Issue link: http://catalog.e-digitaleditions.com/i/801297
46 PROPOSAL 6 — RE-APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE EXECUTIVE BONUS PLAN General Bonuses have been and are an essential component of the total compensation package for our executives, as a means to attract and retain highly qualified individuals and provide financial incentives for them. In February 2007, the Board adopted the Executive Bonus Plan (the "Executive Bonus Plan"), effective as of January 1, 2007, and it was approved by the shareholders at the 2007 annual meeting. The Executive Bonus Plan will continue indefinitely unless suspended or terminated by the Board. As we did in 2012, we are asking the shareholders to re-approve the formula bonus under our Executive Bonus Plan to preserve our ability to take a federal tax deduction for certain compensation awards. The summary below of the Executive Bonus Plan and the material terms of the performance goals under the Executive Bonus Plan is qualified in its entirety by reference to the text of the Executive Bonus Plan, which is attached as Appendix D to this Proxy Statement. 162(m) Re-approval of Performance Goals Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount that we may deduct for federal income tax purposes in any one taxable year for compensation paid to each of our "covered employees." Our covered employees include our Chief Executive Officer and each of our other three most highly-paid executive officers, other than our Chief Financial Officer. There is, however, an exception to this limit for compensation earned pursuant to certain performance-based awards, or "performance-based compensation." A performance-based award made under the Executive Bonus Plan is eligible for this exception, provided that certain Section 162(m) requirements are met. One of these requirements relates to shareholder approval (and, in this case, re-approval) of the material terms of the performance goals underlying the performance-based award. The material terms of the performance goals under the Executive Bonus Plan include the employees eligible to receive compensation under the Executive Bonus Plan, a description of the business criteria on which the performance goal is based and the maximum award that can be paid to an employee under the performance goal. Each of these aspects of the Executive Bonus Plan is discussed below. The material terms of the performance goals used for the determination of awards under the Executive Bonus Plan were last approved by the Company's shareholders in 2012 and management recommended and the Board approved seeking re-approval at this year's annual meeting to preserve the ability to grant awards that are eligible for deduction under Section 162(m) until 2022. Executive Bonus Plan Description The persons eligible to be participants under the Executive Bonus Plan are the Chief Executive Officer, the Chief Financial Officer and other executive officers whose compensation is or may be subject to the limitations of Section 162(m) (approximately 12 persons as of December 31, 2016). The Executive Bonus Plan establishes a maximum award ("formula bonus") of 0.75% of adjusted operating income (that is, operating income, as reported in our publicly filed financial statements increased by the amount of any in-process research and development charges reflected in such operating income) for the performance period (generally our fiscal year) and provides a further limitation that in no event will the amount awarded to any participant in respect of a fiscal year exceed $12 million. The Executive Bonus Plan grants the Compensation Committee discretion to reduce the formula bonus percentage of adjusted operating income to below 0.75% for one or more participants for any performance period and to reduce any participant's actual bonus to below the formula bonus (or to pay no bonus). The Compensation Committee has exercised and intends to continue to exercise such discretion by establishing at its regularly scheduled meeting in February of each performance year additional performance criteria that will further limit a participant's actual bonus. Bonuses will be paid no later than the March 15 following the end of the performance period based on actual performance results, as certified by the Compensation Committee. As indicated, the actual bonuses that have been awarded under the Executive Bonus Plan have been much smaller than the maximum bonuses that could have been awarded. For information regarding bonus and other non-equity incentive compensation payments made to the NEOs with respect to 2016, see "Compensation Discussion and Analysis — 2016 Compensation Elements — Annual Bonus" beginning on page 13. At its meeting on February 7, 2017, the Compensation Committee designated the participants in the Executive Bonus Plan and their target bonus amount for 2017 (subject to the Plan limitations). The target bonus amounts for 2017 for the NEOs, other than Mr. Jellison, and the current executive officers as a group are as follows: