voting rights.
How You Can Vote
Your vote is important. Whether you hold shares directly as a stockholder of record or
beneficially in street name (through a broker, bank or other nominee), you may vote your shares
without attending the Annual Meeting. You may vote by granting a proxy or, for shares held in
street name, by submitting voting instructions to your stockbroker or nominee.
If you are a stockholder whose shares are registered in your name, you may vote your shares in
person at the meeting or by one of the three following methods:
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Vote by Internet
, by going to the web
address
http://www.proxyvote.com
and
following the instructions for Internet voting shown on the Notice of Internet
Availability of Proxy Materials or on your proxy card.
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Vote by Telephone
, by dialing 1-800-690-6903 and following the
instructions for telephone voting.
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Vote by Proxy Card
, by completing, signing, dating and mailing the
enclosed proxy card in the envelope provided if you received a paper copy of these
proxy materials. If you vote by Internet or telephone, please do not mail your proxy
card.
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If your shares are held in street name, you may receive a separate voting instruction form or you
may need to contact your broker, bank or other nominee to determine whether you will be able to
vote electronically using the Internet or telephone.
The deadline for voting by telephone or by using the Internet is 11:59 p.m., Eastern Daylight
Savings Time, on Monday, May 24, 2010. Please see the Notice of Internet Availability of Proxy
Materials, your proxy card or the information your bank, broker, or other holder of record provided
to you for more information on your options for voting.
If you return your signed proxy card or use Internet or telephone voting before the Annual Meeting,
the named proxies will vote your shares as you direct. You have three choices on each matter to be
voted on.
For the election of directors, you may:
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Vote
FOR
any one or more of the three nominees for director,
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Vote
AGAINST
any one or more of the three nominees for director or
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ABSTAIN
from voting on any one or more of the three nominees for director.
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For each of the other proposals, you may:
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Vote
FOR
the proposal,
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Vote
AGAINST
the proposal or
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ABSTAIN
from voting on the proposal.
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If you send in your proxy card or use Internet or telephone voting, but do not specify how you want
to vote your shares, the proxies will vote your shares
FOR
all three of the nominees for director
and
FOR
all of the other proposals set forth in the Notice of Annual Meeting of Stockholders.
How Does the Board Recommend that You Vote
The board of directors unanimously recommends that you vote FOR the three nominees for director and
FOR the approval of all of the other proposals set forth in the Notice of Annual Meeting of
Stockholders.
How You May Revoke or Change Your Vote
If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any
time before it is voted by one of the following methods:
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Submitting another proper proxy with a more recent date than that of the
proxy first given by following the Internet or telephone voting instructions or
completing, signing, dating and returning a proxy card to us.
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Sending written notice of revocation to our Corporate Secretary.
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Attending the Annual Meeting and voting by ballot.
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Quorum Requirement
The presence at the Annual Meeting, in person or by proxy, of the holders of a majority (56,472,506
shares) of the outstanding shares of our common stock as of the record date will constitute a
quorum for the transaction of business at the Annual Meeting. Shares represented by proxies marked
For, Against or Abstain are counted in determining whether a quorum is present. In addition,
a broker non-vote is counted in determining whether a quorum is present. A broker non-vote is
a proxy returned by a broker on behalf of its beneficial owner customer that is not voted on a
particular matter because voting instructions have not been received by the broker from the
customer, and the broker does not have discretionary authority to vote on behalf of such customer
on such matter.
Vote Required
Assuming a quorum is represented at the Annual Meeting, either in person or by proxy, the election
of the three nominees for director will be decided by a majority vote, which under our bylaws means
the number of shares voted For a director must exceed the number of votes cast Against that
director. Pursuant to our corporate governance guidelines, each of the three nominees for director
has agreed to tender an irrevocable offer of resignation which will be automatically effective upon
such persons receiving, in an uncontested election, less than the requisite vote necessary for
such persons re-election pursuant to our bylaws. In the event that a nominee for re-election
fails to receive the requisite vote in an uncontested
3
election, the nominating, corporate governance and compliance committee of our board of directors
will consider the resignation offer and make a recommendation to our board of directors. The
independent members of our board of directors will then act on the nominating, corporate governance
and compliance committees recommendation within 90 days following certification of the stockholder
vote.
The approval of each of the other proposals described in this proxy statement requires the
affirmative vote of the holders of a majority of the shares of our common stock present in person
or by proxy and entitled to vote. In addition, under the Listing Rules of the NASDAQ Stock Market,
the approval of the ev3 Inc. Third Amended and Restated 2005 Incentive Plan (Proposal Two) and the
approval of the ev3 Inc. Amended and Restated Employee Stock Purchase Plan (Proposal Three) require
the affirmative vote of a majority of the total votes cast on the proposal.
If your shares are held in street name and you do not indicate how you wish to vote, your broker
is permitted to exercise its discretion to vote your shares on certain routine matters. The
election of directors (Proposal One), the approval of the ev3 Inc. Third Amended and Restated 2005
Incentive Plan (Proposal Two) and the approval of the ev3 Inc. Amended and Restated Employee Stock
Purchase Plan (Proposal Three) are not routine matters; whereas, the ratification of the
selection of our independent registered public accounting firm (Proposal Four) is a routine
matter. Accordingly, if you do not direct your broker how to vote for a director in Proposal One
or how to vote for Proposal Two or Proposal Three, your broker may not exercise discretion and may
not vote your shares. For purposes for Proposal One, Proposal Two and Proposal Three, broker
non-votes are considered to be shares represented by proxy at the meeting but are not considered to
be shares entitled to vote or votes cast at the meeting. As such, a broker non-vote will not be
counted as a vote For or Against with respect to a director in Proposal One or a vote For or
Against Proposal Two or Proposal Three and, therefore, will have no effect on the outcome of the
vote on any such proposal. Proxies marked Abstain will be counted in determining the total
number of shares entitled to vote and votes cast on each of the proposals and will have the
effect of a vote Against a director or a proposal.
4
STOCK OWNERSHIP
Significant Stockholders
The following table sets forth information as to individuals and entities that have reported to the
SEC or have advised us that they are a beneficial owner, as defined by the SECs rules and
regulations, of more than five percent of our outstanding common stock.
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Shares Beneficially Owned
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Name of Beneficial Owner
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Number
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Percentage
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Warburg, Pincus Equity Partners, L.P.
(1)
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27,151,570
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24.0
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FMR LLC
(2)
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16,838,219
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14.9
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Individuals and Entities Affiliated with John B. Simpson, Ph.D., M.D.
(3)
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8,428,581
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7.5
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D.E. Shaw Valence Portfolios, L.L.C.
(4)
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7,323,417
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6.5
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(1)
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According to a Schedule 13D/A filed with the SEC on August 4, 2009, each of Warburg, Pincus
Equity Partners, L.P., a Delaware limited partnership, Warburg Pincus Partners LLC, a New York
limited liability company, Warburg Pincus & Co., or WP, a New York general partnership, and
Warburg Pincus LLC, or WP LLC, a New York limited liability company (collectively referred to
as the Warburg Pincus Entities), shares with the other Warburg Pincus Entities the voting
and investment control of all of the shares of common stock such Warburg Pincus Entity may be
deemed to beneficially own. Charles R. Kaye and Joseph P. Landy are each managing general
partners of WP and co-presidents and managing members of WP LLC and may be deemed to control
each of the Warburg Pincus Entities. Each of these individuals disclaims beneficial ownership
of all shares of common stock of ev3 that the Warburg Pincus Entities may be deemed to
beneficially own. The address of the Warburg Pincus Entities is 450 Lexington Avenue, New
York, New York 10017.
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(2)
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According to a Schedule 13G/A filed with the SEC on February 16, 2010, FMR LLC had sole power
to vote 113,842 shares and FMR LLC and Edward C. Johnson, III had sole power to dispose of
16,838,219 shares. Fidelity Management & Research Company, a wholly owned subsidiary of FMR
LLC, is also deemed to beneficially own 16,724,377 shares in its capacity as an investment
adviser to various investment companies. The address of FMR LLC and Edward C. Johnson, III is
82 Devonshire Street, Boston, MA 02109.
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(3)
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According to the most recent Schedule 13D/A filed by Dr. Simpson with the SEC on November 28,
2007 and information known to ev3. Includes: (i) 541 shares directly held by Dr. Simpson,
(ii) 6,629,180 shares held by The Simpson Family Trust, of which John B. Simpson, Ph.D., M.D.
and his spouse Rita Lynn Simpson serve as co-trustees and share voting and investment control;
(iii) 800,263 shares held by the John David Simpson Trust II, a trust for the benefit of Dr.
and Ms. Simpsons son, of which Dr. and Mrs. Simpson serve as co-trustees and share voting and
investment control; (iv) 292,787 shares held by FoxHollow, a California limited partnership,
of which Dr. and Mrs. Simpson serve as co-general partners and share voting and investment
control; (v) 53,832 shares personally held by Ms. Simpson, individually, which shares she
shares voting and investment control with her spouse, Dr. Simpson; (vi) 325,989 shares held by
the John Bush Simpson Annuity Trust III, of which Dr. Simpson serves as sole trustee; and
(vii) 325,989 shares held by the Rita Lynn Simpson Annuity Trust III, of which Dr. Simpson
serves as sole trustee. Dr. and Mrs. Simpson disclaim beneficial ownership of the shares,
except to the extent of their individual respective pecuniary interest therein. The address
of Dr. and Mrs. Simpson and their affiliated entities is 309 Manuella Avenue, Woodside,
California 94062.
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(4)
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According to a Schedule 13G/A filed with the SEC on February 16, 2010, David E. Shaw and D.E.
Shaw & Co., L.P. each beneficially own 7,323,417 shares in the name of D. E. Shaw Valence
Portfolios, L.L.C., each with shared voting power. David E. Shaw does not own any shares
directly. By virtue of David E. Shaws position as president and sole shareholder of D. E.
Shaw & Co., Inc., which is the general partner of D. E. Shaw & Co., L.P., which in turn is the
investment adviser and the managing member of D. E. Shaw Valence Portfolios, L.L.C., David E.
Shaw may be deemed to have the shared power to vote or direct the vote of, and the shared
power to dispose or direct the disposition of, the 7,323,417 shares as described above and,
therefore, David E. Shaw may be deemed to be the beneficial owner of such shares. David E.
Shaw disclaims beneficial ownership of such 7,323,417 shares. The address of D.E. Shaw
Valence Portfolios, L.L.C. is 120 W. 45
th
Street, Tower 45, 39
th
Floor,
New York, New York 10036.
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5
Directors and Executive Officers
The following table sets forth information known to us regarding the beneficial ownership of our
common stock as of March 29, 2010 for:
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each of our current directors and nominees for directors;
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our current President and Chief Executive Officer, our current Senior Vice
President and Chief Financial Officer, our former Senior Vice President and Chief
Financial Officer and other current executive officers named in the Summary
Compensation Table under the heading Executive CompensationSummary of Cash and Other
Compensation (we collectively refer to these persons as our named executive
officers); and
|
|
|
|
|
all of our current directors and executive officers as a group.
|
The number of shares beneficially owned by a person includes shares subject to options held by that
person that are currently exercisable or that become exercisable within 60 days of March 29, 2010,
shares subject to stock grants which vest over time and/or upon the achievement of certain
milestones and are subject to forfeiture until vested and shares subject to restricted stock units
which vest over time and/or upon the achievement of certain milestones and become issuable within
60 days of March 29, 2010. Percentage calculations assume, for each person and group, that all
shares that may be acquired by such person or group pursuant to options currently exercisable or
that become exercisable or restricted stock units that vest within 60 days of March 29, 2010 are
outstanding for the purpose of computing the percentage of common stock owned by such person or
group. However, those unissued shares of common stock described above are not deemed to be
outstanding for calculating the percentage of common stock owned by any other person.
Except as otherwise indicated, the persons in the following table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable and subject to the information contained in the notes to
the table. Unless otherwise indicated, the address for each of the individuals in the table below
is c/o ev3 Inc., 3033 Campus Drive, Plymouth, Minnesota 55441.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
(1)(2)
|
Name
|
|
Number
|
|
Percentage
|
Directors:
|
|
|
|
|
|
|
|
|
John K. Bakewell
|
|
|
96,488
|
|
|
|
*
|
|
Jeffrey B. Child
|
|
|
130,524
|
|
|
|
*
|
|
Richard B. Emmitt
(3)
|
|
|
2,005,352
|
|
|
|
1.8
|
%
|
Douglas W. Kohrs
|
|
|
100,379
|
|
|
|
*
|
|
Daniel J. Levangie
|
|
|
146,488
|
|
|
|
*
|
|
John L. Miclot
|
|
|
32,359
|
|
|
|
*
|
|
Robert J. Palmisano
|
|
|
730,862
|
|
|
|
*
|
|
Thomas E. Timbie
|
|
|
166,488
|
|
|
|
*
|
|
Elizabeth H. Weatherman
(4)
|
|
|
27,233,298
|
|
|
|
24.1
|
%
|
Named Executive Officers:
|
|
|
|
|
|
|
|
|
Robert J. Palmisano
|
|
|
730,862
|
|
|
|
*
|
|
Shawn McCormick
|
|
|
98,204
|
|
|
|
*
|
|
Patrick D. Spangler
(5)
|
|
|
90,942
|
|
|
|
*
|
|
Pascal E.R. Girin
|
|
|
512,757
|
|
|
|
*
|
|
Stacy Enxing Seng
|
|
|
476,690
|
|
|
|
*
|
|
Brett A. Wall
|
|
|
154,407
|
|
|
|
*
|
|
All directors and executive officers as a group (18 persons)
(6)
|
|
|
32,514,114
|
|
|
|
28.2
|
%
|
|
|
|
*
|
|
Represents beneficial ownership of less than one percent of our common stock.
|
6
|
|
|
(1)
|
|
Includes for the persons listed below the following shares subject to options held by that
person that are currently exercisable or become exercisable within 60 days of March 29, 2010,
shares subject to restricted stock grants which vest over time and/or upon the achievement of
certain milestones and are subject to forfeiture until vested, and shares subject to
restricted stock units which vest over time and/or upon the achievement of certain milestones
and will become issuable within 60 days of March 29, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Stock Options
|
|
Restricted Stock
|
|
Restricted Stock Units
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
John K. Bakewell
|
|
|
80,617
|
|
|
|
4,148
|
|
|
|
|
|
Jeffrey B. Child
|
|
|
110,337
|
|
|
|
4,148
|
|
|
|
|
|
Richard B. Emmitt
|
|
|
65,857
|
|
|
|
4,148
|
|
|
|
|
|
Douglas W. Kohrs
|
|
|
84,621
|
|
|
|
7,897
|
|
|
|
|
|
Daniel J. Levangie
|
|
|
80,617
|
|
|
|
4,148
|
|
|
|
|
|
John L. Miclot
|
|
|
16,768
|
|
|
|
7,796
|
|
|
|
|
|
Robert J. Palmisano
|
|
|
626,353
|
|
|
|
79,743
|
|
|
|
|
|
Thomas E. Timbie
|
|
|
150,617
|
|
|
|
4,148
|
|
|
|
|
|
Elizabeth H. Weatherman
|
|
|
65,857
|
|
|
|
4,148
|
|
|
|
|
|
Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Palmisano
|
|
|
626,353
|
|
|
|
79,743
|
|
|
|
|
|
Shawn McCormick
|
|
|
46,667
|
|
|
|
45,303
|
|
|
|
|
|
Patrick D. Spangler
|
|
|
78,906
|
|
|
|
12,036
|
|
|
|
|
|
Pascal E.R. Girin
|
|
|
311,904
|
|
|
|
25,941
|
|
|
|
123,388
|
|
Stacy Enxing Seng
|
|
|
349,411
|
|
|
|
90,170
|
|
|
|
|
|
Brett A. Wall
|
|
|
113,498
|
|
|
|
34,429
|
|
|
|
|
|
All directors and
executive officers as a
group (18 persons)
|
|
|
2,472,665
|
|
|
|
501,291
|
|
|
|
123,388
|
|
|
|
|
(2)
|
|
Includes 3,196,750 shares held by Ms. Weatherman in a securities brokerage account, which in
certain circumstances under the terms of the standard brokerage account form may involve a
pledge of such shares as collateral.
|
|
(3)
|
|
Vertical Fund I., L.P. (VF-I) and Vertical Fund II, L.P. (VF-II), each of which is a
Delaware limited partnership, own shares of ev3s common stock. Mr. Emmitt is a member and
manager of The Vertical Group GP, LLC, a limited liability company, that, through other
entities, controls the investment decisions made on behalf of VF-I and VF-II (collectively,
the Funds), and Mr. Emmitt may therefore be deemed to be a beneficial owner of the shares
owned by the Funds. Mr. Emmitt disclaims beneficial ownership of the shares owned by the
Funds except to the extent of his indirect pecuniary interest therein. Mr. Emmitts address is
c/o The Vertical Group, 25 DeForest Avenue, Summit, New Jersey 07901.
|
|
(4)
|
|
Ms. Weatherman is a managing director and member of WP LLC and a general partner of WP.
27,151,570 shares indicated as owned by Ms. Weatherman are included because of her affiliation
with the Warburg Pincus Entities. Ms. Weatherman disclaims beneficial ownership of all shares
owned by the Warburg Pincus Entities. Ms. Weathermans address is c/o Warburg Pincus LLC, 450
Lexington Avenue, New York, New York 10017. See note (1) to the significant stockholders
ownership table above.
|
|
(5)
|
|
Mr. Spangler resigned as Senior Vice President and Chief Financial Officer effective January
19, 2009.
|
|
(6)
|
|
Includes shares beneficially owned by our current directors and executive officers.
|
7
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and
executive officers and all persons who beneficially own more than 10 percent of the outstanding
shares of our common stock to file with the SEC initial reports of ownership and reports of changes
in ownership of our common stock. Directors, executive officers and greater than 10 percent
beneficial owners are also required to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based on review of the copies of such reports and amendments to such reports
furnished to us with respect to the year ended December 31, 2009, and based on written
representations by our directors and executive officers, all required Section 16 reports under the
Securities Exchange Act of 1934, as amended, for our directors, executive officers and beneficial
owners of greater than 10 percent of our common stock were filed on a timely basis during the year
ended December 31, 2009.
8
PROPOSAL ONE ELECTION OF DIRECTORS
Board Structure; Number of Directors
As provided in our certificate of incorporation, our board of directors is divided into three
staggered classes of directors of the same or nearly the same number. At each annual meeting of
stockholders, a class of directors is elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The term of the directors will expire upon election and
qualification of successor directors at the 2012 annual meeting of stockholders for the Class I
directors, at the 2010 annual meeting of stockholders for the Class II directors and at the 2011
annual meeting of stockholders for the Class III directors.
Our current directors and their respective classes and terms are as follows:
|
|
|
|
|
|
|
Class III Directors
|
|
|
Class II Directors Term Ending
|
|
Term Ending at 2011
|
|
Class I Directors Term Ending
|
at 2010 Annual Meeting
|
|
Annual Meeting
|
|
at 2012 Annual Meeting
|
John K. Bakewell
|
|
Daniel J. Levangie
|
|
Jeffrey B. Child
|
Richard B. Emmitt
|
|
Robert J. Palmisano
|
|
John L. Miclot
|
Douglas W. Kohrs
|
|
Elizabeth H. Weatherman
|
|
Thomas E. Timbie
|
On February 10, 2010, our board of directors nominated the following three individuals to
serve as Class II directors with three-year terms expiring at our 2013 annual meeting of
stockholders: John K. Bakewell, Richard B. Emmitt and Douglas W. Kohrs.
Our certificate of incorporation and bylaws provide that the number of directors that constitute
our board of directors will be fixed from time to time by a resolution of the majority of our board
of directors and will consist of at least five members. Our board of directors has fixed the
number of directors at nine.
Under our certificate of incorporation, our board of directors has the power to fill vacancies on
our board resulting from death, resignation, removal, disqualification or other cause, and newly
created directorships resulting from any increase in the authorized number of directors. Any
director so elected by our board will hold office for the remainder of the full term of the class
of directors in which the vacancy occurred or to which the new directorship is apportioned, and
until such directors successor is elected and qualified. Any additional directorships resulting
from any increase in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of one-third of the directors.
Board Designation Rights
We and certain of our stockholders, including Warburg, Pincus Equity Partners, L.P. and certain of
its affiliates (collectively, Warburg Pincus), Vertical Fund I, L.P. and Vertical Fund II, L.P.
(collectively, the Vertical Funds), and members of our management, are parties to a holders
agreement, which includes terms relating to the composition of our board of directors. The holders
agreement requires us to nominate and use our best efforts to have elected to our board of
directors:
|
|
|
two persons designated by Warburg Pincus and the Vertical Funds if Warburg
Pincus and the Vertical Funds collectively beneficially own 20 percent or more of our
common stock; or
|
|
|
|
|
one person designated by Warburg Pincus and the Vertical Funds if Warburg
Pincus and the Vertical Funds collectively beneficially own at least 10 percent but
less than 20 percent of our common stock.
|
9
Mr. Emmitt and Ms. Weatherman are the current designees under the holders agreement. In the event
any director designated by Warburg Pincus and the Vertical Funds is unable to serve or is removed
or withdraws from our board of directors, Warburg Pincus and the Vertical Funds will have the right
to designate a substitute for such director. We and certain of our stockholders, including certain
members of our management party to the holders agreement, have agreed to take all action within our
or their respective power, including the voting of shares of common stock owned by us or them as is
necessary to cause the election of the substitute director designated by Warburg Pincus and the
Vertical Funds or to, upon the written request of Warburg Pincus and the Vertical Funds, remove
with or without cause a director previously designated by such institutional investors.
Nominees for Director
The three nominees for election at the 2010 Annual Meeting are John K. Bakewell, Richard B. Emmitt
and Douglas W. Kohrs. All of these nominees are current members of our board of directors and have
consented to serve if elected. Proxies can only be voted for the number of persons named as
nominees in this proxy statement, which is three.
Board Recommendation
The board of directors unanimously recommends a vote
FOR
the election of the three nominees named
above.
If prior to the Annual Meeting, the board of directors should learn that any nominee will be unable
to serve for any reason, the proxies that otherwise would have been voted for this nominee will be
voted for a substitute nominee as selected by the board of directors. Alternatively, the proxies,
at the discretion of the board of directors, may be voted for that fewer number of nominees as
results from the inability of any nominee to serve. The board of directors has no reason to
believe that any of the nominees will be unable to serve.
Information About Board Nominees and Other Directors
The following table sets forth certain information that has been furnished to us by each director
and each person who has been nominated by our board of directors to serve as a director of our
company.
|
|
|
|
|
|
|
|
|
|
|
Name of Nominee/Director
|
|
Age
|
|
Principal
Occupation
|
|
Director
Since
|
Nominees for election as Class II directors for three-year terms expiring 2013
|
|
|
|
|
John K. Bakewell
(1)
|
|
|
48
|
|
|
Executive Vice President and Chief Financial Officer of RegionalCare
Hospital Partners, Inc.
|
|
|
2006
|
|
Richard B. Emmitt
(2)
|
|
|
65
|
|
|
General Partner of The Vertical Group, L.P.
|
|
|
2005
|
|
Douglas W. Kohrs
(3)
|
|
|
52
|
|
|
President and Chief Executive Officer of Tornier B.V.
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Class III directors not standing for election this year whose terms expire in 2011
|
|
|
|
|
Daniel J. Levangie
(1)
|
|
|
59
|
|
|
Chairman of the Board of ev3 Inc. and President and Chief Executive
Officer of Keystone Dental, Inc.
|
|
|
2007
|
|
Robert J. Palmisano
|
|
|
65
|
|
|
President and Chief Executive Officer of ev3 Inc.
|
|
|
2008
|
|
Elizabeth H. Weatherman
(1)(3)
|
|
|
50
|
|
|
Managing Director of Warburg Pincus LLC
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Class I directors not standing for election this year whose terms expire in 2012
|
|
|
|
|
Jeffrey B. Child
(1) (2)
|
|
|
50
|
|
|
Chief Financial Officer of a Family Office of an Unaffiliated Third Party
|
|
|
2007
|
|
John L. Miclot
(3)
|
|
|
51
|
|
|
President and Chief Executive Officer of CCS Medical, Inc.
|
|
|
2008
|
|
Thomas E. Timbie
(2)
|
|
|
52
|
|
|
President of Timbie & Company, LLC
|
|
|
2005
|
|
|
|
|
(1)
|
|
Member of nominating, corporate governance and compliance committee
|
10
|
|
|
(2)
|
|
Member of audit committee
|
|
(3)
|
|
Member of compensation committee
|
Additional Information About Board Nominees and Other Directors
The following paragraphs provide information about each nominee and each director not standing for
election, including all positions he or she holds, his or her principal occupation and business
experience for the past five years, and the names of other publicly-held companies of which he or
she currently serves as a director or has served as a director during the past five years. We
believe that all of our director nominees and directors display personal and professional
integrity; satisfactory levels of education and/or business experience; broad-based business
acumen; an appropriate level of understanding of our business and its industry and other industries
relevant to our business; the ability and willingness to devote adequate time to the work of our
board and its committees; a fit of skills and personality with those of our other directors that
helps build a board that is effective, collegial and responsive to the needs of our company;
strategic thinking and a willingness to share ideas; a diversity of experiences, expertise and
background; and the ability to represent the interests of all of our stockholders. The information
presented below regarding each nominee or director also sets forth specific experience,
qualifications, attributes and skills that led our board to the conclusion that he or she should
serve as a director in light of our business and structure.
Nominees
for Election as Class II Directors for Three-Year Terms Expiring
in 2013
John K.
Bakewell
has served as one of our directors since April 2006. Mr. Bakewell currently
serves as Executive Vice President and Chief Financial Officer of RegionalCare Hospital Partners,
Inc., a privately-held acquirer and operator of acute care hospitals in non-urban markets, a
position he has held since January 2010. From December 2000 to December 2009, Mr. Bakewell served
as Executive Vice President and Chief Financial Officer of Wright Medical Group, Inc., a
publicly-held orthopaedic medical device company. From July 1998 until December 2000, Mr. Bakewell
served as Chief Financial Officer and Vice President of Finance and Administration with Altra
Energy Technologies, Inc., a privately-held software and e-commerce solutions provider to the
energy industry. From May 1993 to July 1998, Mr. Bakewell held the position of Vice President of
Finance and Administration and Chief Financial Officer of Cyberonics, Inc., a publicly-held
manufacturer of medical devices for the treatment of epilepsy and other neurological disorders.
From October 1990 to May 1993, Mr. Bakewell served as Chief Financial Officer of ZEOS International
Ltd., a publicly-held manufacturer and direct marketer of personal computers and related products.
In addition to ev3, Mr. Bakewell currently serves on the board of directors of Keystone Dental,
Inc., a privately-held dental implant medical device company. We believe Mr. Bakewells
qualifications to sit on our board of directors include his significant financial experience,
including his service as a chief financial officer of two publicly-held medical device companies.
Richard
B. Emmitt
has served as one of our directors since June 2005. Mr. Emmitt was a member of
the board of managers of ev3 LLC from August 2003 through the date of the merger of ev3 LLC with
and into ev3 in June 2005. Since 1989, Mr. Emmitt has been a General Partner, or a principal of a
General Partner, of The Vertical Group, L.P., a privately-held investment management and venture
capital firm focused on the medical device and biotechnology industries. Mr. Emmitt currently
serves on the board of directors of American Medical Systems Holdings, Inc., a publicly-held
company, and previously served on the board of directors of public companies including SciMed Life
Systems, Wright Medical Group, Inc., and Xomed Surgical. Mr. Emmitt also serves on the board of
directors of BioSET, Inc., ENTrigue Surgical, Inc., Galil Medical, Inc., Incumed, Inc., Tepha, Inc.
and Tornier B.V. (Dutch), all privately-held companies. We believe Mr. Emmitts qualifications to
sit on our board of directors include his experience
11
with a venture capital firm focused on the medical device industry and his current and prior
service on multiple other medical device company boards of directors.
Douglas W. Kohrs
has served as one of our directors since August 2008. Mr. Kohrs currently serves
as President and Chief Executive Officer of Tornier B.V., a privately-held global orthopedic
company, a position he has held since July 2006. Mr. Kohrs served as Chief Executive Officer of
American Medical Systems Holdings, Inc., a publicly-held company, from April 1999 until January
2005. He served on the board of directors of American Medical Systems Holdings from 1999 to May
2006, and served as chairman of the board from March 2004 to May 2006. In addition to ev3, Mr.
Kohrs currently serves on the board of directors of Tornier B.V., a privately-held company, and The
Institute for Health Technology Studies (InHealth), a not-for-profit medical device research
organization. During the past five years, Mr. Kohrs previously served on the board of directors of
Kyphon Inc., which was then a publicly-held company. Mr. Kohrs previously served as one of our
directors from June 2005 until October 2007 at which time Mr. Kohrs voluntarily resigned in order
to facilitate the completion of our merger with FoxHollow Technologies, Inc. We believe Mr. Kohrss
qualifications to sit on our board of directors include his prior service as the chief executive
officer of a publicly-held medical device company and his current service as the chief executive
officer of a global orthopedic company, his current and prior service on several other medical
device company boards of directors.
Class III Directors Not Standing for Election this Year Whose Terms Expire in 2011
Daniel J. Levangie
has served as our Chairman of the Board since April 2008 and as one of our
directors since February 2007. Mr. Levangie currently serves as a member of the board of directors
and the President and Chief Executive Officer of Keystone Dental, Inc., a privately-held dental
implant medical device company, and serves as a Managing Partner of Constitution Medical Investors,
Inc., a Boston-based private investment firm focused on healthcare sector-related acquisitions.
From July 2006 to October 2007, Mr. Levangie served as the President, Surgical Products Division,
and as an Executive Vice President and director of Cytyc Corporation, a publicly-held leading
provider of surgical and diagnostic products targeting womens health and cancer, since July 2006.
Prior to July 2006, Mr. Levangie held several positions with Cytyc, including Executive Vice
President and Chief Operating Officer from July 2000 to June 2002, Chief Executive Officer and
President of Cytyc Health Corporation from July 2002 to December 2003 and Executive Vice President
and Chief Commercial Officer from January 2004 to June 2006. In addition to ev3, Mr. Levangie
currently serves on the board of directors of Dune Medical Devices Ltd., a privately-held medical
device company. During the past five years, Mr. Levangie previously served on the board of
directors of Cytyc Corporation and Hologic Inc., a publicly-held company. We believe Mr. Levangies
qualifications to sit on our board of directors include his prior service as an executive officer
and director of a publicly-held medical device company, his current service as the chief executive
officer of a medical device company, and his service on several other medical device company boards
of directors.
Robert J. Palmisano
has served as our President and Chief Executive Officer and as one of our
directors since April 2008. Mr. Palmisano served as President and Chief Executive Officer of
IntraLase Corp., a publicly-held company engaged in the design, development and manufacture of
laser products for vision correction, from April 2003 to April 2007, when IntraLase was acquired by
Advanced Medical Optics, Inc. From April 2001 to April 2003, Mr. Palmisano was the President,
Chief Executive Officer and a director of MacroChem Corporation, a privately-held development stage
pharmaceutical corporation. From April 1997 to January 2001, Mr. Palmisano served as President and
Chief Executive Officer and a director of Summit Autonomous, Inc., a publicly-held global medical
products company that was acquired by Alcon, Inc. in October 2000. Prior to 1997, Mr. Palmisano
held various executive positions with Bausch & Lomb Incorporated, a then publicly-held global eye
care company. Mr. Palmisano earned his B.A. in Political Science from Providence College. Mr.
Palmisano serves on the board of directors of
12
Osteotech, Inc., a publicly-held company, Bausch & Lomb Incorporated and LenSx Lasers Inc., both
privately-held companies and is a member of the Board of Trustees for Providence College in
Providence, Rhode Island. During the past five years, Mr. Palmisano previously served on the board
of directors of Abbott Medical Optics Inc., a publicly-held company. We believe Mr. Palmisanos
qualifications to sit on our board of directors include his depth of knowledge of our company and
its day-to-day operations and the medical device industry due to his service as our chief executive
officer, his current and prior service as a director of multiple medical device companies, and his
prior service as an executive officer of multiple medical device companies.
Elizabeth H. Weatherman
has served as one of our directors since June 2005. Ms. Weatherman was a
member of the board of managers of ev3 LLC from August 2003 through the date of the merger of ev3
LLC with and into ev3 in June 2005. Ms. Weatherman is a General Partner of privately-held Warburg
Pincus & Co., a Managing Director of Warburg Pincus LLC and a member of the firms Executive
Management Group. Ms. Weatherman joined Warburg Pincus in 1988 and is currently responsible for
the firms U.S. healthcare investment activities. In addition to ev3, Ms. Weatherman currently
serves on the board of directors of Adlens Beacon, Inc., Bausch & Lomb, Inc., Keystone Dental, Inc.
and Tornier B.V. (Dutch), all privately-held companies. During the past five years, Ms. Weatherman
previously served on the board of directors of American Medical Systems Holdings, Inc., Kyphon
Inc., Wright Medical Group, Inc., all publicly-held companies, as well as Bacchus Vascular, Inc.,
Solarent Medical, Inc. and Velocimed LLC, all privately-held companies. We believe Ms. Weathermans
qualifications to sit on our board of directors include her experience leading the healthcare
investment activities at a private equity firm and her service on multiple other medical device
company boards of directors.
Class I Directors Not Standing for Election this Year Whose Terms Expire in 2012
Jeffrey B. Child
has served as one of our directors since October 2007 when he was elected to our
board of directors in connection with our merger with FoxHollow Technologies, Inc. Mr. Child has
served as Chief Financial Officer of a family office of a privately-held unaffiliated third party
since July 2004. From February 1999 through June 2003, Mr. Child served as a Managing Director,
U.S. Equity Capital Markets at Banc of America Securities LLC, a subsidiary of publicly-held Bank
of America Corporation. Prior to that time, he served as a Managing Director in the Healthcare
Group at Banc of America Securities. Mr. Child currently serves on the board of directors of
AMERIGROUP Corporation, a publicly-held multi-state managed healthcare company. Mr. Child also
serves as a Trustee of the Menlo Park City School District Board of Education. During the past
five years, Mr. Child previously served on the board of directors of FoxHollow Technologies, Inc.,
a then publicly-held company. We believe Mr. Childs qualifications to sit on our board of
directors include his years of financial experience, including his experience in healthcare
investment activities at an investment bank, and his prior experience on the board of directors of
a publicly-traded medical device company.
John L. Miclot
has served as one of our directors since December 2008. Mr. Miclot currently serves
as President and Chief Executive Officer of CCS Medical, Inc., a privately-held provider of home
healthcare products, such as insulin pumps, incontinence products and respiratory equipment, a
position he has held since November 2008. On July 8, 2009, CCS Medical, Inc. and its 18 related
companies filed voluntary petitions in the United States Bankruptcy Court for the District of
Delaware seeking reorganization relief under the provisions of Chapter 11 of Title 11 of the United
States Bankruptcy Code. Prior to joining CCS Medical, Inc., Mr. Miclot served as Chief Executive
Officer of Phillips Home Healthcare Solutions, a privately-held company, since March 2008, when
Phillips acquired Respironics, Inc., a provider of sleep and respiratory products. From December
2003 to March 2008, Mr. Miclot served as President and Chief Executive Officer of Respironics,
Inc., a publicly-held company. Prior to that position, Mr. Miclot served in various positions at
Respironics, Inc. from 1998 to 2003, including Chief Strategic Officer and President of the
Homecare Division. His previous employer, Healthdyne Technologies, Inc., a medical
13
device company, was acquired by Respironics, Inc. in 1998. Mr. Miclot served in various positions
at Healthdyne Technologies, Inc., including Senior Vice President, Sales and Marketing, from 1995
to 1998. He began his career at DeRoyal Industries, Inc., a privately-held company, and Baxter
International Inc., a publicly-held company. In addition to ev3, Mr. Miclot currently serves on
the board of directors of Pittsburgh Zoo & PPG Aquarium, Burger King Cancer Caring Center and the
American Association for Homecare, all private companies, and Wright Medical Group, Inc., a public
company. During the past five years, Mr. Miclot previously served on the board of directors of
Medwave, Inc., a publicly-held company. We believe Mr. Miclots qualifications to sit on our board
of directors his significant experience in the medical device industry, including his current and
prior service as a chief executive officer of multiple medical device companies, and his service on
several other medical device company boards of directors.
Thomas E. Timbie
has served as one of our directors since June 2005. Mr. Timbie served as a Vice
President of ev3 from April 2005 until June 2005 and as ev3s Interim Chief Financial Officer from
January 2005 until April 2005. Mr. Timbie was a member of the board of managers of ev3 LLC from
March 2004. Since 2000, Mr. Timbie has been the President of Timbie & Company, LLC, a
privately-held financial and management consulting firm that he founded. During 2000, Mr. Timbie
was the Interim Vice President and Chief Financial Officer of e-dr. Network, Inc., a privately-held
company, and from 1996 to 1999 he was the Vice President and Chief Financial Officer of Xomed
Surgical Products, Inc., a then publicly-held company. In addition to ev3, Mr. Timbie currently
serves on the board of directors of American Medical Systems Holdings, Inc., a publicly-held
company, and Genoa Healthcare Group, LLC, a privately-held healthcare services company. During the
past five years, Mr. Timbie previously served on the board of directors of Wright Medical Group
Inc. and Acclarent, Inc., both publicly-held companies. We believe Mr. Timbies qualifications to
sit on our board of directors include his years of financial experience in the medical device
industry, including his prior experience as the chief financial officer of publicly-held companies,
and his current and prior experience on the board of directors of other publicly-traded medical
device companies.
14
CORPORATE GOVERNANCE
Corporate Governance Guidelines
Our board of directors has adopted corporate governance guidelines. A copy of these corporate
governance guidelines can be found on the InvestorsCorporate Governance section of our corporate
website at
www.ev3.net
. Among the topics addressed in our corporate governance guidelines are:
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Board size, composition and qualifications
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Majority voting for directors and
resignation policy
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Board leadership and lead independent
director duties
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Board and committee meetings
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Executive sessions of independent
directors
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Appropriate information and access
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Conflicts of interest
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Change of principal occupation and board
memberships
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Board compensation
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Loans to directors and executive officers
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Board and committee evaluations
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Succession planning
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Selection of director nominees
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Director attendance at annual
meetings of stockholders
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Meeting attendance by directors and non-directors
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Limitations on other directorships
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Board committees
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Ability to retain advisors
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Retirement and term limits
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Stock ownership by directors and executive officers
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Board interaction with corporate constituencies
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CEO evaluation
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Director continuing education
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Communication with directors
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Director Independence
The board of directors has affirmatively determined that eight of our nine current directors
John K. Bakewell, Jeffrey B. Child, Richard B. Emmitt, Douglas W. Kohrs, Daniel J. Levangie, John
L. Miclot, Thomas E. Timbie and Elizabeth H. Weatherman are independent directors under the
Listing Rules of the NASDAQ Stock Market. The Listing Rules of the NASDAQ Stock Market provide a
non-exclusive list of persons who are not considered independent. For example, under these rules,
a director who is, or during the past three years was, employed by the company or by any parent or
subsidiary of the company, other than prior employment as an interim chairman or chief executive
officer, would not be considered independent. No director qualifies as independent unless the
board of directors affirmatively determines that the director does not have a material relationship
with the listed company that would interfere with the exercise of independent judgment. In making
an affirmative determination that a director is an independent director, the board of directors
reviewed and discussed information provided by these individuals and by us with regard to each of
their business and personal activities as they may relate to us and our management.
Board Leadership Structure
Under our corporate governance guidelines, the office of Chairman of the Board and Chief Executive
Officer may or may not be held by one person. The board of directors believes it is best not to
have a fixed policy on this issue and that it should be free to make this determination based on
what it believes is best under the circumstances. However, the board of directors does strongly
endorse the concept of an independent director being in a position of leadership. Under our
corporate governance guidelines, if at
15
any time the Chief Executive Officer and Chairman of the Board positions are held by the same
person, our board of directors will elect an independent director as a lead independent director.
The lead independent director will have the following duties and responsibilities in addition to
such other duties and responsibilities as may be determined by the board of directors from time to
time:
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chairing the executive sessions of the boards independent directors and
calling meetings of the independent directors;
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determining the agenda for the executive sessions of the independent
directors, and participating with the Chairman of the Board in establishing the agenda
for board meetings;.
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coordinating feedback among the independent directors and our chief
executive officer;
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overseeing the development of appropriate responses to communications from
stockholders and other interested persons addressed to the independent directors as a
group; and
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retaining, on behalf of the independent directors, legal counsel or other
advisors as they deem appropriate in the conduct of their duties and responsibilities.
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Robert J. Palmisano currently serves as our President and Chief Executive Officer and Daniel J.
Levangie serves as our non-executive Chairman of the Board. Because the Chief Executive Officer
and Chairman of the Board positions currently are not held by the same person, we do not have a
lead independent director. We currently believe this leadership structure is in the best interests
of our company and our stockholders and strikes the appropriate balance between the Chief Executive
Officers responsibility for the strategic direction, day-to day-leadership and performance of our
company and the Chairmans responsibility to provide oversight of our companys corporate
governance and guidance to our chief executive officer and to set the agenda for and preside over
board meetings.
At each regular board meeting, our independent directors meet in executive session with no company
management present during a portion of the meeting. After each such executive session, our Chairman
of the Board provides our Chief Executive Officer with actionable feedback from our independent
directors.
Board Meetings and Attendance
Our board of directors held seven meetings during 2009. All of our directors attended 75 percent
or more of the aggregate meetings of the board of directors (held during the period for which they
had been a director) and all committees on which they served during 2009 (during the period that
they served).
Board Committees
Our board of directors has three standing committees: audit committee, compensation committee and
nominating, corporate governance and compliance committee. Each of these committees has the
composition and responsibilities described below. Our board of directors may from time to time
establish other committees to facilitate the management of our company and may change the
composition and the responsibilities of our existing committees. Each committee has a charter
which can be found on the Investors Corporate Governance section of our corporate website at
www.ev3.net
.
The following table summarizes the current membership of each of our three board committees. Each
of the members of the audit committee, compensation committee and nominating, corporate governance
and compliance committee is an independent director under the Listing Rules of the NASDAQ Stock
Market.
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Nominating,
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Corporate Governance
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Director
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Audit
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Compensation
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and Compliance
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John K. Bakewell
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Jeffrey B. Child
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Chair
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Richard B. Emmitt
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Douglas W. Kohrs
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Daniel J. Levangie
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John L. Miclot
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Chair
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Robert J. Palmisano
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Thomas E. Timbie
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Chair
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Elizabeth H. Weatherman
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Audit Committee
Responsibilities
. Our audit committee oversees a broad range of issues surrounding our accounting
and financial reporting processes and audits of our financial statements. More specifically, our
audit committees duties and responsibilities include, among others:
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assist our board of directors in monitoring the integrity of our financial
statements, our compliance with legal and regulatory requirements as they relate to our
financial statements and financial reporting obligations, our independent registered
public accounting firms qualifications and independence, and the performance of our
internal audit function and independent registered public accounting firm;
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assume direct responsibility for the appointment, compensation, retention
and oversight of the work of any independent registered public accounting firm engaged
for the purpose of performing any audit, review or attest services and for dealing
directly with any such independent registered public accounting firm;
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provide a medium for consideration of matters relating to any audit
issues; and
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prepare the audit committee report that the SEC rules require be included
in our annual proxy statement or annual report on Form 10-K.
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The audit committee reviews and evaluates, at least annually, the performance of the audit
committee and its members, including compliance of the audit committee with its charter.
Composition
. The current members of our audit committee are Messrs. Child, Emmitt and Timbie. Mr.
Timbie is the chair of our audit committee.
Each current member of our audit committee qualifies as independent for purposes of membership on
audit committees pursuant to the Listing Rules of the NASDAQ Stock Market and the rules and
regulations of the SEC and is financially literate as required by the Listing Rules of the NASDAQ
Stock Market. In addition, our board of directors has determined that Mr. Timbie qualifies as an
audit committee financial expert as defined by the rules and regulations of the SEC and meets the
qualifications of financial sophistication under the Listing Rules of the NASDAQ Stock Market as
a result of his previous experience as a chief financial officer of two public companies. These
designations related to our audit committee members experience and understanding with respect to
certain accounting and auditing matters are disclosure requirements of the SEC and the NASDAQ Stock
Market and do not impose upon any of them any duties, obligations or liabilities that are greater
than those generally imposed on a member of our audit committee or of our board of directors.
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Meetings and Other Information
. The audit committee met nine times during 2009. At four of these
meetings, the audit committee met in private session with our independent registered public
accounting firm. Additional information regarding our audit committee and our independent
registered public accounting firm is disclosed under the Audit Committee Report and Proposal
FourRatification of Selection of Independent Registered Public Accounting Firm sections of this
proxy statement.
Audit Committee Report
This report is furnished by the audit committee of our board of directors with respect to our
consolidated financial statements for the year ended December 31, 2009.
One of the purposes of our audit committee is to oversee our accounting and financial reporting
processes and the audit of our annual financial statements. Our management is responsible for the
preparation and presentation of complete and accurate financial statements. Our independent
registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent
audit of our financial statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and for issuing a report on their audit.
In performing its oversight role, our audit committee has reviewed and discussed our audited
financial statements for the fiscal year ended December 31, 2009 with our management. Management
represented to the audit committee that our financial statements were prepared in accordance with
generally accepted accounting principles. Our audit committee has discussed with Ernst & Young
LLP, our independent registered public accounting firm, the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended,
Communication With Audit Committees
, as adopted
by the Public Company Accounting Oversight Board in Rule 3200T and in effect for our fiscal year
ended December 31, 2009. Our audit committee has received the written disclosures and the letter
from Ernst & Young LLP required by the Public Company Accounting Oversight Board independence and
ethics rule, Rule 3526 (Communication with Audit Committees Concerning Independence), as in effect
for our fiscal year ended December 31, 2009. The audit committee has discussed with Ernst & Young
LLP its independence and concluded that the independent registered public accounting firm is
independent from our company and our management.
Based on the review and discussions of the audit committee described above, in reliance on the
unqualified opinion of Ernst & Young LLP regarding our audited financial statements, and subject to
the limitations on the role and responsibilities of the audit committee described above and in the
audit committees charter, the audit committee recommended to our board of directors that our
audited financial statements for the fiscal year ended December 31, 2009 be included in our annual
report on Form 10-K for the year ended December 31, 2009 for filing with the Securities and
Exchange Commission.
This report is dated as of February 23, 2010.
Audit Committee
Thomas E. Timbie, Chair
Jeffrey B. Child
Richard B. Emmitt
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Compensation Committee
Responsibilities
. Our compensation committee discharges our boards responsibilities relating to
compensation of our directors, officers and certain other executives and our overall compensation
and benefits structure. More specifically, our compensation committees duties and
responsibilities include, among others:
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review and approve goals and objectives relevant to our chief executive
officer and executive officer compensation and evaluate our chief executive officer and
other executive officers performance in light of those goals and objectives;
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review and approve any and all compensation for our chief executive
officer and other executive officers;
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review and make recommendations to our board concerning the adoption of
and any amendment to our compensation plans for all directors and executive officers,
including incentive compensation plans and equity-based plans, and perform the
administrative functions of such plans;
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review and discuss with management the Compensation Discussion and
Analysis section of our annual meeting proxy statement and based on such review and
discussions make a recommendation to our board as to whether the Compensation
Discussion and Analysis section should be included in our annual report on Form 10-K
and annual meeting proxy statement in accordance with applicable rules and regulations
of the SEC and any other applicable regulatory bodies;
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review and make recommendations to our board concerning compensation for
non-employee members of our board, including retainers, meeting fees, committee fees,
committee chair fees, equity compensation, benefits and perquisites; and
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review and discuss with our chief executive officer and report
periodically to the board of directors plans for executive officer development and
corporate succession plan for our chief executive officer and other key executive
officers and employees.
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The compensation committee reviews and evaluates, at least annually, the performance of the
compensation committee and its members, including compliance of the compensation committee with its
charter.
Composition
. The current members of our compensation committee are Mr. Kohrs, Mr. Miclot and Ms.
Weatherman. Mr. Miclot is the chair of our compensation committee. Each of the three current
members of our compensation committee is an independent director under the Listing Rules of the
NASDAQ Stock Market and an outside director within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended. Each of Mr. Kohrs and Mr. Miclot is a non-employee director
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
Processes and Procedures for Consideration and Determination of Executive Compensation
. As
described in more detail above under the heading Responsibilities, our board has delegated to
our compensation committee the responsibility, among other things, to approve any and all
compensation payable to our executive officers, including annual salaries, incentive compensation,
long-term incentive compensation and any special or supplemental benefits or perquisites, and to
administer our equity and incentive compensation plans applicable to our executive officers. Our
board has retained, however, the
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authority to approve the adoption of and any amendment to our compensation plans for all directors
and executive officers, including incentive compensation plans and equity-based plans.
Under the terms of its written charter, the compensation committee has the power and authority, to
the extent permitted by our bylaws and applicable law, to delegate all or a portion of its duties
and responsibilities to a subcommittee of the compensation committee; provided, that any actions
taken pursuant to any such delegation are reported to the compensation committee at its next
meeting. The compensation committee has delegated its power and authority to review and approve
the grant of stock options, restricted stock and other discretionary awards under our equity-based
plans to a subcommittee of the compensation committee consisting solely of our non-employee
directors, who are currently Mr. Kohrs and Mr. Miclot. The compensation committee did not
delegate any other duties and responsibilities to the chair, a subcommittee or any other members of
the compensation committee during 2009.
In terms of the process of determining executive compensation, our compensation committee typically
reviews the base salaries for all of our executive officers, including our named executive
officers, at its annual December meeting. Final decisions concerning any salary changes are made
at the compensation committee meeting in either December or January. Historically, at the December
meeting, our compensation committee also establishes goals for the following year for our cash
incentive plan, generally based on and consistent with the annual operating plan typically adopted
by the board at that meeting. At its meeting in January of each year, our compensation committee
typically determines the individual payout amounts under our cash incentive plan for the prior year
and any base salary changes. Commencing in 2010, individual annual performance recognition grants
under our equity incentive plan will be made sometime mid-year instead of in January in order to
give the compensation committee another formal opportunity during the year to review executive
compensation and recognize executive and other key employee performance.
Three members of our executive team play a role in our executive compensation process and regularly
attend meetings of our compensation committee. Our Senior Vice President, Human Resources assists
our compensation committee primarily by gathering compensation related data regarding our named
executive officers and coordinating the exchange of such information and other executive
compensation information among the members of our compensation committee, our compensation
committees compensation consultant and management in anticipation of compensation committee
meetings. Our Senior Vice President, Secretary and Chief Legal Officer assists our compensation
committee primarily by educating the committee on executive compensation trends and best practices
from a corporate governance perspective. Our President and Chief Executive Officer assists our
compensation committee primarily by making formal recommendations regarding the amount and type of
compensation to be paid to our executives (other than himself) and in so doing, shares information
with the compensation committee from the annual performance reviews conducted with each of our
executives. From time to time, our compensation committee also may request informal input on
compensation related decisions from our Senior Vice President, Human Resources and our Senior Vice
President, Secretary and Chief Legal Officer in light of their close participation in the process.
Our compensation committee has engaged a compensation consultant, Mercer (US) Inc., to provide
information, analyses and advice regarding executive compensation. In so doing, at the request of
the compensation committee, Mercer recommends a peer group of companies, collects relevant market
data from these companies to allow the compensation committee to compare elements of our
compensation program to those of our peers, provides information on executive compensation trends
and implications for our company and makes other recommendations to the compensation committee
regarding certain aspects of our executive compensation program. The compensation committee values
especially Mercers benchmarking information and input regarding best practices and trends in
executive compensation
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matters. To help determine the appropriate levels of compensation for each principal element of
our executive compensation program, our compensation committee annually reviews the compensation
levels of our named executive officers and other executives against the compensation levels of
comparable positions with companies similar to ev3 in terms of products, operations and revenues.
The compensation committee believes that compensation paid by peer group companies is
representative of the compensation required to attract, retain and motivate ev3s executive talent,
which is why one of the goals and philosophies of the compensation committee is to target base
compensation and total compensation at the 50
th
to 75
th
percentile of
companies in our peer group.
In addition to the executive compensation work performed by Mercer for the compensation committee
during 2009, for which Mercer was paid approximately $124,964, management engaged Mercer to provide
other compensation consulting services, for which Mercer was paid approximately $12,813. The
compensation committee has established procedures that it considers adequate to ensure that
Mercers advice to the compensation committee remains objective and is not influenced by our
management. These procedures include: the compensation committee has the sole authority to hire
and fire Mercer; a direct reporting relationship of the Mercer consultant to the compensation
committee including a summary of the work performed for our company during the preceding 12 months;
and written assurances from Mercer that, within the Mercer organization, the Mercer consultant who
performs services for our company has a reporting relationship and compensation determined
separately from Mercers other lines of business and from its other work for our company. The
compensation committee believes that the provision of such other services by Mercer does not
compromise Mercers ability to provide the compensation committee an objective perspective on
executive compensation. Our management, principally our Senior Vice President, Human Resources and
the chair of our compensation committee, regularly consult with representatives of Mercer and
generally meet with Mercer representatives prior to each compensation committee meeting. A
representative of Mercer is invited on a regular basis to attend, and usually does attend, meetings
of our compensation committee. All of the recommendations and decisions by our compensation
committee and board of directors with respect to determining the amount or form of executive
compensation under our executive compensation program were made by the compensation committee and
board of directors, as the case may be, alone and may reflect factors and considerations other than
the information and advice provided by Mercer.
In making final decisions regarding the form and amount of compensation to be paid to our named
executive officers (other than our President and Chief Executive Officer), our compensation
committee considers the recommendations of our President and Chief Executive Officer but also
considers other factors, such as those listed under the heading Compensation Discussion and
AnalysisSetting Executive CompensationRole of Compensation Committee. The compensation
committee gives great weight to the recommendations of our President and Chief Executive Officer
recognizing that due to his reporting and otherwise close relationship with each executive, the
President and Chief Executive Officer often is in a better position than the compensation committee
to evaluate the performance of each executive (other than himself). In making its final decision
regarding the form and amount of compensation to be paid to our President and Chief Executive
Officer, the compensation committee considers the results of the President and Chief Executive
Officers self-review and his individual annual performance review by the compensation committee
and the recommendations of other board members. Final deliberations and decisions regarding the
compensation to be paid to each of our executives are made by the compensation committee without
the presence of such executive.
Processes and Procedures for Consideration and Determination of Director Compensation
. As
described in more detail above under the heading Responsibilities, our board of directors has
delegated to our compensation committee the responsibility, among other things, to review and make
recommendations to our board concerning compensation for non-employee members of our board,
including retainers and any other cash compensation, equity compensation, benefits and perquisites.
Decisions regarding director
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compensation made by our compensation committee are not considered final and are subject to final
review and approval by our entire board. Under the terms of its written charter, the compensation
committee has the power and authority, to the extent permitted by our bylaws and applicable law, to
delegate all or a portion of its duties and responsibilities to a subcommittee of the compensation
committee; provided, that any actions taken pursuant to any such delegation are reported to the
compensation committee at its next meeting. The compensation committee has not generally delegated
any of its duties and responsibilities regarding director compensation to subcommittees, the chair
or any other members of the compensation committee, but rather has taken such actions as a
committee, as a whole.
Our Senior Vice President, Human Resources assists the compensation committee in gathering
compensation related data regarding director compensation. In making final recommendations to the
board regarding compensation to be paid to our non-employee directors, the compensation committee
considers general market information regarding director compensation, including benchmarking
information gathered by Mercer, and other factors that may be relevant.
Our compensation committee has engaged Mercer to provide information, analyses and advice regarding
director compensation. In so doing, at the request of the compensation committee, Mercer collected
relevant market data from the same peer group of companies used in connection with our
determination of executive compensation to allow the compensation committee to compare elements of
our director compensation program to those of our peers, provided information on director
compensation trends and implications for our company and made other recommendations to the
compensation committee regarding certain aspects of our director compensation program. In setting
director compensation, our compensation committee targets director compensation at the
50
th
to 75
th
percentile of companies in our peer group. As with executive
compensation, the compensation committee values Mercers benchmarking information and input
regarding best practices and trends in director compensation matters.
In making final decisions regarding compensation to be paid to our non-employee directors, the
board gives considerable weight to the recommendations of our compensation committee.
Meetings and Other Information
. Our compensation committee met nine times during 2009. Additional
information regarding our compensation committee is disclosed under the Compensation Discussion
and Analysis and Executive CompensationCompensation Committee Report sections of this proxy
statement.
Nominating, Corporate Governance and Compliance Committee
Responsibilities.
Our nominating, corporate governance and compliance committee provides
assistance to our board in fulfilling its responsibilities relating to the nomination of directors
and the oversight of corporate governance processes of our company and our compliance efforts with
respect to legal and regulatory requirements and relevant company policies and procedures,
including our Code of Business Conduct and Corporate Compliance Program, other than with respect to
matters relating to our financial statements and financial reporting obligations and any
accounting, internal accounting controls or auditing matters, which remain within the purview of
our audit committee.
More specifically, our nominating, corporate governance and compliance committees duties and
responsibilities include, among other things:
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review and make recommendations to our board regarding the structure and
composition of the board and its members;
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identify individuals qualified to become members of our board;
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make recommendations to the board regarding nominees for director for each
annual meeting of our stockholders and to fill any vacancies that may occur between
meetings of our stockholders;
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make recommendations to our board regarding corporate governance matters
and practices, including any revisions to our corporate governance guidelines; and
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oversee our compliance efforts with respect to legal and regulatory
requirements and relevant policies and procedures, including our Code of Business
Conduct and Corporate Compliance Program, other than with respect to matters relating
to our financial statements and financial reporting obligations and any accounting,
internal accounting controls or auditing matters (which are within the purview of the
audit committee).
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The nominating, corporate governance and compliance committee reviews and evaluates, at least
annually, the performance of the nominating, corporate governance and compliance committee and its
members, including compliance of the nominating, corporate governance and compliance committee with
its charter.
Composition.
The current members of our nominating, corporate governance and compliance committee
are Mr. Bakewell, Mr. Child, Mr. Levangie and Ms. Weatherman. Mr. Child is the chair of our
nominating, corporate governance and compliance committee. Each of the four members of our
nominating, corporate governance and compliance committee is an independent director under the
Listing Rules of the NASDAQ Stock Market.
Processes and Procedures for Selecting Nominees for Our Board of Directors
. In selecting director
nominees for recommendation to our board of directors, the nominating, corporate governance and
compliance committee first determines whether the incumbent directors whose terms expire at the
meeting are qualified to serve, and wish to continue to serve, on the board. Our board believes
that our company and stockholders benefit from the continued service of qualified incumbent
directors because those directors have familiarity with and insight into our corporate affairs that
they have accumulated during their tenure with the company. Appropriate continuity of board
membership also contributes to our boards ability to work as a collective body. Accordingly, it
is the general practice of the nominating, corporate governance and compliance committee to
recommend to our board and our board to re-nominate an incumbent director whose term expires at the
upcoming annual meeting of stockholders if the director wishes to continue his or her service with
our board, the director continues to satisfy our boards criteria for membership on the board, the
nominating, corporate governance and compliance committee believes the director continues to make
important contributions to the board, and there are no special, countervailing considerations
against re-nomination of the director.
In identifying and evaluating new candidates for election to our board, the nominating, corporate
governance and compliance committee first solicits recommendations for nominees from persons whom
the committee believes are likely to be familiar with candidates having the qualifications, skills
and characteristics required for board nominees from time to time. Such persons may include
current members of our board and our senior management. In addition, from time to time, if
appropriate, the nominating, corporate governance and compliance committee may engage a search firm
to assist it in identifying and evaluating qualified candidates.
The nominating, corporate governance and compliance committee reviews and evaluates each candidate
whom it believes merits serious consideration, taking into account available information concerning
the
23
candidate, any qualifications or criteria for board membership established by the nominating,
corporate governance and compliance committee, the existing composition of the board, and other
factors that it deems relevant. In conducting its review and evaluation, the nominating, corporate
governance and compliance committee may solicit the views of our management, our board members and
any other individuals it believes may have insight into a candidate. The nominating, corporate
governance and compliance committee may designate one or more of its members and/or other board
members to interview any proposed candidate.
The nominating, corporate governance and compliance committee will consider recommendations for the
nomination of directors submitted by our stockholders that comply with the procedural requirements
set forth in our bylaws. For more information, see the information set forth under the heading
Other Matters Director Nominations for 2011 Annual Meeting. The nominating, corporate
governance and compliance committee will evaluate candidates recommended by stockholders in the
same manner as those recommended as stated above.
There are no formal requirements or minimum qualifications that a candidate must meet in order for
our nominating, corporate governance and compliance committee to recommend the candidate to the
board. The nominating, corporate governance and compliance committee believes that each nominee
should be evaluated based on his or her merits as an individual, taking into account the needs of
our company and the board at the time. However, in evaluating candidates, there are a number of
criteria that the nominating, corporate governance and compliance committee generally view as
relevant and are likely to consider. Some of these factors include:
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whether the candidate is an independent director under the Listing Rules
of the NASDAQ Stock Market and meets any other applicable independence tests under the
federal securities laws and rules and regulations of the SEC;
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whether the candidate is financially sophisticated and otherwise meets
the requirements for serving as a member of an audit committee under the Listing Rules
of the NASDAQ Stock Market;
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whether the candidate is an audit committee financial expert under the
rules and regulations of the SEC;
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the needs of our company with respect to the particular talents and
experience of our directors;
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the personal and professional integrity and reputation of the candidate;
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the candidates level of education and business experience;
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the candidates broad-based business acumen;
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the candidates level of understanding of our business and its industry
and other industries relevant to our business;
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the candidates ability and willingness to devote adequate time to work of
our board and its committees;
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24
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the fit of the candidates skills and personality with those of other
directors and potential directors in building a board that is effective, collegial and
responsive to the needs of our company;
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whether the candidate possesses strategic thinking and a willingness to
share ideas;
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the candidates diversity of experiences, expertise and background; and
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the candidates ability to represent the interests of all stockholders and
not a particular interest group.
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While we do not have a stand-alone diversity policy, in considering whether to recommend any
director nominee, including candidates recommended by stockholders, the nominating, corporate
governance and compliance committee will consider the factors above, including the candidates
diversity of experiences, expertise and background. The nominating, corporate governance and
compliance committee seeks nominees with a broad diversity of experience, expertise and
backgrounds. The nominating, corporate governance and compliance committee does not assign specific
weights to particular criteria and no particular criterion is necessarily applicable to all
prospective nominees. We believe that the backgrounds and qualifications of the directors,
considered as a group, should provide a significant mix of experience, knowledge and abilities that
will allow the board to fulfill its responsibilities.
The nominating, corporate governance and compliance committee may, in its discretion, form a
subcommittee to assist the committee with the identification and review of potential director
candidates. Any such subcommittee may be comprised of members of our board who do not serve on the
nominating, corporate governance and compliance committee and shall report directly to the
committee.
Meetings.
Our nominating, corporate governance and compliance committee met four times during
2009.
Code of Business Conduct
Our Code of Business Conduct applies to all of our employees, officers and directors, including our
principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, and meets the requirements of the SEC. A copy
of our Code of Business Conduct is available on the InvestorsCorporate Governance section of our
corporate website at
www.ev3.net.
Stock Ownership Guidelines
In 2009, we established stock ownership guidelines for directors and executive officers. The
intent of the guidelines is to align the interests of our directors and executives with the
interests of our stockholders and to demonstrate our continued commitment to sound corporate
governance. Stock ownership targets for directors are set at an aggregate market value equal to
four times the amount of the annual retainer for directors, or $144,000. Stock ownership targets
for executives are set at that number of shares of our common stock with a value equal to a
multiple of the executives annual base salary, with the multiple equal to two times for senior
vice presidents, three times for executive vice presidents and four times for our chief executive
officer.
Until the applicable stock ownership target is achieved, each director and executive subject to the
guidelines is required to retain an amount equal to 75% of the net shares received as a result of
the exercise of stock options or the vesting of restricted stock or restricted stock units. Because
directors and executives must retain a percentage of shares resulting from any exercise of ev3
stock options or the
25
vesting of restricted stock or restricted stock units until they achieve the specified target,
there is no minimum time period required to achieve the applicable stock ownership target.
Stock ownership targets are determined by including stock acquired through the open market, upon
stock option exercises, purchased under our employee stock purchase plan, deferred compensation
payable solely in shares of our common stock, shares held in benefit plans and restricted stock
(both vested and unvested) that vests based on the passage of time. If there is a significant
decline in our stock price that causes directors or executives to be out of compliance, such
directors and executives will be subject to the 75% retention ratio, but will not be required to
purchase additional shares to meet the applicable target.
Our compensation committee reports on compliance with the guidelines at least annually to our board
of directors. Stock ownership targets are evaluated and adjusted as necessary on January 1st each
year and also whenever an executives annual base salary changes. As of January 1, 2010, all of
our directors and executives met their respective individual stock ownership guideline, except for
Mr. Palmisano, Mr. McCormick, Mr. Girin and Mr. Wall. As of such date, Mr. Palmisano, Mr.
McCormick and Mr. Wall had only been executives of our company for approximately 20 months, 11
months and two months, respectively. In addition, unlike other executives, until recently Mr.
Girin because of his French residence received restricted stock units, or RSUs, as opposed to
restricted stock. Unlike restricted stock, RSUs, like stock options, do not count toward our stock
ownership guidelines. If Mr. Girins RSUs counted toward the guidelines, he would have been in
compliance with his individual stock ownership guideline.
Board Oversight of Risk
The board of directors as a whole has responsibility for risk oversight, with more in-depth reviews
of certain areas of risk being conducted by the relevant board committees that report on their
deliberations to the full board. The oversight responsibility of the board and its committees is
enabled by management reporting processes that are designed to provide information to the board
about the identification, assessment and management of critical risks and managements risk
mitigation strategies. The areas of risk that we focus on include regulatory, compliance, legal,
compensation, competitive, operational, financial (accounting, credit, liquidity and tax), health,
safety and environment, economic, political and reputational risks.
The boards standing committees oversee risks associated with their respective principal areas of
focus. The audit committees role includes a particular focus on the qualitative aspects of
financial reporting to stockholders, on our processes for the management of business and financial
risk, and for compliance with significant applicable legal, ethical and regulatory requirements as
they relate to our financial statements and financial reporting obligations. The audit committee,
along with management, is also responsible for developing and participating in a process for review
of important financial and operating topics that present potential significant risk to our company.
The compensation committee is responsible for overseeing risks and exposures associated with our
compensation programs and arrangements, including our executive and director compensation programs
and arrangements, and management succession planning. The nominating, corporate governance and
compliance committee oversees risks relating to our compliance efforts with respect to legal and
regulatory requirements and relevant company policies and procedures, including our Code of
Business Conduct and Corporate Compliance Program, and risks related to our corporate governance
matters and policies and director succession planning.
We recognize that a fundamental part of risk management is not only understanding the risks a
company faces and what steps management is taking to manage those risks, but also understanding
what level of risk is appropriate for the company. The involvement of our full board of directors
in setting our business
26
strategy is a key part of the boards assessment of managements appetite for risk and also a
determination of what constitutes an appropriate level of risk for our company.
We believe our current board leadership structure is appropriate and helps ensure proper risk
oversight for our company for a number of reasons, including: (1) general risk oversight by our
full board of directors in connection with its role in reviewing our five-year strategic plan and
reviewing and approving our annual operating plan that sets forth our key business strategies and
then monitoring on an on-going basis the implementation of our annual operating plan and key
business strategies; (2) more detailed oversight by our standing board committees that are
currently comprised of and chaired by our independent directors; and (3) the focus of our Chairman
of the Board on allocating appropriate Board agenda time for discussion regarding the
implementation of our annual operating plan and key business strategies and specifically risk
management.
Policy Regarding Director Attendance at Annual Meetings of Stockholders
It is the policy of our board of directors that directors standing for re-election should attend
our annual meeting of stockholders, if their schedules permit. One of our nine then current
directors, Mr. Palmisano, attended our annual meeting of stockholders in May 2009.
Process Regarding Stockholder Communications with Board of Directors
Stockholders may communicate with our board of directors or any one particular director by sending
correspondence, addressed to our Corporate Secretary, ev3 Inc., 3033 Campus Drive, Plymouth,
Minnesota 55441, with an instruction to forward the communication to our board or one or more
particular directors. Our Corporate Secretary will promptly forward all such stockholder
communications to our board or the one or more particular directors, with the exception of any
advertisements, solicitations for periodical or other subscriptions and other similar
communications.
27
DIRECTOR COMPENSATION
Summary of Cash and Other Compensation
The following table provides summary information concerning the compensation of each individual who
served as a director of our company during the year ended December 31, 2009, other than Robert J.
Palmisano, our President and Chief Executive Officer, whose compensation is set forth under the
heading Executive Compensation.
DIRECTOR COMPENSATION 2009
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Fees Earned or Paid
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Stock
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Option
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All Other
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Name
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in Cash ($)
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Awards ($)
(1)(2)
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Awards ($)
(3)(4)
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Compensation($)
(5)
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Total ($)
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John K. Bakewell
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$
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63,500
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$
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74,996
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$
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75,948
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$
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$
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214,444
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Jeffrey B. Child
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41,000
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74,996
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75,948
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191,944
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Richard B. Emmitt
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43,500
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74,996
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75,948
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194,444
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Douglas W. Kohrs
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41,000
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74,996
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75,948
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191,944
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Daniel J. Levangie
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71,833
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74,996
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75,948
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222,777
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John L Miclot
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43,917
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74,996
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75,948
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194,861
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Thomas E. Timbie
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58,500
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74,996
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75,948
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209,444
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Elizabeth H. Weatherman
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46,000
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74,996
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75,948
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196,944
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(1)
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On May 26, 2009, each director received a stock award for 8,296 shares of common stock
granted under the ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan, the material
terms of which are described in more detail under the heading Executive Compensation Grants
of Plan-Based Awards ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan. Such
shares vest with respect to 50 percent of the underlying shares of our common stock on each of
the following dates, so long as the individual remains a director of our company as of such
date: May 1, 2010 and May 1, 2011. Amount reported represents the aggregate grant date fair
value for stock awards granted to each director in 2009 computed in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC Topic 718).
The grant date fair value for stock awards is determined based on the closing sale price of
our common stock on the date of grant.
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(2)
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The following table provides information regarding the aggregate number of unvested stock
awards outstanding at December 31, 2009 and held by each of the directors listed in the above
table:
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Number of Shares to
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Number of Shares to
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Number of Shares to
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Number of Shares to
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Grant
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Total Number of
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Vest on
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Vest on
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Vest on
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Vest on
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Name
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Date
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Unvested Shares
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May 1, 2010
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August 1, 2010
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December 2, 2010
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May 1, 2011
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John K. Bakewell
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05/26/09
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8,296
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4,148
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4,148
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05/20/08
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3,788
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3,788
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Jeffrey B. Child
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05/26/09
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8,296
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4,148
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4,148
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05/20/08
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3,788
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3,788
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Richard B. Emmitt
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05/26/09
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8,296
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4,148
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4,148
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05/20/08
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3,788
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3,788
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Douglas W. Kohrs
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05/26/09
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8,296
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4,148
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4,148
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08/01/08
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3,731
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3,731
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Daniel J. Levangie
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05/26/09
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8,296
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4,148
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|
|
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4,148
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05/20/08
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3,788
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3,788
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John L. Miclot
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05/26/09
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8,296
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4,148
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4,148
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12/02/08
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3,648
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3,648
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Thomas E. Timbie
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05/26/09
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8,296
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4,148
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4,148
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05/20/08
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3,788
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3,788
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Elizabeth H. Weatherman
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05/26/09
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8,296
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4,148
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4,148
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05/20/08
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3,788
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3,788
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28
(3)
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On May 26, 2009, each director received a stock option to purchase 19,841 shares of our
common stock at an exercise price of $9.04 per share granted under the ev3 Inc. Second Amended
and Restated 2005 Incentive Stock Plan, the material terms of which are described in more
detail under the heading Executive Compensation Grants of Plan-Based Awards ev3 Inc.
Second Amended and Restated 2005 Incentive Stock Plan. Such option expires on May 25, 2019
and vests with respect to 50 percent of the underlying shares of our common stock on each of
the following dates, so long as the individual remains a director of our company as of such
date: May 1, 2010 and May 1, 2011. Amount reported represents the aggregate grant date fair
value for option awards granted to each director in 2009 computed in accordance with FASB ASC
Topic 718. The grant date fair value is determined based on our Black-Scholes option pricing
model. The grant date value per share for the option granted on May 26, 2009 was $3.8278 and
was determined using the following specific assumptions:
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Expected
|
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Risk Free
|
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Expected
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Expected
|
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Dividend
|
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Interest Rate
|
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Life
|
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|
Volatility
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Yield
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1.72%
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3.85 years
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54.0%
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0
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(4)
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The following table provides information regarding the aggregate number of options to
purchase shares of our common stock outstanding at December 31, 2009 and held by each of the
directors listed in the above table:
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Aggregate Number of
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Range of
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Range of
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Securities
|
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Exercisable/
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Exercise
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Expiration
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Name
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Underlying Options
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Unexercisable
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Price(s)
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Date(s)
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John K. Bakewell
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90,537
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|
55,348/35,189
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|
$
|
9.04-17.71
|
|
|
|
04/05/2016-05/26/2019
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Jeffrey B. Child
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|
|
125,257
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|
|
|
90,068/35,189
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|
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|
9.04-23.65
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|
06/20/2015-05/26/2019
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Richard B. Emmitt
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75,777
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|
|
|
40,588/35,189
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|
6.47-16.66
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07/26/2011-05/26/2019
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Douglas W. Kohrs
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|
105,942
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|
|
|
72,589/33,353
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8.82-16.66
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03/01/2015-05/26/2019
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Daniel J. Levangie
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90,537
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|
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47,848/42,689
|
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|
9.04-20.06
|
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|
|
02/23/2017-05/26/2019
|
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John L. Miclot
|
|
|
39,175
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|
|
|
4,833/34,342
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|
|
|
5.14-9.04
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|
|
|
12/02/2018-05/26/2019
|
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Thomas E. Timbie
|
|
|
227,201
|
|
|
|
192,012/35,189
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|
|
|
8.82-16.66
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|
|
03/09/2014-05/26/2019
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|
Elizabeth H. Weatherman
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|
|
75,777
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|
|
|
40,588/35,189
|
|
|
|
6.47-16.66
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|
07/26/2011-05/26/2019
|
|
(5)
|
|
We do not generally provide perquisites and other personal benefits to our directors. Any
perquisites or personal benefits actually provided to any director were less than $10,000 in
the aggregate.
|
Overview
Compensation for our outside directors is designed to attract and retain experienced and
knowledgeable directors and to provide equity-based compensation in order to align the interests of
our directors with those of our stockholders. Our outside directors are those directors who are
not our employees or consultants. The following individuals served as outside directors during
2009: John K. Bakewell, Jeffrey B. Child, Richard B. Emmitt, Douglas W. Kohrs, Daniel J. Levangie,
John L. Miclot, Thomas E. Timbie and Elizabeth H. Weatherman. Robert J. Palmisano, our President
and Chief Executive Officer, served as a director during 2009 but was not considered an outside
director. Mr. Palmisano did not receive any additional compensation for his director service in
2009. For a description of our compensation arrangements with Mr. Palmisano during 2009, we refer
you to the headings entitled Executive Compensation and Compensation Discussion and Analysis.
In setting director compensation, we follow the process and procedures described under the heading
Corporate GovernanceCompensation CommitteeProcesses and Procedures for Consideration and
Determination of Director Compensation. From time to time, our compensation committee engages an
independent consultant to review our outside director compensation. In 2009, our compensation
committee engaged Mercer to review our outside director compensation. In so doing, Mercer analyzed
the outside director compensation levels and practices of our peer companies. Mercer used the same
April 2008 peer group of 20 peer companies as were used to gather compensation information for our
executive officers at that time. We refer you to the information under the heading Compensation
Discussion and AnalysisSetting Executive CompensationUse of Peer Group and Other Market Data
29
for
more information regarding the peer companies. In setting director compensation, we target
compensation at the 50
th
to 75
th
percentile of companies in our peer group.
Based on Mercers analysis of our director compensation program, our total direct compensation for
the average director is aligned with the 75
th
percentile of our peer group, average
total cash compensation for our directors is in line with the 50
th
percentile and the
value of our equity director compensation is between the 50
th
and 75
th
percentile.
Our compensation for our outside directors for 2009 was comprised of both cash compensation and
equity-based compensation. Our cash compensation was in the form of annual retainers for our board
members, chairman of the board, committee chairs and committee members. Our equity-based
compensation was in the form of initial and annual stock option and restricted stock grants. Each
of these components is described in more detail below. We do not generally provide perquisites and
other personal benefits to our outside directors.
Cash Compensation
The cash compensation paid to our outside directors consists of annual cash retainers paid to each
board member, our chairman of the board, each board committee chair and each board committee
member. The following table sets forth the annual cash retainers paid to our outside directors:
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|
Description
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|
Annual Cash Retainer
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Board Member
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|
$
|
36,000
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|
Chairman of the Board*
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25,000
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|
Lead Independent Director*
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10,000
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|
Audit Committee Chair
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20,000
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|
Compensation Committee Chair
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10,000
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|
Nominating, Corporate Governance and Compliance Committee Chair
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10,000
|
|
Audit Committee Member (including Chair)
|
|
|
7,500
|
|
Compensation Committee Member (including Chair)
|
|
|
5,000
|
|
Nominating, Corporate Governance and Compliance Committee
Member (including Chair)
|
|
|
5,000
|
|
|
|
|
*
|
|
Annual cash retainer is paid to ev3s Chairman of the Board or ev3s Lead Independent
Director if the Chairman of the Board is also ev3s Chief Executive Officer.
|
The annual cash retainers are paid in the beginning of each calendar quarter. For example,
the retainers paid in the beginning of the first calendar quarter are for the period from January 1
through March 31.
Daniel J. Levangie has served as our Chairman of the Board since April 2008 and the table under the
heading Corporate GovernanceBoard Committees shows on which board committees the individual
directors currently serve and the current chair of each board committee. In December 2009, we
changed the composition of our board committees and our board chairs. Mr. Timbie became chair of
our audit committee replacing Mr. Bakewell who was removed from the audit committee; Mr. Child
became chair of our nominating, corporate governance and compliance committee replacing Mr. Timbie
who was removed from the nominating, corporate governance and compliance committee; and Mr. Miclot
became chair of our compensation committee replacing Mr. Levangie who was removed from the
compensation committee. With respect to other changes in board committee composition, Mr. Child
joined the audit committee and Messrs. Bakewell and Levangie joined the nominating, corporate
governance and compliance committee.
In 2009, we did not pay our outside directors separate fees for attending board and board committee
meetings and we currently do not pay such separate meeting fees.
30
We reimburse each member of our board of directors, including directors who are not outside
directors, for out-of-pocket expenses incurred in connection with attending our board and board
committee meetings.
Equity-Based Compensation
A substantial portion of our outside director compensation is linked to our common stock
performance. Under our current policy regarding equity-based compensation for directors, outside
directors, upon their initial election to our board, automatically receive $75,000, one-half of
which is paid in stock options and the remaining one-half of which is paid in restricted stock. In
addition, our outside directors automatically receive on an annual basis, effective as of the date
of our annual meeting of stockholders, $150,000, one-half of which is paid in stock options and the
remaining one-half of which is paid in restricted stock. All of these equity awards are granted
under the ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan. All of these initial and
annual stock options have a term of 10 years. The initial stock options and restricted stock
grants vest over a two-year period, with 50 percent of the underlying shares vesting on the
one-year anniversary of the date of grant and the remaining shares vesting on the two-year
anniversary of the date of grant, in each case so long as the director is still a director as of
such date. The annual stock options and restricted stock grants vest over a two-year period, with
50 percent of the underlying shares vesting on May 1 of the first calendar year following the date
of grant and the remaining shares vesting on May 1 of the second calendar year following the date
of grant, in each case so long as the director is still a director as of such date.
We refer you to notes 1 and 3 to the Director Compensation table above for a summary of all
equity-based incentive awards granted to our directors, excluding Mr. Palmisano, during the fiscal
year ended December 31, 2009. We refer you to notes 2 and 4 to the Director Compensation table
above for a summary of all equity-based incentive awards held by our directors, excluding
Mr. Palmisano, as of December 31, 2009. Information regarding all equity-based incentive award
grants to Mr. Palmisano during the fiscal year ended December 31, 2009 is set forth under the
heading Executive CompensationGrants of Plan-Based Awards and information regarding all
equity-based incentive awards held by Mr. Palmisano as of December 31, 2009 is set forth under the
heading Executive CompensationOutstanding Equity Awards at Fiscal Year End.
Indemnification Agreements
We have entered into agreements with all of our directors under which we are required to indemnify
them against expenses, judgments, penalties, fines, settlements and other amounts actually and
reasonably incurred, including expenses of a derivative action, in connection with an actual or
threatened proceeding if any of them may be made a party because he or she is or was one of our
directors. We will be obligated to pay these amounts only if the director acted in good faith and
in a manner that he or she reasonably believed to be in or not opposed to our best interests. With
respect to any criminal proceeding, we will be obligated to pay these amounts only if the director
had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements
also set forth procedures that will apply in the event of a claim for indemnification.
31
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis describes the material elements of the compensation
awarded to, earned by or paid to:
|
|
|
our current President and Chief Executive Officer, Robert J. Palmisano;
|
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|
our current Senior Vice President and Chief Financial Officer, Shawn McCormick;
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|
our former Senior Vice President and Chief Financial Officer, Patrick D. Spangler;
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|
our current Executive Vice President and Chief Operating Officer, Pascal E.R. Girin;
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|
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|
our current Executive Vice President and President, Worldwide Peripheral Vascular, Stacy
Enxing Seng; and
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|
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|
our current Senior Vice President and President, International, Brett A. Wall.
|
These individuals are referred to in this proxy statement as our named executive officers. The
discussion below focuses on the information contained in the tables and related footnotes and
narrative primarily for 2009 under the heading Executive Compensation found elsewhere in this
proxy statement, but also describes compensation actions taken during 2008 and 2010 to the extent
we believe such disclosure enhances the understanding of our executive compensation disclosure for
2009.
Compensation Objectives and Philosophy
Our executive compensation program is designed to:
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attract and retain executives important to the success of our company and the creation
of value for our stockholders;
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reinforce our corporate mission, vision and values;
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motivate our executives to help fulfill our corporate mission and vision, including more
specific and focused company performance objectives, while incorporating our shared values;
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align the interest of our executives with the interests of our stockholders; and
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reward our executives for progress toward our corporate mission and vision, the
achievement of company performance objectives, the creation of stockholder value in the
short and long term and their contributions, in general, to the success of our company.
|
In order to achieve these objectives, our compensation committee makes compensation decisions based
on the following philosophies and principles:
|
|
|
We target base compensation and total compensation at the 50
th
to
75
th
percentile of companies in our peer group, with the opportunity to earn
total compensation above the market median when the performance of our business meets or
exceeds our plan targets.
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32
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|
As a performance-driven company, we favor having a significant component of compensation
that is variable and tied to results and achievement over solely fixed compensation.
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The portion of an executives total compensation that varies with performance and is
therefore at risk should increase with the level of an individuals responsibility.
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|
In order to foster cooperation and communication among our executives and among their
respective teams, our compensation committee places primary emphasis on company and
business unit performance as measured against goals approved by our compensation committee
rather than individual performance.
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|
We seek to align the interests of our executives with those of our stockholders by
providing a significant portion of compensation in stock-based awards.
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|
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|
We seek to limit the use of perquisites and believe they should not be a significant
component of executive compensation. Perquisites are provided when customary in a specific
geography (non-U.S. executives) or when necessary to attract and retain key executive
talent.
|
Our compensation committee reviews and approves our compensation objectives and philosophy on an
annual basis.
Business Context in Which 2009 Compensation Decisions Were Made
Our top business goals for 2009 were to grow at or above market rates, achieve sustained
profitability, generate cash and expand our global position in the peripheral vascular and
neurovascular markets to deliver superior long-term value to our stockholders. During 2009, we
achieved GAAP profitability and cash generation, and our operating results reflected above market
sales growth in both our peripheral vascular and neurovascular segments, continued expansion of our
international business, significant improvement in our gross margins and continued expense control.
Our net product sales increased 12% to $449.1 million for the year ended December 31, 2009
compared to the year ended December 31, 2008 driven by strong results across all product
categories, with the exception of our plaque excision products. We added several breakthrough
products to our broad endovascular portfolio that we believe will contribute to our sales in 2010,
including our Pipeline Embolization Device, which we acquired in connection with our acquisition
of Chestnut Medical Technologies, Inc. during the second quarter 2009, and our TurboHawk
Peripheral Plaque Excision System, which we commercially introduced during the third quarter 2009.
Our stock price increased over 118% during 2009 and closed at $13.34 per share on December 31,
2009.
We believe our executive compensation strategy to attract, retain, motivate and reward executives
was effective in 2009. We attracted new talent by hiring a new Senior Vice President and Chief
Financial Officer. We retained talent by promoting three of our other named executive officers and
providing them appropriate and reasonable compensation. And we motivated our executives to achieve
our business goals and priorities by setting corporate and divisional financial performance
objectives of revenue, operating profit, days sales outstanding and inventory days on hand and
additional individual specific management objectives, most of which were achieved at or near, or in
some cases, above targeted performance.
Setting Executive Compensation
Role of Compensation Committee.
The responsibilities of our compensation committee include
approving the compensation payable to our executive officers, including our President and Chief
Executive Officer,
33
and administering our equity and incentive compensation plans. Although final
decisions regarding executive officer compensation, including compensation to be paid to our
President and Chief Executive Officer, are typically made by our compensation committee, at times,
our full board of directors will approve such arrangements upon recommendation of the compensation
committee. For example, with respect to the compensation package for our current President and
Chief Executive Officer, our full board of directors approved such arrangement upon recommendation
of the compensation committee. The compensation committee determined to present its approval of
the then new CEO compensation package as a recommendation to the full board of directors as opposed
to final approval in light of the significance of the position to our company, the nature and total
amount of the compensation package and, to a lesser extent, the fact that the board of directors
was convening on the same day to approve the appointment of the CEO.
Information about our compensation committee and its composition, processes and responsibilities
can be found under the heading Corporate GovernanceBoard CommitteesCompensation Committee. In
setting executive compensation for our named executive officers, the compensation committee
considers the following primary factors:
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each executives position within the company and the level of responsibility;
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the ability of the executive to impact key business initiatives;
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the executives individual experience and qualifications;
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compensation paid to executives of comparable positions by companies similar
to ev3;
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an assessment of the risk that the executive would leave our company and the
harm to our companys business initiatives if the executive left;
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company performance, on an overall basis and, in the case of some executives
on a divisional basis, as compared to specific pre-established objectives;
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individual performance, generally and as compared to specific pre-established
objectives;
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the executives current and historical compensation levels;
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advancement potential and succession planning considerations;
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the retention value of executive equity holdings, including outstanding stock
options and stock grants;
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the dilutive effect on our shareholders of equity-based long-term incentive
awards;
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anticipated compensation expense as determined under applicable accounting
rules; and
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tally sheets which detail for each executive his or her annual compensation
for the last two years and an estimate for the current year, vested and unvested values of
all outstanding equity awards at an assumed stock price and change in control and severance
benefits potentially payable in the event of a change in control and under a termination
without cause scenario, as described in more detail below under the heading Use of Tally
Sheets.
|
34
The compensation committee also considers the recommendations of our President and Chief Executive
Officer with respect to executive compensation to be paid to other executive officers and the
compensation committees compensation consultant in determining executive compensation for the
President and Chief Executive Officer and other executive officers. The significance of any
individual factor described above in setting executive compensation will vary from year to year and
may vary among our named executive officers.
Role of Management.
Three members of our executive team play a role in our executive compensation
process and regularly attend meetings of our compensation committee. Our Senior Vice President,
Human Resources assists our compensation committee primarily by gathering compensation related data
regarding our named executive officers and coordinating the exchange of such information and other
executive compensation information among the members of our compensation committee, our
compensation committees compensation consultant and management in anticipation of compensation
committee meetings. Our Senior Vice President, Secretary and Chief Legal Officer assists our
compensation committee primarily by educating the committee on executive compensation trends and
best practices from a corporate governance perspective. Our President and Chief Executive Officer
assists our compensation committee primarily by making formal recommendations regarding the amount
and type of compensation to be paid to our executives (other than himself). From time to time, our
compensation committee also may request informal input on compensation related decisions from our
Senior Vice President, Human Resources and our Senior Vice President, Secretary and Chief Legal
Officer in light of their close participation in the process.
Our President and Chief Executive Officer makes recommendations to our compensation committee
regarding the compensation to be paid to each executive (other than himself). In making such
recommendations, our President and Chief Executive Officer considers many of the same factors
listed above that the compensation committee considers in setting executive compensation. In
particular, the President and Chief Executive Officer considers the peer group or market data and
the results of each executives individual annual performance review.
After the end of each fiscal year, each executive participates in an annual performance review with
our President and Chief Executive Officer to provide input about the executives performance for
the year. During this review, the achievement level of the executives individual management
performance objectives (known internally as MBOs) established in connection with our short-term
cash incentive plan are discussed and determined, as well as the executives general business job
performance and performance specifically in furtherance of ev3s mission, values and vision and its
quality policy. As part of this review, each executive assigns an achievement level to each of the
MBOs and other performance metrics, including a brief narrative report supporting the ratings, and
an overall achievement level. Our President and Chief Executive Officer next assigns an
achievement level to each of the MBOs and other performance metrics, includes a brief narrative
report supporting the ratings and reviews each executives overall achievement level for the MBOs
and the overall achievement level for executives general performance review to ensure that it is
correct. In so doing, the President and Chief Executive Officer and each executive have a
discussion about their assigned achievement levels. The President and Chief Executive Officer then
shares the results for each executive with the compensation committee and makes recommendations to
the compensation committee regarding the form and amount of compensation to be paid to each
executive (other than himself).
The performance of our President and Chief Executive Officer is also evaluated after the end of
each fiscal year by our compensation committee. In connection with such review, our President and
Chief Executive Officer performs a self-review that is circulated to the members of the
compensation committee. In evaluating the performance of our President and Chief Executive
Officer, the compensation committee reviews the self-review, discusses the performance of the
President and Chief
35
Executive Officer amongst its members, seeks the input of other members of our
board of directors, as well as other members of our executive team. In assessing the performance
of our President and Chief Executive Officer, the compensation committee evaluates primarily our
corporate financial performance, our progress towards fulfilling our business initiatives and the
President and Chief Executive Officers leadership.
In making its final decision regarding the form and amount of compensation to be paid to our named
executive officers (other than our President and Chief Executive Officer), our compensation
committee considers the recommendations of our President and Chief Executive Officer. The
compensation committee gives great weight to the recommendations of our President and Chief
Executive Officer recognizing that due to his reporting and otherwise close relationship with each
executive, the President and Chief Executive Officer often is in a better position than the
compensation committee to evaluate the performance of each executive (other than himself). In
making its final decision regarding the form and amount of compensation to be paid to our President
and Chief Executive Officer, the compensation committee considers the results of the President and
Chief Executive Officers self-review and his individual annual performance review by the
compensation committee and the recommendations of other board members. Final deliberations and
decisions regarding the compensation to be paid to each of our executives are made by the
compensation committee without the presence of such executive.
Annual Compensation Process.
Typically, our compensation committee reviews the base salaries for
all of our executive officers, including our named executive officers, at its annual December
meeting. In so doing, the compensation committee benchmarks the base salaries of our executives
with the most recent peer group or other market data gathered by the compensation committees
compensation consultant as described in more detail below under the headings Role of Compensation
Consultants and Use of Peer Group and Other Market Data. Final decisions concerning any salary
changes are made at the compensation committee meeting in either December or January.
Historically, at the December meeting, our compensation committee also establishes goals for the
following year for our annual incentive plan, generally based on and consistent with the annual
operating plan typically adopted by the board at that meeting. At its meeting in January of each
year, the compensation committee determines the individual payout amounts under our annual
incentive plan for the prior year, any base salary changes and historically individual annual
performance recognition grants under our equity incentive plan, which grants are paid in a
combination of stock options and stock grants. Commencing in 2010, individual annual performance
recognition grants paid in a combination of options and stock grants will be made sometime mid-year
in order to give the compensation committee another formal opportunity during the year to review
executive compensation and recognize executive and other key employee performance.
Role of Compensation Consultants.
Our compensation committee has retained the services of Mercer
(US) Inc. to provide advice with respect to executive compensation. Mercers engagement by the
compensation committee includes reviewing and advising on all significant aspects of executive
compensation. This includes base salaries, short-term cash incentives, long-term equity incentives
and perquisites for executive officers, and cash compensation and long-term equity incentives for
non-employee directors. In so doing, at the request of the compensation committee, Mercer
recommended a peer group of companies, collected relevant market data from these companies to allow
the compensation committee to compare elements of our compensation program to those of our peers,
provided information on executive compensation trends and implications for our company and made
other recommendations to the compensation committee regarding certain aspects of our executive
compensation program. Our management, principally our Senior Vice President, Human Resources and
the chair of our compensation committee, regularly consult with representatives of Mercer and
generally meet with Mercer representatives prior to each compensation committee meeting. A
representative of Mercer is invited on a regular basis to attend, and usually attends, meetings of
our compensation committee.
36
In making its final decision regarding the form and amount of compensation to be paid to our
executives, our compensation committee considers the information gathered by and recommendations of
Mercer. The compensation committee values especially Mercers benchmarking information and input
regarding best practices and trends in executive compensation matters.
Use of Peer Group and Other Market Data.
To help determine the appropriate levels of compensation
for certain elements of our executive compensation program, our compensation committee annually
reviews the compensation levels of our named executive officers and other executives against the
compensation levels of comparable positions with companies similar to ev3 in terms of products,
operations and revenues. The elements of our executive compensation program to which the
compensation committee benchmarks or uses to base or justify a compensation decision or to
structure a framework for compensating executives include our base salary, short-term cash
incentive opportunity and our long-term equity incentives. With respect to other elements of our
executive compensation program such as perquisites, severance and change in control arrangements
and stock ownership guidelines, our compensation committee benchmarks these elements on a
periodic or as needed basis and in some cases uses peer group or market data more as a market
check after determining the compensation on some other basis. For example, some of the
perquisites paid to our President and Chief Executive Officer, such as the housing and car
allowance and travel reimbursements, were specifically negotiated in connection with us hiring him
as an executive and were specifically agreed upon in order to attract him to become our President
and Chief Executive Officer and move to our corporate headquarters in Minnesota during the week
from his principal residences located in Massachusetts and Florida.
The compensation committee believes that compensation paid by peer group companies is
representative of the compensation required to attract, retain and motivate ev3s executive talent,
which is why one of the goals and philosophies of the compensation committee is to target base
compensation and total compensation at the 50
th
to 75
th
percentile of
companies in our peer group, as described in more detail below under the heading Market
Positioning. Our compensation committee believes that use of a peer group generally provides more
relevant comparisons for purposes of benchmarking than broader survey data since the compensation
committee believes that the compensation paid by the peer companies which are in the same business,
with similar products and operations, and with revenues in a range similar to those of ev3 is
typically more representative than broader survey data.
In May 2008, Mercer worked with our compensation committee to revise our peer group since eight of
the 19 companies in the peer group created in August 2007 had been acquired or fell out of the
comparative group due to mergers and acquisitions activity. Mercer recommended and our
compensation committee approved the use of a revised peer group of 20 companies, 11 of which were
in our previous peer group. Companies in the May 2008 peer group were public companies in the
health care equipment and supplies business with products and operations similar to those of ev3,
and which had annual revenues generally within the range of one-half to two times ev3s annual net
sales. For purposes of compiling the May 2008 peer group, ev3s then estimated annual net sales
were assumed to be approximately $425-430 million based on ev3s guidance in the beginning of May
2008. ev3s actual net sales for the year ended December 31, 2008 were $422.1 million. The May
2008 peer group includes the following companies, which had the following respective net sales or
revenues for their then most recent 12 months (each in millions):
37
Steris Corp. ($1,240)
Cooper Companies Inc. ($976)
Conmed Corp. ($694)
Integra Lifesciences Hldgs. ($550)
American Medical Systems Hldgs ($464)
Mentor Corp. ($354)
Symmetry Medical Inc. ($256)
Peer Group May 2008
Edwards Lifesciences Corp. ($1,091)
Hologic Inc. ($947)
Sirona Dental Systems Inc. ($685)
Haemonetics Corp. ($495)
Gen-Probe Inc. ($393)
Zoll Medical Corp. ($336)
Thoratec Corp. ($235)
Advanced Medical Optics Inc. ($1,091)
Resmed Inc. ($763)
Intuitive Surgical Inc. ($601)
Orthofix International NV ($490)
Wright Medical Group Inc. ($387)
Arthrocare ($319)
The May 2008 peer group was used to benchmark base salaries, annual cash incentives and
long-term equity incentives for most of our named executive officers for 2009, and provide a market
check for our executive perquisites, severance and change in control arrangements and stock
ownership guidelines. With respect to the base salary information, the peer group data was aged
3.6 percent, which represented the average 2008 base salary increase for executives in the durable
manufacturing industry, to reflect average annual base salary increases and thus presumably more
current base salary data.
With respect to one of our named executive officers, Mr. Girin, the data from our May 2008 peer
group was not helpful for purposes of benchmarking his compensation prior to his promotion to
Executive Vice President and Chief Operating Officer in light of his then dual role as head of both
our neurovascular division and our international business. There were no executives of comparable
positions to Mr. Girin in the proxy statements of the companies in our peer group. Accordingly,
the benchmarking data from Mercer with respect to this executive used alternative survey or other
market data. For Mr. Girin, Mercer used market data reflecting compensation levels for positions
with levels of responsibilities similar to Mr. Girins position (i.e., chief operating officer,
head of division, head of business development and head of sales) among French multinationals in
the high tech industry. Compensation data for executives of specifically French medical device
companies could not be obtained. With respect to the market and survey data not relating to our
peer group that was used with respect to Mr. Girins compensation, the identities of the individual
companies included in the market data and surveys were not provided to the compensation committee,
and the compensation committee did not refer to individual compensation information for such
companies. Instead, Mercer only referred to the statistical summaries of the compensation
information for the companies included in such market data and surveys. For purposes of
benchmarking Mr. Girins compensation in connection with his promotion to Executive Vice President
and Chief Operating Officer, the data from our peer group created in April 2009 and described below
was used, which compared Mr. Girins compensation to other Executive Vice Presidents and
Presidents.
In April 2009, Mercer worked with our compensation committee to revise our peer group since two of
the 20 companies in the May 2008 peer group had been acquired or fell out of the comparative group
due to mergers and acquisitions activity and an additional two companies were too large for the
comparative group. Mercer recommended and our compensation committee approved the use of a revised
peer group of 20 companies, 16 of which were in our previous May 2008 peer group. As with the May
2008 peer group, companies in the April 2009 peer group were public companies in the health care
equipment and supplies business with products and operations similar to those of ev3, and which had
annual revenues generally within the range of one-half to two times ev3s annual net sales. For
purposes of compiling the April 2009 peer group, ev3s net sales for the then trailing 12 months
were used ($408 million). The April 2009 peer group includes the following companies, which had
the following respective net sales or revenues for their then most recent 12 months (each in
millions):
38
Edwards Lifesciences Corp. ($1,238)
Intuitive Surgical Inc. ($875)
Integra Lifesciences Hldgs. ($655)
American Medical Systems Hldgs ($502)
Symmetry Medical Inc. ($423)
Thoratec Corp. ($314)
Accuray Inc. ($223)
Peer Group April 2009
Cooper Companies Inc. ($1,069)
Sirona Dental Systems Inc. ($748)
Haemonetics Corp. ($584)
Wright Medical Group Inc. ($466)
Zoll Medical Corp. ($394)
Nuvasive Inc. ($250)
Icu Medical Inc. ($205)
Resmed Inc. ($888)
Conmed Corp. ($742)
Orthofix International NV ($520)
Gen-Probe Inc. ($456)
Arthrocare ($337)
Merit Medical Systems Inc. ($227)
The April 2009 peer group was used to benchmark base salaries, annual cash incentives and
long-term equity incentives for our named executive officers for 2010, and provide a market check
for our executive perquisites and executive employment, severance and change in control
arrangements. With respect to the base salary information, the peer group data was aged 1.6
percent, which represented the average 2009 base salary increase for executives in the medical
equipment and supplies industry, to reflect average annual base salary increases and thus
presumably more current base salary data.
In reviewing benchmarking data, our compensation committee recognizes that benchmarking may not
always be appropriate as a stand-alone tool for setting compensation due to the aspects of our
business and objectives that may be unique to our company. Nevertheless, our compensation
committee believes that gathering this information is an important part of its compensation-related
decision-making process. The compensation committee believes that compensation paid by peer group
companies is representative of the compensation required to attract, retain and motivate ev3s
executive talent. However, where a sufficient basis for comparison does not exist between the peer
group or survey data and an executive, the compensation committee gives less weight to the peer
group and survey data. For example, relative compensation benchmarking analysis does not consider
individual specific performance or experience.
Market Positioning
. We target base compensation and total compensation (base compensation, annual
cash incentives and the grant value of long-term equity incentives) at the 50
th
to
75
th
percentile of companies in our peer group, with the opportunity to earn total
compensation above the market median when the performance of our business meets or exceeds our plan
targets. We believe that median to above-average positioning attracts and retains the best
executive talent in a highly competitive market. At the same time, however, we are cognizant of our
cost structure, especially with respect to fixed base compensation. The actual target compensation
for each individual executive may be higher or lower than the targeted market position based on
individual skills, experience, contribution, performance, internal equity or other factors that the
compensation committee may take into account that are relevant to the individual executive. In
addition, actual compensation results (e.g., amounts earned and paid each year) may be higher or
lower than target based on our corporate and divisional financial and individual performance.
Use of Tally Sheets.
Our compensation committee annually reviews all components of our named
executive officers compensation as presented in tally sheets. The tally sheets provide a
comprehensive view of each named executive officers compensation, broken down into the following
components:
|
|
|
A summary of annual compensation, including target total cash
compensation, the total estimated value of annual long-term incentive awards and the
value of benefits and perquisites received by each named executive officer, for the
last two years and an estimate for the current year;
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|
|
|
A summary of the vested and unvested values of all outstanding equity
awards held by each named executive officer at an assumed stock price; and
|
39
|
|
|
A summary of the change in control and severance benefits potentially
payable to each named executive officer in the event of a change in control and under a
termination without cause scenario.
|
The tally sheets provide the compensation committee with context for the decisions it makes in
relation to total direct compensation. The tally sheets allow the compensation committee to
holistically assess total direct compensation and the relationship of various components of the
total compensation program to each other. The tally sheets also enable the compensation committee
to determine how much wealth creation opportunity exists through equity-based compensation and how
strong the retention power is as a result of unvested value. The tally sheets also may influence
the compensation committees views on a variety of issues, such as changes to change in control
arrangements and employment agreements, special equity grants to promote retention, or changes in
long-term equity incentives.
Executive Compensation Components
The principal elements of our executive compensation program for 2009 were:
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short-term cash incentive compensation;
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|
|
long-term equity-based incentive compensation, in the form of stock options and
restricted stock awards (or units); and
|
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|
|
other compensation arrangements, such as benefits made generally available to our other
employees, limited executive benefits and perquisites, and severance and change in control
arrangements.
|
In determining the form of compensation to pay our named executive officers, our compensation
committee views these elements of our executive compensation program as related but distinct. Our
compensation committee does not believe that significant compensation derived by an executive from
one element of our compensation program should necessarily result in a reduction in the amount of
compensation the executive receives from other elements. At the same time, our compensation
committee does not believe that minimal compensation derived from one element of compensation
should necessarily result in an increase in the amount the executive should receive from one or
more other elements of compensation. As an example, the compensation committee did not increase
substantially executives base salaries, short-term cash incentive compensation or long-term
equity-based incentive compensation for 2009 so as to compensate for the substantial decrease in
executives equity-based incentive compensation in 2008 as a result of the significant decrease in
the value of our common stock during 2008.
Except as described below, our compensation committee has not adopted any formal or informal
policies or guidelines for allocating compensation between long-term and currently paid out
compensation, between cash and non-cash compensation, or among different forms of non-cash
compensation. However, our compensation committees philosophy is to make a greater percentage of
an executives compensation performance-based, and therefore at risk, as the executives position
and responsibility increases given the influence more senior level executives generally have on
company performance. Thus, individuals with greater roles and responsibilities associated with
achieving our companys objectives should bear a greater proportion of the risk that those goals
are not achieved and should receive a greater proportion of the reward if objectives are met or
surpassed. For example, this philosophy is illustrated by the higher cash incentive targets and
equity-based awards of our President and Chief
40
Executive Officer, our Executive Vice President and
Chief Operating Officer and our other Executive Vice President as compared to other executives.
Total Compensation Mix and Pay for Performance
The table below illustrates how total compensation for our named executive officers for 2009 was
allocated between performance and non-performance based components, how performance based
compensation is allocated between short-term and long-term components and how total compensation is
allocated between cash and equity components.
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|
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|
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|
|
|
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|
Total Compensation Mix
|
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|
(base salary, short-term cash incentives, long-term
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|
equity incentives and executive benefits and perquisites)
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% of Total
|
|
% of Performance Based
|
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% of Total
|
|
|
Compensation that is:
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|
Total Compensation that is:
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|
Compensation that is:
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|
|
|
|
|
|
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|
|
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|
Equity
|
|
|
Performance Based
(1)
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Fixed
(2)
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Annual
(3)
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Long-Term
(4)
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Cash Based
(5)
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Based
(6)
|
Robert J. Palmisano
|
|
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70
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%
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30
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%
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35
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%
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65
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%
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55
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%
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45
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%
|
Shawn McCormick
|
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|
77
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%
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|
|
23
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%
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|
|
38
|
%
|
|
|
62
|
%
|
|
|
52
|
%
|
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|
48
|
%
|
Patrick D. Spangler
|
|
|
0
|
%
|
|
|
100
|
%
|
|
|
N/A
|
|
|
N/A
|
|
|
100
|
%
|
|
|
0
|
%
|
Pascal E.R. Girin
|
|
|
50
|
%
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|
50
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%
|
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|
42
|
%
|
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|
58
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%
|
|
|
71
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%
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29
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%
|
Stacy Enxing Seng
|
|
|
77
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%
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|
|
23
|
%
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|
|
19
|
%
|
|
|
81
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%
|
|
|
38
|
%
|
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|
62
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%
|
Brett A. Wall
|
|
|
73
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%
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|
|
27
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%
|
|
|
20
|
%
|
|
|
80
|
%
|
|
|
41
|
%
|
|
|
59
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%
|
|
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|
(1)
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Short-term cash incentives plus long-term equity incentives divided by total compensation
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(2)
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Base salary plus executive benefits and perquisites divided by total compensation
|
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(3)
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|
Short-term cash incentives divided by short-term cash incentives plus long-term equity
incentives
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|
(4)
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Long-term equity incentives divided by short-term cash incentives plus long-term equity
incentives
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(5)
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|
Base salary plus short-term cash incentives and executive benefits and perquisites divided by
total compensation
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|
(6)
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Long-term equity incentives divided by total compensation
|
Consistent with the philosophy of our executive compensation program, the majority of
compensation for 2009 paid to our named executive officers other that Patrick D. Spangler, our
former Senior Vice President and Chief Financial Officer, was performance-based. As a performance
driven culture we favor having a significant component of compensation be variable and tied to
results and achievement over solely fixed compensation. To align the interests of our named
executive officers with the interests of our stockholders, a substantial majority of the
performance-based compensation paid to our named executive officers in 2009 was in the form of
long-term equity incentives and a significant part of the total compensation paid to our named
executive officers was equity based. The compensation paid in 2009 to Pascal E.R. Girin, our
Executive Vice President and Chief Operating Officer, included a larger cash-based element and
smaller performance-based element than the other named executive officers because of the mobility
premium payments under French tax laws relating to travel by Mr. Girin outside of France prior to
his relocation from Paris, France to Irvine, California and the secondment benefits we agreed to
provide Mr. Girin in order to induce him to relocate, which are described in more detail under the
headings Executive Benefits and Perquisites and All Other Compensation and Executive
CompensationSummary of Cash and Other CompensationEmployment AgreementPascal E.R. Girin.
Because Mr. Spangler resigned in January 2009, he did not receive a short-term cash incentive
payment or any long-term equity incentive grants, but he was paid non-performance based severance
benefits, which increased his non-performance based and cash-based compensation relative to our
other executives.
Based on compensation data gathered by Mercer in October 2009, which used our April 2009 peer
group, Mercer concluded that our pay mix is reasonable compared to market practices. According to
the Mercer
41
October 2009 data, the majority of our executive compensation is delivered through
short-term and long-term incentives. Target total cash compensation (base salary plus target
annual bonus) for 2009 was closer to the 75
th
percentile than the market median due
primarily to higher than market short-term incentive targets. Target total direct compensation
(target total cash compensation plus target long-term incentive) was in line with the market median
for most executives, other than Mr. Girin, which was at the 75
th
percentile. Actual
total direct compensation (which used short-term cash incentive data from 2008) was slightly below
the market median due primarily to actual long-term incentive grants in 2009 being substantially
below the market in large part due to the dilution constraints contained in our long-term equity
incentive grant guidelines. Mercer also concluded that the relative total compensation levels of
Robert J. Palmisano, our President and Chief Executive Officer, which included only one year of
data since he was hired in April 2008, were well aligned with our companys relative performance.
Base Salary
Overview
. We provide a base salary for our named executive officers, which, unlike some of the
other elements of our executive compensation program, is not subject to company or individual
performance risk. We recognize the need for most executives to receive at least a portion of their
total compensation in the form of a guaranteed base salary that is paid in cash regularly
throughout the year.
Setting Initial Salaries for New Executives
. We initially fix base salaries for our executives at
a level we believe enables us to hire and retain them in a competitive environment and to reward
satisfactory individual performance and a satisfactory level of contribution to our overall
business objectives. During 2009, two of our named executive officers, Mr. McCormick and Mr. Wall,
were hired, or in the case of Mr. Wall, promoted, as new executive officers of ev3.
In January 2009, we hired Mr. McCormick as our new Senior Vice President and Chief Financial
Officer replacing Mr. Spangler who resigned from that position. In establishing Mr. McCormicks
base salary at $350,000, our compensation committee considered Mr. McCormicks prior financial and
other experience, including in particular his corporate development experience; his success in
serving in those positions; his most recent compensation at his prior employer and the base
salaries of chief financial officers of companies in our May 2008 peer group. Based on salary data
gathered by Mercer in December 2008, Mr. McCormicks base salary of $350,000 was at the
75
th
percentile of base salaries for chief financial officers of companies in our peer
group. Based on salary data gathered by Mercer in October 2009, Mr. McCormicks base salary of
$350,000 was slightly above the 50
th
percentile of base salaries for chief financial
officers of companies in our April 2009 peer group. Consistent with our compensation objectives,
the compensation committee believed that Mr. McCormick was important to the success of our company
and the creation of value for our stockholders in light of not only his strong financial background
but also his extensive corporate development background and that paying Mr. McCormick a base salary
at the 75
th
percentile was necessary to attract Mr. McCormick to ev3, especially in
light of his base salary at his prior employer.
In October 2009, we promoted Mr. Wall, who was not previously an executive officer of ev3 but
served as Vice President, Sales and Marketing for ev3 Neurovascular, to Senior Vice President and
President, International. In establishing Mr. Walls base salary at $300,000, our compensation
committee considered Mr. Walls then current base salary, his experience serving in other positions
within the company, his success in serving in those positions, the base salaries of other similar
executives of companies in our May 2008 peer group and Mr. Walls lack of experience serving as a
head of a business unit. Based on salary data gathered by Mercer in December 2008 and again in
October 2009, Mr. Walls base salary of $300,000 was below the 25
th
percentile of base
salaries for divisional presidents of companies in our peer group. The compensation committee
believed it was appropriate to pay Mr. Wall an initial base salary below the 25
th
percentile for several reasons: (1) Mr. Wall had not previously served as an executive
42
officer of
ev3 and thus his previous base salary was lower than other similar executives who had served in
their positions for a longer period of time; (2) Mr. Wall had not served in a similar position with
similar responsibilities at either ev3 or any other employer and thus did not have the experience
level of our other two divisional presidents or other similar executives of companies in our peer
group; and (3) Mr. Wall would be responsible for a smaller business from an operational standpoint,
unlike our other two divisional presidents who were responsible for larger businesses in terms of
overall operations.
Salary Increases in Connection with Promotions
. We typically increase the base salaries of our
named executive officers in connection with promotions to compensate our executives for their
assumption of increased roles and responsibilities and to bring their base compensation closer to
those for executives in comparable positions at similar companies.
In connection with her promotion to Executive Vice President and President, U.S. Peripheral
Vascular in December 2008, Ms. Enxing Seng received a 10 percent increase in her base salary to
$356,000. The amount of this increase was intended to compensate Ms. Enxing Seng for her increased
responsibilities and to bring her base compensation more in line with executives in comparable
positions at similar companies. Based on salary data gathered by Mercer in December 2008 and again
in October 2009, Ms. Enxing Sengs increased base salary after her December 2008 promotion was
slightly above the 50
th
percentile of base salaries for executives in comparable
positions with companies in our peer group.
In July 2009, at our request, Mr. Girin agreed to relocate from our Paris, France to our Irvine,
California location, and in October 2009, Mr. Girin was promoted to Executive Vice President and
Chief Operating Officer effective January 1, 2010. From July 2008 to October 2009, Mr. Girins
base compensation consisted of a base salary of 259,113 Euro and up to an additional 99,672 Euro
paid in mobility premium or expatriation premium payments. Such mobility premium payments were
made to Mr. Girin under French tax law based on the number of days which he worked outside of
France on behalf of our company. Because such payments were not subject to company or individual
performance risk, we considered such payments as a form of base compensation for Mr. Girin.
Commencing in October 2009 as a result of his relocation to Irvine, California and status as a U.S.
taxpayer, we began to pay Mr. Girin a base salary paid in U.S. dollars and no additional mobility
premium payments. Based on the exchange rate of one Euro to 1.5 U.S. dollars, Mr. Girins base
salary was fixed at $538,178. Based on the market data gathered by Mercer in July 2008 and again
in December 2008 reflecting compensation levels for positions with levels of responsibilities
similar to Mr. Girins position (i.e., chief operating officer, head of division, head of business
development and head of sales) among French multinationals in the high tech industry, Mr. Girins
previous base compensation of 358,785 Euro was above the 50
th
percentile but below the
75
th
percentile of base compensation for French multinational executives in comparable
positions. Based on the salary data gathered by Mercer in October 2009, which benchmarked Mr.
Girins base salary (as calculated using an exchange rate of one Euro to 1.30852 U.S. dollars)
against base salaries for executives in comparable positions (prior to Mr. Girins promotion to
Chief Operating Officer) with companies in our peer group, Mr. Girins base salary was above the
75
th
percentile. In light of such market data and the amount of Mr. Girins base salary
in U.S. dollars of $538,178 relative to the base salary of our President and Chief Executive
Officer of $600,000, the compensation committee did not further increase Mr. Girins base salary in
connection with his promotion to Chief Operating Officer effective in January 2010.
Annual Salary Increases
. We typically increase the base salaries of our named executive officers
in the beginning of each year following the completion of our prior fiscal year and individual
performance reviews in an amount equal to an approximate cost of living adjustment. We do so to
recognize annual increases in the cost of living and to ensure that our base salaries remain market
competitive. We refer to our typical annual base salary increases as merit increases. In
addition, we may make additional upward adjustments to a particular executives base salary to
compensate an executive for assuming
43
increased roles and responsibilities, to reward an executive
for superior individual performance, to retain an executive at risk of recruitment by other
companies, and/or to bring an executives base salary closer to the 50
th
to
75
th
percentile of companies in our peer group.
In lieu of merit increases for our then executive officers for 2009, the compensation committee
decided to grant long-term equity incentives to such executives in an amount by which the
executives base salary would have increased. The compensation committee decided to do this upon
recommendation of our President and Chief Executive Officer for a few reasons. First, based on
salary data gathered by Mercer in December 2008, the base salaries of all of our executive officers
were at or slightly above the 50
th
percentile of base salaries for executives in
comparable positions with companies in our peer group or, in the case of Mr. Girin, companies in
the relevant survey or market data. Second, we did not desire to raise our executives base
salaries at a time when the base salaries of executives of other public companies were being held
at the same rate or even decreased in light of the then economic recession. Third, by granting
long-term equity incentives in lieu of base salary merit increases, we increased the percentages of
the executives long-term incentives, which in the case of several of our executives, were below
the market median of the comparative data. The additional long-term equity incentives, however,
were not granted to Mr. McCormick in light of his then recent hire date or Ms. Enxing Seng in light
of a base salary increase she received in December 2008 in connection with her then promotion. Mr.
Wall, who was not an executive officer of ev3 at that time in February 2009, received a merit
increase of 3.575 percent for 2009, which was representative of the average merit increase received
by other ev3 non-executive employees for 2009.
The number of long-term equity incentives granted in lieu of merit increases for 2009 was
determined based on the dollar amount of the merit increase. Accordingly, on February 12, 2009, in
connection with their individual annual performance recognition grants, the following named
executive officers received the following additional equity grants in lieu of the following merit
increases. All of these stock options and stock grants vest according to ev3s standard vesting
for individual annual performance recognition grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grant Date
|
|
|
% of Base
|
|
Dollar Amount of
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
Salary Merit
|
|
Merit Increase for
|
|
Shares Underlying
|
|
Shares Underlying
|
|
Long-Term Equity
|
|
|
Increase for 2009
|
|
2009
|
|
Stock Option
|
|
Stock Grant
|
|
Incentives
|
Robert J. Palmisano
|
|
|
3.500
|
%
|
|
$
|
21,000
|
|
|
|
4,173
|
|
|
|
1,669
|
|
|
$
|
21,000
|
|
Shawn McCormick
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Pascal E.R. Girin
(1)
|
|
|
3.750
|
%
|
|
|
18,005
|
|
|
|
3,578
|
|
|
|
1,431
|
|
|
|
18,005
|
|
Stacy Enxing Seng
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Brett A. Wall
|
|
|
3.575
|
%
|
|
|
9,653
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1)
|
|
The conversion into U.S. dollars was based on the conversion rate as of January 30, 2009,
which was one Euro to $1.30852.
|
In December 2009, the compensation committee decided to permit our executive officers to elect
to receive any 2010 merit increase in either the form of an increased base salary or in the form of
long-term equity incentives divided evenly between stock options and restricted stock grants. The
compensation committee decided to do this upon recommendation of our President and Chief Executive
Officer for some of the same reasons it decided to do so in 2009. First, the grant of long-term
equity incentives in lieu of base salary merit increases would increase the percentages of the
executives long-term incentives, which in the case of several of our executives, were below the
market median of the comparative data, and would assist some of our executives in complying or
getting closer to complying with our recently established stock ownership guidelines. Second,
based on salary data gathered by Mercer in October
44
2009, the base salaries of most of our executive officers remained at or slightly above the
50
th
percentile, and in the case of Mr. Palmisano and Mr. Girin, closer to or above the
75
th
percentile, of base salaries for executives in comparable positions with companies
in our peer group.
All of our executive officers eligible to receive merit increases elected to receive their merit
increases in the form of long-term equity incentives. The number of long-term equity incentives
granted was determined based on the dollar amount of the merit increase as adjusted upward by a
factor of 2.5 to reflect the lost opportunity value associated with a lower base salary. The factor
of 2.5 was determined by the compensation committee after consultation with Mercer and taking into
account the following considerations: (1) the termination risk since executives whose employment
was involuntarily terminated prior to vesting would receive no replacement for the lost merit
increase; (2) the reduced total cash opportunity since not only would an executives 2010
compensation be lower in terms of base salary, annual incentive opportunity (which is expressed as
a percentage of base salary) and long-term equity incentives (which as described below is
determined pursuant to ev3s long-term equity incentive guidelines which base long-term equity
incentives on an executives percentage of base salary), but the executives future compensation
would also be lower since the executives future base salary and accordingly, annual incentive
opportunity and long-term equity incentives, would be lower, thereby having a compounding effect;
and (3) the time value of money and the fact that as described below the long-term equity
incentives would vest and be realized only after the completion of the full year of vesting as
opposed to the merit increase which would be realized during the calendar year. As opposed to the
typical four-year vesting on the long-term equity incentives, the compensation committee decided to
provide for one-year cliff vesting in recognition of the fact that the long-term equity incentives
were being granted in lieu of an annual base salary increase and to reduce the effect of the
termination risk and time value of money factors described above.
Accordingly, on January 28, 2010, the following named executive officers received the following
equity grants in lieu of the following merit increases. All of the stock options and stock grants
will vest in full on January 28, 2011. Mr. Girin was not eligible to receive a merit increase in
light of the recent determination of his base salary in connection with his promotion to Chief
Operating Officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Base
|
|
Dollar Amount of
|
|
|
|
|
|
|
|
|
|
Value of Long-Term
|
|
|
Salary Merit
|
|
Merit Increase for
|
|
Shares Underlying
|
|
Shares Underlying
|
|
Equity
|
|
|
Increase for 2010
|
|
2010
|
|
Stock Option
|
|
Stock Grant
|
|
Incentives
(1)
|
Robert J. Palmisano
|
|
|
4.00
|
%
|
|
$
|
24,000
|
|
|
|
5,102
|
|
|
|
2,041
|
|
|
$
|
60,000
|
|
Shawn McCormick
|
|
|
3.25
|
%
|
|
|
11,375
|
|
|
|
2,418
|
|
|
|
967
|
|
|
|
28,438
|
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Pascal E.R. Girin
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Stacy Enxing Seng
|
|
|
3.50
|
%
|
|
|
12,460
|
|
|
|
2,649
|
|
|
|
1,060
|
|
|
|
31,150
|
|
Brett A. Wall
|
|
|
3.50
|
%
|
|
|
10,500
|
|
|
|
2,232
|
|
|
|
893
|
|
|
|
26,250
|
|
|
|
|
(1)
|
|
The value of long-term equity incentives is based on the value calculated under our
long-term incentive grant guidelines and does not necessarily match the grant date fair value
of the equity awards under applicable accounting rules and as set forth in the Grants of Plan
Based Awards table found later in this proxy statement.
|
Consistent with our objectives to reinforce our corporate mission, vision and values and
motivate our executives to help fulfill our corporate mission and vision while incorporating our
shared values, the percentage merit increase for each named executive officer for 2009 and 2010,
other than Mr. Palmisano, was determined based on each executives overall annual performance
review achievement rating (as opposed to achievement of the executives MBOs). As discussed above
under the heading Setting Executive CompensationRole of Management, the annual performance
review used to determine an executives annual merit increase evaluates an executives base
business job performance and
45
performance specifically in furtherance of ev3s mission, values and vision and its quality policy.
The annual performance review ratings are on a scale of 1 to 4 and the achievement levels are as
follows:
|
|
|
Rating
|
|
Achievement Level
|
4 = Exceeded
|
|
Executives performance is exceptional and is a role model for the assigned section
|
|
3 = Achieved
|
|
Executive consistently performs at the expected level of contribution. Employee
has a solid skill foundation that will allow the executive to succeed
|
|
2 = Partially Achieved
|
|
Executive is progressing toward expected performance
|
|
1 = Not Achieved
|
|
Executives overall performance does not meet the expected level of contribution
|
Therefore, as an example, an annual performance review rating of 3.5 for 2009 and 2010 yielded
a 3.5 percent merit increase in an executives base salary. A performance review rating of 2.0 and
below resulted in no merit increase. As reflected in one of the tables above, the annual
performance review ratings for our named executive officers for 2008 ranged from 3.25 percent to
3.50 percent, which based on the formula for merit increases for 2009 happened to correspond on a
one-for-one basis to the range of their merit increases, and the annual performance review ratings
for our named executive officers for 2009 ranged from 3.25 percent to 4.00 percent, which based on
the formula for merit increases for 2010 also corresponded on a one-for-one basis to the range of
their merit increases.
The percentage merit increase for Mr. Palmisano for 2009 and 2010 was determined based on his
performance for the previous year. In evaluating the performance of our President and Chief
Executive Officer and the amount of his percentage merit increase for 2009 and 2010, the
compensation committee reviewed Mr. Palmisanos self-review, discussed his performance amongst its
members, sought the input of other members of our board of directors, as well as other members of
our executive team. In assessing the performance of our President and Chief Executive Officer, the
compensation committee evaluated primarily our corporate financial performance, our progress
towards fulfilling our business initiatives and the President and Chief Executive Officers
leadership. Mr. Palmisanos merit increase for 2009 was 3.5 percent or $21,000. In setting this
amount, the compensation committee considered the average percentage merit increase for 2009 which
was 3.5 percent, Mr. Palmisanos then current salary which was above the market median and Mr.
Palmisanos ability during 2008 to re-orient the organization toward a goal of sustained
profitability and the establishment and implementation of a high performance management system to
assist the organization in the achievement of such goal. Mr. Palmisanos merit increase for 2010
was 4.0 percent or $24,000. In setting this amount, the compensation committee considered in
particular Mr. Palmisanos excellence in guiding the organization in 2009 resulting in a strong
performance in many areas such as financial results, leadership development, delighting the
customer and building a strategic framework for the future.
Short-Term Cash Incentive Compensation
Generally
. Under the terms of the ev3 Inc. 2009 Employee Performance Incentive Compensation Plan,
our named executive officers, as well as other executives and certain employees of our company,
earned annual cash bonus payments for 2009 based on financial performance objectives and, to a
lesser extent, individual performance objectives. The primary purpose of the plan was to align our
short-term incentive compensation program with our financial and operating performance goals and
objectives. The plan was designed to provide a direct financial incentive to our executives and
certain other employees for the achievement of specific annual financial performance objectives and
individual performance objectives.
Each of our named executive officers had an annual incentive target under the plan, expressed as a
percentage of his or her base salary, although Mr. Girins incentive target was initially based on
a percentage of his base salary and mobility premium payments. The level of each incentive target
was based on the individuals level of responsibility within the company. Each executives bonus
payment
46
under the plan was determined by multiplying the executives target bonus amount for the year (the
executives incentive target times his or her base salary) by a payout percentage determined based
primarily on the achievement of financial performance objectives, and in the case of all of our
named executive officers, other than our President and Chief Executive Officer, certain individual
performance objectives or MBOs. The maximum payout percentage was 150 percent and the minimum
threshold payout percentage was 50 percent, with no payout for performance below the minimum
threshold payout percentage of 50 percent. All individual performance objectives, or MBOs, were
rated (on a scale from one to five with a rating of three representing target or on plan
performance) and then weighted based on relative importance in order to obtain a weighted
performance rating for each objective. All weighted performance ratings were added together to
obtain an overall rating for each executive. An aggregate average for all of the objectives must
have met at least a 1.5 to meet the minimum 50 percent payout threshold. Increments between rating
levels were interpolated on a linear basis to determine an actual incentive percentage. For
example, an overall rating of 3.5 equaled a 112.5 percent incentive percentage. For each
executive, the actual incentive percentage was multiplied by the target bonus percentage to
calculate the award. For example, a 112.5 percent actual incentive percentage times 50 percent
target bonus equaled an award of 56.3 percent of base salary.
2009 Incentive Targets
. The incentive target for each named executive officer under the plan for
2009 is as set forth in the table below, as well as the threshold, target and maximum annual bonus
opportunity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Target
|
|
Annual Bonus Opportunity for Each Executive
|
Named Executive Officer
|
|
(% of Base Salary)
|
|
Threshold (50%)
|
|
Target (100%)
|
|
Maximum (150%)
|
Robert J. Palmisano
|
|
|
100
|
%
|
|
$
|
300,000
|
|
|
$
|
600,000
|
|
|
$
|
900,000
|
|
Shawn McCormick
|
|
|
60
|
%
|
|
|
99,534
|
|
|
|
199,068
|
|
|
|
298,602
|
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascal E.R. Girin
(1)
|
|
|
65
|
%
|
|
|
174,908
|
|
|
|
349,816
|
|
|
|
524,724
|
|
Stacy Enxing Seng
|
|
|
65
|
%
|
|
|
115,700
|
|
|
|
231,400
|
|
|
|
347,100
|
|
Brett A. Wall
|
|
|
40%/60
|
%
|
|
|
66,987
|
|
|
|
133,973
|
|
|
|
200,960
|
|
|
|
|
(1)
|
|
The conversion into U.S. dollars was based on the conversion rate of one Euro to $1.50.
|
The threshold, target and maximum annual bonus opportunity for Mr. McCormick has been prorated
to reflect his January 19, 2009 start date. Mr. Spangler did not have an incentive target under
the plan since he had departed prior to the adoption of the plan. The threshold, target and
maximum annual bonus opportunity for Mr. Wall has been prorated to reflect his increased incentive
target to 60 percent and increased base salary received in connection with his promotion to Senior
Vice President and President, International on October 5, 2009. His previous incentive target
under the plan was 40 percent.
Consistent with our philosophy that executives with greater roles and responsibilities associated
with achieving our companys performance objectives should bear a greater proportion of the risk
that those objectives are not achieved and should receive a greater proportion of the reward if the
objectives are met or surpassed, Mr. Palmisano, our President and Chief Executive Officer, had the
highest incentive target and our executives in charge of our two business segments during 2009 had
the next highest incentive targets. The incentive targets of most of our executives were at or
slightly above the 50
th
percentile compared to the incentive targets of executives with
comparable positions at companies in our peer group. The incentive target for Mr. Palmisano, our
President and Chief Executive Officer, was at the 75
th
percentile. This is consistent
with our philosophy that we target base compensation and total compensation at the 50
th
to 75
th
percentile of companies in our peer group, with the opportunity to earn total
compensation above the market median when the performance of our business meets or exceeds our plan
targets. We believed an incentive target for Mr. Palmisano at the high end of our targeted range
was appropriate in light of: (1) Mr. Palmisanos position as chief executive officer of our
company; (2) our
47
belief that executives, especially those with the most responsibility, should have the opportunity
to earn total compensation above the market median when the performance of our business meets or
exceeds our plan targets; and (3) Mr. Palmisanos extensive experience as a seasoned chief
executive officer.
2009 Financial Performance Objectives
. The financial performance objectives under the plan for
2009 were based on our revenue and operating profit for 2009 and days sales outstanding and
inventory days on hand as of December 31, 2009, each as compared with target amounts. Each of the
financial performance objectives were assigned the following weightings:
|
|
|
|
|
Financial Performance Objectives
|
|
Weighting
|
Revenue
|
|
|
50
|
%
|
Operating Profit
|
|
|
30
|
%
|
Days Sales Outstanding (DSO)
|
|
|
10
|
%
|
Inventory Days on Hand (DOH)
|
|
|
10
|
%
|
As with our prior annual incentive plans, we placed primary emphasis on our revenue objectives
and a secondary but also important emphasis on our profitability objectives. Our revenue
objectives are intended to encourage our executives to focus on bringing new products to market,
gaining market share and expanding the existing markets that we serve. Our profitability
objectives are intended to encourage our executives to focus not only on increasing revenue, but
also on increasing our efficiency, optimizing our cost structure and improving our margins. During
2009, we also had DSO and DOH objectives to encourage our management and employees to focus on
working capital and inventory management. We assigned these two financial performance objectives
less weight, however, in light of our primary focus on increasing revenue and obtaining sustained
profitability.
The table below shows the threshold, target and maximum payout percentages established for each of
the four different financial performance objectives, on an overall corporate basis, and the
relationship of such financial objectives to our 2009 operating plan. The shaded portion of the
table shows our actual results for each of the four different corporate financial performance
objectives for 2009, the resulting incentive target percentage and the relationship of such actual
results to our 2009 operating plan.
Revenue (50% Weighting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Plan
|
|
Incentive %
|
Threshold
|
|
$400.0 million
|
|
|
92.6
|
%
|
|
|
50.0
|
%
|
Target
|
|
$431.9 million
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Maximum
|
|
$475.1 million
|
|
|
110.0
|
%
|
|
|
150.0
|
%
|
Actual
|
|
$431.7 million
|
|
|
100.0
|
%
|
|
|
99.8
|
%
|
Operating Profit (30% Weighting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Plan
|
|
Incentive %
|
Threshold
|
|
$17.6 million
|
|
|
80.0
|
%
|
|
|
50.0
|
%
|
Target
|
|
$22.0 million
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Maximum
|
|
$28.6 million
|
|
|
130.0
|
%
|
|
|
150.0
|
%
|
Actual
|
|
$31.1 million
|
|
|
141.4
|
%
|
|
|
150.0
|
%
|
48
Days Sales Outstanding (10% Weighting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Plan
|
|
Incentive %
|
Threshold
|
|
|
75
|
|
|
|
80.0
|
%
|
|
|
50.0
|
%
|
Target
|
|
|
60
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Maximum
|
|
|
50
|
|
|
|
120.0
|
%
|
|
|
150.0
|
%
|
Actual
|
|
|
62
|
|
|
|
96.8
|
%
|
|
|
91.9
|
%
|
Inventory Days on Hand (10% Weighting)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Plan
|
|
Incentive %
|
Threshold
|
|
|
253
|
|
|
|
80.0
|
%
|
|
|
50.0
|
%
|
Target
|
|
|
202
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Maximum
|
|
|
168
|
|
|
|
120.0
|
%
|
|
|
150.0
|
%
|
Actual
|
|
|
193
|
|
|
|
104.7
|
%
|
|
|
111.7
|
%
|
The overall corporate payout percentage for 2009 was 115.2 percent. The payout percentages
for the three specific businesses were derived from the overall corporate numbers but reflected
certain internal allocations and were as follows: worldwide neurovascular (127.4 percent); U.S.
peripheral vascular (94.3 percent) and international (104.3 percent).
Under the terms of the plan, the compensation committee may revise one or more of the financial
performance measures or otherwise make adjustments to payouts under the plan to take into account
any acquisition or disposition by our company not planned for at the time the financial measures
were established, any change in accounting principles or standards, or any extraordinary or
non-recurring event or item so as to equitably reflect such event or events and such that the
criteria for evaluating whether a financial measure has been achieved will be substantially the
same following such event as prior to such event. In determining the achievement level of our
financial performance objectives for 2009, in accordance with the terms of the plan, we excluded
the financial results of Chestnut Medical Technologies, Inc., which we acquired in June 2009. In
addition, we excluded any impact from foreign currency exchange rates. We did not make any other
adjustments to the financial performance objectives.
2009 Individual Performance Objectives
. In order to foster cooperation and communication among our
executives and among their respective teams, our compensation committee places primary emphasis on
overall corporate and business financial performance as measured against objectives approved by our
compensation committee rather than individual performance. Nonetheless, in the case of all of our
named executive officers, other than our President and Chief Executive Officer, individual
performance, and more specifically, the attainment of certain MBOs also affected the executives
actual bonus payouts under the 2009 plan.
MBOs are generally three to five written, measurable and specific objectives agreed to and approved
by the executive and the President and Chief Executive Officer and the compensation committee. All
MBOs were weighted by agreement, with areas of critical importance or critical focus weighted most
heavily. As described above, each of our named executive officers participated in a review process
during the beginning of 2010 and in connection with such review was rated (on a scale from one to
five with a rating of three representing target or on plan performance) depending upon whether,
and often times, when, their MBOs for 2009 were achieved. These ratings were then used to
determine the portion of the final bonus payout attributable to MBOs.
The following table indicates for each named executive officer the percentage of which MBOs
determined each executives final bonus payout for 2009 and the final MBO rating used in
determining each executives final bonus payout for 2009:
49
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
MBOs Component
|
|
Final MBO Rating
|
Robert J. Palmisano
|
|
|
0%
|
|
|
|
N/A
|
|
Shawn McCormick
|
|
|
10%
|
|
|
|
3.6
|
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
N/A
|
|
Pascal E.R. Girin
|
|
|
25%
|
|
|
|
3.6
|
|
Stacy Enxing Seng
|
|
|
25%
|
|
|
|
3.0
|
|
Brett A. Wall
|
|
|
25%
|
|
|
|
4.0
|
|
The MBOs for each executive for 2009 related primarily to the continued implementation of the
high performance management system that we established in mid-2008 that focuses executives efforts
on our vital few programs and action items and objectives to work toward fulfilling our corporate
mission and vision. Mr. McCormicks MBOs related to the accuracy and timing of our financial
reports, improvements in communication within the finance and information technology groups,
improvements in financial forecasts, completion of a profit and loss benchmarking analysis and
development and implementation of a pricing process. Mr. Girins MBOs related to the achievement
of the revenue objectives for the U.S. neurovascular and international businesses, the commercial
launch of certain new products and product improvements, the acquisition or internal development of
a flow diversion product and the achievement of certain regulatory milestones associated with our
neuro stent. Ms. Enxing Sengs MBOs related to achievement of the revenue, operating profit, DSO
and DOH objectives for the U.S. peripheral vascular business, the number of physicians consistently
using our plaque excision products, progress in our DEFINITIVE and DURABILITY clinical trials, the
commercial launch of certain new products and the operating performance of the U.S. peripheral
vascular senior leadership team. Mr. Walls MBOs related to the achievement of the overall
corporate and worldwide neurovascular revenue objectives, reorganization of the neurovascular sales
and marketing team, the commercial launch of certain new products and product improvements and the
achievement of certain regulatory milestones associated with our neuro stent. Mr. Palmisano did
not have any MBOs because the compensation committee determined that any annual bonus to be paid to
Mr. Palmisano for 2009 should be based solely on the achievement of our 2009 overall corporate
financial performance objectives.
2009 Bonus Payouts and Analysis
. Bonus payouts made to our named executive officers under our
annual incentive plan for 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Dollar Amount of
|
|
Final Incentive Percentage
|
Named Executive Officer
|
|
2009 Annual Bonus Payout
|
|
or Percent of Target
|
Robert J. Palmisano
(1)
|
|
$
|
691,200
|
|
|
|
115.2
|
%
|
Shawn McCormick
|
|
|
229,377
|
|
|
|
115.2
|
%
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
N/A
|
|
Pascal E.R. Girin
(2)
|
|
|
458,958
|
|
|
|
121.2
|
%
|
Stacy Enxing Seng
|
|
|
233,627
|
|
|
|
101.0
|
%
|
Brett A. Wall
|
|
|
162,061
|
|
|
|
121.0
|
%
|
|
|
|
(1)
|
|
Mr. Palmisanos annual bonus amount does not include the $100,000 value of discretionary
long-term equity incentives consisting of an option to purchase 8,503 shares of common stock
and a stock grant for 3,401 shares of common stock that he received at the end of January 2010
in special recognition of our corporate financial performance during 2009.
|
|
(2)
|
|
Mr. Girins annual bonus amount payout includes an upward adjustment of $34,850 or 8.2
percent. His final incentive percentage does not reflect this upward adjustment. Including
this upward adjustment, Mr. Girins final incentive percentage would be 131.2 percent.
|
The bonus payouts to Mr. Palmisano and Mr. McCormick for financial performance were based
solely on overall corporate financial performance since each has responsibilities across all of our
businesses. The bonus payout to Mr. Girin for financial performance was based on overall corporate
performance and, to a larger extent, the financial performance of our worldwide neurovascular
business, the business that he led
50
during 2009. The bonus payout to Ms. Enxing Seng for financial performance was based on overall
corporate financial performance and, to a larger extent, the financial performance of our U.S.
peripheral vascular business, which she led during 2009. The bonus payout to Mr. Wall for financial
performance was based on overall corporate financial performance and, to a larger extent, the
financial performance of our worldwide neurovascular business, and to a lesser extent, the
financial performance of our international business, both for which he was, to some extent,
responsible during 2009.
The following table summarizes the various components used in determining the final incentive
percentage for each named executive officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO %/
|
|
|
|
|
|
|
|
|
|
|
Named
|
|
MBO Rating/
|
|
US PV%/
|
|
Worldwide Neuro %/
|
|
International %/
|
|
Overall Corporate %/
|
|
Final Incentive
|
Executive Officer
|
|
% Payout
|
|
% Payout
|
|
% Payout
|
|
% Payout
|
|
% Payout
|
|
% Payout
|
Robert J. Palmisano
|
|
|
0.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
100.0
|
%
|
|
|
115.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.2
|
%
|
|
|
|
|
|
Shawn McCormick
|
|
|
10.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
90.0
|
%
|
|
|
115.2
|
%
|
|
|
|
3.60/115.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.2
|
%
|
|
|
|
|
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pascal E.R. Girin
|
|
|
25.0
|
%
|
|
|
N/A
|
|
|
|
50.0
|
%
|
|
|
N/A
|
|
|
|
25.0
|
%
|
|
|
121.2
|
%
(1)
|
|
|
|
3.60/115.0
|
%
|
|
|
|
|
|
|
127.4
|
%
|
|
|
|
|
|
|
115.2
|
%
|
|
|
|
|
|
Stacy Enxing Seng
|
|
|
25.0
|
%
|
|
|
50.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
25.0
|
%
|
|
|
101.0
|
%
|
|
|
|
3.00/100.0
|
%
|
|
|
94.3
|
%
|
|
|
|
|
|
|
|
|
|
|
115.2
|
%
|
|
|
|
|
|
Brett A. Wall
|
|
|
25.0
|
%
|
|
|
N/A
|
|
|
|
38.0
|
%
|
|
|
12.0
|
%
|
|
|
25.0
|
%
|
|
|
121.0
|
%
|
|
|
|
4.00/125.0
|
%
|
|
|
|
|
|
|
127.4
|
%
|
|
|
104.3
|
%
|
|
|
115.2
|
%
|
|
|
|
|
|
|
|
(1)
|
|
Mr. Girins final incentive payout does not reflect the upward adjustment to his final
bonus payout.
|
Under the terms of the plan, the compensation committee may modify an award by increasing or
decreasing it by up to 20 percent if in its subjective judgment a participant has not been
equitably treated by the mechanics of the incentive plan. Our compensation committee did not
exercise any discretion in either increasing or decreasing the bonus payouts to any of our named
executive officers, except in the case of Mr. Girin, who received an 8.2 percent increase in the
final bonus payout, which represented a 10.0 percent increase in the amount of his final incentive
percent payout. The compensation committee believed Mr. Girin deserved an upward adjustment to his
final bonus payout to reward him for the outstanding performance of the worldwide neurovascular
business, which exceeded each of its revenue, operating profit, DSO and DOH target objectives and
in the aggregate by over 27 percent. The compensation committee also exercised its discretion and
granted Mr. Palmisano $100,000 in long-term equity incentives, consisting of an option to purchase
8,503 shares and a stock grant for 3,401 shares. In so doing, the compensation committee reasoned
that Mr. Palmisano was overall responsible for achievement of the corporate objectives and deserved
an annual bonus in excess of his 115.2 percent payout. The compensation committee decided to grant
Mr. Palmisano long-term equity incentives in lieu of an upward adjustment to his annual bonus in
order to increase Mr. Palmisanos equity in our company in furtherance of our stock ownership
guidelines.
In terms of the dollar amounts of the 2009 annual bonus payouts, because the President and Chief
Executive Officer and the two Executive Vice Presidents have higher incentive targets, their bonus
payouts were higher than other executives. In terms of the actual incentive percentages, because
the worldwide neurovascular business performed well as compared to our operating plan, executives
with payouts tied more directly to the performance of this business, such as Mr. Girin and Mr.
Wall, received higher actual incentive percentages used to calculate their bonus payouts.
51
2010 Short-Term Incentive Compensation Plan; Incentive Targets and Financial Performance Goals
. In
December 2009, the board of directors, upon recommendation of the compensation committee, approved
the ev3 Inc. Employee Performance Compensation Plan for 2010.
The incentive target under the plan for 2010 for each named executive officer is as set forth in
the table below, as well as the threshold, target and maximum annual bonus opportunity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Target
|
|
Annual Bonus Opportunity for Each Executive
|
Named Executive Officer
|
|
(% of Base Salary)
|
|
Threshold (50%)
|
|
Target (100%)
|
|
Maximum (150%)
|
Robert J. Palmisano
|
|
|
100%
|
|
|
$
|
300,000
|
|
|
$
|
600,000
|
|
|
$
|
900,000
|
|
Shawn McCormick
|
|
|
60%
|
|
|
|
105,000
|
|
|
|
210,000
|
|
|
|
315,000
|
|
Pascal E.R. Girin
|
|
|
75%
|
|
|
|
201,817
|
|
|
|
403,634
|
|
|
|
605,450
|
|
Stacy Enxing Seng
|
|
|
65%
|
|
|
|
115,700
|
|
|
|
231,400
|
|
|
|
347,100
|
|
Brett A. Wall
|
|
|
60%
|
|
|
|
90,000
|
|
|
|
180,000
|
|
|
|
270,000
|
|
Consistent with our philosophy that executives with greater roles and responsibilities
associated with achieving our companys performance objectives should bear a greater proportion of
the risk that those objectives are not achieved and should receive a greater proportion of the
reward if the objectives are met or surpassed, our President and Chief Executive Officer has the
highest incentive target, our Executive Vice President and Chief Operating Officer has the next
highest incentive target and our other Executive Vice President has the next highest incentive
target. The incentive targets of most of our executive officers are again slightly above the
50
th
percentile or at the 75
th
percentile compared to the incentive targets
of executives with comparable positions at companies in our peer group, which is consistent with
our philosophy that we target base compensation and total compensation at the 50
th
to
75
th
percentile of companies in our peer group, with the opportunity to earn total
compensation above the market median when the performance of our business meets or exceeds our plan
targets.
Each plan participants annual bonus payment under the 2010 plan is determined in the same manner
as under the 2009 plan by multiplying the participants target bonus amount (the participants
target bonus percentage times his or her annual base salary) by a payout percentage and determined
based on the achievement of corporate financial objectives, as well as, in the case of Ms. Enxing
Seng and Mr. Wall, additional divisional financial objectives, and non-financial individual
performance objectives. As with the 2009 plan, the corporate and divisional financial objectives
under the plan for 2010 are based on revenue and operating profit for 2010 and days sales
outstanding and inventory days on hand as of December 31, 2010, each as compared with target
amounts. In addition to overall corporate financial objectives, we will measure financial
objectives for worldwide peripheral vascular, worldwide neurovascular and international. With
respect to the non-financial individual performance objectives, or MBOs, the percentage of which
MBOs will determine each executives final bonus payout for 2010 will remain the same as 2009.
MBOs for 2010 were required under the terms of the plan to be finalized by the end of first quarter
2010 and were approved by the compensation committee at the end of January 2010.
As with the 2009 plan, each executives bonus payment under the 2010 plan will be determined by
multiplying the executives target bonus amount for the year (the executives incentive target
times his or her base salary) by a payout percentage determined based primarily on the achievement
of the corporate financial performance objectives, and in the case of all of our named executive
officers, other than our President and Chief Executive Officer, their 2010 MBOs. The maximum
payout percentage is 150 percent and the minimum threshold payout percentage is 50 percent, with no
payout for performance below the minimum threshold payout percentage of 50 percent. All
performance measures and objectives will be rated (on a scale from one to five with a rating of
three representing target or on plan performance) and then weighted based on relative importance
in order to obtain a weighted performance rating for each objective. All weighted performance
ratings will be added together to obtain an overall rating for each executive. An aggregate
average for all of the objectives must meet at least a 1.5 to meet
52
the minimum 50 percent payout threshold. Increments between rating levels will be interpolated on
a linear basis to determine an actual incentive percentage.
Long-Term Equity-Based Incentive Compensation
Generally
. Our compensation committees primary objectives with respect to long-term equity-based
incentives are to align the long-term interests of our executives with the long-term interests of
our stockholders by creating a strong and direct linkage between compensation and long-term
stockholder return, promote stock ownership and create significant incentives for retention.
Long-term equity-based incentives typically comprise a significant portion of each named executive
officers compensation package, consistent with our philosophy and principles discussed above. For
2009, equity-based compensation comprised 45 percent of the total compensation for our current
President and Chief Executive Officer and ranged from 29 percent to 62 percent of the total
compensation for our other named executive officers who remain executive officers of our company.
Currently, we provide our named executive officers (and our other executives and key employees)
with stock options and restricted stock awards (or units). Both our board of directors and
stockholders have approved the ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan,
pursuant to which our named executive officers (as well as other executives and key employees) are
eligible to receive and receive equity-based incentive awards. For more information concerning the
terms of this plan, we refer you to Executive CompensationGrants of Plan-Based Awardsev3 Inc.
Second Amended and Restated 2005 Incentive Stock Plan. In addition, we also refer you to
Proposal Two Approval of the ev3 Inc. Third Amended and Restated 2005 Incentive Plan. All
equity-based incentive awards granted to our named executive officers during 2009 were made under
our 2005 incentive stock plan.
To assist our compensation committee in granting, and our management in recommending the grant of,
equity-based incentive awards, our compensation committee each year at its December meeting, upon
recommendation of Mercer, adopts long-term incentive grant guidelines for the following year. In
addition to our long-term incentive grant guidelines, our board of directors has adopted a policy
document entitled Policy and Procedures Regarding Grants of Stock Options, Restricted Stock and
Other Equity-Based Incentive Awards, which includes policies that the board of directors and
compensation committee generally follows in connection with granting equity-based incentive awards.
As with most components of our executive compensation program and for the reasons previously
described, the compensation committee aims to provide our executives with long-term equity-based
incentive opportunities that are at the 50
th
to 75
th
percentile of comparable
positions in companies in our peer group data.
Types of Equity Grants
. Under our long-term incentive grant guidelines and our policy document,
our compensation committee generally grants three types of equity-based incentive awards to our
named executive officers: performance recognition awards, promotional grants and talent
acquisition grants. On occasion, our compensation committee will grant purely discretionary
awards.
Performance recognition grants are discretionary annual grants that historically were made in the
first quarter of the year in order to coordinate the timing with any annual base salary increases
and any annual incentive plan payments, but commencing in 2010 will be made sometime in mid-year in
order to give the compensation committee another formal opportunity during the year to review
executive compensation and recognize executive and other key employee performance. The recipients
and the size of the performance recognition grants are determined, on a preliminary basis, by our
Human Resources department based on our long-term incentive grant guidelines and our then-current
stock price, and then, ultimately, by our compensation committee. Under our long-term incentive
grant guidelines for annual
53
performance recognition grants, our named executive officers receive a certain percentage of
their respective base salaries in stock options and restricted stock awards (or units). This is
different from prior years where the guidelines provided that our executives, depending upon their
grade level, would receive a certain number of shares. We moved to grant guidelines based on a
percentage of base salary as opposed to a fixed number of shares to be more consistent with the
equity grant practices of the companies in our peer group and to compensate to some extent for the
volatility in our stock price.
Once the value of equity-based incentive awards is determined based on the percentage of base
salary, one-half of the value is provided in stock options and the other one-half of the value is
provided in restricted stock awards (or units). The reasons why we use both stock options and
restricted stock awards (or units) are described below under the headings Stock Options and
Restricted Stock. The target dollar value to be delivered in stock options (50% of the target
total long-term equity value) is divided by the Black-Scholes value of a share of our common stock
to determine the number of stock options, which number may then be rounded to the nearest whole
number or in some cases multiple of 100. The number of restricted stock awards (or units) is
calculated using the intended dollar value (50% of the target total long-term equity value) divided
by the closing price of our common stock on the date of determination, which number may then be
rounded to the nearest whole number or in some cases multiple of 100. Typically, the number of
shares of restricted stock awards (or units) is fewer than the number of shares that would have
been covered by a stock option of equivalent target value. The actual number of stock options and
restricted stock awards (or units) granted may then be pared back so that the estimated run rate
dilution under our incentive stock plan is acceptable to our compensation committee (i.e.,
approximately 3.0 percent for 2009). The President and Chief Executive Officer next reviews the
preliminary individual awards and may make discretionary adjustments. Final proposed individual
awards are then calculated by the Human Resources department based on our then-current stock price.
Such proposed individual awards are then presented to the compensation committee for approval.
Approved awards are then issued, with the exercise price of the stock options equal to the closing
sale price of our common stock on the date of grant. In determining the number of stock options or
restricted stock awards (or units) to make to an executive as part of a performance recognition
grant, previous awards, whether vested or unvested, granted to such individual have no impact.
The following table describes our long-term incentive grant guidelines for annual performance
recognition grants that applied to our named executive officers for 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Grant Guideline
|
|
Incentive Grant Guideline
|
|
|
|
|
|
|
Expressed as % of Base
|
|
Dollar Value of
|
Named Executive Officer
|
|
Grade Level
|
|
Salary for Grade Level
|
|
Long-Term Incentives
|
Robert J. Palmisano
|
|
|
11
|
|
|
|
300
|
%
|
|
$
|
1,800,000
|
|
Shawn McCormick
|
|
|
9
|
|
|
|
175
|
%
|
|
|
612,500
|
|
Patrick D. Spangler
|
|
|
9
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Pascal E.R. Girin
(1)
|
|
|
10
|
|
|
|
200
|
%
|
|
|
938,955
|
|
Stacy Enxing Seng
|
|
|
10
|
|
|
|
200
|
%
|
|
|
712,000
|
|
Brett A. Wall
(2)
|
|
7
|
|
60%
|
|
131,700
|
|
|
(prior to 10/5/09)
|
|
(prior to 10/5/09)
|
|
(prior to 10/5/09)
|
|
|
|
9
|
|
|
|
175
|
%
|
|
|
525,000
|
|
|
|
(10/5/09 and after)
|
|
(10/5/09 and after)
|
|
(10/5/09 and after)
|
|
|
|
(1)
|
|
The conversion into U.S. dollars was based on the conversion rate as of January 30, 2009,
which was one Euro to $1.30852.
|
|
(2)
|
|
Mr. Walls grade level, incentive grant guideline expressed as a percentage of base salary
for grade level and incentive grant guideline dollar value of long-term incentives increased
in connection with his promotion to Senior Vice President and President, International on
October 5, 2009.
|
54
Consistent with our guiding principles that we seek to align the interests of our executives
with those of our stockholders by providing a significant portion of compensation in stock-based
awards and the portion of an executives total compensation that varies with performance and is
therefore at risk should increase with the level of an individuals responsibility, the incentive
grant guidelines, expressed as percentages of base salary and dollar values, increase as an
executives level of responsibility increases. The incentive grant guidelines expressed as a
percentage of average base salary by grade level are benchmarked each year by Mercer against our
peer group. Mr. Walls incentive grant guideline expressed as a percentage of base salary was 60
percent and thus much lower than our other named executive officers since at the time of the annual
performance recognition grants for 2009, Mr. Wall was not an executive officer and his grade level
was much lower than the other executives.
For 2010, our long-term incentive grant guidelines for annual performance recognition grants will
not change from 2009 as a percentage of base salary for each executive, but the dollar grant value
will change due to changes in salary levels. In addition, the size of the grants will change from
2009 in light of differences in stock price.
Performance recognition grants (also in the form of stock options and/or restricted stock awards
(or units)) also may be made in connection with the promotion of an individual. The size of these
grants are determined in the same manner as the annual performance recognition grants but are
larger in light of the higher base salary often associated with a promotion.
Talent acquisition grants are made in the form of stock options and/or restricted stock awards (or
units), and are used for new hires. These grants are considered and approved by our compensation
committee as part of the compensation package of the executive at the time of hire (with the grant
date and determination of fair market value and the exercise price delayed until the hire date).
As with our performance recognition grants, the size of our talent acquisition grants is determined
by dollar amount (as opposed to number of underlying shares), and under our long-term incentive
grant guidelines, is generally two times the long-term incentive grant guidelines for annual
performance recognition grants. We have set talent acquisition grants at two times the long-term
incentive grant guidelines for annual performance recognition grants, upon recommendation by
Mercer, and because we recognize that higher initial grants often are necessary to attract a new
executive, especially an executive who may have accumulated a substantial amount of equity-based
long-term incentive awards at a previous employer that the executive would typically forfeit upon
acceptance of employment with us.
Finally, our compensation committee also from time to time may make purely discretionary grants, on
the recommendation of our President and Chief Executive Officer (except in the case of a grant to
our President and Chief Executive Officer) for exceptional performance. These grants are typically
made in the form of stock options and/or restricted stock awards (or units), the number of which is
determined based on the dollar amount of value intended to be delivered, our Black-Scholes
option-pricing model and our stock price.
Our compensation committee made talent acquisition grants, annual and promotional performance
recognition grants and discretionary grants to one or more of our named executive officers during
2009, and promotional performance recognition grants and discretionary grants to one or more of our
named executive officers in the beginning of 2010, as described in more detail below under the
heading 2009 Equity Awards and Analysis.
Stock Options
. An important objective of our long-term incentive program is to strengthen the
relationship between the long-term value of our stock price and the potential financial gain for
employees. Stock options provide recipients with the opportunity to purchase our common stock at a
price fixed on the grant date regardless of future market price. The vesting of our stock options
is generally time-based.
55
Consistent with our historical practice, 25 percent of the shares underlying the stock option
typically vest on the one-year anniversary of the date of grant (or if later, on the date of hire)
and 1/36 of the shares underlying the stock option vest thereafter on the one-month anniversary of
the date of grant (or date of hire). However, our compensation committee from time to time may
grant options that vary from this vesting schedule, although none of the options granted during
2009 varied from our standard vesting. Our policy is to only grant options with an exercise price
equal to 100 percent of the fair market value of our common stock on the date of grant.
A stock option becomes valuable only if our common stock price increases above the option exercise
price and the holder of the option remains employed during the period required for the option to
vest. This provides an incentive for an option holder to remain employed by us. In addition,
stock options link a portion of an employees compensation to stockholders interests by providing
an incentive to achieve corporate goals and increase the market price of our stock. Other than
option grants to our French employees (including Mr. Girin for part of 2009) which may not be
granted during quarterly blackout periods, we do not have any program, plan or practice to time
stock option or restricted stock grants to executives in coordination with the release of material
non-public information.
Restricted Stock
. Restricted stock awards (or units) are intended to retain key employees,
including our named executive officers, through vesting periods. Restricted stock awards (or
units) provide the opportunity for capital accumulation and more predictable long-term incentive
value. For grants to recipients in the United States, we make restricted stock awards of shares of
our common stock, while for grants to recipients outside of the United States, we generally use
restricted stock units as a performance incentive, due to the adverse tax implications in many
foreign countries of receiving restricted stock awards.
Restricted stock awards are shares of our common stock that are awarded with the restriction that
the recipient continuously provides services to our company (whether as an employee or as a
consultant) until the date of vesting. The purpose of granting restricted stock awards is, through
employee ownership, to further encourage business decisions by our executives that may drive stock
price appreciation. Recipients are allowed to vote restricted stock awards as a stockholder based
on the number of shares held under restriction. The recipients also are awarded dividends on the
restricted stock awards held if dividends are paid on the underlying shares of common stock. The
specific terms of vesting of a restricted stock award depends upon whether the award is a
performance recognition grant, talent acquisition grant or discretionary grant. Performance
recognition grants of restricted stock awards were typically made in the first quarter of each year
and vest and become non-forfeitable in four equal annual installments on November 15
th
of each year, commencing on the November 15
th
of the year of grant. Commencing in 2010,
performance recognition grants will be made mid-year of each year. Talent acquisition grants of
restricted stock awards granted to new hires vest in a similar manner, except that the first
installment is pro-rated, depending on the date of grant. The vesting of discretionary grants of
restricted stock awards is often time-based and often similar to the vesting of our talent
acquisition grants.
Restricted stock units are similar to restricted stock awards, but with a few key differences. A
restricted stock unit is a commitment by us to issue a share of our common stock for each
restricted stock unit at the time the restrictions in the award agreement lapse. Restricted stock
units are provided to employees who are not on the United States payroll because of the different
tax treatment in many other countries. Restricted stock unit awards are eligible for dividend
equivalent payments if and when we pay dividends. Due to the provisions of local law, restricted
stock units issued to our French employees (including Mr. Girin for part of 2009) vest on a
different schedule than the one described above for restricted stock awards. These restricted
stock units first vest and become non-forfeitable as to 50 percent of the underlying shares on the
second anniversary of the date of grant and thereafter vest, on a cumulative basis, as to 25
percent of the underlying shares on November 15
th
of each subsequent year.
56
2009 Equity Awards and Analysis
. Our compensation committee made annual and promotional
performance recognition grants, talent acquisition grants and discretionary grants to one or more
of our named executive officers during 2009.
In February 2009, performance recognition grants were made according to our usual schedule and
process. However, the performance recognition grants for several of our executive officers were
increased to reflect the additional options and restricted stock grants received by the executives
in lieu of their 2009 merit increases as described in more detail above under the heading Base
SalaryAnnual Salary Increases. We did not otherwise deviate from our long-term incentive grant
guidelines. All performance recognition grants to all executives and employees, however, were cut
back so as not to exceed our maximum run rate dilution of 3.0 percent for 2009.
The following table describes the actual performance recognition grants made to our named executive
officers in 2009 excluding the additional options and restricted stock grants received by some of
the executives in lieu of their 2009 merit increases as described in more detail under the heading
Base SalaryAnnual Salary Increases above and how such grants compared to our long-term
incentive grant guidelines for performance recognition grants for these executives for 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Actual
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
Long-Term
|
|
Difference
|
|
|
Stock
|
|
Restricted Stock
|
|
Recognition
|
|
Incentive Grant
|
|
Between Actual
|
Named Executive Officer
|
|
Options
|
|
(or Units)
|
|
Grants
(1)
|
|
Guideline
|
|
and Guideline
|
Robert J. Palmisano
|
|
|
243,494
|
|
|
|
97,398
|
|
|
$
|
1,207,733
|
|
|
$
|
1,800,000
|
|
|
$
|
(592,267
|
)
|
Shawn McCormick
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Patrick D. Spangler
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Pascal E.R. Girin
|
|
|
129,896
|
|
|
|
51,959
|
|
|
|
609,995
|
|
|
|
938,955
|
|
|
|
(328,960
|
)
|
Stacy Enxing Seng
|
|
|
96,315
|
|
|
|
38,526
|
|
|
|
477,722
|
|
|
|
712,000
|
|
|
|
(234,278
|
)
|
Brett A. Wall
|
|
|
17,825
|
|
|
|
7,125
|
|
|
|
88,381
|
|
|
|
131,700
|
|
|
|
(43,319
|
)
|
|
|
|
(1)
|
|
The value of actual performance recognition grants is based on the value calculated under
our long-term incentive grant guidelines and does not necessarily match the grant date fair
value of the equity awards under applicable accounting rules and as set forth in the Grants
of Plan Based Awards table found later in this proxy statement.
|
Neither Mr. McCormick nor Mr. Spangler was granted a performance recognition grant in 2009
because of Mr. McCormicks recent hiring date and his receipt of a talent acquisition grant as
described below and Mr. Spanglers resignation prior to the performance recognition grants in
February 2009.
As mentioned above, annual performance recognition grants for 2010 are expected to be made in
mid-2010.
Promotional grants were made to Ms. Enxing Seng in February 2009 in connection with her December
2008 promotion and to Mr. Wall in October 2009 in connection with his promotion to Senior Vice
President and President, International. Ms. Enxing Sengs awards were cut back so as not to exceed
our maximum run rate dilution of 3.0 percent for 2009. We did not otherwise deviate from our
long-term incentive grant guidelines. The following table describes the promotional grants made to
our named executive officers in 2009 and how such grants compared to our long-term incentive grant
guidelines for promotional grants for these executives for 2009:
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Actual
|
|
Long-Term
|
|
Difference
|
|
|
Stock
|
|
Restricted Stock
|
|
Promotional
|
|
Incentive Grant
|
|
Between Actual
|
Named Executive Officer
|
|
Options
|
|
(or Units)
|
|
Grants
(1)
|
|
Guideline
|
|
and Guideline
(2)
|
Stacy Enxing Seng
|
|
|
96,350
|
|
|
|
38,550
|
|
|
$
|
477,958
|
|
|
$
|
712,000
|
|
|
$
|
(234,042
|
)
|
Brett A. Wall
|
|
|
56,200
|
|
|
|
22,500
|
|
|
|
544,258
|
|
|
|
525,000
|
|
|
|
19,258
|
|
|
|
|
(1)
|
|
The value of actual promotional grants is based on the value calculated under our long-term
incentive grant guidelines and does not necessarily match the grant date fair value of the
equity awards under applicable accounting rules and as set forth in the Grants of Plan Based
Awards table found later in this proxy statement.
|
|
(2)
|
|
The difference between the value of Mr. Walls actual promotional grants and his long-term
incentive grant guideline is due to the rounding up of his equity awards to the nearest 100
shares.
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In January 2010, promotional grants were made to Mr. Girin in connection with his promotion to
Chief Operating Officer. Mr. Girin received a restricted stock grant of 25,941 shares and an
option to purchase 64,853 shares, which together had a grant date fair value of $680,700. These
awards were also subject to our maximum run rate dilution of 3.0 percent and thus were cut back
from Mr. Girins long-term incentive grant guideline of approximately $1.1 million.
Talent acquisition grants were made to Mr. McCormick in January 2009 in connection with our hiring
him as our Senior Vice President and Chief Financial Officer. These awards were cut back on a
pro-rated basis so as not to exceed our maximum run rate dilution of 3.0 percent for 2009. We did
not otherwise deviate from our long-term incentive grant guidelines. The following table describes
the talent acquisition grants made to Mr. McCormick in 2009 and how such grants compared to our
long-term incentive grant guidelines for talent acquisition grants for Mr. McCormick for 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Value of Actual
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|
Value of
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|
|
|
Talent
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Long-Term
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Difference
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Stock
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Restricted Stock
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Acquisition
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|
Incentive Grant
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|
Between Actual
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Named Executive Officer
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|
Options
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(or Units)
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|
Grants
(1)
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|
Guideline
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and Guideline
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Shawn McCormick
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|
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140,000
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|
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56,000
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|
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$
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697,760
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|
|
$
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1,225,000
|
|
|
$
|
(527,240
|
)
|
|
|
|
(1)
|
|
The value of actual talent acquisition grants is based on the value calculated under our
long-term incentive grant guidelines and does not necessarily match the grant date fair value
of the equity awards under applicable accounting rules and as set forth in the Grants of Plan
Based Awards table found later in this proxy statement.
|
Discretionary grants were made to all of our executives in lieu of merit increases to their
base salaries in February 2009 and again in January 2010 as described in more detail above under
the heading Base SalaryAnnual Salary Increases, and discretionary grants were made to Mr.
Palmisano in January 2010 for exceptional performance during 2009 as mentioned above under the
heading Short-Term Cash Incentives2009 Bonus Payouts and Analysis. Mr. Palmisano was granted
a discretionary long-term incentive award of $100,000, consisting of an option to purchase 8,503
shares of common stock and a stock grant for 3,401 shares of common stock at the end of January
2010 in recognition of our corporate financial performance during 2009. The size of this award was
determined based on a desired upward adjustment of approximately 14.5 percent to Palmisanos
short-term cash incentive that the compensation committee believed Mr. Palmisano deserved to
recognize his excellence in guiding the organization during 2009 resulting in a strong performance
in many areas such as financial results, leadership development, delighting the customer and
building a strategic framework for the future. The compensation committee determined to pay Mr.
Palmisano not in cash but in long-term equity incentives in order to increase Mr. Palmisanos
equity ownership in our company and compliance toward our stock ownership guidelines.
58
Additional information concerning the long-term incentive compensation information for our named
executive officers for 2009 is included in the Summary Compensation Table2009. Additional
information on long-term incentive awards is shown in the Grants of Plan-Based Awards2009 Table
and the Outstanding Equity Awards at Fiscal Year-End2009 Table.
Executive Benefits and Perquisites and All Other Compensation
We provided several of our named executive officers certain executive benefits, perquisites and
other compensation during 2009, including in particular Mr. Palmisano, Mr. McCormick and Mr. Girin.
We provide Mr. Palmisano certain perquisites and personal benefits under his employment agreement,
including a monthly housing allowance of $5,000, a monthly automobile allowance of $1,500 and
reimbursement of weekly air travel expenses between his residences in Massachusetts and Florida and
Plymouth, Minnesota. In addition, we have agreed to make additional payments to Mr. Palmisano to
reimburse him on a gross-up basis to the extent these payments are subject to income taxes payable
by Mr. Palmisano. Although we have not in the past provided our executives significant benefits
and perquisites and although we recognize that certain of the perquisites and benefits we provide
Mr. Palmisano are not customary among companies in our peer group, we nonetheless agreed to provide
Mr. Palmisano these benefits in order to encourage him to accept our President and Chief Executive
Officer position with our company, especially in light of the fact that he is not a resident of
Minnesota and his family resides in Massachusetts and Florida. Our primary intent in providing
these executive benefits to Mr. Palmisano was to accommodate Mr. Palmisanos request to ease his
financial burden of commuting between his residences and our corporate headquarters in Minnesota
and living during the week in Minnesota.
As an inducement to encourage Mr. McCormick to accept our Senior Vice President and Chief Financial
Officer position with our company, we paid Mr. McCormick a signing bonus of $100,000 and a cash
retention bonus equal to $110,000. If we terminate Mr. McCormicks employment for cause or if Mr.
McCormick terminates his employment with our company for any reason (other than death or
disability) prior to January 19, 2012, Mr. McCormick will be required to repay a portion of the
signing bonus and retention bonus, the amount of which depends upon when the termination of
employment occurs. The bonus amounts were determined based on the amount of a relocation bonus
that Mr. McCormick was required to pay his previous employer as a result of Mr. McCormick leaving
his prior employer to join our company within a certain time period.
In order to induce Mr. Girin to relocate from Paris, France to Irvine, California, we entered into
an amendment to his employment agreement in July 2009 pursuant to which we agreed to provide Mr.
Girin several relocation and temporary transfer benefits, including, among others, a relocation
allowance, reimbursement of moving and travel expenses, a monthly housing allowance or lease
payment, reimbursement for any U.S. federal and state income taxes owed by Mr. Girin with respect
to his compensation that exceed the amount of taxes Mr. Girin would have been obligated to pay had
he not relocated to Irvine, California. The benefits we provide Mr. Girin are described in more
detail under the heading Executive CompensationSummary of Cash and Other
CompensationEmployment AgreementPascal E.R. Girin. We encouraged Mr. Girin to relocate to
Irvine, California to be closer to our neurovascular business headquarters. We believed his
physical proximity to our neurovascular business headquarters was important in light of his then
position as Executive Vice President and President, Worldwide Neurovascular and International and
in anticipation of his new position as Chief Operating Officer. Prior to his secondment to Irvine,
California, we provided Mr. Girin as described earlier mobility premium payments under French tax
laws relating to travel by Mr. Girin outside of France. We provided Mr. Girin the mobility premium
payments in lieu of part of his base salary since such payments receive tax preferred status for
Mr. Girin.
59
In order to induce Mr. Wall to relocate from Irvine, California to Paris, France, we entered into a
letter agreement with Mr. Wall in January 2010 pursuant to which we agreed to provide Mr. Wall
several foreign assignment benefits, including, among others, a relocation allowance, reimbursement
of moving and travel costs, an annual cost of living allowance to cover the difference in every day
expenses between France and California, monthly lease and utility costs and reimbursement for any
U.S. federal and state income taxes owed by Mr. Wall with respect to his compensation that exceed
the amount of taxes Mr. Wall would have been obligated to pay had he not relocated to Paris,
France. The benefits we provide Mr. Wall are described in more detail under the heading Executive
CompensationSummary of Cash and Other CompensationEmployment Letter AgreementBrett A. Wall.
We encouraged Mr. Wall to relocate to Paris, France to be closer to our international headquarters.
We believed his physical proximity to our international headquarters was important in light of his
new position as Senior Vice President and President, International.
The only other perquisite and personal benefit that we provide our named executive officers that
are not available to all of our salaried employees generally are annual sales award trips for
certain executives and their spouses. We encourage our CEO and business presidents to attend sales
award trips in order to help build morale and for team building purposes. We recognize, however,
that such out-of-town trips place increased demands on executives families and thus pay for travel
and other expenses incurred by spouses of executives that choose to attend such trips.
Our named executive officers also receive other benefits, which are also received by our other
employees, including 401(k) matching contributions, ability to purchase shares of our common stock
at a discount with payroll deductions under our employee stock purchase plan and health, dental and
life insurance benefits. We do not provide pension arrangements or post-retirement health coverage
for our employees, including our named executive officers. We also do not provide any nonqualified
defined contribution or other deferred compensation plans.
Employment Agreements
We entered into employment agreements with Mr. Palmisano and Mr. Girin in connection with us hiring
them and recently entered into a letter agreement with Mr. Wall outlining the terms and conditions
of his assignment to Paris, France. The only other employment agreements that we have entered into
with our named executive officers are standard agreements that include non-compete,
non-solicitation and confidentiality clauses and, in some cases, offer letters containing the
principal terms of their employment, including position, base salary, annual bonus opportunity,
initial equity grants and, in some cases, certain other benefits. The offer letters do not
guarantee the executives any minimum time period of employment or any severance benefits upon a
termination event. We have, however, entered into written change in control agreements with all of
our executive officers and certain other personnel, which provide for certain cash and other
benefits upon the termination of the executive officers employment with us in connection with a
change in control, as described in more detail under the heading Change in Control and
Post-Termination Severance Arrangements below.
In connection with our hiring of Mr. Palmisano as our new President and Chief Executive Officer, we
entered into an employment and change in control agreement with him in addition to our standard
confidentiality, non-competition and non-solicitation agreement. We believed it was prudent to
enter into a more formal agreement with Mr. Palmisano regarding the terms of his employment rather
than an offer letter in light of his position as our top executive, for our business planning
purposes and for Mr. Palmisanos benefit for certain terms of his arrangement, such as severance,
to be agreed upon in advance and documented in writing. The employment agreement has an initial
term expiring on April 6, 2011, and contains a provision that automatically extends the term for
additional one-year periods unless either party provides notice to the other of its intent not to
extend the term of the agreement at least 90
60
days prior to the expiration of the then current term. The purpose of the one-year evergreen provision is to
ensure that a written agreement remains in place at all times during Mr. Palmisanos employment
with us. The agreement further provides that if we provide notice of our intent not to renew the
agreement, it shall be treated as a termination of Mr. Palmisanos employment by us without cause,
in which case Mr. Palmisano would be entitled to the severance benefits described in more detail
under the heading Change in Control and Post-Termination Severance ArrangementsSeverance
Arrangements below. The purpose of this provision is to provide Mr. Palmisano severance
protection in the event we decide to terminate his employment regardless of the timing of any such
decision.
As mentioned above, we also entered into an employment agreement with Mr. Girin when we hired him
in 2003, which agreement we amended most recently in July 2009 in connection with Mr. Girins
relocation to Irvine, California, and we entered into a letter agreement with Mr. Wall outlining
the terms and conditions of his assignment to Paris, France. Under these agreements, we have
agreed to provide these executives certain benefits as described in more detail under the heading
Executive CompensationSummary of Cash and Other Compensation. Under Mr. Girins agreement, we
must give Mr. Girin at least three months notice prior to any termination and must comply with any
applicable French laws regarding termination of an employee. Under Mr. Walls letter agreement, we
have agreed to provide Mr. Wall certain severance benefits under certain circumstances as described
in more detail below under the heading Change in Control and Post-Termination Severance
Arrangements.
Change in Control and Post-Termination Severance Arrangements
Change in Control Arrangements.
To encourage continuity, stability and retention when considering
the potential disruptive impact of an actual or potential corporate transaction, we have
established change in control arrangements, including provisions in our incentive stock plans and
written agreements with executives and other key employees, to incentivize our executives to remain
with our company in the event of a change in control or potential change in control. Pursuant to
the terms of our current incentive stock plan and the individual award documents provided to
recipients of awards under the plan, all stock options and stock grants under the plan become
immediately vested (and, in the case of options, exercisable) upon the completion of a change in
control of our company. For more information, we refer you to the information under the heading
Executive CompensationPotential Payments Upon Termination or Change in ControlChange in
Control ArrangementsGenerally. Thus, the immediate vesting of stock options and stock grants is
triggered by the change in control, itself, and thus is known as a single trigger change in
control arrangement. We believe our single trigger equity acceleration change in control
arrangements provide important retention incentives during what can often be an uncertain time for
employees and provide executives with additional monetary motivation to focus on and complete a
transaction that our board of directors believes is in the best interests of our stockholders
rather than seeking new employment opportunities. If an executive were to leave prior to the
completion of the change in control, non-vested awards held by the executive would terminate.
In addition, we have entered into agreements with our named executive officers and other executives
that require us to provide them certain payments and benefits in the event of a change in control,
most of which are payable only in the event their employment is terminated in connection with the
change in control. The payments that are due upon the change in control are base pay owed through
the date of the change in control and a pro rata portion of the executives target bonus plan
payment based on the number of months in the year worked prior to the change in control. The
payments and benefits that are due upon a termination event in connection with the change in
control are a lump sum cash payment equal to 12 months (36 months, in the case of our President and
Chief Executive Officer) of the executives then-current base salary and the full amount of the
executives bonus plan payment for the next 12 months (or 300 percent of his bonus plan payment, in
the case of our President and Chief Executive Officer), with the amount of the bonus plan payment
based on the assumption that all of the performance objectives will
61
have been satisfied at target for such year. In addition, the executive also would be entitled to
group health plan benefits for the executive and his or her dependents for up to 18 months (up to
36 months, in the case of our President and Chief Executive Officer) and reasonable outplacement
services. To the extent any payments received by the executive under the agreement constitute
parachute payments which result in an excise tax under Section 4999 of the Internal Revenue Code,
the executive will receive a gross-up payment to cover such excise tax as well as applicable taxes
on such gross-up payment. These arrangements, and a quantification of the payment and benefits
provided under these arrangements, are described in more detail under the heading Executive
CompensationPotential Payments Upon Termination or Change in ControlChange in Control
Arrangements. In March 2010, we hired a new executive officer and in connection with our hiring
of this executive we revised our standard change in control agreement to eliminate the requirement
that we make an additional gross-up payment to an executive to the extent any payments received
by the executive constitute parachute payments which result in an excise tax under Section 4999 of
the Internal Revenue Code. We made this change as to avoid being identified by RiskMetrics Group
as implementing a problematic pay practice. We intend to use the revised change in control
agreement without the gross-up payment language going forward with respect to new executives.
Other than the receipt of the pro rata portion of the target annual bonus and the immediate
acceleration of equity-based awards which we believe aligns our executives interests with those of
our stockholders by allowing executives to participate fully in the benefits of a change in control
as to all of their equity, in order for our named executive officers to receive any other payments
or benefits as a result of a change in control of our company, there must be a termination of the
executives employment, either by us without cause or by the executive for good reason. The
termination of the executives employment by the executive without good reason will not give rise
to additional payments or benefits either in a change in control situation or otherwise. Thus,
these additional payments and benefits will not just be triggered by a change in control, but also
will require a termination event not within the control of the executive, and thus are known as
double trigger change in control arrangements. As opposed to the pro rata portion of the target
annual bonus and the immediate acceleration of equity-based awards, we believe that other change in
control payments and benefits should properly be tied to termination following a change in control,
given the intent that these amounts provide economic security to ease in the executives transition
to new employment.
We believe that our change in control arrangements are an important part of our executive
compensation program. We believe that these arrangements mitigate some of the risk that exists for
executives working in a smaller company, where there is a meaningful likelihood that the company
may be acquired. These arrangements are intended to attract and retain qualified executives who
may have employment alternatives that may appear to them, in light of a possible change in control
of our company, to be less risky absent these arrangements. We believe that relative to our
overall value, our potential change in control benefits are relatively minor. We confirm this
belief on an annual basis by reviewing a tally sheet for each executive that summarizes the change
in control and severance benefits potentially payable to each executive. We also believe that the
form and amount of such benefits are reasonable in light of those provided to executives by
companies in our peer group and other companies with which we compete for executive talent and the
amount of time typically required to find executive employment opportunities. In July 2009, our
compensation committee asked Mercer to conduct a formal analysis of our change in control
arrangements for reasonableness and market competitiveness. Mercer advised us that similar
protections, for the most part, are provided by companies in our peer group and other companies
with which we compete for executive talent. We, thus, believe we must continue to offer such
protections in order to remain competitive in attracting and retaining executive talent. Mercer
recommended, however, we periodically review these arrangements in light of the changing nature of
the competitive landscape.
62
Severance Arrangements.
We entered into a separation and release agreement with one of our named
executive officers, Mr. Spangler, in early 2009. We also entered into a consulting agreement with
Mr. Spangler to ensure a smooth transition. The terms of these agreements are described in more
detail under the heading Executive CompensationPotential Payments Upon Termination or Change in
ControlSeverance ArrangementsPatrick D. Spangler. Although Mr. Spangler was employed by us
at will and thus was not entitled to any severance or other payments upon his termination of
employment, it has become our customary practice to enter into a separation agreement and release
of claims and a consulting agreement with departing executives, especially if their termination of
employment is at the request of ev3. The amount of the severance payment is determined based on a
multiple (between one and one and one-half) of the executives base salary and either the full
amount or a pro rata portion of the executives annual actual, target or maximum bonus, with higher
level executives generally receiving more favorable severance payments. Severance is usually paid
over time in the form of salary continuation. Departing executives with whom we enter into
separation agreements also generally are entitled to payment of COBRA continuation coverage
premiums for a limited time and reimbursement of outplacement services. In all cases, benefits are
conditioned upon a general release of claims against us by the executive, which we believe is
appropriate in light of the severance benefits being provided to the executive.
With respect to our other named executive officers, all of them, other than Mr. Palmisano and Mr.
Wall, are not entitled to any severance or other payments upon their termination of employment
without cause or otherwise. We are required, however, under the terms of his employment agreement
to give Mr. Girin at least three months prior notice of any termination and comply with any
applicable French laws. As discussed above, however, if a named executive officer were to leave
ev3, our compensation committee would exercise its business judgment in determining whether or not
a separation arrangement, including any severance pay, was appropriate and would determine the
terms of any separation arrangement in light of all relevant circumstances including the
individuals term of employment, past accomplishments and reasons for separation from our company.
With respect to Mr. Palmisano, under the terms of his existing employment and change in control
agreement, in the event we terminate Mr. Palmisanos employment without cause or Mr. Palmisano
terminates his employment for good reason, Mr. Palmisano will be entitled to receive, among other
benefits, a lump sum severance payment equal to 150 percent of his then current base pay and a pro
rata portion of his bonus to the extent the applicable performance objectives have been achieved.
He also will be entitled to elect continuation coverage under COBRA for 18 months following the
date of termination, the premiums for which will be paid by us, elect health care continuation
coverage for an additional 18 months following such 18-month severance period and receive, for 18
months following the date of termination, all fringe benefits and perquisites to which he is
entitled under the employment agreement and which may legally be provided by us to non-employees.
With respect to Mr. Wall, we agreed in his letter agreement outlining the terms and conditions of
his assignment to Paris, France to provide him a severance package equal to 12 months base salary
and outplacement services if at the end of his assignment or if upon earlier termination of the
agreement, we do not offer him a mutually agreeable position within our company. We believed it
was necessary to agree to such a severance provision in light of Mr. Walls personal sacrifice in
moving himself and his family to Paris, France for a period of up to five years in furtherance of
our companys business interests.
Tax and Accounting Implications
Deductibility of Compensation for Tax Purposes Under Section 162(m).
Section 162(m) of the
Internal Revenue Code limits the amount that a publicly held company may deduct for compensation
paid to each of its chief executive officer and its next three most highly compensated officers
(but excluding the CFO)
63
to $1 million per year. However, this limitation does not apply, among
other things, to compensation that satisfies the requirements of performance-based compensation under Section 162(m). Under IRS
regulations, compensation received through the exercise of an option or stock appreciation right
will be treated as performance-based compensation and will not be subject to the $1 million limit
if the option or stock appreciation right and the plan pursuant to which it is granted satisfy
certain requirements.
Compensation that would be recognized by our named executive officers upon exercise of any stock
options granted under our 2005 incentive stock plan after July 1, 2005 and prior to October 4, 2007
would not constitute performance-based compensation under Section 162(m). Between July 1, 2005 and
October 4, 2007, option awards under our 2005 incentive stock plan did not satisfy the requirements
of performance-based compensation for purposes of Section 162(m) because our compensation committee
during that period was not comprised solely of two or more outside directors within the meaning
of Section 162(m). On October 4, 2007 and since such date, our compensation committee or at least
the subcommittee that approves equity grants has consisted solely of members who are outside
directors. We contemplate that future option and other equity awards under our 2005 incentive
stock plan will continue to satisfy the requirements of performance-based compensation under
Section 162(m) of the Code.
Compensation paid under our annual incentive plan does not constitute performance-based
compensation under Section 162(m). Since we have substantial net operating losses, we have not
viewed as a priority the qualification of our annual incentive plan as a Section 162(m) plan.
However, we are proposing to amend and restate our current stock incentive plan to provide for the
payment of cash incentives that would qualify as performance-based compensation under Section
162(m). We refer you to the information under the heading Proposal Two Approval of ev3 Inc.
Third Amended and Restated 2005 Incentive Plan.
In 2009, the only compensation we paid that exceeded the Section 162(m) deductibility limit was to
Mr. Palmisano. However, because of our substantial net operating loss carryforwards, the loss of
this tax deduction did not require us to pay any higher corporate taxes.
Accounting for Equity-Based Compensation
. When setting and analyzing each aspect of our executive
compensation program, our compensation committee typically takes into account the anticipated
accounting consequences of the program design and award levels. Our compensation committee reviews
accounting cost models and structures our executive compensation program in a manner that it
believes properly blends the cost and benefits of the program.
Consideration of Risk and Recoupment Policy
One of the responsibilities of our audit committee is to review and assess our business risk
management process, including the adequacy of our overall control environment and controls in
selected areas representing significant financial and business risk. In so doing, our audit
committee oversees a fraud risk assessment of our company on an annual basis. As part of this
annual risk assessment, we specifically analyze whether there is excessive pressure on our
management to meet financial targets set up by our board of directors, such as too high a
percentage of executives compensation tied to sales targets and profitability incentives, and
whether managements personal financial situation is threatened by our financial performance
arising from significant portions of their compensation, such as annual bonuses and equity
compensation, being contingent upon achieving aggressive targets for stock price, operating
results, financial position or cash flow. In December 2009, our audit committee reported to our
full board of directors the results of our most recent fraud assessment.
In addition, in early 2010, our compensation committee engaged Mercer to analyze whether our
compensation policies and practices for our employees are reasonably likely to have a material
adverse
64
effect on our company. Based in part on such results and the results of the annual risk
assessment conducted by our audit committee, our compensation committee believes that our executive incentive
compensation arrangements do not encourage our executives to take unnecessary or excessive risks
that could threaten the value of our company. While performance-based compensation constitutes a
significant percentage of our executives overall total compensation and thereby the compensation
committee believes motivates our executives to help fulfill our corporate mission and vision,
including specific and focused company performance objectives, the non-performance based
compensation, for most executives for most years, is also a sufficiently high percentage of overall
total compensation that the compensation committee does not believe that unnecessary or excessive
risk taking is encouraged by the performance-based compensation. In addition, a significant
portion of executives performance-based compensation is in the form of long-term equity incentives
which do not encourage unnecessary or excessive risk because they generally vest over a three to
four year period of time thereby focusing the executives on our companys long-term interests.
Nonetheless, our compensation committee determined that it was prudent to review and adopt certain
compensation practices that discourage unnecessary or excessive risk taking, such as a recoupment
or clawback policy. In February 2009, our compensation committee approved a recoupment policy
under which our compensation committee has the sole and absolute authority, to the full extent
permitted by applicable law, to require that each executive officer agree to reimburse us for all
or any portion of any cash bonus if: (1) the payment was predicated upon the achievement of
certain financial results that were subsequently the subject of a material financial restatement,
(2) in the view of our compensation committee, the executive engaged in fraud or misconduct that
caused or partially caused the need for a material financial restatement by us, and (3) a lower
payment would have occurred based upon the restated financial results. In each such instance, we
will, to the extent practicable and allowable under applicable laws, require reimbursement of any
bonus in the amount by which the executives annual bonus for the relevant period exceeded the
lower payment that would have been made based on the restated financial results, provided that we
will not seek to recover bonuses paid more than one year prior to the date the applicable
restatement is disclosed.
In addition, the ev3 Inc. Third Amended and Restated 2005 Incentive Plan, which was approved by our
board of directors, upon recommendation of our compensation committee, in February 2010, subject to
stockholder approval, also contains a clawback provision which provide that if a participant is
determined by our compensation committee to have taken action that would constitute an adverse
action, as that term is defined in the plan, all rights of the participant under the plan and any
agreements evidencing an award then held by the participant will terminate and be forfeited and the
compensation committee may require the participant to surrender and return to us any shares
received, and/or to disgorge any profits or any other economic value made or realized by the
participant during the period beginning one year prior to the participants termination of
employment or other service with our company or any subsidiary, in connection with any awards or
any shares issued upon the exercise or vesting of any awards.
As a matter of best practice, we will continue to monitor our executive compensation program to
ensure that it continues to align the interest of our executives with those of our long-term
stockholders while avoiding unnecessary or excessive risk.
Stock Ownership
We have adopted certain guidelines and policies with respect to stock ownership and equity
compensation, all of which apply to our named executive officers.
65
In 2009, we established stock ownership guidelines for directors and executive officers. The
intent of the guidelines is to align the interests of our directors and executives with the
interests of our stockholders and to demonstrate our continued commitment to sound corporate governance. The stock ownership
targets for our executives are that number of shares of our common stock with a value equal to a
multiple of the executives annual base salary, with the multiple equal to two times for senior
vice presidents, three times for executive vice presidents and four times for our chief executive
officer. Until the applicable stock ownership target is achieved, each executive subject to the
guidelines is required to retain an amount equal to 75 percent of the net shares received as a
result of the exercise of stock options or the vesting of restricted stock or restricted stock
units. Because executives must retain a percentage of shares resulting from any exercise of ev3
stock options or the vesting of restricted stock or restricted stock units until they achieve the
specified target, there is no minimum time period required to achieve the applicable stock
ownership target. For more information regarding the stock ownership guidelines, see Corporate
GovernanceStock Ownership Guidelines. As of January 1, 2010, all of our executives met their
individual stock ownership guideline, except for Mr. Palmisano, Mr. McCormick, Mr. Girin and Mr.
Wall. As of such date, Mr. Palmisano, Mr. McCormick and Mr. Wall had only been executives of our
company for approximately 20 months, 11 months and two months, respectively. In addition, unlike
other executives, until recently Mr. Girin because of his French residence received restricted
stock units, or RSUs, as opposed to restricted stock. Unlike restricted stock, RSUs, like stock
options, do not count toward the stock ownership guidelines. If Mr. Girins RSUs counted toward
the guidelines, he would be in compliance with his individual stock ownership guideline.
We have an insider trading policy that prohibits trading during periods immediately preceding the
release of material non-public information, except pursuant to previously established Rule 10b5-1
trading plans or instructions. Under the terms of our current restricted stock award certificates,
as a condition of receiving restricted stock grants, recipients, including our named executive
officers, must give instructions and authorization to our company and any brokerage firm determined
acceptable to us for such purpose to sell on the recipients behalf a whole number of shares of our
common stock from those shares of stock underlying the stock grant as indicated by the recipient or
as we determine to be appropriate to generate cash proceeds sufficient to satisfy any applicable
tax withholding obligation. Such instructions, however, may be revoked by the recipient if the
recipient pays any applicable required tax withholding obligation in cash on or prior to the
applicable due date.
66
EXECUTIVE COMPENSATION
Compensation Committee Report
Our board of directors has delegated to our compensation committee the responsibility, among other
things, to approve any and all compensation payable to our executive officers, including annual
salaries, incentive compensation, long-term incentive compensation and any special or supplemental
benefits or perquisites, and to administer our equity and incentive compensation plans applicable
to our executive officers. Our board of directors has retained, however, the authority to approve
the adoption of and any amendment to our compensation plans applicable to our executive officers,
including incentive compensation plans and equity-based plans.
Our compensation committee has reviewed and discussed the foregoing Compensation Discussion and
Analysis section of this proxy statement with our management. Based on this review and
discussion, the compensation committee recommended to our board of directors that the Compensation
Discussion and Analysis section be included in this proxy statement for filing with the Securities
and Exchange Commission.
This report is dated as of March 25, 2010.
Compensation Committee
John L. Miclot, Chair
Douglas W. Kohrs
Elizabeth H. Weatherman
Summary of Cash and Other Compensation
The following table provides summary information concerning all compensation awarded to, earned by
or paid to our named executive officers for the fiscal years ended December 31, 2009, 2008 and
2007.
SUMMARY COMPENSATION TABLE 2009
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Non-Equity
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Incentive Plan
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All Other
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Stock
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Option
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Compen-
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Compen-
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Name and Principal Position
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Year
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Salary
(1)
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Bonus
(2)
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Awards
(3)
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Awards
(4)
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sation
(5)
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sation
(6)
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Total
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Robert J.
Palmisano
(7)
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2009
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$
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600,000
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$
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$
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614,215
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$
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642,324
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$
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691,200
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$
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236,483
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$
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2,784,222
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President and
Chief Executive Officer
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2008
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441,153
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3,351,404
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451,809
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170,527
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4,414,893
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Shawn
McCormick
(8)
Senior Vice President
and Chief Financial
Officer
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2009
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334,294
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210,000
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348,880
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364,840
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229,377
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7,350
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1,494,741
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Patrick D.
Spangler
(9)
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2009
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15,538
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344,328
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359,866
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Former Senior Vice
President
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2008
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314,800
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249,300
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193,522
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6,900
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764,522
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and Chief Financial Officer
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2007
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298,654
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655,534
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582,236
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57,897
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8,852
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1,603,173
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Pascal E.R.
Girin
(10)
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2009
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375,707
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313,399
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327,732
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458,958
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710,467
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2,186,263
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Executive Vice President
and
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2008
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365,198
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114,575
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859,661
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445,670
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267,735
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194,801
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2,247,640
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Chief Operating
Officer
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2007
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355,617
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64,820
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752,418
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671,285
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73,790
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108,858
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2,026,788
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Stacy Enxing Seng
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2009
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356,000
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477,871
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499,677
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233,627
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12,351
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1,579,526
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Executive Vice President
and
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2008
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325,973
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249,300
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200,915
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21,900
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798,088
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President, Worldwide
Peripheral Vascular
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2007
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307,498
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583,681
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521,274
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50,127
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11,010
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1,473,590
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67
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Non-Equity
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Incentive Plan
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All Other
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Stock
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Option
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Compen-
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Compen-
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Name and Principal Position
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Year
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Salary
(1)
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Bonus
(2)
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Awards
(3)
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Awards
(4)
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sation
(5)
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sation
(6)
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Total
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Brett A.
Wall
(11)
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2009
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283,935
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316,425
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332,782
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162,061
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10,637
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1,105,840
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Senior Vice President
and
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President,
International
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(1)
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Includes amounts paid for accrued but previously unpaid time off.
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(2)
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For 2009, reflects a signing bonus of $100,000 and a cash retention bonus equal to $110,000
paid to Mr. McCormick in January 2009. For 2008, reflects a special retention bonus of
$75,000 paid to Mr. Girin in February 2008 and a special retention bonus of $39,575 paid to
Mr. Girin in April 2008. The amount of the April 2008 cash bonus, which bonus was based in
part on the performance of our international business during first quarter 2008, was deducted
from Mr. Girins payout under our 2008 annual performance incentive plan. For 2007, reflects
the guaranteed portion of Mr. Girins bonus under our 2007 annual performance incentive plan.
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(3)
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Amount reported represents the aggregate grant date fair value for stock awards granted to
each named executive officer computed in accordance with FASB ASC Topic 718. The grant date
fair value is determined based on the closing sale price of our common stock on the date of
grant.
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(4)
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Amount reported represents the aggregate grant date fair value for option awards granted to
each named executive officer computed in accordance with FASB ASC Topic 718. The grant date
fair value is determined based on our Black-Scholes option pricing model. The following table
sets forth the specific assumptions used in the valuation of each such option award:
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Grant Date
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Expected
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Grant
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Fair Value
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Risk Free
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Expected
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Expected
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Dividend
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Date
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Per Share
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Interest Rate
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Life
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Volatility
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Yield
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10/05/2009
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$
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5.10
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1.99
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%
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3.85 years
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53.2
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%
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0
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03/10/2009
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2.46
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1.57
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%
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3.85 years
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53.5
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%
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0
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02/12/2009
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2.59
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1.57
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%
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3.85 years
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53.5
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%
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0
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01/19/2009
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2.61
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1.57
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%
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3.85 years
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53.5
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%
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0
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08/12/2008
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4.46
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3.05
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%
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3.85 years
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44.6
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%
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0
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04/06/2008
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3.18
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2.39
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%
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3.85 years
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44.5
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%
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0
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10/04/2007
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6.30
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4.16
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%
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3.85 years
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42.7
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%
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0
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01/22/2007
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7.12
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4.77
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%
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3.85 years
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45.3
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%
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0
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(5)
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Represents amounts paid under our annual performance incentive compensation plan, which is
described in more detail under the headings Grants of Plan-Based Awardsev3 Inc. Employee
Performance Incentive Compensation Plan and Compensation Discussion and Analysis. For Mr.
Girin, the amount shown for 2008 does not include the portion of Mr. Girins bonus that was
paid in April 2008 and based in part on the performance of our international business, which
discretionary bonus is reflected in the Bonus column. In addition, for Mr. Girin, the
amount shown for 2007 does not include the guaranteed portion of Mr. Girins bonus, which is
reflected in the Bonus column.
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(6)
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The amounts shown in this column for 2009 include the following with respect to each named
executive officer:
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Perquisites and
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401(k)
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International
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Severance
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Other Personal
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Tax Gross-
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Name
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Match
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Benefits
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Benefits
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Benefits
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Ups
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Total
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Robert J. Palmisano
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$
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7,350
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$
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$
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$
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137,968
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(a)
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$
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91,165
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(b)
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$
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236,483
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Shawn McCormick
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7,350
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7,350
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Patrick D. Spangler
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344,328
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(c)
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344,328
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Pascal E.R. Girin
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144,522
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(d)
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565,945
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(e)
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710,467
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Stacy Enxing Seng
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7,350
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5,001
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(f)
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12,351
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Brett A. Wall
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7,350
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3,287
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(g)
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10,637
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(a)
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Represents: (i) $59,968 in commuting expenses; (ii) a $60,000 housing allowance;
and (iii) a $18,000 automobile allowance.
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(b)
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Represents: (i) a tax gross-up of $29,129 for income tax incurred by Mr.
Palmisano for reimbursement for commuting expenses; (ii) a tax gross-up of $47,720 for
income tax incurred by Mr. Palmisano for his housing
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allowance; and (iii) a tax gross-up of $14,316 for income tax incurred by Mr. Palmisano
for his automobile allowance.
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(c)
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Represents: (i) $314,800 in severance pay and (ii) $29,528 in reimbursement of
health care coverage premiums.
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(d)
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Represents mobility premium payments under French tax law relating to travel by
Mr. Girin outside of France.
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(e)
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Represents: (i) housing lease payments of $51,750; (ii) an automobile allowance
of $18,622; (iii) $61,394 in reimbursement of family travel expenses; (iv) $18,280 in
reimbursement of family education expenses; (v) a relocation allowance of $84,000; and
(vi) $331,899 in tax equalization payments.
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(f)Represents a $5,001 cash value of travel expenses incurred in connection with attending a sales award trip.
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(g)
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Represents a $3,287 cash value of travel expenses incurred in connection with attending a sales award trip.
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(7)
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Mr. Palmisano was appointed as President and Chief Executive Officer effective April 6, 2008.
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(8)
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Mr. McCormick was appointed as Senior Vice President and Chief Financial Officer effective January 19, 2009.
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(9)
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Mr. Spangler resigned as Senior Vice President and Chief Financial Officer effective January
19, 2009.
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(10)
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Reflected in U.S. dollars but paid in Euros for all payments prior to October 2009.
Conversion into U.S. dollars based on conversion rates as of December 31, 2007, 2008 and 2009,
respectively. Conversion rate as of December 31, 2007 was one Euro to $1.4603, as of
December 31, 2008 was one Euro to $1.4094, and as of December 31, 2009 was one Euro to $1.4333
for amounts paid in France and one Euro to $1.50 for amounts paid in U.S. dollars from the
United States.
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(11)
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Mr. Wall was appointed as Senior Vice President and President, International effective
October 5, 2009.
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Employment Agreements Generally
. We typically execute employment offer letters in
conjunction with the hiring or promotion of our named executive officers that describe annual base
salary, eligibility for participation in our annual performance incentive compensation plan and any
talent acquisition equity-based compensation grants. The acceptance of our offer of employment by
new employees is conditioned upon the execution of an employment agreement that includes
non-compete, non-solicitation and confidentiality provisions. Our employment agreements with our
named executive officers, other than Mr. Palmisano, do not contain any commitments regarding future
salary increases or benefits, except for the timing of payment and a general description of
benefits. Other than Mr. Palmisano, all of our named executive officers are employed at-will and
are not guaranteed employment for any specified duration.
Employment Agreement Robert J. Palmisano.
In connection with the appointment of Mr. Palmisano
as our President and Chief Executive Officer, we entered into an employment and change in control
agreement and a confidentiality, non-competition and non-solicitation agreement with Mr. Palmisano
in April 2008. The employment agreement provides that Mr. Palmisano will be paid a minimum annual
base salary of $600,000, subject to further increases by our board of directors, and will be
entitled to earn an annual bonus of up to 100 percent of his base salary based upon the achievement
of performance objectives set by our compensation committee. Mr. Palmisanos compensation under
the employment agreement also includes a monthly housing allowance of $5,000 for housing in or near
Plymouth, Minnesota, and a monthly automobile allowance of $1,500, each of which we have agreed to
gross-up to the extent that such payments are subject to income taxes payable by Mr. Palmisano. We
also have agreed to pay or reimburse Mr. Palmisano for expenses incurred for weekly air travel
between his personal residences in Massachusetts and Florida and Plymouth, Minnesota and to the
extent such payments are subject to income taxes payable by Mr. Palmisano, to make an additional
payment to Mr. Palmisano to reimburse him for such income taxes on a gross-up basis.
69
The employment agreement has an initial term expiring April 6, 2011, and contains a provision
that automatically extends the term for additional one-year periods unless either party provides
notice to the other of its intent not to extend the term of the employment agreement at least 90
days prior to the expiration of the then current term. The employment agreement further provides
that if we provide notice of our intent not to renew the agreement, it will be treated as a
termination of Mr. Palmisanos employment by us without cause, in which case Mr. Palmisano would be
entitled to the severance benefits described in more detail under the heading Potential Payments
Upon Termination or Change in Control Severance Arrangement Robert J. Palmisano. The
employment agreement contains other severance provisions, as well as change in control provisions,
which are described in more detail under the headings Potential Payments Upon Termination or
Change in Control Severance Arrangement Robert J. Palmisano and Potential Payments Upon
Termination or Change in Control Change in Control Arrangement Robert J. Palmisano. The
confidentiality, non-competition and non-solicitation agreement contains customary perpetual
confidentiality provisions as well as customary non-competition and non-solicitation covenants for
the term of Mr. Palmisanos employment and for one year following any termination of his
employment.
Employment Agreement Pascal E.R. Girin.
In connection with our hiring of Mr. Girin in June
2003, we entered into an employment agreement with him pursuant to French law, which agreement was
amended most recently in July 2009 in connection with Mr. Girins relocation from Paris, France to
Irvine, California. Under the employment agreement, Mr. Girin is currently on secondment for a
period of up to five years. If we desire to terminate the secondment, we must give Mr. Girin at
least three months prior notice. In order to induce Mr. Girin to relocate from Paris, France to
Irvine, California, we agreed to provide Mr. Girin the following benefits: (1) a relocation
allowance of 60,000 Euros; (2) reimbursement of all moving costs and expenses to and from the
United States at the beginning and end of the secondment; (3) reimbursement of two annual trips to
and from France for Mr. Girin and his three immediate family members; (4) a monthly housing
allowance or monthly lease payment of up to $11,500; (5) use of two automobiles leased by our
company; (6) payment of school fees for the secondary education of Mr. Girins daughter in the
United States; (7) the preparation of income tax returns for Mr. Girin for both France and the
United States; and (8) reimbursement for any taxes owed by Mr. Girin with respect to his
compensation that exceed the amount of taxes Mr. Girin would have been obligated to pay had he not
relocated to Irvine, California. We encouraged Mr. Girin to relocate to Irvine, California to be
closer to our neurovascular business headquarters. We believed his physical proximity to our
neurovascular business headquarters was important in light of his then position as Executive Vice
President and President, Worldwide Neurovascular and International and in anticipation of his new
position as Chief Operating Officer. Prior to his secondment to Irvine, California, we provided
Mr. Girin as described earlier mobility premium payments under French tax laws relating to travel
by Mr. Girin outside of France. We provided Mr. Girin the mobility premium payments in lieu of
part of his base salary since such payments receive tax preferred status for Mr. Girin.
Employment Letter Agreement Brett A. Wall.
In order to induce Mr. Wall to relocate from Irvine,
California to Paris, France, we entered into a letter agreement with Mr. Wall in January 2010
pursuant to which we agreed to provide Mr. Wall the following benefits: (1) an annual cost of
living allowance of $39,741 to cover the difference in every day expenses between Irvine,
California and Paris, France; (2) monthly lease costs up to a maximum of 7,500 Euros, monthly
utility costs and a furniture allowance; (3) use of two automobiles leased by the company; (4)
reimbursement of monthly club dues; (5) a relocation allowance of $25,000; (6) reimbursement of all
moving costs and expenses to and from France at the beginning and end of the assignment; (7)
reimbursement of airfare to and from France for Mr. Wall and his immediate family members at the
beginning and end of the assignment; (8) reimbursement of four annual trips to and from the United
States for Mr. Wall and one other immediate family member; (9) reimbursement of routine house
maintenance necessary to maintain Mr. Walls California residence up to $485 per month; (10)
immigration fees; (11) destination services to assist Mr. Wall and his family in
70
settling in France; (12) cross-cultural training and language lessons for Mr. Wall and his
family; (13) temporary lodging, meals and incidental expenses for up to 30 days; (14) the
preparation of income tax returns for Mr. Wall for both the United States and France; and (15)
reimbursement for any taxes owed by Mr. Wall with respect to his compensation that exceed the
amount of taxes Mr. Wall would have been obligated to pay had he not relocated to Paris, France.
We encouraged Mr. Wall to relocate to Paris, France to be closer to our international headquarters.
We believed his physical proximity to our international headquarters was important in light of his
new position as Senior Vice President and President, International.
Equity and Non-Equity Incentive Compensation and Other Bonus Payments
. Our named executive
officers received during 2009 grants of stock options and stock grants under the ev3 Inc. Second
Amended and Restated 2005 Incentive Stock Plan. These grants and the plan are described in more
detail under the headings Compensation Discussion and Analysis and Grants of Plan-Based
Awards. Our named executive officers also received annual cash bonuses under the ev3 Inc. 2009
Employee Performance Incentive Compensation Plan for their 2009 performance. The bonus amounts and
the plan are described in more detail under the headings Compensation Discussion and Analysis and
Grants of Plan-Based Awards. From time to time, we also award special discretionary bonuses to
one or more of our named executive officers to reward extraordinary performance and/or for
retention or other purposes. These bonuses may be paid in cash and/or equity-based awards, such as
stock options and stock grants. Although we awarded such a discretionary bonus to Mr. Palmisano
for his 2009 performance, we paid this bonus in the form of a stock option and stock grant which
were granted in January 2010. We refer you to the information under the heading Compensation
Discussion and Analysis.
As an inducement to encourage Mr. McCormick to accept our Senior Vice President and Chief Financial
Officer position with our company, we paid Mr. McCormick a signing bonus of $100,000 and a cash
retention bonus equal to $110,000. If we terminate Mr. McCormicks employment for cause or if Mr.
McCormick terminates his employment with our company for any reason (other than death or
disability) prior to January 19, 2012, Mr. McCormick will be required to repay a portion of the
signing bonus and retention bonus, the amount of which depends upon when the termination of
employment occurs.
Severance Payments
. The All Other Compensation column of the Summary Compensation Table for 2009
includes amounts paid or accrued pursuant to a severance arrangement with Mr. Spangler. The terms
of this arrangement is described in more detail under the heading Potential Payments Upon
Termination or Change in Control Severance Arrangement Patrick D. Spangler.
Consulting Payments
. The All Other Compensation column of the Summary Compensation Table for
2009 includes amounts paid to Mr. Spangler pursuant to a consulting arrangement entered into in
connection with his separation of employment from our company. The terms of this arrangement are
described in more detail under the heading Potential Payments Upon Termination or Change in
Control Severance Arrangement Patrick D. Spangler.
Perquisites and Personal Benefits
. As described above, we are required under Mr. Palmisanos
employment agreement to provide Mr. Palmisano certain perquisites and personal benefits, including
a monthly housing allowance of $5,000, a monthly automobile allowance of $1,500 and reimbursement
of weekly air travel expenses between his residences in Massachusetts and Florida and Plymouth,
Minnesota. In addition, to the extent these payments to Mr. Palmisano are subject to income taxes
payable by Mr. Palmisano, we have agreed to make additional payments to Mr. Palmisano to reimburse
him for such income taxes on a gross-up basis. Also as described above, we provide Mr. Girin and
Mr. Wall certain perquisites and personal benefits in connection with their foreign assignments.
71
The only other perquisite and personal benefit that we provide our named executive officers that
are not available to all of our salaried employees generally are annual sales award trips for
certain executives and their spouses. Our named executive officers also receive other benefits,
which are also received by our other employees, including 401(k) matching contributions, ability to
purchase shares of our common stock at a discount with payroll deductions under our employee stock
purchase plan and health, dental and life insurance benefits.
ev3 Inc. 401(k) Retirement Plan.
Under the ev3 Inc. 401(k) Retirement Plan, participants,
including named executive officers, may voluntarily request that we reduce his or her pre-tax
compensation by up to 75 percent (subject to certain special limitations) and contribute such
amounts to the 401(k) plans trust. We contribute matching contributions in an amount equal to
three percent of the participants eligible earnings for a pay period, or if less, 50 percent of
the participants pre-tax 401(k) contributions (other than catch-up contributions) for that pay
period. The 401(k) plan also has a true-up provision, meaning that at the end of the plan year an
eligible participant may receive an additional matching contribution by applying the plans
matching contribution formula to the participants aggregate 401(k) contributions and eligible
earnings for the entire plan year. Under the 401(k) plan, we may, in our sole discretion, also make
profit sharing contributions on behalf of eligible participants for any plan year. For 2009, we did
not make any discretionary profit sharing contributions under the 401(k) plan.
Pension, Post-Retirement and Non-qualified Deferred Compensation Plans
. We do not provide pension
arrangements or post-retirement health coverage for our employees, including our named executive
officers. We also do not maintain any nonqualified defined contribution or other deferred
compensation plans for our employees, including our named executive officers.
Indemnification Agreements
. We have entered into agreements with all of our named executive
officers under which we are required to indemnify them against expenses, judgments, penalties,
fines, settlements and other amounts actually and reasonably incurred, including expenses of a
derivative action, in connection with an actual or threatened proceeding if any of them may be made
a party because he or she is or was one of our executive officers. We will be obligated to pay
these amounts only if the executive officer acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to our best interests. With respect to any criminal
proceeding, we will be obligated to pay these amounts only if the executive officer had no
reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also
set forth procedures that will apply in the event of a claim for indemnification.
Grants of Plan-Based Awards
The following table provides information concerning grants of plan-based awards to each of our
named executive officers during the fiscal year ended December 31, 2009. Non-equity incentive
plan-based awards were granted to our named executive officers under the ev3 Inc. 2009 Employee
Performance Incentive Compensation Plan. We do not grant equity incentive plan-based awards.
Stock awards and option awards were granted under the ev3 Inc. Second Amended and Restated 2005
Incentive Stock Plan. The material terms of these awards and the material plan provisions relevant
to these awards are described in the notes to the table below or in the narrative following the
table below. We did not grant an equity incentive plan awards within the meaning of the SEC
rules during the fiscal year ended December 31, 2009.
72
GRANTS OF PLAN-BASED AWARDS 2009
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All Other
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All Other
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Grant Date Fair
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Stock Awards:
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Option Awards:
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Value
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Number of
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Number of
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Exercise or Base
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Stock and
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Board
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Estimated Future Payouts Under Non-Equity
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Shares of
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Securities
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Price of
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Option
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Grant
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Approval
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Incentive Plan Awards
(2)
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Stock or Units
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Underlying
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Option
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Awards
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Name
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Date
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Date
(1)
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Threshold ($)
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Target ($)
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Maximum ($)
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(#)
(3)
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Options(#)
(4)
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Awards ($/Sh)
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($)
(5)
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Robert J. Palmisano
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01/01/09
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02/18/09
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$
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300,000
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$
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600,000
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$
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900,000
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$
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$
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02/12/09
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02/12/09
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99,067
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614,215
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02/12/09
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02/12/09
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247,667
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6.20
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642,324
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Shawn McCormick
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01/19/09
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02/18/09
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99,534
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199,068
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298,602
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01/19/09
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12/19/08
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56,000
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348,880
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01/19/09
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12/19/08
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140,000
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6.23
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364,840
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Patrick D. Spangler
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Pascal E.R. Girin
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01/01/09
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02/18/09
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174,908
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349,816
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524,724
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03/10/09
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02/12/09
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53,390
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313,399
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03/10/09
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02/12/09
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133,474
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5.87
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327,732
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Stacy Enxing Seng
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01/01/09
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02/18/09
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115,700
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231,400
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347,100
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02/12/09
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02/12/09
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77,076
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477,871
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02/12/09
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02/12/09
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192,665
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6.20
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499,677
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Brett A. Wall
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01/01/09
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02/18/09
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66,987
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133,973
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200,960
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02/12/09
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02/12/09
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7,125
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44,175
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02/12/09
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02/12/09
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17,825
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6.20
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46,229
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10/05/09
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09/29/09
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22,500
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272,250
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10/05/09
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09/29/09
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56,200
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12.10
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286,553
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(1)
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In most cases, the grant date and the board approval date are identical. However, in the
case of ev3s non-equity incentive plan awards, the grant date, in each case, was effective as
of January 1, 2009, the beginning of the relevant performance period, but the board approval
date was different. See note (2) below. In addition, in the case of equity-based incentive
awards granted to new executives or in connection with promotions, the grant date may not
necessarily be the board approval date since the grant date is often tied to the first date of
employment or the effective date of the promotion. Furthermore, in the case of equity-based
incentive awards granted to Mr. Girin, the grant date was not necessarily the board approval
date since the grant date, in some cases, was the first trading day after 10 full trading days
had elapsed after the public release of our then most recent financial results, in accordance
with our equity grant procedures for French residents.
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(2)
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Represents amounts payable under our annual performance incentive compensation plan for 2009,
which was approved by our compensation committee in February 2009. The threshold, target and
maximum estimated future payouts for Mr. McCormick under the plan have been prorated to
reflect his January 19, 2009 start date. Mr. Spangler did not have an incentive target under
the plan since he had departed prior to the adoption of the plan. The threshold, target and
maximum estimated future payouts for Mr. Wall have been prorated to reflect his increased
incentive target and increased base salary received in connection with his promotion to Senior
Vice President and President, International on October 5, 2009.
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(3)
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Represents restricted stock grants in the case of Messrs. Palmisano, McCormick and Wall and
Ms. Enxing Seng, and a restricted stock unit, in the case of Mr. Girin granted under the ev3
Inc. Second Amended and Restated 2005 Incentive Stock Plan. The restricted stock grants vest
and become non-forfeitable over time, with the last tranche becoming non-forfeitable on
November 15, 2012, in each case, so long as the individual remains an employee or consultant
of our company. The restricted stock units vest and become issuable over time, with the last
tranche becoming issuable on November 15, 2012, in each case, so long as the individual
remains an employee or consultant of our company.
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(4)
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Represents options granted under the ev3 Inc. Second Amended and Restated 2005 Incentive
Stock Plan. All options have a ten-year term and vest over a four-year period, with 25
percent of the underlying shares vesting on the one-year anniversary of the date of grant and
1/36 of the remaining 75 percent of the underlying shares vesting during each of the next 36
months after the one-year anniversary date, in each case, so long as the individual remains an
employee or consultant of our company.
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(5)
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We refer you to notes (3) and (4) to the Summary Compensation Table for a discussion of the
assumptions made in calculating the grant date fair value of stock awards and option awards.
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73
ev3 Inc. Employee Performance Incentive Compensation Plan.
Under the terms of the ev3 Inc.
Employee Performance Incentive Compensation Plan, our named executive officers, as well as other
executives of our company, earned annual cash bonuses based on our financial performance and
individual objectives. The material terms of the plan are described in detail under the heading
Compensation Discussion and Analysis Short-Term Cash Incentive Compensation.
ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan.
Under the terms of the ev3 Inc.
Second Amended and Restated 2005 Incentive Stock Plan, our named executive officers, in addition to
other employees and individuals, are eligible to receive equity-based compensation awards, such as
stock options, stock appreciation rights, stock grants and stock unit grants. To date, only
non-statutory stock options, stock grants and stock unit grants have been granted under the plan.
The plan is administered by a subcommittee consisting of solely non-employee directors within the
meaning of Rule 16b-3 under the Exchange Act of our compensation committee and contains both an
overall limit on the number of shares of our common stock that may be issued, as well as individual
and other grant limits.
Under the terms of the plan, stock options must be granted with a per share exercise price equal to
at least 100 percent of the fair market value of a share of our common stock on the date of grant.
For purposes of the plan, the fair market value of our common stock is the closing sale price of
our common stock, as reported by the NASDAQ Global Select Market. We set the per share exercise
price of all stock options granted under the plan at an amount equal to 100 percent of the fair
market value of a share of our common stock on the date of grant. The plan prohibits our board of
directors to take any action, whether through amendment, cancellation, replacement grants, or any
other means, to reduce the exercise price of any outstanding stock options absent the approval of
our stockholders.
Options become exercisable at such times and in such installments as may be determined by our board
of directors or compensation committee, provided that most options may not be exercisable after 10
years from their date of grant. The vesting of our stock options is generally time-based and is as
follows: 25 percent of the shares underlying the stock option on the one-year anniversary of the
date of grant and 1/36 of the remaining 75 percent of the shares during each of the next 36 months
after the one-year anniversary of the date of grant and in each case so long as the individual
remains an employee or consultant of our company.
Currently, optionees must pay the exercise price of stock options in cash, except that our
compensation committee may allow payment to be made (in whole or in part) by tender, or attestation
as to ownership, of shares that are already owned by the grantee that are acceptable to the
committee, by a cashless exercise effected through an unrelated broker through a sale on the open
market, by a net exercise of the option, or by a combination of such methods. In the case of a
net exercise of an option, we will not require a payment of the exercise price of the option from
the grantee but will reduce the number of shares of common stock issued upon the exercise by the
largest number of whole shares that has a fair market value that does not exceed the aggregate
exercise price for the shares exercised under this method. Shares of common stock will no longer be
outstanding under an option (and will therefore not thereafter be exercisable) following the
exercise of such option to the extent of (i) shares used to pay the exercise price of an option
under the net exercise, (ii) shares actually delivered to the participant as a result of such
exercise and (iii) any shares withheld for purposes of tax withholding.
Under the terms of the grant certificates under which stock options have been granted to the named
executive officers, if an officers employment or service with our company terminates for any
reason, the unvested portion of the option will immediately terminate and the executives right to
exercise the then vested portion of the option will:
74
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immediately terminate if the executives employment or service
relationship with our company terminated for cause;
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continue for a period of one year if the executives employment or service
relationship with our company terminated as a result of his or her death or disability;
or
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continue for a period of 90 days if the executives employment or service
relationship with our company terminated for any reason, other than for cause or upon
death or disability.
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Cause for purposes of the grant certificates means: (1) an optionee has engaged in conduct that
in the judgment of the board of directors constitutes gross negligence, misconduct or gross neglect
in the performance of the optionees duties and responsibilities, including conduct resulting or
intending to result directly or indirectly in gain or personal enrichment for the optionee at our
expense; (2) an optionee has been convicted of or has pled guilty to a felony for fraud,
embezzlement or theft; (3) an optionee has engaged in a breach of any of our policies for which
termination of employment or service is a permissible consequence or an optionee has not
immediately cured any performance or other issues raised by an optionees supervisor; (4) an
optionee had knowledge of (and did not disclose to us in writing) any condition that could
potentially impair the optionees ability to perform the functions of his or her job or service
relationship fully, completely and successfully; or (5) an optionee has engaged in any conduct that
would constitute cause under the terms of his or her employment or consulting agreement, if any.
Stock grants under the plan are generally restricted and assuming the recipient continuously
provides services to our company (whether as an employee or as a consultant) vest typically over
time. The specific terms of vesting of a stock grant depends upon whether the award is a
performance recognition grant, talent acquisition grant or special recognition grant. Performance
recognition grants were typically made in the first quarter of each year or in connection with the
promotion of an individual and vest and become non-forfeitable in four equal annual installments on
November 15th of each year, commencing on the November 15th of the year of grant. Commencing in
2010, time-based talent acquisition grants granted to new hires, and time-based special recognition
grants of restricted stock awards, vest in a similar manner, except that the first installment is
pro-rated, depending on the date of grant.
Recipients of stock grants (other than restricted stock units) under the plan have the right to
vote and receive cash dividends with respect to the shares subject to such stock grants, even if
the stock grants are restricted or subject to forfeiture. Any stock dividends or other
distributions of property made with respect to shares that remain subject to forfeiture are held by
us and the recipients rights to receive such dividends or other property will be forfeited or will
be nonforfeitable at the same time the shares of stock with respect to which the dividends or other
property are attributable are forfeited or become nonforfeitable.
Under the terms of the grant certificates under which the restricted stock grants have been granted
to the named executive officers, other than Mr. Girin for grants prior to October 2009, if a named
executive officer ceases to be an employee or consultant of our company for any reason, then the
officer will forfeit all of the unvested or restricted shares of our common stock subject to the
stock grant. Under the terms of the grant certificate under which Mr. Girin was granted restricted
stock units prior to October 2009, if Mr. Girin ceases to be an employee or consultant of our
company for any reason, other than his death, then he will forfeit all of the unvested or unissued
shares of our common stock subject to the stock grant. If Mr. Girin ceases to be an employee or
consultant of our company as a result of his death, then all of the unvested or unissued shares of
our common stock subject to the stock grant will be immediately vested and issued to Mr. Girins
heirs. Any shares of our common stock issued to Mr. Girin as a result of a restricted stock unit
grant must be held by him for a minimum of two years after issuance; provided, however, that in
light of Mr. Girins recent status as a U.S. taxpayer the compensation committee has
75
amended Mr. Girins award certificate to permit him to sell some of the shares to pay U.S. tax
withholding obligations, if required.
As a condition of receiving restricted stock grants, recipients, including our named executive
officers, must give instructions and authorization to our company and any brokerage firm determined
acceptable to us for such purpose to sell on the recipients behalf a whole number of shares of our
common stock from those shares of stock underlying the stock grant as indicated by the recipient or
as we determine to be appropriate to generate cash proceeds sufficient to satisfy any applicable
tax withholding obligation. Such instructions, however, may be revoked by the recipient if the
recipient pays any applicable required tax withholding obligation in cash on or prior to the
applicable due date.
As described in more detail under the heading Potential Payments Upon Termination or Change in
Control, if there is a change in control of our company, then, under the terms of the 2005 plan,
all conditions to the exercise of all outstanding options and all issuance or forfeiture conditions
on all outstanding stock grants and stock unit grants will be deemed satisfied; provided if any
such issuance or forfeiture condition relates to satisfying any performance goal and there is a
target for the goal, the issuance or forfeiture condition will be deemed satisfied generally only
to the extent of the stated target.
As described in more detail under the heading Proposal Two Approval of the ev3 Inc. Third
Amended and Restated 2005 Incentive Plan, our board of directors has amended the ev3 Inc. Second
Amended and Restated 2005 Incentive Stock Plan, subject to stockholder approval.
Outstanding Equity Awards at Fiscal Year End
The following table provides information regarding unexercised stock options, restricted stock or
restricted stock units that have not vested for each of our named executive officers that remained
outstanding at December 31, 2009. We did not have any equity incentive plan awards within the
meaning of the SEC rules outstanding at December 31, 2009.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value of
|
|
|
|
Underlying
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
Number of Shares or
|
|
|
Shares or Units
|
|
|
|
Unexercised Options
|
|
|
Underlying Unexercised
|
|
|
|
|
|
|
|
|
|
|
Units of Stock That
|
|
|
That Have Not
|
|
|
|
(#)
|
|
|
Options (#)
|
|
|
Option Exercise
|
|
|
Option Expiration
|
|
|
Have Not Vested
|
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
(1)
|
|
|
Price ($)
|
|
|
Date
(2)
|
|
|
(#)
(3)
|
|
|
($)
(4)
|
|
Robert J. Palmisano
|
|
|
0
|
|
|
|
247,667
|
|
|
$
|
6.20
|
|
|
|
02/12/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
314,167
|
(5)
|
|
|
439,833
|
(5)
|
|
|
8.64
|
|
|
|
04/06/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
175,000
|
|
|
|
8.64
|
|
|
|
04/06/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,301
|
|
|
|
991,175
|
|
|
Shawn McCormick
|
|
|
0
|
|
|
|
140,000
|
|
|
|
6.23
|
|
|
|
01/19/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,336
|
|
|
|
591,442
|
|
|
Patrick D. Spangler
(6)
|
|
|
27,083
|
|
|
|
0
|
|
|
|
16.64
|
|
|
|
03/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
27,344
|
|
|
|
0
|
|
|
|
17.67
|
|
|
|
03/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
24,479
|
|
|
|
0
|
|
|
|
16.05
|
|
|
|
03/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
66,000
|
|
|
|
0
|
|
|
|
14.00
|
|
|
|
03/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
59,000
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
03/31/2010
|
|
|
|
|
|
|
|
|
|
|
Pascal E.R. Girin
|
|
|
0
|
|
|
|
133,474
|
|
|
|
5.87
|
|
|
|
03/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
|
|
|
66,667
|
|
|
|
11.82
|
|
|
|
08/12/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
27,083
|
|
|
|
22,917
|
|
|
|
16.64
|
|
|
|
10/04/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
36,458
|
|
|
|
13,542
|
|
|
|
17.67
|
|
|
|
01/22/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
24,479
|
|
|
|
521
|
|
|
|
16.05
|
|
|
|
01/20/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
88,000
|
|
|
|
0
|
|
|
|
14.00
|
|
|
|
07/01/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
6,666
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
01/07/2015
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value of
|
|
|
|
Underlying
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
Number of Shares or
|
|
|
Shares or Units
|
|
|
|
Unexercised Options
|
|
|
Underlying Unexercised
|
|
|
|
|
|
|
|
|
|
|
Units of Stock That
|
|
|
That Have Not
|
|
|
|
(#)
|
|
|
Options (#)
|
|
|
Option Exercise
|
|
|
Option Expiration
|
|
|
Have Not Vested
|
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
(1)
|
|
|
Price ($)
|
|
|
Date
(2)
|
|
|
(#)
(3)
|
|
|
($)
(4)
|
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
07/19/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
30,600
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
08/15/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,888
|
|
|
|
2,079,546
|
|
|
Stacy Enxing Seng
|
|
|
0
|
|
|
|
96,350
|
|
|
|
6.20
|
|
|
|
02/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
96,315
|
|
|
|
6.20
|
|
|
|
02/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
20,313
|
|
|
|
17,187
|
|
|
|
16.64
|
|
|
|
10/04/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
29,167
|
|
|
|
10,833
|
|
|
|
17.67
|
|
|
|
01/22/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
19,583
|
|
|
|
417
|
|
|
|
16.05
|
|
|
|
01/20/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
99,072
|
|
|
|
0
|
|
|
|
14.00
|
|
|
|
07/01/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
02/01/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
8,333
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
01/07/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
2,916
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
07/19/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
05/07/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
15,300
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
04/07/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
27,097
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
08/07/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
8,574
|
|
|
|
0
|
|
|
|
3.54
|
|
|
|
06/20/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
12,860
|
|
|
|
0
|
|
|
|
8.82
|
|
|
|
06/20/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,110
|
|
|
|
1,188,727
|
|
|
Brett A. Wall
|
|
|
0
|
|
|
|
56,200
|
|
|
|
12.10
|
|
|
|
10/05/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
17,825
|
|
|
|
6.20
|
|
|
|
02/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
3,460
|
|
|
|
7,615
|
|
|
|
12.21
|
|
|
|
09/01/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
5,417
|
|
|
|
4,583
|
|
|
|
16.64
|
|
|
|
10/04/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
8,203
|
|
|
|
3,047
|
|
|
|
17.67
|
|
|
|
01/22/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
|
|
0
|
|
|
|
13.54
|
|
|
|
12/06/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
1,488
|
|
|
|
0
|
|
|
|
12.70
|
|
|
|
07/03/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
379
|
|
|
|
0
|
|
|
|
9.35
|
|
|
|
05/02/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
692
|
|
|
|
0
|
|
|
|
9.35
|
|
|
|
05/02/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400
|
|
|
|
0
|
|
|
|
10.30
|
|
|
|
04/04/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
5,125
|
|
|
|
0
|
|
|
|
10.30
|
|
|
|
04/04/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
16,373
|
|
|
|
0
|
|
|
|
15.74
|
|
|
|
09/15/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
1,090
|
|
|
|
0
|
|
|
|
15.74
|
|
|
|
09/15/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,536
|
|
|
|
447,370
|
|
|
|
|
(1)
|
|
Except as otherwise noted, all stock options vest over a four-year period, with 25 percent of
the underlying shares vesting on the one-year anniversary of the date of grant and 1/36 of the
remaining 75 percent of the underlying shares vesting during each of the next 36 months after
the one-year anniversary date. Upon the occurrence of a change in control, the unvested and
unexercisable options described in this table may be accelerated and become fully vested and
immediately exercisable as of the date of the change in control. For more information, we
refer you to the discussion under the heading Potential Payments Upon Termination or Change
in Control.
|
|
(2)
|
|
All option awards have a 10-year term, but may terminate earlier if the recipients
employment or service relationship with our company terminates. The option expiration dates
for Mr. Spangler reflect the fact that his consulting arrangement with ev3 ended on December
31, 2009 and his option awards expired 90 days thereafter. For more information, we refer you
to the discussion under the heading Potential Payments Upon Termination or Change in
ControlSeverance ArrangementPatrick D. Spangler.
|
|
(3)
|
|
The release dates and release amounts for the unvested restricted stock grants, in the case
of Messrs. Palmisano, McCormick and Wall and Ms. Enxing Seng, and restricted stock unit
grants, in the case of Mr. Girin, are as follows:
|
|
|
|
Mr. Palmisano: November 15, 2010 (24,766 shares), November 15, 2011 (24,766
shares) and November 15, 2012 (24,769 shares).
|
|
|
|
|
Mr. McCormick: November 15, 2010 (14,778 shares), November 15, 2011
(14,778 shares) and November 15, 2012 (14,780 shares).
|
77
|
|
|
Mr. Girin: March 1, 2010 (17,500 shares), April 30, 2010 (15,000 shares),
August 12, 2010 (19,275 shares), March 10, 2011 (26,695 shares), November 15, 2010
(28,103 shares), November 15, 2011 (35,967 shares) and November 15, 2012 (13,348
shares).
|
|
|
|
|
Ms. Enxing Seng: November 15, 2010 (36,844 shares), November 15, 2011
(32,458 shares) and November 15, 2012 (19,808 shares).
|
|
|
|
|
Mr. Wall: November 15, 2010 (12,820 shares), November 15, 2011 (11,590
shares) and November 15, 2012 (9,126 shares).
|
|
|
If there is a change in control of our company, then, under the terms of our
existing equity incentive plan, all issuance or forfeiture conditions on all
outstanding stock grants and stock unit grants will be deemed satisfied; provided if
any such issuance or forfeiture condition relates to satisfying any performance goal
and there is a target for the goal, the issuance or forfeiture condition will be deemed
satisfied generally only to the extent of the stated target.
|
|
(4)
|
|
The market value of restricted stock or restricted stock units that had not vested as of
December 31, 2009 is based on the closing sale price of our common stock on December 31, 2009
($13.34).
|
|
(5)
|
|
This option was granted outside the terms of our existing equity incentive plan, was approved
by the compensation committee of our board of directors, and was granted pursuant to an
exemption from NASDAQs stockholder approval requirements under former NASDAQ Marketplace Rule
Section 4350(i)(1)(A)(iv).
|
|
(6)
|
|
Upon the termination of Mr. Spanglers consulting arrangement on December 31, 2009, all of
Mr. Spanglers unvested option awards and stock awards terminated at that time.
|
Options Exercised and Stock Vested During Fiscal Year
The following table provides information regarding the exercise of stock options and the vesting of
restricted stock or restricted stock units during the fiscal year ended December 31, 2009 for each
of our named executive officers on an aggregated basis.
OPTIONS EXERCISED AND STOCK VESTED 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized on
|
|
Number of Shares
Acquired on Vesting
|
|
Value Realized on
|
Name
|
|
Acquired on
Exercise (#)
|
|
Exercise
($)
(1)
|
|
(#)
|
|
Vesting
($)
(2)
|
Robert J. Palmisano
|
|
|
|
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$
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24,766
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|
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$
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311,309
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Shawn McCormick
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|
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11,664
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|
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146,616
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Patrick D. Spangler
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16,000
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|
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50,304
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Pascal E.R. Girin
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|
|
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|
|
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29,912
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280,726
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Stacy Enxing Seng
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43,450
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|
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546,167
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Brett A. Wall
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5,944
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74,716
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(1)
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The aggregate dollar value realized upon exercise is the difference between the market price
of the underlying shares of our common stock on the date of exercise, based on the closing
sale price of our common stock on the date of exercise, and the exercise price of the options.
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(2)
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The aggregate dollar value realized upon vesting is equal to the market value of the
underlying shares of our common stock, based on the closing sale price of our common stock on
the date of vesting.
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78
Potential Payments Upon Termination or Change in Control
Severance or Retirement Arrangements Generally
. None of our named executive officers, other
than Robert J. Palmisano and Brett A. Wall, are entitled to any severance or other payments under
any agreement or contract upon their termination of employment without cause or otherwise. In the
event the employment of one of our named executive officers, other than Mr. Palmisano or Mr. Wall,
was terminated, the compensation committee would exercise its business judgment in determining
whether or not a separation arrangement, including any severance pay, was appropriate and would
determine the terms of any separation arrangement in light of all relevant circumstances including
the individuals term of employment, past accomplishments and reasons for separation from our
company. We do not have any retirement arrangements with our employees, including our named
executive officers.
Severance Arrangement Robert J. Palmisano.
Under the terms of Mr. Palmisanos employment and
change in control agreement, in the event we terminate Mr. Palmisanos employment without cause or
Mr. Palmisano terminates his employment for good reason, Mr. Palmisano will be entitled to (1)
receive any accrued and unpaid base salary and bonus; (2) receive the value of any accrued and
unused vacation; (3) receive a single lump sum payment equal to (x) 150 percent of his then current
base pay and (y) a pro rata portion of his bonus that would have been earned with respect to the
year in which the termination event occurred had Mr. Palmisano remained employed through the end of
the performance period to the extent the applicable performance objectives have been achieved; (4)
elect continuation coverage under COBRA for 18 months following the date of termination, the
premiums for which will be paid by us; (5) elect health care continuation coverage for an
additional 18 months following such 18-month severance period and (6) receive, for 18 months
following the date of termination, all fringe benefits and perquisites to which he is entitled
under his agreement and which may legally be provided by us to non-employees, as well as the
housing and car allowances described above (but, with respect to the housing allowance, only to the
extent necessary to pay lease or rental obligations existing on the date of termination and in any
case not to exceed the 18-month severance period). In the event Mr. Palmisanos employment is
terminated as a result of his disability or otherwise (other than by us without cause or by Mr.
Palmisano for good reason), he will be entitled to receive accrued but unpaid base salary and bonus
payments through the date of termination and unused vacation pay accrued through the date of
termination. For purposes of Mr. Palmisanos agreement, cause is defined as: (1) Mr. Palmisanos
gross misconduct; (2) willful and continued failure to perform substantially his duties after
notice of such failure; or (3) his conviction of willfully engaging in illegal conduct constituting
a felony or gross misdemeanor under federal or state law which is materially and demonstrably
injurious to our company or which impairs his ability to perform substantially his duties. For
purposes of the agreement, good reason is defined as: (1) a substantial change in status,
position(s), duties or responsibilities; (2) a material reduction in base pay, a material reduction
in the annual bonus plan payment opportunity; (3) our material breach of Mr. Palmisanos employment
and change in control agreement; or (4) our failure to obtain the assent to the agreement by any
successor entity. Mr. Palmisanos receipt of any severance payments and benefits is conditioned
upon his execution of a waiver and release agreement. In the event any compensation with respect
to Mr. Palmisanos termination is subject to the six-month suspension under Section 409A of the
Internal Revenue Code and the regulations promulgated thereunder, such suspended payments will bear
simple interest at the prime rate of interest as published by
The Wall Street Journal
s bank survey
as of the first day of the six-month period.
Severance Arrangement Brett A. Wall.
In his letter agreement outlining the terms and
conditions of his assignment to Paris, France, we agreed to provide Mr. Wall a severance package
equal to 12 months base salary and outplacement services if at the end of his assignment or if upon
earlier termination of the agreement, we do not offer him a mutually agreeable position within our
company.
79
Severance Arrangement Patrick D. Spangler.
In connection with his resignation as Senior Vice
President and Chief Financial Officer on January 19, 2009, we entered into a separation agreement
and release of claims and a consulting agreement with Patrick D. Spangler. The separation and
release agreement provides for the following, among other things:
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payments by us to Mr. Spangler in an aggregate amount equal to his annual
base salary of $314,800, paid in the form of salary continuation over the 12 months
following his resignation;
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payment by us to Mr. Spangler of a lump sum cash payment equal to
$193,522, which represented Mr. Spanglers annual performance incentive plan payout
(which was 60 percent of his annual base salary) for 2008 in accordance with the terms
of ev3s 2008 performance incentive compensation plan;
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if timely elected, payment of COBRA continuation coverage premiums for a
period through no later than December 31, 2009; and
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payment of outplacement services for a period of up to one year from the
date of his resignation.
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The separation and release agreement includes a general release of claims against us by Mr.
Spangler and an agreement by Mr. Spangler to cooperate with respect to any future investigations
and litigation. Mr. Spangler remains bound by the confidentiality, assignment of inventions,
non-competition, non-solicitation and similar provisions of his prior agreement with ev3.
In connection with Mr. Spanglers resignation, we and Mr. Spangler also entered into a consulting
agreement dated as of January 20, 2009 pursuant to which Mr. Spangler served as a consultant to us
until December 31, 2009, reporting to our President and Chief Executive Officer. Mr. Spangler
received $1,000 per month for up to 10 hours of consulting services per month and was compensated
at a rate of $150 per hour for any consulting services in excess of the foregoing. The consulting
agreement also contains customary confidentiality provisions.
Change in Control Arrangements Generally
. Our stock incentive plans under which stock options,
restricted stock and restricted stock units have been granted to our named executive officers
contain change in control provisions. In addition, we have entered into agreements with our
named executive officers that require us to provide compensation to them in the event of a change
in control of our company and/or a termination of their employment in connection with, or within a
certain period of time after, a change in control of our company.
For purposes of the change in control agreements, a change in control means:
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the sale, lease, exchange or other transfer, directly or indirectly, of
all or substantially all of our assets, in one transaction or in a series of related
transactions, to a third party;
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any third party, other than a bona fide underwriter, is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended), directly or indirectly, of securities (x) representing 50 percent or more
of the combined voting power of our outstanding securities ordinarily having the right
to vote at elections of directors, or (y) resulting in such third party becoming an
affiliate of our company, including pursuant to a transaction described in the next
bullet below;
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80
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the consummation of any transaction or series of transactions under which
we are merged or consolidated with any other company, other than a merger or
consolidation which would result in our stockholders immediately prior thereto
continuing to own (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50 percent of the combined voting power
of the voting securities of the surviving entity outstanding immediately after such
merger or consolidation; or
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the continuity directors cease for any reason to constitute at least a
majority of our board of directors.
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For purposes of this definition, a continuity director means an individual who, as of the date of
the plan or change in control agreement, was a member of our board of directors, and any other
individual who becomes a director subsequent to such date whose election, or nomination for
election by our stockholders, was approved by a vote of at least a majority of the directors then
comprising the continuity directors, but excluding for this purpose any individual whose initial
assumption of office occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a person or entity other than our board of directors.
Under the ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan, a change in control
means a change in control of ev3 that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 whether or not
our company is then subject to such reporting requirements, including:
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the acquisition (other than from ev3) by any person, entity or group,
subject to certain exceptions, of 20 percent or more of either
the then-outstanding shares of our common stock or the combined voting power of our then-outstanding shares
entitled to vote generally in the election of directors;
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the continuity directors cease for any reason to constitute at least a
majority of our board of directors; or
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approval by our stockholders of any reorganization, merger or
consolidation with respect to which persons who were our stockholders immediately prior
to such transaction do not immediately thereafter own more than 50 percent of the
combined voting power entitled to vote generally in the election of directors of the
surviving corporations then-outstanding voting securities, a liquidation or
dissolution of our company or the sale of all or substantially all of our assets.
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Change in Control Arrangements Stock Incentive Plans
. Under the terms of the ev3 Inc. Second
Amended and Restated 2005 Incentive Stock Plan, if there is a change in control of our company,
then, all conditions to the exercise of all outstanding options and all issuance or forfeiture
conditions on all outstanding stock grants and stock unit grants will be deemed satisfied; provided
if any such issuance or forfeiture condition relates to satisfying any performance goal and there
is a target for the goal, the issuance or forfeiture condition will be deemed satisfied generally
only to the extent of the stated target. Under the terms of the ev3 LLC 2003 Incentive Plan, if
there is a change in control of our company, then, generally, we will require the successor entity
or parent thereof to assume all outstanding options granted under the plan. In addition, the plan
administrator may, in its discretion and in lieu of requiring such assumption, provide that all
outstanding stock options will terminate as of the consummation of such change in control, and (1)
accelerate the exercisability of, or cause all vesting restrictions to lapse on all outstanding
options to a date at least 10 days prior to the date of the change in control and/or (2) provide
81
that the holders of options will receive a cash payment in respect of cancellation of their options
based on the amount (if any) by which the per share consideration being paid for the common stock
in connection with the change in control exceeds the applicable exercise price, if any. Most of
the outstanding unvested stock options and stock grants held by the named executive officers were
granted under the 2005 plan and thus will become immediately vested (and, in the case of options,
exercisable) upon the completion of a change in control of our company.
Change in Control Arrangement Robert J. Palmisano.
Under the terms of Mr. Palmisanos
employment and change in control agreement, in the event that following a change in control, we
terminate Mr. Palmisanos employment without cause or Mr. Palmisano terminates his employment for
good reason, Mr. Palmisano will be entitled to (1) receive any accrued and unpaid base salary; (2)
receive the value of any accrued and unused vacation; (3) receive a pro rata portion of his annual
target bonus based on the number of months in the year worked prior to the change in control and
based on the assumption that all of the annual performance milestones will have been satisfied at
target for such year; (4) receive a lump sum payment equal to the sum of (x) 36 months of his then
current base pay and (y) 300 percent of his annual target bonus based on the assumption that all of
the annual performance milestones will have been satisfied at target for such year; (5) elect
continuation coverage under COBRA for 36 months following the date of termination, the premiums for
which will be paid by us; (6) elect health care continuation coverage for an additional 18 months
following such 36-month severance period and (7) receive, for 36 months following the date of
termination, all fringe benefits and perquisites to which he is entitled under his agreement and
which may legally be provided by us to non-employees, as well as the housing and car allowances
described above (but, with respect to the housing allowance, only to the extent necessary to pay
lease or rental obligations existing on the date of termination and in any case not to exceed the
36-month severance period). In addition, upon a change in control, the agreement provides that all
unvested stock options and stock awards will become fully vested and immediately exercisable.
Mr. Palmisanos agreement also provides that in the event any payment or benefit provided by us to
or for the benefit of Mr. Palmisano, either under the agreement or otherwise, will be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code, we will make an additional
lump sum payment to Mr. Palmisano that will be sufficient, after giving effect to all federal,
state and other taxes and charges with respect to such payment, to make Mr. Palmisano whole for all
taxes (including withholding taxes) imposed under Section 4999 of the Internal Revenue Code.
Mr. Palmisanos agreement contains the same change in control definition as the ev3 Inc. Second
Amended and Restated 2005 Incentive Stock Plan, as discussed above under the heading Change in
Control Agreements Generally.
Other Named Executive Officers Change in Control Agreements.
The agreements with our other named
executive officers entitle (or entitled, in case of Mr. Spangler who is no longer an executive of
our company) each of them, upon the occurrence of a change in control, to base pay owed to the
executive through such date and a pro rata portion of the executives target bonus plan payment
based on the number of months in the year worked prior to the change in control. In addition, if
the executives employment is terminated by us for any reason other than for cause and other than
the executives death or is terminated by the executive for good reason and the termination of
employment occurs within 24 months of the change in control or prior to the change in control if
the termination was either a condition of the change in control or was at the request or insistence
of a person related to the change in control, then the executive would be entitled to certain
additional benefits. Such benefits include receipt of a lump sum cash payment equal to 12 months
of the executives then-current base pay and the full amount of the executives bonus plan payment
for the next 12 months, with the amount of the bonus plan payment based on the assumption that all
of the annual performance milestones will have been satisfied at target
82
for such year. In addition, the executive also would be entitled to group health plan benefits for
the executive and his or her dependents for up to 18 months, reasonable outplacement services with
a cost of up to $20,000. To the extent any payments received by an executive under the agreement
constitute parachute payments which result in an excise tax under Section 4999 of the Internal
Revenue Code, the executive is entitled to receive a gross-up payment to cover such excise tax as
well as applicable taxes on such gross-up payment. The agreements also provide that, in addition
to any other indemnification obligations that we may have, if, following a change in control of our
company, the executive incurs damages, costs or expenses (including, without limitation, judgments,
fines and reasonable attorneys fees) as a result of the executives service to our company or
status as an officer of our company, we will indemnify the executive to the fullest extent
permitted by law, except to the extent that such damages, costs or expenses arose as a result of
the executives gross negligence or willful misconduct. In March 2010, we hired a new executive
officer and in connection with our hiring of this executive we revised our standard change in
control agreement to eliminate the requirement that we make an additional gross-up payment to an
executive to the extent any payments received by the executive constitute parachute payments which
result in an excise tax under Section 4999 of the Internal Revenue Code. We made this change as to
avoid being identified by RiskMetrics Group as implementing a problematic pay practice. We
intend to use the revised change in control agreement without the gross-up payment language going
forward with respect to new executives. Other than entering into a change in control agreement with
Mr. McCormick upon his hiring in January 2009, we did not enter into or amend any change in control
agreements with our named executive officers during 2009.
Potential Payments to Named Executive Officers.
The following table describes the potential
maximum payments to each of our named executive officers who was employed by ev3 on December 31,
2009 (i) in the event of their termination upon the occurrence of a change in control of our
company or (ii) within 24 months following the change in control, their involuntary termination or
termination by them with good reason. For purposes of this calculation, we have assumed that the
change in control and termination event occurred on December 31, 2009. The following table does
not include any accrued and unpaid base salary to which the executives also would be entitled.
83
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Dollar Amount of
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Description of Payments
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Potential Maximum
|
Name
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and Executive Benefits
|
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Payments/Benefits
|
Robert J. Palmisano
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|
Pro Rata Portion of 2009 Bonus
(1)
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$
|
691,200
|
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Lump Sum Payment Based on Base Salary
|
|
|
1,800,000
|
|
|
|
Lump Sum Payment Based on Annual Bonus Plan
|
|
|
1,800,000
|
|
|
|
Unvested and Accelerated Stock Options
(2)
|
|
|
4,658,059
|
|
|
|
Unvested and Accelerated Restricted Stock
(3)
|
|
|
991,175
|
|
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Group Health Plan Benefits
(4)
|
|
|
28,968
|
|
|
|
Accrued Paid Time Off
(5)
|
|
|
73,846
|
|
|
|
Housing Allowance
(6)
|
|
|
180,000
|
|
|
|
Automobile Allowance
|
|
|
54,000
|
|
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|
Housing and Automobile Tax Gross-up Payment
|
|
|
168,771
|
|
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|
Fringe Benefit Tax Gross-up Payment
(7)
|
|
|
89,097
|
|
|
|
280G Tax Gross-up Payment
(8)
|
|
|
2,541,309
|
|
|
|
Total:
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13,076,425
|
|
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Shawn McCormick
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Pro Rata Portion of 2009 Bonus
(1)
|
|
|
229,377
|
|
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|
Lump Sum Payment Based on Base Salary
|
|
|
350,000
|
|
|
|
Lump Sum Payment Based on Annual Bonus Plan
(1)(9)
|
|
|
210,000
|
|
|
|
Accelerated Sign On and Retention Bonuses
|
|
|
210,000
|
|
|
|
Unvested and Accelerated Stock Options
(2)
|
|
|
995,400
|
|
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|
Unvested and Accelerated Restricted Stock
(3)
|
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591,442
|
|
|
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Group Health Plan Benefits
(4)
|
|
|
21,966
|
|
|
|
Outplacement Services
|
|
|
20,000
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|
Accrued Paid Time Off
(5)
|
|
|
10,826
|
|
|
|
280G Tax Gross-up Payment
(8)
|
|
|
|
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|
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Total:
|
|
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2,639,011
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|
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Pascal E.R. Girin
(10)
|
|
Pro Rata Portion of 2009 Bonus
(1)
|
|
|
458,958
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|
|
|
Lump Sum Payment Based on Base Salary
|
|
|
514,218
|
|
|
|
Lump Sum Payment Based on Annual Bonus Plan
(1)(9)
|
|
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334,242
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Unvested and Accelerated Stock Options
(2)
|
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1,098,384
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|
|
|
Unvested and Accelerated Restricted Stock Units
(3)
|
|
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2,079,546
|
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Group Health Plan Benefits
(4)
|
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41,167
|
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Outplacement Services
|
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20,000
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Accrued Paid Time Off
(5)
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81,658
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|
280G Tax Gross-up Payment
(8)
|
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754,133
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Total:
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5,382,306
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Stacy Enxing Seng
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Pro Rata Portion of 2009 Bonus
(1)
|
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233,627
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|
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Lump Sum Payment Based on Base Salary
|
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356,000
|
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|
Lump Sum Payment Based on Annual Bonus Plan
(1)(9)
|
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231,400
|
|
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Unvested and Accelerated Stock Options
(2)
|
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1,375,628
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Unvested and Accelerated Restricted Stock
(3)
|
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1,188,727
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Group Health Plan Benefits
(4)
|
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21,966
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Outplacement Services
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20,000
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Accrued Paid Time Off
(5)
|
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30,355
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|
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280G Tax Gross-up Payment
(8)
|
|
|
|
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Total:
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3,457,703
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Brett A. Wall
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Pro Rata Portion of 2009 Bonus
(1)
|
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162,061
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Lump Sum Payment Based on Base Salary
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300,000
|
|
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|
Lump Sum Payment Based on Annual Bonus Plan
(1)(9)
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180,000
|
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Unvested and Accelerated Stock Options
(2)
|
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|
205,562
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Unvested and Accelerated Restricted Stock
(3)
|
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447,370
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Group Health Plan Benefits
(4)
|
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|
14,484
|
|
|
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Outplacement Services
|
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|
20,000
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|
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Accrued Paid Time Off
(5)
|
|
|
36,923
|
|
|
|
280G Tax Gross-up Payment
(8)
|
|
|
|
|
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Total:
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1,366,400
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(1)
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Assumes performance milestones were satisfied at target.
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(2)
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The value of the automatic acceleration of the vesting of unvested stock options held by a
named executive officer is based on the difference between: (i) the market price of the shares
of our common stock underlying the unvested stock options held by such officer as of December
31, 2009 ($13.34), and (ii) the exercise price of the options. The range of exercise prices
of unvested stock options held by our named executive officers included in the table as of
December 31, 2009 was $5.87 to $17.67.
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(3)
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The value of the automatic acceleration of the vesting of restricted stock or restricted
stock units held by a named executive officer is based on: (i) the number of unvested shares
of restricted stock or restricted stock units held by such officer as of December 31, 2009,
multiplied by (ii) the market price of our common stock on December 31, 2009 ($13.34).
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(4)
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The value of the group health plan benefits is based on premiums rates in effect in December
2009.
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84
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(5)
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Represents amounts paid for accrued time off in excess of the accrual cap under our Paid Time
Off Policy for U.S. Employees.
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(6)
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Mr. Palmisano would be entitled to a housing allowance, but only to the extent necessary to
pay lease or rental obligations existing on the date of termination for up to 36 months.
Amount assumes that Mr. Palmisanos lease or rental obligations equal his housing allowance of
$5,000 per month and extend for 36 months.
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(7)
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The value of the gross-up payment assumes a 35 percent U.S. federal income tax rate, a 7.85
percent state income tax rate and a 1.45 percent Medicare tax.
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(8)
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These payments are only payable in the case that the executives payments following a change
in control result in excess parachute payments under Internal Revenue Code Section 280G. The
named executive officers change in control agreements provide that any excise tax and
gross-up payments will equal only that amount required to assure that the executive receives
payment at least equal to the expected severance payment without the executive incurring
golden parachute excise tax out of pocket. The estimated calculations incorporate the
following tax rates: 280G excise tax rate of 20 percent, a statutory 35 percent federal income
tax rate, a 1.45 percent Medicare tax rate and the applicable state income tax rate. In the
case of a change in control with no termination of employment, none of the executives would
receive payments in an amount that would require an excise tax gross-up.
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(9)
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Amount based on base salary and target bonus percentage in effect on December 31, 2009.
Assumes performance milestones were satisfied at target.
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(10)
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For purposes of determining the value of payments to Mr. Girin, it is assumed that any notice
requirements under applicable law will have been satisfied.
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Risk Considerations in our Compensation Programs
Our compensation committee with the assistance of Mercer, its independent compensation consultant,
recently reviewed our executive compensation programs, as well as our compensation policies and
practices for all of our employees, to determine whether such programs, policies and practices
encourage excessive risk taking. Mercer reported the results of its review to our compensation
committee. Our compensation committee concluded that risks arising from our compensation policies
and practices for our employees are not reasonably likely to have a material adverse effect on our
company and that our executive incentive compensation arrangements in particular do not encourage
our executives to take unnecessary or excessive risks that could threaten the value of our company.
In making this determination, our compensation committee took into account the compensation mix
for our employees and various risk control and mitigation features of our programs, policies and
practices, including appropriate bonus maximums, our recoupment policy, our performance targets and
our stock ownership guidelines.
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RELATED PERSON RELATIONSHIPS AND TRANSACTIONS
Relationship with Warburg Pincus Entities
As of March 29, 2010, Warburg Pincus beneficially owned approximately 24.0 percent of our
outstanding common stock. Elizabeth H. Weatherman, one of our directors, is a Managing Director of
Warburg Pincus LLC and a member of the firms Executive Management Group. As described in more
detail below under the heading Holders Agreement, Ms. Weatherman was elected to our board of
directors as a board designee of Warburg Pincus and the Vertical Funds, as was Richard B. Emmitt,
another one of our directors. Four of our current directors are executives of one or more
portfolio companies of Warburg Pincus.
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John K. Bakewell is Executive Vice President and Chief Financial Officer
of RegionalCare Hospital Partners, Inc. a privately-held company, acquirer and operator
of acute care hospitals in non-urban markets.
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Douglas W. Kohrs is President and Chief Executive Officer of Tornier B.V.,
a privately-held global orthopedic company.
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Daniel J. Levangie is President and Chief Executive Officer of Keystone
Dental, Inc., a privately-held dental implant medical device company, and a Managing
Partner of Constitution Medical Investors, Inc., a Boston-based private investment firm
focused on healthcare sector-related acquisitions.
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John L. Miclot is President and Chief Executive Officer of CCS Medical,
Inc., a privately-held provider of home healthcare products, such as insulin pumps,
incontinence products and respiratory equipment.
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Holders Agreement
We are a party to a holders agreement along with certain of our stockholders, Warburg Pincus and
the Vertical Fund, and certain of our directors, former directors, executive officers and former
executive officers, including Stacy Enxing Seng, our Executive Vice President and President,
Worldwide Peripheral Vascular. Pursuant to the terms of this agreement, we are required to
nominate and use our best efforts to have elected to our board of directors:
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two persons designated by Warburg Pincus and the Vertical Funds if Warburg
Pincus and the Vertical Funds collectively beneficially own 20 percent or more of our
common stock; or
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one person designated by Warburg Pincus and the Vertical Funds if Warburg
Pincus and the Vertical Funds collectively beneficially own at least 10 percent but
less than 20 percent of our common stock.
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Mr. Emmitt and Ms. Weatherman are the initial designees under the holders agreement. The parties
to the holders agreement also agreed to be subject to lock-up agreements in certain circumstances,
including in up to two registration statements filed after our initial public offering.
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Registration Rights Agreement
We are a party to a registration rights agreement with certain of our stockholders, former
directors, former officers, officers and employees, including, among others, Warburg Pincus, the
Vertical Funds and Stacy Enxing Seng, who we refer to as the holders, with respect to shares of our
common stock held by them. Pursuant to the registration rights agreement, we agreed to:
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use our reasonable best efforts to effect up to two registered offerings
of at least $10 million each upon the demand of the holders of not less than a majority
of the shares of our common stock then held by the holders;
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use our best efforts to effect up to three registrations of at least
$1 million each on Form S-3, once we become eligible to use such form, if any holder so
requests; and
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maintain the effectiveness of each such registration statement for a
period of 120 days or until the distribution of the registrable securities pursuant to
the registration statement is complete.
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Pursuant to the registration rights agreement, the holders also have incidental or piggyback
registration rights with respect to any registrable shares, subject to certain volume and marketing
restrictions imposed by the underwriters of the offering with respect to which the rights are
exercised. We also agreed to use our best efforts to qualify for the use of Form S-3 for secondary
sales. We agreed to bear the expenses, including the fees and disbursements of one legal counsel
for the holders, in connection with the registration of the registrable securities, except for any
underwriting commissions relating to the sale of the registrable securities.
Product Sales to Warburg Pincus Portfolio Company
During 2009, we sold certain products to Beijing Lepu Medical Device, Inc., a privately-held
provider of drug eluting stents, for an aggregate price of $2.7 million. Funds affiliated with
Warburg Pincus own approximately 18 percent of Beijing Lepu Medical Device. Elizabeth H.
Weatherman, one of our directors, is a Managing Director of Warburg Pincus LLC and a member of the
firms Executive Management Group.
Director and Executive Officer Compensation
Please see Director Compensation and Executive Compensation for information regarding the
compensation of our directors and executive officers and for information regarding employment,
consulting, change in control, indemnification and other agreements we have entered into with our
current and former directors and executive officers.
Policies and Procedures Regarding Related Party Transactions
Our board of directors has delegated to our audit committee, pursuant to the terms of a written
policy, the authority to review, approve and ratify related party transactions. If it is not
feasible for our audit committee to take an action with respect to a proposed related party
transaction, the board or another committee of the board, may approve or ratify it. No member of
the board or any committee may participate in any review, consideration or approval of any related
party transaction with respect to which such member or any of his or her immediate family members
is the related party.
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Our policy defines a related party transaction as a transaction, arrangement or relationship (or
any series of similar transactions, arrangements or relationships) in which we (including any of
our subsidiaries) were, are or will be a participant and in which any related party had, has or
will have a direct or indirect interest.
Prior to entering into or amending any related party transaction, the party involved must provide
notice to our legal department of the facts and circumstances of the proposed transaction,
including:
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the related partys relationship to us and his or her interest in the
transaction;
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the material facts of the proposed related party transaction, including
the proposed aggregate value of such transaction or, in the case of indebtedness, the
amount of principal that would be involved;
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the purpose and benefits of the proposed related party transaction with
respect to us;
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if applicable, the availability of other sources of comparable products or
services; and
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an assessment of whether the proposed related party transaction is on
terms that are comparable to the terms available to an unrelated third party or to
employees generally.
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If the legal department determines the proposed transaction is a related party transaction, the
proposed transaction will be submitted to the audit committee for consideration. In determining
whether to approve a proposed related party transaction, the audit committee will consider, among
other things, the following:
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the purpose of the transaction;
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the benefits of the transaction to us;
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the impact on a directors independence in the event the related party is
a non-employee director, an immediate family member of a non-employee director or an
entity in which a non-employee director is a partner, shareholder or executive officer;
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the availability of other sources for comparable products or services;
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the terms of the transaction; and
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the terms available to unrelated third parties or to employees generally.
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Under our policy, certain related party transactions as defined under our policy will be deemed to
be pre-approved by the audit committee and will not be subject to these procedures.
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PROPOSAL TWO APPROVAL OF ev3 INC. THIRD AMENDED
AND RESTATED 2005 INCENTIVE PLAN
Introduction
On February 10, 2010, the board of directors, upon recommendation of the compensation committee,
approved the ev3 Inc. Third Amended and Restated 2005 Incentive Plan (referred to in this section
as the Amended and Restated 2005 Plan or the plan), subject to approval by our stockholders at
the Annual Meeting.
The Amended and Restated 2005 Plan includes a number of changes from our currently existing ev3
Inc. Second Amended and Restated 2005 Incentive Stock Plan, which are described in more detail
under the heading Comparison of Amended and Restated 2005 Plan to Current 2005 Plan below,
including an increase in the number of shares of common stock available for issuance to 14,500,000
shares plus the number of shares subject to awards outstanding under our predecessor equity-based
compensation plans as of the date of stockholder approval of the Amended and Restated 2005 Plan but
only to the extent that such outstanding awards are forfeited, expire or otherwise terminate
without the issuance of such shares. The Amended and Restated 2005 Plan provides for the grant of
nonqualified and incentive stock options, stock appreciation rights or SARs, stock grants (in the
form of restricted stock or restricted stock units), stock unit grants, performance awards, annual
performance cash awards, non-employee director awards and other cash-based and stock-based awards.
Our stockholders are being asked to approve the Amended and Restated 2005 Plan in order to satisfy
rules and regulations of the NASDAQ Stock Market relating to equity compensation, to qualify
compensation under the Amended and Restated 2005 Plan as performance-based for purposes of Section
162(m) of the Code, and to qualify stock options for treatment as incentive stock options for
purposes of Section 422 of the Code in the event the compensation committee (or subcommittee of
such committee) decides to grant incentive stock options in the future. If our stockholders do not
approve the Amended and Restated 2005 Plan, the ev3 Inc. Second Amended and Restated 2005 Incentive
Stock Plan as it currently exists will remain in effect until it expires or is terminated in
accordance with its terms.
Reasons Why You Should Vote in Favor of the Approval of the Amended and Restated 2005 Plan
The board of directors recommends a vote for the approval of the Amended and Restated 2005 Plan
because the board of directors believes the plan is in the best interests of our company and our
stockholders for the following reasons:
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Aligns directors, employee and stockholder interests
. We currently provide
long-term incentives primarily in the form of stock grants (in the form of restricted
stock or restricted stock units) and stock option grants to our outside directors,
executive officers and other key employees. We believe that our stock-based
compensation programs, along with our stock ownership guidelines for our directors and
executives, help align the interests of our directors, executive officers and other key
employees with our stockholders. We believe that our long-term stock-based incentives
help promote long-term retention of our employees and encourage significant ownership
of our common stock. We also provide short-term incentives under our annual performance
incentive compensation plan that reinforce achievement of specified financial and other
business goals by linking a significant portion of a participants compensation to the
achievement by our company, and in certain cases, a particular business or individual,
of performance goals. If the Amended and Restated 2005
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Plan is approved, we will be able to maintain our means of aligning the interests of
our directors, executive officers and other key employees with the interests of our
stockholders.
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Attracts and retains talent
. Talented, motivated and effective directors,
executives and employees are essential to executing our business strategies.
Stock-based and annual cash incentive compensation has been an important component of
total compensation at our company for many years because such compensation enables us
to effectively recruit executives and other employees while encouraging them to act and
think like owners of our company. If the Amended and Restated 2005 Plan is approved, we
believe we will maintain our ability to offer competitive compensation packages to both
retain our best performers and attract new talent.
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Supports our pay-for-performance philosophy
. We believe that stock-based
compensation, by its very nature, is performance-based compensation. The largest
component of total compensation for our executives is incentive compensation in the
form of both stock-based and cash-based incentives that are tied to the achievement of
financial and other business results. We use incentive compensation to help reinforce
desired financial and other business results to our executives and to motivate them to
make decisions to produce those results.
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Avoids disruption in our compensation programs
. The approval of the
Amended and Restated 2005 Plan by our stockholders is critical because there is an
insufficient number of shares of our common stock available for issuance under the
currently existing 2005 plan. If the Amended and Restated 2005 Plan is approved, we
will not have to restructure our existing compensation programs for reasons that are
not directly related to the achievement of our financial and other business objectives.
To remain competitive without stock-based compensation arrangements, it likely will be
necessary to replace components of compensation previously awarded in equity with cash
or with other instruments that may not necessarily align director, executive officer
and employee interests with those of our stockholders as well as stock-based awards do.
Additionally, replacing equity with cash will increase cash compensation expense and
use cash that would be better utilized toward other strategic purposes, such as
research and development of new products, improvements in the quality and performance
of existing products and strategic acquisitions.
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Will be implemented consistent with a new burn rate policy
. In connection
with the approval of the Amended and Restated 2005 Plan and in order to address
potential stockholder concerns regarding the number of stock-based awards we intend to
grant in a given year, our compensation committee commits to adopt a burn rate policy
for fiscal years 2010, 2011 and 2012. During this three-year period, beginning with
2010 and ending with 2012, the new burn rate policy will limit the number of shares
that we grant subject to stock-based awards over the three-year period to an annual
average of 4.02% of our outstanding common stock (which is equal to the average of the
2009 and 2010 burn rate limit for Russell 3000 companies in our Global Industry
Classification Standards Peer Group (3510 Health Care Equipment and Services), as
established by RiskMetrics Group). Our annual burn rate will be calculated as the
number of shares subject to stock-based awards (including stock options, stock
appreciation rights, stock grants, stock unit grants, performance awards, non-employee
director awards and other stock-based awards) granted during our fiscal year and the
number of shares subject to performance shares that are paid out during a fiscal year
divided by our weighted average outstanding common stock, measured as of the last day
of each fiscal year, both as reported in our periodic filings with the SEC. Awards
that are settled in cash, awards that are granted pursuant to a stockholder approved
exchange programs, awards sold under our employee stock purchase plan and awards
assumed or substituted in acquisitions will be
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excluded from our burn rate calculation. For purposes of our calculation, each share
subject to a full value award (i.e., stock grants, stock unit grants, performance shares and any other award that does not have an exercise price per share equal to the
per share fair market value of our common stock on the grant date) will be counted as
two shares. Our burn rates for the fiscal years ended December 31, 2009 was 3.66%.
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Protects stockholder interests and embraces sound stock-based compensation
practices
. As described in more detail below under the heading Summary of Sound
Governance Features of the Amended and Restated 2005 Plan, the Amended and Restated
2005 Plan includes a number of features that are consistent with the interests of our
stockholders and sound corporate governance practices.
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Summary of Sound Governance Features of the Amended and Restated 2005 Plan
The board of directors and compensation committee believe that the Amended and Restated 2005 Plan
contains several features that are consistent with the interests of our stockholders and sound
corporate governance practices, including the following:
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No evergreen provision
. The number of shares of our common stock
available for issuance under the Amended and Restated 2005 Plan is fixed and will not
adjust based upon the number of outstanding shares of our common stock. We currently
expect the number of shares authorized for issuance under the Amended and Restated 2005
Plan will last between three and four years, at which time we expect to ask our
stockholders to approve an additional share authorization.
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Will not be excessively dilutive to our stockholders
. Subject to
adjustment, the maximum number of shares of our common stock authorized for issuance
under the Amended and Restated 2005 Plan is 14,500,000 shares, plus the number of shares subject to awards outstanding under our predecessor equity-based compensation
plans as of the date of stockholder approval of the Amended and Restated 2005 Plan but
only to the extent that such outstanding awards are forfeited, expire or otherwise
terminate without the issuance of such shares. As of March 29, 2010, an aggregate of
1,746,562 shares of common stock were available for issuance under the currently
existing 2005 plan. As of March 29, 2010, 186 shares of common stock were available
for issuance under the ev3 Inc. Employee Stock Purchase Plan. As described in more
detail under the heading Proposal Three Approval of ev3 Inc. Amended and Restated
Employee Stock Purchase Plan, we also are seeking the approval by our stockholders of
an Amended and Restated Employee Stock Purchase Plan that will authorize the issuance
of an additional 1,000,000 shares under that plan. Other than the ev3 Inc. Amended and
Restated Employee Stock Purchase Plan, we do not have any other equity-based
compensation plans under which shares of our common stock are available for issuance
but not subject to any outstanding awards. As of March 29, 2010, we had total
(including plan and non-plan) outstanding options to purchase an aggregate of 9,201,416
shares of our common stock with a weighted average exercise price of $11.6162 and a
weighted average remaining term of 6.45 years, and 1,510,834 unvested full value
awards outstanding. No new awards will be granted under the 2005 plan or otherwise
between March 29, 2010 and the Annual Meeting, except for anticipated grants of options
to purchase up to an aggregate of 120,000 shares of our common stock and up to an
aggregate of 68,000 full value awards for new hire, retention and recognition
purposes.
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Limit on number of full value awards
. No more than 7,500,000 of the
shares authorized for issuance under the Amended and Restated 2005 Plan may be issued
pursuant to full
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value awards, which are awards other than stock options or SARs that are settled by
the issuance of shares of our common stock.
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No recycling of shares from exercised stock options or SARs
. Shares
withheld to satisfy tax withholding obligations on awards or to pay the exercise price
of awards and any shares not issued or delivered as a result of a net exercise of a
stock option will not become available for issuance as future award grants under the
Amended and Restated 2005 Plan.
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No reload stock options or SARs
. Reload stock options and SARs are not
authorized under the Amended and Restated 2005 Plan.
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Stock option and SAR exercise prices will not be lower than the fair
market value on the grant date
. The Amended and Restated 2005 Plan prohibits granting
stock options and SARs with exercise prices lower than the fair market value of a share
of our common stock on the grant date, except in connection with certain mergers,
consolidations, acquisitions of property or stock, reorganizations or other similar
transactions.
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No repricing or exchange without stockholder approval
. The Amended and
Restated 2005 Plan prohibits the repricing of outstanding underwater stock options or
SARs without stockholder approval, except for any adjustments required in connection
with certain corporate transactions. Repricing is broadly defined to include amendments
or modifications to the terms of an outstanding stock option or SAR to lower the
exercise or grant price or cancelling an outstanding stock option or SAR in exchange
for cash, other awards or other stock options or SARs having a lower exercise price.
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Stock options, SARs and unvested performance awards are not entitled to
dividend equivalent rights
. Stock option, SAR and unvested performance award holders
have no rights as stockholders with respect to the shares underlying their awards until
their stock options, SARs or unvested performance awards are exercised or vested and
shares are issued. As a result, stock options and SARs and unvested performance awards,
the vesting of which is based on the achievement of performance goals, under the
Amended and Restated 2005 Plan have no dividend equivalent rights associated with them.
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Minimum vesting and performance period requirements
. The Amended and
Restated 2005 Plan provides that any stock options, SAR, stock grants and stock unit
grants under the plan will vest on a pro rata basis (which may be determined on a
monthly, annual or other basis and may be tied to a specific vesting date each year,
such as November 15) over a vesting term of not less than three years after the grant
date of the award or no more rapidly than ratably over a three-year period after the
grant date and performance-based stock-based awards will have a minimum performance
period of one year, except under certain limited circumstances.
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Stockholder approval is required for material revisions to the plan
. The
Amended and Restated 2005 Plan requires stockholder approval of material revisions to
the plan, as well as certain additional revisions to the plan that do not require
stockholder approval under the NASDAQ rules.
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Members of the committee administering the plan are non-employee,
independent and outside directors
. The Amended and Restated 2005 Plan will be
administered by the compensation committee or a subcommittee of the compensation
committee. All members of the committee administering the plan will be non-employee
directors within the meaning
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of Rule 16b-3 under the Exchange Act, independent directors under the listing
standards of NASDAQ, the rules and regulations of the SEC and applicable law, and
outside directors within the meaning of Section 162(m) of the Code.
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Clawback provisions
. The Amended and Restated 2005 Plan contains
clawback provisions, which provide that if a participant is determined by the
committee to have taken action that would constitute cause or an adverse action, as
those terms are defined in the Amended and Restated 2005 Plan, during or within one
year after the termination of the participants employment or other service, all rights
of the participant under the plan and any agreements evidencing an award then held by
the participant will terminate and be forfeited and the committee may require the
participant to surrender and return to us any shares received, and/or to disgorge any
profits or any other economic value made or realized by the participant in connection
with any awards or any shares issued upon the exercise or vesting of any awards during
or within one year after the termination of the participants employment or other
service.
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Comparison of Amended and Restated 2005 Plan to Current 2005 Plan
As mentioned above, if the Amended and Restated 2005 Plan is approved by our stockholders, it will
replace in its entirety the currently existing 2005 Plan. The following are some of the material
differences between the Amended and Restated 2005 Plan and the currently existing 2005 Plan:
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Types of Awards
. The Amended and Restated 2005 Plan permits the grant of
several incentive awards, including nonqualified and incentive stock options, SARs,
stock grants, stock unit grants, performance awards, annual performance cash awards,
non-employee director awards and other cash-based and stock-based awards; whereas, the
currently existing 2005 Plan only permits the grant of nonqualified and incentive stock
options, SARs, stock grants (in the form of restricted stock or restricted stock units)
and stock unit grants.
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Number of Shares Available
. The number of shares of our common stock
authorized for issuance under the Amended and Restated 2005 Plan will be 14,500,000
shares plus the number of shares subject to awards outstanding under our predecessor
equity-based compensation plans as of the date of stockholder approval of the Amended
and Restated 2005 Plan but only to the extent that such outstanding awards are
forfeited, expire or otherwise terminate without the issuance of such shares. The
currently existing 2005 Plan authorizes 8,000,000 shares of our common stock for
issuance.
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Limits on Full Value Awards
. The Amended and Restated 2005 Plan will
limit the number of full value awards; whereas the currently existing 2005 Plan does
not contain limitations on full value awards.
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Clawback Provisions and Sarbanes-Oxley Forfeiture Standard
. Unlike the
currently existing 2005 Plan, the Amended and Restated 2005 Plan provides for the
clawback provisions discussed above and expressly incorporates the Sarbanes-Oxley Act
of 2002 automatic forfeiture standard for certain participants in connection with
material noncompliance, as a result of misconduct, resulting in an accounting
restatement.
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Definition of a Change in Control
. The definition of change in control
in the Amended and Restated 2005 Plan is narrower than the definition in the currently
existing 2005 Plan since the change in control provisions will not be triggered unless
we consummate certain
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reorganizations, mergers or consolidations, as opposed to being triggered when our
stockholders merely approve such a transaction that is never consummated.
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Summary of the Amended and Restated 2005 Plan
A general description of the material features of the Amended and Restated 2005 Plan is outlined
below. Unless otherwise indicated, the following summary of the principal provisions of the Amended
and Restated 2005 Plan assumes the approval of the Amended and Restated 2005 Plan by our
stockholders at the Annual Meeting. The summary is qualified in its entirety by reference to the
full text of the Amended and Restated 2005 Plan, a copy of which may be obtained by contacting us.
A copy of the Amended and Restated 2005 Plan also has been filed electronically with the SEC as an
appendix to this proxy statement and is available through the SECs website at
http://www.sec.gov
.
Purpose
. The primary purpose of the Amended and Restated 2005 Plan is to promote the interest of
our company and our subsidiaries by authorizing the compensation committee to grant incentive
awards to eligible employees, non-employee directors and consultants in order to (a) attract and
retain such individuals, (b) provide an incentive to such individuals to work to increase the value
of the common stock of our company and (c) provide such individuals with a stake in the future of
our company that corresponds with the stake of our stockholders.
Eligibility
. Employees and consultants of our company or our subsidiaries and our non-employee
directors are eligible to receive awards under the Amended and Restated 2005 Plan. Consultants
eligible to participate in the Amended and Restated 2005 Plan are those persons that we or our
subsidiaries engage to provide consulting or advisory services that are not in connection with the
offer and sale of our securities in a capital raising transaction and do not directly or indirectly
promote or maintain a market for our securities. A non-employee director is any member of our
board of directors who is not an employee of us or a subsidiary. As of March 29, 2010,
approximately 215 individuals were eligible to receive incentive awards under the Amended and
Restated 2005 Plan, including approximately 207 employees, eight non-employee directors, and no
consultants. Although not necessarily indicative of future grants under the Amended and Restated
2005 Plan, approximately 167 of the eligible recipients have been granted stock options or stock
grants under our currently existing 2005 Plan.
Administration
. The Amended and Restated 2005 Plan will be administered by the compensation
committee or a subcommittee of the compensation committee of our board of directors. All members of
the committee administering the plan (referred to in this section as the committee) will be
non-employee directors within the meaning of Rule 16b-3 under the Exchange Act, independent
directors under the listing standards of NASDAQ, the rules and regulations of the SEC and
applicable law, and outside directors within the meaning of Section 162(m) of the Code. The
committee will grant all awards under the Amended and Restated 2005 Plan. Under the Amended and
Restated 2005 Plan, the committee has the authority to administer and interpret the plan and to
take such action in the administration and operation of the plan as the committee deems equitable
under the circumstances, which will be binding on our company and on each affected eligible
employee, non-employee director or consultant. The committee has the authority and discretion to
establish the terms, conditions, performance criteria, restrictions and other provisions of awards
(subject to the restrictions contained in the Amended and Restated 2005 Plan) granted under the
Amended and Restated 2005 Plan. In addition, the committee may establish sub plans for the
purposes of local laws and tax compliance for international employees. The committee may not
reduce the exercise price of an underwater option or SAR after it is granted, whether through
amendment, cancellation, replacement grant or otherwise, without obtaining stockholder approval,
except in connection with certain mergers, consolidations, acquisitions of property or stock,
reorganizations or other similar transactions. A stock option or SAR is underwater if its fair
market value is less than its exercise price.
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Shares Available for Issuance
. If this proposal to approve the Amended and Restated 2005 Plan is
approved by our stockholders, the number of shares of our common stock authorized for issuance
under the Amended and Restated 2005 Plan will be 14,500,000 shares plus the number of shares
subject to awards outstanding under our predecessor equity-based compensation plans as of the date
of stockholder approval of the Amended and Restated 2005 Plan but only to the extent that such
outstanding awards are forfeited, expire or otherwise terminate without the issuance of such
shares. In addition, awards assumed under the Amended and Restated 2005 Plan in connection with
acquisitions (and shares issued under such awards) do not count against the shares reserved for
issuance, and shares available under plans assumed in acquisitions will be added to the shares
reserved for issuance, consistent with exemptions available under NASDAQ stockholder approval
requirements. No more than 7,500,000 shares authorized for issuance under the Amended and Restated
2005 Plan may be granted as full value awards and no more than 14,000,000 shares may be granted
as incentive stock options.
Shares of our common stock covered by an award granted under the Amended and Restated 2005 Plan
will not be counted as used unless and until the shares are issued and delivered to a participant,
except that the full number of shares granted subject to a SAR that is settled by the issuance of
shares will be counted against the shares authorized for issuance under the Amended and Restated
2005 Plan. Shares withheld to satisfy tax withholding obligations on awards or to pay the exercise
price of awards and any shares not issued or delivered as a result of a net exercise of an option
will not become available for issuance as future award grants under the plan. Any shares of our
common stock that we repurchase on the open market using the proceeds from the exercise of an award
under the Amended and Restated 2005 Plan will not increase the number of shares available for
future grants of awards under the Amended and Restated 2005 Plan. Any shares of our common stock
that are subject to an award under the Amended and Restated 2005 Plan that terminate by expiration,
forfeiture, cancellation, or otherwise without the issuance of shares or are settled in cash in
lieu of shares, or are exchanged with the committees permission and to the extent permitted under
the Amended and Restated 2005 Plan, prior to the issuance of shares, for awards not involving
shares, will be available again for grant under the Amended and Restated 2005 Plan. The shares of
our common stock available for issuance under the Amended and Restated 2005 Plan may be authorized
and unissued shares or treasury shares.
Annual Grant Limits
. The following annual limits apply to grants of awards to designated covered
employees, as defined under Section 162(m) of the Code, that are intended to qualify as
performance-based compensation under the Amended and Restated 2005 Plan:
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1,500,000 shares subject to stock options, SARs, stock grants, stock unit
grants, performance awards and other stock-based awards; and
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$5,000,000 in annual performance cash awards or other cash-based awards.
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Adjustments
. The number and kind of securities or other property, including cash, available for
issuance or payment under the Amended and Restated 2005 Plan, the sub-limits on certain types of
award grants, and the annual grant limits will be adjusted by the committee in the event of any
reorganization, merger, consolidation and other similar corporate transactions in order to preserve
the benefits or potential benefits of awards under the plan.
Stock Options
. Under the Amended and Restated 2005 Plan, non-incentive stock options may be
granted to eligible employees, non-employee directors and consultants. Incentive stock options,
however, which are intended to qualify for special tax treatment under Section 422 of the Internal
Revenue Code, may only be granted to eligible employees of our company or a subsidiary or parent of
our company, as those terms are defined in Sections 424(e) and 424(f) of the Internal Revenue Code,
respectively. The terms and conditions of each option will be determined by the committee, but no
option will be granted at an
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exercise price that is less than the fair market value of our common stock as determined on the
grant date in accordance with the terms of the Amended and Restated 2005 Plan. In addition, if the
option is an incentive stock option that is granted to a 10% stockholder of our company or any
parent or subsidiary of our company, the exercise price may be no less than 110% of the fair market
value of the shares of common stock underlying the option on the grant date. Moreover, no eligible
employee may be granted incentive stock options that are first exercisable in any calendar year for
shares of our common stock having an aggregate fair market value (determined as of the date that
the incentive stock option was granted) that exceeds $100,000. Fair market value under the
Amended and Restated 2005 Plan means the closing price of our common stock, as reported by the
NASDAQ Stock Market. As of March 29, 2010, the fair market value of a share of our common stock
was $15.94.
Each stock option will vest and become exercisable at such time or times as determined by the
committee; provided, however, that any option that becomes exercisable solely based on the
continued service of a participant will become exercisable on a pro rata basis (which may be
determined on a monthly, annual or other basis and may be tied to a specific vesting date each
year, such as November 15) over a vesting term of not less than three years after the grant date of
the option or no more rapidly than ratably over a three-year period after the grant date of the
option, except (a) in connection with the death, disability or retirement of the participant or a
change in control; or (b) for any option granted to a participant who within six months of the
grant date is first appointed or elected as an officer, hired as an employee, elected as a director
or retained as a consultant. No option may be exercisable more than ten years from the grant date
(or, if the option is an incentive stock option granted to a 10% stockholder of our company and our
affiliates, more than five years from the grant date). Any events that result in a forfeiture of
the grant will be set forth in the grantees award agreement.
Grantees may pay the exercise price of stock options in cash, except that our compensation
committee may allow payment to be made (in whole or in part) by tender, or attestation as to
ownership, of shares that are already owned by the grantee that are acceptable to the committee, by
a cashless exercise effected through an unrelated broker through a sale on the open market, by a
net exercise of the option, by a combination of such methods, or by any other method approved or
accepted by the committee. In the case of a net exercise of an option, we will not require a
payment of the exercise price of the option from the grantee but will reduce the number of shares
of common stock issued upon the exercise by the largest number of whole shares that has a fair
market value that does not exceed the aggregate exercise price for the shares exercised under this
method. Shares of common stock will no longer be outstanding under an option (and will therefore
not thereafter be exercisable) following the exercise of such option to the extent of (i) shares
used to pay the exercise price of an option under the net exercise, (ii) shares actually
delivered to the participant as a result of such exercise and (iii) any shares withheld for
purposes of tax withholding.
Stock Appreciation Rights
. Each SAR granted must be evidenced by an award agreement that specifies
the exercise price, the term, and such other provisions as the committee may determine. The
exercise price of a SAR must be at least 100% of the fair market value of our common stock on the
date of grant. Upon the exercise of a SAR, the holder is entitled to receive the excess of the fair
market value of the shares for which the right is exercised over the exercise price of the SAR.
Payment upon the exercise of a SAR will be in cash, shares of our common stock, or some combination
of cash and shares of our common stock as determined by the committee. The committee may impose any
conditions or restrictions on the exercise of a SAR as it deems appropriate. The committee will fix
the term of each SAR, but SARs granted under the Amended and Restated 2005 Plan will not be
exercisable more than 10 years after the date the SAR is granted. Each SAR granted under the
Amended and Restated 2005 Plan will vest and become exercisable at such time or times as determined
by the committee; provided, however, that any SAR that becomes exercisable solely based on the
continued service of a participant will become exercisable on a pro rata basis (which may be
determined on a monthly, annual or other basis and may be
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tied to a specific vesting date each year, such as November 15) over a vesting term of not less
than three years after the grant date of the SAR or no more rapidly than ratably over a three-year
period after the grant date of the SAR, except (a) in connection with the death, disability or
retirement of the participant or a change in control; or (b) for any SAR granted to a participant
who within six months of the grant date is first appointed or elected as an officer, hired as an
employee, elected as a director or retained as a consultant.
Stock Grants and Stock Unit Grants
. Stock grants are grants that are designed to result in the
issuance of common stock to the eligible employee, non-employee director or consultant to whom the
grants are made. Stock grants are commonly referred to as restricted stock grants or restricted
stock unit grants, depending upon whether the common stock issued on the date of grant or on the
date of vesting. Stock unit grants are awards designed to result in cash payments to the eligible
employees, non-employee directors and consultants to whom such grants are made based on the fair
market value of the common stock underlying the grant. Stock grants and stock unit grants may be
made by the committee subject to such terms and conditions, if any, as the committee acting in its
sole discretion deems appropriate. The committee, in its discretion, may provide that the rights
of an eligible employee, non-employee director or consultant in a stock grant or stock unit grant
will be forfeitable unless certain conditions are satisfied. These conditions may include, for
example, a requirement that the eligible employee continue employment or the non-employee director
or consultant continue service with our company or a parent, subsidiary or affiliate of our company
for a specified period or that our company or the eligible employee achieve stated performance
goals or other objectives. If a stock grant or stock unit grant vests solely based on the
continued service of a participant, the award will vest on a pro rata basis (which may be
determined on a monthly, annual or other basis and may be tied to a specific vesting date each
year, such as November 15) over a vesting term of not less than three years after the grant date of
the stock grant or stock unit grant or no more rapidly than ratably over a three-year period after
the grant date of the stock grant or stock unit grant, except (a) in connection with the death,
disability or retirement of the participant or a change in control; or (b) for any such award
granted to a participant who within six months of the grant date is first appointed or elected as
an officer, hired as an employee, elected as a director or retained as a third-party service
provider. If a stock grant or stock unit grant vests solely on the achievement of one or more
performance goals, the award agreement must provide that the performance period for the achievement
of such performance goals will be at least one year, except in connection with the death or
disability of the participant or a change in control.
Except as otherwise set forth in the award agreement, if a cash or stock dividend is paid on common
stock subject to a stock grant while such stock grant remains subject to forfeiture conditions,
then the cash dividend will be held by us subject to the same conditions or restrictions as the
related stock grant. However, no dividends will be paid on unvested awards that vest based on the
achievement of performance goals. Except as otherwise set forth in the award agreement, an eligible
employee, non-employee director or consultant will have the right to vote common stock issued under
a stock grant while such common stock remains subject to forfeiture conditions. After all
conditions and restrictions applicable to stock grants and/or stock units have been satisfied or
have lapsed (including the satisfaction of any applicable tax withholding obligations), shares of
common stock underlying stock grants will become freely transferable (except as otherwise provided
in the Amended and Restated 2005 Plan) and stock units will be paid in cash, shares of our common
stock, or some combination of cash and shares of our common stock as determined by the committee.
The committee may provide that a stock grant is conditioned upon the participant making or
refraining from making an election with respect to the award under Section 83(b) of the Code.
Performance Awards.
Performance awards may be granted under the Amended and Restated 2005 Plan in
such amounts and upon such terms as the committee may determine, including performance periods and
performance goals. The award agreement for each performance award will specify any performance
goals
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upon which the award is subject, and the performance period during which the performance goals must
be met. The extent to which the participant achieves his or her performance goals during the
applicable performance period will determine the amount of payout under the performance award. The
performance period set forth in any award agreement for any performance award must be at least one
year, except in connection with the death or disability of a participant or a change in control.
Payment of earned performance shares and/or performance units will be in cash, shares of our common
stock, or some combination of cash and shares of our common stock, as determined by the committee
and stated in the award agreement.
Annual Performance Cash Awards.
Annual performance awards payable in cash may be granted under the
Amended and Restated 2005 Plan in such amounts and upon such terms as the committee may determine,
based on the achievement of specified performance goals for annual periods or other time periods as
determined by the committee. The committee will determine the target amount that may be paid with
respect to an annual performance cash award, which will be based on a percentage of a participants
actual annual base salary at the time of grant. That percentage may be up to 150% for any
participant. The committee may establish a maximum potential payout amount with respect to an
annual performance award of up to 300% of the target payout in the event performance goals are
exceeded by an amount established by the committee at the time performance goals are established
and may establish measurements for prorating the amount of payments for achievement of performance
goals at less than or greater than the target payout but less than the maximum payout.
Non-Employee Director Awards.
Awards to non-employee directors must be granted by a committee that
is comprised solely of members of the board of directors who are independent directors under the
NASDAQ rules. The committee may provide for automatic award grants to non-employee directors under
the Amended and Restated 2005 Plan and may grant discretionary awards of nonqualified stock
options, SARs or full value awards to non-employee directors. Awards of nonqualified stock
options, SARs or full value awards to non-employee director awards will not be subject to the
minimum vesting requirements applicable to other awards under the Amended and Restated 2005 Plan.
The committee may choose to permit non-employee directors to elect to receive shares of our common
stock in lieu of their annual retainers and meeting fees otherwise payable in cash by giving
written notice to the committee within a time period specified by the committee. The election to
receive our common stock in lieu of cash may be revoked only by a subsequent election to receive
payment of annual retainers and meeting fees in cash or to defer such fees. The number of shares to
be issued is determined by dividing the amount of director fees payable by the closing price of our
common stock, as reported on the NASDAQ Stock Market, for the date that such fees would have been
paid in cash if the non-employee director had not otherwise elected to receive such fees in the
form of common stock. The amount of any fractional share will be paid in cash. The committee may
also choose to permit non-employee directors to elect to defer the grant or payment of an award
under the Amended and Restated 2005 Plan pursuant to such terms and conditions as the committee may
determine.
Other Cash-Based Awards.
Cash-based awards that are not annual performance cash awards may be
granted to participants in such amounts and upon such terms as the committee may determine. These
other cash-based awards will be paid in cash only. If the other cash-based awards are subject to
performance goals, the number and/or value of the other cash-based awards that will be paid out to
the participant will depend on the extent to which the performance goals are met.
Other Stock-Based Awards.
Other stock-based or stock-related awards (including the grant or offer
for sale of unrestricted shares of our common stock or the payment in cash or otherwise of amounts
based on the value of shares of our common stock) may be granted in such amounts and subject to
such terms and conditions (including performance goals) as determined by the committee. Each other
stock-based award shall be expressed in terms of shares of our common stock or units based on
shares of our common stock,
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as determined by the committee. Other stock-based awards will be paid in cash or shares of our
common stock, as determined by the committee. If the other stock-based awards are subject to
performance goals, the number and/or value of other stock-based awards that will be paid out to the
participant will depend on the extent to which the performance goals are met.
Performance-Based Compensation.
If the committee intends to qualify an award under the Amended and
Restated 2005 Plan as performance-based compensation under Section 162(m) of the Code, the
performance goals selected by the committee must be based on the achievement of specified levels of
one, or any combination, of the following performance measures: (a) sales and revenue measures,
including gross revenue, sales allowances, net revenue, invoiced revenue, collected revenue,
revenues from new products, and bad debts; (b) expense measures, including direct material costs,
direct labor costs, indirect labor costs, direct manufacturing costs, indirect manufacturing costs,
cost of goods sold, sales, general and administrative expenses, operating expenses, non-cash
expenses, tax expense, non-operating expenses, and total expenses; (c) profitability and
productivity measures, including gross margin, net operating income, EBITDA (earnings before
interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes), net
operating income after taxes (NOPAT), net income, net cash flow, and net cash flow from operations;
(d) asset utilization and effectiveness measures, including cash, excess cash, accounts receivable,
inventory (WIP or finished goods), inventory days on hand, days sales outstanding, current assets,
working capital, total capital, fixed assets, total assets, standard hours, plant utilization,
purchase price variance, and manufacturing overhead variance; (e) debt and equity measures,
including accounts payable, current accrued liabilities, total current liabilities, total debt,
debt principal payments, net current borrowings, total long-term debt, credit rating, retained
earnings, total preferred equity, total common equity, and total equity; (f) stockholder and return
measures, including earnings per share (diluted and fully diluted), stock price, dividends, shares
repurchased, total return to stockholders, debt coverage ratios, return on assets, return on
equity, return on invested capital, and economic profit (for example, economic value added); (g)
customer and market measures, including dealer/channel size/scope, dealer/channel
performance/effectiveness, order fill rate, customer satisfaction, customer service/care, brand
awareness and perception, market share, warranty rates, product quality, and channel inventory; and
(h) organizational and employee measures, including headcount, employee performance, employee
productivity, standard hours, employee engagement/satisfaction, employee turnover, and employee
diversity.
Any of the above performance measures can be used in an algebraic formula (e.g., averaged over a
period), combined into a ratio, compared to a budget or standard, compared to previous periods and
other formulaic combinations based on the performance measures to create a performance measure. Any
of the performance measures specified in the Amended and Restated 2005 Plan may be used to measure
the performance of our company or any subsidiary, as a whole, or any division or business unit,
product or product group, region or territory as the committee deems appropriate. Performance
measures may be compared to the performance of a group of comparator companies or a published or
special index that the committee deems appropriate or, with respect to share price, various stock
market indices. The committee also may provide for accelerated vesting of any award based on the
achievement of performance goals.
Any award that is intended to qualify as performance-based compensation under Section 162(m) of the
Code will be granted, and performance goals for such an award will be established, by the committee
in writing not later than 90 days after the commencement of the performance period to which the
performance goals relate, or such other period required under Section 162(m) of the Code; provided
that the outcome is substantially uncertain at the time the committee establishes the performance
goal; and provided further that in no event will a performance goal be considered to be
pre-established if it is established after 25% of the performance period (as scheduled in good
faith at the time the performance goal is established) has elapsed. Before any payment is made in
connection with any award intended to
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qualify as performance-based compensation under Section 162(m) of the Code, the committee must
certify in writing that the performance goals established with respect to such award have been
achieved.
The committee may provide in any such award including performance goals that any evaluation of
performance may include or exclude any of the following events that occur during a performance
period: items related to a change in accounting principles; items relating to financing activities;
expenses for restructuring or productivity initiatives; other non-operating items; items related to
acquisitions; items attributable to the business operations of any entity acquired by us during the
performance period; items related to the disposal of a business or segment of a business; items
related to discontinued operations that do not qualify as a segment of a business under applicable
accounting standards; items attributable to any stock dividend, stock split, combination or
exchange of stock occurring during the performance period; any other items of significant income or
expense which are determined to be appropriate adjustments; items relating to unusual or
extraordinary corporate transactions, events or developments; items related to amortization of
acquired intangible assets; items that are outside the scope of our core, on-going business
activities; items related to acquired in-process research and development; items relating to
changes in tax laws; items relating to major licensing or partnership arrangements; items relating
to asset impairment charges; items relating to gains or losses for litigation, arbitration and
contractual settlements; foreign currency exchange rate fluctuations; foreign currency exchange
rate gains and losses; or items relating to any other unusual or nonrecurring events, or changes in
applicable laws, accounting principles or business conditions.
The committee may adjust the amount payable pursuant to an award under the Amended and Restated
2005 Plan that is intended to qualify as performance-based compensation under Section 162(m) of
the Code downwards but not upwards. In the event that applicable tax or securities laws change to
permit committee discretion to alter the governing performance measures without obtaining
stockholder approval of such changes, the committee will have sole discretion to make such changes
without obtaining stockholder approval.
Dividend Equivalents.
With the exception of stock options and SARs and unvested performance awards,
the vesting of which is based on the achievement of performance goals, awards under the Amended and
Restated 2005 Plan may, in the committees discretion, earn dividend equivalents with respect to
the cash or stock dividends or other distributions that would have been paid on the shares of our
common stock covered by such award had such shares been issued and outstanding on the dividend
payment date. Such dividend equivalents will be converted to cash or additional shares of our
common stock by such formula and at such time and subject to such limitations as determined by the
committee.
Termination of Service.
Except to the extent otherwise provided in the Amended and Restated 2005
Plan or an award agreement at the time of grant, in the event a participants employment or other
service with our company or any of our subsidiaries, as the case may be, is terminated by reason of
death or disability, then:
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All outstanding stock options and SARs held by the participant will, to
the extent exercisable as of such termination, remain exercisable for a period of one
year after such termination, but not later than the date the stock options or SARs
expire, and options and SARs not exercisable as of such termination will terminate and
be forfeited;
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All outstanding stock grants and stock unit grants held by the participant
that then have not vested will terminate and be forfeited;
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All outstanding, but unpaid, performance awards and other cash-based or
stock-based awards held by the participant will terminate and be forfeited, provided,
however, that with
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respect to any such awards that vest based on the achievement of performance goals, if
a participants employment or other service with our company or any subsidiary, as the
case may be, is terminated by death or disability prior to the end of the performance
period of such award, but after the conclusion of a portion of the performance period
(but in no event less than one year), the committee may, in its sole discretion, cause shares to be delivered or payment made with respect to the participants award, but
only if otherwise earned for the entire performance period and only with respect to the
portion of the applicable performance period completed at the date of such event, with
proration based on full fiscal years only and no shares to be delivered for partial
fiscal years; and
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If the effective date of such termination is before the end of the time
period to which an annual performance cash award relates, then any such annual
performance cash award held by a participant will terminate and be forfeited, but if
the effective date of such termination is on or after the end of the time period to
which an annual performance cash award relates, then any such annual performance cash
award held by a participant will be paid to the participant in accordance with the
payment terms of such award.
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Except to the extent otherwise provided in the Amended and Restated 2005 Plan or an award agreement
at the time of grant, if a plan participants employment or other service with our company or any
subsidiary, as the case may be, is terminated for any reason other than death or disability, then:
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All outstanding stock options and SARs held by the participant that then
are exercisable will remain exercisable for three months after the date of termination,
but those that are not exercisable will terminate and be forfeited;
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All outstanding stock grants and stock unit grants held by the participant
that then have not vested will terminate and be forfeited;
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All outstanding, but unpaid, performance awards and other cash-based or
stock-based awards held by the participant will terminate and be forfeited;
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If the effective date of such termination is before the end of the time
period to which an annual performance cash award relates, then any such annual
performance cash award held by a participant will terminate and be forfeited, but if
the effective date of such termination is on or after the end of the time period to
which an annual performance cash award relates, then any such annual performance cash
award held by a participant will be paid to the participant in accordance with the
payment terms of such award.
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Forfeiture and Recoupment.
If a participant is determined by the committee to have taken any action
that would constitute cause or an adverse action during or within one year after the
termination of the participants employment or other service with our company or a subsidiary, all
rights of the participant under the Amended and Restated 2005 Plan and any agreements evidencing an
award then held by the participant will terminate and be forfeited and the committee may require
the participant to surrender and return to us any shares received, and/or to disgorge any profits
or any other economic value made or realized by the participant in connection with any awards or
any shares issued upon the exercise or vesting of any awards during or within one year after the
termination of the participants employment or other service.
Cause, with respect to any participant, means (i) the participant has engaged in conduct that in
the judgment of the committee constitutes gross negligence, misconduct or gross neglect in the
performance of the participants duties and responsibilities, including any breach of our Code of
Business Conduct and
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conduct resulting or intending to result directly or indirectly in gain or personal enrichment for
the participant at our expense; (ii) the participant has been convicted of or has pled guilty to a
felony for fraud, embezzlement or theft; (iii) the participant has engaged in a breach of any
policy of our company for which termination of employment or service is a permissible consequence
or the participant has not immediately cured any performance or other issues raised by the
participants supervisor; (iv) the participant had knowledge of (and did not disclose to us in
writing) any condition that could potentially impair the participants ability to perform the
functions of his or her job or service relationship fully, completely and successfully; or (v) the
participant has engaged in any conduct that would constitute cause under the terms of his or her
employment or consulting agreement, if any.
An adverse action includes any of the following actions that the committee determines to be
injurious, detrimental, prejudicial or adverse to our interests: (i) disclosing any confidential
information of our company or any subsidiary to any person not authorized to receive it; (ii)
engaging, directly or indirectly, in any commercial activity that in the judgment of the committee
competes with our business or the business of any of our subsidiaries; or (iii) interfering with
the our relationships or the relationships of our subsidiaries and our and their respective
employees, independent contractors, customers, prospective customers and vendors.
In addition, if we are required to prepare an accounting restatement due to our material
noncompliance, as a result of misconduct, with any financial reporting requirement under the
securities laws, then any participant who is one of the individuals subject to automatic forfeiture
under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse us for the amount of any award
received by such individual under the Amended and Restated 2005 Plan during the 12-month period
following the first public issuance or filing with the SEC, as the case may be, of the financial
document embodying such financial reporting requirement.
Change in Control
. Unless otherwise determined by the committee either in an award agreement or
after the making of an award under the Amended and Restated 2005 Plan, but prior to a change in
control of our company, upon a change in control (as defined in the Amended and Restated 2005
Plan): (i) all stock options and SARs granted under the plan will become immediately exercisable in
full and will remain exercisable for the remainder of their terms, regardless of whether the
grantee remains in employment or service with us or one of our subsidiaries; (ii) all restrictions
and vesting requirements applicable to any award based solely on the continued service of a
participant will terminate; and (iii) all awards the vesting or payment of which are based on
performance goals will vest as though such performance goals were fully achieved at target and will
become immediately payable. The treatment of any other awards in the event of a change in control
will be as determined by the committee in connection with the grant thereof, as reflected in the
applicable award agreement. The committee is given the power under the Amended and Restated 2005
Plan to alternatively provide that upon a change in control any or all outstanding stock-based
awards will be canceled and terminated and the holders will receive a payment of cash or stock
equal to the difference, if any, between the consideration received by our stockholders in respect
of a share of common stock in connection with the change in control and the purchase price per
share, if any, under the award, multiplied by the number of shares subject to such award, provided
that if such product is zero or less, or the award is not then exercisable, the award may be
canceled and terminated without payment for such award.
Generally, and subject to some exceptions, a change in control is deemed to have occurred if: (i)
another person becomes the beneficial owner of at least 20% of our then-outstanding common stock or
the combined voting power of our then-outstanding voting stock; (ii) a majority of our board of
directors becomes comprised of persons other than those for whom election proxies have been
solicited by the board; (iii) the completion of certain business combinations, including certain
reorganizations, mergers, consolidations, the sale of all or substantially all of our assets or the
acquisition by us of assets or stock of
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another entity, where the stockholders before the business combination fail to beneficially own and
have voting power for more than 50% of our company or the resulting company after the business
combination; or (iv) our stockholders approve a complete liquidation or dissolution of our company.
Transferability
. All awards granted under the Amended and Restated 2005 Plan are non-transferable,
except for certain transfers as described below and transfers by an eligible employee, non-employee
director or consultant pursuant to a will or under the laws of descent and distribution.
Nonqualified stock options granted under the Amended and Restated 2005 Plan may be transferred by
an eligible employee, non-employee director or consultant to family members (as defined for
purposes of Form S-8 under the Securities Act of 1933, as amended) of such eligible employee,
non-employee director or consultant to a trust exclusively for the benefit of one or more of the
family members of such eligible employee, non-employee director or consultant; however, such
transfer must be made as a gift without consideration and comply with applicable securities laws.
A stock option or SAR exercisable during the lifetime of an eligible employee, non-employee
director or consultant may be exercised only by the eligible employee, non-employee director or
consultant.
Term; Amendment and Termination
. Unless sooner terminated by our board of directors, the Amended
and Restated 2005 Plan will terminate at midnight on May 14, 2017. Subject to certain exceptions,
the board has the authority to terminate and the committee has the authority to amend the Amended
and Restated 2005 Plan or any outstanding award agreement at any time and from time to time. No
amendments to the Amended and Restated 2005 Plan will be effective without approval of our
stockholders if: (a) stockholder approval of the amendment is then required pursuant to Section 422
of the Code, the rules of the primary stock exchange or stock market on which our common stock is
then traded, applicable U.S. state corporate laws or regulations, applicable U.S. federal laws or
regulations, and the applicable laws of any foreign country or jurisdiction where awards are, or
shall be, granted under the Amended and Restated 2005 Plan; or (b) such amendment would: (i) modify
the prohibitions on repricing in the Amended and Restated 2005 Plan; (ii) materially increase
benefits accruing to participants; (iii) increase the aggregate number of shares of our common
stock issued or issuable under the plan; (iv) increase any limitation set forth in the plan on the
number of shares of our common stock which may be issued or the aggregate value of awards which may
be made, in respect of any type of award to any single participant during any specified period; (v)
modify the eligibility requirements for participants in the Amended and Restated 2005 Plan; (vi)
reduce the minimum exercise price of stock options or SARs; or (vii) reduce the minimum vesting
period or performance period requirements applicable to awards under the plan to employee
participants. No termination or amendment of the Amended and Restated 2005 Plan or an award
agreement shall adversely affect in any material way any award previously granted under the Amended
and Restated 2005 Plan without the written consent of the participant holding such award.
No Waiver, Lapse or Acceleration of Exercisability or Vesting.
The committee does not have the
authority to waive, lapse or accelerate the exercisability or vesting of any award held by an
employee, except (i) in connection with the death, disability or retirement of the participant or a
change in control or (ii) to the extent that the aggregate number of shares of our common stock
covered by all such waived, lapsed or accelerated awards do not exceed 10% of the total number of
shares authorized for awards under the Amended and Restated 2005 Plan.
Federal Income Tax Consequences
The following is a general summary, as of the date of this proxy statement, of the federal income
tax consequences to participants and our company of grants under the Amended and Restated 2005
Plan. This summary is intended for the information of stockholders considering how to vote at the
annual meeting and not as tax guidance to participants in the Amended and Restated 2005 Plan, as
the consequences may vary with the types of grants made, the identity of the participant and the
method of payment or
103
settlement. The summary does not address the effects of other federal taxes or taxes imposed
under state, local or foreign tax laws. Each participant shall be encouraged to seek the advice of
a qualified tax advisor regarding the tax consequences of participation in the Amended and Restated
2005 Plan.
Incentive Stock Options.
With respect to incentive stock options, generally the stock option holder
is not taxed, and we are not entitled to a deduction, on either the grant or the exercise of an
incentive stock option so long as the requirements of Section 422 of the Code continue to be met.
If the stock option holder meets the employment requirements and does not dispose of the shares of
our common stock acquired upon exercise of an incentive stock option until at least one year after
date of the exercise of the stock option and at least two years after the date the stock option was
granted, gain or loss realized on sale of the shares will be treated as long-term capital gain or
loss. If the shares of our common stock are disposed of before those periods expire, which is
called a disqualifying disposition, the stock option holder will be required to recognize ordinary
income in an amount equal to the lesser of (i) the excess, if any, of the fair market value of our
common stock on the date of exercise over the exercise price, or (ii) if the disposition is a
taxable sale or exchange, the amount of gain realized. Upon a disqualifying disposition, we will
generally be entitled, in the same tax year, to a deduction equal to the amount of ordinary income
recognized by the stock option holder.
Nonqualified Stock Options.
The grant of a stock option that does not qualify for treatment as an
incentive stock option, or a nonqualified stock option, is generally not a taxable event for the
stock option holder. Upon exercise of the stock option, the stock option holder will generally be
required to recognize ordinary income in an amount equal to the excess of the fair market value of
our common stock acquired upon exercise (determined as of the date of exercise) over the exercise
price of the stock option, and we will be entitled to a deduction in an equal amount in the same
tax year. At the time of a subsequent sale or disposition of shares obtained upon exercise of a
nonqualified stock option, any gain or loss will be a capital gain or loss, which will be either a
long-term or short-term capital gain or loss, depending on how long the shares have been held.
SARs.
The grant of a SAR will not cause the participant to recognize ordinary income or entitle us
to a deduction for federal income tax purposes. Upon the exercise of a SAR, the participant will
recognize ordinary income in the amount of the cash or value of shares of our common stock payable
to the participant (before reduction for any withholding taxes), and we will receive a
corresponding deduction in an amount equal to the ordinary income recognized by the participant,
assuming that a deduction is allowed under Section 162(m) of the Code.
Stock Grants, Stock Unit Grants and Other Stock-Based Awards.
The federal income tax consequences
with respect to stock grants, stock unit grants, performance awards and other stock-based awards
depend on the facts and circumstances of each award, including, in particular, the nature of any
restrictions imposed with respect to the awards. In general, if the awards that are granted to the
participant are subject to a substantial risk of forfeiture (e.g., the awards are conditioned
upon the future performance of substantial services by the participant) and are nontransferable, a
taxable event occurs when the risk of forfeiture ceases or the awards become transferable,
whichever first occurs. At such time, the participant will recognize ordinary income to the extent
of the excess of the fair market value of the awards on such date over the participants cost for
such awards (if any), and the same amount is deductible by us, assuming that a deduction is allowed
under Section 162(m) of the Code. Under certain circumstances, the participant, by making an
election under Section 83(b) of the Code, can accelerate federal income tax recognition with
respect to awards that are subject to a substantial risk of forfeiture and transferability
restrictions, in which event the ordinary income amount and our deduction will be measured and
timed as of the grant date of the awards. If the awards granted to the participant are not subject
to a substantial risk of forfeiture or transferability restrictions, the participant will recognize
ordinary income with respect to the awards to the extent of the excess of the fair market value of
the awards at the time of grant over the
104
participants cost, if any, and the same amount is deductible by us, assuming that a deduction is
allowed under Section 162(m) of the Code. If a stock grant or stock unit grant is granted but no
stock is actually issued to the participant at the time the award is granted, the participant will
recognize ordinary income at the time the participant receives stock free of any substantial risk
of forfeiture and the amount of such income will be equal to the fair market value of the stock at
such time over the participants cost, if any, and the same amount is then deductible by us.
Annual Performance Cash Awards and Other Cash-Based Awards.
Annual performance cash awards and
other cash-based awards will be taxable as ordinary income to the participant in the amount of the
cash received by the participant (before reduction for any withholding taxes), and we will receive
a corresponding deduction in an amount equal to the ordinary income recognized by the participant,
assuming that a deduction is allowed under Section 162(m) of the Code.
Withholding Obligations.
We have the right to require the recipient to pay to us an amount
necessary for us to satisfy the recipients federal, state or local tax withholding obligations
with respect to awards granted under the Amended and Restated 2005 Plan. As permitted by applicable
law, we may withhold from other amounts payable to a recipient an amount necessary to satisfy these
obligations, and the committee may permit a participant to satisfy our withholding obligation with
respect to awards paid in common stock by having shares withheld, at the time the awards become
taxable, provided that when withholding for taxes is effected, it will be withheld only up to the
minimum required tax withholding rates or such other rate that will not trigger a negative
accounting impact on our company.
Code Section 409A.
A grant may be subject to a 20% penalty tax, in addition to ordinary income tax,
at the time the grant becomes vested, plus interest, if the grant constitutes deferred compensation
under Section 409A of the Code and the requirements of Section 409A of the Code are not satisfied.
Code Section 162(m).
Pursuant to Section 162(m) of the Code, the annual compensation paid to an
individual, who on the last day of the taxable year was the chief executive officer or otherwise
covered by this provision because his or her compensation was reported in the Summary Compensation
Table, may not be deductible to the extent that it exceeds $1 million unless the compensation
qualifies as performance-based under Section 162(m) of the Code. The Amended and Restated 2005
Plan has been designed to permit the committee to grant awards that qualify as performance-based
for purposes of satisfying the conditions of Section 162(m) of the Code.
Excise Tax on Parachute Payments.
Unless otherwise provided in a separate agreement between a
participant and us, if, with respect to a participant, the acceleration of the vesting of an award
or the payment of cash in exchange for all or part of an award, together with any other payments
that such participant has the right to receive from us, would constitute a parachute payment then
the payments to such participant will be reduced to the largest amount as will result in no portion
of such payments being subject to the excise tax imposed by Section 4999 of the Code. Such
reduction, however, will only be made if the aggregate amount of the payments after such reduction
exceeds the difference between the amount of such payments absent such reduction minus the
aggregate amount of the excise tax imposed under Section 4999 of the Code attributable to any such
excess parachute payments. If such provisions are applicable and if an employee will be subject to
a 20% excise tax on any excess parachute payment pursuant to Section 4999 of the Code, we will be
denied a deduction with respect to such excess parachute payment pursuant to Section 280G of the
Code.
Incentive Awards Granted Under the Amended and Restated 2005 Plan
We have not provided a new plan benefits table or the benefits or amounts that would have been
received by or allocated to participants for the last completed fiscal year under the Amended and
Restated 2005
105
Plan for the last completed fiscal year if the Amended and Restated 2005 Plan had then been in
effect because all awards made under the Amended and Restated 2005 Plan will be made at the
committees discretion. However, on an annual basis, each outside director receives effective as of
the date of our annual meeting of stockholders, $150,000, one-half of which is paid in stock
options and the remaining one-half of which is paid in stock grants (in the form of restricted
stock).
Except as set forth above, no information can be provided with respect to the number or types of
awards that may be granted to particular eligible recipients or groups of recipients in the future
under the Amended and Restated 2005 Plan. Such awards are within the discretion of the committee
administering the plan and the committee has not determined any other future awards or who might
receive them. It has been the practice of the committee, however, to grant new outside directors
and certain new employees stock options and stock grants and to grant current outside directors and
certain employees stock options and stock grants on an annual basis.
As of the date of this proxy statement, we had granted options and other incentive awards under the
currently existing 2005 Plan as follows:
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Number of Shares
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Number of Restricted
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Name and Position
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Underlying Options
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Shares/Units
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Robert J. Palmisano
|
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561,272
|
|
|
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104,509
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President and Chief Executive Officer
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Shawn McCormick
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|
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142,418
|
|
|
|
56,967
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Senior Vice President and Chief Financial Officer
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Patrick D. Spangler
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178,500
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|
|
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68,377
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Former Senior Vice President and Chief Financial Officer
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|
|
|
|
|
|
|
|
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|
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|
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Pascal E.R. Girin
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511,327
|
|
|
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214,241
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Executive Vice President and Chief Operating Officer
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|
|
|
|
|
|
|
|
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|
|
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Stacy Enxing Seng.
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391,886
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|
|
|
195,440
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Executive Vice President and President Worldwide Peripheral Vascular
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|
|
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Brett A. Wall
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126,582
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44,113
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Senior Vice President and President of International
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|
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|
|
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|
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Executive Group
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|
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2,291,143
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|
|
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917,663
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|
|
|
|
|
|
|
|
|
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Non-Executive Director Group
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652,506
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|
|
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126,575
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|
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|
|
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All Other Employee Group
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|
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5,164,715
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|
|
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2,027,683
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106
Securities Authorized for Issuance Under Equity Compensation Plans
The following table and notes provide information about shares of our common stock that may be
issued under all of our existing equity compensation plans as of December 31, 2009.
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(c)
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|
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Number of Securities
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|
|
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(a)
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|
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(b)
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|
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Remaining Available for
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|
|
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Number of Securities to
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|
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Weighted-Average
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|
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Future Issuance Under
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|
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be Issued Upon Exercise
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Exercise Price of
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|
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Equity Compensation Plans
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of Outstanding Options,
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Outstanding Options,
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(excluding securities
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Plan Category
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Warrants and Rights
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Warrants and Rights
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reflected in column (a))
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Equity compensation plans
approved by security holders
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8,839,309
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(1)(2)(5)(6)
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$
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9.60
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(3)
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3,010,110
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(4)
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Equity compensation plans not
approved by security holders
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754,000
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(7)
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|
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8.64
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|
|
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0
|
|
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|
|
|
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Total
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|
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9,593,309
|
|
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$
|
9.53
|
|
|
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3,010,110
|
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(1)
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Amount includes shares of our common stock issuable upon the exercise of stock options
outstanding as of December 31, 2009 under the ev3 Inc. Second Amended and Restated 2005
Incentive Stock Plan and the ev3 LLC Amended and Restated 2003 Incentive Plan and shares of
our common stock issuable upon the vesting of restricted stock units outstanding as of
December 31, 2009 under the ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan.
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(2)
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Excludes employee stock purchase rights under the ev3 Inc. Employee Stock Purchase Plan.
Under such plan, each eligible employee may purchase up to 2,500 shares of our common stock at
semi-annual intervals on June 30th and December 31st each year at a purchase price per share
equal to 85% of the lower of (i) the closing sales price per share of our common stock on the
first day of the offering period or (ii) the closing sales price per share of our common stock
on the last day of the offering period.
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(3)
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Included in the weighted-average exercise price calculation are 1,429,795 restricted stock
units with an exercise price of $0.00. The weighted-average exercise price of all outstanding
stock options as of December 31, 2009 and reflected in column (a) was $11.19.
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(4)
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Amount includes 2,009,924 shares remaining available at December 31, 2009 for future issuance
under the ev3 Inc. Second Amended and Restated 2005 Incentive Stock Plan and 1,000,186 shares
remaining available at December 31, 2009 for future issuance under the ev3 Inc. Employee Stock
Purchase Plan, of which 1,000,000 shares remaining available under the ev3 Inc. Employee Stock
Purchase Plan are subject to approval by ev3s stockholders at the next annual meeting of
stockholders. No shares remain available for grant under the ev3 LLC Amended and Restated 2003
Incentive Plan since such plan was terminated with respect to future grants in June 2005.
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(5)
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Excludes options assumed by us in connection with our acquisitions of Micro Therapeutics,
Inc. and FoxHollow Technologies, Inc. As of December 31, 2009, a total of 1,360,489 shares of
our common stock were issuable upon exercise of the assumed options. The weighted average
exercise price of the outstanding assumed options as of such date was $12.86 per share and
they have an average weighted life remaining of 5.18 years. All of the 520,087 options
outstanding in connection with our acquisition of Micro Therapeutics, Inc. were exercisable as
of December 31, 2009. 798,618 of the 840,644 options assumed and outstanding in connection
with our acquisition of FoxHollow Technologies, Inc. were exercisable as of December 31, 2009.
No additional options, restricted stock units or other equity incentive awards may be granted
under the assumed Micro Therapeutics, Inc. and FoxHollow Technologies, Inc. plans.
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(6)
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Excludes shares issuable upon the vesting of restricted stock units assumed by us in
connection with our acquisition of FoxHollow Technologies, Inc. As of December 31, 2009, a
total of 242 shares of our common stock were issuable upon the vesting of the assumed
restricted stock units.
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(7)
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Consists of a non-plan option to purchase 754,000 shares of our common stock granted outside
of the terms of our existing stockholder-approved equity incentive plans to Robert J.
Palmisano, our President and Chief Executive Officer, as an inducement grant in April 2008
pursuant to an exemption from NASDAQs shareholder approval requirements under former NASDAQ
Marketplace Rule Section 4350(i)(1)(A)(iv).
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107
Board of Directors Recommendation
Our board of directors unanimously recommends that the stockholders vote
FOR
approval of the
amendment to the ev3 Inc. Third Amended and Restated 2005 Incentive Plan.
108
PROPOSAL THREE APPROVAL OF ev3 INC. AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
Introduction
The ev3 Inc. Employee Stock Purchase Plan was first approved by our board of directors and
stockholders in 2006. On December 10, 2009, the board of directors, upon recommendation of the
compensation committee, approved the ev3 Inc. Amended and Restated Employee Stock Purchase Plan
(referred to in this section as the Amended and Restated ESPP or the plan), which includes an
amendment to increase the number of shares of our common stock available for sale under the plan
from 750,000 to 1,750,000 shares, subject to stockholder approval at the Annual Meeting. This
increase in the number of shares of common stock available for sale under the plan is necessary to
continue the operation of the plan since of the original 750,000 shares available for sale under
the original plan, only 186 shares remain available for sale. Although we commenced an offering
period under the Amended and Restated ESPP on February 1, 2010, which offering period is scheduled
to end on June 30, 2010, the purchase of shares of our common stock by participants in the Amended
and Restated ESPP pursuant to this offering period is expressly subject to and conditioned upon the
prior approval by our stockholders of the Amended and Restated ESPP at the Annual Meeting.
Our stockholders are being asked to approve the Amended and Restated ESPP at the Annual Meeting.
Our board of directors believes the Amended and Restated ESPP advances the interest of our company
and our stockholders by allowing our employees to purchase shares of our common stock on favorable
terms through payroll deductions thereby aligning the interests of our employees with those of our
stockholders. The Amended and Restated ESPP is designed to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code of 1986, as amended.
Summary of the Amended and Restated ESPP
The major features of the Amended and Restated ESPP are summarized below, which summary is
qualified in its entirety by reference to the actual text of the Amended and Restated ESPP, a copy
of which has been filed with the Securities and Exchange Commission as an appendix to this proxy
statement and is available through the SECs website at
www.sec.gov
or which may be obtained from
us upon written request.
Purpose
. The purpose of the Amended and Restated ESPP is to advance the interests of our company
and our stockholders by allowing our employees to purchase shares of our common stock on favorable
terms through payroll deductions.
Authorized Shares
. The maximum number of shares of our common stock available for sale under the
Amended and Restated ESPP is 1,750,000 shares, subject to appropriate adjustment in the event of
any common stock dividend, stock split, recapitalization, merger, consolidation, combination or
exchange or other similar change in our corporate or capital structure. If the total number of
shares that would otherwise be issuable to participants at the end of any offering period exceeds
the number of shares then remaining available under the Amended and Restated ESPP (after deduction
of all shares previously purchased under the plan), the remaining shares will be allocated among
participants on a pro rata basis.
Administration
. The administration of the Amended and Restated ESPP has been delegated to a
subcommittee comprising solely of non-employee directors within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended, of the compensation committee of our board of
directors.
109
Members of the compensation committee, including any subcommittee, are appointed from time to time
by the board of directors, serve at the pleasure of the board of directors, and may resign at any
time upon written notice to the board of directors. The subcommittee of the compensation committee
has the authority to make, administer and interpret such rules and regulations as it deems
necessary to administer the Amended and Restated ESPP.
Participation
. Any employee (including any executive officer) of our company or any participating
subsidiary, other than an employee whose customary employment with our company or any participating
subsidiary is for 20 hours or less per week, who has been continuously employed by us or a
subsidiary prior to the beginning of an offering period under the Amended and Restated ESPP will be
eligible to participate in that offering period.
An eligible employee may participate by completing an enrollment form and authorizing payroll
deductions not later than the 15th day of the month immediately preceding the beginning of the next
offering period in which the employee wishes to participate. Payroll deductions for the
participant will begin with the first payroll following the beginning of the applicable offering
period and will continue until the employee withdraws from, or ceases to be eligible for, the
Amended and Restated ESPP or until the termination of the plan. An otherwise eligible employee
will not be entitled to participate in the plan if further participation would cause the employee
to own shares of our common stock and/or hold outstanding options to purchase an aggregate of more
than 5% of our outstanding shares of common stock. Approximately 1,312 employees are currently
eligible to participate in the Amended and Restated ESPP.
Offering Periods
. The Amended and Restated ESPP provides for six-month offering periods beginning
on January 1 and July 1 of each year; provided, however, that the committee administering the plan
may decide in its sole discretion when to commence an offering after any suspension of the plan.
At the beginning of each offering period, each eligible participating employee, or participant is
granted, by operation of the Amended and Restated ESPP, options to purchase as many shares of our
common stock as can be purchased with payroll deductions authorized by the participant and credited
to the participants account during the offering period.
Under the terms of the Amended and Restated ESPP, offerings under the plan will continue until
either the committee administering the plan decides, in its sole discretion, that no further
offerings will be made because the common stock remaining available under the plan is insufficient
to make an offering to all eligible employees, or the plan is terminated. Notwithstanding the
foregoing, the committee administering the plan, in its sole discretion, may accelerate the
purchase date of a then current offering and provide for the exercise of options thereunder by
participants, or accelerate the purchase date of a then current offering and provide that all
payroll deductions credited to the accounts of participants will be paid to participants as soon as
practicable after such purchase date and that all options for such offering will automatically be
canceled and will no longer be exercisable, if such change is announced at least five days prior to
the newly scheduled purchase date.
Payroll Deductions
. By completing and filing a participation form, a participant elects to have
payroll deductions made from the participants total cash compensation on each payday at a rate
equal to any whole percentage from 1% to 10% (or such other minimum or maximum percentages as the
committee administering the plan may from time to time establish) of the participants total cash
compensation. Participants are not entitled to change the rate of their payroll deductions during
an offering period. A participant may increase or decrease the rate of payroll deductions for
subsequent offering periods by filing an amended enrollment form no later than the 15th day of the
month preceding the offering period for which the change is to become effective. A participant may
discontinue participation in the Amended and Restated ESPP at any time as described below.
110
The funds accumulated through a participants payroll deductions under the Amended and Restated
ESPP are credited to an account established under the Amended and Restated ESPP for the
participant. These funds are held by us as part of our general assets, usable for any corporate
purpose, and we are not obligated to keep these funds separate from our other corporate funds.
Participants will not receive any interest on the funds accumulated in their accounts from payroll
deductions and may not make any separate cash payments or contributions to their accounts.
Purchase of Shares
. At the beginning of each offering period, each participant is granted, by
operation of the Amended and Restated ESPP, an option to purchase as many shares of our common
stock as may be purchased with the payroll deductions credited to his or her account during the
offering period plus the balance (if any) carried forward from the preceding offering period.
Unless a participant withdraws from the Amended and Restated ESPP as described below, the
participants option under the plan will be exercised automatically at the end of the offering
period to purchase the number of shares of common stock that the accumulated payroll deductions in
the participants account will purchase at the applicable price. The number of shares of common
stock that may be purchased under the Amended and Restated ESPP, however, will be limited as
follows: (1) no participant may purchase more than 2,500 shares of common stock under the plan in
any offering period; and (2) no participant may be granted an option under the plan that permits
the participant to purchase common stock under the plan (and any other employee stock purchase
plans of ours) at a rate that exceeds $25,000 of fair market value of shares of our common stock
(determined at the time the option is granted) for each calendar year.
The purchase price of the shares will be 85% of the lower of the fair market value of our common
stock at the beginning of the offering period and at end of the offering period, which corresponds
to the maximum discount rate permitted for plans of this type under Section 423 of the Internal
Revenue Code. For this purpose, the fair market value of the common stock will be the closing sale
price as of such date at the end of the regular trading session, as reported by the NASDAQ Stock
Market, the New York Stock Exchange or any national securities exchange on which our common stock
is then listed or quoted (or, if no shares were traded on such date as of the next preceding date
on which there was such a trade). On March 29, 2010, the closing sales price of our common stock
on the NASDAQ Global Select Market was $15.94 per share.
Shares purchased in an offering period will be issued as soon as practicable after the end of the
offering period. The committee administering the plan may determine, in its sole discretion, the
manner of delivery of shares of our common stock purchased under the plan. No participant will
have any interest in any shares of common stock subject to an option under the plan until the
option has been exercised.
Non-Transferability of Plan Options
. Neither payroll deductions credited to a participants
account nor any rights with regard to the exercise of an option under the plan 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 by designation of a
beneficiary as provided in the plan). Any attempt at assignment, transfer, pledge or other
disposition will have no effect, except that we may treat such act as an election to withdraw from
the Amended and Restated ESPP, in which case the provisions described below will apply.
Withdrawal and Termination of Employment
. A participant may terminate participation in the Amended
and Restated ESPP and withdraw all, but not less than all, of the payroll deductions credited to
the participants account under the plan prior to the end of any offering period by giving written
notice to us. The notice must state the participants desire to terminate involvement in the
Amended and Restated ESPP, specify a termination date and request the withdrawal of all of the
participants payroll deductions held under the plan. All of the payroll deductions credited to
the participants account will be paid to the participant as soon as practicable after the
termination date specified in the notice (or, if no date is
111
specified, as soon as practicable after receipt of the notice of termination and withdrawal), the
option for the offering period will automatically be canceled, and no further payroll deductions
will be made during the offering period or for any subsequent offering period unless a new
enrollment form is filed. A participants withdrawal from an offering period will not have any
effect upon the participants eligibility to participate in a succeeding offering period or in any
similar plan that we may adopt.
Following the termination of a participants employment for any reason, including retirement, death
or disability, the payroll deductions credited to the participants account will be returned to the
participant (or, in the case of the participants death, to the representative of the participants
estate) and the participants option will automatically be canceled. A transfer of employment
between our company and a participating subsidiary or between participating subsidiaries and
absences or leaves approved by us are not considered termination of employment under the Amended
and Restated ESPP.
Termination; Amendment
. The Amended and Restated ESPP will terminate at midnight on February 12,
2016 unless our board of directors terminates the plan earlier. When the plan terminates or is
terminated, no more offering periods will commence and no more options can be granted under the
plan. Under the Amended and Restated ESPP, our board of directors may terminate or suspend the
plan or the granting of options pursuant to the plan at any time, or amend the plan to the extent
that the board of directors deems necessary or appropriate in light of, and consistent with,
Section 423 of the Internal Revenue Code; provided, however, that no such amendment will be
effective, without approval of our stockholders, if stockholder approval of the amendment is then
required pursuant to Rule 16b-3 under the Exchange Act or any successor rule, the rules of any
stock exchange or NASDAQ if our common stock is then listed on such exchange or NASDAQ or similar
regulatory body, or Section 423 of the Internal Revenue Code.
Federal Income Tax Consequences
The following general description of federal income tax consequences is based upon current
statutes, regulations and interpretations. This description does not include foreign, state or
local income tax consequences. This description is not intended to address specific tax
consequences applicable to an individual participant who receives an option under the Amended and
Restated ESPP and does not address special rules that may be applicable to directors, officers and
greater-than-10% stockholders of our company.
The Amended and Restated ESPP is intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as amended. If the Amended and Restated ESPP so
qualifies, the amount withheld from a participants compensation under the plan will constitute
ordinary income for federal income tax purposes in the year in which such amounts would otherwise
have been paid to the participant. However, a participant will generally not recognize any income
for federal income tax purposes either on the grant of an option or upon the issuance of any shares
of common stock under the Amended and Restated ESPP.
The federal income tax consequences of disposing of shares of common stock acquired under the
Amended and Restated ESPP depend upon how long a participant holds the shares. If a participant
disposes of shares acquired under the plan (other than a transfer by reason of death) within a
period of two years from the beginning of the offering period in which the shares were acquired, an
amount equal to the difference between the purchase price and the fair market value of the shares
on the last day of the offering period will be treated as ordinary income for federal income tax
purposes in the taxable year in which the disposition takes place. Such amount is not subject to
wage withholding. The difference between the amount realized upon such disposition of the shares
and their fair market value on the last day of the offering period will constitute capital gain or
loss. Whether the gain (or loss) constitutes long-term or short-term capital gain (or loss) will
depend upon the length of time the participant held the stock
112
prior to its disposition. Participants should consult their tax advisors to determine whether
any specific gain (or loss) constitutes long-term or short-term capital gain (or loss).
If a participant disposes of any shares acquired under the Amended and Restated ESPP more than two
years after the beginning of the offering period in which the shares were acquired (or if no
disposition has occurred by the time of participants death) an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of disposition (or death) over the
purchase price, or (2) the fair market value of the shares at the beginning of the offering period
in which the shares were acquired over the purchase price will be recognized as ordinary income and
is not subject to wage withholding. With respect to a disposition of such shares, any remaining
gain on such disposition will be taxed as long-term capital gain.
No income tax deduction ordinarily is allowed to us with respect to the grant of any option, the
issuance of any shares of common stock or the disposition of any shares acquired under the Amended
and Restated ESPP and held for two years. However, if a participant disposes of shares purchased
under the Amended and Restated ESPP within two years after the beginning of the offering period in
which the shares were acquired, we will receive an income tax deduction in the year of such
disposition in an amount equal to the amount constituting ordinary income to the participant.
Plan Benefits
Participation in the Amended and Restated ESPP is voluntary and is dependent upon each eligible
employees election to participate and his or her determination as to the level of payroll
deduction. Accordingly, future purchases under the Amended and Restated ESPP are not determinable.
Although we commenced an offering period under the Amended and Restated ESPP on February 1, 2010,
which offering period is scheduled to end on June 30, 2010, the purchase of shares of our common
stock by participants in the Amended and Restated ESPP pursuant to this offering period is
expressly subject to and conditioned upon the prior approval by our stockholders of the Amended and
Restated ESPP at the Annual Meeting. The table below sets forth the number of shares of our common
stock for which the options of our named executive officers and the various groups indicated in the
table will be automatically exercised at the end of the offering period commenced on February 1,
2010, assuming: (a) approval by our stockholders of the Amended and Restated ESPP at the Annual
Meeting; (b) no such participants withdraw from the offering prior to the end of the offering
period; and (c) a purchase price per share of $12.58 (which is 85% of the fair market value of our
common stock at the beginning of the offering period):
|
|
|
|
|
|
|
Benefits Since February 1, 2010
|
|
|
Number of Shares to be Purchased
|
|
|
Assuming Approval by Stockholders
|
Name and Position
|
|
of Amended and Restated ESPP
|
Robert J. Palmisano
|
|
|
0
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
Shawn McCormick
|
|
|
0
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
Patrick D. Spangler
|
|
|
0
|
|
Former Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
Pascal E.R. Girin
|
|
|
856
|
|
Executive Vice President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
Stacy Enxing Seng
|
|
|
0
|
|
Executive Vice President and President, Worldwide Peripheral Vascular
|
|
|
|
|
|
|
|
|
|
Brett A. Wall
|
|
|
596
|
|
Senior Vice President and President, International
|
|
|
|
|
|
|
|
|
|
Executive Group
|
|
|
1,200
|
|
|
|
|
|
|
Non-Executive Director Group
|
|
|
0
|
|
|
|
|
|
|
All Other Employees Group
|
|
|
85,321
|
|
113
The table below sets forth, as to each of our named executive officers and the various
indicated groups, the aggregate number of shares of our common stock purchased under the ev3 Inc.
Employee Stock Purchase Plan since the plans inception:
|
|
|
|
|
|
|
|
|
|
|
Benefits Since May 9, 2006
|
|
|
Number of Shares
|
|
Average Purchase
|
Name and Position
|
|
Purchased
|
|
Price Per Share
|
Robert J. Palmisano
|
|
|
0
|
|
|
$
|
N/A
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn McCormick
|
|
|
0
|
|
|
|
N/A
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick D. Spangler
|
|
|
0
|
|
|
|
N/A
|
|
Former Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascal E.R. Girin
|
|
|
836
|
|
|
|
12.24
|
|
Executive Vice President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stacy Enxing Seng
|
|
|
0
|
|
|
|
N/A
|
|
Executive Vice President and President, Worldwide Peripheral Vascular
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brett A. Wall
|
|
|
3,898
|
|
|
|
7.24
|
|
Senior Vice President and President, International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Group
|
|
|
9,858
|
|
|
|
7.83
|
|
|
|
|
|
|
|
|
|
|
Non-Executive Director Group
|
|
|
0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
All Other Employees Group
|
|
|
749,814
|
|
|
|
7.45
|
|
Board of Directors Recommendation
Our board of directors unanimously recommends that our stockholders vote
FOR
approval of the ev3
Inc. Amended and Restated Employee Stock Purchase Plan.
114
PROPOSAL FOUR RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Selection of Independent Registered Public Accounting Firm
The audit committee of our board of directors has selected Ernst & Young LLP to serve as our
independent registered public accounting firm for the year ending December 31, 2010. Although it
is not required to do so, our board of directors is asking our stockholders to ratify the audit
committees selection of Ernst & Young LLP. If our stockholders do not ratify the selection of
Ernst & Young LLP, another independent registered public accounting firm will be considered by the
audit committee of our board of directors. Even if the selection is ratified by our stockholders,
the audit committee may in its discretion change the appointment at any time during the year, if it
determines that such a change would be in the best interests of our company and its stockholders.
Representatives of Ernst & Young LLP will be present at the Annual Meeting to respond to
appropriate questions. They also will have the opportunity to make a statement if they wish to do
so.
Audit, Audit-Related, Tax and Other Fees
The following table presents the aggregate fees for professional services rendered by Ernst & Young
LLP for the fiscal years ended December 31, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount Billed by
|
|
|
Ernst & Young LLP
|
|
|
2009
|
|
2008
|
Audit Fees
(1)
|
|
$
|
1,198,540
|
|
|
$
|
1,288,336
|
|
Audit-Related Fees
(2)
|
|
|
62,615
|
|
|
|
28,400
|
|
Tax Fees
(3)
|
|
|
90,000
|
|
|
|
175,500
|
|
All Other Fees
(4)
|
|
|
1,995
|
|
|
|
|
|
|
|
|
(1)
|
|
These fees consisted of the audit of our annual consolidated financial statements, including
the audit of internal control over financial reporting, reviews of our consolidated condensed
financial statements included in our quarterly reports on Form 10-Q and services provided in
connection with our statutory and regulatory filings. For 2009, audit fees also included fees
in connection with the review of our Form S-3 registration statement in connection with our
acquisition of Chestnut Medical Technologies, Inc.
|
|
(2)
|
|
These fees consisted of assurance and related services including due diligence related to
mergers and acquisitions and other attest services not required by statute or regulation.
|
|
(3)
|
|
These fees consisted of sales and property tax compliance and calculations related to tax
attributes of acquired companies. The audit committee of our board of directors has
considered whether the provision of these services is compatible with maintaining Ernst &
Young LLPs independence and has determined that it is.
|
|
(4)
|
|
These fees consisted of a subscription to an on-line accounting research tool. The audit
committee of our board of directors has considered whether the provision of these services is
compatible with maintaining Ernst & Young LLPs independence and has determined that it is.
|
115
Pre-Approval Policies and Procedures
The audit committee of our board of directors has adopted procedures pursuant to which all audit,
audit-related and tax services, and all permissible non-audit services provided by Ernst & Young
LLP to us, are pre-approved by our audit committee or, under certain circumstances, the chair of
our audit committee. Our audit committee has delegated to the chair of our audit committee the
authority to pre-approve services, up to a maximum of $50,000 per engagement, between meetings of
our audit committee. The chair must report any pre-approval decisions to the full audit committee
at its next scheduled meeting. All services rendered by Ernst & Young LLP to us during 2009 were
permissible under applicable laws and regulations, and all such services provided by Ernst & Young
LLP to us during such time, other than de minimis non-audit services allowed under applicable law,
were approved in advance by our audit committee or the chair of our audit committee in accordance
with the rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of
2002.
Board Recommendation
The board of directors unanimously recommends a vote
FOR
ratification of the selection of Ernst &
Young LLP as our independent registered public accounting firm for the year ending December 31,
2010.
116
Stockholder Proposals for 2011 Annual Meeting
Stockholder proposals intended to be presented in our proxy materials relating to our 2011 Annual
Meeting of Stockholders must be received by us at our principal executive offices on or before
December 10, 2010, unless the date of the meeting is delayed by more than 30 calendar days, and
must satisfy the requirements of the proxy rules promulgated by the SEC.
Any other stockholder proposals to be presented at the 2011 Annual Meeting of Stockholders must be
given in writing to our Corporate Secretary and received at our principal executive offices not
later than February 24, 2011 nor earlier than January 25, 2011; provided, however, that in the
event that the date of the annual meeting is changed by more than 30 days from the anniversary date
of the previous years meeting, notice by the stockholder to be timely must be received not later
than the 10th day following the day on which public announcement of the date of such meeting is
first made. The proposal must contain specific information required by our bylaws, a copy of which
may be obtained by writing to our Corporate Secretary or accessing the SECs EDGAR filing database
at
www.sec.gov
. If a proposal is not timely and properly made in accordance with the procedures
set forth in our bylaws, it will be defective and may not be brought before the meeting. If the
proposal is nonetheless brought before the meeting and the chairman of the meeting does not
exercise the power and duty to declare the proposal defective, the persons named in the proxy may
use their discretionary voting with respect to the proposal.
Director Nominations for 2011 Annual Meeting
Our board of directors will consider recommendations submitted by our stockholders for the
nomination of directors to be elected at the 2011 Annual Meeting of Stockholders. In accordance
with procedures set forth in our bylaws, stockholders of record of our company may propose nominees
for election to our board of directors only after providing timely written notice to our Corporate
Secretary. To be timely, a stockholders notice to our Corporate Secretary must be delivered to or
mailed and received at our principal executive offices not later than February 24, 2011 nor earlier
than January 25, 2011; provided, however, that in the event that the date of the annual meeting is
changed by more than 30 days from the anniversary date of the previous years meeting, notice by
the stockholder to be timely must be received not later than the 10th day following the day on
which public announcement of the date of such meeting is first made. Public announcement of an
adjournment of an annual meeting will not commence a new time period for the giving of a
stockholders notice. The notice must contain specific information required by our bylaws, a copy
of which may be obtained by writing to our Corporate Secretary or accessing the SECs EDGAR filing
database at
www.sec.gov
. Such notice must be accompanied by a written consent of each proposed
nominee to being named as a nominee and to serve as a director if elected. Submissions must be made
by mail, courier or personal delivery. E-mailed submissions will not be considered. Our board of
directors will consider only those stockholder recommendations whose submissions comply with these
procedural requirements. Our board of directors will evaluate candidates recommended by
stockholders in the same manner as those recommended by others.
Copies of 2009 Annual Report
We have sent or made electronically available to each of our stockholders a copy of our annual
report on Form 10-K (without exhibits) for the year ended December 31, 2009. The exhibits to our
Form 10-K are available by accessing the SECs EDGAR filing database at
www.sec.gov
. We will
furnish a copy of any exhibit to our Form 10-K upon receipt from any such person of a written
request for such exhibits upon the payment of our reasonable expenses in furnishing the exhibits.
117
This request should be sent to: ev3 Inc., 3033 Campus Drive, Plymouth, Minnesota 55441, Attn:
Stockholder Information.
Householding of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be participating in the practice of
householding proxy materials and annual reports as permitted by the SEC. This means that only
one copy of our proxy materials or annual report to stockholders may have been sent to multiple
stockholders in each household. We will promptly deliver a separate copy of either document to any
stockholder upon written or oral request to our Investor Relations Department, ev3 Inc., 3033
Campus Drive, Plymouth, Minnesota 55441, telephone: (763) 398-7000. Any stockholder who wants to
receive separate paper or electronic copies of our proxy statement or annual report to stockholders
in the future, or any stockholder who is receiving multiple copies and would like to receive only
one copy per household, should contact the stockholders bank, broker, or other nominee record
holder, or the stockholder may contact us at the above address and phone number.
Proxy Solicitation Costs
The cost of soliciting proxies, including the preparation, assembly, mailing and making
electronically available of proxies and soliciting material, as well as the cost of forwarding this
material to the beneficial owners of our common stock will be borne by us. Our directors, officers
and regular employees may, without compensation other than their regular compensation, solicit
proxies by telephone, facsimile, e-mail or personal conversation. We may reimburse brokerage firms
and others for expenses in forwarding proxy materials to the beneficial owners of our common stock.
Other Business
Our management does not intend to present other items of business and knows of no items of business
that are likely to be brought before the Annual Meeting, except those described in this proxy
statement. However, if any other matters should properly come before the Annual Meeting, the
persons named in the proxy will have discretionary authority to vote such proxy in accordance with
their best judgment on the matters.
Your vote is important. Whether or not you plan to attend the Annual Meeting, please exercise your
right to vote as soon as possible by following the instructions for voting on the Notice Regarding
the Availability of Proxy Materials you received for the meeting or, if you received a paper copy
of the proxy materials, by completing, signing, dating and returning your proxy card or by using
Internet or telephone voting as described on the proxy card.
|
|
|
|
|
|
By Order of the Board of Directors,
|
|
|
/s/ Kevin M. Klemz
|
|
|
Kevin M. Klemz
|
|
|
Senior Vice President, Secretary and Chief
Legal Officer
|
|
|
April 9, 2010
Plymouth, Minnesota
118
APPENDIX A
ev3 Inc.
THIRD AMENDED AND RESTATED
2005 INCENTIVE PLAN
(As proposed to be amended on May 25, 2010)
Appendix A-1
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
1. BACKGROUND AND PURPOSE
|
|
|
3
|
|
|
|
|
|
|
2. DEFINITIONS
|
|
|
3
|
|
|
|
|
|
|
3. SHARES AVAILABLE FOR ISSUANCE; GRANT LIMITS AND ADJUSTMENTS
|
|
|
9
|
|
|
|
|
|
|
4. EFFECTIVE DATE
|
|
|
11
|
|
|
|
|
|
|
5. COMMITTEE
|
|
|
12
|
|
|
|
|
|
|
6. ELIGIBILITY
|
|
|
13
|
|
|
|
|
|
|
7. OPTIONS
|
|
|
13
|
|
|
|
|
|
|
8. STOCK APPRECIATION RIGHTS
|
|
|
15
|
|
|
|
|
|
|
9. STOCK GRANTS AND STOCK UNIT GRANTS
|
|
|
16
|
|
|
|
|
|
|
10. PERFORMANCE AWARDS
|
|
|
18
|
|
|
|
|
|
|
11. ANNUAL PERFORMANCE CASH AWARDS
|
|
|
19
|
|
|
|
|
|
|
12. NON-EMPLOYEE DIRECTOR AWARDS
|
|
|
20
|
|
|
|
|
|
|
13. OTHER CASH-BASED AWARDS AND OTHER STOCK-BASED AWARDS
|
|
|
21
|
|
|
|
|
|
|
14. PERFORMANCE MEASURES
|
|
|
22
|
|
|
|
|
|
|
15. DIVIDEND EQUIVALENTS
|
|
|
24
|
|
|
|
|
|
|
16. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE
|
|
|
24
|
|
|
|
|
|
|
17. CHANGE IN CONTROL
|
|
|
28
|
|
|
|
|
|
|
18. PAYMENT OF WITHHOLDING TAXES
|
|
|
29
|
|
|
|
|
|
|
19. NON-TRANSFERABILITY
|
|
|
30
|
|
|
|
|
|
|
20. SECURITIES REGISTRATION
|
|
|
30
|
|
|
|
|
|
|
21. LIFE OF PLAN
|
|
|
31
|
|
|
|
|
|
|
22. AMENDMENT, MODIFICATION OR TERMINATION
|
|
|
31
|
|
|
|
|
|
|
23. DEFERRED COMPENSATION
|
|
|
32
|
|
|
|
|
|
|
24. MISCELLANEOUS
|
|
|
32
|
|
Appendix A-2
1.
BACKGROUND AND PURPOSE
The purpose of this Plan is to promote the interest of the Company and its Subsidiaries by
authorizing the Committee to grant Awards to Eligible Recipients in order to (1) attract and
retain such individuals, (2) provide an additional incentive to such individuals to work to
increase the value of Stock and (3) provide such individuals with a stake in the future of the
Company which corresponds to the stake of each of the Companys stockholders.
2.
DEFINITIONS
2.1.
Adverse Action
. Adverse Action means any action or conduct by a Participant that
the Committee, in its sole discretion, determines to be injurious, detrimental, prejudicial or
adverse to the interests of the Company or any Subsidiary, including: (a) disclosing confidential
information of the Company or any Subsidiary to any person not authorized by the Company or
Subsidiary to receive it, (b) engaging, directly or indirectly, in any commercial activity that in
the judgment of the Committee competes with the business of the Company or any Subsidiary or (c)
interfering with the relationships of the Company or any Subsidiary and their respective employees,
independent contractors, customers, prospective customers and vendors.
2.2.
Annual Grant Limit or Annual Grant Limits
. Annual Grant Limit or Annual Grant
Limits has the meaning set forth in Section 3.5 of this Plan.
2.3.
Award
. Award means, individually or collectively, an Option, Stock Appreciation
Right, Stock Grant, Stock Unit Grant, Annual Performance Cash Award, Non-Employee Director Award,
Other Cash-Based Award or Other Stock-Based Award, in each case granted to an Eligible Recipient
pursuant to this Plan.
2.4.
Award Agreement
. Award Agreement means either: (a) a written or electronic
agreement entered into by the Company and a Participant setting forth the terms and provisions
applicable to an Award granted under this Plan, including any amendment or modification thereof, or
(b) a written or electronic certificate or statement issued by the Company to a Participant
describing the terms and provisions of such an Award, including any amendment or modification
thereof. The Committee may provide for the use of electronic, Internet or other non-paper Award
Agreements, and the use of electronic, Internet or other non-paper means for the acceptance thereof
and actions thereunder by a Participant.
2.5.
Board
. Board means the Board of Directors of the Company.
2.6.
Cause
. Cause means with respect to any Participant (A) the Participant has
engaged in conduct that in the judgment of the Committee constitutes gross negligence, misconduct
or gross neglect in the performance of the Participants duties and responsibilities, including any
breach of the Companys Code of Business Conduct and conduct resulting or intending to result
directly or indirectly in gain or personal enrichment for the Participant at the Companys expense,
(B) the Participant has been convicted of or has pled guilty to a felony for fraud, embezzlement or
theft, (C) the Participant has engaged in a breach of any policy of the Company for which
termination of employment or service is a permissible consequence or the Participant has not
immediately cured any performance or other issues raised by the Participants supervisor, (D) the
Participant had knowledge of (and did not disclose to the Company in
Appendix A-3
writing) any condition that could potentially impair the Participants ability to perform the
functions of his or her job or service relationship fully, completely and successfully, or (E) the
Participant has engaged in any conduct that would constitute cause under the terms of his or her
employment or consulting agreement, if any.
2.7.
Change in Control
. Change in Control means a change in control of the Company
occurring after the effective date of this Plan of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the 1934 Act, whether or not the Company is then
subject to such reporting requirement;
provided
,
however
, that, without limitation,
a Change in Control shall include: (i) the acquisition (other than from the Company) after the
date hereof by any person, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of
the 1934 Act (excluding, for this purpose, the Company or its subsidiaries, any employee benefit
plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of
the Company, any qualified institutional investor who meets the requirements of Rule 13d-1(b)(1)
promulgated under the 1934 Act, Warburg Pincus LLC and its affiliates, and The Vertical Group, L.P.
and its affiliates) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either the then-outstanding shares of common stock or the combined
voting power of the Companys then-outstanding capital stock entitled to vote generally in the
election of directors; (ii) individuals who, as of the date hereof, constitute the Board (the
Incumbent Board
) ceasing for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Companys stockholders was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company) shall be, for purposes
of this Plan, considered as though such person were a member of the Incumbent Board; (iii)
consummation of a reorganization, merger, or consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such reorganization, merger,
or consolidation do not, immediately thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the reorganized, merged, consolidated or
other surviving corporations then-outstanding voting securities; (iv) approval by the stockholders
of the Company of a liquidation or dissolution of the Company; or (v) the sale of all or
substantially all of the assets of the Company.
2.8.
Code
. Code means the Internal Revenue Code of 1986, as amended. Any reference
to a section of the Code herein shall be deemed to include a reference to any applicable
regulations thereunder and any successor or amended section of the Code.
2.9.
Committee
. Committee means the Compensation Committee of the Board or a
subcommittee thereof, or any other committee comprised solely of directors designated by the Board
to administer this Plan who are (a) non-employee directors within the meaning of Rule 16b-3 under
the Exchange Act, (b) independent directors as defined in the Listing Rules of the Nasdaq Stock
Market (or other applicable exchange or market on which the Stock may be traded or quoted) and (c)
outside directors within the meaning of Section 162(m) of the Code. The members of the Committee
shall be appointed from time to time by and shall serve at the
Appendix A-4
discretion of the Board. If the Committee does not exist or cannot function for any reason,
the Board may take any action under this Plan that would otherwise be the responsibility of the
Committee, except as otherwise provided in the Plan.
2.10.
Company
. Company means ev3 Inc., a Delaware corporation, and any successor
thereto as provided in Section 24.11 of this Plan.
2.11.
Consultant
. Consultant means a person engaged to provide consulting or advisory
services (other than as an Employee or a Non-Employee Director) to the Company or any Subsidiary
that: (a) are not in connection with the offer and sale of the Companys securities in a capital
raising transaction and (b) do not directly or indirectly promote or maintain a market for the
Companys securities.
2.12.
Covered Employee
. Covered Employee means any Employee who is or may become a
Covered Employee, as defined in Section 162(m) of the Code, and who is designated, either as an
individual Employee or class of Employees, by the Committee within the shorter of: (a) ninety (90)
days after the beginning of any Performance Period, or (b) twenty-five percent (25%) of any
Performance Period has elapsed, as a Covered Employee under this Plan for such applicable
Performance Period.
2.13.
Director
. Director means any member of the Board.
2.14.
Director Fees
. Director Fees means any compensation payable by the Company in
the form of cash to a Non-Employee Director for service as a Non-Employee Director on the Board or
any committee of the Board as may be approved from time to time by the Board, excluding expense
allowances, reimbursements and insurance premiums paid to or on behalf of such Non-Employee
Directors.
2.15.
Disability
. Disability means any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months and which renders a Participant unable to engage in any
substantial gainful activity. The Committee shall determine whether a Participant has a
Disability. If a Participant disputes such determination, the issue shall be submitted to a
competent licensed physician appointed by the Board, and the physicians determination as to
whether a Participant has a Disability shall be binding on the Company and the Participant.
2.16.
Effective Date
. Effective Date has the meaning set forth in Section 4 of this
Plan
2.17.
Eligible Recipients
. Eligible Recipients means all Employees, all Non-Employee
Directors and all Consultants.
2.18.
Employee
. Employee means any individual performing services for the Company or
a Subsidiary and designated as an employee of the Company or a Subsidiary on the payroll records
thereof. An Employee shall not include any individual during any period he or she is classified or
treated by the Company or Subsidiary as an independent contractor, a consultant or any employee of
an employment, consulting or temporary agency or any other entity other than the Company or
Subsidiary, without regard to whether such individual is subsequently determined to have been, or
is subsequently retroactively reclassified as a common-law
Appendix A-5
employee of the Company or Subsidiary during such period. An individual shall not cease to be
an Employee in the case of: (a) any leave of absence approved by the Company, or (b) transfers
between locations of the Company or between the Company or any Subsidiaries. For purposes of ISOs,
no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved
by the Company or a Subsidiary, as applicable, is not so guaranteed, then three (3) months
following the ninety-first (91st) day of such leave, any ISO held by a Participant shall cease to
be treated as an ISO and shall be treated for tax purposes as a Non-ISO. Neither service as a
Non-Employee Director nor payment of a Non-Employee Directors retainer or other fee by the Company
shall be sufficient to constitute employment by the Company.
2.19.
Fair Market Value
. Fair Market Value means with respect to the Stock, as of any
date: (a) the closing sale price of the Stock as of such date at the end of the regular trading
session, as reported by the Nasdaq Stock Market, the New York Stock Exchange, the American Stock
Exchange or any national securities exchange on which the Stock is then listed (or, if no shares
were traded on such date, as of the next preceding date on which there was such a trade); (b) if
the Stock is not so listed, admitted to unlisted trading privileges or reported on any national
exchange, the closing sale price as of such date at the end of the regular trading session, as
reported by the OTC Bulletin Board or the Pink Sheets LLC, or other comparable service (or, if no
shares were traded or quoted on such date, as of the next preceding date on which there was such a
trade or quote); or (c) if the Stock is not so listed or reported, such price as the Committee
determines in good faith in the exercise of its reasonable discretion, and consistent with the
definition of fair market value under Section 409A of the Code. If determined by the Committee,
such determination shall be final, conclusive and binding for all purposes and on all persons,
including the Company, the stockholders of the Company, the Participants and their respective
successors-in-interest. No member of the Committee shall be liable for any determination regarding
the fair market value of the Stock that is made in good faith.
2.20.
Full Value Award
. Full Value Award means an Award other than in the form of an
Option or Stock Appreciation Right, and which is settled by the issuance of shares of Stock.
2.21.
Grant Date
. Grant Date means the date an Award is granted to a Participant
pursuant to this Plan.
2.22.
Individual Performance Goals
. Individual Performance Goals has the meaning set
forth in Section 11.4 of this Plan.
2.23.
Individual Performance Participants
. Individual Performance Participants has the
meaning set forth in Section 11.4 of this Plan.
2.24.
ISO
. ISO means an option granted under this Plan to purchase Stock which is
intended to satisfy the requirements of Section 422 of the Code.
2.25.
1933 Act
. 1933 Act means the Securities Act of 1933, as amended. Any reference
to a section of the 1933 Act herein shall be deemed to include a reference to any applicable
regulations thereunder and any successor or amended section of the 1933 Act.
Appendix A-6
2.26.
1934 Act
. 1934 Act means the Securities Exchange Act of 1934, as amended. Any
reference to a section of the 1934 Act herein shall be deemed to include a reference to any
applicable regulations thereunder and any successor or amended section of the 1934 Act.
2.27.
Maximum Payout
. Maximum Payout has the meaning set forth in Section 11.3 of
this Plan.
2.28.
Non-Employee Director
. Non-Employee Director means any Director who is not an
Employee of the Company or a Subsidiary of the Company.
2.29.
Non-Employee Director Award
. Non-Employee Director Award means any Non-ISO,
Stock Appreciation Right or Full Value Award granted, whether singly, in combination, or in tandem,
to an Eligible Recipient who is a Non-Employee Director, pursuant to such applicable terms,
conditions and limitations as the Committee may establish in accordance with this Plan.
2.30.
Non-ISO
. Non-ISO means an option granted under this Plan to purchase Stock
which is intended to fail to satisfy the requirements of Section 422 of the Code.
2.31.
Option
. Option means an ISO or a Non-ISO.
2.32.
Other Cash-Based Award
. Other Cash-Based Award means an Award, denominated and
paid in cash, not otherwise described by the terms of this Plan, granted pursuant to Section 13.1
of this Plan.
2.33.
Other Stock-Based Award
. Other Stock-Based Award means an equity-based or
equity-related Award not otherwise described by the terms of this Plan, granted pursuant to Section
13.2 of this Plan.
2.34.
Participant
. Participant means an Eligible Recipient who receives one or more
Awards under this Plan.
2.35.
Participation Factor
. Participation Factor has the meaning set forth in Section
11.2 of this Plan.
2.36.
Performance-Based Compensation
. Performance-Based Compensation means
compensation under an Award that is intended to satisfy the requirements of Section 162(m) of the
Code for certain performance-based compensation paid to Covered Employees. Notwithstanding the
foregoing, nothing in this Plan shall be construed to mean that an Award which does not satisfy the
requirements for performance-based compensation under Section 162(m) of the Code does not
constitute performance-based compensation for other purposes, including Section 409A of the Code.
2.37.
Performance Goals
. Performance Goals mean with respect to any applicable Award,
one or more targets, goals or levels of attainment required to be achieved in terms of the
specified Performance Measures during the specified Performance Period, as set forth in the related
Award Agreement.
Appendix A-7
2.38.
Performance Measures
. Performance Measures mean: (a) with respect to any Award
intended to qualify as Performance-Based Compensation, any one or more of the measures described in
Section 14.1 of this Plan on which the Performance Goals are based and which measures are approved
by the Companys stockholders pursuant to this Plan in order to qualify Awards as Performance-Based
Compensation; and (b) with respect to any other Award, any performance measures as determined by
the Committee in its sole discretion and set forth in the applicable Award Agreement for purposes
of determining the applicable Performance Goal.
2.39.
Performance Period
. Performance Period means the period of time, as determined
by the Committee, during which the Performance Goals must be met in order to determine the degree
of payout or vesting with respect to an Award.
2.40.
Plan
. Plan means this ev3 Inc. Third Amended and Restated 2005 Incentive Plan
as effective as of the date approved by the stockholders of the Company, and as amended from time
to time thereafter.
2.41.
Predecessor Plans
. Predecessor Plans means the Companys equity-based
compensation plans in effect prior to the establishment of this Plan or equity-based compensation
plans assumed by the Company, under which Awards are outstanding as of the Effective Date of this
Plan, including the ev3 LLC Amended and Restated 2003 Incentive Plan, as amended, FoxHollow
Technologies, Inc. 2004 Equity Incentive Plan, FoxHollow Technologies, Inc. 1997 Stock Plan, Micro
Therapeutics, Inc. 1996 Stock Incentive Plan, as amended and the Micro Therapeutics, Inc. 1993
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan.
2.42.
Retirement
. Retirement means, unless otherwise defined in an Award Agreement or
in a written employment, services or other agreement between the Participant and the Company or a
Subsidiary, Retirement as defined from time to time for purposes of this Plan by the Committee or
by the Companys chief human resources officer or other person performing that function or, if not
so defined, means voluntary termination of employment or service by the Participant on or after the
date the Participant reaches age fifty-five (55) with the present intention to leave the Companys
industry or to leave the general workforce.
2.43.
Rule 16b-3
. Rule 16b-3 means the exemption under Rule 16b-3 to Section 16(b) of
the 1934 Act or any successor to such rule.
2.44.
Stock
. Stock means the common stock of the Company, par value $0.01 per share,
or the number and kind of shares of stock or other securities into which such Stock may be changed
in accordance with Section 3.6 of this Plan..
2.45.
Stock Appreciation Right
. Stock Appreciation Right means a right which is
granted under Section 8 of this Plan to receive the appreciation in a share of Stock.
2.46.
Stock-Based Award
. Stock-Based Award means any equity-based or equity-related
Award made pursuant to this Plan, including Options, Stock Appreciation Rights, Stock Grants, Stock
Unit Grants and Other Stock-Based Awards.
Appendix A-8
2.47.
Stock Grant
. Stock Grant means a grant under Section 9 of this Plan which is
designed to result in the issuance of the number of shares of Stock described in such grant rather
than a payment in cash based on the Fair Market Value of such shares of Stock.
2.48.
Stock Unit Grant
. Stock Unit Grant means a grant under Section 9 of this Plan
which is designed to result in the payment of cash based on the Fair Market Value of the number of
shares of Stock described in such grant rather than the issuance of the number of shares of Stock
described in such grant.
2.49.
Subsidiary
. Subsidiary means a corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) of the Company.
2.50.
Ten Percent Stockholder
. Ten Percent Stockholder means a person who owns (after
taking into account the attribution rules of Section 424(d) of the Code) more than ten percent
(10%) of the total combined voting power of all classes of stock of either the Company, a
Subsidiary or a parent corporation (within the meaning of Section 424(e) of the Code).
3.
SHARES AVAILABLE FOR ISSUANCE; GRANT LIMITS AND ADJUSTMENTS
3.1.
Shares Available for Issuance
. Subject to adjustment as provided in Section 3.6,
the maximum number of shares of Stock that shall be available for issuance under this Plan shall be
the sum of:
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(a)
|
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14,500,000;
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(b)
|
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The number of shares of Stock subject to Awards outstanding
under the Predecessor Plans as of the Effective Date but only to the extent
that such outstanding Awards are forfeited, expire or otherwise terminate
without the issuance of such shares of Stock;
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|
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(c)
|
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The number of shares issued or Awards granted under the Plan in
connection with the settlement, assumption or substitution of outstanding
awards or obligations to grant future awards as a condition of the Company
and/or any Subsidiar(ies) acquiring, merging or consolidating with another
entity; and
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(d)
|
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The number of shares that are unallocated and available for
grant under a stock plan assumed by the Company or any Subsidiary(ies) in
connection with the merger, consolidation, or acquisition of another entity by
the Company and/or any of its Subsidiaries, based on the applicable exchange
ratio and other transaction terms, but only to the extent that such shares may
be utilized by the Company or its Subsidiaries following the transaction
pursuant to the rules and regulations of the Nasdaq Stock Market (or other
applicable market or exchange on which the Companys Stock may be quoted or
traded), including the shares previously transferred pursuant to this Section
3.1(d) of this Plan in connection with the Companys acquisition of FoxHollow
Technologies, Inc.;
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Appendix A-9
provided
,
however
, that no more than 7,500,000 shares of Stock authorized for
issuance under this Plan may be issued pursuant to Full Value Awards and no more than 14,000,000
shares of Stock may be issued in connection with the exercise of ISOs.
3.2.
Source of Shares
. The shares of Stock described in Section 3.1 shall be reserved
to the extent that the Company deems appropriate from authorized but unissued shares of Stock and
from shares of Stock which have been reacquired by the Company.
3.3.
Accounting for Awards
. Shares of Stock that are issued under this Plan or that
are subject to outstanding Awards shall be applied to reduce the maximum number of shares of Stock
remaining available for issuance under this Plan only to the extent they are used;
provided
,
however
, that the full number of shares of Stock subject to a Stock
Appreciation Right granted that is settled by the issuance of shares of Stock shall be counted
against the shares of Stock available for issuance under this Plan, regardless of the number of
shares actually issued upon settlement of such Stock Appreciation Right. Furthermore, any shares
of Stock withheld to satisfy tax withholding obligations on Awards issued under this Plan, any
shares of Stock withheld to pay the exercise price of Awards under this Plan and any shares of
Stock not issued or delivered as a result of the net exercise of an outstanding Option pursuant
to Section 7.4 shall be counted against the shares of Stock available for issuance under this Plan
and shall not be available again for grant under this Plan. Any shares of Stock repurchased by the
Company on the open market using the proceeds from the exercise of an Award shall not increase the
number of shares of Stock available for issuance under this Plan. Any shares of Stock related to
Awards under this Plan that terminate by expiration, forfeiture, cancellation or otherwise without
the issuance of the shares of Stock, or are settled in cash in lieu of shares of Stock, or are
exchanged with the Committees permission, prior to the issuance of shares of Stock, for Awards not
involving shares of Stock, shall be available again for grant under this Plan.
3.4.
Use of Proceeds
. The proceeds which the Company receives from the sale of any
shares of Stock under this Plan shall be used for general corporate purposes and shall be added to
the general funds of the Company.
3.5.
Annual Grant Limits
. The following limits (each an
Annual Grant Limit
and, collectively,
Annual Grant Limits
), as adjusted pursuant to Section 3.6, shall apply
to grants of Awards unless the Committee specifically determines at the time of grant that an Award
is not intended to qualify as Performance-Based Compensation under this Plan:
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(a)
|
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The maximum aggregate number of shares of Stock subject to
Options and Stock Appreciation Rights granted to any one Participant in any one
calendar year shall be 1,500,000 shares.
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(b)
|
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The maximum aggregate number of shares of Stock subject to
Stock Grants and Stock Unit Grants granted to any one Participant in any one
calendar year shall be 1,500,000 shares.
|
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(c)
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The maximum aggregate number of shares of Stock subject to
Performance Awards granted to any one Participant in any one calendar year
shall be 1,500,000 shares.
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Appendix A-10
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(d)
|
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The maximum aggregate dollar amount granted with respect to
Annual Performance Cash Awards to any one Participant in any one calendar year
shall not exceed $5,000,000, determined as of the date of payout.
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(e)
|
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The maximum aggregate dollar amount granted with respect to
Other Cash-Based Awards to any one Participant in any one calendar year shall
not exceed $5,000,000, determined as of the date of payout.
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(f)
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The maximum aggregate number of shares of Stock granted with
respect to Other Stock-Based Awards to any one Participant in any one calendar
year shall not exceed 1,500,000 shares, determined as of the date of payout.
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3.6.
Adjustments to Shares and Awards
.
|
(a)
|
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In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin off) or any other similar change in the corporate structure
or shares of the Company, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) shall make appropriate adjustment (which determination
shall be conclusive) as to: (i) the number and kind of securities or other
property (including cash) available for issuance or payment under this Plan,
including the sub-limits set forth in Section 3.1 and the Annual Award Limits
set forth in Section 3.5, and (ii) in order to prevent dilution or enlargement
of the rights of Participants, the number and kind of securities or other
property (including cash) subject to outstanding Awards and the exercise price
of outstanding Awards. The determination of the Committee as to the foregoing
adjustments, if any, shall be final, conclusive and binding on Participants
under this Plan.
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(b)
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Notwithstanding anything else herein to the contrary, without
affecting the number of shares of Stock reserved or available hereunder, the
sublimits in Section 3.1 and the Annual Award Limits in Section 3.5, the
Committee may authorize the issuance or assumption of benefits under this Plan
in connection with any merger, consolidation, acquisition of property or stock
or reorganization upon such terms and conditions as it may deem appropriate,
subject to compliance with the rules under Sections 422 and 424 of the Code, as
and where applicable.
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4.
EFFECTIVE DATE
The effective date of this Plan shall be the date the stockholders of the Company (acting at a
duly called meeting of such stockholders) approve the adoption of this Plan as amended and restated
(the
Effective Date
).
Appendix A-11
5.
COMMITTEE
5.1.
Plan Administration
. This Plan shall be administered by the Committee. The
Committee acting in its sole discretion shall exercise such powers and take such action as
expressly called for under this Plan and, further, the Committee shall have the power to interpret
this Plan and (subject to Section 17 and Section 22 and Rule 16b-3) to take such other action in
the administration and operation of this Plan as the Committee deems equitable under the
circumstances, which action shall be binding on the Company, on each affected Participant and on
each other person directly or indirectly affected by such action. The Committee shall not be
obligated to treat Participants or Eligible Recipients uniformly, and determinations made under
this Plan may be made by the Committee selectively among Participants or Eligible Recipients,
whether or not such Participants and Eligible Recipients are similarly situated. Furthermore, the
Committee as a condition to making any grant under this Plan to any Eligible Recipient shall have
the right to require him or her to execute an agreement which makes the Eligible Recipient subject
to non-competition provisions and other restrictive covenants which run in favor of the Company.
5.2.
No Repricing
. Notwithstanding any other provision of this Plan other than
Section 3.6, the Committee shall not, without prior approval of the Companys stockholders, seek to
effect any re-pricing of any previously granted, underwater Option or Stock Appreciation Right
by: (i) amending or modifying the terms of the Option or Stock Appreciation Right to lower the
exercise price; (ii) canceling the underwater Option or Stock Appreciation Right in exchange for
(A) cash; (B) replacement Options or Stock Appreciation Rights having a lower exercise price; or
(C) other Awards; or (iii) repurchasing the underwater Options or Stock Appreciation Rights and
granting new Awards under this Plan. For purposes of this Section 5.2, an Option or Stock
Appreciation Right shall be deemed to be underwater at any time when the Fair Market Value of the
Stock is less than the exercise price of the Option or Stock Appreciation Right.
5.3.
Participants Based Outside of the United States
. In addition to the authority of
the Committee under Section 5.1 and notwithstanding any other provision of the Plan, the Committee
may, in its sole discretion, amend the terms of the Plan or Awards with respect to Participants
resident outside of the United States or employed by a non-U.S. Subsidiary in order to comply with
local legal requirements, to otherwise protect the Companys or Subsidiarys interests, or to meet
objectives of the Plan, and may, where appropriate, establish one or more sub-plans (including the
adoption of any required rules and regulations) for the purposes of qualifying for preferred tax
treatment under foreign tax laws. The Committee shall have no authority, however, to take action
pursuant to this Section 5.3: (i) to reserve shares or grant Awards in excess of the limitations
provided in this Plan; (ii) to effect any re-pricing in violation of Section 5.2; (iii) to grant an
Option or Stock Appreciation Right having an exercise price less than 100% of the Fair Market Value
of one share of Stock on the Grant Date in violation of this Plan; or (iv) for which stockholder
approval would then be required pursuant to Section 22.2.
5.4.
Non-Employee Director Awards
. Notwithstanding any other provision of this Plan,
all grants of Non-Employee Director Awards shall only be granted and administered by a Committee
comprised solely of members of the Board who are independent directors within
Appendix A-12
the meaning of the Listing Rules of the Nasdaq Stock Market (or other applicable exchange or
market on which the Stock may be traded or quoted).
6.
ELIGIBILITY
Only Employees shall be eligible for the grant of ISOs under this Plan. All Eligible
Recipients shall be eligible for the grant of Non-ISOs, Stock Appreciation Rights, Performance
Awards, Annual Performance Cash Awards, Other Cash-Based Awards, Other Stock-Based Awards, and for
Stock Grants and Stock Unit Grants under this Plan.
7.
OPTIONS
7.1.
Grant; Award Agreement
. The Committee acting in its sole discretion shall have
the right to grant Options to Eligible Recipients under this Plan to purchase shares of Stock
subject to such terms and conditions, consistent with the other provisions of this Plan, as may be
determined by the Committee in its sole discretion. Each grant of an Option to an Eligible
Recipient shall be evidenced by an Award Agreement, and each Award Agreement shall set forth
whether the Option is an ISO or a Non-ISO and shall set forth such other terms and conditions of
such grant as the Committee acting in its sole discretion deems consistent with the terms of this
Plan;
provided
,
however
, that if the Committee grants an ISO and a Non-ISO to an
Employee on the same date, the right of the Employee to exercise the ISO shall not be conditioned
on his or her failure to exercise the Non-ISO. To the extent that any ISO (or portion thereof)
granted under this Plan ceases for any reason to qualify as an incentive stock option for
purposes of Section 422 of the Code, such ISO (or portion thereof) shall continue to be outstanding
for purposes of this Plan but shall thereafter be deemed to be a Non-ISO. Options may be granted to
an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible
Recipient, the underlying shares of Stock constitute service recipient stock within the meaning
of Treas. Reg. Section 1.409A-1(b)(5)(iii).
7.2.
$100,000 Limit
. No Option shall be treated as an ISO to the extent that the
aggregate Fair Market Value of the Stock subject to the Option which would first become exercisable
in any calendar year exceeds $100,000. Any such excess shall instead automatically be treated as a
Non-ISO. The Committee shall interpret and administer the ISO limitation set forth in this
Section 7.2 in accordance with Section 422(d) of the Code, and the Committee shall treat this
Section 7.2 as in effect only for those periods for which Section 422(d) of the Code is in effect.
7.3.
Exercise Price
. The per share price to be paid by a Participant upon exercise of
an Option granted pursuant to this Section 7 shall be determined by the Committee in its sole
discretion at the time of grant;
provided
,
however
, that such price shall not be
less than one hundred percent (100%) of the Fair Market Value of one share of Stock on the Grant
Date and;
provided
,
further
, that if the Option is an ISO granted to an Employee
who is a Ten Percent Stockholder, the per share price for each share of Stock subject to such ISO
shall be no less than 110% of the Fair Market Value of a share of Stock on the date such ISO is
granted.
Appendix A-13
7.4.
Payment
.
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(a)
|
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The exercise price of an Option shall be payable in full upon
the exercise of such Option in cash (including check, bank draft or money
order);
provided
,
however
, that the Committee, in its sole
discretion, may allow such payments to be made, in whole or in part, by (i) by
tender, or attestation as to ownership, of Shares that are already owned by the
Participant that are acceptable to the Committee (Previously Acquired
Shares); (ii) by a net exercise of the Option (as further described in
paragraph (b), below); (iii) through cashless exercise procedure which is
effected by an unrelated broker through a sale of Stock in the open market;
(iv) by a combination of such methods; or (v) any other method approved or
accepted by the Committee in its sole discretion.
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(b)
|
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In the case of a net exercise of an Option, the Company shall
not require a payment of the exercise price of the Option from the Participant
but shall reduce the number of shares of Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not
exceed the aggregate exercise price for the shares exercised under this method.
Shares of Stock shall no longer be outstanding under an Option (and shall
therefore not thereafter be exercisable) following the exercise of such Option
to the extent of (i) shares used to pay the exercise price of an Option under
the net exercise, (ii) shares actually delivered to the Participant as a
result of such exercise and (iii) any shares withheld for purposes of tax
withholding.
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(c)
|
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Previously Acquired Shares tendered or covered by an
attestation as payment of the exercise price of an Option shall be valued at
their Fair Market Value on the exercise date.
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7.5.
Exercisability and Duration
. An Option shall become exercisable at such times
and in such installments and upon such terms and conditions as may be determined by the Committee
in its sole discretion at the time of grant and as set forth in the related Award Agreement,
including (i) the achievement of one or more of the Performance Goals; or that (ii) the Participant
remain in the continuous employment or service with the Company or a Subsidiary for a certain
period;
provided
,
however
, that no Option shall be exercisable after ten (10) years
from the Grant Date (five (5) years from the Grant Date in the case of an ISO that is granted to an
Employee who is a Ten Percent Stockholder on the date the Option is granted). The Award Agreement
for any Option granted pursuant to this Section 7 that becomes exercisable solely based on the
continued service of the Participant shall provide that such Option shall become exercisable on a
pro rata basis (which may be determined on a monthly, annual or other basis and may be tied to a
specific vesting date each year, such as November 15) over a vesting term of not less than three
years after the Grant Date of the Option or no more rapidly than ratably over a three-year period
after the Grant Date of the Option, except (a) in connection with the death, Disability or
Retirement of the Participant or a Change in Control; or (b) for any Option granted to a
Participant who within six months of the Grant Date is first appointed or elected as an officer of
the Company, hired as an Employee, elected as a Director or retained as a
Appendix A-14
Consultant. Notwithstanding the foregoing, if the exercise of an Option that is exercisable
in accordance with its terms is prevented by the provisions of Section 20, the Option shall remain
exercisable until thirty (30) days after the date such exercise first would no longer be prevented
by such provisions, but in any event no later than the expiration date of such Option.
7.6.
Manner of Exercise
. An Option may be exercised by a Participant in whole or in
part from time to time, subject to the conditions contained in this Plan and in the Award Agreement
evidencing such Option, by delivery in person, by facsimile or electronic transmission or through
the mail of written notice of exercise to the Company at its principal executive office in
Plymouth, Minnesota (or to the Companys designee as may be established from time to time by the
Company and communicated to Participants) and by paying in full the total exercise price for the
shares of Stock to be purchased in accordance with Section 7.4 of this Plan.
8.
STOCK APPRECIATION RIGHTS
8.1.
Grant; Award Agreement
. The Committee acting in its sole discretion shall have
the right to grant Stock Appreciation Rights to Eligible Recipients under this Plan subject to such
terms and conditions, consistent with the other provisions of this Plan, as may be determined by
the Committee in its sole discretion. Each Stock Appreciation Right grant shall be evidenced by an
Award Agreement or, if such Stock Appreciation Right is granted as part of an Option, shall be
evidenced by an Award Agreement for the related Option. Stock Appreciation Rights may be granted to
an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible
Recipient, the underlying shares of Stock constitute service recipient stock within the meaning
of Treas. Reg. Section 1.409A-1(b)(5)(iii).
8.2.
Exercise Price
. The exercise price of a Stock Appreciation Right shall be
determined by the Committee, in its sole discretion, at the time of grant;
provided
,
however
, that such price shall not be less than one hundred percent (100%) of the Fair
Market Value of one share of Stock on the Grant Date.
8.3.
Exercisability and Duration
. A Stock Appreciation Right shall become exercisable
at such times and in such installments as may be determined by the Committee in its sole discretion
at the time of grant;
provided
,
however
, that no Stock Appreciation Right shall be
exercisable after ten (10) years from its Grant Date. The Award Agreement for any Stock
Appreciation Right that becomes exercisable solely based on the continued service of the
Participant shall provide that such Stock Appreciation Right shall become exercisable on a pro rata
basis (which may be determined on a monthly, annual or other basis and may be tied to a specific
vesting date each year, such as November 15) over a vesting term of not less than three years after
the Grant Date of the Stock Appreciation Right or no more rapidly than ratably over a three-year
period after the Grant Date of the Stock Appreciation Right, except (a) in connection with the
death, Disability or Retirement of the Participant or a Change in Control; or (b) for any Stock
Appreciation Right granted to a Participant who within six months of the Grant Date is first
appointed or elected as an officer of the Company, hired as an Employee, elected as a Director or
retained as a Consultant. Notwithstanding the foregoing, if the exercise of a Stock Appreciation
Right that is exercisable in accordance with its terms is prevented by the provisions of Section
20, the Stock Appreciation Right shall remain exercisable until thirty (30) days after
Appendix A-15
the date such exercise first would no longer be prevented by such provisions, but in any event
no later than the expiration date of such Stock Appreciation Right.
8.4.
Manner of Exercise
. A Stock Appreciation Right shall be exercised by giving
notice in the same manner as for Options, as set forth in Section 7.6, subject to any other terms
and conditions consistent with the other provisions of this Plan as may be determined by the
Committee in its sole discretion.
8.5.
Settlement
. Upon the exercise of a Stock Appreciation Right, a Participant shall
be entitled to receive payment from the Company in an amount determined by multiplying:
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(a)
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The excess of the Fair Market Value of a share of Stock on the
date of exercise over the per share exercise price; by
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(b)
|
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The number of shares of Stock with respect to which the Stock
Appreciation Right is exercised.
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8.6.
Form of Payment
. Payment, if any, with respect to a Stock Appreciation Right
settled in accordance with Section 8.5 shall be made in accordance with the terms of the applicable
Award Agreement, in cash, shares of Stock or a combination thereof, as the Committee determines in
its sole discretion.
9.
STOCK GRANTS AND STOCK UNIT GRANTS
9.1.
Grant; Award Agreement
. The Committee acting in its sole discretion shall have
the right to make Stock Grants and Stock Unit Grants to Eligible Recipients, subject to such terms
and conditions, consistent with the other provisions of this Plan, as may be determined by the
Committee in its sole discretion. Each Stock Grant and each Stock Unit Grant shall be evidenced by
an Award Agreement, and each Award Agreement shall set forth the conditions, if any, under which
Stock shall be issued under the Stock Grant or cash shall be paid under the Stock Unit Grant and
the conditions under which the Participants interest in any Stock which has been issued shall
become non-forfeitable.
9.2.
Conditions
.
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(a)
|
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Conditions to Issuance of Stock
. The Committee acting
in its sole discretion may make the issuance of Stock under a Stock Grant
subject to the satisfaction of one or more conditions which the Committee deems
appropriate under the circumstances for Participants generally or for a
Participant in particular, and the related Award Agreement shall set forth each
such condition and the deadline for satisfying each such condition. Stock
subject to a Stock Grant shall be issued in the name of a Participant only
after each such condition, if any, has been timely satisfied, and any Stock
which is so issued shall be held by the Company pending the satisfaction of the
forfeiture conditions, if any, under Section 9.2(b) for the related Stock
Grant.
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Appendix A-16
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(b)
|
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Conditions on Forfeiture of Stock or Cash Payment
. The
Committee acting in its sole discretion may make any cash payment due under a
Stock Unit Grant or Stock issued in the name of a Participant under a Stock
Grant non-forfeitable subject to the satisfaction of one or more conditions,
including the achievement of one or more Performance Goals, that the Committee
acting in its sole discretion deems appropriate under the circumstances for
Participants generally or for a Participant in particular, and the related
Award Agreement shall set forth each such condition, if any, and the deadline,
if any, for satisfying each such condition. A Participants non-forfeitable
interest in the shares of Stock underlying a Stock Grant or the cash payable
under a Stock Unit Grant shall depend on the extent to which he or she timely
satisfies each such condition. If a share of Stock is issued under this
Section 9.2(b) before a Participants interest in such share of Stock is
non-forfeitable, (1) such share of Stock shall not be available for re-issuance
under Section 3 until such time, if any, as such share of Stock thereafter is
forfeited as a result of a failure to timely satisfy a forfeiture condition and
(2) the Company shall have the right to condition any such issuance on the
Participant first signing an irrevocable stock power in favor of the Company
with respect to the forfeitable shares of Stock issued to such Participant in
order for the Company to effect any forfeiture called for under the related
Award Agreement.
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(c)
|
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Minimum Period of Service
. If a Stock Grant or Stock
Unit Grant vests solely based on the continued service of the Participant, the
Award Agreement shall provide that such Stock Grant or Stock Unit Grant shall
vest on a pro rata basis (which may be determined on a monthly, annual or other
basis and may be tied to a specific vesting date each year, such as November
15) over a vesting term of not less than three years after the Grant Date of
the Stock Grant or Stock Unit Grant or no more rapidly than ratably over a
three-year period after the Grant Date of the Stock Grant or Stock Unit Grant,
except (a) in connection with the death, Disability or Retirement of the
Participant or a Change in Control; or (b) for any such Stock Grant or Stock
Unit Grant granted to a Participant who within six months of the Grant Date is
first appointed or elected as an officer of the Company, hired as an Employee,
elected as a Director or retained as a Consultant. If a Stock Grant or Stock
Unit Grant vests solely on the achievement of one or more Performance Goals,
the Award Agreement shall provide that the Performance Period for the
achievement of such Performance Goals shall be at least one year, except in
connection with the death or Disability of the Participant or a Change in
Control.
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9.3.
Dividends and Voting Rights
.
|
(a)
|
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Regular Cash Dividends
. Except as otherwise provided
in Section 15 or as otherwise set forth in an Award Agreement, if a regular
dividend is paid in cash on a share of Stock after such Stock has been issued
under a Stock
|
Appendix A-17
|
|
|
Grant but before the first date that a Participants interest in such Stock
(1) is forfeited completely or (2) becomes completely non-forfeitable, the
Company shall hold such dividend subject to the same conditions under
Section 9.2(b) as the related Stock Grant.
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(b)
|
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Stock Dividends
. Except as otherwise provided in
Section 15, if a dividend is paid on a share of Stock in Stock after such Stock
has been issued under a Stock Grant but before the first date that a
Participants interest in such Stock (1) is forfeited completely or (2) becomes
completely non-forfeitable, the Company shall hold such dividend Stock subject
to the same conditions under Section 9.2(b) as the related Stock Grant.
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(c)
|
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Other
. Except as otherwise provided in Section 15, if
a dividend (other than a dividend described in Section 9.3(a) or
Section 9.3(b)) is paid with respect to a share of Stock after such Stock has
been issued under a Stock Grant but before the first date that a Participants
interest in such Stock (1) is forfeited completely or (2) becomes completely
non-forfeitable, the Company shall hold such dividend in accordance with such
rules as the Committee shall adopt with respect to each such dividend.
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(d)
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Voting
. Except as otherwise set forth in an Award
Agreement, a Participant shall have the right to vote the Stock issued under
his or her Stock Grant during the period which comes after such Stock has been
issued under a Stock Grant but before the first date that a Participants
interest in such Stock (1) is forfeited completely or (2) becomes completely
non-forfeitable.
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9.4.
Satisfaction of Forfeiture Conditions
. A share of Stock shall cease to be
subject to a Stock Grant at such time as a Participants interest in such Stock becomes
non-forfeitable under this Plan, and the certificate or other evidence of ownership representing
such share shall be transferred to the Participant as soon as practicable thereafter.
9.5.
Section 83(b) Election
. If a Participant makes an election pursuant to Section
83(b) of the Code with respect to a Stock Grant, the Participant must file, within thirty (30) days
following the Grant Date of the Stock Grant, a copy of such election with the Company and with the
Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The
Committee may provide in the Award Agreement that the Stock Grant is conditioned upon the
Participants making or refraining from making an election with respect to the award under Section
83(b) of the Code.
10.
PERFORMANCE AWARDS
10.1.
Grant; Award Agreement
. An Eligible Recipient may be granted one or more
Performance Awards under this Plan, and such awards shall be subject to such terms and conditions,
consistent with the other provisions of this Plan, as may be determined by the Committee in its
sole discretion, including the achievement of one or more Performance Goals.
Appendix A-18
Each Performance Award shall be evidenced by an Award Agreement that shall specify the amount
of cash, shares of Stock or combination of both to be received by the Participant upon payout of
the Performance Award, any Performance Goals upon which the Performance Award is subject, any
Performance Period during which any Performance Goals must be achieved and such other provisions as
the Committee shall determine which are not inconsistent with the terms of this Plan.
10.2.
Vesting
. The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of this Plan, to the vesting of such Performance Awards as it
deems appropriate, in its sole discretion, including the achievement of one or more of the
Performance Goals. If a Performance Award vests solely on the achievement of one or more
Performance Goals, the Award Agreement shall provide that the Performance Period for the
achievement of such Performance Goals shall be at least one year, except in connection with the
death or Disability of the Participant or a Change in Control.
10.3.
Form and Timing of Performance Award Payment
. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of Performance Awards shall be
entitled to receive payment on the value and number of Performance Awards earned by the Participant
over the Performance Period, to be determined as a function of the extent to which the
corresponding Performance Goals have been achieved. Payment of earned Performance Awards shall be
as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of
this Plan, the Committee, in its sole discretion, may pay earned Performance Awards in the form of
cash or in shares of Stock (or in a combination thereof) equal to the value of the earned
Performance Awards at the close of the applicable Performance Period, or as soon as practicable
after the end of the Performance Period, except to the extent that a Participant has properly
elected to defer payment that may be attributable to a Performance Award under a Company deferred
compensation plan or arrangement. The determination of the Committee with respect to the form of
payment of Performance Awards shall be set forth in the Award Agreement pertaining to the grant of
the award. Any shares of Stock issued in payment of earned Performance Awards may be granted
subject to any restrictions deemed appropriate by the Committee, in it sole discretion, including
that the Participant remain in the continuous employment or service with the Company or a
Subsidiary for a certain period.
11.
ANNUAL PERFORMANCE CASH AWARDS
11.1.
Grant
. Subject to such terms and conditions, consistent with the other
provisions of this Plan, as may be determined by the Committee in its sole discretion, the
Committee, at any time and from time to time, may grant to Participants Awards denominated in cash
in such amounts and upon such terms as the Committee shall determine, based on the achievement of
specified Performance Goals for annual periods or other time periods as determined by the Committee
(the
Annual Performance Cash Awards
).
11.2.
Target Payout
. The target amount that may be paid with respect to an Annual
Performance Cash Award (the
Target Payout
) shall be determined by the Committee pursuant
to this Section 11.2 and shall be based on a percentage of a Participants actual annual base
salary at the time of grant (
Participation Factor
), within the range established by the
Committee for each Participant and subject to adjustment as provided in the second to last
Appendix A-19
sentence of this paragraph. The Participation Factors, which are intended to reflect a
Participants level of responsibility, may be up to 150% for any Participant. The Chief Executive
Officer may approve modifications to the foregoing Participation Factors for any Participant who is
not a Covered Employee, if such modification is based on level of responsibility. The Committee
may establish curves, matrices or other measurements for prorating the amount of payments for
achievement of Performance Goals at less or greater than the Target Payout.
11.3.
Maximum Payout
. The Committee also may establish a maximum potential payout
amount (the
Maximum Payout
) with respect to an Annual Performance Cash Award of up to
300% of the Target Payout in the event Performance Goals are exceeded by an amount established by
the Committee at the time Performance Goals are established. The Committee may establish curves,
matrices or other measurements for prorating the amount of payments for achievement of Performance
Goals at greater than the Target Payout but less than the Maximum Payout.
11.4.
Individual Performance Goals
. At the time an Annual Performance Cash Award is
made, the Committee may increase the Target Payout and the Maximum Payout (as either may be
prorated in accordance with Sections 11.2 and 11.3) for selected Participants (
Individual
Performance Participants
) to reflect individual performance goals (
Individual Performance
Goals
) established at that time by the Committee. The Committee shall have the discretion to
reduce by an amount up to 100% the amount that would otherwise be paid under the payout formula to
an Individual Performance Participant based on the Committees evaluation of the individuals
achievement of the Individual Performance Goals.
11.5.
Payment
. Payment of any earned Annual Performance Cash Awards shall be made as
soon as possible after the Committee has determined the extent to which the applicable Performance
Goals and Individual Performance Goals have been achieved and not later than the last day of the
short term deferral period determined in accordance with Treas. Reg. Sec. 1.409A-1(b)(4), except to
the extent that a Participant has properly elected to defer payment that may be attributable to an
Annual Performance Cash Award under a Company deferred compensation plan or arrangement.
12.
NON-EMPLOYEE DIRECTOR AWARDS
12.1.
Automatic and Discretionary Grants to Non-Employee Directors
. The Committee at
any time and from time to time may approve resolutions providing for the automatic grant to
Non-Employee Directors of Awards granted under this Plan and may grant to Non-Employee Directors
such discretionary Non-Employee Director Awards on such terms and conditions, consistent with the
other provisions of this Plan, as may be determined by the Committee in its sole discretion, and
set forth in an applicable Award Agreement. Notwithstanding any other provision in this Plan to
the contrary, any Non-Employee Director Awards granted under this Plan shall not be subject to the
minimum vesting requirements set forth in Sections 7.5, 8.3, 9.2(c) and 10.2.
12.2.
Shares in Lieu of Retainers and Other Director Fees
. If the Committee so
permits, a Non-Employee Director may elect to receive shares of Common Stock in lieu of Director
Fees
Appendix A-20
by giving written notice of such election to the Company in a form approved by the Committee
within a time period specified by the Committee. An election to receive payment of Director Fees
in the form of shares of Common Stock may be revoked only by a subsequent election to receive
payment of Director Fees in cash or to defer such Director Fees
pursuant to Section 12.3. The
number of shares of Common Stock to be paid to a Non-Employee Director pursuant to this Section
12.2 shall be determined by dividing the amount of Director Fees payable by the Fair Market Value
of the Common Stock on the date such Director Fees would have been paid in cash but for the
Participants election to receive payment of such Director Fees in the form of Common Stock. The
amount of any fractional share shall be paid in cash.
12.3.
Deferral of Award Payment
. If the Committee so permits, a Non-Employee Director
may elect to defer the grant or payment of a Non-Employee Director Award pursuant to such terms and
conditions as the Committee may prescribe.
12.4.
Composition of Committee
. For purposes of this Section 12, all references to
Committee in this Section 12 shall mean a Committee that consists solely of directors who are
independent directors as defined in the Listing Rules of the Nasdaq Stock Market (or other
applicable exchange or market on which the Stock may be traded or quoted).
13.
OTHER CASH-BASED AWARDS AND OTHER STOCK-BASED AWARDS
13.1.
Other Cash-Based Awards
. Subject to such terms and conditions, consistent with
the other provisions of this Plan, as may be determined by the Committee in its sole discretion,
the Committee, at any time and from time to time, may grant Other Cash-Based Awards to Participants
in such amounts and upon such terms as the Committee shall determine.
13.2.
Other Stock-Based Awards
. Subject to such terms and conditions, consistent with
the other provisions of this Plan, as may be determined by the Committee in its sole discretion,
the Committee may grant Other Stock-Based Awards not otherwise described by the terms of this Plan
(including the grant or offer for sale of unrestricted shares of Stock) in such amounts and subject
to such terms and conditions as the Committee shall determine. Such Other Stock-Based Awards may
involve the transfer of actual shares of Stock to Participants or payment in cash or otherwise of
amounts based on the value of shares of Stock, and may include Stock-Based Awards designed to
comply with or take advantage of the applicable local laws of jurisdictions other than the United
States.
13.3.
Value of Other Cash-Based Awards and Other Stock-Based Awards
. Each Other
Cash-Based Award shall specify a payment amount or payment range as determined by the Committee in
its sole discretion. Each Other Stock-Based Award shall be expressed in terms of shares of Stock
or units based on shares of Stock, as determined by the Committee in its sole discretion. The
Committee may establish Performance Goals in its sole discretion for any Other Cash-Based Award or
any Other Stock-Based Award. If the Committee exercises its discretion to establish Performance
Goals for any such Awards, the number or value of Other Cash-Based Awards or Other Stock-Based
Awards that shall be paid out to the Participant shall depend on the extent to which the
Performance Goals are met.
Appendix A-21
13.4.
Payment of Other Cash-Based Awards and Other Stock-Based Awards
. Payment, if
any, with respect to an Other Cash-Based Award or an Other Stock-Based Award shall be made in
accordance with the terms of the Award, in cash for any Other Cash-Based Award and in cash or
shares of Stock for any Other Stock-Based Award, as the Committee determines in its sole
discretion, except to the extent that a Participant has properly elected to defer payment that may
be attributable to an Other Cash-Based Award or Other Stock-Based Award under a Company deferred
compensation plan or arrangement.
14.
PERFORMANCE MEASURES
14.1.
Performance Measures
. The Performance Goals upon which the payment or vesting
of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation
shall be limited to one or more specified objective Performance Measures that are based on the
following Performance Measures: Sales and Revenue Measures: Gross Revenue, Sales Allowances, Net
Revenue, Invoiced Revenue, Collected Revenue, Revenues from New Products, Bad Debts; Expense
Measures: Direct Material Costs, Direct Labor Costs, Indirect Labor Costs, Direct Manufacturing
Costs, Indirect Manufacturing Costs, Cost of Goods Sold, Sales, General and Administrative
Expenses, Operating Expenses, Non-cash Expenses, Tax Expense, Non-operating Expenses, Total
Expenses; Profitability and Productivity Measures: Gross Margin, Net Operating Income, EBITDA
(earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest
and taxes), Net Operating Income After Taxes (NOPAT), Net Income, Net Cash Flow, Net Cash Flow from
Operations; Asset Utilization and Effectiveness Measures: Cash, Excess Cash, Accounts Receivable,
Inventory (WIP or Finished Goods), Inventory Days on Hand, Days Sales Outstanding, Current Assets,
Working Capital, Total Capital, Fixed Assets, Total Assets, Standard Hours, Plant Utilization,
Purchase Price Variance, Manufacturing Overhead Variance; Debt and Equity Measures: Accounts
Payable, Current Accrued Liabilities, Total Current Liabilities, Total Debt, Debt Principal
Payments, Net Current Borrowings, Total Long-term Debt, Credit Rating, Retained Earnings, Total
Preferred Equity, Total Common Equity, Total Equity; Stockholder and Return Measures: Earnings per
Share (diluted and fully diluted), Stock Price, Dividends, Shares Repurchased, Total Return to
Stockholders, Debt Coverage Ratios, Return on Assets, Return on Equity, Return on Invested Capital,
Economic Profit (for example, economic value added); Customer and Market Measures: Dealer/Channel
Size/Scope, Dealer/Channel Performance/Effectiveness, Order Fill Rate, Customer Satisfaction,
Customer Service/Care, Brand Awareness and Perception, Market Share, Warranty Rates, Product
Quality, Channel Inventory; Organizational and Employee Measures: Headcount, Employee Performance,
Employee Productivity, Standard Hours, Employee Engagement/Satisfaction, Employee Turnover,
Employee Diversity.
Any of the Performance Measures can be used in an algebraic formula (e.g., averaged over a
period, combined into a ratio, compared to a budget or standard, compared to previous periods or
other formulaic combinations) based on the Performance Measure to create a Performance Measure.
Any Performance Measure(s) may be used to measure the performance of the Company or Subsidiary as a
whole or any division or business unit of the Company, product or product group, region or
territory, or Subsidiary, or any combination thereof, as the Committee may deem appropriate. Any
Performance Measure(s) can be compared to the performance of a group of comparator companies, or
published or special index that the Committee, in its sole discretion, deems appropriate, or the
Company may select any
Appendix A-22
Performance Measure(s) above as compared to various stock market indices. The Committee also
has the authority to provide for accelerated vesting of any Award based on the achievement of
Performance Goals pursuant to any Performance Measure(s) specified in this Section 14.1.
14.2.
Establishment of Performance Goals
. Any Award to a Covered Employee that is
intended to qualify as Performance-Based Compensation shall be granted, and Performance Goals for
such an Award shall be established, by the Committee in writing not later than ninety (90) days
after the commencement of the Performance Period to which the Performance Goals relate, or such
other period required under Section 162(m) of the Code; provided that the outcome is substantially
uncertain at the time the Committee establishes the Performance Goal; and provided further that in
no event shall a Performance Goal be considered to be pre-established if it is established after
twenty-five percent (25%) of the Performance Period (as scheduled in good faith at the time the
Performance Goal is established) has elapsed.
14.3.
Certification of Payment
. Before any payment is made in connection with any
Award to a Covered Employee that is intended to qualify as Performance-Based Compensation, the
Committee shall certify in writing, as reflected in the minutes, that the Performance Goals
established with respect to such Award have been achieved.
14.4.
Evaluation of Performance
. The Committee may provide in any such Award
Agreement including Performance Goals that any evaluation of performance may include or exclude any
of the following events that occurs during a Performance Period: (a) items related to a change in
accounting principles; (b) items relating to financing activities; (c) expenses for restructuring
or productivity initiatives; (d) other non-operating items; (e) items related to acquisitions; (f)
items attributable to the business operations of any entity acquired by the Company during the
Performance Period; (g) items related to the disposal of a business or segment of a business; (h)
items related to discontinued operations that do not qualify as a segment of a business under
applicable accounting standards; (i) items attributable to any stock dividend, stock split,
combination or exchange of stock occurring during the Performance Period; (j) any other items of
significant income or expense which are determined to be appropriate adjustments; (k) items
relating to unusual or extraordinary corporate transactions, events or developments; (l) items
related to amortization of acquired intangible assets; (m) items that are outside the scope of the
Companys core, on-going business activities; (n) items related to acquired in-process research and
development; (o) items relating to changes in tax laws; (p) items relating to major licensing or
partnership arrangements; (q) items relating to asset impairment charges; (r) items relating to
gains or losses for litigation, arbitration and contractual settlements; (s) foreign currency
exchange rate fluctuations; (t) foreign currency exchange rate gains and losses; or (u) items
relating to any other unusual or nonrecurring events, or changes in applicable laws, accounting
principles or business conditions. To the extent such inclusions or exclusions affect Awards to
Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m)
of the Code for deductibility.
14.5.
Adjustment of Performance Goals, Performance Periods or other Vesting Criteria
.
Subject to Section 14.6, the Committee may amend or modify the vesting criteria (including any
Performance Goals, Performance Measures or Performance Periods) of any outstanding Awards based in
whole or in part on the financial performance of the Company (or any Subsidiary or division,
business unit or other sub-unit thereof) in recognition of unusual or nonrecurring events
Appendix A-23
(including the events described in Sections 3.6 or 14.4 hereof) affecting the Company or the
financial statements of the Company or of changes in applicable laws, regulations or accounting
principles, whenever the Committee determines that such adjustments are appropriate in order to
prevent unintended dilution or enlargement of the benefits or potential benefits intended to be
made available under this Plan. The determination of the Committee as to the foregoing
adjustments, if any, shall be final, conclusive and binding on Participants under this Plan.
14.6.
Adjustment of Performance-Based Compensation
. Awards that are intended to
qualify as Performance-Based Compensation may not be adjusted upward. The Committee shall retain
the discretion to adjust such Awards downward, either on a formula or discretionary basis or any
combination, as the Committee determines.
14.7.
Committee Discretion
. In the event that applicable tax or securities laws
change to permit Committee discretion to alter the governing Performance Measures without obtaining
stockholder approval of such changes, the Committee shall have sole discretion to make such changes
without obtaining stockholder approval. In addition, in the event that the Committee determines
that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the
Committee may make such grants without satisfying the requirements of Section 162(m) of the Code
and base vesting on Performance Measures other than those set forth in Section 14.1.
15.
DIVIDEND EQUIVALENTS
Any Participant selected by the Committee may be granted dividend equivalents based on the
dividends declared on shares of Stock that are subject to any Award, to be credited as of dividend
payment dates, during the period between the date the Award is granted and the date the Award is
exercised, vests or expires, as determined by the Committee. Such dividend equivalents shall be
converted to cash or additional shares of Stock by such formula and at such time and subject to
such limitations as may be determined by the Committee. Notwithstanding the foregoing or any other
provision of this Plan to the contrary, the Committee shall not grant dividend equivalents based on
the dividends declared on shares of Stock that are subject to an Option or Stock Appreciation Right
and further, no dividend or dividend equivalents shall be paid out with respect to any unvested
Awards, the vesting of which is based on the achievement of Performance Goals.
16.
EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE
16.1.
Termination Due to Death or Disability
. Unless otherwise expressly provided by
the Committee in its sole discretion in an Award Agreement, and subject to Sections 16.3 and 16.5,
in the event a Participants employment or other service with the Company and all Subsidiaries is
terminated by reason of death or Disability:
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(a)
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All outstanding Options and Stock Appreciation Rights held by
the Participant as of the effective date of such termination shall, to the
extent exercisable as of such termination, remain exercisable for a period of
one year after such termination (but in no event after the expiration date of
any such Option or Stock Appreciation Right) and Options and Stock
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Appendix A-24
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Appreciation Rights not exercisable as of such termination shall be
terminated and forfeited;
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(b)
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All outstanding Stock Grants and Stock Unit Grants held by the
Participant as of the effective date of such termination that have not vested
as of the date of such termination shall be terminated and forfeited;
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(c)
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All outstanding but unpaid Performance Awards, Other Cash-Based
Awards and Other Stock-Based Awards held by the Participant as of the effective
date of such termination shall be terminated and forfeited;
provided
,
however
, that with respect to any such Awards the vesting of which is
based on the achievement of Performance Goals, if a Participants employment or
other service with the Company or any Subsidiary, as the case may be, is
terminated by reason of death or Disability prior to the end of the Performance
Period of such Award, but after the conclusion of a portion of the Performance
Period (but in no event less than one year), the Committee may, in its sole
discretion, cause shares of Stock to be delivered or payment made with respect
to the Participants Award, but only if otherwise earned for the entire
Performance Period and only with respect to the portion of the applicable
Performance Period completed at the date of such event, with proration based on
full fiscal years only and no shares to be delivered for partial fiscal years.
The Committee shall consider the provisions of Section 16.5 and shall have the
discretion to consider any other fact or circumstance in making its decision as
to whether to deliver such shares of Stock or other payment, including whether
the Participant again becomes employed; and
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(d)
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If the effective date of such termination is before the end of
the Performance Period to which an Annual Performance Cash Award relates, then
any such Annual Performance Cash Award held by a Participant shall be
terminated and forfeited; if the effective date of such termination is on or
after the end of the Performance Period to which an Annual Performance Cash
Award relates, then any such Annual Performance Cash Award held by a
Participant shall be paid to the Participant in accordance with the payment
terms of such Award.
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16.2.
Termination for Reasons Other than Death or Disability
. Unless otherwise
expressly provided by the Committee in its sole discretion in an Award Agreement, and subject to
Sections 16.3 and 16.5 of this Plan, in the event a Participants employment or other service with
the Company and all Subsidiaries is terminated for any reason other than death or Disability:
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(a)
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All outstanding Options and Stock Appreciation Rights held by
the Participant as of the effective date of such termination shall, to the
extent exercisable as of such termination, remain exercisable for a period of
three months after such termination (but in no event after the expiration date
of any such Option or Stock Appreciation Right) and Options and Stock
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Appendix A-25
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Appreciation Rights not exercisable as of such termination shall be
terminated and forfeited.
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(b)
|
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All Stock Grants and Stock Unit Grants held by the Participant
as of the effective date of such termination that have not vested as of such
termination shall be terminated and forfeited;
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(c)
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All outstanding unpaid Performance Awards, Other Cash-Based
Awards and Other Stock-Based Awards held by the Participant as of the effective
date of such termination shall be terminated and forfeited; and
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(d)
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If the effective date of such termination is before the end of
the Performance Period to which an Annual Performance Cash Award relates, then
any such Annual Performance Cash Award held by a Participant shall be
terminated and forfeited; if the effective date of such termination is on or
after the end of the Performance Period to which an Annual Performance Cash
Award relates, then any such Annual Performance Cash Award held by a
Participant shall be paid to the Participant in accordance with the payment
terms of such Award.
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16.3.
Modification of Rights upon Termination
. Notwithstanding the other provisions
of this Section 16, upon a Participants termination of employment or other service with the
Company or any Subsidiary, as the case may be, the Committee may, in its sole discretion (which may
be exercised at any time on or after the Grant Date, including following such termination) cause
Options or Stock Appreciation Rights (or any part thereof) held by such Participant as of the
effective date of such termination to terminate, become or continue to become exercisable or remain
exercisable following such termination of employment or service, and Stock Grants, Stock Unit
Grants, Performance Awards, Annual Performance Cash Awards, Non-Employee Director Awards, Other
Cash-Based Awards and Other Stock-Based Awards held by such Participant as of the effective date of
such termination to terminate, vest or become free of restrictions and conditions to payment, as
the case may be, following such termination of employment or service, in each case in the manner
determined by the Committee;
provided
,
however
, that (a) no Option or Stock
Appreciation Right may remain exercisable beyond its expiration date; (b) the Committee may not
take any action not permitted pursuant to Section 14.3 or Section 22.5; (c) the Committee taking
any such action relating to Non-Employee Director Awards shall consist solely of independent
directors as defined in the Listing Rules of the NASDAQ Stock Market (or other applicable exchange
or market on which the Stock may be traded or quoted); and (d) any such action by the Committee
adversely affecting any outstanding Award shall not be effective without the consent of the
affected Participant (subject to the right of the Committee to take whatever action it deems
appropriate under Section 3.6, 16.5, 17 or 22).
16.4.
Determination of Termination of Employment or Other Service
. Unless the
Committee otherwise determines in its sole discretion, a Participants employment or other service
shall, for purposes of this Plan, be deemed to have terminated on the date recorded on the
personnel or other records of the Company or the Subsidiary for which the Participant provides
employment or other service, as determined by the Committee in its sole discretion based upon such
records. Notwithstanding the foregoing, if payment of an Award that is subject to Section
Appendix A-26
409A of the Code is triggered by a termination of a Participants employment or other service,
such termination shall also constitute a separation from service within the meaning of Section
409A of the Code, and any change in employment status that constitutes a separation from service
under Section 409A of the Code shall be treated as a termination of employment or service, as the
case may be.
16.5.
Additional Forfeiture Events
.
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(a)
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Effect of Actions Constituting Cause or Adverse Action
.
Notwithstanding anything in this Plan to the contrary and in addition to the
other rights of the Committee under this Section 16.5, if a Participant is
determined by the Committee, acting in its sole discretion, to have taken any
action that would constitute Cause or an Adverse Action during or within one
year after the termination of employment or other service with the Company or a
Subsidiary, irrespective of whether such action or the Committees
determination occurs before or after termination of such Participants
employment or other service with the Company or any Subsidiary and irrespective
of whether or not the Participant was terminated as a result of such Cause or
Adverse Action, (i) all rights of the Participant under this Plan and any Award
Agreements evidencing an Award then held by the Participant shall terminate and
be forfeited without notice of any kind, and (ii) the Committee in its sole
discretion shall have the authority to rescind the exercise, vesting or
issuance of, or payment in respect of, any Awards of the Participant that were
exercised, vested or issued, or as to which such payment was made, during such
period and to require the Participant to pay to the Company, within ten (10)
days of receipt from the Company of notice of such rescission, any amount
received or the amount of any gain realized as a result of such rescinded
exercise, vesting, issuance or payment (including any dividends paid or other
distributions made with respect to any shares subject to any Award). The
Company may defer the exercise of any Option or Stock Appreciation Right for a
period of up to six (6) months after receipt of the Participants written
notice of exercise or the issuance of share certificates upon the vesting of
any Award for a period of up to six (6) months after the date of such vesting
in order for the Committee to make any determination as to the existence of
Cause or an Adverse Action. The Company shall be entitled to withhold and
deduct from future wages of the Participant (or from other amounts that may be
due and owing to the Participant from the Company or a Subsidiary) or make
other arrangements for the collection of all amounts necessary to satisfy such
payment obligations. Unless otherwise provided by the Committee in an
applicable Award Agreement, this Section 16.5(a) shall not apply to any
Participant following a Change in Control.
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(b)
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Forfeiture of Awards under Sarbanes-Oxley Act
. If the
Company is required to prepare an accounting restatement due to the material
noncompliance of the Company, as a result of misconduct, with any financial
reporting requirement under the securities laws, then any
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Appendix A-27
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Participant who is one of the individuals subject to automatic forfeiture
under Section 304 of the Sarbanes-Oxley Act of 2002 shall reimburse the
Company for the amount of any Award received by such individual under this
Plan during the 12-month period following the first public issuance or
filing with the Securities and Exchange Commission, as the case may be, of
the financial document embodying such financial reporting requirement.
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17. CHANGE IN CONTROL
17.1.
Acceleration of Vesting
. Without limiting the authority of the Committee under
Sections 3.6 and 5.1 of this Plan, if a Change in Control of the Company occurs, then, unless
otherwise provided by the Committee in its sole discretion either in the Award Agreement evidencing
an Award at the time of grant or at any time after the grant of an Award, (a) all outstanding
Options and Stock Appreciation Rights shall become immediately exercisable in full and shall remain
exercisable for the remainder of their terms, regardless of whether the Participant to whom such
Options or Stock Appreciation Rights have been granted remains in employment or service with the
Company or any Subsidiary; (b) all restrictions and vesting requirements applicable to any Award
based solely on the continued service of the Participant shall terminate; and (c) all Awards the
vesting or payment of which are based on Performance Goals shall vest as though such Performance
Goals were fully achieved at target and shall become immediately payable;
provided
,
however
, that no Award that provides for a deferral of compensation within the meaning of
Section 409A of the Code shall be cashed out upon the occurrence of a Change in Control unless the
event or circumstances constituting the Change in Control also constitute a change in the
ownership of the Company, a change in the effective control of the Company or a change in the
ownership of a substantial portion of the assets of the Company, in each case as determined under
Section 409A of the Code. The treatment of any other Awards in the event of a Change in Control
shall be as determined by the Committee in connection with the grant thereof, as reflected in the
applicable Award Agreement.
17.2.
Alternative Treatment of Stock-Based Awards
. In connection with a Change in
Control, the Committee in its sole discretion, either in an Award Agreement at the time of grant of
a Stock-Based Award or at any time after the grant of such an Award, may determine that any or all
outstanding Stock-Based Awards granted under this Plan, whether or not exercisable or vested, as
the case may be, shall be canceled and terminated and that in connection with such cancellation and
termination the holder of such Stock-Based Award shall receive for each share of Stock subject to
such Award a cash payment (or the delivery of shares of stock, other securities or a combination of
cash, stock and securities with a fair market value (as determined by the Committee in good faith)
equivalent to such cash payment) equal to the difference, if any, between the consideration
received by stockholders of the Company in respect of a share of Stock in connection with such
Change in Control and the purchase price per share, if any, under the Award, multiplied by the
number of shares of Stock subject to such Award (or in which such Award is denominated);
provided
,
however
, that if such product is zero ($0) or less or to the extent that
the Award is not then exercisable, the Award may be canceled and terminated without payment
therefor. If any portion of the consideration pursuant to a Change in Control may be received by
holders of shares of Stock on a contingent or delayed basis, the Committee may, in its sole
discretion, determine the fair market value per share of such consideration as of the time
Appendix A-28
of the Change in Control on the basis of the Committees good faith estimate of the present
value of the probable future payment of such consideration. Notwithstanding the foregoing, any
shares of Stock issued pursuant to a Stock-Based Award that immediately prior to the effectiveness
of the Change in Control are subject to no further restrictions pursuant to this Plan or an Award
Agreement (other than pursuant to the securities laws) shall be deemed to be outstanding shares of
Stock and receive the same consideration as other outstanding shares of Stock in connection with
the Change in Control.
17.3.
Limitation on Change in Control Payments
. Notwithstanding anything in Section
17.1 or 17.2 to the contrary, if, with respect to a Participant, the acceleration of the vesting of
an Award as provided in Section 17.1 or the payment of cash in exchange for all or part of a
Stock-Based Award as provided in Section 17.2 (which acceleration or payment could be deemed a
payment within the meaning of Section 280G(b)(2) of the Code), together with any other payments
that such Participant has the right to receive from the Company or any corporation that is a member
of an affiliated group (as defined in Section 1504(a) of the Code without regard to Section
1504(b) of the Code) of which the Company is a member, would constitute a parachute payment (as
defined in Section 280G(b)(2) of the Code), then the payments to such Participant pursuant to
Section 17.1 or 17.2 shall be reduced (or acceleration of vesting eliminated) to the largest amount
as shall result in no portion of such payments being subject to the excise tax imposed by Section
4999 of the Code;
provided
,
however
, that such reduction shall be made only if the
aggregate amount of the payments after such reduction exceeds the difference between (a) the amount
of such payments absent such reduction minus (b) the aggregate amount of the excise tax imposed
under Section 4999 of the Code attributable to any such excess parachute payments; and provided
further that such payments shall be reduced (or acceleration of vesting eliminated) in the
following order: (i) options with an exercise price above fair market value that have a positive
value for purposes of Section 280G of the Code, (ii) pro rata among Awards that constitute deferred
compensation under Section 409A of the Code, and (iii) finally, among the Awards that are not
subject to Section 409A of the Code. Notwithstanding the foregoing sentence, if a Participant is
subject to a separate agreement with the Company or a Subsidiary that expressly addresses the
potential application of Section 280G or 4999 of the Code, then this Section 17.3 shall not apply
and any payments to a Participant pursuant to Section 17.1 or 17.2 shall be treated as payments
arising under such separate agreement.
18.
PAYMENT OF WITHHOLDING TAXES
18.1.
General Rules
. The Company is entitled to (a) withhold and deduct from future
wages of the Participant (or from other amounts that may be due and owing to the Participant from
the Company or a Subsidiary), or make other arrangements for the collection of, all amounts the
Company reasonably determines are required to satisfy any and all federal, foreign, state and
local withholding and employment related tax requirements attributable to an Award, including the
grant, exercise, vesting or settlement of, or payment of dividends with respect to, an Award or a
disqualifying disposition of stock received upon exercise of an ISO, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking any action, including
issuing any shares of Stock, with respect to an Award. When withholding for taxes is effected
under this Plan, it shall be withheld only up to the minimum required tax
Appendix A-29
withholding rates or such other rate that will not trigger a negative accounting impact on the
Company.
18.2.
Special Rules
. The Committee may, in its sole discretion and upon terms and
conditions established by the Committee, permit or require a Participant to satisfy, in whole or in
part, any withholding or employment related tax obligation described in Section 18.1 by withholding
shares of Common Stock underlying an Award, electing to tender, or by attestation as to ownership
of, other shares of Common Stock held by a Participant, by delivery of a Broker Exercise Notice or
a combination of such methods. For purposes of satisfying a Participants withholding or
employment-related tax obligation, shares of Common Stock withheld by the Company or tendered or
covered by an attestation shall be valued at their Fair Market Value.
19.
NON-TRANSFERABILITY
19.1.
General Rule
. Except as provided in Section 19.2, no Award shall be
transferable by a Participant other than by will or by the laws of descent and distribution, and
any Option or Stock Appreciation Right shall be exercisable during a Participants lifetime only by
the Participant. The person or persons to whom an Award is transferred by will or by the laws of
descent and distribution or pursuant to Section 19.2, thereafter shall be treated as the
Participant.
19.2.
Transfers to Family Members
. A Non-ISO may be transferred by a Participant to a
family member (as defined for purposes of Form S-8 under the 1933 Act) of such Participant or to
a trust exclusively for the benefit of one or more of such family members of such Participant;
provided
,
however
, that such transfer is made as a gift without consideration, and
such transfer complies with applicable securities laws.
20.
SECURITIES REGISTRATION
As a condition to the receipt of shares of Stock under this Plan, a Participant shall, if so
requested by the Company, agree to hold such shares of Stock for investment and not with a view of
resale or distribution to the public and, if so requested by the Company, shall deliver to the
Company a written statement satisfactory to the Company to that effect. Furthermore, if so
requested by the Company, a Participant shall make a written representation to the Company that he
or she shall not sell or offer for sale any of such Stock unless a registration statement shall be
in effect with respect to such Stock under the 1933 Act and any applicable state securities law or
he or she shall have furnished to the Company an opinion in form and substance satisfactory to the
Company of legal counsel satisfactory to the Company that such registration is not required.
Certificates or other evidence of ownership representing the Stock transferred upon the exercise of
an Option or Stock Appreciation Right or upon the lapse of the forfeiture conditions, if any, on
any Stock Grant may at the discretion of the Company bear a legend to the effect that such Stock
has not been registered under the 1933 Act or any applicable state securities law and that such
Stock cannot be sold or offered for sale in the absence of an effective registration statement as
to such Stock under the 1933 Act and any applicable state securities law or an opinion in form and
substance satisfactory to the Company of legal counsel satisfactory to the Company that such
registration is not required.
Appendix A-30
21.
LIFE OF PLAN
Subject to earlier termination as provided in Section 22 below, this Plan shall terminate at
midnight on May 14, 2017. No Award shall be granted after termination of this Plan, but Awards
outstanding upon termination of this Plan shall remain outstanding in accordance with their
applicable terms and conditions and the terms and conditions of this Plan.
22.
AMENDMENT, MODIFICATION OR TERMINATION
22.1.
Generally
. Subject to other subsections of this Section 22 and Sections 5.2 and
22.3, the Board at any time may suspend or terminate this Plan (or any portion thereof) or
terminate any outstanding Award Agreement and the Committee, at any time and from time to time, may
amend this Plan or amend or modify the terms of an outstanding Award. The Committees power and
authority to amend or modify the terms of an outstanding Award includes the authority to modify the
number of shares of Stock or other terms and conditions of an Award, extend the term of an Award,
accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an
Award, accept the surrender of any outstanding Award or, to the extent not previously exercised or
vested, authorize the grant of new Awards in substitution for surrendered Awards;
provided
,
however
, that the amended or modified terms are permitted by this Plan as then in effect
and that any Participant adversely affected by such amended or modified terms has consented to such
amendment or modification.
22.2.
Stockholder Approval
. No amendments to this Plan shall be effective without
approval of the Companys stockholders if: (a) stockholder approval of the amendment is then
required pursuant to Section 422 of the Code, the rules of the primary stock exchange or stock
market on which the Stock is then traded, applicable U.S. state corporate laws or regulations,
applicable U.S. federal laws or regulations, and the applicable laws of any foreign country or
jurisdiction where Awards are, or shall be, granted under this Plan; or (b) such amendment would:
(i) modify Section 5.2; (ii) materially increase benefits accruing to Participants; (iii) increase
the aggregate number of shares of Stock issued or issuable under this Plan; (iv) increase any
limitation set forth in this Plan on the number of shares of Stock which may be issued or the
aggregate value of Awards which may be made, in respect of any type of Award to any single
Participant during any specified period; (v) modify the eligibility requirements for Participants
in this Plan; (vi) reduce the minimum exercise price as set forth in Sections 7.3 and 8.2; or (vii)
to reduce the minimum vesting period or Performance Period requirements applicable to Awards under
this Plan to Participants who are Employees.
22.3.
Awards Previously Granted
. Notwithstanding any other provision of this Plan to
the contrary, no termination, suspension or amendment of this Plan may adversely affect any
outstanding Award without the consent of the affected Participant;
provided
,
however
, that this sentence shall not impair the right of the Committee to take whatever
action it deems appropriate under Sections 3.6, 14.5, 16.5, 17 or 22.4 of this Plan.
22.4.
Amendments to Conform to Law
. Notwithstanding any other provision of this Plan
to the contrary, the Committee may amend this Plan or an Award Agreement, to take effect
retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming this
Plan or an Award Agreement to any present or future law relating to plans of this or similar
Appendix A-31
nature, and to the administrative regulations and rulings promulgated thereunder. By
accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this
Section 22.4 to any Award granted under this Plan without further consideration or action.
22.5.
Waiver, Lapse or Acceleration of Exercisability or Vesting
. Notwithstanding any
other provision of this Plan, the Committee shall not have the authority to waive, lapse or
accelerate the exercisability or vesting of any Award held by any Participant who is an Employee,
except (a) in connection with the death, Disability or Retirement of the Participant or a Change in
Control or (b) to the extent that the number of shares of Stock covered by such waived, lapsed or
accelerated Award (together with the number of shares of Stock covered by all other Awards, the
exercisability or vesting of which previously have been waived, lapsed or accelerated by the
Committee under this Plan) do not exceed ten percent (10%) of the total number of shares of Stock
authorized for Awards under this Plan.
22.6.
Non-Employee Director Awards
. Notwithstanding any other provision of this Plan
to the contrary, no action may be taken with respect to any outstanding Non-Employee Director Award
other than by the Committee, which for such actions shall consist solely of independent directors
as defined in the Listing Rules of the Nasdaq Stock Market (or other applicable exchange or market
on which the Stock may be traded or quoted).
23.
DEFERRED COMPENSATION
It is intended that all Awards issued under this Plan be in a form and administered in a
manner that shall comply with the requirements of Section 409A of the Code, or the requirements of
an exception to Section 409A of the Code, and the Award Agreements and this Plan shall be construed
and administered in a manner that is consistent with and gives effect to such intent. The
Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify
for an exception from or to comply with the requirements of Section 409A of the Code.
Notwithstanding anything in this Section 23 to the contrary, with respect to any Award subject to
Section 409A of the Code, no amendment to or payment under such Award shall be made except and only
to the extent permitted under Section 409A of the Code.
24.
MISCELLANEOUS
24.1.
Stockholder Rights
. No Participant shall have any rights as a stockholder of
the Company as a result of the grant of an Option or a Stock Appreciation Right pending the actual
delivery of the Stock subject to such Option or Stock Appreciation Right to such Participant. A
Participants rights as a stockholder in the shares of Stock which remain subject to forfeiture
under Section 9.2(b) shall be set forth in the related Award Agreement.
24.2.
No Contract of Employment
. The grant of an Award to a Participant under this
Plan shall not constitute a contract of employment or a right to continue to serve on the Board and
shall not confer on a Participant any rights upon his or her termination of employment or service
in addition to those rights, if any, expressly set forth in this Plan or the related Award
Agreement.
24.3.
Construction
. All references to Sections are to Sections of this Plan unless
otherwise indicated. Each term set forth in Section 2 shall, unless otherwise stated, have the
Appendix A-32
meaning set forth opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include the singular. In
this Plan, except where otherwise indicated by clear contrary intention, including (and with
correlative meaning include) means including without limiting the generality of any description
preceding such term, and or is used in the inclusive sense of and/or. Wherever possible, each
provision of this Plan and any Award Agreement shall be interpreted so that it is valid under the
applicable law. If any provision of this Plan or any Award Agreement is to any extent invalid
under the applicable law, that provision shall still be effective to the extent it remains valid.
The remainder of this Plan and the Award Agreement also shall continue to be valid, and the entire
Plan and Award Agreement shall continue to be valid in other jurisdictions. If there is any
conflict between the terms of this Plan and the terms of any Award Agreement, the terms of this
Plan shall control.
24.4.
Other Conditions
. Each Award Agreement may require that a Participant (as a
condition to the exercise of an Option or a Stock Appreciation Right or the issuance of Stock or
cash subject to any other Award) enter into any agreement or make such representations prepared by
the Company, including any agreement which restricts the transfer of Stock acquired pursuant to the
exercise of an Option or a Stock Appreciation Right or a Stock Grant or other Award or provides for
the repurchase of such Stock by the Company.
24.5.
Rule 16b-3
. The Committee shall have the right to amend any Award to withhold
or otherwise restrict the transfer of any Stock or cash under this Plan to a Participant as the
Committee deems appropriate in order to satisfy any condition or requirement under Rule 16b-3 to
the extent Section 16 of the 1934 Act might be applicable to such grant or transfer.
24.6.
Coordination with Employment Agreements and Other Agreements
. If the Company
enters into an employment agreement or other agreement with a Participant which expressly provides
for the acceleration in vesting of an outstanding Award or for the extension of the deadline to
exercise any rights under an outstanding Award, any such acceleration or extension shall be deemed
effected pursuant to, and in accordance with, the terms of such outstanding Award and this Plan
even if such employment agreement or other agreement is first effective after the date the
outstanding Award was granted;
provided
,
however
, no extension of the deadline to
exercise any rights under an outstanding Option or Stock Appreciation Right shall be permitted to
the extent such extension would cause the Option or Stock Appreciation Right to become subject to
the requirements of Section 409A of the Code.
24.7.
Fractional Shares
. No fractional shares of Stock shall be issued or delivered
under this Plan or any Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of fractional shares of Stock or whether such fractional
shares of Stock or any rights thereto shall be forfeited or otherwise eliminated by rounding up or
down.
24.8.
Unfunded Plan
. Participants shall have no right, title or interest whatsoever
in or to any investments that the Company or its Subsidiaries may make to aid it in meeting its
obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship
between the Company and any Participant, beneficiary, legal representative, or any other
Appendix A-33
individual. To the extent that any individual acquires a right to receive payments from the
Company or any Subsidiary under this Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company or the Subsidiary, as the case may be. All payments to
be made hereunder shall be paid from the general funds of the Company or the Subsidiary, as the
case may be, and no special or separate fund shall be established and no segregation of assets
shall be made to assure payment of such amounts except as expressly set forth in this Plan.
24.9.
Relationship to Other Benefits
. No payment under this Plan shall be taken into
account in determining any benefits under any pension, retirement, savings, profit sharing, group
insurance, welfare, or benefit plan of the Company or any Subsidiary unless provided otherwise in
such plan.
24.10.
Governing Law
. Except to the extent expressly provided herein or in connection
with other matters of corporate governance and authority (all of which shall be governed by the
laws of the Companys jurisdiction of incorporation), the validity, construction, interpretation,
administration and effect of this Plan and any rules, regulations and actions relating to this Plan
shall be governed by and construed exclusively in accordance with the laws of the State of
Delaware, notwithstanding the conflicts of laws principles of any jurisdictions. Unless otherwise
provided in an Award Agreement, recipients of an Award under this Plan are deemed to submit to the
exclusive jurisdiction and venue of the federal or state courts of the State of Minnesota to
resolve any and all issues that may arise out of or relate to this Plan or any related Award
Agreement.
24.11.
Successors
. All obligations of the Company under this Plan with respect to
Awards granted hereunder shall be binding on any successor to the Company, whether the existence of
such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise,
of all or substantially all of the business or assets of the Company.
24.12.
Delivery and Execution of Electronic Documents
. To the extent permitted by
applicable law, the Company may: (a) deliver by email or other electronic means (including posting
on a Web site maintained by the Company or by a third party under contract with the Company) all
documents relating to this Plan or any Award hereunder (including prospectuses required by the
Securities and Exchange Commission) and all other documents that the Company is required to deliver
to its security holders (including annual reports and proxy statements), and (b) permit
Participants to use electronic, internet or other non-paper means to execute applicable Plan
documents (including Award Agreements) and take other actions under this Plan in a manner
prescribed by the Committee.
Appendix A-34
APPENDIX B
ev3 INC.
EMPLOYEE STOCK PURCHASE PLAN
(As amended and restated by the Board of Directors of ev3 Inc. on December 10, 2009,
subject to approval by the stockholders of ev3 Inc.)
Section 1.
Purpose
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This Employee Stock Purchase Plan (the Plan) is intended to
advance the interests of ev3 Inc., a Delaware corporation (the Company) and its stockholders by
providing Employees of the Company and its Designated Subsidiaries with opportunities to acquire
shares of the Companys Common Stock on favorable terms through payroll deductions. The Plan is
intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue
Code of 1986, as amended (the Code), and will be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423 of the Code.
Section 2.
Definitions
.
(a) Board means the Board of Directors of the Company.
(b) Common Stock means the common stock, par value $0.01 per share, of the Company,
or the number and kind of shares of stock or other securities into which such common stock
may be changed in accordance with Section 13 of the Plan.
(c) Committee means the entity administering the Plan, as provided in Section 3
below.
(d) Compensation means regular straight-time earnings and commissions that are
included in regular compensation, including amounts that would have constituted compensation
but for a Participants election to defer or reduce compensation pursuant to any deferred
compensation, cafeteria, capital accumulation or any other similar plan of the Company and
excluding all other amounts such as amounts attributable to overtime, shift premium,
incentive compensation and bonuses (except to the extent that the inclusion of any such item
is specifically directed by the Committee), determined in a manner consistent with the
requirements of Section 423 of the Code.
(e) Designated Subsidiary means a Subsidiary that has been designated by the Board
from time to time, in its sole discretion, as eligible to participate in the Plan.
(f) Employee means any person, including an officer, who is employed by the Company
or one of its Designated Subsidiaries, excluding any such person whose customary employment
with the Company or a Designated Subsidiary is for 20 hours or less per week.
(g) Exchange Act means the Securities Exchange Act of 1934, as amended.
(h) Fair Market Value means, with respect to the Common Stock, as of any date: (i)
the closing sale price of the Common Stock as of such date at the end of the regular trading
session, as reported by the Nasdaq Stock Market, the New York Stock Exchange, the American
Stock Exchange or any national securities exchange on which the Common Stock is then listed
or quoted (or, if no shares were traded on such date, as of the next preceding date on which
there was such a trade); or (ii) if the Common Stock is not so listed, admitted to unlisted
trading privileges, or reported on any national securities exchange, the closing sale price
as of such date at the end of the regular trading session, as reported by the OTC Bulletin
Board or the Pink
Appendix B-1
Sheets, LLC, or other comparable service (or, if no shares were traded or quoted on such
date, as of the next preceding date on which there was such a trade or quote); or (iii) if
the Common Stock is not so listed or reported, such price as the Committee determines in its
sole discretion in a manner acceptable under Section 423 of the Code.
(i) Offering means any of the offerings to Participants of options to purchase Common
Stock under the Plan, as described in Section 5 below.
(j) Offering Date means the first day of the period of an Offering under the Plan, as
described in Section 5 below.
(k) Option Price is defined in Section 8 below.
(l) Participant means an eligible Employee who elects to participate in the Plan
pursuant to Section 6 below.
(m) Securities Act means the Securities Act of 1933, as amended.
(n) Subsidiary means any subsidiary corporation of the Company within the meaning of
Section 424(f) of the Code.
(o) Purchase Date means the last day of the period of an Offering under the Plan, as
described in Section 5 below.
Section 3.
Administration
.
The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity securities registered
under Section 12 of the Exchange Act, the Plan will be administered by a committee (the
Committee) consisting solely of not less than two members of the Board who are non-employee
directors within the meaning of Rule 16b-3 under the Exchange Act. Such a committee, if
established, will act by majority approval of the members (but may also take action with the
written consent of all the members of such committee), and a majority of the members of such a
committee will constitute a quorum. As used in the Plan, Committee will refer to the Board or to
such a committee, if established. To the extent consistent with corporate law, the Committee may
delegate to any officers of the Company the duties, power and authority of the Committee under the
Plan pursuant to such conditions or limitations as the Committee may establish; provided, however,
that only the Committee may exercise such duties, power and authority with respect to Participants
who are subject to Section 16 of the Exchange Act. The Committee may exercise its duties, power
and authority under the Plan in its sole discretion without the consent of any Participant or other
party, unless the Plan specifically provides otherwise. Each determination, interpretation or
other action made or taken by the Committee pursuant to the provisions of the Plan will be final,
conclusive and binding for all purposes and on all persons, including, without limitation, the
Company, the stockholders of the Company, the Participants and their respective
successors-in-interest. No member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted under the Plan.
Section 4.
Eligibility
.
(a) With respect to an Offering, any Employee employed by the Company or a Designated
Subsidiary on the Offering Date shall be eligible to participate in the Plan, subject to the
limitations imposed by Section 423(b) of the Code.
Appendix B-2
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be
granted an option under the Plan if:
(i) immediately after the grant, such Employee (or any other person whose stock
ownership would be attributed to such Employee pursuant to Section 424(d) of the
Code) would own shares of Common Stock and/or hold outstanding options to purchase
shares of Common Stock possessing 5% or more of the total combined voting power or
value of all classes of shares of the Company or of any Subsidiary; or
(ii) the amount of payroll deductions that the Employee has elected to have
withheld under such option (pursuant to Section 7 below) would permit the Employee
to purchase shares of Common Stock under all employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company and its Subsidiaries to
accrue (i.e., become exercisable) at a rate that exceeds $25,000 of the Fair Market
Value of such shares of Common Stock (determined at the time such option is granted)
for each calendar year in which such option is outstanding at any time.
Section 5.
Offerings
.
Options to purchase shares of Common Stock shall be offered to
Participants under the Plan through a continuous series of Offerings, each continuing for six
months and each of which shall commence on January 1 and July 1 of each year, as the case may be,
and shall terminate on June 30 and December 31 of such year, as the case may be; provided, however,
that the first Offering under the Plan and any subsequent Offering commenced immediately after a
suspension of the Plan shall have an Offering Date and Purchase Date as determined by the Committee
in its sole discretion. Offerings under the Plan shall continue until either (a) the Committee
decides, in its sole discretion, that no further Offerings shall be made because the Common Stock
remaining available under the Plan is insufficient to make an Offering to all eligible Employees,
or (b) the Plan is terminated under Section 17 below. Notwithstanding the foregoing, and without
limiting the authority of the Committee under Section 3, 13(b) and 17 of the Plan, the Committee,
in its sole discretion, may (a) accelerate the Purchase Date of the then current Offering and
provide for the exercise of options thereunder by Participants in accordance with Section 9 of the
Plan, or (b) accelerate the Purchase Date of the then current Offering and provide that all payroll
deductions credited to the accounts of Participants will be paid to Participants as soon as
practicable after such Purchase Date and that all options for such Offering will automatically be
canceled and will no longer be exercisable, if such change is announced at least five (5) days
prior to the newly scheduled Purchase Date.
Section 6.
Participation
.
(a) An eligible Employee may become a Participant in the Plan by completing a
subscription agreement authorizing payroll deductions on the form provided by the Company
(the Participation Form) and filing the Participation Form with the Companys Human
Resources Department or the stock brokerage or other financial services firm designated by
the Company (Designated Broker) not less than 15 days before the Offering Date of the
first Offering in which the Participant wishes to participate.
(b) Except as provided in Section 7(a) below, payroll deductions for a Participant
shall begin with the first payroll following the applicable Offering Date, and shall
continue until the termination date of the Plan, subject to earlier termination by the
Participant as provided in Section 11 below or increases or decreases by the Participant in
the amount of payroll deductions as provided in Section 7(c) below.
Appendix B-3
Section 7. Payroll Deductions.
(a) By completing and filing a Participation Form, a Participant shall elect to have
payroll deductions made from the Participants total Compensation (in whole percentages from
1% to a maximum of 10% of the Participants total Compensation) on each payday during the
time he or she is a Participant in the Plan in such amount as he or she shall designate on
the Participation Form; provided, however, that no Participants payroll deductions shall be
less than $10.00 per pay period.
(b) All payroll deductions authorized by a Participant shall be credited to an account
established under the Plan for the Participant. The monies represented by such account
shall be held as part of the Companys general assets, usable for any corporate purpose, and
the Company shall not be obligated to segregate such monies. A Participant may not make any
separate cash payment or contribution to such account.
(c) No increases or decreases of the amount of payroll deductions for a Participant may
be made during an Offering. A Participant may increase or decrease the amount of the
Participants payroll deductions under the Plan for subsequent Offerings by completing an
amended Participation Form and filing it with the Companys Human Resources Department or
Designated Broker not less than 15 days prior to the Offering Date as of which such increase
or decrease is to be effective.
(d) A Participant may discontinue the Participants participation in the Plan at any
time as provided in Section 11 below.
Section 8.
Grant of Option
.
On each Offering Date, each eligible Employee who is then
a Participant shall be granted (by operation of the Plan) an option to purchase as many full shares
of Common Stock at the Option Price as he or she will be able to purchase with (a) the payroll
deductions credited to the Participants account during the Participants participation in the
Offering beginning on such Offering Date and (b) the balance (if any) carried forward from the
Employees payroll deduction account from the preceding Offering. Notwithstanding the foregoing,
in no event may the number of shares purchased by any Employee during an Offering exceed 2,500
shares of Common Stock. The option price per share of such shares (the Option Price) shall be
equal to the lesser of: (a) 85% of the Fair Market Value of one share of Common Stock on the
Offering Date or (b) 85% of the Fair Market Value of one share of Common Stock on the Purchase
Date.
Section 9.
Exercise of Option
.
(a) Unless a Participant gives written notice to the Company as provided in Section
9(d) below or withdraws from the Plan pursuant to Section 11 below, the Participants option
for the purchase of shares of Common Stock granted for an Offering will be exercised
automatically at the Purchase Date of such Offering for the purchase of the number of full
shares of Common Stock that the accumulated payroll deductions in the Participants account
on such Purchase Date will purchase at the applicable Option Price.
(b) A Participant may only purchase one or more full shares in connection with the
automatic exercise of an option granted for any Offering. That portion of any balance
remaining in a Participants payroll deduction account at the close of business on the
Purchase Date of any Offering that is less than the purchase price of one full share will be
carried forward into the Participants payroll deduction account for the following Offering.
In no event will the balance carried forward be equal to or greater than the purchase price
of one share on the Purchase Date
Appendix B-4
of an Offering. Notwithstanding the foregoing, the Committee may determine, in its sole
discretion, that in lieu of carrying such cash balances forward, such balances will be
deemed to have purchased such number of fractional shares of Common Stock as would then be
purchasable at the applicable Option Price, with such fractional shares calculated to the
fourth (4th) decimal place.
(c) No Participant (or any person claiming through such Participant) shall have any
interest in any Common Stock subject to an option under the Plan until such option has been
exercised, at which point such interest shall be limited to the interest of a purchaser of
the Common Stock purchased upon such exercise pending the delivery or credit of such Common
Stock in accordance with Section 10 below. During the Participants lifetime, a
Participants option to purchase shares of Common Stock under the Plan is exercisable only
by the Participant.
(d) By written notice to the Company prior to the Purchase Date of any Offering, a
Participant may elect, effective on such Purchase Date to withdraw all of the accumulated
payroll deductions in the Participants account as of the Purchase Date (which withdrawal
may, but need not, also constitute a notice of termination and withdrawal pursuant to
Section 11(a)).
Section 10.
Delivery
.
(a) Except as provided in paragraph (b) below, as promptly as practicable after the
Purchase Date of each Offering, the Company will deliver to each Participant, as
appropriate, either:
(i) a certificate representing the shares of Common Stock purchased upon
exercise of the Participants option granted for such Offering, registered in the
name of the Participant or, if the Participant so directs on the Participants
Participation Form, in the names of the Participant and the Participants spouse; or
(ii) if the Participant makes an election pursuant to Section 9(d) for the
Offering, a cash payment equal to the total of the payroll deductions credited to
the Participants account.
(b) Notwithstanding paragraph (a) above, in lieu of delivering certificates to each of
the Participants with respect to shares of Common Stock purchased in connection with an
Offering, the Company may deliver a certificate to a third party representing an aggregate
of all of the shares of Common Stock purchased in connection with the Offering (including an
aggregate of all of the fractional shares deemed to have been purchased pursuant to Section
9(b), if applicable) rounded down to the nearest full share, plus cash in an amount equal to
the Option Price multiplied by any remaining fractional share deemed to have been purchased
pursuant to Section 9(b), if applicable, which shares will be held for the benefit of the
Participants in accordance with their respective interests, and will deliver a statement of
account to each Participant indicating the number of shares of Common Stock purchased by
that Participant in connection with that Offering. In the event shares are held for the
benefit of Participants, all full shares purchased and fractional shares deemed to have been
purchased by a Participant in an Offering and in any subsequent Offerings will accumulate
for the benefit of the Participant until the Participants withdrawal or termination
pursuant to Section 11.
Appendix B-5
Section 11.
Withdrawal; Termination of Employment
.
(a) A Participant may terminate the Participants participation in the Plan and
withdraw all, but not less than all, the payroll deductions credited to the Participants
account under the Plan at any time prior to the Purchase Date of an Offering, for such
Offering, by giving written notice to the Companys Human Resources Department or Designated
Broker. Such notice shall state that the Participant wishes to terminate the Participants
involvement in the Plan, specify a termination date and request the withdrawal of all of the
Participants payroll deductions held under the Plan. All of the Participants payroll
deductions credited to the Participants account will be paid to the Participant as soon as
practicable after the termination date specified in the notice of termination and withdrawal
(or, if no such date is specified, as soon as practical after receipt of the Participants
notice of termination and withdrawal), and the Participants option for such Offering will
be automatically canceled, and no further payroll deductions for the purchase of shares of
Common Stock will be made for such Offering or for any subsequent Offering, except in
accordance with a new Participation Form filed pursuant to Section 6 above.
(b) Upon termination of a Participants employment for any reason, including retirement
or death, the payroll deductions accumulated in the Participants account will be returned
to the Participant as soon as practicable after such termination or, in the case of the
Participants death, to the person or persons entitled thereto under Section 14 below, and
the Participants option will be automatically canceled. In the event that shares are held
for the benefit of Participants pursuant to Section 10(b), then upon the termination of a
Participants employment for any reason, including retirement or death, the Participant, or,
in the case of death, the Participants designated beneficiary (if allowed by the Committee)
or the executor or administrator of the Participants estate will be entitled to receive, a
certificate representing the number of full shares of Common Stock held for the benefit of
the Participant plus cash in an amount equal to the Fair Market Value of any remaining
fractional share deemed to have been purchased. In any event, Fair Market Value will be
determined as of such termination and such certificate will be delivered and such amounts
paid as soon thereafter as practicable. For purposes of the Plan, the termination date of
employment shall be the Participants last date of actual employment and shall not include
any period during which such Participant receives any severance payments. A transfer of
employment between the Company and a Designated Subsidiary or between one Designated
Subsidiary and another Designated Subsidiary, or absence or leave approved by the Company,
shall not be deemed a termination of employment under this Section 11(b).
(c) A Participants termination and withdrawal pursuant to Section 11(a) above will not
have any effect upon the Participants eligibility to participate in a subsequent Offering
by completing and filing a new Participation Form pursuant to Section 6 above or in any
similar plan that may hereafter be adopted by the Company.
Section 12.
Interest
.
No interest shall accrue on a Participants payroll deductions
under the Plan.
Section 13.
Stock Subject to the Plan
.
(a) The maximum number of shares of Common Stock that shall be reserved for sale under
the Plan shall be 1,750,000 shares, subject to adjustment upon changes in capitalization of
the Company as provided in Section 13(b) below. The shares to be sold to Participants under
the Plan may be, at the election of the Company, either treasury shares or shares authorized
but
Appendix B-6
unissued. If the total number of shares of Common Stock that would otherwise be subject to
options granted pursuant to Section 8 above on any Purchase Date exceeds the number of
shares then available under the Plan (after deduction of all shares for which options have
been exercised or are then outstanding), the Company shall make a pro rata allocation of the
shares of Common Stock remaining available for issuance in as uniform and equitable a manner
as is practicable. In such event, the Company shall give written notice of such reduction
of the number of shares subject to the option to each Participant affected thereby and shall
return any excess funds accumulated in each Participants account as soon as practicable
after the Purchase Date of such Offering.
(b) In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any other similar
change in the corporate structure or shares of the Company, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the board of directors of
the surviving corporation) will make appropriate adjustment (which determination will be
conclusive) as to the number and kind of securities or other property (including cash)
available for issuance or payment under the Plan and, in order to prevent dilution or
enlargement of the rights of Participants, the number and kind of securities or other
property (including cash) subject to, and the exercise price of, outstanding options.
(c) In the event that Participants are deemed to have purchased fractional shares of
Common Stock pursuant to Section 9(b), the aggregate of such fractional share interests at
any given time will be applied to reduce the maximum number of shares of Common Stock
remaining available for issuance under the Plan; provided, however, that any fractional
shares that are paid out to a Participant in cash pursuant to Section 11 will automatically
again become available for issuance under the Plan.
Section 14.
Designation of Beneficiary
.
(a) In the discretion of the Committee, a Participant may file written designation of a
beneficiary who is to receive shares of Common Stock and/or cash, if any, from the
Participants account under the Plan in the event of such Participants death at a time when
cash or shares of Common Stock are held for the Participants account.
(b) Such designation of beneficiary may be changed by the Participant at any time by
written notice. In the event of the death of a Participant in the absence of a valid
designation of a beneficiary who is living at the time of such Participants death, the
Company shall deliver such shares of Common Stock 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 of Common Stock 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.
Section 15.
Transferability
.
Neither payroll deductions 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 14 above) by
the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to withdraw funds in
accordance with Section 11(a) above.
Appendix B-7
Section 16.
Share Transfer Restrictions
.
(a) Shares of Common Stock shall not be issued under the Plan unless such issuance is
either registered under the Securities Act and applicable state securities laws or is exempt
from such registration.
(b) Shares of Common Stock issued under the Plan may not be sold, assigned,
transferred, pledged encumbered, or otherwise disposed of (whether voluntarily or
involuntarily) except pursuant to registration under the Securities Act and applicable state
securities laws, or pursuant to exemptions from such registration.
(c) The Company may condition the issuance, sale or transfer of shares of Common Stock
upon the receipt of any representations or agreements from the parties involved, and the
placement of any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such securities law or
other restrictions.
Section 17.
Amendment
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The Plan may be amended by the Board from time to time to the
extent that the Board deems necessary or appropriate in light of, and consistent with, Section 423
of the Code; provided, however, that no such amendment shall be effective, without approval of the
stockholders of the Company, if stockholder approval of the amendment is then required pursuant to
Rule 16b-3 under the Exchange Act or any successor rule, the rules of any stock exchange or Nasdaq
if the Common Stock is then listed on such exchange or Nasdaq or similar regulatory body, or
Section 423 of the Code.
Section 18.
Notices
.
All notices or other communications by a Participant to the
Company in connection with the Plan shall be deemed to have been duly given when received by the
Chief Financial Officer of the Company or by any other person designated by the Company for the
receipt of such notices or other communications, in the form and at the location specified by the
Company.
Section 19.
No Right to Employment
.
Nothing in the Plan will interfere with or limit
in any way the right of the Company or any Designated Subsidiary to terminate the employment of any
Employee or Participant at any time, nor confer upon any Employee or Participant any right to
continue in the employ of the Company or any Designated Subsidiary.
Section 20.
Effective Date of Plan; Termination
.
The Plan shall be effective as of
February 13, 2006, the date it was adopted by the Board. The Plan has been adopted by the Board
subject to stockholder approval, and prior to stockholder approval shares of Common Stock may be
issued under the Plan subject to such approval. The Board may terminate or suspend the Plan or the
granting of options pursuant to the Plan at any time. The Plan will automatically terminate at
midnight on February 12, 2016. No option will be granted after termination of the Plan.
Section 21.
Governing Law
.
Except to the extent expressly provided herein or in
connection with other matters of corporate governance and authority (all of which shall be governed
by the laws of the Companys jurisdiction of incorporation), the validity, construction,
interpretation, administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance with the laws of
the State of Minnesota, notwithstanding the conflicts of laws principles of any jurisdictions.
Appendix B-8
Section 22.
Miscellaneous
.
The headings to Sections in the Plan have been included
for convenience of reference only. Except as otherwise expressly indicated, all references to
Sections in the Plan shall be to Sections of the Plan.
Appendix B-9
ev3 INC.
EMPLOYEE STOCK PURCHASE PLAN
Payroll Deduction Authorization Form And Subscription Agreement
Original Application
Change in Payroll Deduction Amount
1.
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hereby elects to participate in the ev3 Inc. Employee
Stock Purchase Plan (the Plan) and subscribes to purchase shares of the Companys Common
Stock (the Shares) according to this Agreement and the Plan.
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2.
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I hereby authorize payroll deductions, beginning
, 20___, from each paycheck in
the amount of $
(may not exceed 10% of total compensation on each payday) in
accordance with the Plan.
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3.
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I understand that such payroll deductions will be accumulated to purchase shares according to
the Plan, and that shares will be purchased for me automatically at the end of each offering
period under the Plan unless I withdraw my accumulated payroll deductions, withdraw from the
Plan, or both, by giving written notice to the Company prior to the end of the offering
period, as provided in the Plan.
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4.
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Shares purchased for me under the Plan should be issued or held in an account in the name(s) of:
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(name(s))
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(address)
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(social security number)
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5.
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I understand that if I dispose of any shares I receive under the Plan within two years after
the first day of the offering period during which I purchased the shares, I may be treated for
U.S. federal income tax purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value of the shares on the
date purchased over the option price paid for the shares.
I hereby agree to notify the
Company in writing within 30 days after the date of any such disposition
. However, if I
dispose of any such shares at any time after the expiration of the two-year holding period, I
understand that I will be treated for U.S. federal income tax purposes as having received
income only at the time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (a) the excess of the fair
market value of the shares at the time of such disposition over the amount paid for the shares
under the option, or (b) the excess of the fair market value of the shares on the
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Appendix B-10
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first day of the offering period during which I purchased such shares over the option price.
The remainder of the gain, if any, recognized on such disposition will be taxed at capital
gains rates.
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I have read the current prospectus for the ev3 Inc. Employee Stock Purchase Plan.
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7.
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In the event of my death, I hereby designate the following as my beneficiary(ies) to receive
all payments and Shares due me under the Plan:
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Address
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Date:
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Signature of Employee
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Appendix B-11
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ev3 INC.
ATTN: KEVIN KLEMZ
3033 CAMPUS DRIVE
PLYMOUTH,
MN 55441
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VOTE BY INTERNET -
www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of information up until
11:59 p.m. Eastern Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you access the web site and follow
the instructions to obtain your records and to create an electronic voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our
company in mailing proxy materials, you can consent
to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the
Internet. To sign up for electronic delivery, please
follow the instructions above to vote using the
Internet and, when prompted, indicate that you agree
to receive or access proxy materials electronically
in future years.
VOTE BY PHONE -
1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 p.m. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand when you call and then
follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in
the postage-paid envelope we have provided or return
it to Vote Processing, c/o Broadridge, 51 Mercedes
Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M22472-P90711
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KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY
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ev3 INC.
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The Board of Directors recommends you vote
FOR the following proposals:
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1.
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Election of the following three
nominees as directors for a
three-year term.
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For
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Against
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Abstain
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Nominees:
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1a.
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John K. Bakewell
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o
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o
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1b.
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Richard B. Emmitt
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o
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1c.
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Douglas W. Kohrs
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o
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For
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Against
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Abstain
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2. To consider a proposal to approve the ev3 Inc. Third Amended and Restated 2005 Incentive
Plan.
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o
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o
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o
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3. To consider a proposal to approve the ev3 Inc. Amended and Restated Employee Stock Purchase
Plan.
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o
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o
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o
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4. To consider a proposal to ratify the selection of Ernst & Young LLP as our independent
registered public accounting firm for the year ending December 31, 2010.
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o
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o
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o
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This proxy when properly executed, will be voted as directed or, if no direction is given, will be
voted FOR all nominees for director and FOR proposals 2, 3 and 4.
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor,
administrator, or other fiduciary, please give full title as such. Joint owners should each sign
personally. All holders must sign. If a corporation or partnership, please sign in full corporate
or partnership name, by authorized officer.
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Signature
[PLEASE SIGN WITHIN BOX]
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Signature (Joint Owners)
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Date
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ev3 INC.
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 25, 2010
2:00
p.m., CDT
ev3 Inc.
3033 Campus
Drive
Plymouth, MN 55441
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The 2009 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com.
M22473-P90711
ev3 Inc.
This proxy is solicited on behalf of the board of directors of ev3 Inc., for use at the Annual
Meeting of Stockholders on May 25, 2010.
By signing, dating and returning this proxy card, you revoke all prior proxies, including any proxy
previously given by telephone or Internet, and appoint Robert J. Palmisano and Kevin M. Klemz, or
either of them, with full power of substitution to vote the shares on the matters shown on the
reverse side and any other matter which may properly come before the Annual Meeting of Stockholders
to be held on May 25, 2010, and at any adjournment or postponement of the meeting.
You are encouraged to specify your choices by marking the appropriate boxes on the reverse side.
This proxy, when properly signed, will be voted in the manner directed. If no direction is given,
this proxy will be voted FOR all of the nominees for director and FOR Proposals 2, 3 and 4 and, in
the proxies discretion, upon such other matters as may properly come before the meeting.
Continued and to be signed on reverse side
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