ITEM 8.01. OTHER EVENTS.
Patrick W. Smith, Founder and Chief Executive Officer of Axon Enterprise, Inc.
("Axon"), adopted a prearranged trading plan on September 10, 2021 (the "Plan"),
in accordance with guidelines specified by Rule 10b5-1 under the Securities
Exchange Act of 1934, and with Axon's policies regarding transactions in Axon
securities by insiders.
Mr. Smith's Plan contemplates the exercise of fully vested employee stock
performance options to purchase Axon stock as well as the sale of a sufficient
number of shares underlying such options to pay the exercise price and related
tax withholding obligations, but only if the stock price is at or above a
minimum price as specified in the Plan. The remaining exercised shares are
subject to a 2.5-year holding period from the date of exercise per the terms of
Mr. Smith's CEO Performance Award. The Plan also contemplates the sale of
certain of Mr. Smith's long held shares. Any transactions under the Plan will be
disclosed publicly on Form 4, and, if applicable, in a Form 144, in each case
filed with the Securities and Exchange Commission.
Mr. Smith's Long-Term Commitment to Axon:
As of September 9, 2021, Mr. Smith beneficially owned 430,516 shares of the
Company's common stock. Assuming all exercise and sale transactions are made
under the 10b5-1 Plan, Mr. Smith's ownership will increase approximately four
fold and he will continue to be Axon's largest individual shareholder,
showcasing his commitment to delivering on a long-term vision that can
contribute to increasing shareholder value.
All of Mr. Smith's exercisable options (approximately 4.2 million as of
September 9, 2021) are subject to a 2.5-year post-exercise holding period, with
exceptions only to settle tax obligations and to cover the exercise cost.
Mr. Smith's recent vesting under the CEO Performance Award, combined with his
intended option exercise and settlement of shares, triggers employee tax
withholding obligations and exercise costs. The 10b5-1 Plan represents a
mechanism for prudent treasury management with orderly selling of shares to
settle these obligations.
Background on CEO Performance Award:
In February 2018, Axon CEO and founder Rick Smith relinquished his
executive-level salary(1) and cash bonus for 10 years in return for a stock
performance award tied to achieving market capitalization and financial
performance milestones that would make Axon one of the most valuable companies
in the public safety sector.
Axon's Board of Directors designed the plan to maximize alignment with
shareholders while accounting for future unforeseen events. They chose the
design because it represented pay for performance, motivated a long-term
commitment, and aligned CEO compensation with value creation for stakeholders
including employees, customers and shareholders.
For the award to fully vest, Axon's market capitalization would have to grow
ten-fold from under $1.5 billion at the time to $13.5 billion, and significant
revenue and profitability goals would also have to be achieved.
Since shareholders approved the CEO Performance Award in 2018, Mr. Smith has not
received new equity compensation grants excepting 60 performance shares granted
every employee in 2019. He can only be compensated if Axon generates
extraordinary shareholder value and achieves significant financial performance
milestones.
The CEO Performance Award consists of a 10-year grant of stock options that vest
in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are
both met.
Market Capitalization Milestones: The first set of milestones are based on
? Axon's six-month and thirty day trailing average market capitalization with the
first milestone at $2.5 billion, which was nearly double Axon's market
capitalization when the plan was announced in February 2018.
Financial Performance Milestones: To meet the financial performance milestones,
Axon must achieve escalating revenue or adjusted EBITDA targets chosen to
? incentivize both top-line growth and bottom-line operational rigor. Revenue
milestones started at approximately two times pre-2018 levels and adjusted
EBITDA milestones started at approximately three times pre-2018 levels.
For each of the 12 tranches that is achieved, Mr. Smith vests 530,488 stock
option shares, corresponding to 1% of Axon's outstanding shares at the time of
the award.
As of September 9, 2021, eight of the 12 tranches have vested as a result of
Axon's strong 2020 and year-to-date 2021 performance, which included the benefit
of gains on strategic investments, as well as the attainment of several market
capitalization goals.
Since the CEO Performance Award was issued in 2018, total shareholder return has
exceeded 525% as of Friday, September 10, 2021.
Where to Find More Information:
For more on the Company's compensation objectives and policies, including the
CEO Performance Award, please refer to Axon's "Compensation Discussion and
Analysis" in its Annual Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on April 12, 2021. For more information about
the CEO Performance Award, please refer to Exhibit 10.7 to Axon's Annual Report
on Form 10-K for the fiscal year ended December 31, 2020 and filed with the
Securities and Exchange Commission on February 26, 2021.
Footnotes:
(1) Mr. Smith's compensation complies with minimum wage requirements and the CEO
Performance Award, resulting in approximately $25,000 in annual salary.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
Exhibit
No. Description
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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