2023–2024
The big
picture
Axon is a mission-driven company whose overarching goal is to protect
life. Our vision is a world where bullets are obsolete, where social conflict
is dramatically reduced, and where everyone has access to a fair and
effective justice system.
,
AXON and Axon are trademarks of Axon Enterprise, Inc., some of which are registered in the US and other countries.
For more information, visit www.axon.com/legal. All rights reserved. © 2024 Axon Enterprise, Inc.
A Letter from Axon CEO, Rick Smith
Fellow Shareholders,
I write to you following another year marked by profound humanitarian crisis and global challenges, scarred by war and
violence. My job as a leader is to find motivation in this reality, seeking ways to change our trajectory with the impact that
Axon and our technology, innovation and ambitious goals can have to address these challenges.
We can only hope that these outbreaks of global violence these past two years are perhaps the spasms at the end of an age.
I believe we are strongest when we use lethality most sparingly; when we use all other tools at our disposal to reduce the
loss of life wherever possible.
I realize that politics alone won’t change the course of history. Our ability to imagine and invent new solutions is our
greatest hope. We have suffered from a lack of imagination in exploring how new technological approaches might give
our national leaders more effective tools to protect the people of their nations.
I see it as our mission to bring our imagination to bear on these problems. We seek to use technology to fight violence, to
find new ways to stop violence, and to reduce the effects of violence where it does occur. We also seek to hold those who
commit violence to account—technology can give us new solutions that elevate the goals of every human and every society
to live in safety and security. I share these insights to highlight the enormous problem we seek to address, far larger in
scale than the markets we address today.
Axon is Finding Another Way
As we focus on our established, yet growing business today, the same imagination and spirit of innovation that set Axon
on its current trajectory continues to guide our efforts. Our technology enhances law enforcement capabilities and fosters
safer interactions between officers and the communities they serve. Just over a year ago, we introduced our moonshot goal
to cut gun-related deaths between police and the public in the United States by 50% over 10 years. We chose this audacious
goal because we can clearly see the tools that will make it possible. This moonshot is not the end, but the beginning, as a
means to prove that we can reduce violence in one key area and set the stage to expand our mission from there.
Technology, training, and data are the three key pillars that form our moonshot strategy, and over the last year we have
made major strides in each of these areas since announcing our goal.
In the technology pillar, we have launched the new TASER 10, a game changing weapon with effectively three times the
usable range at 45 feet and a 10-shot magazine. We also acquired Sky-Hero, one of the leading providers of tactical drones
and robots. Robots can be used to extend time and distance between officers and potential danger, enabling more situational
awareness and better decision making. Based on our analysis of officer-involved shootings, we believe that approximately
70% of today’s fatal incidents could be resolved without lethal force through the use of advanced, longer-range TASER
weapons, together with drones and robots in the future.
To achieve such significant results, we must also help improve human performance through more effective training. We
have recently begun shipping our Virtual Reality (VR) TASER Firing Range, enabling high repetition training in the skills
to effectively deploy TASER 10. In 2024, we will extend our VR system to include realistic scenarios that enable training
and complex decision making. VR is a game changer in developing high performing officers.
The third pillar of our strategy is to improve our access to the data we need to understand the dynamics of use-of-force
incidents, enabling us to measure results and impact outcomes. In 2023, we launched the Axon National Gun Fatality
Database, an initiative we sponsor at the Institute for Intergovernmental Research. We have also launched our TASER
Research and Development (TREND) program where we are collaborating much more closely with agencies who agree
to share back key data on TASER incidents. In addition, we are launching the Apollo Alliance—this is our first cohort of
partner agencies that are deploying our TASER 10, VR and data sharing programs. We will be monitoring their gun-related
deaths in a pre vs. post study. Our goal is to demonstrate that we can reduce gun deaths through this pilot program and
with a closer study of law enforcement interaction in elevated situations. Once we have proven the formula, we will focus
on scaling the program nationally to hit our full goal by 2033.
The Next Phase: Expanding the Ecosystem
In the first phase of our business, we took TASER from a science fiction concept to a formidable company. That brought
our Company from a small start-up to an established strategy, earning hundreds of millions of dollars in revenue. In the
second phase, we extended to create the body camera space, deterring unnecessary escalations and holding all parties
accountable to the truth. To enable body cameras, we created what is now the largest cloud software business in public
safety.
Today, our Software and Sensors business has grown larger than our TASER business and we often see our customers
purchasing into our ecosystem across all of our products on unified subscription plans. Our Company went from the
hundreds of millions of dollars in revenue to billions of dollars in revenue. Next, we are going to drive advancements in
new areas that challenge the conventional thinking and solve problems in ways fit for a new age. We believe this will be
the driver of tens of billions of dollars in revenue for the Company.
We will continue to grow our core offerings while expanding into new categories, developing advanced robotics,
revolutionizing real time operations, and leveraging Artificial Intelligence (AI) across our products to augment human
capacity, while retaining human control and accountability. As we think about future strategies, I find it helpful to break
down complexity into simple concepts. Every critical incident requires three simple phases: observe, communicate, and
act. Our future strategy is designed to allow both individuals and organizations to do these three simple things at ever
higher performance levels.
Our extensive networks of cameras and sensors can all now live stream, allowing an entire agency to observe what is
happening. Until now, agencies have relied on voice audio over push-to-talk radio networks, which have been functionally
unchanged by technology for 50 years. We are empowering agencies to have much greater visibility into real-time events,
both to capture critical images and to provide accurate information to make the best-informed decisions.
We are also enabling new modes of communication. Whether it’s using AI to handle the task of reading license plates
and alerting human operators when there’s a hit, allowing individualized voice communications to body camera users,
freeing up the shared radio spectrum, or sending an alert when a TASER or gun is drawn from a holster, we are enabling
new modalities of communication to make the entire enterprise smarter and truly connected.
When it’s time to act, we are giving agencies both new capabilities and next level training to improve human performance
under pressure in high stakes events. We will continue to provide capabilities to act from greater distances with more
intelligence to lead to better outcomes.
Setting the Stage for a New Age
In 2023, Axon achieved record revenue of $1.56 billion and net income of $174 million (11.1% net income margin),
supporting Adjusted EBITDA of $329 million (21.1% Adjusted EBITDA margin). This was our fifth consecutive year
growing above 25% — and we aim to deliver similar growth in the years to come.
Our Axon Cloud and Services revenue grew 52% in 2023, accelerating from 50% growth the year before, and making up
an increasing share of our business. Our new products fueled 15% growth in our TASER business and 34% growth in
Sensors. We delivered this growth while continuing to ramp our investments in our business.
Looking forward, our efforts are focused on continuing to deliver strong financial results while we drive towards our
moonshot. Our initial outlook for 2024 contemplates another strong year, with over 20% revenue growth and Adjusted
EBITDA margin expansion, and we’ve shared that we continue to target a 20% or greater compound annual growth rate
over the longer term.
As we work our hearts out to move further on our journey, we thank you for your unrelenting support and empowerment.
Let us all land this mission, together.
-Rick
Key Performance Highlights
BUSINESS HIGHLIGHTS
Revenue
Total company revenue of $1.56 billion in 2023 achieved through compound annual revenue growth of 32% from 2020. Consistent
annual revenue growth in both TASER and Software & Sensors segments supports total company growth.
A X O N T O T A L R E V E N U E
( $ M I L L I O N S )
T A S E R R E V E N U E
( $ M I L L I O N S )
$1,563
$1,190
$863
$681
$367
$437
$532
$612
S O F T W A R E & S E N S O R S
R E V E N U E ( $ M I L L I O N S )
$951
$658
$426
$314
2020
2021
2022
2023
2020
2021
2022
2023
2020
2021
2022
2023
Gross Margin
Stable company gross margins above 61% supported by expanded Software & Sensors gross margin due to strength in high-margin
software revenue. TASER gross margin remained above 60% in the year of TASER 10 product launch.
AXON TOTAL GROSS MARGIN
TASER GROSS MARGIN
SOFTWARE & SENSORS GROSS MARGIN
61.1%
62.7%
61.2%
61.1%
62.6%
65.7%
63.3%
60.5%
59.4%
59.5%
59.5%
61.5%
2020
2021
2022
2023
2020
2021
2022
2023
2020
2021
2022
2023
Profitability Measures
GAAP net income profitable, expanding Adjusted EBITDA and Operating Cash Flow.
A X O N N E T I N C O M E ( L O S S )
( $ M I L L I O N S )
$147
$174
A D J U S T E D E B I T D A
( $ M I L L I O N S )
$329
O P E R A T I N G C A S H F L O W
( $ M I L L I O N S )
$156
$178
$232
$124
$235
$189
$38
2020
($2)
2021
2022
2023
2020
2021
2022
2023
2020
2021
2022
2023
($60)
Total Shareholder Returns(1)(2)
AXON five-year share performance ranks in 99th percentile of all S&P 500 companies. AXON three-, five- and 10-year total shareholder
returns rank in the 98th, 96th and 96th percentile among the compensation peer group, respectively.
1 - Y E A R S H A R E
P R I C E
P E R F O R M A N C E
3 - Y E A R S H A R E
P R I C E
P E R F O R M A N C E
5 - Y E A R S H A R E
P R I C E
P E R F O R M A N C E
1 0 - Y E A R S H A R E
P R I C E
P E R F O R M A N C E
1527%
49%
56%
109%
500%
26%
34%
12%
109%
154%
411%
211%
S&P 500
Peer Group
Axon
S&P 500
Peer Group
Axon
S&P 500
Peer Group
Axon
S&P 500
Peer Group
Axon
(1) Represents stock price performance through December 31, 2023.
(2) See “Executive Compensation—Compensation Discussion and Analysis— Peer Comparator Group” for compensation peer
group.
CORPORATE GOVERNANCE HIGHLIGHTS
Board
Governance Oversight
Shareholder Rights & Engagement
Independent board leadership
•
• Majority independent board
• Multi-faceted, diverse directors
• Regular board
refreshment—
three new directors added since
2023
• Average director age: 57
• Average director tenure: 10 years
• One share, one vote equity
• Ability for shareholders to call a
structure
• Annual director elections
• Majority vote standard
• NEW: Public board service
limits
• NEW: Director tenure and term
limits
special meeting
• Ability for shareholders to act by
written consent
• Regular shareholder engagement
with our investors to understand
their views and seek feedback
• NEW: Adopted “proxy access”
bylaw provision
Governance Structures Unique to Axon’s Business
Standing Board Committees
Advisory Boards
• Audit Committee
• Compensation Committee
• Nominating and Corporate Governance Committee,
including oversight of Environmental, Social and
Governance (“ESG”) and sustainability-related risks
• Enterprise Risk and Compliance Committee,
in
including oversight of cybersecurity
consultation with our Audit Committee
risk
• Mergers and Acquisitions and Capital Structure
Committee
• Scientific and Medical Committee(1)
• Scientific and Medical Advisory Board (“SMAB”)
composed of experts from several fields who help to
ensure our Board is aware of evolving technology,
practices and regulations material to our TASER
devices so that the Board can appropriately oversee
Axon’s strategy
leaders
• Ethics & Equity Advisory Council composed of
community
community-focused
and
academics who provide our Board with insight into
responsible development and deployment of new
technology with both
law enforcement and
communities
(1) This chart presents the committees of our Board of Directors up until the 2024 Annual Meeting. As discussed in further
detail below, after the 2024 Annual Meeting, the responsibilities of the Scientific and Medical Committee will move to
the purview of the full Board.
AXON ENTERPRISE, INC.
17800 North 85th Street
Scottsdale, Arizona 85255
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 10, 2024
To our Shareholders:
The 2024 Annual Meeting of Shareholders (the “Annual Meeting”) of Axon Enterprise, Inc. (the “Company” or “Axon”)
will be held at 10:00 a.m. Pacific time on Friday, May 10, 2024. The Annual Meeting will be a completely virtual meeting
of shareholders. You will be able to attend the Annual Meeting, vote your shares electronically, and submit your questions
during the live webcast by visiting www.virtualshareholdermeeting.com/AXON2024. You will need to have your 16-digit
control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card, or on your voting
instruction card or form or other instructions that accompanied your proxy statement. The Annual Meeting will be held
for the following purposes:
1. Election of the directors of the Company named in the proxy statement;
2. Approval of the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan;
3. Approval of the Axon Enterprise, Inc. 2024 eXponential Stock Plan;
4. Approval of the 2024 CEO Performance Award (as defined in the proxy statement);
5. Advisory vote to approve the compensation of the Company’s named executive officers; and
6. Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public
accounting firm for fiscal year 2024.
Only shareholders of record of the Company’s common stock at the close of business on March 15, 2024 are entitled to
notice of, and to vote at, the Annual Meeting or any postponement or adjournment thereof. Only shareholders with a valid
16-digit control number will be able to attend the Annual Meeting and vote, ask questions, and access the list of
shareholders as of the close of business on the record date for the Annual Meeting.
Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read the
proxy statement and vote as soon as possible. For specific instructions on how to vote your shares, please refer to
the section entitled “General Information About the Annual Meeting and Voting” in the proxy statement and the
instructions on your proxy card or the voting instruction card or form you receive from your broker, bank or other
intermediary. Please note that, if you hold shares in different accounts, it is important that you vote the shares
represented by each account.
If you have any questions concerning the proxy statement or the proposals, would like additional copies of the proxy
statement or need help voting your shares of Axon, please contact Axon’s proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue
New York, NY 10022
Shareholders Call Toll Free: (888) 750-5834
International Callers: +1 (412) 232-3651
Brokers and Banks Call: (212) 750-5833
By Order of the Board of Directors,
/s/ ISAIAH FIELDS
Isaiah Fields
Corporate Secretary
Scottsdale, Arizona
March 29, 2024
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,
PLEASE VOTE ON THE INTERNET, BY TELEPHONE, OR MARK, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY OR VOTING INSTRUCTION CARD OR FORM IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
General Information About the Annual Meeting and Voting
Governance
The Board of Directors
Board and Committee Governance
Director Compensation
Certain Relationships and Related Party Transactions
Share Ownership
Ownership of Equity Securities of the Company
Executive Compensation
Executive Officers
Compensation Discussion and Analysis
2023 Summary Compensation Table
Pay Ratio of CEO Compensation to Median Employee Compensation
2023 Grants of Plan-Based Awards
Audit Matters
Report of the Audit Committee
Proposals
Proposal No. 1 – Election of Directors
Proposal No. 2 – Approval of the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan
Proposal No. 3 – Approval of the Axon Enterprise, Inc. 2024 eXponential Stock Plan
Proposal No. 4 – Approval of the 2024 CEO Performance Award
Proposal No. 5 – Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers
Proposal No. 6 – Ratification of Appointment of Independent Registered Public Accounting Firm
Other Matters
Reconciliation of Non-GAAP Measures
Annex A: Amended and Restated 2022 Stock Incentive Plan
Annex B: 2024 eXponential Stock Plan
Annex C: Form of XSU Award Agreement
Annex D: 2024 CEO Performance Award
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8
18
24
26
27
27
29
29
31
44
56
49
57
57
59
60
61
83
83
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105
107
109
A-1
B-1
C-1
D-1
[This Page Intentionally Left Blank]
AXON ENTERPRISE, INC.
17800 North 85th Street
Scottsdale, Arizona 85255
PROXY STATEMENT FOR 2024 ANNUAL MEETING OF SHAREHOLDERS
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why am I receiving these proxy materials?
The Board of Directors (the “Board” or “Board of Directors”) of Axon Enterprise, Inc. (the “Company” or “Axon”) has
made these proxy materials available to you on the Internet or has delivered printed copies of these proxy materials to you
by mail in connection with the Board of Directors’ solicitation of proxies for use at the 2024 Annual Meeting of
Shareholders (the “Annual Meeting”), which will take place virtually at 10:00 a.m. Pacific time on Friday, May 10, 2024.
You will be able to attend the Annual Meeting, vote your shares electronically, access the list of shareholders as of the
close of business on March 15, 2024 (the “Record Date”), and submit your questions during the live webcast by visiting
www.virtualshareholdermeeting.com/AXON2024. You will need to have your 16-digit control number included on your
Notice of Internet Availability of Proxy Materials (the “Notice”), on your proxy card, or on your voting instruction card
or form or other instructions that accompanied your proxy statement (“Voting Instruction Card”). We recommend logging
into the Annual Meeting prior to the start time. This proxy statement describes the matters on which you, as a shareholder,
are entitled to vote. It also gives you information on these matters so that you can make an informed decision. This proxy
statement is first being made available or sent to shareholders on or about March 29, 2024.
What is included in these materials?
These materials include:
the Annual Meeting; and
If you received printed copies of the proxy materials by mail, the proxy materials also include the proxy card or Voting
Instruction Card for the Annual Meeting.
Why did I receive a one-page notice in the mail regarding the Internet availability of these proxy materials instead of a
printed copy of these proxy materials?
In accordance with the rules of the Securities and Exchange Commission (“SEC”), instead of mailing printed copies of the
proxy materials to all of our shareholders, we have elected to furnish such materials to shareholders by providing access
to these documents over the Internet. Accordingly, on March 29, 2024, we sent the Notice to shareholders of record and
beneficial owners of shares of our common stock as of the Record Date. Shareholders have the ability to access the proxy
materials on a website referred to in the Notice or request to receive a printed or electronic copy of the proxy materials by
following the directions found in the Notice. The Company encourages you to take advantage of the availability of the
proxy materials on the Internet in order to help reduce the cost and environmental impact of the Annual Meeting.
Axon Enterprise, Inc. | 2024 Proxy Statement | 1
How can I get electronic access to the proxy materials?
The Notice provides you with instructions regarding how to: (1) view our proxy materials for the Annual Meeting on the
Internet; (2) vote your shares after you have viewed our proxy materials; (3) request a printed or electronic copy of the
proxy materials; and (4) instruct us to send our future proxy materials to you electronically via email. Copies of the proxy
the Company’s website at
materials are also available for viewing on
http://investor.axon.com.
investor relations page of
the
What proposals will be voted on at the Annual Meeting and how does the Board of Directors recommend I vote?
Shareholders will vote on the following items at the Annual Meeting:
Proposal
No. 1
No. 2
No. 3
No. 4
No. 5
No. 6
Election of the directors of the Company named in this proxy statement
Description
Approval of the Axon Enterprise, Inc. Amended and Restated 2022 Stock
Incentive Plan
Approval of the Axon Enterprise, Inc. 2024 eXponential Stock Plan
Approval of the 2024 CEO Performance Award (as defined in this proxy
statement)
Advisory vote to approve the compensation of the Company’s named
executive officers
Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company’s independent registered public accounting firm for fiscal year 2024
Board Recommendation
FOR
(all nominees)
FOR
FOR
FOR
FOR
FOR
Shareholders will also vote on the transaction of any other business as may properly come before the Annual Meeting or
any postponement or adjournment thereof. To the maximum extent allowed by the SEC’s proxy rules, the proxy holders
will vote your shares on such other matters as they determine in their discretion.
Where are the Company’s principal executive offices located and what is the Company’s main telephone number?
The Company’s principal executive offices are located at 17800 North 85th Street, Scottsdale, Arizona 85255. The
Company’s main telephone number is (480) 991-0797.
Who may vote at the Annual Meeting?
As of the Record Date, there were 75,463,324 shares of the Company’s common stock outstanding. Each share of common
stock entitles the holder to one vote on each matter that may properly come before the Annual Meeting or any
postponement or adjournment thereof. The holders of a majority of the voting power of all shares entitled to vote, present
in person (virtually) or represented by proxy, will constitute a quorum for the transaction of business at the Annual
Meeting. Shareholders are not entitled to cumulative voting in the election of directors. Only shareholders as of the close
of business on the Record Date are entitled to receive notice of, to attend, and to vote at the Annual Meeting.
What is the difference between a shareholder of record and a beneficial owner of shares held in street name?
Shareholder of Record
If your shares are registered directly in your name with the Company’s transfer agent, Broadridge Corporate Issuer
Solutions, Inc., you are considered the shareholder of record with respect to those shares, and the Notice or printed copies
Axon Enterprise, Inc. | 2024 Proxy Statement | 2
of the proxy materials were sent directly to you by the Company. If you request printed copies of the proxy materials by
mail, you will also receive a printed proxy card.
Beneficial Owner of Shares Held in Street Name
If your shares are held in an account at a broker, bank or other intermediary, then you are the beneficial owner of shares
held in “street name,” and the Notice or printed copies of the proxy materials were forwarded to you by that organization.
The organization holding your account is considered the shareholder of record for purposes of voting at the Annual
Meeting. As a beneficial owner, you have the right to direct that organization how to vote the shares held in your account.
If you request printed copies of the proxy materials by mail, you will also receive a printed Voting Instruction Card.
If I am a shareholder of record of the Company’s shares, how do I vote?
There are multiple ways to vote:
Via the Internet. If you received a Notice, you may vote via the Internet:
Before the Meeting: until 11:59 p.m. Eastern time on May 9, 2024, visit http://www.proxyvote.com and
enter the control number found in the Notice.
During the Meeting: visit http://www.annualshareholdermeeting.com/AXON2024 and enter the control
number found in the Notice.
By telephone. If you received or requested printed copies of the proxy materials by mail, until
11:59 p.m. Eastern time on May 9, 2024, you may vote by calling the toll-free number found on the
proxy card.
By mail. If you received or requested printed copies of the proxy materials by mail, you may vote by
filling out the proxy card and returning it in the envelope provided.
If I am a beneficial owner of shares held in street name, how do I vote?
Your broker or bank will send you instructions on how to vote. There are multiple ways to vote:
Via the Internet. If you received a Notice, you may vote via the Internet:
Before the Meeting: until 11:59 p.m. Eastern time on May 9, 2024, visit http://www.proxyvote.com and
enter the control number found in the Notice.
During the Meeting: visit http://www.annualshareholdermeeting.com/AXON2024 and enter the control
number found in the Notice.
By telephone. If you received or requested printed copies of the proxy materials by mail, until
11:59 p.m. Eastern time on May 9, 2024, you may vote by calling the toll-free number found on the
Voting Instruction Card.
By mail. If you received or requested printed copies of the proxy materials by mail, you may vote by
filling out the Voting Instruction Card and returning it in the envelope provided.
To attend and participate in the Annual Meeting, you will need the 16-digit control number included on your Notice, on
your proxy card or on your Voting Instruction Card. If your shares are held in street name, you should contact your broker
or bank to obtain your 16-digit control number or otherwise vote through your broker or bank. Only shareholders with a
valid 16-digit control number will be able to attend the Annual Meeting and vote, ask questions and access the list of
shareholders as of the close of business on the Record Date for the Annual Meeting.
Axon Enterprise, Inc. | 2024 Proxy Statement | 3
What constitutes a quorum in order to hold and transact business at the Annual Meeting?
Under Delaware law and the Company’s Bylaws (as amended and restated, the “Bylaws”), the holders of a majority of the
voting power of all shares entitled to vote, present in person or represented by proxy, at a meeting constitutes a quorum.
Abstentions and broker non-votes will be counted as present to determine whether a quorum has been established. Once a
share of the Company’s common stock is represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and any adjournment thereof. If a quorum is not present, the Annual Meeting
may be postponed or adjourned until a quorum is obtained.
How are proxies voted?
All valid proxies received prior to the Annual Meeting will be voted. All shares represented by a proxy will be voted and,
where a shareholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will
be voted in accordance with the shareholder’s instructions.
What happens if I do not give specific voting instructions?
Shareholder of Record
If you are a shareholder of record and you indicate when voting on the Internet or by telephone that you wish to vote as
recommended by the Board, or sign and return a proxy card without giving specific voting instructions, then the proxy
holders will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement
and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote
at the Annual Meeting.
Beneficial Owner of Shares Held in Street Name
If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with
specific voting instructions, the organization that holds your shares may vote on routine matters but cannot vote on non-
routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your
shares on a non-routine matter, the organization that holds your shares will inform the inspector of election that it does not
have the authority to vote on such matters with respect to your shares. This is generally referred to as a “broker non-vote.”
Which ballot measures are considered “routine” or “non-routine”?
Proposals No. 1, No. 2, No. 3, No. 4, and No. 5 (election of the directors, the approval of the Axon Enterprise, Inc.
Amended and Restated 2022 Stock Incentive Plan, the approval of the Axon Enterprise, Inc. 2024 eXponential Stock Plan,
the approval of the 2024 CEO Performance Award, and the advisory vote to approve the compensation of the Company’s
named executive officers) are considered “non-routine.” A broker or other nominee cannot vote without specific voting
instructions from the beneficial owner on non-routine matters, and therefore we anticipate there will be broker non-votes
in connection with Proposals No. 1, No. 2, No. 3, No. 4, and No. 5.
Proposal No. 6 (ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered
public accounting firm for fiscal year 2024) is considered “routine.” A broker or other nominee may generally vote on
routine matters, and therefore no broker non-votes are expected in connection with this proposal.
Can I change my vote after I have voted?
You may revoke your proxy and change your vote at any time before the final vote during the Annual Meeting, subject to
the instructions provided on your Notice, on your proxy card or on your Voting Instruction Card, by voting again via the
Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the final vote during the Annual
Meeting will be counted), by signing and returning a new proxy card or Voting Instruction Card with a later date that is
received prior to the Annual Meeting, or by attending the Annual Meeting and voting during the meeting. However, your
attendance at the Annual Meeting will not automatically revoke your proxy unless you vote again during
Axon Enterprise, Inc. | 2024 Proxy Statement | 4
the Annual Meeting or specifically request that your prior proxy be revoked by delivering to the Company’s Corporate
Secretary at 17800 North 85th Street, Scottsdale, Arizona 85255 a written notice of revocation and is received prior to the
Annual Meeting.
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that protects
your voting privacy. Your vote will not be disclosed either within the Company or to third parties, except as necessary to
meet applicable legal requirements, to allow for the tabulation and certification of votes, and to facilitate a successful
proxy solicitation.
What is the voting requirement to approve each of the proposals?
Election of Directors
For Proposal No. 1, under our Bylaws, assuming the existence of a quorum at the Annual Meeting, each director will be
elected by the affirmative vote of a majority of the votes properly cast for and against such nominee’s election. Abstentions
and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Approval of the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan
For Proposal No. 2, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Approval of the Axon Enterprise, Inc. 2024 eXponential Stock Plan
For Proposal No. 3, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Approval of the 2024 CEO Performance Award
For Proposal No. 4, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers
For Proposal No. 5, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Ratification of Independent Registered Public Accounting Firm
For Proposal No. 6, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for ratification.
Abstentions will have no impact on the outcome of this proposal if a quorum is present.
Who will serve as the inspector of election?
A member of the Company’s internal legal department will serve as the inspector of election.
Axon Enterprise, Inc. | 2024 Proxy Statement | 5
Where can I find the voting results of the Annual Meeting?
The final voting results will be tallied by the inspector of election and, within four business days after the Annual Meeting,
the Company expects to report the final results on Form 8-K filed with the SEC.
Who is paying for the cost of this proxy solicitation?
The Company will bear the cost of solicitation of proxies for the Annual Meeting. We are soliciting your proxy on behalf
of our Board. In addition to the use of mail, proxies may be solicited by personal interview, telephone, facsimile,
electronically, including email, or otherwise, by our directors, officers and other employees. They will not receive any
additional compensation for these activities. We have engaged Innisfree M&A Incorporated to assist in the solicitation of
proxies for an estimated fee of $50,000 with the option for additional fees up to $20,000 for services not yet contracted,
plus reimbursement of reasonable expenses, and we have agreed to indemnify Innisfree M&A Incorporated against certain
losses, costs and expenses. We also will request persons, firms and corporations holding shares in their names, or in the
names of their nominees, that are beneficially owned by others to send or cause to be sent proxy materials to, and obtain
proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in doing so.
Who can help answer my other questions?
If after reading this proxy statement you have more questions about the Annual Meeting or the proposals, you should
contact Innisfree M&A incorporated, our proxy solicitor, at:
Innisfree M&A Incorporated
501 Madison Avenue
New York, NY 10022
Shareholders Call Toll Free: (888) 750-5834
International Callers: +1 (412) 232-3651
Brokers and Banks Call: (212) 750-5833
Axon Enterprise, Inc. | 2024 Proxy Statement | 6
GOVERNANCE
A Letter from the Chair of the Board
Fellow Shareholders,
In the months leading up to our 2024 Annual Meeting, the Board had an opportunity to reflect on our plans for the year
ahead, as well as our work over the past year—including implementing many points of feedback that we received from
our shareholders. Since our Initial Public Offering in 2001, our Company has been a leader in innovation, and we have
been driven by a mission to help create safer places to live—in our hometown communities, public spaces, recreation areas
and in cities across our country.
To make sure our Board can continue to effectively oversee our Company’s strategy, we engaged with our shareholders
to hear their perspectives on governance best practices to help facilitate appropriate risk management and board
accountability. In response to those conversations, we have made substantial updates to our governance structures—some
of which are unique to Axon and some of which help to bring us more in line with best practices.
I’ll start with our Board members—we have added three new directors in the past year. Directors Erika Ayers Badan,
Graham Smith and Chief Jeri Williams enhance the skills and expertise needed to effectively oversee our Company’s
strategy, in the short-term and in the years to come. Their backgrounds in the successful launch of new businesses, finance,
technology solutions and leadership in law enforcement are extremely additive qualifications as we think about how to
accelerate our ability to deliver value for our shareholders, while providing the innovative products on which our customers
and stakeholders depend.
In conjunction with adding highly qualified directors, we’ve also updated our Corporate Governance Guidelines and
adopted bylaw provisions that allow our shareholders better access to the Board and that strengthen our Board’s
governance structures. Furthermore, we have updated our key committee charters to provide more detail on how oversight
of specific material risks, including cybersecurity and sustainability, are overseen by the Board and its committees. We
also have two key advisory boards comprising experts to help ensure that the Board is well-informed of the latest
advancements across the fields that impact our business.
I’m proud of the governance-related updates that we have made over the last year, and I’m proud of the Board members
who bring their unique perspectives and experiences to facilitate a constructive dialogue in the boardroom. Our investor
engagement is also an important factor in how the Board positions itself to oversee our Company. Your feedback has
shaped the updates we have made over the last year, and it will continue to shape our governance structures in the future—
on behalf of the Board, thank you for your critical input and continued investment in our Company.
Best,
Michael Garnreiter,
Chair of the Board
Axon Enterprise, Inc. | 2024 Proxy Statement | 7
Role of the Board of Directors
THE BOARD OF DIRECTORS
The principal duties of the Board of Directors are to oversee management and evaluate strategy. The fundamental
responsibility of the directors is to exercise their business judgment to act in what they reasonably believe to be the best
interest of the Company and its shareholders. Our governance structures are designed to foster disciplined actions, effective
decision-making and appropriate oversight of both performance and compliance.
Axon’s key governance documents,
https://investor.axon.com/documents-and-charters.
including our Corporate Governance Guidelines, are available at
Director Nominations
Our Nominating and Corporate Governance Committee (the “NCG Committee”) is responsible for identifying and
evaluating nominees for the position of director and for recommending to the Board a slate of nominees for election at
each annual meeting of shareholders. Nominees may be suggested by directors, members of management, shareholders
or, in some cases, by a third-party firm engaged by the NCG Committee.
Shareholders who wish the NCG Committee to consider their recommendations for nominees for the position of director
should submit their recommendations in writing by mail to the NCG Committee, c/o Axon Enterprise, Inc., 17800 North
85th Street, Scottsdale, AZ 85255, in accordance with the procedures in our Bylaws. Recommendations by shareholders
that are made in accordance with these procedures will receive the same consideration by the NCG Committee as other
suggested nominees.
Qualifications for All Directors
In its assessment of each potential director nominee, including those recommended by shareholders, the NCG Committee
considers the potential nominee’s demonstrated character, judgment, relevant functional and industry experience, and
whether they possess a high degree of business, financial, governmental, military and/or law enforcement, technological,
cybersecurity, risk oversight, corporate governance or human capital management acumen, independence, and other such
factors the NCG Committee determines are pertinent in light of the current needs of the Board. The NCG Committee also
takes into account the ability of a potential director nominee to devote the time and effort necessary to fulfill his or her
responsibilities to the Board of Directors. The NCG Committee engages in regular succession planning for the Board and
key leadership roles on the Board. As part of this succession planning process, the NCG Committee considers the diversity
and tenure of the current directors and the mix of backgrounds on the Board. While the NCG Committee does not have a
formal diversity policy, the Board believes that the Company benefits from a well-rounded balance of varying
qualifications, attributes, skills and experience in the composition of the Board.
The NCG Committee’s process for identifying and evaluating potential director nominees typically involves a series of
internal discussions, review of information concerning candidates and interviews with selected candidates. From time to
time, the Company has paid third-party firms to identify or assist in identifying or evaluating potential nominees.
Majority Voting Standard and Resignation Policy
Our Bylaws provide that we use a majority voting standard instead of a plurality voting standard in uncontested elections.
Under this standard, an uncontested director must receive a majority of the votes properly cast for and against such nominee
and, if they do not, they must tender their resignation for Board consideration. For contested elections where the number
of director nominees exceeds the number of Board seats open for election, each person nominated to be elected as a director
is elected by a plurality of the votes properly cast.
If an incumbent director receives less than a majority of the votes cast with respect to such director’s election in an
uncontested election, such director will promptly tender his or her resignation to the NCG Committee. No later than 90
days following the receipt of any such tendered resignation, (i) the Board will, taking into account any recommendation
Axon Enterprise, Inc. | 2024 Proxy Statement | 8
by the NCG Committee, take formal action with respect thereto (which action may include accepting or rejecting such
tendered resignation, or taking other action considered appropriate) and (ii) the Company will publicly disclose the Board’s
decision and, in the event that the Board of Directors does not accept any such tendered resignation, the rationale for such
decision. The director who tenders his or her resignation will not participate in the recommendation of the NCG Committee
or the decision of the Board with respect to his or her resignation. The NCG Committee, in making any recommendation,
and the Board, in making any decision, may consider any factors or other information they consider appropriate or relevant.
If the Board accepts a tendered resignation, then the Board may fill the resulting vacancy or may decrease the size of the
Board.
Board Governance Enhancements Over the Last Year
Our Board strives to continually enhance our governance structures and adopt industry and market best practices.
Engagement with our shareholders and feedback from those conversations help to inform the Board’s decision-making in
implementing policies, practices and governance structures in line with investor expectations and those that enable
effective risk oversight at the Board level. Consistent with this approach, the Board has implemented the following policies
and Bylaw amendments since our 2023 Annual Meeting of Shareholders (the “2023 Annual Meeting”), including:
•
•
•
•
establishing a policy for director service on other public company boards;
formalizing board tenure and term limits;
adopting “proxy access”; and
establishing Delaware as the exclusive forum for certain types of actions and claims.
Director Commitments and Service on Other Boards
The Board of Directors recognizes the time commitment that service on a board of directors requires, as well as other
commitments applicable to the Company’s directors. In 2023, the Board updated its Corporate Governance Guidelines to
establish limits on the number of boards on which our directors may serve. A director who is not a named executive officer
of a public company may serve on a total of four public company boards, including the Company’s Board. A director who
is also a named executive officer of a public company may serve on a total of two public company boards, including the
Company’s Board.
Board Refreshment; Tenure and Term Limits
The Board values the contributions of both newer perspectives as well as directors who have developed, over a period of
time, an increased understanding of, and insight into, the governance and business of the Company and the issues
confronting it. In 2023, three directors joined the Company’s Board of Directors. To further our commitment to ensuring
meaningful Board refreshment, in 2023, the Board updated its Corporate Governance Guidelines to implement formal
term limits for directors in order to ensure alignment of director qualifications, attributes, skills and experience with the
Company’s evolving strategy. Each non-executive director of the Company must submit a letter of resignation to the chair
of the NCG Committee upon reaching 20 continuous years of service as a director of the Company or age 72, whichever
occurs first, and each year thereafter, which letter of resignation may be accepted or rejected by the Board in its sole
discretion.
Pursuant to this term limit policy, Dr. Mark Kroll, who has served on the Board since 2003, provided his offer to resign
from the Board, subject to Board acceptance. After considering the mix of newer and tenured directors and the Company’s
progress on various strategic matters, the NCG Committee recommended to the Board that it accept Dr. Kroll’s offer to
resign, which the Board approved on March 4, 2024, effective as of the date of the Annual Meeting. The Board greatly
appreciates Dr. Kroll’s deep commitment, leadership and many contributions to the Board and to the Company’s growth
and progress during his years of service. In addition, pursuant to the Company’s term limit policy, Michael Garnreiter, in
anticipation of his 72nd birthday, provided his offer to resign from the Board, subject to Board acceptance. After
considering Mr. Garnreiter’s leadership roles as Chair of the Board and Audit Committee Chair, as well as the transition
Axon Enterprise, Inc. | 2024 Proxy Statement | 9
from Grant Thornton LLP to PricewaterhouseCoopers LLP as the Company’s independent registered public accounting
firm for fiscal year 2024, the NCG Committee recommended to the Board that it decline Mr. Garnreiter’s offer to resign
to provide additional time to plan for his succession. On March 4, 2024, the Board determined to follow the NCG
Committee’s recommendation and appointed Graham Smith as Audit Committee Chair to begin a smooth transition.
Adoption of Proxy Access
In 2023, we amended our Bylaws to adopt a “proxy access” provision, which permits a shareholder, or a group of up to 20
shareholders, who own 3% or more of our voting stock continuously for at least three years, to nominate and include in
our annual meeting proxy materials director nominees constituting up to the greater of two directors or 20% of the Board,
subject to certain conditions and provided that the shareholder(s) and director nominee(s) satisfy all eligibility, procedural
and disclosure requirements specified in our Bylaws, including that each director nominee submitted through the proxy
access provisions must meet the qualifications to be an independent director.
Exclusive Forum
In 2023, our Board adopted an amendment to our Bylaws to provide as an exclusive forum (i) the Delaware Court of
Chancery for certain types of actions and claims (including derivative actions, actions asserting a claim of breach of
fiduciary duty and actions against us arising pursuant to the Delaware General Corporation Law or our organizational
documents) and (ii) the federal district courts of the United States for claims arising under the Securities Act of 1933, as
amended (the “Securities Act”), in each case subject to certain limitations. Our Board believes this provision is in the best
interest of Axon and its shareholders. First, designating a forum in which certain claims can be brought promotes the
efficient resolution of such claims and reduces the likelihood of duplicative lawsuits being brought in multiple
jurisdictions. Further, the ability of plaintiffs to litigate claims governed by Delaware law in courts other than the Delaware
Court of Chancery may mean that claims are brought in courts that may not apply Delaware law in the same manner as
the Delaware Court of Chancery. The Delaware Court of Chancery’s considerable expertise has led to the development of
a substantial and influential body of case law interpreting Delaware corporate law. We expect this will provide us and our
shareholders with more consistency and predictability regarding the outcome of corporate disputes, which can minimize
the time, cost and uncertainty of litigation for all parties. Similarly, the Board believes designating the federal district
courts of the United States as the exclusive forum for claims brought under the Securities Act prevents forum shopping of
state courts by plaintiffs and facilitates review of Securities Act claims by judges in federal courts that may have significant
experience and expertise in adjudicating such claims. The exclusive forum provision in our Bylaws does not apply to suits
brought to enforce any liability, obligation or duty created by the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) to the extent such application would be contrary to law.
Our Highly Qualified, Diverse Board of Directors
The Board has identified particular qualifications, attributes, skills and experience that it believes are important to be
represented on the Board as a whole in order to advise and contribute to the execution of the Company’s strategic
objectives. Each Board member was selected in accordance with the process for identifying and evaluating director
nominees described above. Accordingly, the Board believes that each of the Company’s Board members brings a myriad
of qualifications, attributes, skills and experience that are a combined benefit to the Company and its shareholders.
While recognizing that any group of people is more than the sum of its parts, that biography does not always define identity
and that attempting to quantify diversity is an imperfect exercise in a world of unique individuals, we also acknowledge
and celebrate that our Board intentionally reflects a wide range of human experiences and identities.
The following matrices provide enhanced disclosure regarding the diversity and backgrounds of the members of the
Company’s Board, including the qualifications, attributes, skills and experience that have been identified as important to
be represented on the Board. The matrices do not encompass all of the qualifications, attributes, skills and experience of
our directors, and the fact that a particular qualification, attribute, skill or experience is not listed does not mean that a
director does not possess it. In addition, the absence of a qualification, attribute, skill or experience with respect to any of
our directors does not mean the director in question is unable to contribute to the decision-making process in that area.
The type and degree of skill and experience listed below may vary among the members of the Board.
Axon Enterprise, Inc. | 2024 Proxy Statement | 10
Board Diversity Matrix
Number of Directors
Part I
Directors
Part II
African American or Black
Asian
White
LGBTQ+
Demographic background not disclosed
Number of Directors
Part I
Directors
Part II
African American or Black
Asian
White
LGBTQ+
Board Skills Matrix
As of March 15, 2024
Female
Male
Gender Undisclosed
5
5
2
—
3
1
—
—
1
4
—
1
—
—
—
—
1
As of March 31, 2023
Female
Male
4
2
—
2
1
6
—
1
5
•
•
•
•
•
•
•
•
•
•
•
•
•
11
Skills and Experience Ayers Brown Cullivan Garnreiter Kalinowski Kroll McBrady Partovi G. Smith P. Smith Williams Total
CEO/senior executive
experience
Accounting/auditing
experience
Governmental, regulatory
and/or legal experience
Medical and/or scientific
experience
Military and/or law
enforcement experience
Technology expertise
Cybersecurity experience
Risk oversight and
management
Public company board
experience/corporate
governance
Human capital
management
Director since
2023 2020
1993
2016
2006
2019
2010
2023
2003
2023
2017
8
1
•
•
1
2
1
8
2
5
1
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Axon Enterprise, Inc. | 2024 Proxy Statement | 11
Director Nominees in 2024
Erika Ayers Badan
Director since 2023
Age: 48
Board Committee: NCG Committee
Other Public Companies Boards: None
Ms. Ayers was named Barstool Sports’ first Chief Executive Officer (“CEO”) in 2016 and, during
her tenure through January 2024, it experienced tremendous brand and business growth as one of
the fastest-growing digital innovation, sports, entertainment and lifestyle media brands on the Internet. Prior to joining
Barstool Sports, Ms. Ayers held various executive roles at media platforms such as Microsoft Corporation, AOL, Leaf
Group (formerly Demand Media, Inc.) and Yahoo! Inc. She has extensive experience in transforming start-up
organizations into multi-industry operations. She was also part of two early stage start-ups in the fashion and music
industry and sits on the advisory boards of the Premier Lacrosse League and Food52. Ms. Ayers previously served on the
board of directors of World Wrestling Entertainment, Inc. from October 2020 to September 2022. Ms. Ayers holds a B.S.
in Sociology and Psychology from Colby College.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management;
Public Company Board Experience/
Corporate Governance
Experience as an executive of media platform companies provides Ms. Ayers
with valuable insight into communication expertise, Internet-related business
development demands and brand building.
Experience as an advisor to multiple companies and as a board member of
World Wrestling Entertainment, Inc. from October 2020 to September 2022
provides insight into public company corporate governance matters.
Adriane Brown
Director since 2020
Age: 65
Board Committees: Compensation Committee, NCG Committee (Chair) and Enterprise Risk and
Compliance Committee
Other Public Company Boards: American Airlines Group Inc., eBay Inc. and KKR & Co Inc.
Ms. Brown has been a Managing Partner at Flying Fish Partners, a technology focused venture
capital firm, since 2021 and joined as a Venture Partner in 2018. Prior to that, Ms. Brown served as President and Chief
Operating Officer for Intellectual Ventures (“IV”), an invention and investment company that commercializes inventions,
from January 2010 through July 2017, and served as a Senior Advisor until December 2018. Before joining IV, Ms. Brown
served as President and CEO of Honeywell Transportation Systems (“Honeywell”) from January 2005 to June 2009. Over
the course of 10 years at Honeywell, she held leadership positions serving the aerospace and automotive markets globally.
Prior to Honeywell, Ms. Brown spent 19 years at Corning, Inc., ultimately serving as Vice President and General Manager,
Environmental Products Division, having started her career there as a shift supervisor. Ms. Brown serves on the boards of
directors of American Airlines Group Inc., eBay Inc. and KKR & Co Inc. Ms. Brown also serves on the board of directors
of the International Women’s Forum. Previously, she served on the boards of directors of Allergan plc and Raytheon
Company until 2020, respectively, and Harman International Industries until 2017. Ms. Brown holds an Honorary
Doctorate of Humane Letters and a B.A. in environmental health from Old Dominion University and is a winner of its
Distinguished Alumni Award. She also holds a M.A. in Management from the Massachusetts Institute of Technology
where she was a Sloan Fellow.
Axon Enterprise, Inc. | 2024 Proxy Statement | 12
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management;
Public Company Board Experience/
Corporate Governance
Ms. Brown is a Managing Partner and member of the Investment Committee
at Flying Fish Partners. The fund invests in and supports start-ups utilizing
artificial intelligence and machine learning to transform processes in a
variety of market verticals. Over the course of her career, Ms. Brown has
engaged in business and technology transformations across a number of
businesses and markets.
Board experience from Allergan plc, American Airlines Group Inc., eBay
Inc., KKR & Co Inc., Harman International Industries and Raytheon
Company provides extensive insight into public company corporate
governance matters.
Julie A. Cullivan
Director since 2017
Age: 57
Board Committees: Audit Committee, NCG Committee and Enterprise Risk and Compliance
Committee (Chair)
Other Public Company Boards: Astra Space Inc.
Most recently, Ms. Cullivan was the Chief Technology and People Officer at Forescout Technologies, Inc. (“Forescout”),
reporting to the CEO, where she was responsible for leading the company’s business model transformation, information
technology strategy, security risk and compliance program, customer production operations and human resources. She
joined in July 2017 and helped Forescout scale from a private company with $160 million in revenue, through its successful
initial public offering, to a publicly traded company with revenues of $330 million and a $1.5 billion valuation. In addition
to focusing on scale, Ms. Cullivan led Forescout’s operational transformation from an appliance and license software
business to a cloud subscription business. Forescout was acquired by Advent International, a private equity firm, in 2020
and Ms. Cullivan left in January 2021. Prior to Forescout, Ms. Cullivan was an Executive Vice President of Business
Operations and Chief Information Officer at FireEye Inc. and a Senior Vice President at McAfee Corp. Additionally,
Ms. Cullivan held executive roles at Autodesk, Inc., EMC Corporation and Oracle Corporation. Ms. Cullivan has served
on the board of directors of Astra Space Inc. since 2023. Ms. Cullivan holds a B.S. in Finance from Santa Clara University.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise;
Cybersecurity Experience;
Human Capital Management
Risk Oversight & Management;
Public Company Board Experience/
Corporate Governance
Ms. Cullivan is a recognized leader in the cybersecurity field and a sought-
after speaker on topics including women in security, security as a boardroom
imperative, innovation and building high impact teams.
Experience as Chief Technology and People Officer, and Executive Vice
President of Business Operations and Chief Information Officer, leading
cross functional initiatives and information security strategy in a high-growth
environment, provides experience in risk management.
Axon Enterprise, Inc. | 2024 Proxy Statement | 13
Michael Garnreiter, Chair
Director since 2006
Age: 71
Board Committees: Audit Committee, Compensation Committee and NCG Committee
Other Public Company Boards: Knight-Swift Transportation Holdings Inc. and Amtech
Systems, Inc.
Mr. Garnreiter most recently served as Vice President of Finance and Treasurer of Shamrock
Foods, a privately held manufacturer and distributor of foods and food-related products. He retired from this position in
December 2015. From January 2010 until August 2012, Mr. Garnreiter was a managing director of Fenix Financial
Forensics, a Phoenix-based litigation and financial consulting firm. From August 2006 through December 2009,
Mr. Garnreiter served as managing member of Rising Sun Restaurant Group, LLC, a private restaurant operating company.
From April 2002 through June 2006, Mr. Garnreiter was Executive Vice President, Treasurer and Chief Financial Officer
of the Main Street Restaurant Group. Mr. Garnreiter previously served with the international accounting firm, Arthur
Andersen, from 1974 through March 2002 with increasing levels of responsibility, culminating as a partner. Additionally,
Mr. Garnreiter has served on the board of Knight-Swift Transportation Holdings Inc. since 2003 and has also served on
the board of Amtech Systems, Inc. since 2007. Mr. Garnreiter holds a B.S. in Accounting from California State University
at Long Beach and is a Certified Public Accountant.
Specific Qualifications, Attributes, Skills and Experience:
Accounting/ Auditing Experience
Risk Oversight & Management;
Public Company Board Experience/
Corporate Governance
As a Certified Public Accountant and former partner at Arthur Andersen,
Mr. Garnreiter has served on the audit committee of each board of directors
on which he has served in the past and has extensive knowledge of SEC rules
and regulations.
Board experience from Knight-Swift Transportation Holdings Inc. and
Amtech Systems, Inc. provides extensive insight into public company
corporate governance matters.
Caitlin Kalinowski
Director since 2019
Age: 43
Board Committees: Audit Committee and Mergers and Acquisitions and Capital Structure
Committee
Other Public Company Boards: None
Ms. Kalinowski leads the AR Glasses Hardware team for the Reality Labs Division at Meta.
Previously, she led VR Hardware, the division responsible for the Meta Quest 2 and Touch controllers, and the Oculus
Rift, Go and Rift S. Before working at Meta, Ms. Kalinowski was a Product Design Engineer at Apple where she was a
technical lead on the Mac Pro and MacBook Air products and was part of the original unibody MacBook Pro team.
Ms. Kalinowski is also on the strategic board of Lesbians Who Tech & Allies, the largest LGBTQ technical organization
in the world. Ms. Kalinowski holds a B.S. in Mechanical Engineering from Stanford University.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Ms. Kalinowski has extensive experience in established technology organizations
such as Meta and Apple. Ms. Kalinowski led technical teams at Apple and currently
leads the AR Glasses Hardware team at Meta. She has tremendous insight into product
design and engineering for technology focused initiatives.
Axon Enterprise, Inc. | 2024 Proxy Statement | 14
Matthew R. McBrady, Ph.D
Director since 2016
Age: 53
Board Committees: Enterprise Risk and Compliance Committee, Mergers and Acquisitions and
Capital Structure Committee (Chair) and Scientific and Medical Committee
Other Public Company Boards: None
From August 1998 through January 2000, Dr. McBrady served as an international economist with
President Clinton’s Council of Economic Advisers and the U.S. Treasury Department. From 2002 to 2006, Dr. McBrady
served as a Professor of Finance at the Wharton School of Business at the University of Pennsylvania (from
September 2002 through May 2003) and at the Darden Graduate School of Business Administration at the University of
Virginia (from May 2003 through December 2006). After leaving academia, Dr. McBrady joined the North American
Private Equity group at Bain Capital, LLC where he worked as an investment professional from January 2007 through
January 2009 prior to joining Silver Creek Capital Management, LLC as Managing Director and Head of Investment
Strategy and Risk Management. In January 2014, Dr. McBrady joined BlackRock, Inc., where he served as Managing
Director and Chief Investment Officer of Multi-Strategy Hedge Funds from January 2014 through September 2016.
Dr. McBrady served as the Managing Director of Investments at the Cystic Fibrosis Foundation from September 2017 to
January 2019 and a Senior Advisor and co-Chief Investment Officer of Callaway Capital from January 2017 to
December 2019. Dr. McBrady returned to the Darden Graduate School of Business Administration as a Professor of
Finance Practice in August 2022, where he teaches classes in Corporate Financial Strategy and Impact and ESG Investing.
In addition to his work in the private sector and academia, Dr. McBrady currently serves as an advisor to a number of
impact investing funds and as the Chairman of the Investment Committee for Global Partnerships, a non-profit impact
investor that has deployed nearly $500 million in concessionary loans to improve the lives of people living at the bottom
of the pyramid in Central and South America and Africa. Dr. McBrady holds a B.A. in Economics from Harvard
University, a M.Sc. in International Economics from Oxford University (U.K.) and a Ph.D. in Business Economics from
Harvard University. Dr. McBrady previously served as a director for the Company from January 2001 through June 2014.
Specific Qualifications, Attributes, Skills and Experience:
Governmental Experience
Risk Oversight & Management
Service as a member of President Clinton’s Council of Economic Advisors provides
deep insight into government processes.
Teaching positions at the Harvard Business School, the Wharton School of Business
and the Darden Graduate School of Business Administration provide valuable
financial knowledge and context. Service as Chief Investment Officer for
BlackRock and investment strategy and management positions for other investment
management firms provide experience in risk management.
Hadi Partovi
Director since 2010
Age: 51
Board Committees: Compensation Committee (Chair) and Mergers and Acquisitions and Capital
Structure Committee
Other Public Company Boards: None
Mr. Partovi is the CEO and co-founder of the non-profit education organization Code.org and has served
as a director on the board of MNTN, Inc., a private company, since 2023. Mr. Partovi is a past or present strategic advisor or
early investor at numerous technology companies, including Facebook, Dropbox, Uber, Airbnb, SpaceX and Zappos. From 2009
through 2010, Mr. Partovi was Senior Vice President of Technology for MySpace (via acquisition) and, from 2006 through 2009,
he was President and co-founder of iLike, Inc., which was acquired by MySpace in 2009. From 2002 through 2005, Mr. Partovi
was General Manager, Microsoft MSN Entertainment and MSN.com and, from 1999 through 2001, he was Co-Founder and
Vice President of Product and Professional Services for Tellme Networks, Inc. From 1994 through 1999,
Axon Enterprise, Inc. | 2024 Proxy Statement | 15
he was Program Manager for Microsoft Internet Explorer. Mr. Partovi holds a B.A. and a M.S. in Computer Science,
summa cum laude, from Harvard University.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management
Experience as an executive, entrepreneur, investor and advisor across a variety of
successful technology companies provides Mr. Partovi with invaluable insight into
software and Internet-related business development initiatives.
Background as an advisor to multiple start-up companies provides Mr. Partovi
experience in the unique challenges facing companies pursuing new technology.
Graham Smith
Director since 2023
Age: 64
Board Committees: Audit Committee (Chair), Compensation Committee and Mergers and
Acquisitions and Capital Structure Committee
Other Public Company Boards: Splunk Inc. and Procore Technologies, Inc.
Mr. Smith has served as chair of the board of directors of Splunk Inc. since March 2019, and as a
member of its board of directors since 2011. He also served as the interim CEO of Splunk Inc. from November 2021 to
April 2022. Mr. Smith has also served on the board of directors of Procore Technologies, Inc., a provider of cloud-based
construction management software, since 2020. In addition, Mr. Smith has served on the board of directors of Talkdesk,
Inc., a global cloud contact center, since 2023. Mr. Smith served in various leadership positions at salesforce.com, inc.
(“Salesforce”), a provider of enterprise cloud computing software, from 2007 to 2015, including as Chief Financial Officer
and most recently as Executive Vice President. Prior to joining Salesforce, Mr. Smith served as Chief Financial Officer at
Advent Software Inc., a portfolio accounting software company, from 2003 to 2007. Mr. Smith previously served on the
board of directors of BlackLine, Inc., a provider of cloud-based solutions for finance and accounting, from 2015 to 2022;
Citrix Systems, Inc., an enterprise software company, from 2015 to 2018; MINDBODY, Inc., a cloud-based wellness
services marketplace (acquired by Vista Equity Partners), from 2015 to 2019; Xero Limited, an online accounting software
company, from 2015 to 2020; Slack Technologies, Inc., a provider of cloud-based professional collaboration tools, from
2018 to 2021; and Elliott Opportunity II Corp., a special purchase acquisition company, from June to December 2021.
Mr. Smith holds a B.Sc. from Bristol University in England and qualified as a chartered accountant in England and Wales.
Specific Qualifications, Attributes, Skills and Experience:
Accounting/ Auditing Experience
Technology Expertise
Risk Oversight & Management;
Public Company Board Experience/
Corporate Governance
As an international chartered accountant, Mr. Smith has served as Chief
Financial Officer of multiple publicly traded companies.
Experience as an executive of multiple technology companies, including
progressive leadership positions at Salesforce, provides expertise in
technology company operations.
Board experience for Splunk Inc. and Procore Technologies, Inc., as well as
Inc., Slack
BlackLine,
Technologies, Inc. and Xero Limited, provides extensive insights into public
company corporate governance matters.
Inc., Citrix Systems,
Inc., MINDBODY,
Axon Enterprise, Inc. | 2024 Proxy Statement | 16
Patrick W. Smith, CEO
Director since 1993
Age: 53
Board Committees: None
Other Public Company Boards: None
Mr. Smith has served as CEO and as a director of the Company since 1993. He is also co-
founder of the Company. After graduating from Harvard University, cum laude, in just
three years (class of 1991), Mr. Smith entered directly into the M.B.A. program at the University of Chicago. In two years,
he completed both a master’s degree in international finance from the University of Leuven in Leuven, Belgium and an
M.B.A. with honors at the University of Chicago, graduating in the top 5% of his class. After completing graduate school
in the summer of 1993, he co-founded Axon Enterprise, Inc. (F.K.A. TASER International, Inc.) in September 1993 with
his brother, Thomas P. Smith. Among other qualifications, Mr. Smith is the visionary of the Company and brings to the
Board extensive executive leadership experience in the technology industry, including the management of worldwide
operations, sales, service and support as well as technology innovation as he currently holds 53 U.S. patents.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Mr. Smith is highly skilled in technology innovation and is the holder of 53 U.S.
patents.
Risk Oversight & Management Management and board experience as the CEO and co-founder of the Company
provides extensive executive leadership expertise in navigating the range of risks
faced by the Company over the past 30 years.
Jeri Williams
Director since 2023
Age: 58
Board Committees: Audit Committee and Enterprise Risk and Compliance Committee
Other Public Company Boards: None
Ms. Williams served as Chief of Police for the Phoenix Police Department, the first female to lead
the city’s force, from 2016 to 2022. During her tenure with the department, she advanced a number
of progressive strategies, including key areas such as community engagement and professional standards. Previously, she
served nearly six years as Chief of Police in the City of Oxnard, California. Ms. Williams has received extensive accolades
for her dedication to law enforcement, including being named one of Arizona’s Most Intriguing Women by the Arizona
Centennial Legacy Project and recognized as California’s Assembly District 44 Woman of the Year for her leadership and
outstanding accomplishments. In 2016, President Obama appointed Ms. Williams to a membership position on the Medal
of Valor Review Board. She has also served as the first female President of the Major Cities Chiefs Association.
Ms. Williams holds a B.A. in Fine Arts from Arizona State University and a M.A. in Education from Northern Arizona
University.
Specific Qualifications, Attributes, Skills and Experience:
Governmental Experience
Law Enforcement Experience
Service as the President of the Major Cities Chiefs Association provides valuable
insight into community engagement and enhances relationships with various
governmental agencies and law enforcement leaders.
Service as Chief of Police for the Phoenix Police Department and City of Oxnard,
California provides deep insight into the operational demands of our law
enforcement customers.
Axon Enterprise, Inc. | 2024 Proxy Statement | 17
Board Leadership Structure
BOARD AND COMMITTEE GOVERNANCE
Michael Garnreiter, Chair of the Board
Patrick W. Smith, CEO
The Company’s governance documents provide the Board with flexibility to select the appropriate leadership structure for
the Company. In making leadership structure determinations, the Board considers many factors, including the specific
needs of the business and what is in the best interests of the Company and its shareholders. The current leadership structure
is anchored by an independent director as Chair of the Board. If at any time the Chair of the Board is not independent, the
Board will elect a “Lead Independent Director” by a majority vote of the independent directors. The Lead Independent
Director will have the responsibilities described in our Corporate Governance Guidelines. The Board believes this structure
provides a well-functioning and effective balance between strong Company leadership and appropriate safeguards and
oversight by independent directors.
The principal role of the Chair of the Board is to manage and to provide leadership to the Board of Directors of the
Company. The Chair is accountable to the Board and acts as a direct liaison between the Board and the management of
the Company, through the CEO. The Chair acts as the communicator of Board decisions where appropriate. The separation
of the role of the Chair from that of the CEO is based on the Board’s view that the Chair should be free from any interest
and any business or other relationship that could interfere with the Chair’s judgment, other than interests resulting from
Company shareholdings and remuneration.
The NCG Committee conducts an annual evaluation of the performance of the Board and each of its standing committees
and conducts regular peer assessments of each individual director.
Axon’s key governance documents,
https://investor.axon.com/documents-and-charters.
including our Corporate Governance Guidelines, are available at
Meetings of the Board of Directors
During the year ended December 31, 2023, the Board held seven meetings. No member of the Board attended fewer than
75% of the total number of meetings of the Board (held during the period for which he or she was a director) and the total
number of meetings held by all committees of the Board on which such director served (held during the period that such
director served).
Axon Enterprise, Inc. | 2024 Proxy Statement | 18
Committees of the Board of Directors
The Board currently has six standing committees: the Audit Committee, the Compensation Committee, the NCG
Committee, the Enterprise Risk and Compliance Committee, the Mergers and Acquisitions and Capital Structure
Committee and the Scientific and Medical Committee; the Scientific and Medical Committee will disband as of the date
of the Annual Meeting and its responsibilities will be carried out by the full Board. The full Board will assume oversight
of the issues previously within the purview of the Scientific and Medical Committee as these topics are prevalent
throughout the broader strategy of the Company and are integrated in conversations outside those of the specific
committee. The following table summarizes the current membership of our standing non-management Board committees,
and identifies the chair of each committee and the number of committee meetings held in fiscal 2023:
Audit
Committee
Compensation
Mergers and
Enterprise Acquisitions
Risk and and Capital
Structure
Compliance
Scientific
and
Medical
NCG
Committee Committee Committee Committee Committee (4)
4
2
3
8
5
X
*
X
X
X
X
*
X
X
*
X
X
X
X
*
X
X
*
X
# Meetings
Director
Erika Ayers Badan
Adriane Brown
Julie A. Cullivan
Michael Garnreiter (1)
Caitlin Kalinowski
Mark Kroll (2)
Matthew McBrady
Hadi Partovi
Graham Smith (3)
Jeri Williams
6
X
X
X
*
X
X = Member
* = Chair
(1) Michael Garnreiter served as Audit Committee Chair until March 4, 2024.
(2) Dr. Mark Kroll is not standing for re-election to the Board upon expiration of his current term at the Annual Meeting.
(3) There is no family relationship between Graham Smith and our CEO, Patrick W. Smith.
(4) The Scientific and Medical Committee will disband as of the date of the Annual Meeting and its responsibilities will be
carried out by the full Board.
Audit Committee
The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act, assists the Board in
fulfilling its oversight responsibilities regarding (i) the Company’s process for financial reporting and the integrity of the
Company’s financial statements; (ii) the Company’s internal control system; (iii) the performance of the Company’s
internal audit function; (iv) the independent accountants’ independence, qualifications and performance; (v) the
Company’s risk assessment and management policies for major financial risks; and (vi) the Company’s Code of Business
Conduct & Ethics (“Code of Ethics”) and process for monitoring compliance with laws and regulations. In furtherance of
its purpose, the Audit Committee has the following specific responsibilities:
• Discusses with management the Company’s major financial risk exposures and the steps management has taken
to monitor and control such exposures;
• Discusses with management the Company’s liquidity, cash management and treasury functions, and provides
oversight of the Company’s Corporate Investment Policy;
Axon Enterprise, Inc. | 2024 Proxy Statement | 19
• Reviews and considers for ratification or approval all related party transactions and/or other transactions
implicating a potential conflict of interest between the Company and any of its directors, executive officers, 5%
shareholders or other related parties if such transactions are in excess of $120,000;
• Periodically reviews the Company’s program for monitoring compliance with the Code of Ethics and receives
and reviews updates from management regarding the implementation of the Code of Ethics, including the annual
ethics certification and training processes of covered persons;
• Establishes procedures for (i) the receipt, retention and treatment of complaints received by the Company
regarding internal accounting controls or accounting or auditing matters and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding internal accounting controls, questionable
accounting or auditing matters;
• Periodically obtains any required reports and assurances from the independent accountants, the internal auditor
and management with respect to the effectiveness of the Company’s system for monitoring compliance with laws
and regulations; and
• Receives and reviews reports from management with respect to any significant legal, compliance or regulatory
matters that may have a material impact on the Company’s business, financial statements or compliance policies,
including material notices to or inquiries received from governmental agencies.
With respect to any such matters that involve cybersecurity, data privacy or information technology, the Committee
coordinates and consults with the Enterprise Risk and Compliance Committee as appropriate.
The Audit Committee exercises sole authority with respect to the selection of the Company’s independent registered public
accounting firm and the terms of its engagement. The Audit Committee reviews with the independent registered public
accounting firm, upon the completion of its audit of the Company’s financial statements, the results of the auditing
engagement; reviews with the independent registered public accounting firm, upon the completion of its quarterly review
of the Company’s financial statements, the results of the quarterly review; and at least annually meets with the independent
registered public accounting firm to review any recommendations they may have with respect to the Company’s financial,
accounting or auditing systems.
The Report of the Audit Committee for the year ended December 31, 2023 is included in this proxy statement. See “Audit
Matters—Report of the Audit Committee” for more information regarding the Audit Committee.
The Audit Committee’s primary responsibilities are set forth in its charter, which is subject to annual review and revision.
The full text of the Audit Committee charter is available on our website at https://investor.axon.com/documents-and-
charters.
Compensation Committee
The Compensation Committee assists the Board in discharging its responsibilities regarding the compensation of the
officers of the Company within the meaning of Section 16 of the Exchange Act (collectively, “Section 16 Officers”) and
members of the Board. The Compensation Committee is responsible for (i) overseeing the Company’s compensation plans,
policies and programs for such individuals, (ii) assessing the appropriateness of their compensation in light of business,
competitive and regulatory considerations and (iii) evaluating the performance of the Section 16 Officers. In addition, the
Compensation Committee oversees compensation plans, policies and programs applicable to the Company’s directors,
Section 16 Officers and other employees, including equity-based plans such as the design of the Axon Enterprise, Inc.
Amended and Restated 2022 Stock Incentive Plan, the Axon Enterprise, Inc. 2024 eXponential Stock Plan and 2024 CEO
Performance Award.
Axon Enterprise, Inc. | 2024 Proxy Statement | 20
The Compensation Committee also oversees, in consultation with the NCG Committee, the Company’s policies, practices
and initiatives relating to human capital management, including workforce diversity and inclusion, workplace culture,
talent development, retention and recruitment and employee engagement.
The Compensation Committee Report for the year ended December 31, 2023 is included in this proxy statement. See
“Executive Compensation—Compensation Discussion and Analysis—Compensation Committee Report” for more
information regarding the Compensation Committee.
The Compensation Committee’s primary responsibilities are set forth in its charter, which is subject to annual review and
is available on our website at
revision. The
https://investor.axon.com/documents-and-charters.
the Compensation Committee charter
text of
full
Nominating and Corporate Governance Committee
The NCG Committee assists the Board in overseeing (i) the process by which individuals are nominated to become Board
members; (ii) matters of corporate governance, including advising the Board on matters of (A) Board organization,
membership and function and (B) committee structure and membership; and (iii) succession planning for Board members
and executive officers of the Company.
In addition, in collaboration with other committees of the Board and the Company’s management as appropriate, the NCG
Committee identifies and monitors emerging corporate governance issues and trends that could be reasonably expected to
have a substantial impact on the Company, including any material environmental or sustainability-related issues and the
Company’s strategy with respect to social matters of significance to the Company.
The NCG Committee also periodically reviews the Company’s Corporate Governance Guidelines and other corporate
governance policies and recommends to the Board any changes that the Committee determines, in its sole discretion, to be
necessary or appropriate. In 2023, the Board of Directors updated our Corporate Governance Guidelines to further
strengthen our commitment to corporate governance best practices.
The NCG Committee’s primary responsibilities are set forth in its charter, which is subject to annual review and revision.
The full text of the NCG Committee charter is available on our website at https://investor.axon.com/documents-and-
charters.
Other Standing Committees
The Enterprise Risk and Compliance Committee
The Enterprise Risk and Compliance Committee assists the Board in overseeing our overall approach to enterprise risk
management, and regularly reviews the categories of risk the Company faces. The Committee is also responsible for
overseeing the design, implementation and management of an effective information security program, including reviewing
and overseeing the Company’s policies and procedures relating to cybersecurity and data protection risks associated with
the Company’s products, services, information technology infrastructure and related operations.
The Mergers and Acquisitions and Capital Structure Committee
The Mergers and Acquisitions and Capital Structure Committee serves to focus on issues related to any proposed merger,
acquisition or other strategic investment activity or plans identified by the Company’s management. It also provides
guidance and oversight on the Company’s financing decisions.
Director Independence
As of the date of this proxy statement, based upon the information submitted by each of its directors, the Board has made
a determination that a majority of our current Board is independent as that term is defined by the listing standards of The
Nasdaq Stock Market (the “NASDAQ Listing Standards”) and that all of the members of our Board committees also meet
Axon Enterprise, Inc. | 2024 Proxy Statement | 21
any additional specific independence standards applicable to any committee on which such director serves, including the
more stringent audit committee and compensation committee independence criteria. In addition, each of the members of
our Compensation Committee is also a “non-employee director” (within the meaning of Rule 16b-3 under the Exchange
Act).
For 2023, the Company determined that all Board members, other than Patrick W. Smith and Matthew McBrady, were
independent under the applicable NASDAQ Listing Standards and SEC rules. Mr. P. W. Smith and Mr. McBrady are not
independent. Mr. P. W. Smith is not considered independent as he is the founder and CEO of the Company. Out of an
abundance of caution, the Board determined that Mr. McBrady is not independent given his long-standing social
relationship with Mr. P. W. Smith.
In making its independence determinations, the Board considered that Mark W. Kroll, Ph.D., who is not standing for re-
election to the Board upon the expiration of his current term at the Annual Meeting, provides consulting services to the
Company. The expenses related to these services, excluding travel reimbursements, were approximately $114,000 for the
year ended December 31, 2023. The Board determined that these consulting services did not impair Dr. Kroll’s
independence because the amount of the fees is not material to Dr. Kroll or the Company and they represent a significant
reduction from his standard fees.
Audit Committee Financial Experts
The Board of Directors determined that Michael Garnreiter and Graham Smith, each an independent director of the
Company, is an audit committee financial expert within the meaning of that term under applicable SEC rules. See
“Governance—The Board of Directors” for information about the past business and educational experience of each of
Mr. Garnreiter and Mr. G. Smith. The Board has determined that each of the members of our Audit Committee is
financially literate and that each of Mr. Garnreiter and Mr. G. Smith satisfies the financial sophistication requirements
under the NASDAQ Listing Standards. As noted above, on March 4, 2024, the Board appointed Mr. G. Smith to succeed
Mr. Garnreiter as Audit Committee Chair.
Board of Directors’ Role in Risk Oversight
The Company’s risk management process is intended to ensure that risks are taken knowingly and purposefully. The Board
has allocated and delegated primary responsibility for risk oversight responsibility to its committees: the Audit Committee,
the Compensation Committee, the NCG Committee, the Enterprise Risk and Compliance Committee, the Mergers and
Acquisitions and Capital Structure Committee and the Scientific and Medical Committee.
The Audit Committee meets at least once a quarter and is responsible for oversight of the Company’s major financial risk
exposures and the steps management has taken to monitor and control such exposures. The Company maintains an internal
audit function that reports directly to the Audit Committee Chair and reports to the Audit Committee quarterly on the
status and health of internal controls, as well as any potential related party transactions. The Chief Legal Officer reports
to the Audit Committee quarterly on potential ethics complaints as well as the status of the Company’s pending litigation.
The Audit Committee in turn reports to the full Board on the status of financial risks and internal controls at least once a
quarter.
The Compensation Committee meets as needed and is responsible for oversight of the Company’s risks relating to its
compensation plans, policies and programs, as well as human capital management, including workforce diversity and
inclusion, workplace culture, talent development, retention and recruitment and employee engagement. The Compensation
Committee reports regularly to the full Board regarding its activities. In 2023, the Compensation Committee met eight
times to discuss topics related to compensation structure and shareholder feedback on incentive plans.
The NCG Committee meets as needed and is responsible for oversight of risks relating to the Company’s corporate
governance practices and emerging corporate governance issues and trends that could be reasonably expected to have a
substantial impact on the Company, including any material environmental or sustainability-related issues and the
Company’s strategy with respect to social matters of significance to the Company. The NCG Committee reports regularly
Axon Enterprise, Inc. | 2024 Proxy Statement | 22
to the full Board regarding its activities. In 2023, the NCG Committee met five times to discuss topics related to our
governance structures and industry and market corporate governance best practices.
The Enterprise Risk and Compliance Committee typically meets at least quarterly and is responsible for oversight of the
Company’s information security, compliance and enterprise risks excepting the financial risks overseen by the Audit
Committee. Specifically, the Enterprise Risk and Compliance Committee provides oversight of the Company’s
cybersecurity and systems integrity practices and risks. In addition, the Enterprise Risk and Compliance Committee
provides oversight of the Company’s compliance practices (including import compliance, export compliance, Bureau of
Alcohol, Tobacco & Firearms compliance, anti-bribery and corruption compliance, modern slavery and anti-human
trafficking compliance, labor and employment compliance, workplace safety, data privacy, lobbying compliance and
antitrust compliance). Enterprise Risk and Compliance Committee meetings are informed by management who maintain
a risk dashboard to monitor companywide risks and prioritize them based on potential likelihood and potential severity of
impact to the Company. Risk mitigation strategies are tracked and reported on by management to the Enterprise Risk and
Compliance Committee at least once a quarter. Likewise, the Enterprise Risk and Compliance Committee reports to the
full Board on the highest priority risks and mitigation strategies at least once a quarter.
The Scientific and Medical Committee typically meets at least twice a year and provides general oversight of the potential
risks around Axon’s TASER electrical weapons. The Scientific and Medical Committee also provides oversight to the
SMAB, which is an independent advisory board comprised of many of the world’s leading medical and scientific experts
in the areas of electrical engineering, cardiac electrophysiology, emergency medicine and forensic pathology as they relate
to TASER electrical weapons. The SMAB generally meets twice a year and provides feedback to the Company and the
Scientific and Medical Committee on the design, safety and effectiveness of TASER electrical weapons. The Scientific
and Medical Committee in turn reports to the Board at least twice a year on the work of the SMAB to help oversee TASER
electrical weapon related risks. Upon dissolution of the Scientific and Medical Committee as of the Annual Meeting, the
responsibilities of the Scientific and Medical Committee will be carried out by the full Board. As noted above, the full
Board will assume oversight of the issues previously within the purview of the Scientific and Medical Committee as these
topics are prevalent throughout the broader strategy of the Company and are integrated in conversations outside those of
the specific committee.
Code of Ethics
The Company has adopted a Code of Ethics that is applicable to all employees, directors and consultants of the Company.
The Company has also adopted a Code of Ethics for Senior Financial Officers that is applicable to the CEO, Chief Financial
Officer, Corporate Controller, Vice President of SEC Reporting and others performing similar functions. A copy of the
Company’s Code of Ethics and Senior Financial Officer Code of Ethics are published and available on our website at
https://investor.axon.com/documents-and-charters. The Company intends to disclose any future amendments or waivers
to the Code of Ethics on the Company’s website within four business days following the date of such amendment or
waiver, unless required by NASDAQ Listing Standards to disclose such event on Form 8-K filed with the SEC.
Director Attendance at Annual Meetings of Shareholders
Directors are encouraged by the Company to attend each annual meeting of shareholders if their schedules permit. All of
our directors, excluding the newly appointed directors in 2023, attended the 2023 Annual Meeting.
Shareholder Communications with Directors
Shareholders may communicate with members of the Board by mail addressed to the Chair, or any other individual member
of the Board, to the full Board, or to a particular committee of the Board. In each case, such correspondence should be sent
to the Company’s headquarters at 17800 North 85th Street, Scottsdale, AZ 85255. In general, any shareholder
communication about bona fide issues concerning the Company delivered to the Corporate Secretary for forwarding to the
Board or specified members will be forwarded in accordance with the shareholder’s instructions.
Axon Enterprise, Inc. | 2024 Proxy Statement | 23
DIRECTOR COMPENSATION
Members of the Board who are employees of the Company are not separately compensated for serving on the Board. Board
compensation is reviewed periodically by the Company’s Compensation Committee. Non-employee directors of the
Company are paid $10,000 in cash per quarter and are eligible to receive annual grants of restricted stock units (“RSUs”)
with a grant date fair value equal to approximately $200,000 vesting on the one-year anniversary of the grant. New Board
members are eligible to receive an initial grant of RSUs with a grant date fair value equal to approximately $200,000 in
their first year of service vesting in equal annual installments over three years. The Chair of the Board receives an
additional (i) $5,000 in cash per quarter and (ii) an annual grant of RSUs with a grant date fair value equal to approximately
$20,000 vesting on the one-year anniversary of the grant date. Board members who provide any special Board advisory
consultations in their official capacity as Board members (other than Board and committee meetings) are paid
compensation at the rate of $2,500 per day or $1,250 per half day, with no pay for travel days. All directors are reimbursed
for reasonable expenses incurred in connection with their attendance at meetings.
In addition, for the fiscal year ended December 31, 2023, Board members serving on committees in either the chair or
member capacity received fees as summarized in the following table:
Committee
Audit
Compensation
Nominating and Corporate Governance
Mergers and Acquisitions and Capital Structure
Enterprise Risk and Compliance
Scientific and Medical
Annual
Chairman Fee
Annual
Member Fee
$
25,000 $
15,000
10,000
10,000
10,000
24,000
10,000
7,500
5,000
6,000
6,000
10,000
The annual RSU awards are typically granted on the date of the Company’s annual meeting of shareholders. Directors
have the option of deferring all or a portion of their cash compensation into the TASER International, Inc. Deferred
Compensation Plan, the Company’s non-qualified deferred compensation plan (the “Deferred Compensation Plan”).
In 2021, the Compensation Committee retained compensation consulting firm Compensia, which provided research, data
analyses, benchmarking and design expertise in adjusting compensation for its directors. Compensia provided director
compensation data based on its proprietary database for public technology companies with annual sales between $435
million and $1.7 billion, and with market capitalization of $2.4 billion to $37.6 billion. The Compensation Committee’s
compensation philosophy is to generally set director compensation at approximately the 50% benchmark to peers, adjusted
every three years. The results for Board committee retainers were implemented in 2021 and remained mostly unchanged
in 2022 and 2023, while Board committee chair fees and Compensation Committee member fees were updated in 2022 to
the levels shown in the above table.
The following table summarizes the compensation paid to non-employee directors for the fiscal year ended December 31,
2023.
Fees Earned or
All Other
Name
Erika Ayers Badan
Adriane Brown
Julie A. Cullivan (5)
Michael Garnreiter
Caitlin E. Kalinowski
Mark W. Kroll (5)
Matthew R. McBrady
Hadi Partovi
Graham Smith
Jeri Williams
$
Paid in Cash Stock Awards Compensation
($) (1) (2) (3)
($) (4)
Total ($)
($)
21,250 $ 200,018 $
63,500
62,500
97,500
59,000
73,750
61,000
63,500
41,750
38,000
200,090
200,090
220,240
200,090
200,090
200,090
200,090
400,145
400,145
—
—
—
—
114,000
—
—
$ 221,268
263,590
262,590
317,740
259,090
387,840
261,090
263,590
441,895
438,145
Axon Enterprise, Inc. | 2024 Proxy Statement | 24
(1) Amounts in this column represent the aggregate grant date fair value of RSUs, computed in accordance with
stock-based compensation accounting rules in Financial Accounting Standards Board Accounting Standards
Codification Topic 718, Compensation—Stock Compensation (“ASC Topic 718”). The fair value of each RSU
is the closing price of our common stock on the date of grant. Each non-employee director, aside from Ms. Ayers
Badan, received an award of 993 RSUs on May 12, 2023. The awards vest on the one-year anniversary of the
grant on May 12, 2024. Pursuant to SEC regulations, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. The assumptions used in the calculations of the grant date
fair values for such awards are included in Note 1 to our consolidated financial statements for the fiscal year
ended December 31, 2023 within our 2023 Annual Report.
The following table shows the aggregate number of RSUs outstanding for each director as of December 31, 2023.
Name
Erika Ayers Badan
Adriane Brown
Julie A. Cullivan
Michael Garnreiter
Caitlin E. Kalinowski
Mark W. Kroll
Matthew R. McBrady
Hadi Partovi
Graham Smith
Jeri Williams
Aggregate
Restricted Stock
Units Outstanding
1,041
1,471
1,471
1,571
1,471
1,471
1,471
1,471
1,915
1,915
(2) Pursuant to his service as Chair of the Board, on May 12, 2023, Mr. Garnreiter received a grant of 100 shares,
which vests one year from the grant date.
(3) Ms. Ayers Badan, Mr. G. Smith and Ms. Williams joined the Board in 2023. As described above, new Board
members are eligible to receive an initial grant of RSUs with a grant date fair value equal to approximately
$200,000 in their first year of service vesting in equal annual installments over three years. Ms. Williams and
Mr. G. Smith each received an RSU award with a grant date fair value equal to $200,055 on March 16, 2023,
which will vest annually over three years. Ms. Ayers Badan received an RSU award with a grant date fair value
equal to $200,018 on June 1, 2023, which will vest annually over three years.
(4)
Other compensation for Dr. Kroll represents fees for consulting services provided.
(5) Non-employee directors have the option of participating in the Deferred Compensation Plan through which
participants may elect to postpone the receipt and taxation of a portion of their compensation. All gains or losses
are allocated fully to plan participants and the Company does not guarantee a rate of return on deferred balances.
The Company does not make discretionary payments to the plan. There were no above-market returns for
participants in the plan. Dr. Kroll and Ms. Cullivan participate in the Deferred Compensation Plan and elected to
defer $73,750 and $62,500, respectively, of earned compensation into the plan during the year ended
December 31, 2023.
Director Stock Ownership Guidelines
The Board adopted stock ownership guidelines in December 2018. The stock ownership guidelines require that non-
employee directors hold Company stock equivalent to five times the dollar value of their base cash compensation; for
2023, this equates to $200,000. New non-employee directors have up to three years to meet this requirement. If a director
falls below this requirement, he or she is not allowed to sell shares until the requirement is met.
Axon Enterprise, Inc. | 2024 Proxy Statement | 25
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company reviews all relationships and transactions in which the Company and its directors, director nominees,
executive officers or their immediate family members are participants, to determine whether such persons have a direct or
indirect material interest. Management is primarily responsible for the development and implementation of processes and
controls to obtain information from the directors and executive officers with respect to related party transactions and for
then determining, based on the facts and circumstances, whether the Company or a related party has a direct or indirect
material interest in the transaction. As required under SEC rules, transactions that are determined to be directly or indirectly
material to us or a related party are disclosed in this proxy statement.
The Company has a written related party policy, which is included within the Audit Committee Charter, wherein the Audit
Committee reviews, approves or ratifies related party transactions in accordance with NASDAQ Listing Standards. It is
the policy of the Company that all proposed transactions in excess of $120,000 between the Company and its directors,
officers, 5% shareholders and their affiliates should be entered into or approved only if such transactions are on terms no
less favorable to the Company than it could obtain from unaffiliated parties, are reasonably expected to benefit the
Company and are disclosed to the Audit Committee. The Audit Committee is authorized to consult with independent legal
counsel at the Company’s expense in determining whether to approve any such transaction.
Axon Enterprise, Inc. | 2024 Proxy Statement | 26
SHARE OWNERSHIP
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
The following table sets forth information, as of March 1, 2024, with respect to beneficial ownership of the Company’s
common stock by each current director or nominee for director, by each of our named executive officers as defined by
Item 402(a)(3) of Regulation S-K (the “NEOs”), by all directors and executive officers as a group, and by each person
who is known to the Company to be the beneficial owner of more than 5% of the Company’s outstanding common stock.
The Company believes that, except as otherwise described below, each named beneficial owner has sole voting and
investment power with respect to the shares listed.
Name of Beneficial Owner (1)
Beneficial Owners of More than 5%:
BlackRock, Inc. (4)
The Vanguard Group (5)
Directors and Named Executive Officers:
Patrick W. Smith
Hadi Partovi (6)
Michael Garnreiter
Mark W. Kroll
Julie A. Cullivan
Caitlin Kalinowski
Matthew R. McBrady
Adriane Brown
Graham Smith
Jeri Williams
Erika Ayers Badan
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
Shares
Acquirable
Beneficially Within 60
Shares
Owned
Days (2)
Total
Beneficial
Percent of
Ownership Class (3)
8,481,206
7,930,811
— 8,481,206
— 7,930,811
11.3 %
10.5
2,925,666
412,346
27,965
9,664
3,896
7,701
4,764
5,252
—
—
—
530,931
—
—
—
—
—
—
—
308
308
—
3,456,597
412,346
27,965
9,664
3,896
7,701
4,764
5,252
308
308
—
198,618
23,294
179,763
—
2,365
—
198,618
25,659
179,763
4.6
*
*
*
*
*
*
*
*
*
*
*
*
*
All directors and executive officers as a group (14 persons)
3,798,929 533,912 4,332,841
5.7 %
* Less than 1%
(1) Except as noted in Notes 4 and 5 below, the address of each person or group of persons listed above is c/o Axon
Enterprise, Inc., 17800 North 85th Street, Scottsdale, AZ 85255.
(2) Reflects the number of shares that could be purchased by exercise of options exercisable at March 1, 2024, or
stock options or RSUs vesting within 60 days thereafter under the Company’s stock incentive plans.
(3) Based on 75,302,832 shares outstanding as of March 1, 2024. For purposes of computing the percentage of
outstanding shares of our common stock held by each person or group of persons listed above, any security that
such person or group has the right to acquire within 60 days of March 1, 2024 is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or group, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person or group.
(4) Represents shares of the Company’s common stock beneficially owned as of December 31, 2023, based on the
Schedule 13G/A filed on January 24, 2024 by BlackRock, Inc. In such filing, BlackRock, Inc. lists its address as
Axon Enterprise, Inc. | 2024 Proxy Statement | 27
50 Hudson Yards New York, NY 10001, and indicates it has sole voting power with respect to 7,989,787 shares
of the Company’s common stock, shared voting power with respect to no shares of the Company’s common
stock, sole dispositive power with respect to 8,481,206 shares of the Company’s common stock, and shared
dispositive power with respect to no shares of the Company’s common stock.
(5) Represents shares of the Company’s common stock beneficially owned as of December 31, 2023, based on the
Schedule 13G/A filed on February 13, 2024 by The Vanguard Group. In such filing, The Vanguard Group lists
its address as 100 Vanguard Blvd., Malvern, PA 19355, and indicates it has sole voting power with respect to no
shares of the Company’s common stock, shared voting power with respect to 85,717 shares of the Company’s
common stock, sole dispositive power with respect to 7,688,393 shares of the Company’s common stock, and
shared dispositive power with respect to 242,418 shares of the Company’s common stock.
(6)
Includes 368,502 shares of the Company’s common stock owned directly by Mr. Partovi in a standard margin
account and pledged as collateral to secure certain personal indebtedness. Based on daily trading volume and the
collateral representation of these shares, in conjunction with other personal assets, the Board believes that this
position does not pose a significant risk to shareholders or the Company.
Axon Enterprise, Inc. | 2024 Proxy Statement | 28
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
See “Governance—The Board of Directors” for biographical information for Patrick W. Smith, who is also our CEO.
Brittany Bagley
Title: Chief Operating Officer and Chief Financial Officer
Joined Axon in 2022
Age: 40
Ms. Bagley serves as Axon’s Chief Operating Officer and Chief Financial Officer with responsibility for further integrating
Axon’s financial functions with its operations, including manufacturing, supply chain and enterprise, and driving
operational improvements to contribute to the strength of Axon’s income statement, balance sheet and statement of cash
flows, including through more streamlined management of cost of goods sold, inventory and working capital. She joined
the Company’s management team in September 2022 after serving as Chief Financial Officer of Sonos, Inc. since
April 2019. Ms. Bagley also served on the board of directors of Sonos, Inc. from September 2017 to April 2019. From
December 2017 to April 2019, Ms. Bagley served as a Managing Director of Kohlberg Kravis Roberts & Co. L.P.
(together with its affiliates, “KKR”), a global investment firm, and previously served in other roles at KKR from July 2007
to December 2017. Prior to joining KKR, Ms. Bagley was an analyst at The Goldman Sachs Group, Inc., an investment
banking firm. Ms. Bagley has served on the board of directors of Aurora Innovation, Inc., a self-driving technology
company, since July 2021 and is currently the chair of its audit committee and a member of its compensation committee.
Ms. Bagley holds a B.A. in Economics, magna cum laude, from Brown University.
Joshua M. Isner
Title: President
Joined Axon in 2009
Age: 38
As President, Mr. Isner is responsible for Axon’s execution and driving its growth — including top line execution and
global expansion into new markets and new product categories — and managing other day-to-day functions. Mr. Isner
joined Axon in 2009 as a member of Axon’s Leadership Development Program and quickly established a strong track
record of delivering results. In 2014, Mr. Isner led Axon’s domestic body camera and cloud software sales team to a record
year and was subsequently promoted to Executive Vice President of Global Sales. In 2018, he stepped into the role of
Chief Revenue Officer, responsible for Axon’s global growth, customer service, professional services and sales operations,
successfully driving annual growth rates in excess of 25%. In 2022, Mr. Isner was tapped to be Axon’s Chief Operating
Officer. He is a keen operational leader who drives discipline and prioritization across the business, and ensures that Axon
is aggressively pursuing our total addressable market opportunity, supported by a world-class team. Mr. Isner has a B.S.
in Government & Political Science from Harvard University.
Jeffrey C. Kunins
Title: Chief Product Officer and Chief Technology Officer
Joined Axon in 2019
Age: 49
Mr. Kunins leads Axon’s global product, software and hardware engineering, artificial intelligence, design and security
teams—building Axon’s complete product suite, including body and in-car cameras, non-lethal de-escalation tools such
as TASER energy weapons, and Software-as-a-Service platforms for digital evidence management, productivity and real-
time operations. Since joining Axon in September 2019, Mr. Kunins has driven transformational expansion and up-leveling
of Axon’s global research and development organization and its ability to invent and deliver at scale. Prior to Axon, Mr.
Kunins served as Vice President of Alexa Entertainment at Amazon from February 2018. Mr. Kunins served as the Vice
President of Kindle at Amazon from March 2014 to February 2018. Prior to Amazon, Mr. Kunins served as General
Manager (“GM”) of Product and Design at Skype, GM of Windows Live Messenger at Microsoft and Vice President of
Axon Enterprise, Inc. | 2024 Proxy Statement | 29
Product at Tellme Networks, Inc. Mr. Kunins has a B.S. in Information & Decision Systems from Carnegie Mellon
University.
Each executive officer serves at the discretion of our Board of Directors and we have entered into employment-related
agreements with each of the executive officers listed above. These agreements require notice of termination by the
Company in certain situations that are described in further detail in this proxy statement. See “Executive Compensation—
Compensation Discussion and Analysis—Employment Agreements and Other Arrangements with NEOs.”
Axon Enterprise, Inc. | 2024 Proxy Statement | 30
COMPENSATION DISCUSSION AND ANALYSIS
A Letter from Our Compensation Committee
Fellow Shareholders,
2023 was a year of success for Axon—we’ve continued on our mission to transform public safety with technology, with a
strategy that has delivered for our shareholders, as well as the stakeholders, law enforcement professionals and community
members who rely on our innovation for a safer daily life. Our performance reflects the management team’s dedication to
our ambitious strategy, and we are pleased to highlight our key financial achievements in 2023:
• Full-year revenue increased by 31% to $1.6 billion compared to fiscal year 2022.
• Annual net income of $174 million supported Adjusted EBITDA of $329 million.1
• Axon Cloud and Services revenue grew 52% compared to fiscal year 2022, primarily attributable to the increase
of adoption of our premium bundling and a growing base of software licenses.
Beyond our financial results, we also executed against our strategic priorities, including:
• We introduced breakthrough TASER 10 technology, with strong demand that exceeded expectations.
• Our newest body camera technology, Axon Body 4, was successfully launched and continues to ramp along with
continued strong demand for Axon Fleet 3.
While we are proud of our financial achievements and strategic milestones in 2023, we maintain a long-term outlook for
the Company. We know that the work underway today will enable us to continue delivering on our commitment to safer
communities, neighborhoods, schools and public spaces, all while creating long-term value for our shareholders.
Our management team is a critical part of our success to date and our continued success in the future. With this in mind,
the Compensation Committee sought shareholder feedback over the last year. Our goal was to hear directly from our
investors regarding how they evaluate components of compensation and their views on pay structures that appropriately
incentivize and retain the talent that executes on our strategy day-in-and-day-out, while planning for the next three, five
and seven years.
These investor conversations provided input into how the Compensation Committee has structured our 2024 incentive
plans for our broad-based employees, executive leadership team and CEO, Patrick W. Smith. At our 2024 Annual Meeting,
we are asking shareholders for the approval of three separate plans—all connected in their goals and metrics for success—
but individually structured for different components of our workforce.
We have seen successful alignment of these types of employee plans and value creation in the past. In 2019, shareholders
approved a similar plan for our broad-based employees, which aligned motivation and strategic execution, resulting in
nearly $16 billion of shareholder value creation since that time. With our 2024 plans, our aim is to incentivize Axon
employees across all levels by focusing on our key operational metrics and drivers of long-term value. These plans will
give employees the opportunity to own equity and personally partake in value creation as a result of their contributions.
As we have outlined in our proxy statement, these three proposals are:
Proposal No. 2, the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan (our broad-based long-
term incentive plan), which will provide us the needed shares to grant the time-based equity awards that are critical to
compensating our broad-based employee population who support our long-term strategy;
1 See Reconciliation of Non-GAAP Measures, for the GAAP financial measure most directly comparable to each non-
GAAP financial measure, and a reconciliation of the differences between each non-GAAP financial measure and the
comparable GAAP financial measure.
Axon Enterprise, Inc. | 2024 Proxy Statement | 31
Proposal No. 3, the Axon Enterprise, Inc. eXponential Stock Plan (the “2024 Employee XSP”), which is intended to
provide employees across all levels of the Company (other than our CEO, who is intended to be compensated through the
2024 CEO Performance Award) with an opportunity to elect to receive a portion of their compensation under this
performance-based long-term incentive plan aligned with our key operational metrics and share price performance; and
Proposal No. 4, the 2024 CEO Performance Award, which is a performance-based long-term incentive award intended
to motivate our CEO, Patrick W. Smith, over the next seven years to drive the same equity growth, aligned with the same
key operational metrics and share price performance goals as the 2024 Employee XSP, connecting our incentive drivers
across the Company.
While these proposals are separate to achieve their specified aims, the Compensation Committee views them as an
integral and interconnected part of our talent management strategy as we seek to incentivize as one company,
while allowing for individual participation in our collective success. In structuring and managing these plans, we
remain committed to appropriate and sustainable levels of dilution.
As shareholders invested alongside our Company, we urge you to vote FOR these proposals. Thank you for your support
as we work to create incentives that will deliver shareholder value.
Best,
Compensation Committee members,
Hadi Partovi, Chair
Adriane Brown
Michael Garnreiter
Graham Smith
Our Named Executive Officers
The purpose of this Compensation Discussion and Analysis is to provide material information about our compensation
objectives and policies, with a focus on explaining and providing context for the material elements of the disclosure which
follows in this proxy statement with respect to the compensation of our NEOs in fiscal year 2023. Each of our four
executive officers is an NEO for fiscal year 2023:
Joshua M. Isner, our President;
• Patrick W. Smith, our CEO;
•
• Brittany Bagley, our Chief Operating Officer and Chief Financial Officer; and
•
Jeffrey C. Kunins, our Chief Product Officer and Chief Technology Officer.
Our Compensation Philosophy
The Compensation Committee is in place to address matters relating to the fair and competitive compensation of our NEOs
and non-employee directors, together with matters relating to our compensation plans, policies and programs. The
Compensation Committee believes that executive compensation should be aligned with the values, objectives and financial
performance of the Company. Our compensation philosophy is focused on delivering market competitive pay opportunities
Axon Enterprise, Inc. | 2024 Proxy Statement | 32
that are majority performance-based and promote long-term alignment with shareholders through heavy emphasis on
equity and performance equity.
The objectives of our NEO compensation programs include:
• Attracting and retaining highly qualified individuals who are capable of making significant contributions critical
to our long-term success;
• Promoting a performance-oriented environment that encourages Company and individual achievement;
• Rewarding NEOs for long-term strategic management and the enhancement of shareholder value;
• Strengthening the relationship between pay and performance by emphasizing variable, at-risk compensation that
is dependent upon the achievement of specified corporate and personal performance goals; and
• Aligning long-term management interests with those of shareholders, including through long-term at-risk pay.
2023 Compensation Reflected Axon’s 2023 Performance and Key Leadership Promotions
Our pay programs and structures have remained relatively consistent with past practices and our compensation actions
align with our performance and business trajectory. Key highlights include:
• Annual cash incentive program paid out between 153.3% and 160.3% for our NEOs (other than our CEO), which
aligns with our strong financial performance highlighted above.
• The remaining outstanding tranches of the 2018 CEO Performance Award and 2019 XSPP (each as defined
below) were earned based on the combination of strong financial and stock price performance.
We made limited adjustments to 2023 compensation at the beginning of the year but took more meaningful actions later
in the year to recognize key leadership promotions and increasing roles and responsibilities as the Company continues to
scale. To ensure we continue to retain our executive leadership, we took the following actions:
• As the remaining outstanding tranches of the 2018 CEO Performance Award and 2019 XSPP were earned in full,
we granted, subject to shareholder approval, the performance-based 2024 CEO Performance Award and
performance-based awards under the 2024 Employee XSP (as defined below) to drive alignment with our
strategic goals over the next seven years.
• We granted Contingent RSUs (as defined below) in December 2023 to our NEOs (other than our CEO) as we
wait to determine whether shareholders will approve the 2024 Employee XSP. Should the 2024 Employee XSP
be approved by shareholders, the Contingent RSUs granted in December 2023 will be forfeited and replaced with
performance-based grants under the 2024 Employee XSP for these NEOs, as further described below. If the 2024
Employee XSP is not approved by shareholders, the Contingent RSUs will remain outstanding and will vest over
three years.
• We granted time-based RSUs that will vest over three years in connection with the promotions of Ms. Bagley and
Messrs. Isner and Kunins as we made key leadership changes to support our long-term strategy.
Axon Enterprise, Inc. | 2024 Proxy Statement | 33
Initial 2023 Annualized Target Direct Compensation
The table below summarizes annualized target total direct compensation of our NEOs at the beginning of 2023. Notably,
our CEO received an annual base salary of $31,201 with respect to fiscal 2023, but no additional incentive-based
compensation (either short-term or long-term). For details on total compensation earned by our NEOs, see “Executive
Compensation—2023 Summary Compensation Table.”
2023
Name
Patrick W. Smith
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
$
$ 31,201
350,000
450,000
300,000
Annual Salary (1)
Annual Target
Cash Incentive
Compensation (2)
Long-term Target
Equity Compensation--
XSUs (3)
Long-term Target
Equity Compensation--
RSUs (4)
Target Total
Direct
Compensation
% Total
$
% Total
$
% Total
$
% Total
100.0 % $
8.0
10.5
9.2
—
800,000
450,000
300,000
— % $
18.4
10.5
9.2
—
1,000,000
1,000,000
1,000,000
— % $
23.0
23.2
30.8
—
2,200,000
2,400,000
1,650,000
— % $
50.6
55.8
50.8
$
31,201
4,350,000
4,300,000
3,250,000
(1) Annual salary effective January 1, 2023.
(2) Presented at target levels. The annual target cash incentive compensation for Mr. Isner reflects annual target cash
incentive bonus of $500,000 and $300,000 for other non-variable cash compensation. For details on total annual
cash incentive compensation earned by our NEOs, see detail under “2023 Annual Cash Incentive Program.”
(3) Represents XSUs (as defined below) granted to Mr. Isner on January 2, 2019, Mr. Kunins on September 23, 2019
and Ms. Bagley on September 26, 2022, which are discussed in more detail under “Components of Executive
Compensation—Long-Term Performance-Based Equity Compensation—2019 eXponential Stock Performance
Plan.” The grants had an annual target value of $1,000,000 prior to risk and duration multipliers and were granted
in lieu of traditional performance-based RSUs. The value shown represents the amount of 2023 target
compensation that the executives elected to receive over a nine-year period (2019 to 2027) in the form of XSUs.
(4) Except for Ms. Bagley, reflects the grant date value of RSUs vesting in 2023, which were granted in
December 2022 for Messrs. Isner and Kunins. For Ms. Bagley, reflects the annual value of the portion of her
September 2022 grant received in 2022. In addition, Ms. Bagley received a grant of $3,300,000 as part of her
employment agreement, which is not reflected here.
2023 Annual Cash Incentive Program
Payouts to our NEOs (other than our CEO) under the 2023 annual cash incentive program were based on the achievement
of Company-wide annual financial and operational goals, as well as additional metrics based on regrettable attrition and
our Company values (or, in the case of Mr. Isner, employee engagement). The annual cash incentive program metrics were
weighted 80% in respect of Company-wide annual financial and operational goals, 10% in respect of regrettable attrition,
and 10% in respect of Company values (or, in the case of Mr. Isner, employee engagement). The Compensation Committee
believes the criteria for the annual cash incentive program were challenging but achievable.
2023 Financial and Operational Goals
Metric
Revenue
Adjusted EBITDA Margin
New Market Bookings
New Product Adoption
Actual attainment/plan payout
Threshold
$ 1,390.0
Target
($ in millions)
$ 1,430.0
19.0 %
20.0 %
$ 500.0
700,000
$ 600.0
835,000
Maximum
Actual
Weight
Weighted
Payout
$ 1,550.0
$ 1,563.0 30.0 %
21.1 30.0
22.0 %
$
20.0
1,230.0 20.0
743.0
$ 700.0
1,020.0
60.0 %
46.0
30.0
30.0
100 % 166.0 %
The annual financial and operational goals were based on revenue, Adjusted EBITDA margin, new market bookings and
new product adoption. The revenue and Adjusted EBITDA margin metrics each had a threshold, target and maximum goal
with corresponding base payouts of 75%, 100%, 150% and 200% of target, respectively. The new market bookings and
Axon Enterprise, Inc. | 2024 Proxy Statement | 34
new product adoption metrics each had a threshold, target and maximum goal with corresponding base payouts of 75%,
100% and 150% of target, respectively. Achievement of the 2023 cash incentive program metrics was measured after the
Company determined its earnings for 2023.
The annual cash incentive program metric based on regrettable attrition is measured as rolling 12-month attrition of
employees rated as top performing in the prior performance rating cycle. As reported in our 2023 Annual Report, we
closed the year with our overall regrettable attrition rate at less than 1%, well under the annual goal of 2.5%. The metric
based on Company values for Ms. Bagley and Mr. Kunins was measured based on a peer survey and input from Mr. Isner,
which resulted in a blended payout of 125%. The metric based on employee engagement for Mr. Isner was measured by
the average of our overall employee satisfaction scores from the two employee surveys run in 2024, which resulted in a
78.21% average score. The employee engagement metric contemplated a 50% payout based on a score of 78, a 100%
payout based on a score of 80 and a 150% payout based on a score of 82, and the actual payout of 55% was determined
by linear interpolation.
The actual annual cash incentive program payouts to our NEOs were as follows and take into account the changes in each
of the following NEO’s annual target cash incentive compensation that were effective July 1, 2023:
Weighting
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
Components of Executive Compensation
80%
10%
10%
Weighted
Company Bonus (1) Attrition (2)
166.0 %
166.0
166.0
150.0 %
150.0
150.0
55.0 %
Values (3) Average Payout Cash Payout
153.3 % $ 766,500
842,563
160.3
521,304
160.3
125.0
125.0
We utilize various cash and non-cash-based compensation methods. The principal components of compensation in 2023
and 2024 for our NEOs (other than the CEO) consist of the following:
• Annual salary;
• Annual cash incentive bonus; and
• Long-term equity compensation in the form of performance-based XSUs and service-based RSUs.
In addition, we offer benefit plans and retirement programs to our executives. Any decision to materially increase
compensation is based upon the objectives listed above, taking into account all forms of compensation and individual
achievement of performance goals. Decisions regarding the CEO’s compensation are made by the Compensation
Committee and reflect the same considerations used for the other NEOs.
Annual Salary
Other than with respect to our CEO, salaries for NEOs are reviewed periodically, as well as at the time of a promotion or
other changes in responsibilities. Consistent with our goal for overall compensation, we set salaries at a competitive level
to ensure we can attract and retain our executives.
There is no set percentile of market that we use and executive salaries vary in their positioning to market depending on
factors that may include tenure with the Company, results of personal, department and corporate performance, complexity
and scope of the executive’s responsibilities, and the perceived detrimental effects to the Company that may result from
such executive’s departure. The base salaries of our NEOs, other than the CEO, reflect input from the CEO and are
approved by the Compensation Committee after considering compensation salary trends, total performance, overall level
of responsibilities and compensation levels for comparable positions in the market for executive talent based on salary
surveys and compensation data from peer comparator group companies.
Axon Enterprise, Inc. | 2024 Proxy Statement | 35
Annual Cash Incentive Program
The objective of the annual cash incentive program has been to provide executives with a competitive total cash
compensation opportunity, as well as to align executive rewards with Company performance. Each year, the Compensation
Committee reviews the framework for the annual cash incentive program, including the potential metrics and associated
weightings and goals, and approves these metrics and any additional metrics to the extent used to determine the payouts
to our NEOs. The Compensation Committee ensures the goals that are set at the beginning of the year are viewed as
challenging but achievable to help support execution against our annual financial and operational priorities to drive long-
term shareholder value.
Long-Term Performance-Based Equity Compensation
Beginning in 2018, the Company discontinued its long-term performance-based RSU grants to NEOs. Instead, our CEO
participated in the 2018 CEO Performance Award and our other NEOs participated in the 2019 XSPP. The 2018 CEO
Performance Award and the 2019 XSPP were each an incentive for future performance in the form of a high-risk, high-
reward compensation plan, and the value was realizable only if and when each set of market capitalization and operational
goals were achieved and the options or shares associated with each tranche vested. As of December 31, 2023, all market
capitalization and operational goals under the 2018 CEO Performance Award and the 2019 XSPP have been achieved and
certified by the Compensation Committee.
In 2023, to continue incentivizing future performance, the Company granted to employees (other than our CEO) awards
of eXponential Stock Units (“XSUs”) under the 2024 Employee XSP, which may be achieved based on performance
against stock price and operational performance, subject to shareholder approval of Proposal No. 3. In addition, the
Company granted to our CEO the 2024 CEO Performance Award with the same performance metrics and hurdles, subject
to shareholder approval of Proposal No. 4.
2018 CEO Performance Award
On May 24, 2018, our shareholders approved the Board of Directors’ grant of a performance-based stock option award to
our CEO (the “2018 CEO Performance Award”). The 2018 CEO Performance Award consists of 12 tranches with a vesting
schedule based entirely on the attainment of both market capitalization goals (market conditions) and operational goals
(performance conditions), assuming continued employment either as the CEO or as both Executive Chairman and Chief
Product Officer and service through each goal attainment date.
As of December 31, 2023, all 12 market capitalization and operational goals have been achieved and certified by the
Compensation Committee. As a result, all outstanding stock options have vested. As all 12 operational goals have been
achieved, we recorded total stock-based compensation expense of $246.0 million related to the 2018 CEO Performance
Award. No stock-based compensation expense remains unamortized for the period ending December 31, 2023.
Our CEO’s compensation for 2023, 2022 and 2021 consisted of an annual base salary equal to minimum wage and the
2018 CEO Performance Award.
2024 CEO Performance Award
Over the past two years, the Compensation Committee has been discussing the design and structure of a new XSU award
to be granted to our CEO. On December 18, 2023, the Compensation Committee approved a grant of XSUs to our CEO
(the “2024 CEO Performance Award”), effective as of December 22, 2023 and contingent on shareholder approval. The
2024 CEO Performance Award is 100% performance-based upon achievement of both stock price and operational
performance hurdles, subject to certain continued service requirements. The Compensation Committee established a
notional value for the 2024 CEO Performance Award of $150 million, representing approximately $7 million of annual
target long-term incentive value over the seven-year term of the CEO Employment Agreement (as defined below), with a
risk multiplier of three.
Simplified Formula: [($7 million annual value) x (7 year term)] x risk multiplier of 3 approximately $150 million
Axon Enterprise, Inc. | 2024 Proxy Statement | 36
The number of shares subject to the XSU award was calculated by dividing the notional value by a 90-day volume weighted
average price per share of Company common stock as of the day preceding the grant date. For accounting purposes, the
grant date of these XSUs will not occur unless and until the 2024 CEO Performance Award is approved by shareholders,
and thus the fair value of the XSUs for accounting purposes is not determinable until such time. For details regarding the
2024 CEO Performance Award, see “Proposal No. 4—Approval of the 2024 CEO Performance Award.”
2019 eXponential Stock Performance Plan
On February 12, 2019, our shareholders approved the Axon Enterprise, Inc. 2019 Stock Incentive Plan (the “2019 Plan”),
which was adopted by the Board of Directors to reserve a sufficient number of shares to facilitate our eXponential Stock
Performance Plan (the “2019 XSPP”) and grants of XSUs under the plan. Pursuant to the 2019 XSPP, all eligible full-time
U.S. employees (other than our CEO) were granted an award of 60 XSUs in January 2019, and certain employees,
including our NEOs (other than our CEO) had the opportunity to elect to allocate a percentage of the value of their target
compensation over a nine-year period from 2019 to 2027 in the form of additional XSUs (in excess of the 60 XSUs that
were granted). For employees who elected to receive XSUs, the XSU grants were made as an upfront, lump-sum grant in
January 2019, intended to replace that portion of the target compensation they elected to receive in the form of XSUs for
the next nine years.
The XSUs are grants of RSUs that vest in 12 equal tranches. Each of the 12 tranches vest upon certification by the
Compensation Committee that both (i) the market capitalization goal for such tranche, which began at $2.5 billion for the
first tranche and increased by increments of $1.0 billion thereafter, and (ii) any one of eight operational goals focused on
revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal
quarters. The operational revenue and Adjusted EBITDA goals are the same targets as provided for the 2018 CEO
Performance Award.
As of December 31, 2023, all 12 market capitalization and operational goals under the 2019 XSPP have been achieved
and certified by the Compensation Committee. As a result, all XSU tranches have vested. As all 12 operational goals have
been achieved, we recorded stock-based compensation expense of $199.9 million related to the XSU awards from their
respective grant dates. No stock-based compensation expense remains unamortized for the period ending December 31,
2023.
2024 eXponential Stock Plan
Over the past two years, the Compensation Committee has been discussing the design and structure of new XSU awards
for the broader employee population (other than our CEO), based on employee and shareholder feedback on the structure
of a new performance-based plan. The Compensation Committee seeks to create a structure that aligns employees to the
success of the business, based on stock price appreciation and key operational metrics. On October 14, 2023, the Board
adopted the Axon Enterprise, Inc. 2024 eXponential Stock Plan (the “2024 Employee XSP” or “XSP 2.0”), which provides
for XSU awards to employees (other than our CEO), subject to shareholder approval. On December 18, 2023, the
Compensation Committee approved the grants of XSUs under the 2024 Employee XSP to our NEOs (other than our CEO),
effective as of December 22, 2023 and contingent on shareholder approval. The XSU awards are 100% performance-based
upon achievement of both stock price and operational performance hurdles, subject to certain continued service
requirements. The number of shares subject to each XSU award was calculated by dividing the notional value of the award
determined by the Compensation Committee by a 90-day volume weighted average price per share of Company common
stock as of the day preceding the grant date. For accounting purposes, the grant date of these XSUs will not occur unless
and until the 2024 Employee XSP is approved by shareholders, and thus the fair value of the XSUs for accounting purposes
is not determinable until such time. For details regarding the 2024 Employee XSP, see “Proposal No. 3—Approval of the
Axon Enterprise, Inc. 2024 eXponential Stock Plan.”
The Company intends to continue granting XSUs in place of long-term performance-based RSUs given the strong
alignment with shareholder experience requiring meaningful growth in both stock price and operational performance. The
2024 Employee XSP recognizes Axon’s global growth potential and is designed to motivate our employees who are
instrumental to the innovation and development of Axon’s new products and who continue to deliver exceptional value to
Axon.
Axon Enterprise, Inc. | 2024 Proxy Statement | 37
Long-Term Service-Based Equity Compensation
The Compensation Committee believes that service-based equity compensation with multi-year vesting periods ensures
that our NEOs have a continuing stake in our long-term success. For 2023, the Compensation Committee granted RSUs
in December 2022, which vest annually over a three-year service period. For 2024, the Compensation Committee granted
contingent RSUs (“Contingent RSUs”) in December 2023 to Ms. Bagley and Messrs. Isner and Kunins in lieu of XSU
awards as we await the outcome of Proposal No. 3. Should the 2024 Employee XSP be approved by shareholders, the
Contingent RSUs granted in December 2023 will be forfeited and replaced with XSU grants under the 2024 Employee
XSP for these NEOs, as further described below. If the 2024 Employee XSP is not approved by shareholders, the
Contingent RSUs will remain outstanding and will vest over three years.
In determining the total number of Contingent RSUs to award to each NEO (other than our CEO), the Compensation
Committee considered, among other things, the strategic objectives of the Company over the next three years and the target
figure for go-forward XSU grants for each executive, less the value of previously granted XSUs under the 2019 XSPP.
The following table sets forth the service-based RSU awards made to our continuing NEOs, other than Ms. Bagley, in
December 2022 (for 2023) and the Contingent RSUs made in December 2023 (for 2024). See “Long-Term Service-Based
Equity Awards in Connection with Promotions” below for further discussion on determination of vesting schedules and
previously granted RSUs.
For Fiscal Year 2023
For Fiscal Year 2024
Named Executive
Patrick W. Smith
Joshua M. Isner (1)
Brittany Bagley (2)
Jeffrey C. Kunins (1) (3)
Number of
Number of
Service-based Grant Date Service-based Grant Date
Fair Value
RSUs Awarded
—
—
36,219 9,381,808
3,713,713
14,337
9,810 2,541,084
—
11,857 2,200,066
—
8,893 1,650,096
Fair Value RSUs Awarded
—
—
(1) The Contingent RSUs for Mr. Isner and Mr. Kunins will vest as to one-half in December 2024, one-third in four
substantially equal installments in March, May, August and November 2025, and the remaining one-sixth in four
substantially equal installments in March, May, August and November 2026, subject in each case to executive’s
continued employment with the Company through the applicable vesting date.
(2) The Contingent RSUs for Ms. Bagley will vest as to 39% in December 2024, 13% in two substantially equal
installments in March and May 2025, 24% in two substantially equal installments in August and November 2025,
and the remaining 24% in four substantially equal installments in March, May, August and November 2026,
subject in each case to executive’s continued employment with the Company through the applicable vesting date.
(3) The additional RSU award granted to Mr. Kunins will vest as to one-third on December 22, 2024, one-third in
August 2025 and one-third in August 2026, subject in each case to executive’s continued employment with the
Company through the applicable vesting date.
Long-Term Service-Based Equity Awards in Connection with Promotions
The Company uses service-based RSUs to work alongside the XSU grants to help support retention given the heightened
risk-reward orientation of the XSUs. In September 2023, the Compensation Committee granted additional RSUs to
Mr. Isner, Ms. Bagley and Mr. Kunins in connection with their promotions to President, Chief Operating Officer and Chief
Financial Officer, and Chief Product and Chief Technology Officer, respectively.
The values for each executive’s grant in September 2023 were determined by using each executive’s go-forward annual
RSU target opportunity over the next three years, less any expected vesting value from prior RSU awards. This calibration
allows each executive to be on track to vest in their calibrated on-target earnings for their new roles as determined by the
Compensation Committee. In September 2023, the Compensation Committee determined the number of shares that would
be granted using a price per share of $194.58, which was the closing price of a share of the Company’s common stock as
Axon Enterprise, Inc. | 2024 Proxy Statement | 38
of July 3, 2023 (to align with the effective date of the executives’ promotions) and formally approved the grants on
September 7, 2023. The stock price on the date of the grant was higher than $194.58 leading to a higher reported value.
Named Executive
Patrick W. Smith
Joshua M. Isner (1)
Brittany Bagley (2)
Jeffrey C. Kunins (3)
2023
Number of
Service-based
RSUs Awarded
—
105,502
27,368
38,931
Grant Date
Fair Value
—
23,723,675
6,203,489
8,608,891
(1) Mr. Isner’s September 2023 award will vest as to 34,887 RSUs on the first anniversary of the grant date, as to
27,856 RSUs on August 13, 2025, and as to 32,480 RSUs on August 13, 2026, subject to continued service
through each vesting date to catch up to his target compensation rate.
(2) Ms. Bagley’s September 2023 award will vest as to 6,167 RSUs on the first anniversary of the grant date, as to
1,542 RSUs on August 13, 2025, and as to 16,446 RSUs on August 13, 2026, subject to continued service through
each vesting date to catch up to her target compensation rate.
(3) Mr. Kunins’ September 2023 award will vest as to 11,306 RSUs on the first anniversary of the grant date, as to
11,307 RSUs on August 13, 2025, and as to 14,133 RSUs on August 13, 2026, subject to continued service
through each vesting date to catch up to his target compensation rate.
In March 2024, following the finalization of the 2024 Employee XSP and grants of XSUs thereunder (subject to
shareholder approval of Proposal No. 3), and considering the time that had elapsed between the promotions of Mr. Isner,
Ms. Bagley and Mr. Kunins in July 2023 and their OTE allocations with respect to the 2024 Employee RSUs and grants
of XSUs thereunder, the Compensation Committee reviewed on-target earnings for each of Mr. Isner, Ms. Bagley and
Mr. Kunins, and determined to grant additional equity awards in the form of service-based RSU awards (10,279 RSUs for
Mr. Isner, 3,213 RSUs for Ms. Bagley and 2,185 RSUs for Mr. Kunins) to deliver to the executives the value equivalent
to the OTE otherwise allocated to XSUs in the six-month period following their promotions from July 1 through
December 31, 2023. Because these grants were not made during fiscal year 2023, these grants are not reflected in the
Summary Compensation Table or other compensation tables included in this proxy statement.
Forward-Looking Compensation Decisions for 2024
In mid-2023 and throughout the second half of the year, the Compensation Committee reviewed competitive market data
and calibrated each NEO’s annualized total target direct compensation for 2024:
2024
Name
Patrick W. Smith
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
% Total
Annual Salary
$
$ 31,201
500,000
450,000
350,000
Annual
Target Cash Incentive
Compensation
$
% Total
Long-term Target
Equity Compensation--
XSUs (1)
$
% Total
Long-term Target
Equity Compensation--
RSUs (2)
Target Total
Direct
Compensation
$
% Total
$
0.4 % $
4.1
6.9
6.6
—
500,000
600,000
350,000
— % $
4.1
9.2
6.6
7,143,000
5,000,000
2,250,000
1,518,000
99.6 % $
40.5
34.6
28.6
—
6,320,000
3,200,000
3,082,000
— % $
51.3
49.3
58.2
7,174,201
12,320,000
6,500,000
5,300,000
(1) Reflects the value of the 2024 CEO Performance Award granted to Mr. Smith and the value of the awards granted
under the 2024 Employee XSP to Mr. Isner, Ms. Bagley and Mr. Kunins, subject to shareholder approval, as
discussed in more detail under “Components of Executive Compensation—Long-Term Performance-Based
Equity Compensation—2024 CEO Performance Award” and “—2024 eXponential Stock Plan.” The grants had
an annual target value of $7,143,000, $5,000,000, $2,250,000 and $1,518,000, respectively, prior to the risk
multiplier of three and the duration multiplier of seven, and were granted in lieu of traditional performance-based
RSUs. Represents the amount of annual target compensation that the executives elected to receive over a seven-
year period (2024 to 2030) in the form of XSUs.
Axon Enterprise, Inc. | 2024 Proxy Statement | 39
(2) Reflects the grant date value of RSUs vesting in 2024 that were granted in September 2023 and are intended to
serve as 2024 compensation awards. Does not include the grant date fair value of RSUs vesting in 2024 that were
granted in March 2024 and are intended to deliver to Mr. Isner, Ms. Bagley and Mr. Kunins the value equivalent
to the OTE otherwise allocated to XSUs in the six-month period following their promotions from July 1 through
December 31, 2023.
Except for Mr. Smith, the year-over-year increases in each executive’s target total direct compensation listed above were
made in connection with their respective promotions, expanded responsibilities and expected value contributions:
Mr. Isner to President, Ms. Bagley to Chief Operating Officer and Chief Financial Officer, and Mr. Kunins to Chief
Product and Chief Technology Officer. The pay levels disclosed above were determined as part of each executive’s
promotion and were intended to remain relatively consistent over the next several years.
Strong Governance in Determining Executive Compensation
Our Compensation Committee is currently composed of four independent directors: Hadi Partovi (Chair), Adriane Brown,
Michael Garnreiter and Graham Smith. The Compensation Committee makes the sole decision regarding compensation
for the CEO and each other NEO. The Compensation Committee met seven times in 2023.
Members of management also attended the meetings, although the CEO and each other NEO were not present during
voting or deliberations on his or her compensation. The Compensation Committee generally receives and reviews materials
in advance of each meeting. Depending on the agenda for the particular meeting, materials may include:
• Financial reports;
• Reports on levels of achievement of corporate performance objectives;
• Schedules setting forth the total compensation of the NEOs, including base salary, cash incentives, equity awards,
perquisites and other compensation and any potential amounts payable to the NEOs pursuant to employment,
severance and change of control agreements;
• Summaries that show the NEOs’ total accumulated stock awards and stock option holdings;
•
Information regarding compensation paid by comparable companies identified in executive compensation
surveys; and
• Reports from consultants and advisors to the Compensation Committee.
Our executive management supports the Compensation Committee in carrying out its responsibilities by preliminarily
outlining compensation levels for NEOs, administering our compensation plans, policies and programs, and providing data
to the Compensation Committee for analysis. Periodically, compensation is initially proposed by the CEO for each
executive (excluding the CEO), consisting of annual base salary, annual cash incentive compensation and long-term equity
compensation, which is then provided to the Compensation Committee for review and approval.
Our Compensation Committee has sole authority to engage the services of outside consultants and advisors, as it deems
necessary or appropriate in the discharge of its duties and responsibilities. The Compensation Committee has budgetary
authority to authorize and pay for the services of outside consultants and advisors, and such consultants and advisors report
directly to the Compensation Committee.
The Compensation Committee’s compensation philosophy is to generally set executive and director compensation at
approximately the 50% benchmark to peers and engage a compensation consulting firm to provide research, data analyses,
benchmarking and design expertise in reviewing and structuring compensation programs for the Company’s NEOs
generally every three years, which began in 2018. Compensation generally stays flat in the interim years between
compensation studies although adjustments may be made if appropriate based on individual performance, Company
performance, relative shareholder returns and other relevant considerations. The Compensation Committee also considers
the results of the Company’s say-on-pay vote for the prior year to ensure that its decisions and the Company’s executive
compensation programs for the Company’s NEOs are aligned with long-term shareholder interests. For more detail
regarding how the results of the most recent shareholder advisory vote on executive compensation were considered in
Axon Enterprise, Inc. | 2024 Proxy Statement | 40
making this year’s compensation decisions, see “Overview and Summary; Consideration of Prior Year Say-on-Pay Vote”
in Proposal No. 5.
In 2022, the Compensation Committee engaged Semler Brossy Consulting Group, LLC (“Semler Brossy”) as its
compensation consultant to provide their input on go-forward strategy for our NEO compensation, particularly in light of
the 2018 CEO Performance Award and XSU awards under the 2019 XSPP becoming fully vested. In mid-2023, Semler
Brossy supported the Compensation Committee in assessing competitive market levels to inform pay actions for the
executive team. Semler Brossy provided executive compensation data from both our peer group and available technology
survey data.
Peer Comparator Group
The scope of Semler Brossy’s review in 2023 included determining an appropriate comparator group to which to compare
the Company’s executive compensation, based primarily on the following criteria: technology industry sector, revenue
and revenue growth, valuation multiple and market capitalization. Semler Brossy selected public technology companies
with annual sales roughly 1/3x to 3x Axon’s revenues at the time (i.e., revenues between $435 million and $4 billion) and
three-month average market capitalization between 1/4x to 4x Axon’s market cap at the time (i.e., market capitalization
between $4 billion and $65 billion). Our 30-day market capitalization was positioned at the median of peers of
approximately $16 billion at the time of the analysis, while our revenue of $1.2 billion was within a reasonable range of
market median of approximately $1.5 billion. We focused on including companies with similar revenue growth profiles,
and our revenue growth outpaced the peer group on a one-year basis (38% vs. 30% at peer median).
Based on Semler Brossy’s analysis, the Compensation Committee selected the following comparator group when
reviewing executive compensation for 2023:
Alarm.com Holdings, Inc.
ANSYS
Aspen Technology, Inc.
Crowdstrike
Datadog
Dynatrace, Inc.
Elastic N.V.
Fair Isaac Corporation
HEICO Corporation
HubSpot
MongoDB, Inc.
Palantir Technologies
Paycom Software, Inc.
Paylocity Holding Corporation
Procore Technologies
PTC Inc.
Samsara
Tyler Technologies Inc.
Zscaler
In addition to the comparator group, to supplement the executive compensation information where publicly disclosed
information was limited, Semler Brossy provided executive compensation information for the NEOs using a survey sample
of technology companies with over $1 billion dollars in revenue.
Compensation Policies and Practices
The Compensation Committee assists the Board of Directors in addressing matters relating to the fair and competitive
compensation of our NEOs and non-employee directors, together with matters relating to our other compensation practices
and policies. The most important policies applicable to our NEOs are described below.
NEO Stock Ownership Guidelines
The Board adopted stock ownership guidelines in December 2018. NEOs are required to own at least 50,000 shares of the
Company’s stock. For purposes of these guidelines, stock ownership includes shares for which the executive has direct or
indirect ownership or control, including Axon common stock plus vested and unvested Axon stock options and RSUs,
including unvested performance-based RSUs and XSUs. Executives are expected to meet their ownership guidelines once
they have received enough grants to add up to the required minimum.
Axon Enterprise, Inc. | 2024 Proxy Statement | 41
Policy Regarding Hedging Transactions
The Company’s Insider Trading Policy, which applies to all employees and directors, prohibits hedging and similar
transactions designed to decrease the risks associated with holding Company securities.
Clawback Policy
In accordance with SEC rules and NASDAQ Listing Standards, the Company adopted an incentive compensation recovery
policy, effective as of December 1, 2023. Pursuant to the policy, Axon is required to recover or “clawback” any
erroneously awarded incentive-based compensation to its executive officers in the event that it is required to prepare an
accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws,
including any required accounting restatement to correct an error in previously issued financial statements that is material
to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in
the current period or left uncorrected in the current period. This policy applies to all incentive-based compensation received
by an executive officer of Axon during the three completed fiscal years immediately preceding the date that Axon is
required to prepare a restatement and after December 1, 2023.
Employment Agreements and Other Arrangements with NEOs
CEO Employment Agreement with Patrick W. Smith
On December 8, 2023, the Company entered into an employment agreement (the “CEO Employment Agreement”) with
Mr. Smith. Under the CEO Employment Agreement, Mr. Smith will continue to serve as the Company’s CEO and remain
a member of the Board. The CEO Employment Agreement provides the specific terms and conditions of Mr. Smith’s
employment through December 31, 2030 and provides for at-will employment for an indefinite period thereafter.
The CEO Employment Agreement generally provides for compensation opportunities to Mr. Smith in a lesser amount than
the Compensation Committee was otherwise willing to provide so that the Company could instead provide enhanced
compensation opportunities to other employees of the Company.
In particular, Mr. Smith will receive a base salary at the minimum wage rate (equating to $31,201 per year), and will not
be eligible for increase prior to January 1, 2031. Mr. Smith will not be entitled to any annual bonus or other short-term
incentives. With the exception of the 2024 CEO Performance Award, Mr. Smith will also not be eligible for any equity
compensation awards prior to January 1, 2031.
Pursuant to the CEO Employment Agreement, Mr. Smith agreed that, if he terminates his employment for any reason on
or before December 31, 2030, Mr. Smith will promptly pay to the Company $30 million. In addition, Mr. Smith will be
subject to restrictive covenants related to competition, solicitation of Company employees and customers and
disparagement of the Company.
CEO Letter Agreement with Patrick W. Smith (Applicable to $25 Million Charitable Donation)
On December 8, 2023, the Company entered into a letter agreement (the “CEO Letter Agreement”) with Mr. Smith,
pursuant to which the Company agreed to waive the holding period on shares of Company common stock having a value
of approximately $25 million, which Mr. Smith acquired upon exercise of options pursuant to the 2018 CEO Performance
Award, so that Mr. Smith could contribute such shares to a charitable fund in 2023.
Pursuant to the CEO Letter Agreement, if Mr. Smith resigns for any reason on or before December 31, 2025, Mr. Smith
will promptly pay to the Company $25 million.
Other Effective Employment Agreements
In 2019, the Company entered into revised employment agreements with Mr. Isner and Mr. Kunins for their continued
service. The fundamental terms and provisions of each executive’s agreement are substantially similar to the terms and
Axon Enterprise, Inc. | 2024 Proxy Statement | 42
provisions of each executive’s previously existing executive employment agreement except as follows: (i) the executives
are no longer entitled to severance benefits following a resignation for good reason, except following Change in Control
(as defined in the Company’s 2019 Stock Incentive Plan or any successor equity incentive plan adopted by the Company
in the future); (ii) following a termination without cause and the terminated executive’s execution of a customary release,
the terminated executive will be entitled only to continued vesting of unvested time-based RSUs scheduled to vest during
the notice and severance period (one year), versus acceleration of all unvested equity awards; (iii) following termination
without cause and the terminated executive’s execution of the customary release, the terminated executive will be entitled
to a full-year target annual bonus or full-year target annual sales commission for the year in which the termination becomes
effective, versus a prorated bonus for the year in which the termination occurs; and (iv) following termination without
cause and the terminated executive’s execution of the customary release, a portion of the terminated executive’s XSUs
may be entitled to accelerated vesting. In September 2022, the Company entered into an employment agreement with
Ms. Bagley with the same terms under the Company’s 2022 Inducement Plan (as defined below).
Perquisites and Other Personal Benefits
We have a Deferred Compensation Plan for certain executives, key employees and non-employee directors through which
participants may elect to postpone the receipt and taxation of a portion of their compensation received from us. The
Deferred Compensation Plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other
types of compensation. The plan also allows for matching and discretionary employer contributions. Employee deferrals
are deemed 100% vested upon contribution. Distributions from the plan generally commence upon retirement, death,
separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a
variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from
a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the
investments selected by the participant. All gains or losses are allocated fully to plan participants and we do not guarantee
a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts.
Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of our
general creditors.
We provide, subject to the terms of our utilization policy, private air transportation coordinated by the Company for
business use, with incidental personal use permitted under certain circumstances as approved by the Chair of the
Compensation Committee. We also provide our NEOs with the option of utilizing concierge medical services. Other than
as described above, we do not provide our NEOs with other significant perquisites or other benefits, except for Company
matching contributions to our defined contribution benefit plans and health care benefits that are widely available to
employees. The Compensation Committee periodically reviews the levels of perquisites and other benefits that could be
provided to the NEOs.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis
included in this proxy statement. Based on these reviews and discussions, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
The Compensation Committee:
Hadi Partovi, Chair
Adriane Brown
Michael Garnreiter
Graham Smith
The foregoing Compensation Committee Report does not constitute soliciting material and will not be deemed to be filed
or incorporated by reference by any general statement incorporating by reference this proxy statement into any other
Company filing under the Securities Act or Exchange Act, except to the extent the Company specifically incorporates this
Report by express reference therein.
Axon Enterprise, Inc. | 2024 Proxy Statement | 43
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is, or was during or prior to fiscal 2023, an officer or employee of the
Company or any of its subsidiaries. None of the Company’s executive officers serves as a director or member of the
compensation committee of another entity in a case where an executive officer of such other entity serves as a director or
member of the Compensation Committee.
2023 SUMMARY COMPENSATION TABLE
Name and Principal
Position
Patrick W. Smith
Chief Executive Officer
Joshua M. Isner
President
Brittany Bagley
Chief Operating Officer and Chief Financial Officer
Jeffrey C. Kunins
Chief Product Officer and Chief Technology Officer
Year
2023
2022
2021
2023
2022
2021
2023
2022
2023
2022
2021
Stock
Awards (1)
($)
$
Salary
($)
31,201 (4) $
31,201 (4)
31,201 (4)
Non-Equity
Incentive Plan
All Other
Compensation (2) Compensation (3)
$
—
—
—
($)
($)
Total ($)
$
—
—
—
$
8,857
2,002
1,914
40,058
33,203
33,115
425,000
350,000
325,000
29,955,689
2,991,859
4,306,786
450,000
121,023
8,932,642
13,872,891
1,066,500
1,313,583
2,129,101
892,563
179,910
43,608
31,931
29,985
31,490,797
4,687,373
6,790,872
24,769
4,191
10,299,975
14,178,015
325,000
300,000
300,000
10,480,425
1,650,096
3,138,455
521,304
451,320
440,357
33,313
28,452
12,665
11,360,042
2,429,868
3,891,477
(1) The amounts in this column reflect the aggregate grant date fair value of RSUs computed in accordance with
ASC Topic 718. Pursuant to SEC regulations, the amounts shown exclude the impact of estimated forfeitures
related to service-based vesting conditions. The assumptions used in the calculations of the grant date fair values
for such awards are included in Note 1 to our consolidated financial statements for the fiscal year ended
December 31, 2023 within our 2023 Annual Report.
Amounts of $5,218,929, $20,573,881 and $7,939,341 represent RSUs granted to Ms. Bagley and Messrs. Isner
and Kunins, respectively, in September 2023.
Amounts of $3,713,713, $9,381,808 and $1,215,110 represent Contingent RSUs granted to Ms. Bagley and
Messrs. Isner and Kunin, respectively, in December 2023, which were intended as 2024 compensation.
Mr. Kunins also received a service-based award in the amount of $1,325,975 granted in December 2023, which
was intended as 2024 compensation, and reflects a re-allocation of his on-target earnings from XSUs to RSUs.
XSUs granted pursuant to the 2024 CEO Performance Award and the 2024 Employee XSP are not considered to
have been granted in 2023 for financial accounting purposes.
(2)
In 2023, Ms. Bagley and Messrs. Isner and Kunins received non-equity incentive compensation as a result of
exceeding target metrics around revenue and other goals. Their 2023 incentive compensation was provided in the
form of cash payouts, which were made in February 2024. In addition, Ms. Bagley received $50,000 and
Mr. Isner received $300,000 for other non-variable cash compensation.
(3) All other compensation consists of matching contributions made to our 401(k) plan, contributions to health
savings accounts, employer-paid life insurance premiums, taxable fringe items and payments made for taxes
required to gross-up other earnings. Compensation for Messrs. Smith and Isner also include costs of concierge
medical services.
(4) The amounts paid to Mr. Smith for 2023, 2022 and 2021 are consistent with minimum wage requirements.
Axon Enterprise, Inc. | 2024 Proxy Statement | 44
PAY VERSUS PERFORMANCE
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of
Regulation S-K under the Exchange Act, we are providing the following information about the relationship between
executive compensation actually paid and the financial performance of our Company. The following table sets forth the
compensation for our CEO or principal executive officer (“PEO”) and the average compensation for our other NEOs. For
further information concerning our compensation philosophy and how we align executive compensation with our
performance, see “Executive Compensation—Compensation Discussion and Analysis.”
Summary
Compensation Compensation
Table Total for
PEO (1)
Actually Paid
to PEO (2) (3)
Average Summary
Compensation
Table Total for
Average
Compensation
Actually Paid to
Non-PEO NEOs (1) Non-PEO NEOs (2) (3)
Value of Initial $100
Investment Based on
Total
Shareholder
Return
Peer Group
Total
Shareholder
Return (4)
Net Income (loss) Adjusted EBITDA (5)
(in thousands)
(in thousands)
$
40,058 $ 43,533,121 $
33,203
33,115
2,559,392
13,687,307
253,610,579
278,740,704
17,716,938 $
4,305,869
5,634,227
1,914,694
28,506,155 $
2,091,584
30,194,861
31,929,509
352.52 $
226.43
214.25
167.21
139.14 $
118.69
143.55
117.10
174,227 $
147,139
(60,018)
(1,724)
329,335
232,313
178,112
155,808
Year
2023
2022
2021
2020
(1) For each year presented, Patrick W. Smith was our PEO; reflects amounts reported in the Summary Compensation
Table for the respective years. Our non-PEO NEOs for 2023 were Ms. Bagley and Messrs. Isner and Kunins. Our
non-PEO NEOs for 2022 were Ms. Bagley and Messrs. Isner, Kunins, Larson, Ahsan and Zito. Our non-PEO NEOs
for 2021 and 2020 were Messrs. Larson, Ahsan, Isner and Kunins. Average compensation for the non-PEO NEOs
reflects amounts reported in the Summary Compensation Table for the respective years.
(2) Amounts shown for compensation actually paid (“CAP”) are computed in accordance with Item 402(v) of Regulation
S-K under the Exchange Act and do not reflect the actual amount of compensation earned by or paid to the NEOs
during the applicable year. These amounts reflect total compensation as reported in the Summary Compensation Table
with certain adjustments as required by Item 402(v) of Regulation S-K as described in Note (3) below.
(3) CAP reflects the exclusions and inclusions of equity awards for the PEO and the other NEOs as set forth below and
calculated in accordance with ASC Topic 718. The valuation methodologies and assumptions used to calculate CAP
are based on the grant date fair value of these awards as disclosed in the Company’s consolidated financial statements
filed with the SEC on Form 10-K for each of the years reflected in the table below:
Summary Compensation Table Total to CAP Reconciliation for the PEO and the other NEOs:
Calculation (a) of Compensation Actually
Paid
Summary Compensation Table Total
Less grant date fair value of stock and
option awards (b)
Add change in fair value (whether positive
or negative) as of vesting date of awards
granted in prior fiscal years for which all
applicable vesting conditions were satisfied
during the fiscal year
Add change in fair value (whether positive
or negative) as of fiscal year-end for
unvested and outstanding awards or
forfeited awards granted in prior fiscal years
Compensation Actually Paid
Calculation for PEO
Year 2020
Year 2021
Year 2022
Year 2023
$
2,559,392
$
33,115
$
33,203 $
40,058
(2,531,425)
—
—
—
405,161
227,074,553
—
43,493,063
278,307,576
278,740,704
$
26,502,911
253,610,579
$
$
13,654,104
13,687,307
$
—
43,533,121
Axon Enterprise, Inc. | 2024 Proxy Statement | 45
Calculation (a) of Compensation Actually
Paid
Summary Compensation Table Total
Less grant date fair value of stock and
option awards
Add year-end fair value of awards granted
during the fiscal year that are outstanding
and unvested as of the end of the fiscal year
Add change in fair value (whether positive
or negative) as of vesting date of awards
granted in prior fiscal years for which all
applicable vesting conditions were satisfied
during the fiscal year
Add change in fair value (whether positive
or negative) as of fiscal year-end for
unvested and outstanding awards or
forfeited awards granted in prior fiscal years
Compensation Actually Paid
Calculation for Average of Non-PEOs
Year 2020
Year 2021
Year 2022
Year 2023
1,914,694
$
5,634,227 $
4,305,869
$
17,716,938
(1,156,333)
(4,414,658)
(3,502,709)
(16,456,252)
469,229
3,515,309
4,596,869
18,641,953
220,174
21,247,901
51,093
5,910,764
$
30,481,745
31,929,509
$
4,212,082
30,194,861
$
(3,359,538)
2,091,584
$
2,692,752
28,506,155
(a) For the PEO and the other NEOs, for each covered year, fair value of awards that are granted and vest in the same
covered fiscal year equals $0, and fair value of awards granted in prior years that are determined to fail to meet
the applicable vesting conditions during the covered fiscal year equals $0.
(b) The amount shown for 2020 represents the total stock compensation expense for modified shares related to
a performance share unit (“PSU”) award for Mr. Smith.
(4) Total Shareholder Return (“TSR”) shown in this table utilizes the Russell Midcap Index that we use in the stock
performance graph required by Item 201(e) of Regulation S-K included in the Company’s consolidated financial
statements filed with the SEC on Form 10-K for each of the years reflected in the table above. The comparison assumes
$100 was invested for the period starting December 31, 2020 through December 31 of the applicable fiscal year in
each of the Company’s common stock and the Russell Midcap Index. All dollar values assume reinvestment of the
pre-tax value of dividends paid by companies included in the Russell Midcap Index. The historical stock price
performance of our common stock shown is not necessarily indicative of future stock price performance.
(5) Pursuant to Item 402(v) of Regulation S-K under the Exchange Act, we determined Adjusted EBITDA to be the most
important financial performance measure used to link Company performance to CAP for our PEO and our other NEOs
in 2023. This performance measure may not have been the most important financial performance measure for years
2022 and 2021 and we may determine a different financial performance measure to be the most important such
measure in future years. Adjusted EBITDA is defined as earnings before interest expense, investment interest income,
income taxes, depreciation, amortization, non-cash stock-based compensation expense, fair value adjustments to
strategic investments and marketable securities, transaction costs related to acquisitions and investments, and other
unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance.
For a reconciliation of Adjusted EBITDA to earnings, see “Reconciliation to Non-GAAP Measures.”
Axon Enterprise, Inc. | 2024 Proxy Statement | 46
Pay Versus Performance Relationship Descriptions:
Figure 1: Relationship between Axon’s CAP for PEO and NEOs (Average) vs. cumulative TSR of Axon and the peer
group
CAP vs. TSR
$226.43
$118.69
$214.25
$143.55
$253.6M
$352.52
$139.14
$167.21
$117.10
$278.7M
$31.9M
$30.2M
$13.7M
$2.1M
$43.5M
$28.5M
2020
2021
2022
2023
Compensation Actually Paid (PEO)
Compensation Actually Paid (NEO)
Axon TSR
Peer Group TSR
Figure 2: Relationship between Axon’s CAP for PEO and NEOs (Average) vs. Axon’s net income
CAP vs. Net Income
$147.1M
$174.2M
$278.7M
$253.6M
-$1.7M
$31.9M
$30.2M
-$60.0M
$13.7M
$2.1M
$43.5M
$28.5M
2020
2021
2022
2023
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0
-$50,000,000
-$100,000,000
Compensation Actually Paid (PEO)
Compensation Actually Paid (NEO)
Net Income (Thousands)
Axon Enterprise, Inc. | 2024 Proxy Statement | 47
Figure 3: Relationship between Axon’s CAP for PEO and NEOs (Average) vs. Adjusted EBITDA
CAP vs. Adjusted EBITDA
$329.3M
$350,000,000.00
$232.3M
$155.8M
$278.7M
$178.1M
$253.6M
$300,000,000.00
$250,000,000.00
$200,000,000.00
$150,000,000.00
$100,000,000.00
$50,000,000.00
$0.00
-$50,000,000.00
$31.9M
$30.2M
$13.7M
$2.1M
$43.5M
$28.5M
-$100,000,000.00
-$150,000,000.00
2020
2021
2022
2023
Compensation Actually Paid (PEO)
Compensation Actually Paid (NEO)
Adjusted EBITDA
Between 2020 and 2023, we experienced record stock price appreciation and operating performance, which led to
appreciation in the value of our 2018 CEO Performance Award and XSU awards granted under our 2019 XSPP.
Set forth below is a list of the three most important financial performance measures used to link executive compensation
actually paid to our NEOs during 2023 to Company performance:
• Adjusted EBITDA;
• Revenue; and
• Company stock price.
Axon Enterprise, Inc. | 2024 Proxy Statement | 48
The following table shows information about awards made under various compensation plans during 2023:
2023 GRANTS OF PLAN-BASED AWARDS
Estimated future payouts under
non-equity incentive
plan awards
All other
stock
awards:
number of
shares of
Grant date
fair
value of stock
Name
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
Threshold Target
Maximum stock or awards (1)
Grant
Date
9/7/2023 (2)
12/22/2023 (3)
($)
($)
($)
—
—
—
—
306,250 500,000
units (#)
95,223
36,219
—
—
750,000 (5)
—
9/7/2023 (2)
12/22/2023 (3)
—
—
—
—
—
—
24,155
14,337
367,500 600,000 900,000 (5)
—
($)
20,573,881
9,381,808
—
5,218,929
3,713,713
—
9/7/2023 (2)
12/22/2023 (3)
12/22/2023 (4)
—
—
—
—
—
—
—
—
—
36,746
4,691
5,119
7,939,341
1,215,110
1,325,975
214,375 350,000 525,000 (5)
(1) Grant date fair value of the RSUs and the Contingent RSUs is computed in accordance with ASC Topic 718. The
fair value of each RSU is the closing price of our common stock on the date of grant. The assumptions used in
the calculations of the grant date fair values for such awards are included in Note 1 to our consolidated financial
statements for the fiscal year ended December 31, 2023 within our 2023 Annual Report.
(2) Ms. Bagley and Messrs. Isner and Kunins were granted service-based RSUs awards in connection with their
promotions. The number of RSUs granted was calculated by using $194.58, which was the closing price of a
share of the Company’s common stock on July 3, 2023, to align with their promotions.
Ms. Bagley’s award will vest as to 6,167 RSUs on the first anniversary of the grant date, as to 1,542 RSUs on
August 13, 2025, and as to 16,446 RSUs on August 13, 2026, subject to continued service through each vesting
date to catch up to her target compensation rate.
Mr. Isner’s award will vest as to 34,887 RSUs on the first anniversary of the grant date, as to 27,856 RSUs on
August 13, 2025, and as to 32,480 RSUs on August 13, 2026, subject to continued service through each vesting
date to catch up to his target compensation rate.
Mr. Kunins’ award will vest as to 11,306 RSUs on the first anniversary of the grant date, as to 11,307 RSUs on
August 13, 2025, and as to 14,133 RSUs on August 13, 2026, subject to continued service through each vesting
date to catch up to his target compensation rate.
(3) On December 18, 2023, the Compensation Committee approved, effective December 22, 2023, grants to
Ms. Bagley and Messrs. Isner and Kunins of Contingent RSUs that will only vest if the 2024 Employee XSP is
not approved by shareholders. The number of Contingent RSUs granted was calculated by using a price per share
of $220.88, which was the 90-day volume weighted average price of a share of the Company’s common stock as
of December 21, 2023 (the day before the grant date).
XSUs granted pursuant to the 2024 Employee XSP are not considered to have been granted in 2023 for financial
accounting purposes.
(4) Mr. Kunin’s award will vest as to one-third of the RSUs on December 22, 2024, one-third of the RSUs on
August 13, 2025, and as to one-third of the RSUs on August 13, 2026, subject to continued service through each
vesting date. The number of RSUs granted were calculated by using $194.58, which was the closing price of a
share of the Company’s common stock on July 3, 2023, to align with his promotion.
Axon Enterprise, Inc. | 2024 Proxy Statement | 49
(5) Payouts under the 2024 annual cash incentive program are based on the achievement of annual financial and
operational goals, including goals related to revenue, Adjusted EBITDA margin, new market bookings and new
product adoption. Actual awards earned in 2023 were included in the non-equity incentive plan compensation
column in the 2023 Summary Compensation Table. See further discussion under “Executive Compensation—
Compensation Discussion and Analysis—Fiscal 2023 Annual Cash Incentive Program Payouts.”
OUTSTANDING EQUITY AWARDS AT FISCAL 2023 YEAR-END
The following table includes certain information with respect to all outstanding equity awards previously awarded to the
NEOs as of December 31, 2023.
Option Awards
Stock Awards
Name
Patrick W. Smith
Joshua M. Isner
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying Option
Unexercised Exercise Option
Unearned
Options (#)
—
28.58 2/26/28
Price Expiration Vested
Date
($)
(#)
Number of
Shares or
Units
of Stock
That
Have Not
Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)
530,931 (1)
Market
Value
of Shares
or Units
of Stock
That Have
Not Vested
($)
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested
(#)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
—
—
—
—
—
—
—
925 (2)
238,955
1,464 (3)
378,195
2,259 (3)
583,567
3,171 (4)
819,164
7,904 (5)
2,041,840
95,223 (6) 24,598,958
36,219 (7)
9,356,454
Brittany Bagley
—
—
—
—
—
45,576 (8) 11,773,648
16,554 (9)
4,276,395
24,155 (6)
6,239,961
14,337 (7)
3,703,677
Jeffrey C. Kunins
—
—
—
—
—
837 (3)
550 (3)
2,259 (3)
5,928 (5)
36,746 (6)
4,691 (7)
5,119 (10)
216,222
142,082
583,567
1,531,380
9,492,594
1,211,826
1,322,391
(1) This grant was intended to compensate Mr. Smith over its 10-year term and to become vested as to all shares
subject to it only if both market capitalization and operational goals were attained during such 10-year period.
1/12th of the total number of shares subject to the options became vested and exercisable upon certification by the
Compensation Committee that both: (i) one of the market capitalization goals was achieved; and (ii) one of 16
specified internal operational goals relating to financial results was attained. As of December 31, 2023, all 12
tranches have been achieved and certified by the Compensation Committee. See “Executive Compensation—
Compensation Discussion and Analysis— Components of Executive Compensation—2018 CEO Performance
Award.”
(2) This stock award vested two thirds in June 2023 and will vest as to the remaining one third in June 2024.
Axon Enterprise, Inc. | 2024 Proxy Statement | 50
(3) These stock awards vest at annual intervals over a three-year period and become fully vested in December 2024.
(4) This stock award vests at annual intervals over a three-year period and becomes fully vested in June 2025.
(5) These stock awards vest at annual intervals over a three-year period and become fully vested in December 2025.
(6) These stock awards vest at annual intervals over a three-year period and become fully vested in August 2026.
(7) These stock awards remain outstanding only if the 2024 Employee XSP is not approved by shareholders and will
vest one-third upon the first anniversary of the grant date and at quarterly intervals thereafter. These awards will
become fully vested in November 2026.
XSUs granted pursuant to the 2024 CEO Performance Award and the 2024 Employee XSP are not considered to
have been granted in 2023 for financial accounting purposes.
(8) This stock award vests at annual intervals over a three-year period and becomes fully vested in September 2025.
(9) This stock award vests one third in September 2023 and the remaining two thirds vest in eight equal quarterly
instalments until fully vested in September 2025.
(10) This stock award will vest one-third in December 2024, one-third in August 2025 and the final one-third in
August 2026.
2023 OPTION EXERCISES AND STOCK VESTED
The following table provides information related to option exercises and vested stock awards for each NEO during the year
ended December 31, 2023:
Name
Patrick W. Smith
Option Awards
Number of
Shares
Acquired on
Exercise (#)
1,907,026
Value Realized on
Exercise ($)
322,985,235
$
The option awards exercised by Mr. Smith in 2023 related solely to the 2018 CEO Performance Award, and the net shares
are subject to a 2.5 year post-exercise holding period.
Name
Patrick W. Smith
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
Stock Awards
Number of
Shares
Acquired upon
Vesting (#)
Value Realized on
Vesting ($)
$
15
171,390
75,458
125,351
3,106
35,589,910
14,469,594
26,062,409
Axon Enterprise, Inc. | 2024 Proxy Statement | 51
Some of the stock awards that vested in 2023 were related to the 2019 XSPP, as a result of the attainment of the final three
of the 12 award tranches. The net shares are subject to a minimum 2.5 year holding period following the goal attainment
date. The number of shares acquired upon vesting and the value realized upon vesting were as follows:
Name
Patrick W. Smith
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
XSU Awards
Number of
Shares
Acquired upon
Vesting (#)
Value Realized on
Vesting ($)
$
15
149,649
42,996
108,000
3,106
30,991,809
8,152,472
22,366,440
2023 NONQUALIFIED DEFERRED COMPENSATION
On July 1, 2013, the Company adopted our Deferred Compensation Plan. The Deferred Compensation Plan allows eligible
executives, key employees and non-employee directors to elect to defer the receipt and taxation of a portion of their
compensation. Compensation, as defined in the Deferred Compensation Plan, is comprised of base salary, bonus,
commission, director fees and such other cash or equity-based compensation approved by the Compensation Committee.
Participants may elect to defer up to 80% of their base salary and up to 100% of other types of compensation. Participants
are 100% vested at all times in amounts deferred pursuant to the Deferred Compensation Plan. All gains or losses are
allocated fully to plan participants, and the Company does not guarantee a rate of return on deferred balances. There were
no above-market returns for participants in the Deferred Compensation Plan.
The following table provides information on NEO participation in the Deferred Compensation Plan:
Name
Joshua M. Isner
Executive
Registrant
Aggregate
Contributions in Contributions in Earnings in Last Withdrawals/ Aggregate Balance at
FY (2)(3)
($)
96,333
Distributions
($)
(502,494)
Last FYE (4)
($)
134,914
Last FY (1)(2)
($)
Last FY (1)
($)
Aggregate
—
—
(1) No executive contributions or Company contributions were made in the last fiscal year.
(2) The Company does not make discretionary payments to the Deferred Compensation Plan but does make a
restorative 401(k) match contribution to participants as their eligible wages for 401(k) purposes is net of
contributions made to the Deferred Compensation Plan.
(3) Aggregate earnings reflected represent deemed investment earnings from voluntary deferrals and Company
contributions, as applicable. No amounts included in aggregate earnings are reported in the 2023 Summary
Compensation Table because the Deferred Compensation Plan does not provide for above-market or preferential
earnings.
(4) Of the amount reflected in this column, $436,508 was previously reported as compensation in the Summary
Compensation Table for 2021 and previous years and $600,152 has been reported as aggregate withdrawals and
distributions for 2023 and previous years. No executive contributions or Company contributions were made in
2022 and 2023.
Axon Enterprise, Inc. | 2024 Proxy Statement | 52
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Pursuant to the employment agreements with our NEOs (other than our CEO), the Company may terminate each of the
NEOs with or without cause. The conditions or events triggering the payment of severance benefits, which are payable in
substantially equal installments in accordance with the Company’s standard payroll practices and applicable law, include
the executive’s termination without cause, termination in certain circumstances in connection with a change in control of
the Company (i.e., double-trigger), and death or disability. Conditions to the payment of severance benefits include
covenants relating to assignment of inventions, nondisclosure of Company confidential information, and non-competition
with the Company for a period of 12 months after termination of employment.
The severance benefit amounts with respect to the above triggering events were determined based on competitive practices.
The Company agreed to pay these variable amounts of compensation as severance benefits in order to attract and retain
executive officers.
The table below depicts the severance benefits payable to each of the NEOs (other than our CEO) under the conditions
indicated:
Termination for
Cause
Earned but
unpaid salary
and benefits
Termination without Cause
12 months’ salary1;
annual target bonus for the
year in which termination
occurs;
time-based RSUs vesting
during notice and severance
period continue to vest
Termination By Executive Within
36 Months Following a Change in
Control For Good Reason or by the
Company Without Cause Six Months
Prior to Change in Control at the
Request of a Third-Party Purchaser
(“Change in Control”)
36 months’ salary;
pro rata portion of annual target
bonus for the year in which
termination occurs; 12 months’
COBRA;
time- and performance-based
RSUs at target levels vest
Death or Disability
18 months’ salary;
pro rata portion of annual
target bonus for the year in
which termination occurs;
time- and performance-based
RSUs at target levels vest
1 The payment of 12 months’ salary includes an 11-month notice period and a cash payment equal to one month’s base
salary.
The table below reflects the severance benefits that would be provided to each of the NEOs (other than our CEO) assuming
the notice of intent to terminate such executive’s employment occurred on December 31, 2023. The following table
excludes the deferred compensation amounts that would also be payable to Mr. Isner (see “Executive Compensation—
2023 Nonqualified Deferred Compensation”).
Axon Enterprise, Inc. | 2024 Proxy Statement | 53
Voluntary
Termination Termination
By Executive for Cause
Termination
without
Cause
Change in
Control
Death or
Disability
Patrick W. Smith
Stock Awards (4)
Total
Joshua M. Isner
Severance Payments (1)
Annual Cash Incentive Plan (2)
Benefits (3)
Stock Awards (4)
Total
Brittany Bagley
Severance Payments (1)
Annual Cash Incentive Plan (2)
Benefits (3)
Stock Awards (4)
Total
Jeffrey C. Kunins
Severance Payments (1)
Annual Cash Incentive Plan (2)
Benefits (3)
Stock Awards (4)
Total
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
—
—
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
500,000 $ 1,500,000 $
500,000
—
16,322,064
750,000
— $
500,000
—
—
—
—
38,017,134
— $ 17,322,064 $ 40,038,780 $ 39,267,134
500,000
21,646
38,017,134
450,000 $ 1,350,000 $
600,000
—
10,830,227
675,000
— $
600,000
—
—
—
—
25,993,681
— $ 11,880,227 $ 27,965,327 $ 27,268,681
600,000
21,646
25,993,681
350,000 $ 1,050,000 $
350,000
—
5,675,252
— $
525,000
—
350,000
—
—
14,500,063
—
— $ 6,375,252 $ 15,921,709 $ 15,375,063
350,000
21,646
14,500,063
(1) Represents 12 months’ base salary for termination without cause (comprised of an 11-month notice period and
1 month’s base salary), 36 months’ base salary for Change in Control, and 18 months’ base salary for termination
due to death or disability.
(2) Represents target bonus for the calendar year in which the effective date of termination occurs; for Change of
Control and termination due to death or disability, represents target bonus pro-rated through termination date.
(3) Represents 12 months of payment of medical, dental and vision insurance premiums for each NEO.
(4) The value of time- and performance-based RSUs vesting or acceleration is equal to the most available closing
market price of a share of the Company’s common stock as of December 31, 2023 ($258.33), multiplied by the
number of units that would vest.
Axon Enterprise, Inc. | 2024 Proxy Statement | 54
EQUITY COMPENSATION PLAN INFORMATION
The following table provides details of our equity compensation plans on December 31, 2023:
Number of
Securities to be
Issued upon
Exercise of Outstanding
Weighted
Average
Exercise Price
of Outstanding Options,
Options, Warrants and Rights Warrants and Rights (1)
(a)
(b)
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans (Excluding Securities
Reflected
in Column (a)) (c)
2,469,260 $
28.58
70,694
2,539,954
—
1,708,146
112,505
1,820,651
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders(2)
Total
(1) The weighted average exercise price is calculated based solely on the exercise prices of the outstanding stock
options and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs that
have no exercise price.
(2)
In September 2022, our Board adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022
Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the 2022
Inducement Plan. In September 2019, our Board adopted the Axon Enterprise, Inc. 2019 Stock Inducement Plan
(the “2019 Inducement Plan” and, together with the 2022 Inducement Plan, the “Inducement Plans”) pursuant to
which we reserved 500,000 shares of common stock for issuance under the 2019 Inducement Plan. The Inducement
Plans were adopted without shareholder approval pursuant to Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq
Listing Standards. Each Inducement Plan provides for the grant of equity-based awards, including restricted stock,
RSUs, performance shares and PSUs, and its terms are substantially similar to our shareholder-approved 2022 Plan
and 2019 Plan, respectively. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing
Standards, awards under each Inducement Plan may only be made to individuals not previously employees or non-
employee directors of the Company (or following such individuals’ bona fide period of non-employment with the
Company), as an inducement material to the individuals’ entry into employment with the Company.
Axon Enterprise, Inc. | 2024 Proxy Statement | 55
PAY RATIO OF CEO COMPENSATION
TO MEDIAN EMPLOYEE COMPENSATION
The Company’s compensation programs are designed with the goal of ensuring its compensation programs are fair,
equitable, globally compliant and aligned with its business objectives. Our CEO, Patrick W. Smith, previously agreed to
a compensation arrangement in the form of the 2018 CEO Performance Award, which was approved by shareholders in
May 2018, which vested based solely on attainment of both market capitalization and internal operational goals. As
described elsewhere in this proxy statement, Mr. Smith does not receive significant compensation or benefits other than
the 2018 CEO Performance Award and, subject to shareholder approval, the 2024 CEO Performance Award. We are
providing a ratio of (i) Mr. Smith’s 2023 annual total compensation to (ii) the median of the 2023 annual total
compensation of all Axon employees other than Mr. Smith, calculated pursuant to the disclosure requirements of the
Summary Compensation Table above as if the median compensated employee was a named executive officer. Because of
the treatment of the 2018 CEO Performance Award as compensation for Mr. Smith in 2018 for purposes of the Summary
Compensation Table, there may be a significant disconnect between what is reported as compensation for Mr. Smith in a
given year in the Summary Compensation Table and the value actually realized as compensation in that year or over a
period of time. See “Executive Compensation—Compensation Discussion and Analysis—Components of Executive
Compensation—Long-Term Performance-Based Equity Compensation—2018 CEO Performance Award.”
Mr. Smith’s annual total compensation, as reported in the 2023 Summary Compensation Table, was $40,058 for 2023, and
the median 2023 annual total compensation of all other employees was $107,710. Consequently, the applicable ratio of
such amounts for 2023 was 0.37:1.
Our methodology for identifying the median of the 2023 annual total compensation for each of our employees other than
Mr. Smith was as follows:
• We determined that, as of December 31, 2023, Axon and all of our subsidiaries had 3,670 qualifying individuals
(full-time, part-time, and temporary employees other than Mr. Smith), of which 18% were based outside of the
United States and 18% were production-line employees.
• We did not include in the population of qualifying individuals any employees of staffing agencies whose
compensation is determined by those agencies.
• We applied the requirements and assumptions required for the Summary Compensation Table for each of such
individuals as if he or she was a named executive officer to calculate the total annual compensation, including
base salary or wages, performance-based commission payments, and equity awards based on their grant date fair
values.
• We converted any payment earned or paid in a foreign currency to U.S. dollars using the average of the prevailing
conversion rates for 2023.
• We selected the median of all total annual compensation amounts calculated in accordance with the foregoing.
The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s
annual total compensation allow companies to adopt a variety of methodologies, exclusions and assumptions that reflect
their compensation practices. As such, the pay ratio reported above may not be comparable to the pay ratio reported by
other companies, even those in a related industry or of a similar size and scope. Other companies may have different
employment practices, regional demographics or may utilize different methodologies, exclusions and assumptions in
calculating their pay ratios.
Axon Enterprise, Inc. | 2024 Proxy Statement | 56
AUDIT MATTERS
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors reviews the Company’s financial reporting process on behalf of the Board.
The Audit Committee has sole authority to retain, set compensation and retention terms for, terminate, oversee and evaluate
the work of the Company’s independent registered public accounting firm (the “independent auditor”). The independent
auditor reports directly to the Audit Committee.
The Company’s management is responsible for the Company’s financial reporting process, including its system of internal
controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally
accepted in the United States. Grant Thornton LLP, the Company’s independent auditor, is responsible for expressing an
opinion based on its audits of the consolidated financial statements and for performing an independent audit of our internal
control over financial reporting and expressing an opinion thereon.
In accordance with its written charter, the Audit Committee assists the Board of Directors in fulfilling its oversight
responsibilities regarding (i) the Company’s process for financial reporting and the integrity of the Company’s financial
statements; (ii) the Company’s internal control system; (iii) the performance of the Company’s internal audit function;
(iv) the independent auditor’s independence, qualifications and performance; (v) the Company’s risk assessment and
management policies for major financial risks; and (vi) the Company’s Code of Business Conduct and Ethics and process
for monitoring compliance with laws and regulations.
Further, the Audit Committee reviews reports prepared by management on various matters, including critical accounting
policies and issues, material written communications between the independent auditor and management, significant
changes in the Company’s selection or application of accounting principles and significant changes to internal control
procedures. It is not the duty or responsibility of the Audit Committee to conduct auditing and accounting reviews or
procedures.
In discharging its oversight responsibilities with respect to the audit process, the Audit Committee (i) obtained from the
independent auditor a formal written statement describing all relationships between the independent auditor and the
Company that might bear on the independent auditor’s independence consistent with the applicable requirements of the
Public Company Accounting Oversight Board (“PCAOB”), (ii) discussed with the independent auditor any relationships
that may impact its objectivity and independence, and (iii) considered whether any non-audit services provided to the
Company by Grant Thornton LLP are compatible with maintaining its independence. The Audit Committee also discussed
with the independent auditor its identification of audit risk, audit plans and audit scope, as well as all communications
required by generally accepted auditing standards, including those described in Auditing Standard No. 1301,
“Communications with Audit Committees” issued by the PCAOB.
The Audit Committee reviewed and discussed with management and its independent auditor the Company’s audited
consolidated financial statements and its internal control over financial reporting.
During fiscal year 2023, the Audit Committee met with representatives of the independent auditor, both with management
present and in private sessions without management present, to discuss the results of the financial statement audit and
quarterly reviews and to solicit its evaluation of the Company’s accounting principles, practices and judgments applied by
management and the quality and adequacy of the Company’s internal controls.
In performing the above described functions, the Audit Committee acts only in an oversight capacity and necessarily relies
on the work and assurances of the Company’s management and independent auditor, which, in the independent auditor’s
report, expresses an opinion on the conformity of the Company’s consolidated financial statements to accounting principles
generally accepted in the United States.
Based upon the Audit Committee’s discussion with the Company’s management and Grant Thornton LLP, and the Audit
Committee’s review of the representations of the Company’s management and the report of the independent auditor to the
Axon Enterprise, Inc. | 2024 Proxy Statement | 57
Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements be
included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
February 26, 2024
The Audit Committee:
Michael Garnreiter, Chair
Julie Anne Cullivan
Caitlin Kalinowski
Graham Smith
Jeri Williams
The foregoing Report of the Audit Committee does not constitute soliciting material and will not be deemed to be filed or
incorporated by reference by any general statement incorporating by reference this proxy statement into any other
Company filing under the Securities Act or Exchange Act, except to the extent the Company specifically incorporates this
Report by express reference therein.
Axon Enterprise, Inc. | 2024 Proxy Statement | 58
PROPOSALS
Overview of Proposals
This proxy statement contains five proposals requiring shareholder action.
• Proposal No. 1 requests the election of the 10 directors of the Company named in this proxy statement for a term
of one year and until their successors are elected and qualified.
• Proposal No. 2 requests shareholder approval of the Axon Enterprise, Inc. Amended and Restated 2022 Stock
Incentive Plan.
• Proposal No. 3 requests shareholder approval of the Axon Enterprise, Inc. 2024 eXponential Stock Plan.
• Proposal No. 4 requests shareholder approval of the 2024 CEO Performance Award.
• Proposal No. 5 requests that shareholders vote to approve, on an advisory basis, the compensation of the
Company’s named executive officers.
• Proposal No. 6 requests the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for fiscal year 2024.
Each proposal is discussed in more detail below.
Axon Enterprise, Inc. | 2024 Proxy Statement | 59
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Board is elected by and accountable to the shareholders to oversee their interest in the long-term health and the overall
success of the Company’s business and its financial strength. The Board serves as the ultimate decision-making body of
the Company except for those matters reserved to, or shared with, the shareholders. The Board selects and oversees the
members of senior management, who are charged by the Board with conducting the business of the Company.
Election Process
The Board has nominated for election the following 10 nominees: Erika Ayers Badan, Adriane Brown, Julie A. Cullivan,
Michael Garnreiter, Caitlin Kalinowski, Matthew R. McBrady, Hadi Partovi, Graham Smith, Patrick W. Smith and Jeri
Williams. Mark W. Kroll, Ph.D. is not standing for re-election to the Board upon the expiration of his current term at the
Annual Meeting.
The Board has no reason to believe that any of the nominees will be unwilling or unable to serve if elected a director. If
any nominee is unable or unwilling to serve as a director at the date of the Annual Meeting or any postponement or
adjournment thereof, the proxies may be voted for a substitute nominee, as designated by the Board to fill such vacancy.
Unless otherwise instructed, all proxies received will be voted FOR the election of each of the nominees.
The Board of Directors recommends a vote FOR the election of Erika Ayers Badan, Adriane Brown, Julie A.
Cullivan, Michael Garnreiter, Caitlin Kalinowski, Matthew R. McBrady, Hadi Partovi, Graham Smith,
Patrick W. Smith and Jeri Williams.
Vote Required
For Proposal No. 1, under our Bylaws, assuming the existence of a quorum at the Annual Meeting, each director will be
elected by the affirmative vote of a majority of votes properly cast for and against such nominee’s election. Abstentions
and broker non-votes will be counted toward a quorum, but will not affect the outcome of the vote on the election of
directors.
Axon Enterprise, Inc. | 2024 Proxy Statement | 60
PROPOSAL NO. 2 - APPROVAL OF THE AXON ENTERPRISE, INC. AMENDED AND RESTATED 2022
STOCK INCENTIVE PLAN
At the Annual Meeting, shareholders will be asked to approve the Axon Enterprise, Inc. Amended and Restated 2022
Stock Incentive Plan (as proposed to be amended and restated, the “Amended Plan”), which was approved by the Board
on March 15, 2024, effective upon and subject to shareholder approval at the Annual Meeting (the “Effective Date”). The
full text of the Amended Plan is attached to this proxy statement as Annex A. The Company has been granting equity
awards pursuant to the existing Axon Enterprise, Inc. 2022 Stock Incentive Plan (the “Existing Plan”) since it was approved
by the Company’s shareholders on May 20, 2022; however, as of December 31, 2023, a total of only 1,708,146 shares
remained available for grant under the Existing Plan and other legacy stock incentive plans. In order to continue to have
a sufficient supply of shares for ordinary course equity incentives to recruit, hire and retain the talent across all levels of
the organization required to successfully execute our business plans, the Company is asking its shareholders to approve
the Amended Plan, resulting in an additional 2,231,811 shares available for grant for future equity incentive awards that
represent less than 3.0% of the outstanding shares of the Company’s common stock as of December 31, 2023.
The Amended Plan is substantially similar to the Existing Plan, except for the contemplated share reserve increase and
certain other material modifications described below. Based on estimated usage, the Company believes the Amended Plan
will provide the Compensation Committee with sufficient shares for our ordinary course equity compensation program
(i.e., excluding any grants under the 2024 Employee XSP or the 2024 CEO Performance Award or any successor programs
thereto) for an additional three years. If the Amended Plan is approved by shareholders, awards granted under the Existing
Plan or any other Prior Plan (as defined in the Amended Plan) will continue to be subject to the terms of the Company
equity plan under which they were granted. If shareholders do not approve the Amended Plan, the Existing Plan will
remain in effect in accordance with its current terms.
General Information
On March 24, 2022, the Board adopted the Existing Plan, effective upon and subject to shareholder approval. The Existing
Plan was approved by the Company’s shareholders at the 2022 Annual Meeting of Shareholders on May 20, 2022. Since
that meeting, the Company has been granting equity awards pursuant to the Existing Plan.
While the additional 2,231,811 shares that will be available under the Amended Plan will increase the potential dilution to
our current shareholders, and the shares available under the Amended Plan would increase our overhang as of
December 31, 2023 from 5.3% to 7.9%, we believe that our equity compensation program is not only integral to our
approach to talent retention and incentives but also well-managed. Since the Existing Plan was approved by shareholders,
our revenue has grown by 81%, from $863 million in 2021 (the latest date for which such information was available when
shareholders voted on the Existing Plan) to $1.56 billion in 2023 and five-year total shareholder return is over 500%. Over
the past five years, we have delivered a 44% compound annual revenue growth rate (“CAGR”). Annual Adjusted EBITDA
of $329 million in 2023 reflected a 21.1% Adjusted EBITDA margin and showcases our ability to deliver profitability
while investing heavily in new technology. Indeed, we have achieved a three-year Adjusted EBITDA CAGR of 21%. Our
focus on building best-in-class subscription software has driven our annual recurring software revenue to $560 million,
increasing over 140% over three years.
The Amended Plan continues to provide for the grant of incentive stock options, nonqualified stock options, stock
appreciation rights (“SARs”), restricted stock, RSUs, stock grants, stock units, performance shares, PSUs and performance
cash. Updates made to the Existing Plan include certain administrative, clarifying and conforming changes to promote
good corporate governance practices. The key differences between the Amended Plan and the Existing Plan include the
following:
• The total number of shares authorized for issuance under the Amended Plan is 2,231,811, plus the number of
shares that were authorized but unissued under the Existing Plan and the other Prior Plans as of the Effective Date
(1,708,146 shares as of December 31, 2023). Based on current grant practices, we believe the Amended Plan will
provide the Compensation Committee with sufficient shares for grants through approximately mid-2027.
• Unless sooner terminated, the Amended Plan will expire on the 10th anniversary of the Effective Date.
Axon Enterprise, Inc. | 2024 Proxy Statement | 61
• The minimum vesting condition does not permit awards to vest in full prior to the 12-month anniversary of the
award’s date of grant, although some portion may vest prior to that date. This is to facilitate our ability to grant
awards that have quarterly vesting schedules and to enhance our ability to attract and retain talent in the highly
competitive technology sector.
• The Amended Plan includes a best-net cut-back provision to reduce the amount of parachute payments (as defined
in Section 280G of the U.S. Internal Revenue Code of 1986, as amended (the “Tax Code”)) otherwise payable to
a participant if the vesting of an award under the Amended Plan, together with the aggregate amount of any other
payments payable by the Company or any affiliate to the participant or for his or her benefit, could result in excise
tax liability to such participant pursuant to Section 280G of the Tax Code.
In preparing the Amended Plan, the Company has taken into consideration current best practices with respect to equity-
based compensation plans. In this regard, the Amended Plan contains the following provisions, which we believe reflect
best practices for equity-compensation plans:
•
•
•
•
•
•
•
•
prohibits the repricing of stock options and SARs without shareholder approval;
prohibits the grant of stock options and SARs with discounted exercise prices;
contains a definition of change in control whereby potential acceleration of awards will only occur in the event
of an actual change in control transaction;
includes, as a general rule, double-trigger vesting following a change in control;
contains an annual $750,000 limit on non-employee director compensation;
provides that no dividend equivalent may be awarded in connection with any option or SAR and that no dividend
equivalents will be paid on full value awards that vest based on the achievement of performance goals, unless and
until the underlying award vests or is earned by satisfaction of the applicable performance goals;
does not include an “evergreen” or similar provision providing for automatic share replenishment; and
provides that every award will be subject to potential clawback or recapture to the fullest extent called for by law
or Company policy.
No awards have been granted at this time under the Amended Plan.
Summary of Key Equity Plan Data and Dilution Considerations
Burn Rate
The following table illustrates the Company’s historical burn rate for the past three years. Burn rate is calculated as (i) the
number of stock options and time-based RSUs granted, plus (ii) the number of PSUs earned, divided by (iii) the weighted
average basic common shares outstanding in the year indicated. The Company’s burn rate was as follows:
Axon Enterprise, Inc. | 2024 Proxy Statement | 62
Year
2021
2022
2023
(a)
Options
Granted (1)
—
—
—
(b)
RSUs
Granted
(c)
PSUs
Earned
(d) = (a) + (b) + (c)
Total
Granted/Earned
(e)
Weighted Average Basic
Outstanding
686,166
1,144,539
914,955
4,345,601
78,194
1,238,402
5,031,767
1,222,733
2,153,357
66,190,528
71,092,681
74,195,416
3-Year Average
(d) ÷ (e)
Burn
Rate
7.60 %
1.72 %
2.90 %
4.07 %
Burn Rate
Excluding
PSUs Earned
1.04 %
1.61 %
1.23 %
1.29 %
(1) Stock options are included in the year granted, rather than earned. Stock options granted pursuant to the 2018 CEO
Performance Award are excluded from all years included here as they were granted in 2018.
Overhang
The following table illustrates the Company’s fully diluted overhang assuming shareholders approve each of Proposals
No. 2, 3 and 4. Assuming such approval, the overhang is calculated as (a) the number of shares underlying all outstanding
equity awards under all equity plans, plus (b) the unissued shares remaining available for grant under all equity plans,
divided by (c) the sum of (i) the number of shares underlying all outstanding equity awards under all equity plans, plus
(ii) the unissued shares remaining available for grant under all equity plans, plus (iii) shares of common stock outstanding.
As of December 31, 2023, even with the shares reserved under each of the Amended Plan, the 2024 Employee XSP and
the 2024 CEO Performance Award, our total share count overhang remains below 13.5%.
The Company’s fully diluted overhang calculated as of December 31, 2023 is as follows:
(a)
Shares Underlying
Outstanding
(b)
Unissued
Equity Plan
Equity Awards (1) Available Shares
Existing Plan
Plus: Amended Plan
Plus: 2024 Employee XSP
Plus: 2024 CEO Award
2,539,954
2,539,954
2,539,954
2,539,954
1,708,146
3,939,957
8,456,327
9,135,429
(a)+(b)
Equity Plan
Shares
4,248,100
6,479,911
10,996,281
11,675,383
(c)
(a)+(b)+(c)
Common Shares Fully Diluted
Outstanding
75,301,424
75,301,424
75,301,424
75,301,424
Shares
79,549,524
81,781,335
86,297,705
86,976,807
(a)+(b) /
(a)+(b)+(c)
Fully Diluted
Overhang
5.34 %
7.92 %
12.74 %
13.42 %
(1)
Includes 530,931 shares underlying unexercised options, 1,615,143 shares underlying unvested RSUs and 393,880
shares underlying unvested PSUs outstanding as of December 31, 2023. As of December 31, 2023, the weighted
average exercise price of stock options outstanding was $28.58 and the weighted average term remaining for stock
options outstanding was 4.16 years.
The Company’s fully diluted overhang is more favorable when calculated as of the Record Date as older awards have
vested since December 31, 2023. Accordingly, we provide the detail of these calculations for the benefit of shareholders
as follows:
(a)
Shares Underlying
Outstanding
(b)
Unissued
Equity Plan
Equity Awards (1) Available Shares
Existing Plan
Plus: Amended Plan
Plus: 2024 Employee XSP
Plus: 2024 CEO Award
2,811,580
2,811,580
2,811,580
2,811,580
1,269,347
3,501,158
8,017,528
8,696,630
(a)+(b)
Equity Plan
Shares
4,080,927
6,312,738
10,829,108
11,508,210
(c)
(a)+(b)+(c)
Common Shares Fully Diluted
Outstanding
75,463,324
75,463,324
75,463,324
75,463,324
Shares
79,544,251
81,776,062
86,292,432
86,971,534
(a)+(b) /
(a)+(b)+(c)
Fully Diluted
Overhang
5.13 %
7.72 %
12.55 %
13.23 %
(1)
Includes 530,931 shares underlying unexercised stock options, 1,879,034 shares underlying unvested RSUs and
401,615 shares underlying unvested PSUs outstanding as of the Record Date. As of the Record Date, the weighted
Axon Enterprise, Inc. | 2024 Proxy Statement | 63
average exercise price of stock options outstanding was $28.58 and the weighted average term remaining for stock
options outstanding was 3.95 years.
Other Dilution Considerations
The Company, along with the Compensation Committee, has recognized the concerns raised by our shareholders regarding
the dilution created by the 2018 CEO Performance Award and the 2019 XSPP. In response to those concerns, the Company
and the Compensation Committee have committed to targeting an average annual gross dilution of approximately 3%
across all stock-based compensation plans (including the 2024 CEO Performance Award), beginning in 2024.
2,231,811 additional shares of our common stock are reserved for the issuance of RSUs and other equity awards under the
Amended Plan, covering less than 3% of our outstanding common stock as of December 31, 2023. As noted elsewhere in
this proxy statement, the Company estimates the Amended Plan will provide the Compensation Committee with sufficient
shares for our ordinary course equity compensation program for an additional three years.
Summary of Material Plan Features
The following is a summary of the material terms of the Amended Plan that may be of importance to you. The summary
is qualified by reference to the full text of the Amended Plan, which is attached to this proxy statement as Annex A.
Purpose
The Board believes that the Amended Plan will promote the success and enhance the value of the Company by continuing
to link the personal interests of participants to those of Company shareholders. The Board also believes that the Amended
Plan will enhance the Company’s ability to attract and retain qualified persons to perform services for the Company, by
providing incentives to such persons to put forth maximum efforts for the Company and by rewarding persons who
contribute to the achievement of the Company’s economic objectives.
Administration
The Amended Plan will be administered by the Compensation Committee. The Compensation Committee must be
comprised of at least two independent members of the Board. Each Compensation Committee member must be an
“independent” director for purposes of the applicable NASDAQ Listing Standards and a “non-employee director” as
defined in Rule 16b-3 of the Exchange Act. The Compensation Committee, by majority action, is authorized to interpret
the Amended Plan, to prescribe, amend and rescind rules and regulations relating to the Amended Plan, to provide for
conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other
determinations necessary or advisable for the administration of the Amended Plan, to the extent they are not inconsistent
with the Amended Plan.
Subject to the express provisions of the Amended Plan, the Compensation Committee will have the authority to determine
the participants who are entitled to receive awards under the Amended Plan; the types of awards; the times when awards
are granted; the number of awards; the purchase price, exercise price, or base value, if any; the period(s) during which
such awards are exercisable (whether in whole or in part); the restrictions applicable to awards; and the form of each award
agreement. Neither the award agreement nor the other terms and provisions of any award must be identical for each
participant. The Compensation Committee also will have the authority to modify existing awards, subject to specified
provisions of the Amended Plan and the NASDAQ Listing Standards. The Amended Plan prohibits the Compensation
Committee from repricing any previously granted option or SAR without first obtaining shareholder approval.
The Compensation Committee may, in its discretion, make a limited delegation of its authority to the Company’s CEO to
grant awards under the Amended Plan to individuals who are not subject to Section 16 of the Exchange Act. In the case
Axon Enterprise, Inc. | 2024 Proxy Statement | 64
of awards made to non-employee directors, the Board, and not the Compensation Committee, will administer the Amended
Plan.
Stock Subject to Amended Plan
The total number of shares of common stock reserved under the Amended Plan is 2,231,811, plus the number of shares of
common stock that were authorized but unissued under the Existing Plan and all other Prior Plans as of the Effective Date
(1,708,146 shares as of December 31, 2023). Subject to the express provisions of the Amended Plan, if any award granted
under the Amended Plan or any award outstanding under any Prior Plan after the Effective Date terminates, expires or
lapses for any reason, or is paid in cash, any common stock subject to or surrendered for such award will become available
for use under the Amended Plan. The exercise of a stock-settled SAR or broker-assisted “cashless” exercise of an option
(or a portion thereof) will reduce the number of shares of common stock available for issuance pursuant to the Amended
Plan by the entire number of shares of common stock subject to such SAR or option (or applicable portion thereof), even
though a smaller number of shares of common stock will be issued upon such an exercise. Shares of common stock
tendered to pay the exercise price of an option or tendered or withheld to satisfy a tax withholding obligation arising in
connection with an award will become available for use under the Amended Plan.
Limitations on Non-Employee Director Awards
The sum of the total cash compensation earned and paid and the aggregate grant date fair value (calculated as of the date
of grant in accordance with applicable accounting rules) of shares subject to awards granted to any one participant who is
a non-employee director during any one 12-month period may not exceed $750,000.
Eligibility
All employees, officers and non-employee directors of, and consultants to, the Company or an affiliate thereof, as
determined by the Compensation Committee, are eligible to participate in the Amended Plan. As of March 1, 2024, 3,201
employees (including officers), 10 non-employee directors and 641 consultants were eligible to participate in the Amended
Plan; however, consultants are not expected to be plan participants.
Awards Available Under the Amended Plan
The following types of awards may be granted pursuant to the Amended Plan: incentive stock options, nonqualified stock
options, SARs, restricted stock, RSUs, stock grants, stock units, performance shares, PSUs and performance cash.
Stock Options. The Compensation Committee may grant incentive stock options and nonqualified stock options under the
Amended Plan. Incentive stock options will be granted only to participants who are employees. The exercise price of all
options granted under the Amended Plan will be equal to at least 100% of the fair market value of Company common
stock on the date granted and no option may be exercised more than 10 years from the date of grant. Incentive stock options
will not be granted more than 10 years after the earlier of the adoption of the Amended Plan by the Board or the approval
of the Amended Plan by the Company’s shareholders. The Compensation Committee will determine how the exercise
price of an option may be paid and the form of payment, including cash, shares of common stock held for longer than six
months (through actual tender or by attestation), any net-issuance arrangement or other property acceptable to the
Compensation Committee (including broker-assisted “cashless exercise” arrangements), and how shares of common stock
will be delivered or deemed delivered to participants. A participant will have no rights as a shareholder with respect to
options until the record date of the stock purchase. No dividends or dividend equivalents may be awarded in connection
with any option granted under the Amended Plan. As a general rule, if a participant terminates employment when the
options and/or incentive stock options are subject to restrictions, the participant forfeits the options and/or incentive stock
options that are subject to restrictions.
Stock Appreciation Rights. The Compensation Committee also may grant SARs under the Amended Plan. SARs give the
participant the right to receive the appreciation in value of one share of common stock of the Company. Appreciation is
calculated as the excess of (i) the fair market value of a share of common stock on the date of exercise over (ii) the base
value fixed by the Compensation Committee on the grant date, which may not be less than the fair market value of a share
Axon Enterprise, Inc. | 2024 Proxy Statement | 65
of common stock on the grant date. Payment for SARs may be made in cash, stock or a combination thereof. SARs are
exercisable at the time and subject to the restrictions and conditions as the Compensation Committee approves; provided
that no SAR may be exercised more than 10 years following the grant date. No dividends or dividend equivalents may be
awarded in connection with any SAR granted under the Amended Plan. As a general rule, if a participant terminates
employment when a SAR is subject to restrictions, the participant forfeits the SAR that is subject to restrictions.
Restricted Stock. The Compensation Committee may grant restricted stock under the Amended Plan. A restricted stock
award gives the participant the right to receive a specified number of shares of common stock at a purchase price
determined by the Compensation Committee (including and typically zero). Restrictions limit the participant’s ability to
transfer the common stock and subject the common stock to a substantial risk of forfeiture until specific conditions or
goals are met. The restrictions will lapse in accordance with a schedule or other conditions as determined by the
Compensation Committee, which typically involve the achievement of specified performance targets and/or continued
employment of the participant until a specified date. As a general rule, if a participant terminates employment when the
restricted stock is subject to restrictions, the participant forfeits the restricted stock.
Restricted Stock Units. The Compensation Committee also may grant RSU awards under the Amended Plan. An RSU
award gives the participant the right to receive common stock, or a cash payment equal to the fair market value of common
stock (determined as of a specified date), in the future, subject to restrictions and a risk of forfeiture. The restrictions
typically involve the achievement of specified performance targets and/or the continued employment of the participant
until a specified date. Participants holding RSUs have no rights as a shareholder with respect to the shares of common
stock subject to their RSU award prior to the issuance of such shares pursuant to the award. For RSU awards that include
the right to receive dividend equivalents, any dividend equivalents paid by the Company during the period of restriction
accrue but are not paid to the participant until the RSUs vest. As a general rule, if a participant terminates employment
when the RSUs are subject to restrictions, the participant forfeits the RSUs.
Stock Grant Awards. The Compensation Committee may grant stock grant awards under the Amended. A stock grant
award gives the participant the right to receive (or purchase at a price as determined by the Compensation Committee)
shares of common stock, free of any vesting restrictions. The purchase price, if any, for a stock grant award is payable in
cash or in any other form of consideration acceptable to the Compensation Committee. A stock grant award may be granted
or sold in respect of past services or other valid consideration, or in lieu of any cash compensation owed to a participant.
Stock Unit Awards. The Compensation Committee may also grant stock unit awards under the Amended Plan. A stock
unit award gives the participant the right to receive shares of common stock, or a cash payment equal to the fair market
value of a designated number of shares, in the future, free of any vesting restrictions. A stock unit award may be granted
or sold in respect of past services or other valid consideration, or in lieu of any cash compensation owed to a participant.
Performance Shares. The Compensation Committee also may grant performance share awards under the Amended Plan.
A performance share award gives the participant the right to receive common stock on the satisfaction of one or more
performance goals during a particular performance period, each as specified by the Compensation Committee. Each
performance share will have a value determined by the Compensation Committee at the time of grant.
Performance Share Units. The Compensation Committee also may grant PSU awards under the Amended Plan. A PSU
award gives the participant the right to receive common stock, a cash payment or a combination of stock and cash, on the
satisfaction of one or more performance goals during a particular performance period, each as specified by the
Compensation Committee. Each PSU will have a value determined by the Compensation Committee at the time of grant.
Performance Cash. The Compensation Committee may grant performance cash awards under the Amended Plan. A
performance cash award gives the participant the right to receive an amount of cash depending on the satisfaction of one
or more performance goals during a particular performance period, each as specified by the Compensation Committee.
The achievement of the performance goals for a particular performance period will determine the ultimate value of the
performance cash award.
Axon Enterprise, Inc. | 2024 Proxy Statement | 66
Restrictions
The Compensation Committee may impose such restrictions on any awards under the Amended Plan as it may deem
advisable, including restrictions under applicable federal securities law, the requirements of any stock exchange upon
which the Company’s common stock is then listed and any blue sky or state securities law applicable to the awards.
Minimum Vesting Requirement
The Amended Plan imposes a minimum vesting requirement on awards such that no award may vest in full prior to the
12-month anniversary of the grant date, subject to the Committee’s discretion to accelerate awards in the case of a change
in control or a termination of employment or service. This minimum vesting requirement does not apply to up to 5% of
the total number of shares reserved for grant under the Amended Plan.
Change in Control
The Amended Plan also provides that, in the event of a “change in control” of the Company, unless otherwise provided
for in an award agreement, change in control transaction document or employment agreement between the Company and
a participant, all awards that are outstanding and unvested as of immediately prior to such change in control will remain
outstanding and unvested. If, however, (i) within 12 months following a change in control, the participant’s employment
with the Company is terminated without cause (as defined in the Amended Plan), or (ii) in connection with the change in
control, no provision is made for continuation or assumption of awards in a manner that preserves the material terms and
conditions of the awards, then, as of the date of such termination or change in control, all awards then-held by such
participant will become fully vested and exercisable and all restrictions on such outstanding awards will lapse.
Non-Transferability
Unless otherwise determined by the Compensation Committee, no award granted under the Amended Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and
distribution or, if applicable, until the termination of any restricted or performance period as determined by the
Compensation Committee.
Adjustment Provisions
If there is a change in the outstanding shares of common stock because of a stock dividend or split, split-up or spin-off,
extraordinary dividend or other extraordinary distribution (whether in the form of cash, stock or other property), change
in control, recapitalization, rights offering, liquidation, merger, consolidation, combination, exchange of shares or other
similar corporate change or event in respect of the common stock, the aggregate number of shares of common stock
available under the Amended Plan and subject to each outstanding award, and any applicable stated exercise price or the
basis upon which the award is measured, will be adjusted by the Compensation Committee. In such circumstances, the
Compensation Committee may also make any adjustments it determines in its sole discretion to be appropriate, including,
for example, substitution of other securities or property for the shares of common stock subject to awards, cancellation of
outstanding awards for cash or other property, and cancellation of options or SARs for which the exercise price exceeds
the fair market value without payment or consideration. Any adjustments permitted under the Existing Plan will be binding
on all holders of awards under the Amended Plan.
Clawback
Every award granted under the Amended Plan is subject to potential forfeiture or recovery to the fullest extent called for
by law, any applicable listing standard, or any current or future clawback policy that may be adopted by the Company
from time to time, including Rule 10D-1 of the Exchange Act and the applicable NASDAQ Listing Standards
implementing such rule as may be amended from time to time.
Axon Enterprise, Inc. | 2024 Proxy Statement | 67
Amendment, Modification and Termination of Amended Plan
Subject to the Board’s right to terminate, amend or modify the Amended Plan at any time, the Amended Plan will remain
in effect until all awards issued under the Amended Plan expire, terminate, are exercised or are paid in full in accordance
with the Amended Plan provisions and any award agreement. However, no award may be granted under the Amended
Plan after the 10th anniversary of the Effective Date.
The Board has discretion to terminate, amend or modify the Amended Plan. Any such action of the Board is subject to the
approval of the Company’s shareholders to the extent required by the Amended Plan, law, regulation or the rules of any
exchange on which Company common stock is listed. To the extent permitted, the Board may delegate to the Compensation
Committee or the Company’s CEO the authority to approve immaterial amendments to the Amended Plan. Except as
otherwise provided in the Amended Plan, neither the Board, the Compensation Committee nor the Company’s CEO may
do any of the following without shareholder approval: reduce the purchase price, exercise price or base value of any
outstanding award, including any option or SAR; increase the number of shares available under the Amended Plan; grant
options or SARs with an exercise price or base value that is below fair market value of a share of common stock on the
grant date; reprice previously granted options or SARs; cancel any option or SAR in exchange for cash or any other award
or in exchange for any option or SAR with an exercise price that is less than the exercise price of the original option or
SAR; extend the exercise period or term of any option or SAR beyond 10 years from the grant date; expand the types of
awards available for grant under the Amended Plan; or expand the class of individuals eligible to participate in the
Amended Plan.
Tax Withholding
The Company has the power to withhold, or require a participant to remit to the Company, up to the maximum statutory
amount necessary, the taxes required to be withheld or otherwise due in respect of any awards, provided that the amount
of withholding will reflect the required minimum amount necessary to satisfy taxes if withholding at the minimum amount
is necessary to avoid adverse accounting consequences. The Company also has the power to take such other action as may
be necessary or appropriate in the opinion of the Compensation Committee to satisfy any obligation for the payment of
such taxes. To the extent that alternative methods of withholding are available under applicable laws, the Compensation
Committee will have the power to choose among such methods.
Federal Income Tax Considerations
The following is a brief summary of certain of the U.S. federal income tax consequences of certain transactions under the
Amended Plan based on federal income tax laws in effect on March 15, 2024. This summary is intended for the information
of shareholders considering how to vote at the Annual Meeting and not as tax guidance to participants in the Amended
Plan, as the consequences may vary with the types of awards made, the identity of the recipients and the method of payment
or settlement. The summary does not address in any detail the effects of other federal taxes (including possible “golden
parachute” excise taxes) or taxes imposed under state, local or foreign tax laws.
As a general rule, a participant will not recognize taxable income with respect to any award at the time of grant except in
the case of a participant who receives a restricted stock award and makes the timely election permitted by Section 83(b) of
the Tax Code. Under the Amended Plan, no participant will be permitted to make a Section 83(b) election without the
prior written consent of the Company.
Upon exercise of a nonqualified stock option, the lapse of restrictions on restricted stock, or upon the payment or settlement
of SARs, RSUs, stock grants, stock units, performance shares, PSUs or performance cash, the participant will generally
recognize ordinary taxable income in an amount equal to the difference between the amount paid for the award, if any,
and the fair market value of the stock or amount received on the date of exercise, lapse of restriction or payment. Subject
to the deduction limitations of Section 162(m) of the Tax Code, the Company will be entitled to a concurrent income tax
deduction equal to the ordinary income recognized by the participant.
A participant who is granted an incentive stock option will not recognize taxable income at the time of exercise of such
option. However, the amount equal to the excess of the stock’s fair market value on the date of exercise over the option
Axon Enterprise, Inc. | 2024 Proxy Statement | 68
price could be subject to the alternative minimum tax in the year of exercise (assuming the stock received is not subject to
a substantial risk of forfeiture or is transferable). If stock acquired upon exercise of an incentive stock option is held for a
minimum of two years from the date of grant and one year from the date of exercise (the “holding period requirements”),
the gain or loss (in an amount equal to the difference between the sale price and the exercise price) upon disposition of the
stock will be treated as a long-term capital gain or loss, and the Company will not be entitled to any income tax deduction.
If the holding period requirements are not met, the incentive stock option will not meet the requirements of the Tax Code
and the tax consequences described for nonqualified stock options will apply.
Some awards may be subject to Section 409A of the Tax Code (“Section 409A”), which regulates deferral arrangements.
If certain awards fail to comply with Section 409A, a participant must include in ordinary income all deferred
compensation conferred by the award, pay interest from the date of the deferral and pay an additional 20% tax. The award
agreement for any award that is subject to Section 409A may include provisions necessary for compliance as determined
by the Compensation Committee. The Company intends that awards granted under the Amended Plan will comply with
the requirements of Section 409A or an exception thereto and intends to administer and interpret the Amended Plan in
such a manner (but cannot and does not guarantee awards will comply with the requirements of Section 409A).
Tax Consequences to the Company or its Affiliates
To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the
subsidiary for which the employee performs services will, subject to the deduction limitations of Section 162(m) of the
Tax Code, be entitled to a corresponding deduction; provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an “excess parachute payment” within the
meaning of Section 280G of the Tax Code.
Amended Plan Benefits
The benefits that will be awarded or paid under the Amended Plan are not currently determinable. No awards have been
made under the Amended Plan (including any awards that would be contingent on the approval of the Amended Plan), and
benefits under the Amended Plan will depend on the Compensation Committee’s actions and the fair market value of the
Company’s common stock at various future dates.
For illustrative purposes, the table below shows grants under the Existing Plan awarded to the following individuals and
groups named below as of December 31, 2023. The “Number of Shares Granted” column reflects the aggregate number
of shares subject to awards of RSUs (the only type of award granted under the Existing Plan), whether or not outstanding,
vested or forfeited, as applicable, granted under the Existing Plan since its adoption, including the Contingent RSUs
described in the “Executive Compensation—Compensation Discussion and Analysis.” As of March 1, 2024, the closing
price of a share of the Company’s common stock was $314.25:
Name and Position
Patrick W. Smith
Chief Executive Officer
Joshua M. Isner
President
Brittany Bagley
Chief Operating Officer and Chief Financial Officer
Jeffrey C. Kunins
Chief Product Officer and Chief Technology Officer
Executive Group
Non-Employee Director Group
Non-Executive Officer Employee Group
Number of
Shares Granted
Grant Date
Fair Value ($)
— $
—
143,299
45,031,711
38,492
12,096,111
55,449
17,424,848
237,240 $
11,922
74,552,670
3,746,489
1,606,748 $ 504,920,559
Axon Enterprise, Inc. | 2024 Proxy Statement | 69
Registration with the SEC
If the Amended Plan is approved by shareholders, we expect to file as soon as practicable after the Annual Meeting a
Registration Statement on Form S-8 with the SEC to register the number of shares of common stock that will be issuable
pursuant to the Amended Plan.
Relationship to Other Stock Plan Proposals
At the Annual Meeting, shareholders will also be asked to approve the 2024 Employee XSP and the 2024 CEO
Performance Award as further described in Proposal No. 3 and Proposal No. 4, respectively. Each of such proposals and
the proposal to approve the Amended Plan are independent of one another. If the Amended Plan is approved by
shareholders, but either or both the 2024 Employee XSP or 2024 CEO Performance Award are not approved, the shares
available under the Amended Plan will not be used to settle the awards under the 2024 Employee XSP or the 2024 CEO
Performance Award. However, while shareholders may approve all three proposals or any combination or none of them,
we note that each of these plans is an integral component of our talent retention and incentive program.
Unless otherwise instructed, all proxies received will be voted FOR the approval of the Amended Plan.
The Board of Directors recommends a vote FOR approval of Proposal No. 2.
For Proposal No. 2, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal in person or by proxy at the Annual Meeting
is required for approval. Abstentions and broker non-votes will have no impact on this proposal if a quorum is present.
Vote Required
Axon Enterprise, Inc. | 2024 Proxy Statement | 70
PROPOSAL NO. 3 - APPROVAL OF THE AXON ENTERPRISE, INC. 2024 EXPONENTIAL STOCK PLAN
At the Annual Meeting, shareholders will be asked to approve the 2024 Employee XSP pursuant to which grants of XSUs
were made to certain employees on December 22, 2023, excluding our CEO and founder, Patrick W. Smith, whose
performance-based award is addressed in Proposal No. 4. The 2024 Employee XSP and the corresponding form of
eXponential Stock Unit Award Agreement (the “Form of XSU Award Agreement”), substantially in their current forms,
were approved by the Board on October 14, 2023, subject to shareholder approval at the Annual Meeting. The full text of
the 2024 Employee XSP and the Form of XSU Award Agreement are attached to this proxy statement as Annexes B-C.
Approval of this proposal results in the effectiveness of the grants of XSUs awarded to the NEOs (excluding our CEO)
and the corresponding forfeiture of the grants of Contingent RSUs as described in “Executive Compensation—
Compensation Discussion and Analysis—Components of Executive Compensation—Long-Term Service-Based Equity
Compensation—Contingent RSUs.”
General Information
The 2024 Employee XSP, designed by our Compensation Committee, took into consideration direct feedback from our
shareholders and is intended to incentivize and drive the next seven years of our shareholder returns. The 2024 Employee
XSP recognizes Axon’s global growth potential and is designed to motivate our employees who are instrumental to the
innovation and development of Axon’s new products and who continue to deliver exceptional value to Axon.
Similar to the rationale underlying the 2024 CEO Performance Award, as further described in Proposal No. 4, Axon
developed the 2024 Employee XSP to be a performance-based stock incentive plan for the broader employee population
to recognize that Axon’s success and potential relies on employee motivation. The design of the 2024 Employee XSP is
similar in concept to the design of the 2019 XSPP (sometimes referred to as “XSP 1.0”) that was approved by shareholders
in February 2019. The performance-orientation of the XSP 1.0 awards has had a strong influence in motivating the broader
employee population and leadership team in being innovative and executing against critical business and strategic priorities
that have resulted in nearly $16 billion of shareholder value creation since that time, and five-year total shareholder return
of over 500%.
Similar to the 2024 CEO Performance Award, subject to shareholder approval, the 2024 Employee XSP provides for the
grant of XSUs to employee participants, including our Section 16 Officers (excluding Mr. Smith), with each grant divided
into seven substantially equal tranches (each, a “Tranche”), each subject to three independent vesting conditions:
1. Stock price goals: Axon’s stock price must appreciate 25% between each Tranche, as shown in the chart below.
2. Operational goals: Axon must achieve specified operational goals (Revenue and/or Adjusted EBITDA growth,
each increasing by 25% between each Tranche), as shown in the chart below.
3. Minimum service condition: Each participant must remain employed with the Company through the Minimum
Service Date shown in the chart below.
Tranche Stock Price
Revenue
1
2
3
4
5
6
7
and
either
$247.40
$309.25
$386.56
$483.20
$604.00
$755.00
$943.75
Revenue & Adjusted EBITDA in millions
$1,834
$2,293
$2,866
$3,583
$4,479
$5,599
$6,999
or
or
or
or
or
or
or
Adjusted
EBITDA
$393
$508
$655
$845
$1,088
$1,400
$1,750
Minimum Service Date
June 2025
December 2025
June 2026
December 2026
June 2027
December 2027
June 2028
and
Axon Enterprise, Inc. | 2024 Proxy Statement | 71
The performance goals for the 2024 Employee XSP are identical to the performance goals for the 2024 CEO Performance
Award. For all seven Tranches of each XSU award to vest, the Company would need to achieve a stock price of $943.75
and sustain strong annual growth on Revenue, Adjusted EBITDA or both by December 31, 2032. The Compensation
Committee views these goals as rigorously challenging but achievable over the life of the 2024 Employee XSP.
As highlighted in the graphs below, the impact of a 25% annual growth rate requires accelerated market value creation for
each subsequent Tranche to be earned. For example, in order for the first Tranche to be earned, the Company will need to
create $3.7 billion in market value from the grant date. However, for the seventh and last Tranche to be earned, the
Company will need to create nearly $56 billion in market value from the grant date and over $14 billion in incremental
market value from the prior Tranche.
(1)
Implied market value assumes constant fully diluted common shares outstanding figure of 79,549,524 as of
December 31, 2023.
Axon Enterprise, Inc. | 2024 Proxy Statement | 72
These stock price hurdles will also require that there is corresponding Revenue and/or Adjusted EBITDA growth with
similar 25% compounding growth rates over the life of the 2024 Employee XSP.
XSP 2.0 Revenue and Adjusted EBITDA Goals ($MM)
Revenue Goal
Adj. EDBITDA Goal
$1,834
$2,293
$2,866
$3,583
$393
$508
$655
$845
$4,479
$5,599
$6,999
$1,088
$1,400
$1,750
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Rev Adj. EBITDA
--
--
Rev Adj. EBITDA
+$115
+$459
Rev Adj. EBITDA
+$147
+$573
Rev Adj. EBITDA
+$190
+$717
Rev Adj. EBITDA
+$243
+$896
Rev Adj. EBITDA
+$312
+$1,120
Rev Adj. EBITDA
+$350
+$1,400
Incremental Revenue and Adjusted EBITDA Created for Each Subsequent Tranche (values in $MM)
1834
393
2293
508
2866
655
3583
845
4479
1088
5599
1400
6999
1750
As described below, the stock price goal is only met if the volume weighted average price of a share of our common stock,
based on the Daily VWAP (as defined below), measured over any consecutive 90-day period (the “Ninety-Day VWAP”)
beginning on the grate date equals or exceeds $247.40. “Daily VWAP” means, as of any trading day, the volume weighted
average price of a share of our common stock as reported by S&P Capital IQ (or such other source as the Compensation
Committee may determine) for such trading day. As of March 1, 2024, our Ninety-Day VWAP was $264.31; however, it
has not been 90 days since the grant date.
For additional details about the 2024 Employee XSP, see “Summary of Material Plan Features” below.
The 2024 Employee XSP’s Standout Design
The 2024 Employee XSP design is unparalleled in its potential to drive value creation for shareholders as compared to any
other performance-based stock grant program in which non-C suite employees are eligible to participate in today’s market.
Indeed, two main dimensions of the 2024 Employee XSP design that uniquely leverage the untapped potential of the
Company’s diverse and highly motivated employee population to drive value creation include: (i) extending performance-
based equity deeper into the organization where the market practice is limited to grants of time-based equity if equity
awards are offered to the general employee population at all; and (ii) requiring meaningful performance to earn such
awards. Axon values company-wide alignment on the performance objectives and believes that the sharing of any value
creation with its employees who are responsible for the Company’s day-to-day successes is an investment that will
ultimately pay dividends in keeping Axon’s stock performance above its peer companies and delivering the greatest
potential value for its shareholders on a go-forward basis.
Relationship to the 2024 CEO Performance Award
XSU awards granted under the 2024 Employee XSP and the 2024 CEO Performance Award are designed to be
substantively identical with respect to all performance-based vesting conditions, minimum service condition (subject to
extended Minimum Service Dates for Mr. Smith), mandatory holding period following vesting and settlement (applicable
to Section 16 Officers and certain other participants with respect to the 2024 Employee XSP), and general award terms
and conditions. This is by design, as we intend for the 2024 Employee XSP awards to align the interests of all employees
and our CEO with key performance goals that will drive shareholder value.
The substantive differences between the 2024 Employee XSP and the 2024 CEO Performance Award include the
requirement that Mr. Smith continues to serve as CEO (or another mutually agreed role with the Company) during the
Axon Enterprise, Inc. | 2024 Proxy Statement | 73
performance period, extended Minimum Service Dates for Mr. Smith, a more robust clawback provision, and treatment of
the 2024 CEO Performance Award under certain terminations by Mr. Smith.
Summary of Key Equity Plan Data and Dilution Considerations
Burn Rate
The following table illustrates the Company’s historical burn rate for the past three years. Burn rate is calculated as (i) the
number of stock options and time-based RSUs granted, plus (ii) the number of PSUs earned, divided by (iii) the weighted
average basic common shares outstanding in the year indicated. The Company’s burn rate was as follows:
(a)
Options
(b)
RSUs
Year
2021
2022
2023
Granted (1) Granted
—
—
—
686,166
1,144,539
914,955
(c)
PSUs
Earned
(d) = (a) + (b) + (c)
Total
Granted/Earned
(e)
Weighted Average Basic
4,345,601
78,194
1,238,402
5,031,767
1,222,733
2,153,357
Outstanding
66,190,528
71,092,681
74,195,416
3-Year Average
(d) ÷ (e)
Burn
Rate
7.60 %
1.72 %
2.90 %
4.07 %
Burn Rate
Excluding
PSUs Earned
1.04 %
1.61 %
1.23 %
1.29 %
(1) Stock options are included in the year granted, rather than earned. Stock options granted pursuant to the 2018 CEO
Performance Award are excluded from all years included here as they were granted in 2018.
Overhang
The following table illustrates the Company’s fully diluted overhang assuming shareholders approve each of Proposals
No. 2, 3 and 4. Assuming such approval, the overhang is calculated as (a) the number of shares underlying all outstanding
equity awards under all equity plans, plus (b) the unissued shares remaining available for grant under all equity plans,
divided by (c) the sum of (i) the number of shares underlying all outstanding equity awards under all equity plans, plus
(ii) the unissued shares remaining available for grant under all equity plans, plus (iii) shares of common stock outstanding.
As of December 31, 2023, even with the shares reserved under each of the Amended Plan, the 2024 Employee XSP and
the 2024 CEO Performance Award, our total share count overhang remains below 13.5%.
The Company’s fully diluted overhang calculated as of December 31, 2023 is as follows:
(a)
Shares Underlying
Outstanding
(b)
Unissued
Equity Plan
Equity Awards (1) Available Shares
Existing Plan
Plus: Amended Plan
Plus: 2024 Employee XSP
Plus: 2024 CEO Award
2,539,954
2,539,954
2,539,954
2,539,954
1,708,146
3,939,957
8,456,327
9,135,429
(a)+(b)
Equity Plan
Shares
4,248,100
6,479,911
10,996,281
11,675,383
(c)
(a)+(b)+(c)
Common Shares Fully Diluted
Outstanding
75,301,424
75,301,424
75,301,424
75,301,424
Shares
79,549,524
81,781,335
86,297,705
86,976,807
(a)+(b) /
(a)+(b)+(c)
Fully Diluted
Overhang
5.34 %
7.92 %
12.74 %
13.42 %
(1)
Includes 530,931 shares underlying unexercised options, 1,615,143 shares underlying unvested RSUs and 393,880
shares underlying unvested PSUs outstanding as of December 31, 2023. As of December 31, 2023, the weighted
average exercise price of stock options outstanding was $28.58 and the weighted average term remaining for stock
options outstanding was 4.16 years.
Axon Enterprise, Inc. | 2024 Proxy Statement | 74
The Company’s fully diluted overhang is more favorable when calculated as of the Record Date as older awards have
vested since December 31, 2023. Accordingly, we provide the detail of these calculations for the benefit of shareholders
as follows:
(a)
Shares Underlying
Outstanding
(b)
Unissued
(a)+(b)
Equity Plan
Equity Plan
Equity Awards (1) Available Shares
Existing Plan
Plus: Amended Plan
Plus: 2024 Employee XSP
Plus: 2024 CEO Award
2,811,580
2,811,580
2,811,580
2,811,580
1,269,347
3,501,158
8,017,528
8,696,630
Shares
4,080,927
6,312,738
10,829,108
11,508,210
(c)
(a)+(b)+(c)
Common Shares Fully Diluted
Outstanding
75,463,324
75,463,324
75,463,324
75,463,324
Shares
79,544,251
81,776,062
86,292,432
86,971,534
(a)+(b) /
(a)+(b)+(c)
Fully Diluted
Overhang
5.13 %
7.72 %
12.55 %
13.23 %
(1)
Includes 530,931 shares underlying unexercised stock options, 1,879,034 shares underlying unvested RSUs and
401,615 shares underlying unvested PSUs outstanding as of the Record Date. As of the Record Date, the weighted
average exercise price of stock options outstanding was $28.58 and the weighted average term remaining for stock
options outstanding was 3.95 years.
Other Dilution Considerations
The Company, along with the Compensation Committee, has recognized the concerns raised by our shareholders regarding
the dilution created by the 2018 CEO Performance Award and the 2019 XSPP. In response to those concerns, the Company
and the Compensation Committee have committed to targeting an average annual gross dilution of approximately 3%
across all stock-based compensation plans (including the 2024 CEO Performance Award), beginning in 2024.
4,516,370 shares of our common stock are reserved for the issuance of XSUs under the 2024 Employee XSP, covering
6% of our outstanding common stock as of December 31, 2023. As noted elsewhere in this proxy statement, performance-
based awards under the 2024 Employee XSP are intended to drive alignment with our strategic goals over the next seven
years.
In addition, the Compensation Committee designed the 2024 Employee XSP to further limit potential dilution volatility
by:
•
•
requiring participants to remain employed with the Company through the applicable Minimum Service Date; and
requiring Section 16 Officers and certain other employees to retain, and not sell, the shares acquired upon the
vesting and settlement of each Tranche (except as required to satisfy withholding taxes due in connection with
such settlement) until the earlier of (i) December 31, 2030 and (ii) the date that a subsequent Tranche vests and
settles.
Notably, with the introduction of the 2024 Employee XSP, the Compensation Committee is continuing its practice of
ensuring that compensation is aligned with stringent operational performance and long-term shareholder returns.
Axon Enterprise, Inc. | 2024 Proxy Statement | 75
Summary of the 2024 Employee XSP Plan Features
The following is a summary of the material terms of the 2024 Employee XSP and the Form of XSU Award Agreement
that may be of importance to you. The summary is qualified by reference to the full text of the 2024 Employee XSP and
the Form of XSU Award Agreement, which are attached to this proxy statement as Annexes B-C.
2024 Employee XSP Terms
Details
Shares Reserved for Issuance
4,516,370 shares of Axon’s common stock, representing 6% of the outstanding shares
of Axon’s common stock as of December 31, 2023. As of March 1, 2024, 3,713,252
XSUs under the 2024 Employee XSP have been granted, and so 803,118 shares
remain available for future grants of XSUs.
Award Type
XSUs
Expiration Date
December 31, 2032
Eligibility
All employees (including prospective employees), officers and consultants of the
Company or an affiliate are eligible to participate in the 2024 Employee XSP. As of
December 31, 2023, 2,905 employees (including officers) and 619 consultants were
eligible to participate in the 2024 Employee XSP; however, consultants are not
expected to be plan participants.
As of December 22, 2023, 1,980 employees were granted XSU awards under the 2024
Employee XSP, many of whom have elected to receive a certain percentage of the
value of their target compensation over a seven-year period (2024 to 2030) in the form
of XSUs, subject to shareholders approval of Proposal No. 3.
The Company intends to continue granting XSUs in place of long-term performance-
based RSUs given the strong alignment with shareholder experience requiring
meaningful growth in both stock price and operational performance.
Performance Goals;
Performance-Based Vesting
Conditions
Stock Price Goals
• Seven stock price goals
• Sustained stock price improvement is required for each stock price goal to be met.
For each stock price goal to be met, the Ninety-Day VWAP for any consecutive
90-day period since the grant date must equal or exceed the stock price goal that
corresponds to each Tranche.
• First Tranche stock price goal is $247.40 (which reflects 25% growth to our
Ninety-Day VWAP as of October 13, 2023, i.e., the day before the 2024
Employee XSP and the Form of XSU Award Agreement were sent to our Board
for consideration); each Tranche thereafter requires an additional increase in stock
price of 25%, up to a stock price goal of $943.75 for the seventh Tranche.
Operational Goals
• 14 operational goals
• Two types of operational goals: Revenue and Adjusted EBITDA
Axon Enterprise, Inc. | 2024 Proxy Statement | 76
Operational
Milestone
Tier
1
2
3
4
5
6
7
Revenue*
Goals
(millions)
$1,834
$2,293
$2,866
$3,583
$4,479
$5,599
$6,999
Adjusted EBITDA**
Goals (millions)
$393
$508
$655
$845
$1,088
$1,400
$1,750
* Revenue means, as of any date, the Company’s total revenues, as reported by the
Company in its financial statements on Forms 10-Q and 10-K filed with the SEC (but
without giving effect to any rounding used in reporting the amounts in Forms 10-Q
and 10-K), for the previous four consecutive fiscal quarters of the Company,
beginning with the Company’s first full fiscal quarter ending after the fiscal quarter
in which the date of grant occurs (i.e., the first quarter of 2024 for XSU awards granted
on December 22, 2023).
** Adjusted EBITDA means, as of any date, for the previous four consecutive fiscal
quarters, the Company’s net (loss) income attributable to common stockholders
before interest expense, interest and other income (such as dividends), adjusted for
one-time or non-recurring items, including gains and losses on investments (inclusive
of strategic and non-strategic non-controlling minority investments and joint ventures
or similar arrangements), transaction costs related to strategic investments and
acquisitions (or divestitures), gains or losses or impairments related to dispositions of
businesses, disposals and/or abandonments of intangible assets, disposals or
impairment of land, property and/or equipment, insurance recoveries, restructuring
costs (including non-recurring costs related to a reduction in force and/or to closing
or exiting facilities), (benefit) provision for income taxes, depreciation and
amortization and stock based compensation.
Performance Vesting Conditions
Each Tranche will vest only if both a stock price goal and an operational goal are met
(and the minimum service condition (described below) is also met).
A stock price goal and an operational goal that are matched together can be achieved
at different points in time and vesting will occur on the date on which the
Compensation Committee determines that the last goal was obtained; provided both
goals are determined by the Compensation Committee as having been achieved prior
to the goal expiration date applicable to the Tranche. Prior Tranches may be earned
later in time if the goals applicable to a later Tranche are subsequently achieved
prior to the goal expiration date applicable to the later Tranche. Subject to any
applicable clawback provisions, policies or other forfeiture terms described in the
2024 Employee XSP, once a goal is achieved, it is forever deemed achieved for
determining the vesting of a Tranche.
Axon Enterprise, Inc. | 2024 Proxy Statement | 77
Minimum Service Condition
Effect of Termination of
Employment
Change in Control
Vesting is contingent upon the participant’s continued employment with Axon.
Subject to certain exceptions for Section 16 Officers described below, each Tranche
will vest only if the participant remains employed with the Company or any affiliate
through the later of (i) the applicable date on which the Compensation Committee
determines that the performance-based vesting conditions with respect to the Tranche
have been achieved (the “Determination Date”) and (ii) the applicable Minimum
Service Date.
For non-Section 16 Officer participants, upon a termination without “Cause” (as
defined in the 2024 Employee XSP), XSUs for which the applicable date on which
the performance-based vesting conditions were attained occurs prior to the date of
termination will be deemed vested as of such date of termination without regard to the
Minimum Service Date. In the event of the participant’s death after the first
anniversary of the date of grant, any then-outstanding Tranches will remain
outstanding and eligible to vest, without regard to the participant’s continued
employment, to the extent that the Determination Date with respect thereto occurs
within 24 months after the participant’s death, including for the avoidance of doubt,
upon a Change in Control (as discussed below) within such period; provided that no
such Tranche will vest unless the applicable Determination Date occurs within the
same calendar year as the goal attainment date.
For Section 16 Officers, upon a termination without Cause, XSUs will vest as of such
date of termination based solely on achievement of the stock price goal as of such
date, without regard to the attainment of the operational goals, plus pro-rata vesting
of the next outstanding unvested Tranche based on a fraction the numerator of which
is the excess (if any) of the Ninety-Day VWAP as of such date over the stock price
goal applicable to the first Tranche and the denominator of which is the excess of the
stock price goal applicable to the second Tranche over the stock price goal applicable
to the first Tranche. Upon a termination due to death or disability prior to the
applicable Minimum Service Date, any then-outstanding Tranche will vest as of such
termination based solely on attainment of the applicable performance-based vesting
conditions as of such date, without regard to the participant’s continued employment.
For both non-Section 16 Officer and Section 16 Officer participants, except as
described above, upon the earlier of the participant’s termination of employment for
any reason, any outstanding unvested Tranche will be forfeited, canceled and cease to
be outstanding. With respect to non-Section 16 Officer participants, certain officers
named in the Form of XSU Award Agreement may, in their sole discretion, accelerate
the vesting of all or a portion of one otherwise unvested outstanding Tranche, subject
to the participant’s execution and non-revocation of a release of claims.
Upon a Change in Control, any then-outstanding Tranche for which the stock price
goal has been achieved based on the transaction price will vest if the minimum service
condition for that Tranche has been satisfied or otherwise convert into time-based
awards eligible to vest based on the satisfaction of the applicable minimum service
condition. Converted awards are subject to “double-trigger” treatment upon a
termination by the Company without Cause or, if the participant is a Section 16
Officer as of immediately prior to the closing of the Change in Control transaction,
the participant resigns for “Good Reason” (as defined in the 2024 Employee XSP)
within 24 months following a Change in Control.
Axon Enterprise, Inc. | 2024 Proxy Statement | 78
The treatment of the XSUs upon a Change in Control is intended to align participants’
interests with Axon’s other shareholders with respect to evaluating potential
transactions.
A “Change in Control” is generally defined in the 2024 Employee XSP as (i) an
acquisition (other than directly from the Company) by an individual, entity or a group
(excluding the Company or an employee benefit plan of the Company) of 30% or
more of the combined voting power of then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the “Company Voting
Securities”); (ii) a change during any 24 consecutive calendar months in a majority of
the Company’s current Board (excluding any persons approved by a vote of at least a
majority of the “Incumbent Directors” (as defined in the 2024 Employee XSP) other
than in connection with an actual or threatened proxy contest); (iii) the consummation
of a merger, consolidation or sale of all or substantially all of the Company’s assets
(collectively, a “Business Combination”), unless immediately following such
Business Combination (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of the combined voting power of then-outstanding voting
securities entitled to vote generally in the election of directors of the corporation
resulting from such Business Combination, (B) at least a majority of the board of
directors of the resulting corporation were members of the Incumbent Directors, and
(C) no person owns 30% or more of the stock of the resulting corporation, who did
not own such stock immediately before the Business Combination; or (iv) shareholder
approval of a complete liquidation or dissolution of the Company.
For Section 16 Officers and certain non-Section 16 Officers, shares acquired upon the
vesting and settlement of any Tranche (except as required to satisfy withholding taxes
due in connection with such settlement) are required to be held until the earlier of
(i) December 31, 2030 and (ii) the date that a subsequent Tranche vests and settles.
This requirement only applies to the shares acquired with respect to one Tranche and,
in the event that more than one Tranche vests, only the most recently vested Tranche
will be subject to the holding period requirement and all earlier vested Tranches will
cease to be subject thereto.
The XSU awards will be subject to clawback to the fullest extent required by law,
applicable listing standard or any current or future clawback policy that may be
adopted by the Company from time to time, including Rule 10D-1 of the Exchange
Act and the applicable NASDAQ Listing Standards implementing such rule, as may
be amended from time to time.
The 2024 Employee XSP will be administered by the Compensation Committee in its
sole and complete discretion to the extent not contrary to the express provisions of the
2024 Employee XSP. The Compensation Committee may delegate the power and
authority to the CEO in writing to grant XSU awards to non-Section 16 Officers to
expedite the hiring process or to retain talented employees. The Compensation
Committee’s delegation to the CEO may be revoked or modified at any time.
Axon Enterprise, Inc. | 2024 Proxy Statement | 79
Holding Period
Clawback
Administration
Adjustment
in Control,
recapitalization,
In the event of any change in the outstanding shares of common stock by reason of a
stock dividend or split, split-up or spin-off, extraordinary dividend or other
extraordinary distribution (whether in the form of cash, shares or other property),
Change
liquidation, merger,
consolidation, combination, exchange of shares, or other similar corporate change or
event in respect of the common stock, the Compensation Committee may adjust the
stock price goals, the number of XSUs, the number and kind of securities or other
property that may be issued in respect thereof and the other terms and conditions of
the 2024 Employee XSP. In the event of any such transaction, the Compensation
Committee may also provide in substitute for the award alternate consideration.
rights offering,
Amendment; Modification
and Termination
Non-Transferability
The Board may not, without the approval of the shareholders to the extent required
by law, regulation or any stock exchange rule for any exchange on which shares are
listed terminate, amend or modify the 2024 Employee XSP. Notwithstanding the
foregoing, the Board may delegate to the Compensation Committee or the CEO the
authority to approve immaterial amendments to the 2024 Employee XSP; provided,
that none of the Board, the CEO, or the Compensation Committee may, without the
approval of the shareholders: (i) increase the number of shares available under the
2024 Employee XSP; (ii) expand the types of awards available for grant; or (iii)
expand the class of individuals eligible to participate in the 2024 Employee XSP.
Unless otherwise determined by the Compensation Committee, XSUs may not be
transferred to any other person except by will or the laws of descent and distribution.
The Compensation Committee may, in accordance with applicable law and listing
standards, permit the transfer of XSUs and any shares acquired upon the settlement
thereof to a family member, trust or partnership or to a charitable organization, in each
case for estate planning purposes.
Accounting and Tax Considerations
Accounting Considerations
The Company follows ASC Topic 718 for its stock-based compensation awards. ASC Topic 718 requires companies to
measure the compensation expense for all stock-based compensation awards made to employees based on the grant date
“fair value” of these awards. Pursuant to ASC Topic 718, this calculation cannot be made for any XSUs awarded under
the 2024 Employee XSP prior to the date on which it is approved by the Company’s shareholders at the Annual Meeting,
which will be the “grant date” for accounting purposes. ASC Topic 718 also requires companies to recognize the
compensation cost of their stock-based compensation awards in their income statements over the requisite service period.
In the case of the 2024 Employee XSP, the requisite service period is the later of (i) the Minimum Service Date, (ii) the
date upon which the holding period requirement expires and (iii) the date on which the XSUs subject to a Tranche are
otherwise scheduled to vest. Accordingly, the 2024 Employee XSP would result in the recognition of additional stock-
based compensation expense over the term of the award as the operational goals become probable of being achieved
through the expected vesting date determined pursuant to ASC Topic 718. If the operational goal for a Tranche is attained,
but the stock price goal is not attained for such Tranche, so that the Tranche is not vested, the stock-based compensation
expense for that Tranche is still recognized.
For illustrative purposes only, and using the closing price of an Axon share of common stock on March 4, 2024 (the latest
practicable date to determine such amount), the Company estimates the aggregate grant date fair value of all seven
Tranches for all grantees, including the NEOs (other than the CEO) and other employees as a group, will be approximately
$981.6 million. As of the date of shareholder approval of the 2024 Employee XSP at the Annual Meeting, the Company
will update the estimate of the aggregate grant date fair value and then assess how many operational goals will be probable
of being achieved, which will determine when the portion of the stock-based compensation expense associated with each
probable Tranche will commence. This expense will be recognized ratably over the expected vesting period of each
Axon Enterprise, Inc. | 2024 Proxy Statement | 80
respective Tranche. Given the minimum service condition, the expense will be recognized through at least June 2028. The
remaining grant date fair value related to any operational goals that are not determined to be probable to be achieved as of
the grant date will be recognized if and when those operational goals become probable of being achieved. This expense
for each additional Tranche would be recognized ratably over its respective expected vesting period.
Federal Income Tax Considerations
The following is a brief summary of certain of the federal income tax consequences of the 2024 Employee XSP based on
federal income tax laws in effect on March 15, 2024. The following summary assumes that the U.S.-based participants
remain U.S. taxpayers. This summary is not intended to be exhaustive and does not describe, among other things, state,
local or foreign income and other tax consequences. The specific tax consequences to each U.S.-based participants depend
on each individual’s circumstances.
U.S.-based participants did not recognize taxable income with respect to their 2024 Employee XSP awards at the time of
grant. If and when the Tranches vest and settle, they will recognize ordinary income in an amount equal to the fair market
value of the shares settled in respect of each such Tranche on the date of settlement. Any taxable income recognized by
U.S.-based participants in connection with the settlement of the Tranches will be subject to tax withholding by us. Any
additional gain or loss recognized upon any later disposition of the shares should be capital gain or loss.
Subject to the limitations of Section 162(m) of the Tax Code, which generally limits the deductibility of compensation
paid to “covered employees” (as defined in Section 162(m) of the Code) to no more than one million dollars each per
taxable year, a corresponding deduction will be available to Axon equal to the amount of ordinary income recognized by
such employees.
The 2024 Employee XSP Benefits
The following table summarizes the number of shares underlying XSU awards granted to certain individuals pursuant to
the 2024 Employee XSP as of December 31, 2023:
Name and Position
Patrick W. Smith
Chief Executive Officer
Joshua M. Isner
President
Brittany Bagley
Chief Operating Officer and Chief Financial Officer
Jeffrey C. Kunins
Chief Product Officer and Chief Technology Officer
Executive Group
Non-Employee Director Group
Non-Executive Officer Employee Group
Number of
Shares Granted
Grant Date
Fair Value (1)
—
$
—
475,372
125,659,834
213,918
56,547,084
144,323
38,150,341
833,613
—
2,879,639
220,357,259
—
761,203,773
$
(1) Represents the market value of the securities underlying the 2024 Employee XSP awards as of March 4, 2024 (the
latest practicable date to determine such amount). For accounting purposes, the grant date of these XSUs will not
occur unless and until the 2024 Employee XSP is approved by shareholders, and thus the fair value of the XSUs for
accounting purposes is not determinable until such time.
Registration with the SEC
If the 2024 Employee XSP is approved by shareholders, we expect to file as soon as practicable after the Annual Meeting
a Registration Statement on Form S-8 with the SEC to register the number of shares of common stock that will be issuable
pursuant to the 2024 Employee XSP.
Axon Enterprise, Inc. | 2024 Proxy Statement | 81
Relationship to Other Stock Plan Proposals
At the Annual Meeting, shareholders will also be asked to approve the Amended Plan and the 2024 CEO Performance
Award, as further described in Proposal No. 2 and Proposal No. 4, respectively. Each of such proposals and the proposal
to approve the 2024 Employee XSP are independent of one another. However, while shareholders may approve all three
proposals or any combination or none of them, we note that each of these plans is an integral component of our talent
retention and incentive program.
Unless otherwise instructed, all proxies received will be voted FOR approval of the 2024 Employee XSP.
The Board of Directors recommends a vote FOR the approval of the 2024 eXponential Stock Plan
For Proposal No. 3, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or represented by proxy at the Annual Meeting is required
for approval. Abstentions and broker non-votes will have no impact on this proposal if a quorum is present.
Vote Required
Axon Enterprise, Inc. | 2024 Proxy Statement | 82
PROPOSAL NO. 4 -APPROVAL OF THE 2024 CEO PERFORMANCE AWARD
At the Annual Meeting, shareholders will be asked to approve the 2024 CEO Performance Award to our CEO and founder,
Patrick W. Smith. The 2024 CEO Performance Award was approved by the Compensation Committee and granted to
Mr. Smith effective as of December 22, 2023, subject to shareholder approval at the Annual Meeting. The 679,102 shares
underlying the 2024 CEO Performance Award represent less than 1% of the outstanding shares of Axon’s common stock
as of December 31, 2023 and vest subject to specific performance criteria as outlined further below. The full text of the
2024 CEO Performance Award is attached to this proxy statement as Annex D. Mr. Smith does not participate in the 2024
Employee XSP described in Proposal No. 3.
The Company is presenting the 2024 CEO Performance Award and the 2024 Employee XSP to shareholders separately
for their consideration and approval to provide shareholders with a choice regarding how our CEO is compensated, but to
align the incentives of our CEO directly with our employees, subject to certain additional hurdles. As a result, Axon
believes that these programs should be viewed in tandem, as the programs were developed together and are intended to
mutually incentivize Mr. Smith and participating employees to achieve the same goals and unlock the same benefits for
shareholders. In addition, as described above, the 2024 CEO Performance Award represents the vast majority of
Mr. Smith’s expected compensation in the coming years. Axon believes that incentivizing Mr. Smith with the 2024 CEO
Performance Award is critically important to Axon’s future growth and, if the 2024 CEO Performance Award is not
approved (and in particular in a scenario in which the 2024 Employee XSP is approved), it will be extremely challenging
to retain and properly motivate Mr. Smith. The detailed process by which the Compensation Committee designed the 2024
CEO Performance Award and its interplay with the 2024 Employee XSP are described in further detail below.
General Information
The 2024 CEO Performance Award, designed by the Compensation Committee, took into consideration direct feedback
from our shareholders regarding Mr. Smith’s equity compensation and is intended to incentivize and drive the next seven
years of our shareholder returns. Please see table below for the direct points of feedback from shareholders. The 2024 CEO
Performance Award recognizes Axon’s global growth potential and is designed to motivate a CEO whose inspirational
creativity can uniquely unlock this potential and who continues to deliver exceptional value to Axon. As a thought leader
and disruptive technologist in public safety, Mr. Smith inspires employees and customers alike with his creativity, dynamic
market-creating innovation and lifelong dedication to Axon’s mission.
In 2018, Axon’s Board approved the 2018 CEO Performance Award that required Axon to achieve specified market
capitalization and operational goals. As of December 31, 2023, all applicable performance goals had been achieved and
all 12 tranches of the 2018 CEO Performance Award had been earned.
In March 2023, Axon’s Board approved the 2023 CEO Performance Award, which was granted subject to shareholder
approval at the 2023 Annual Meeting. However, following extensive discussions with shareholders, the Company
determined that withdrawal of the proposal relating to the 2023 CEO Performance Award was in the best interest of the
Company so that the Compensation Committee could further consider shareholder feedback on the structure of the award
and make appropriate changes. As a result, the 2023 CEO Performance Award was not submitted to shareholders for a
vote, and Mr. Smith did not receive the proposed 2023 CEO Performance Award.
On December 8, 2023, Mr. Smith entered into the CEO Employment Agreement with Axon with a term expiring on
December 31, 2030, under which he will receive only a base salary at the minimum wage rate and, if approved, the 2024
CEO Performance Award described in this proposal. See “Executive Compensation—Compensation Discussion and
Analysis—Employment Agreements and Other Arrangements with NEOs” for more details on the CEO Employment
Agreement.
On December 18, 2023, the Compensation Committee approved the 2024 CEO Performance Award, effective as of
December 22, 2023, subject to shareholder approval. The 2024 CEO Performance Award is a grant of XSUs composed of
seven substantially equal Tranches, which are each subject to the attainment of specified performance-based vesting
conditions and Mr. Smith’s continued employment with the Company as CEO (or such other role as mutually agreed
between Mr. Smith and the Compensation Committee) through December 31, 2028 with respect to Tranche 1 and
Axon Enterprise, Inc. | 2024 Proxy Statement | 83
Tranche 2, December 31, 2029 with respect to Tranche 3 and Tranche 4, and December 31, 2030 with respect to Tranche 5,
Tranche 6 and Tranche 7.
In response to shareholder feedback regarding the 2023 CEO Performance Award, the 2024 CEO Performance Award was
structured to be smaller in size, sets stringent and straightforward financial performance milestones that scale at a fixed
percentage, and takes the form of XSUs instead of stock options to align incentives more closely with those of shareholders
and the broader employee population. See also “Additional Shareholder Friendly Provisions Responsive to Shareholder
Feedback.”
Shareholder feedback on the
2023 CEO Performance Award
Changes made in response to shareholder feedback
for the 2024 CEO Performance Award
The award represented a total estimated value of
$397 million over a 10-year period and consisted of
3,670,030 non-qualified stock options, which shareholders
believed represented a quantitative value out of line with
peers.
The plan focused on stock price goals and a shifting
combination of revenue and Adjusted EBITDA targets,
which shareholders believed to be convoluted in their
calculation.
Shareholders expressed concern that the stock price
hurdles may not be
incentivize
outperformance, as compared to the broader market.
sufficient
to
Shareholders noted that awards granted in options may not
be optimal from an accounting perspective and caused
confusion as to how much stock Mr. Smith would own at
the end of the 10-year plan.
Shareholders expressed concern that options would not
appropriately motivate a CEO who already has significant
ownership in the Company.
The plan focused on CEO incentives but neglected other
employees.
The award represents a
total estimated value of
$150 million over a seven-year period and consists of
679,102 shares, which is aligned with peer CEO
compensation over a similar timeframe.
The plan focuses on stock price goals, in addition to
stringent and straightforward financial milestones for
revenue and Adjusted EBITDA that will help drive value
for shareholders and ensure focus on key performance
indicators for the business.
Axon’s stock price must appreciate 25% between each
tranche, with the new addition of time-based deadlines for
the achievement of each Tranche’s performance goals,
incentivizing outperformance as compared to peers and
the broader market.
The plan grants XSUs, representing less than 1% of the
outstanding shares of Axon’s common stock as of
December 31, 2023 and divides those eligible shares over
a seven-year period, making the accounting of the plan
more straightforward.
As a founder and CEO, Mr. Smith has elected to take
substantially all of his compensation in Axon stock. He
receives an annual salary equal to minimum wage
($31,201 in 2023) and his motivation, as well as his
opportunity for wealth creation, are aligned with the
success of the business. The award grants shares of stock,
rather than options, to ensure that Mr. Smith’s personal
incentive grants are aligned with shareholders on the value
of the Company.
While the 2024 CEO Performance Award is a separate
plan, it has the same metrics as the 2024 Employee XSP,
so that employees across the Company are motivated by
the same drivers of value and have the opportunity to
partake
in stock price appreciation. The Board
recommends approval of both of these plans at the 2024
Annual Meeting.
Axon Enterprise, Inc. | 2024 Proxy Statement | 84
Axon CEO Award Summary
Subject to shareholder approval, the 2024 CEO Performance Award grants XSUs to Mr. Smith representing less than 1%
of the outstanding shares of Axon’s common stock as of December 31, 2023, divided into seven substantially equal
Tranches with a notional value of $150 million. The notional value was determined by the Compensation Committee as
representing approximately $7 million of annual target long-term incentive value over each year of the seven-year term of
the CEO Employment Agreement, with a risk multiplier of three. The number of shares subject to the award was calculated
by dividing the notional value by the 90-day volume weighted average price per share of Company common stock as of
the day preceding the grant date. The Tranches are subject to three independent vesting conditions:
1. Stock price goals: Axon’s stock price must appreciate 25% between each Tranche, as shown in the chart below.
2. Operational goals: Axon must achieve specified operational goals (Revenue and/or Adjusted EBITDA growth,
each increasing by 25% between each Tranche), as shown in the chart below.
3. Minimum service condition: Mr. Smith must remain employed with the Company through the Minimum Service
Date shown in the chart below. In addition, in order to continue to vest in the 2024 CEO Performance Award,
Mr. Smith must remain CEO of the Company (or such other role as mutually agreed between Mr. Smith and the
Compensation Committee). Moreover, Mr. Smith may not serve as CEO of any other operating company and
must devote substantially all his business time, attention, skill and efforts to Axon during the performance period.
Tranche Stock Price
Revenue
1
2
3
4
5
6
7
$247.40
$309.25
$1,834
$2,293
$386.56
and
$2,866
$483.20
either
$3,583
$604.00
$755.00
$943.75
$4,479
$5,599
$6,999
or
or
or
or
or
or
or
Revenue & Adjusted EBITDA in millions
Adjusted
EBITDA
$393
$508
$655
Minimum Service Date
December 31, 2028
December 31, 2028
December 31, 2029
$845
and
December 31, 2029
$1,088
$1,400
$1,750
December 31, 2030
December 31, 2030
December 31, 2030
The performance goals for the 2024 CEO Performance Award are identical to the performance goals for the 2024
Employee XSP. For all seven Tranches of the 2024 CEO Performance Award to vest, the Company would need to achieve
a stock price of $943.75 and sustain strong annual growth on Revenue, Adjusted EBITDA or both by December 31, 2032.
The Compensation Committee views these goals as rigorously challenging but achievable over the life of the 2024
Employee XSP.
As highlighted in the graphs below, the impact of a 25% annual growth rate requires accelerated market value creation
for each subsequent Tranche to be earned. For example, in order for the first Tranche to be earned, the Company will
need to create $3.7 billion in market value from the grant date. However, for the seventh and last Tranche to be earned,
Axon Enterprise, Inc. | 2024 Proxy Statement | 85
the Company will need to create nearly $56 billion in market value from the grant date and over $14 billion in incremental
market value from the prior Tranche.
(1)
Implied market value assumes constant fully diluted common shares outstanding figure of 79,549,524 as of
December 31, 2023.
These stock price hurdles will also require that there is corresponding Revenue and/or Adjusted EBITDA growth with
similar 25% compounding growth rates over the life of the award.
XSP 2.0 Revenue and Adjusted EBITDA Goals ($MM)
Revenue Goal
Adj. EDBITDA Goal
$1,834
$2,293
$2,866
$3,583
$393
$508
$655
$845
$4,479
$5,599
$6,999
$1,088
$1,400
$1,750
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Rev Adj. EBITDA
--
--
Rev Adj. EBITDA
+$115
+$459
Rev Adj. EBITDA
+$147
+$573
Rev Adj. EBITDA
+$190
+$717
Rev Adj. EBITDA
+$243
+$896
Rev Adj. EBITDA
+$312
+$1,120
Rev Adj. EBITDA
+$350
+$1,400
Incremental Revenue and Adjusted EBITDA Created for Each Subsequent Tranche (values in $MM)
1834
393
2293
508
2866
655
3583
845
4479
1088
5599
1400
6999
1750
For additional details about the 2024 CEO Performance Award, see “2024 CEO Performance Award Details” below.
Axon Enterprise, Inc. | 2024 Proxy Statement | 86
Axon’s Growth Potential & Patrick W. Smith, a Unique Founder CEO
Axon is poised for continued growth over the next decade, with distinctive potential among high-growth peers across the
technology industry. As Axon surpassed its 30th-year milestone, it is fortunate to have its founder at the helm. Mr. Smith
has been instrumental in building the public safety operating system of the future by integrating a suite of hardware devices
and cloud software solutions that lead to modem policing and help save lives. Axon’s technological innovation and strong
sales execution of disruptive technologies are already improving the landscape of safety and security.
Mr. Smith has a proven track record of successfully inventing and delivering, at scale, solutions that create enormous
shareholder and societal value. From the early days of founding the organization to today as a market leader, Mr. Smith’s
expertise has brought forth entirely new product categories, including the less-lethal TASER de-escalation platform, body-
worn cameras and cloud software that lead to modernized public safety.
Mr. Smith is seen as a visionary among customers and colleagues. His thought leadership through his book, The End of
Killing, and his partnership and public engagements with elected officials, civil rights scholars, constitutional scholars and
law enforcement leaders, has created a global buy-in and growing acceptance of the need to modernize public safety,
helping democratic governments leverage technological progress to sustain their legitimacy and maintain, and even repair,
trust between governments and the public. In addition, it was Mr. Smith’s vision that brought forth a collective moonshot
effort, which Axon announced in October 2022, to cut gun-related deaths in the United States between police and the
public by 50% in the next decade. Mr. Smith is driving efforts to convene key industry groups and sector partners to
collectively solve this ambitious but critical goal.
Mr. Smith’s executive leadership will orient Axon toward investing today in the technologies that should drive value
creation well into the next decade. Mr. Smith is driving Axon to innovate in the areas of artificial intelligence, robotics,
virtual reality and other technologies that have the potential to continue making a transformative impact on society. He is
a long-term planner and thinker. A prime example of this is the foresight Mr. Smith had more than a decade ago to start
building our software business. In 2023, Axon’s recurring, high margin cloud revenue comprised more than 35% of our
total revenue.
Mr. Smith’s value to Axon can be best realized through a compensation plan that directly aligns his personal motivation
with Axon shareholder return, such as the 2024 CEO Performance Award. Mr. Smith remains Axon’s largest non-
institutional shareholder. He is motivated by the potential for outsized growth in Axon’s stock price and by the societal
value created upon realization of Axon’s global mission to protect life, including the moonshot effort in the United States.
Over the term of the 2018 CEO Performance Award and through market close on December 31, 2023, Axon averaged
over 44% annually compounded shareholder returns, which we believe showcases the value of aligning CEO compensation
to value creation. The performance Tranches of the 2024 CEO Performance Award can only be earned based on a 25%
increase between each Tranche, which ensures continued strong shareholder returns for the award to be fully earned. The
2024 CEO Performance Award ensures Mr. Smith’s continued commitment and focus on creating both shareholder and
societal value over the next decade.
Axon CEO Award Compared to the Market
With the guidance of its independent compensation consultant, in April 2022, the Compensation Committee conducted a
competitive market assessment of other similar grants of special performance-based stock awards to founder CEOs. The
review focused on a set of public, post-initial public offering (“IPO”) companies that made similar special
performance-based stock awards to founder CEOs since the beginning of 2016, excluding awards that were made in
connection with CEO appointments, mergers and acquisition activity or extensions of employment agreements in heavily
consolidated or regulated industries. The resulting group reflected 12 select peers (the “Award Peer Group”), which were
innovative and high growth companies primarily in the technology sector. We note that there have been several additional
examples that have occurred since the time of this analysis that are not included in the sample.
In addition to the Award Peer Group, the Compensation Committee also reviewed special performance-based stock awards
made to founder CEOs within an IPO-related context over a similar time frame and analyzed how the Company’s proposed
award compares to receiving a normal annual compensation opportunity for a period of 10 years.
Axon Enterprise, Inc. | 2024 Proxy Statement | 87
The competitive market assessment provided market context for both award design, magnitude and performance
requirements. The Compensation Committee assessed the overall magnitude of the 2023 CEO Performance Award across
several lenses, including share ownership (i.e., percent of shares outstanding), reported grant date fair value, annualized
grant date fair value over the performance period and total potential realizable opportunity.
The 2024 CEO Performance Award quantum, representing less than 1% of common shares outstanding as of December 31,
2023 and estimated annual target long-term incentive value of just over $7 million, prior to the risk multiplier of three and
the duration multiplier of seven, as compared to awards made by companies in the Award Peer Group, is positioned below
the median of the competitive market set and was determined in part by positioning the annualized value near the median
of the peer group CEO median annual pay levels. As of the time of the analysis, special CEO performance-based stock
awards among the Award Peer Group ranged from 2.2% of common shares outstanding (at the 50th percentile) to 7.8%
(at the 90th percentile). In addition, as of the time of the analysis, CEO performance-based stock awards among the Award
Peer Group had annualized grant date fair values ranging from $23 million (at the 50th percentile) to $78 million (at the
90th percentile). We believe the relative market positioning of the quantum of the 2024 CEO Performance Award is
appropriate, especially when considering Mr. Smith’s strong performance and value to the Company as its CEO and co-
founder. While not a significant part of compensation, the Compensation Committee also acknowledged that Mr. Smith
would not be eligible for an annual bonus and would be receiving minimum wage salary while the vast majority of others
in the Award Peer Group would receive competitive cash compensation opportunities.
This positioning was also considered and assessed against the relative performance requirements, which were also in the
top quartile of the competitive market set. The parameters of the 2024 CEO Performance Award were thoughtfully
considered and several included input from many of our shareholders. From a “top-down” perspective, the Compensation
Committee wanted to create an award that mirrored much of the structure of the 2018 CEO Performance Award, which it
viewed as being highly successful and a key driver of our 800%+ stock price appreciation since 2018 through year-end
2023, but with significantly less dilution volatility.
Summary of Key Equity Plan Data and Dilution Considerations
Burn Rate
The following table illustrates the Company’s historical burn rate for the past three years. Burn rate is calculated as (i) the
number of stock options and time-based RSUs granted, plus (ii) the number of PSUs earned, divided by (iii) the weighted
average basic common shares outstanding in the year indicated. The Company’s burn rate was as follows:
(a)
Options
(b)
RSUs
Year
2021
2022
2023
Granted (1) Granted
—
—
—
686,166
1,144,539
914,955
(c)
PSUs
Earned
(d) = (a) + (b) + (c)
Total
Granted/Earned
(e)
Weighted Average Basic
4,345,601
78,194
1,238,402
5,031,767
1,222,733
2,153,357
Outstanding
66,190,528
71,092,681
74,195,416
3-Year Average
(d) ÷ (e)
Burn
Rate
7.60 %
1.72 %
2.90 %
4.07 %
Burn Rate
Excluding
PSUs Earned
1.04 %
1.61 %
1.23 %
1.29 %
(1) Stock options are included in the year granted, rather than earned. Stock options granted pursuant to the 2018 CEO
Performance Award are excluded from all years included here as they were granted in 2018.
Overhang
The following table illustrates the Company’s fully diluted overhang assuming shareholders approve each of Proposals
No. 2, 3 and 4. Assuming such approval, the overhang is calculated as (a) the number of shares underlying all outstanding
equity awards under all equity plans, plus (b) the unissued shares remaining available for grant under all equity plans,
divided by (c) the sum of (i) the number of shares underlying all outstanding equity awards under all equity plans, plus
(ii) the unissued shares remaining available for grant under all equity plans, plus (iii) shares of common stock outstanding.
As of December 31, 2023, even with the shares reserved under each of the Amended Plan, the 2024 Employee XSP and
the 2024 CEO Performance Award, our total share count overhang remains below 13.5%.
Axon Enterprise, Inc. | 2024 Proxy Statement | 88
The Company’s fully diluted overhang calculated as of December 31, 2023 is as follows:
(a)
Shares Underlying
Outstanding
(b)
Unissued
Equity Plan
Equity Awards (1) Available Shares
Existing Plan
Plus: Amended Plan
Plus: 2024 Employee XSP
Plus: 2024 CEO Award
2,539,954
2,539,954
2,539,954
2,539,954
1,708,146
3,939,957
8,456,327
9,135,429
(a)+(b)
Equity Plan
Shares
4,248,100
6,479,911
10,996,281
11,675,383
(c)
(a)+(b)+(c)
Common Shares Fully Diluted
Outstanding
75,301,424
75,301,424
75,301,424
75,301,424
Shares
79,549,524
81,781,335
86,297,705
86,976,807
(a)+(b) /
(a)+(b)+(c)
Fully Diluted
Overhang
5.34 %
7.92 %
12.74 %
13.42 %
(1)
Includes 530,931 shares underlying unexercised options, 1,615,143 shares underlying unvested RSUs and 393,880
shares underlying unvested PSUs outstanding as of December 31, 2023. As of December 31, 2023, the weighted
average exercise price of stock options outstanding was $28.58 and the weighted average term remaining for stock
options outstanding was 4.16 years.
The Company’s fully diluted overhang is more favorable when calculated as of the Record Date as older awards have
vested since December 31, 2023. Accordingly, we provide the detail of these calculations for the benefit of shareholders
as follows:
Equity Plan
Existing Plan
Plus: Amended Plan
Plus: 2024 Employee XSP
Plus: 2024 CEO Award
(a)
Shares Underlying
Outstanding
(b)
Unissued
Equity Awards (1) Available Shares
1,269,347
3,501,158
8,017,528
8,696,630
2,811,580
2,811,580
2,811,580
2,811,580
(a)+(b)
Equity Plan
Shares
4,080,927
6,312,738
10,829,108
11,508,210
(c)
(a)+(b)+(c)
Common Shares Fully Diluted
Outstanding
75,463,324
75,463,324
75,463,324
75,463,324
Shares
79,544,251
81,776,062
86,292,432
86,971,534
(a)+(b) /
(a)+(b)+(c)
Fully Diluted
Overhang
5.13 %
7.72 %
12.55 %
13.23 %
(1)
Includes 530,931 shares underlying unexercised stock options, 1,879,034 shares underlying unvested RSUs and
401,615 shares underlying unvested PSUs outstanding as of the Record Date. As of the Record Date, the weighted
average exercise price of stock options outstanding was $28.58 and the weighted average term remaining for stock
options outstanding was 3.95 years.
Other Dilution Considerations
The Company, along with the Compensation Committee, has recognized the concerns raised by our shareholders regarding
the dilution created by the 2018 CEO Performance Award and the 2019 XSPP. In response to those concerns, the Company
and the Compensation Committee have committed to targeting an average annual gross dilution of approximately 3%
across all stock-based compensation plans (including the 2024 CEO Performance Award), beginning in 2024.
The 2024 CEO Performance Award consists of 679,102 XSUs, covering less than 1% of the outstanding shares of Axon’s
common stock as of December 31, 2023. Based on shareholder feedback following the 2023 Annual Meeting with respect
to the 2023 CEO Performance Award and experience with the 2018 CEO Performance Award, the Compensation
Committee developed the provisions of the 2024 CEO Performance Award to cause the estimated dilution to shareholders
to be approximately 1% as opposed to the estimated dilution of approximately 5% for the proposed 2023 CEO Performance
Award that was subsequently withdrawn. As noted elsewhere in this proxy statement, the 2024 CEO Performance Award
is intended to drive Mr. Smith’s alignment with our strategic goals over the next seven years.
In addition, the Compensation Committee designed the 2024 CEO Performance Award to further limit potential dilution
volatility by:
•
requiring Mr. Smith to remain employed with the Company through the applicable Minimum Service Date (i.e.,
December 31, 2028 with respect to Tranche 1 or Tranche 2, December 31, 2029 with respect to Tranche 3 or
Tranche 4, and December 31, 2030 with respect to Tranche 5, Tranche 6 or Tranche 7); and
Axon Enterprise, Inc. | 2024 Proxy Statement | 89
•
requiring Mr. Smith to retain, and not sell, the shares acquired upon the vesting and settlement of each Tranche
(except as required to satisfy withholding taxes due in connection with such settlement) until the earlier of
(i) December 31, 2030 and (ii) the date that a subsequent Tranche vests and settles.
Notably, with the introduction of the 2024 CEO Performance Award, the Compensation Committee is continuing its
practice of ensuring that compensation is aligned with stringent operational performance and long-term shareholder
returns.
Additional Shareholder Friendly Provisions Responsive to Shareholder Feedback
The proposed 2024 CEO Performance Award contains multiple additional improvements, as compared to the 2018 CEO
Performance Award and proposed 2023 CEO Performance Award, which were made based on shareholder feedback:
• The 2024 CEO Performance Award is sized considerably smaller than the 2023 and 2018 CEO Performance
Awards. Axon shareholders previously noted the size of the 2023 CEO Performance Award as a point of
concern. As discussed above, the 2024 CEO Performance Award consists of 679,102 XSUs, covering less
than 1% of the outstanding shares of Axon’s common stock as of December 31, 2023, as opposed to the
estimated dilution of approximately 5% for the proposed 2023 CEO Performance Award consisting of
3,670,030 non-qualified stock options. As noted elsewhere in this proxy statement, the 2024 CEO
Performance Award is intended to drive alignment with our strategic goals over the next seven years.
• The 2024 CEO Performance Award is being proposed in addition to a broader employee plan of similar
structure, the 2024 Employee XSP. In 2023, Axon shareholders noted an expectation that a broader employee
compensation plan proposal would follow the proposed 2023 CEO Performance Award, in similar structure.
Shareholders expressed a preference to review and vote on both plans at the same time to enable a more
informed decision. In response to this feedback, Axon is proposing our Amended Plan, our broad-based 2024
Employee XSP and our 2024 CEO Performance Award together for consideration at our 2024 Annual
Meeting.
• The 2024 CEO Performance Award and 2024 Employee XSP are both indexed to a seven-year performance
period, rather than 10 years. Shareholder feedback in response to Axon’s proposed 2023 CEO Performance
Award noted an intended 10-year compensation horizon was longer than that with which they are typically
comfortable. Additionally, shareholders expressed concern that a broad-based employee plan of a similar
duration would be unduly restrictive given standard employee attrition. In response, Axon has reduced the
number of tranches and intended duration from 10 to seven years. This preserves the long-term nature of the
proposed plans while reducing the term to be less restrictive for employees, in addition to providing a shorter
time horizon for shareholders.
• One of the performance milestones is based on stock price, rather than market capitalization. Axon
shareholders previously voiced a preference for tying performance milestones to stock price rather than
market capitalization, in order to align the CEO’s incentive to avoid shareholder dilution, and the
Compensation Committee took this under advisement in designing the new award. In addition, the stock
price goals are only met when the Ninety-Day VWAP for any consecutive 90-day period since the grant date
equals or exceeds the target stock price, thereby requiring sustained stock price improvement.
• Milestones are more stringent than the 2018 CEO Performance Award—each stock price goal is 25% above
the prior goal. In the 2018 CEO Performance Award, the first tranche was unlocked when the Company
achieved a market capitalization of $2.5 billion, representing a doubling of size at the time, and each
subsequent tranche goal grew by a fixed amount of $1 billion - which meant that for the later tranches, the
percentage difference between each tranche goal decreased. The 2024 CEO Performance Award, in contrast,
sets each stock price goal at a fixed 25% above the previous goal, a feature of the 2023 CEO Performance
Award that was discussed favorably prior to the proposal’s withdrawal. This makes all performance
thresholds equally difficult to achieve. We view the stock price goals and operational goals as rigorously
challenging but achievable over the seven-year performance period.
Axon Enterprise, Inc. | 2024 Proxy Statement | 90
• The stock price and operational goals associated with each of the seven Tranches are subject to goal
expiration dates, which serve to ensure that the target growth is achieved within a reasonable period of time.
Shareholders expressed strong alignment with pay-per-performance structured compensation packages with
appropriate limitations to ensure outsized compensation levels relative to peers would only be achieved with
outsized share price performance. Specifically, shareholders noted the achievement of the first four tranches
of the previously proposed 2023 CEO Performance Award would result in favorable compensation to the
CEO over a 10-year period, even if no other tranches were achieved, but would result in unfavorable
shareholder returns over the same period. In response, the Compensation Committee added a new feature in
the form of goal expiration dates that determine the last day by which the stock price and operational goals
of a Tranche may be achieved; provided that prior Tranches could be earned later in time if the goals
applicable to a later Tranche are subsequently achieved prior to the goal expiration date applicable to the
later Tranche (e.g., if the stock price goal for Tranche 1 is not attained by December 31, 2026, that stock
price goal would be deemed to have been attained if, prior to December 31, 2027, the stock price goal and
operational goal for Tranche 2 are achieved).
• The 2024 CEO Performance Award contains “speed brakes” in the form of a minimum service condition
and a holding period requirement. Axon shareholders have commented on the level of dilution that they
experienced in connection with the vesting of the 2018 CEO Performance Award over a relatively short
period of time when goals were achieved more quickly than anticipated. As noted above, the 2024 CEO
Performance Award contains the following “speed brakes”:
o To limit dilution volatility and ensure the seven-year compensation plan truly covers seven years of
performance, even if stock price goals and operational goals are achieved rapidly, each Tranche has
a minimum service condition. The minimum service condition requires that Mr. Smith continue to
be employed through December 31, 2028 with respect to Tranche 1 or Tranche 2, December 31,
2029 with respect to Tranche 3 or Tranche 4, and December 31, 2030 with respect to Tranche 5,
Tranche 6 or Tranche 7.
o The 2024 CEO Performance Award also includes an enhanced holding period requirement as
compared to the 2018 CEO Performance Award whereby following the vesting and settlement of
any one Tranche, Mr. Smith cannot sell, transfer, pledge, assign or otherwise alienate or hypothecate
any shares acquired with respect to such Tranche until the earlier of (i) December 31, 2030 and
(ii) the date that a subsequent Tranche vests and settles, thereby becoming subject to the holding
period requirement. This holding period requirement was not included in the proposed 2023 CEO
Performance Award, which included only a narrow exercise timing limitation such that no more
than one Tranche could become exercisable in any six-month period.
• The 2024 CEO Performance Award also includes a robust clawback provision. The 2024 CEO Performance
Award is subject to clawback as required by law, any applicable listing standard and the Company’s clawback
policy, or if Mr. Smith is terminated by the Company for “Cause” (as defined in the CEO Employment
Agreement) due to actions or omissions after the grant date that cause material reputational harm to the
Company.
Potential Value that Could be Realized under the 2024 CEO Performance Award
The potential value realizable under the 2024 CEO Performance Award is a function of modelling forward-looking
projections of the Company’s stock price and operational performance and timing of vesting and settlement events. Due
to the inherent uncertainty and variability in those forward-looking projections, it is not possible to reliably forecast the
value that will be realized under the 2024 CEO Performance Award.
Nevertheless, the table below depicts theoretical value, assuming the attainment of all of the applicable stock price goals
and operational goals, both in dollar value and as a percentage of total value created, that could be realized by Mr. Smith
and Axon shareholders over various vesting scenarios. This table only takes into account the fully diluted share count as
of March 1, 2024. Accordingly, this table should only be used for illustrative purposes.
Axon Enterprise, Inc. | 2024 Proxy Statement | 91
Tranches
Earned
1
2
3
4
5
6
7
(1)
P&L
Cost of
Compensation (1)
(in millions)
Stock
Price
Goal
CEO
Realized
Value (2)
Shareholder
Value
% of
Shareholder
Realized (3) Value Realized By
(in millions) (in millions) CEO with Award
% of
Shareholder Value
Realized by
Non-CEO Employee
XSP 2.0 Awards
% of
Shareholder
Value Realized by
Other Shareholders
$ 247.40 $
309.25
386.56
483.20
604.00
755.00
943.75
$
31
61
88
114
138
160
180
24 $ 19,681
24,601
60
30,751
113
38,439
188
48,048
293
60,060
439
75,075
641
0.1 %
0.3
0.4
0.5
0.6
0.8
0.9
0.8 %
1.6
2.4
3.2
4.1
4.8
5.6
99.1 %
98.1
97.2
96.3
95.3
94.4
93.5
The 2024 CEO Performance Award would result in the recognition of additional stock-based compensation
expense over the term of the award as the operational goals become probable of being achieved through the
expected date such operational goals are achieved pursuant to ASC Topic 718. The Company would still
recognize stock-based compensation expense based on operational goal achievement, even if stock price goals
are not achieved. See “Accounting and Tax Considerations—Accounting Considerations” below for additional
detail. The actual P&L cost of the 2024 CEO Performance Award will not be known until the grant date for
accounting purposes, which occurs only if shareholders approve the 2024 CEO Performance Award at the
Annual Meeting. As a result, the amounts included in this column are estimates only based on information
available as of the time of this proxy statement and may materially change.
(2) The value realized by Mr. Smith is equal to the number of shares subject to the number of Tranches vested and
settled. The values shown are pre-tax values and do not estimate the amount of tax payable by Mr. Smith upon
any such settlement.
(3) The value realized by shareholders is based on a constant number of estimated dilutive shares outstanding figure
of 79,549,524 as of December 31, 2023.
Potential Ownership of Securities as a Result of the 2024 CEO Performance Award
As of March 1, 2024, Mr. Smith beneficially owned 2,925,666 shares of the Company’s common stock, including 530,931
shares issuable to Mr. Smith upon exercise of options exercisable as of such date. Based on 75,302,832 shares of the
Company’s common stock outstanding on March 1, 2024, Mr. Smith beneficially owned 4.6% of the outstanding shares
of the Company’s common stock.
For illustrative purposes only, if (i) all 679,102 shares of the Company’s common stock subject to XSUs under the 2024
CEO Performance Award were to become fully vested, settled and held by Mr. Smith, (ii) estimated dilution as a result of
potential exercises or conversions from the existing employee equity pool were to be considered and (iii) there were no
other dilutive events of any kind, Mr. Smith would beneficially own 4.5% of the outstanding shares of the Company’s
common stock. However, as noted above in “Potential Value that Could be Realized Under the 2024 CEO Performance
Award,” it is not possible as of the time of this proxy statement to know the exact or true percentage of Mr. Smith’s future
total ownership of the Company’s common stock upon the vesting or settlement of one or more Tranches.
Summary of 2024 CEO Performance Award Details
The following is a summary of the material terms of the 2024 CEO Performance Award that may be of importance to you.
The summary is qualified by reference to the full text of the 2024 CEO Performance Award, which is attached to this
proxy statement as Annex D.
Award Terms
Details
Date of Grant
December 22, 2023
Shares Subject to Award
679,102 shares of Axon common stock, representing less than 1% of outstanding
shares of the Company’s common stock as of December 31, 2023
Axon Enterprise, Inc. | 2024 Proxy Statement | 92
Award Terms
Award Type
Details
XSUs
Expiration Date
December 22, 2032
Performance Goals;
Performance-Based Vesting
Conditions
Stock Price Goals
Seven stock price goals
Sustained stock price improvement is required for each stock price goal to be met.
For each stock price goal to be met, the Ninety-Day VWAP for any consecutive
90-day period since the grant date must equal or exceed the stock price goal that
corresponds to each Tranche.
First Tranche stock price goal is $247.40 (which reflects 25% growth to our
Ninety-Day VWAP as of October 13, 2023, i.e., the day before the 2024
Employee XSP and the Form of XSU Award Agreement were sent to our Board
for consideration); each Tranche thereafter requires an additional increase in stock
price of 25%, up to a stock price goal of $943.75 for the seventh Tranche.
Operational Goals
14 operational goals
Two types of operational goals: Revenue and Adjusted EBITDA
Operational
Milestone Tier
1
2
3
4
5
6
7
Revenue*
Goals
(millions)
$1,834
Adjusted
EBITDA**
Goals (millions)
$393
$2,293
$2,866
$3,583
$4,479
$5,599
$6,999
$508
$655
$845
$1,088
$1,400
$1,750
* Revenue means, as of any date, the Company’s total revenues, as reported by
the Company in its financial statements on Forms 10-Q and 10-K filed with the
SEC (but without giving effect to any rounding used in reporting the amounts in
Forms 10-Q and 10-K), for the previous four consecutive fiscal quarters of the
Company, beginning with the Company’s first full fiscal quarter ending after the
fiscal quarter in which the date of grant occurs (i.e., the first quarter of 2024 for
XSU awards granted on December 22, 2024).
** Adjusted EBITDA means, as of any date, for the previous four consecutive
fiscal quarters, the Company’s net (loss) income attributable to common
stockholders before interest expense, interest and other income (such as
dividends), adjusted for one-time or non-recurring items, including gains and
Axon Enterprise, Inc. | 2024 Proxy Statement | 93
Award Terms
Details
losses on investments (inclusive of strategic and non-strategic non-controlling
minority investments and joint ventures or similar arrangements), transaction
costs related to strategic investments and acquisitions (or divestitures), gains or
losses or impairments related to dispositions of businesses, disposals and/or
abandonments of intangible assets, disposals or impairment of land, property
and/or equipment, insurance recoveries, restructuring costs (including non-
recurring costs related to a reduction in force and/or to closing or exiting
facilities), (benefit) provision for income taxes, depreciation and amortization and
stock based compensation.
Performance-Based Vesting Conditions
Each Tranche will vest only if both a stock price goal and an operational goal are
met (and the minimum service condition (described below) is also met).
A stock price goal and an operational goal that are matched together can be
achieved at different points in time and vesting will occur on the date on which
the Compensation Committee determines that the last goal was obtained;
provided that both goals are determined by the Compensation Committee as
having been achieved prior to the goal expiration date applicable to the Tranche.
Prior Tranches may be earned later in time if the goals applicable to a later
Tranche are subsequently achieved prior to the goal expiration date applicable to
the later Tranche. Subject to any applicable clawback provisions, policies or other
forfeiture terms described in the 2024 CEO Performance Award, once a goal is
achieved, it is forever deemed achieved for determining the vesting of a Tranche.
Minimum Service Condition Vesting is contingent upon Mr. Smith continuing to serve as CEO of the Company
or in such other role as mutually agreed between Mr. Smith and the Compensation
Committee, pursuant to which Mr. Smith may not serve as CEO of any other
operating company and must devote substantially all his business time, attention,
skill and efforts to Axon, during the performance period. Each Tranche will vest
only if Mr. Smith remains employed with the Company in such capacity through
the later of (i) the applicable date on which the Compensation Committee
determines that the performance-based vesting conditions with respect to the
Tranche have been achieved and (ii) the applicable Minimum Service Date:
December 31, 2028 with respect to Tranche 1 or Tranche 2, December 31, 2029
with respect to Tranche 3 or Tranche 4, and December 31, 2030 with respect to
Tranche 5, Tranche 6 or Tranche 7.
Effect of Termination of
Employment
Change in Control
Upon a termination due to death or disability, any then-outstanding Tranche for
which the stock price goals and operational goals (but not the service requirement)
have been satisfied will accelerate. Upon a termination without “Cause” (as
defined in the CEO Employment Agreement), any then-outstanding Tranche will
vest based solely on achievement of the stock price goal as of such date, without
regard to the attainment of the operational goals, plus pro-rata vesting of the next
outstanding unvested Tranche based on a comparison of the Ninety-Day VWAP
to the stock price goals. Upon any other termination or on the Expiration Date, all
other unvested Tranches will be forfeited.
Upon a Change in Control, any then-outstanding Tranche for which the stock
price goal has been achieved based on the transaction price will vest if the
minimum service condition for that Tranche has been satisfied or otherwise
convert into time-based awards eligible to vest based on the satisfaction of the
applicable minimum service condition. Converted awards are subject to “double-
Axon Enterprise, Inc. | 2024 Proxy Statement | 94
Award Terms
Details
trigger” treatment upon a termination by the Company without Cause or for
“Good Reason” (as defined in the 2024 CEO Performance Award) within 24
months following a Change in Control.
The treatment of the 2024 CEO Performance Award upon a Change in Control is
intended to align Mr. Smith’s interests with Axon’s other shareholders with
respect to evaluating potential transactions.
A “Change in Control” is generally defined in the 2024 CEO Performance Award
as (i) an acquisition (other than directly from the Company) by an individual,
entity or a group (excluding the Company or an employee benefit plan of the
Company) of 30% or more of the combined voting power of then-outstanding
Company Voting Securities; (ii) a change during any 24 consecutive calendar
months in a majority of the Company’s current Board (excluding any persons
approved by a vote of at least a majority of the “Incumbent Directors” (as defined
in the 2024 CEO Performance Award) other than in connection with an actual or
threatened proxy contest); (iii) the consummation of a Business Combination,
unless immediately following such Business Combination (A) all or substantially
all of the individuals and entities who were the beneficial owners, respectively, of
the outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of then-outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting from such
Business Combination, (B) at least a majority of the board of directors of the
resulting corporation were members of the Incumbent Directors, and (C) no
person owns 30% or more of the stock of the resulting corporation, who did not
own such stock
the Business Combination; or
(iv) shareholder approval of a complete liquidation or dissolution of the
Company.
immediately before
Shares acquired upon the vesting and settlement of any Tranche (except as
required to satisfy withholding taxes due in connection with such settlement) are
required to be held until the earlier of (i) December 31, 2030 and (ii) the date that
a subsequent Tranche vests and settles. This requirement only applies to the shares
acquired with respect to one Tranche and in the event that more than one Tranche
vests, only the most recently vested Tranche will be subject to the holding period
requirement and all earlier vested Tranches will cease to be subject thereto.
The 2024 CEO Performance Award and shares acquired upon the vesting will be
subject to clawback to the fullest extent required by law, applicable listing
standard or any current or future clawback policy that may be adopted by the
Company from time to time, including Rule 10D-1 of the Exchange Act and the
applicable NASDAQ Listing Standards implementing such rule, as may be
amended from time to time. In addition, the 2024 CEO Performance Award will
be subject to clawback in the event Mr. Smith is terminated by the Company for
Cause due to actions or omissions after the date of grant that cause material
reputational harm to the Company; provided that any recovery in such case will
only apply with respect to amounts paid or received in the three-year period prior
to Mr. Smith’s termination for reputational harm.
The 2024 CEO Performance Award will be administered by the Compensation
Committee. The Compensation Committee will have the sole and complete
discretion with respect to all matters under the 2024 CEO Performance Award.
Axon Enterprise, Inc. | 2024 Proxy Statement | 95
Holding Period
Clawback
Administration
Award Terms
Details
Adjustment
Amendment
Non-Transferability
In the event of any change in the outstanding shares of common stock by reason
of a stock dividend or split, recapitalization, liquidation, merger, consolidation,
combination, Change in Control, exchange of shares, or other similar corporate
change, the Compensation Committee will adjust the number and class of shares
subject to the 2024 CEO Performance Award, the applicable performance goals
or any other terms affected by such event. In the event of any such transaction,
the Compensation Committee may also provide in substitute for the award
alternate consideration.
The 2024 CEO Performance Award may be amended only by a written agreement
executed by the Company and Mr. Smith.
Unless otherwise determined by the Compensation Committee, the 2024 CEO
Performance Award may not be transferred to any other person except by will or
the laws of descent and distribution. The Compensation Committee may, in
accordance with applicable law and listing standards, permit the transfer of the
2024 CEO Performance Award and any shares acquired upon the settlement
thereof to a family member, trust or partnership or to a charitable organization, in
each case for estate planning purposes.
Accounting and Tax Considerations
Accounting Considerations
The Company follows ASC Topic 718 for its stock-based compensation awards. ASC Topic 718 requires companies to
measure the compensation expense for all stock-based compensation awards made to employees and directors based on
the grant date “fair value” of these awards. Pursuant to ASC Topic 718, this calculation cannot be made for the 2024 CEO
Performance Award prior to the date on which it is approved by the Company’s shareholders at the Annual Meeting, which
will be the “grant date” for accounting purposes. ASC Topic 718 also requires companies to recognize the compensation
cost of their stock-based compensation awards in their income statements over the requisite service period. In the case of
the 2024 CEO Performance Award the requisite service period is the longest of (i) the minimum service condition, (ii) the
expected time to achieve the operational goals and (iii) the estimated time as of the grant date to achieve the stock price
goal unless the stock price goal is achieved sooner for each Tranche. Accordingly, the 2024 CEO Performance Award
would result in the recognition of additional stock-based compensation expense over the term of the award as the
operational goals become probable of being achieved through the expected vesting date determined pursuant to ASC Topic
718. If the operational goal for a Tranche is attained, but the stock price goal is not attained for such Tranche, so that the
Tranche is not vested, the stock-based compensation expense for that Tranche is still recognized.
For illustrative purposes only, and using the closing price of an Axon share on March 4, 2024, the latest practicable date
to determine such amount, the Company estimates the aggregate grant date fair value of all seven Tranches of the 2024
CEO Performance Award will be approximately $179.5 million. As of the date of shareholder approval of the 2024 CEO
Performance Award at the Annual Meeting, the Company will update the estimate of the grant date fair value and then
assess how many operational goals will be probable of being achieved, which will determine when the portion of the stock-
based compensation expense associated with each probable Tranche will commence. This expense will be recognized
ratably over the expected vesting period of each respective Tranche. Given the minimum service condition, the expense
will be recognized through at least December 2030. The remaining grant date fair value related to any operational goals
that are not determined to be probable to be achieved as of the grant date will be recognized if and when those operational
goals become probable of being achieved. This expense for each additional Tranche would be recognized ratably over its
respective expected vesting period.
Axon Enterprise, Inc. | 2024 Proxy Statement | 96
Federal Income Tax Considerations
The following is a brief summary of certain of the federal income tax consequences of the 2024 CEO Performance Award
based on federal income tax laws in effect on March 15, 2024. The following summary assumes that Mr. Smith remains a
U.S. taxpayer. This summary is not intended to be exhaustive and does not describe, among other things, state, local or
foreign income and other tax consequences. The specific tax consequences to Mr. Smith will depend upon his future
individual circumstances.
Mr. Smith did not recognize taxable income with respect to the 2024 CEO Performance Award at the time of grant nor
will he have taxable income from shareholder approval of the award, if such approval occurs. If and when the Tranches
vest and settle, Mr. Smith will recognize ordinary income in an amount equal to the fair market value of the shares settled
in respect of each such Tranche on the date of settlement. Any taxable income recognized by Mr. Smith in connection with
the settlement of the Tranches will be subject to tax withholding by us. Any additional gain or loss recognized upon any
later disposition of the shares should be capital gain or loss.
Subject to the limitations of Section 162(m) of the Tax Code, which generally limits the deductibility of compensation
paid to our CEO and other “covered employees” (as defined in Section 162(m) of the Code) to no more than one million
dollars each per taxable year, a corresponding deduction will be available to Axon equal to the amount of ordinary income
recognized by Mr. Smith.
Board and Compensation Committee Process
Our Compensation Committee consists of Hadi Partovi (Chair), Adriane Brown, Michael Garnreiter and Graham Smith.
Historically, in developing compensation recommendations for Mr. Smith, the Compensation Committee has sought to
appropriately compensate Mr. Smith for his contributions to the Company, to further motivate Mr. Smith as a critical
driver of the Company’s future growth, and to further align the compensation and incentives of our CEO with the interests
of its shareholders.
As Axon met and exceeded the goals corresponding to Mr. Smith’s 2018 CEO Performance Award (described above under
“Executive Compensation—Compensation Discussion and Analysis— Components of Executive Compensation—2018
CEO Performance Award”), the Compensation Committee began discussing the potential for a new award for Mr. Smith
and the Company’s other employees and a renewed commitment to the Company by Mr. Smith.
Beginning in August 2021 and through early 2023, the Board and Compensation Committee held over 20 meetings and
consulted with members of management, Semler Brossy, the Compensation Committee’s independent compensation
consultant, Potter Anderson & Corroon LLP (“Potter Anderson”), the Compensation Committee’s independent Delaware
counsel, and Cravath, Swaine & Moore LLP, outside counsel to the Company (collectively with Semler Brossy and Potter
Anderson, the “Advisors”), to discuss strategies for a refreshed equity program, which ultimately became the 2024
Employee XSP, and to discuss and design a performance-based equity award for Mr. Smith, which ultimately became the
2023 CEO Performance Award. The Compensation Committee and the Advisors continued to progress the development
of the 2024 Employee XSP over the course of 2022 and 2023. The 2023 CEO Performance Award was developed over
the course of 2022 and 2023 as well, and was ultimately approved by the Board on March 28, 2023, subject to shareholder
approval at the 2023 Annual Meeting. Detailed information about the Compensation Committee’s development of the
2023 CEO Performance Award can be found in Proposal No. 5 of Axon’s proxy statement for the 2023 Annual Meeting
held on May 31, 2023.
Prior to the 2023 Annual Meeting, however, the Company determined that withdrawal of the proposal relating to the 2023
CEO Performance Award was in the best interest of the Company. This decision was made in large part due to shareholder
engagement and feedback on the 2023 CEO Performance Award, which the Company determined it would not be able to
appropriately address prior to the 2023 Annual Meeting. Accordingly, the proposal to approve the 2023 CEO Performance
Award was not submitted to shareholders for a vote at the 2023 Annual Meeting, and Mr. Smith did not receive the 2023
CEO Performance Award.
As described in the 2023 CEO Performance Award proposal, the Compensation Committee has considered the standards
applicable to its members disinterestedness and independence under Delaware law and the Nasdaq Listing Standards.
While the members of the Compensation Committee are “independent directors” within the meaning of those rules, note
Axon Enterprise, Inc. | 2024 Proxy Statement | 97
that Mr. Partovi and our CEO attended the same college for one year (including a few weeks of overlapping membership
as students in the same fraternity) and periodically socialize. In addition, Mr. Smith previously made a charitable
contribution to Mr. Partovi’s charitable foundation, which Mr. Partovi’s charitable foundation returned in full. After a
detailed review, the Board has determined that Mr. Partovi and the other members of the Compensation Committee
continue to meet the independence standards under the Nasdaq Listing Standards, including the more stringent
independence criteria applicable to compensation committee membership.
As described in Proposals No. 3 and No. 4, the Compensation Committee continues to believe that equity-based awards
that are tied to the Company’s achievement of aggressive stock price and other performance metrics are effective in linking
future compensation to the creation of significant shareholder value, both for Axon employees as a whole and in particular
for Mr. Smith. Therefore, as described below, following the 2023 Annual Meeting, the Compensation Committee
consulted with its Advisors and further negotiated with Mr. Smith and his counsel to design the 2024 CEO Performance
Award, which includes additional safeguards to preserve and enhance the value received by Axon’s shareholders. In
addition to such new safeguards, the Compensation Committee further recalibrated the award and reduced its size after
taking into consideration the shareholder feedback around dilution impact and ensuring an appropriate risk-reward profile
to help create meaningful and significant value for shareholders.
On June 30, 2023, the Compensation Committee held a meeting with members of management (excluding Mr. Smith) and
a representative from Semler Brossy in attendance at the invitation of the Compensation Committee. During the meeting,
the Compensation Committee and management discussed Mr. Smith’s compensation and the need to revisit a potential
equity-based award in light of shareholder feedback on the 2023 CEO Performance Award.
On July 12, 2023, the Compensation Committee held a meeting with members of management (excluding Mr. Smith) and
a representative from Semler Brossy in attendance at the invitation of the Compensation Committee. During the meeting,
the Compensation Committee and management discussed the potential seven-year term of the proposed 2024 Employee
XSP and potential stock price measurement approaches.
On August 2, 2023, the Compensation Committee held a meeting with members of management (excluding Mr. Smith)
and a representative from each of Potter Anderson and Semler Brossy in attendance at the invitation of the Compensation
Committee. During the meeting, the Compensation Committee discussed with management and its Advisors various
matters relating to the 2024 Employee XSP and the 2024 CEO Performance Award. With respect to the 2024 Employee
XSP, the discussion addressed the current draft framework of the 2024 Employee XSP, including the following differences
from XSP 1.0: (i) the seven-year award structure with 25% growth goals; (ii) a multi-day volume weighted average price
for calculating the attainment of stock price goals; (iii) new deadlines for achieving tranche goals; (iv) removal of the
ability to combine operational goals for each tranche to vest; and (v) a new employee minimum service condition. With
respect to the 2024 CEO Performance Award, the discussion addressed the annual on-target earnings for Mr. Smith with
respect to determining the quantum of the 2024 CEO Performance Award. The Compensation Committee and its Advisors
discussed potential shareholder dilution scenarios and whether the 2024 CEO Performance Award would be made in the
form of stock options or PSUs.
On August 24, 2023, the Compensation Committee held a meeting with members of management (excluding Mr. Smith)
and a representative from Semler Brossy in attendance at the invitation of the Compensation Committee. During the
meeting, the Compensation Committee discussed whether the service requirement in the 2024 CEO Performance Award
should require that Mr. Smith serve as CEO for the specified period and determined that the Compensation Committee
should have discretion to determine if Mr. Smith’s assuming the role of non-executive Chairman or another senior position
would be sufficient for purposes of vesting, given the seven-year term of the 2024 CEO Performance Award. The
Compensation Committee also acknowledged that the 2024 CEO Performance Award was contemplated to be granted in
the form of RSUs (as opposed to stock options), and as a result there would not be an exercise “speed brake” on the 2024
CEO Performance Award (which would limit the number of tranches that could vest in a certain time period). In addition,
the Compensation Committee directed management to move forward with drafting the definitive plan documents and
award agreements for the 2024 Employee XSP based on certain key terms summarized in the term sheet circulated to the
Compensation Committee in advance of the meeting, subject to the changes discussed in the meeting. The Compensation
Committee also discussed the impact of mergers and acquisitions on the operational goals and the related impact on the
stock price goals, and the requirement for Board or committee approval of mergers and acquisitions. Next, the
Compensation Committee discussed the allocation of Mr. Smith’s on-target earnings among cash compensation, benefits,
Axon Enterprise, Inc. | 2024 Proxy Statement | 98
regular annual time-based RSU awards and the 2024 CEO Performance Award in the context of the estimated total dilution
to shareholders and the shareholder feedback received following the 2023 Annual Meeting. The Compensation Committee
discussed a potential allocation of Mr. Smith’s on-target earnings and that estimated dilution to shareholders would be
approximately 1% for the 2024 CEO Performance Award relative to the estimated dilution of approximately 5% for the
2023 CEO Performance Award.
On September 28, 2023, the Compensation Committee held a meeting with members of management (excluding
Mr. Smith) and a representative from each of Potter Anderson and Semler Brossy in attendance at the invitation of the
Compensation Committee to discuss, in part, the 2024 CEO Performance Award. The Compensation Committee discussed,
among other things, how a seven-year holding period after the initial grant date in December 2023 with respect to the most
recently vested tranche and related forfeiture provisions would apply and the minimum service condition for Mr. Smith.
The Compensation Committee then discussed the revenue and Adjusted EBITDA materiality thresholds for the
performance goals following mergers and acquisitions, and agreed with management’s recommendation of a 5% threshold
for adjustments to both revenue and Adjusted EBITDA goals. Later that day, the Compensation Committee held an
executive session excluding management (only Ms. Murison remained) to discuss the circumstances in which the stock
price goals could be achieved, the methodologies for setting the baseline for the stock price and operational goals, and
whether the holding period, forfeiture provisions and minimum service condition in the 2024 Employee XSP should apply
to the 2024 CEO Performance Award. The Compensation Committee determined that the baseline for the stock price goals
would be the Ninety-Day VWAP as of the day before the 2024 Employee XSP and the Form of XSU Award Agreement
were sent to the Board for consideration. The Compensation Committee also determined that the baseline for the revenue
and Adjusted EBITDA goals would be actual revenue or Adjusted EBITDA, respectively, for the last 12 months as of the
end of the third quarter of 2023. In addition, the Compensation Committee determined that baseline margin (i.e., the
percentage of revenue represented by Adjusted EBITDA) would be actual margin as of the end of the third quarter of 2023
and the margin used to calculate subsequent Adjusted EBITDA goals would be scaled linearly until the percentage of
revenue represented by the Tranche 6 Adjusted EBITDA goal is 25%.
On September 29, 2023, the Compensation Committee met with its Advisors and continued the discussion regarding the
circumstances in which the stock price goals under the 2024 Employee XSP and the 2024 CEO Performance Award could
be achieved. In addition, the Compensation Committee discussed with Semler Brossy the anticipated smaller quantum of
the 2024 CEO Performance Award, the more aggressive goals of the 2024 CEO Performance Award, and the new feature
comprising the goal expiration dates. Following further discussion, the Compensation Committee agreed with
management’s recommendation that the seven-year holding period and forfeiture provisions in the 2024 Employee XSP
should also apply to the 2024 CEO Performance Award. However, the Compensation Committee determined that a longer
minimum service condition should continue to apply to Mr. Smith.
On October 10, 2023, the Compensation Committee held a meeting with members of management (excluding Mr. Smith)
and a representative from each of Potter Anderson and Semler Brossy in attendance at the invitation of the Compensation
Committee to discuss, in part, shareholder feedback with respect to the 2023 CEO Performance Award and its application
to the 2024 Employee XSP. Management noted that shareholders had considered total dilution, the impact of multiple
tranches vesting at once, and the risk that XSP 1.0 and 2023 CEO Performance Award might have paid out
disproportionately if the Company had achieved only moderate performance over the life of the plan. Management then
reviewed with the Compensation Committee the various features of the 2024 Employee XSP and 2024 CEO Performance
Award that are designed to address those concerns, including the more aggressive goals, the rolling 90-day volume-
weighted average stock price to satisfy stock price goals, the 25% growth required between milestones, the goal expiration
dates, the minimum service condition, and the holding period through December 2030. Later that day, the Compensation
Committee held an executive session without management (with the exception of Ms. Murison). The Compensation
Committee then discussed with its Advisors various potential scenarios, recent market developments, and possible plan
design changes, as well as the likelihood that the Company could achieve multiple stock price goals in short succession
given the 25% growth between stock price goals. Following further discussion, the Compensation Committee determined
that stock price goals and operational goals should be capable of being achieved at any point prior to their respective goal
expiration dates. The Compensation Committee then approved and adopted the 2024 Employee XSP and the corresponding
Form of XSU Award Agreement.
During the October 14, 2023 Board meeting, the Board met with the Compensation Committee (after excusing
management, other than Ms. Murison) to discuss its role in designing the 2024 Employee XSP and several of the 2024
Axon Enterprise, Inc. | 2024 Proxy Statement | 99
Employee XSP’s features, including the risk and duration multipliers, as well as the performance-based vesting conditions
that must be met in order for XSU awards granted under the 2024 Employee XSP to vest, the requirement that the
Company’s 90-day volume weighted average price per share meet the target stock price before the stock price goal would
be satisfied, that the Company also has to meet an operational goal (either a revenue or an Adjusted EBITDA goal) in
order for the performance requirement to be satisfied, and the 25% growth between goals. These features are also reflected
in the 2024 CEO Performance Award. The Chair of the Compensation Committee also noted two new features of the 2024
Employee XSP, including the new goal expiration dates, which serve to ensure that the required growth is achieved within
a reasonable period of time, and the minimum service condition, which serves to ensure that Tranches are not achieved
earlier that the applicable Minimum Service Date. With respect to the new goal expiration dates, the Chair of the
Compensation Committee noted that prior Tranches could be earned later in time if the goals applicable to a later Tranches
are subsequently achieved prior to the goal expiration date applicable to the later Tranche (e.g., if the stock price goal for
Tranche 1 is not attained by December 31, 2026, that stock price goal would be deemed to have been attained if, prior to
December 31, 2027, the stock price goal and operational goal for Tranche 2 are achieved). Following this discussion, the
Board reviewed and voted to approve and adopt the 2024 Employee XSP and the corresponding Form of XSU Award
Agreement.
On November 6, 2023, the Compensation Committee held a meeting with members of management (excluding Mr. Smith)
and a representative from each of Potter Anderson and Semler Brossy in attendance at the invitation of the Compensation
Committee. The Compensation Committee discussed, among other things, Mr. Smith’s proposed compensation package
in the form of the 2024 CEO Performance Award (an award of XSUs with a value of $7 million per year over seven years,
with a risk multiple of three, resulting in a notional value of $150 million), consistent with the 2024 CEO Performance
Award previously discussed with the Board, and that Mr. Smith had agreed to forgo all other compensation in respect of
that seven-year period. The Compensation Committee resolved to approve compensation for Mr. Smith for calendar years
2024 through 2030, subject to the negotiation of the terms and conditions of an XSU Award Agreement between Mr. Smith
and the Company (the “CEO 2024 Performance Award Agreement”), which terms and conditions were expected to be
substantially consistent with the terms and conditions of the 2024 Employee XSP and the Form of XSU Award Agreement
for Section 16 Officers previously approved by the Board, except that the “Minimum Service Date” for Mr. Smith would
be December 31, 2028 with respect to Tranche 1 or Tranche 2; December 31, 2029 with respect to Tranche 3 or Tranche
4; and December 31, 2030 with respect to Tranche 5, Tranche 6 or Tranche 7 as opposed to the semi-annual Minimum
Service Dates applicable under the 2024 Employee XSP (which range from June 2025 through June 2028). The
Compensation Committee then delegated to the Chair of the Compensation Committee the authority to negotiate the terms
and conditions of the CEO 2024 Performance Award Agreement, taking into account the terms and conditions previously
agreed in the 2023 CEO Performance Award as proposed in the Company’s proxy statement for the 2023 Annual Meeting,
including the clawback provisions therein, and such other terms and conditions as he may deem necessary, appropriate or
advisable. The Compensation Committee also delegated to the Chair of the Compensation Committee the authority to
negotiate the terms and conditions of the CEO Employment Agreement, which would contain various restrictive covenants.
In addition, the Compensation Committee discussed the compensation arrangements expected to be proposed in the
Company’s proxy statement for the Annual Meeting, including the 2024 CEO Performance Award.
On December 7, 2023, the Compensation Committee executed a unanimous written consent in lieu of a meeting to approve
the form of the CEO 2024 Performance Award Agreement, which would be filed as an attachment to the CEO Employment
Agreement. This approval followed the Compensation Committee’s review of and satisfaction with the terms and
conditions set forth in the final drafts of the CEO Employment Agreement and the CEO 2024 Performance Award, which
were also reviewed and discussed by the Chair of the Compensation Committee, its Advisors and Mr. Smith’s independent
counsel.
On December 8, 2023, Mr. Smith and the Company executed the CEO Employment Agreement, pursuant to which
Mr. Smith will continue his employment with the Company for a term expiring on December 31, 2030, under which
Mr. Smith is only entitled to receive a base salary at the minimum wage rate, standard employee benefits and, if approved
by shareholders, the 2024 CEO Performance Award.
On December 18, 2023, the Compensation Committee executed a unanimous written consent in lieu of a meeting to
approve the grant of the 2024 CEO Performance Award, effective as of December 22, 2023, subject to (i) Mr. Smith’s
continued employment with the Company through such grant date and (ii) approval of the award by the Company’s
shareholders at the Annual Meeting. In addition, the Compensation Committee approved the grant of certain XSUs
Axon Enterprise, Inc. | 2024 Proxy Statement | 100
pursuant to the 2024 Employee XSP to each of the Section 16 Officers subject to (A) such executive’s continued
employment with the Company through such grant date and (B) approval of the 2024 Employee XSP by the Company’s
shareholders at the 2024 Annual Meeting.
On December 20, 2023, the Board executed a unanimous written consent in lieu of a meeting to approve that an aggregate
number of shares be reserved and available for grant pursuant to the 2024 CEO Performance Award equal to $150 million
divided by the Ninety-Day VWAP as of the trading day immediately preceding the grant date (i.e., 679,102 shares). In
addition, the Board approved an aggregate number of 4,516,370 shares of Stock to be reserved and available for grant
pursuant to the 2024 Employee XSP.
2024 CEO Performance Award Benefits
Name
Principal Position
Patrick W. Smith
Chief Executive Officer
Joshua Isner
President
Brittany Bagley
Chief Operating Officer and Chief Financial Officer
Jeffrey Kunins
Chief Product Officer and Chief Technology Officer
Executive Group
Non-Employee Director Group
Non-Executive Officer Employee Group
Grant Date
Fair Value (1)
Number of
Shares
$
179,513,823
679,102
—
—
—
—
—
—
179,513,823
—
—
679,102
—
—
(1) Represents the market value of the securities underlying the 2024 CEO Performance Award as of March 4, 2024 (the
latest practicable date to determine such amount). For accounting purposes, the grant date of these XSUs will not
occur unless and until the 2024 CEO Performance Award is approved by shareholders, and thus the fair value of the
XSUs for accounting purposes is not determinable until such time.
Registration with the SEC
If the 2024 CEO Performance Award is approved by shareholders, we expect to file as soon as practicable after the Annual
Meeting a Registration Statement on Form S-8 with the SEC to register the additional number of shares of common stock
that will be issuable pursuant to the Tranches.
Relationship to Other Stock Plan Proposals
At the Annual Meeting, shareholders will also be asked to approve the Amended Plan and the 2024 Employee XSP, as
further described in Proposal No. 2 and Proposal No. 3, respectively. Each of such proposals and the proposal to approve
the 2024 CEO Performance Award are independent of one another. However, while shareholders may approve all three
proposals or any combination or none of them, we note that each of these plans is an integral component of our talent
retention and incentive program.
Unless otherwise instructed, all proxies received will be voted FOR approval of the 2024 CEO Performance Award.
Axon Enterprise, Inc. | 2024 Proxy Statement | 101
The Board of Directors recommends a vote FOR the approval of the 2024 CEO Performance Award.
Vote Required
For Proposal No. 4, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes will have no impact on this proposal if a quorum is present.
In addition, Mr. Smith has expressed his intent to abstain from voting on the 2024 CEO Performance Award. Given an
abstention will have no effect on the 2024 CEO Performance Award, assuming the existence of a quorum, the proposal to
approve the 2024 CEO Performance Award will effectively require the affirmative vote of a majority of the votes properly
cast for or against the proposal by the holders of shares of common stock, other than Mr. Smith, in person or by proxy at
the Annual Meeting.
Axon Enterprise, Inc. | 2024 Proxy Statement | 102
PROPOSAL NO. 5 – ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S
NAMED EXECUTIVE OFFICERS.
Shareholders will be given the opportunity to vote on the following advisory resolution (commonly referred to as “say on
pay”):
RESOLVED, that the shareholders of Axon Enterprise, Inc. hereby approve the compensation paid to the Company’s
NEOs, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis,
compensation tables and narrative discussion set forth in this proxy statement.
Background on Proposal
In accordance with the requirements of Section 14A of the Exchange Act and related SEC rules, shareholders are being
given the opportunity to vote at the Annual Meeting on this advisory resolution regarding the compensation of our NEOs.
As described in the Compensation Discussion and Analysis, our executive compensation program is designed to allow us
to attract and retain talent, link annual incentive compensation to our financial results produced during the year, and link
long term compensation in the form of stock awards to Company performance and enhancement of shareholder value over
time. For a comprehensive description of our executive compensation program, philosophy and objectives, including the
specific components of executive compensation that comprised the program in 2023, please refer to the “Executive
Compensation—Compensation Discussion and Analysis.” The 2023 Summary Compensation Table and other executive
compensation tables (and accompanying narrative disclosures) provide additional information about the compensation that
we paid to our NEOs in 2023.
At our 2023 Annual Meeting of Shareholders, the shareholders indicated, on an advisory vote basis, that they preferred
that we hold say-on-pay votes on an annual basis (a frequency vote is required to be held at least once every six years). In
light of these results, the Company’s Board of Directors decided to hold its future advisory votes on the compensation of
named executive officers annually.
Effects of Advisory Vote
Because the vote on this proposal is advisory in nature, it will not affect any compensation already paid or awarded to our
NEOs and will not be binding on the Board or the Compensation Committee. However, the Compensation Committee will
consider the outcome of the vote when making future executive compensation decisions.
Overview and Summary; Consideration of Prior Year Say-on-Pay Vote
The Company believes in competitive compensation aligned with the values, objectives and financial performance of the
Company. Since 2018, a significant amount of our executives’ potential total compensation was tied to performance. The
Compensation Committee considers the performance criteria for the Company’s performance-based compensation
challenging but achievable. Performance-based RSUs, cash incentive compensation program, and commission targets have
been achieved during 2019, 2020, 2021, 2022 and 2023. With the creation of the 2018 CEO Performance Award and XSU
awards in 2018 and 2019, respectively, compensation is aligned with long-term Company performance. As of
December 31, 2023, all 12 tranches of each of the 2018 CEO Performance Award and the XSU awards have vested.
At the 2023 Annual Meeting, we presented to shareholders, for advisory approval, the Company’s executive compensation
for 2022 (“Say-on-Pay Proposal”). Of the 56.9 million votes cast on the Say-on-Pay Proposal (including abstentions), over
84% were favorable for our Say-on-Pay Proposal. The Compensation Committee considered this a favorable outcome and
believed it conveyed our shareholders’ support of the Compensation Committee’s decisions and existing executive
compensation programs.
Axon Enterprise, Inc. | 2024 Proxy Statement | 103
Our compensation opportunities for our named executive officers are predominantly delivered in the form of performance-
based awards, including equity-based awards, which are designed to promote incentives that are aligned with long-term
shareholder interests. It is the Compensation Committee’s intent that the total compensation for our NEOs be competitive
to attract and retain highly qualified individuals who are capable of making significant contributions critical to our long-
term success.
The Compensation Committee will continue to consider the results from this year’s and future advisory votes on executive
compensation.
Unless otherwise instructed, all proxies received will be voted FOR approval of the advisory vote on executive
compensation.
The Board of Directors unanimously recommends a vote FOR approval of the resolution set forth above
approving the compensation of our named executive officers.
For Proposal No. 5, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes will have no impact on this proposal if a quorum is present.
Vote Required
Axon Enterprise, Inc. | 2024 Proxy Statement | 104
PROPOSAL NO. 6 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has appointed PricewaterhouseCoopers LLP, independent registered public accounting firm, to audit
the consolidated financial statements of the Company for the year ending December 31, 2024. PricewaterhouseCoopers
LLP replaced Grant Thornton LLP, which had served as the independent registered public accounting firm for the
Company since 2005. A representative from PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting
and will have the opportunity to make a statement and is expected to be available to respond to appropriate questions.
Shareholder ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting
firm is not required by our Bylaws or otherwise. Nonetheless, the Board, upon the recommendation of the Audit
Committee, is submitting the selection of PricewaterhouseCoopers LLP to the shareholders for ratification as a matter of
good corporate practice and because the Board and the Audit Committee value the views of our shareholders on our
independent auditors.
Even if the selection is ratified, the Audit Committee, in its discretion, may appoint a different independent registered
public accounting firm at any time during the year if it determines that such an appointment would be in the Company’s
best interest.
If the appointment is not approved by the shareholders, the adverse vote will be considered a direction to the Audit
Committee to consider other auditors for next year. However, because of the difficulty in making any substitution of
auditors so long after the beginning of the current year, the appointment in 2024 will stand, unless the Audit Committee
finds other good reason for making a change.
Change in Certifying Accountant
On February 26, 2024, following the conclusion of a process managed by the Audit Committee, the Audit Committee
approved the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting
firm, effective following the filing of the 2023 Annual Report.
During the years ended December 31, 2023 and 2022 and through February 26, 2024, neither the Company, nor anyone
on its behalf, consulted PricewaterhouseCoopers LLP regarding either: (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s
financial statements, and neither a written report nor oral advice was provided
that
PricewaterhouseCoopers LLP concluded was an important factor considered by the Company in reaching a decision as to
any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement,” within
the meaning of Item 304(a)(1)(iv) of Regulation S-K under the Exchange Act (“Regulation S-K”), or “reportable event,”
within the meaning of Item 304(a)(1)(v) of Regulation S-K.
the Company
to
In connection with the appointment of PricewaterhouseCoopers LLP, on February 26, 2024, the Audit Committee
approved the dismissal of Grant Thornton LLP as the Company’s independent registered public accounting firm, effective
immediately following completion of their engagement for the year ended December 31, 2023.
During the years ended December 31, 2023 and 2022 and the subsequent interim period through February 26, 2024, there
were no: (1) “disagreements,” within the meaning of Item 304(a)(1)(iv) of Regulation S-K, between the Company and
Grant Thornton LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope
or procedures, which disagreements, if not resolved to Grant Thornton LLP’s satisfaction, would have caused Grant
Thornton LLP to make reference to the subject matter of the disagreement in connection with its reports on the Company’s
the meaning of
consolidated
Item 304(a)(1)(v) of Regulation S-K, except for the material weakness in the Company’s internal control over financial
reporting stemming from control deficiencies with respect to the risks of understatement of software and services revenue
and overstatement of deferred revenue. The Company concluded this material weakness was remediated as of
December 31, 2023.
(2) “reportable events,” within
for such years, or
statements
financial
Axon Enterprise, Inc. | 2024 Proxy Statement | 105
The audit reports of Grant Thornton LLP on the Company’s consolidated financial statements as of and for the years ended
December 31, 2023 and 2022 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
Audit and Non-Audit Fees
The following table presents fees for audit, tax and other professional services rendered by Grant Thornton LLP for
the years ended December 31, 2023 and 2022.
Audit fees (1)
Audit-Related Fees (2)
Tax Fees (3)
All Other Fees (4)
2022
2023
$ 2,055,500
$ 2,065,500
—
—
—
—
—
—
$ 2,065,500 $ 2,055,500
(1) Audit Fees: Consists of fees billed for professional services rendered for the audit or review of Axon
Enterprise, Inc.’s consolidated financial statements, fees billed related to Sarbanes-Oxley 404 review and services
provided by Grant Thornton LLP in connection with statutory and regulatory filings.
(2) Audit-Related Fees: Consists of fees related to professional services that are reasonably related to the performance
of the audit or review of Axon’s consolidated financial statements. No such services were rendered during the years
ended December 31, 2023 or 2022.
(3) Tax Fees: Consists of fees billed principally for services provided in connection with worldwide tax consulting and
planning services. No such services were rendered during the years ended December 31, 2023 or 2022.
(4) All Other Fees: Consists of all other fees related to services not included in the categories above, including services
related to other regulatory reporting requirements. No such services were rendered during the years ended
December 31, 2023 or 2022.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
Consistent with SEC policies regarding auditor independence, the Audit Committee must pre-approve all audit and
permissible non-audit services provided by our independent auditors. Our Non-Audit Services Pre-Approval Policy covers
all services to be performed by our independent auditors. The policy contemplates a general pre-approval for all audit,
audit-related, tax and all other services that are permissible, with a general pre-approval period of twelve months from the
date of each pre-approval. Any other proposed services that are to be performed by our independent auditors, not covered
by or exceeding the pre-approved levels or amounts, must be specifically approved in advance.
The Audit Committee has considered and concluded that the provision by PricewaterhouseCoopers LLP of non-audit
services is compatible with PricewaterhouseCoopers LLP maintaining its independence.
Unless otherwise
instructed, all proxies received will be voted FOR ratification of
PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2024.
the appointment of
The Board of Directors recommends a vote FOR ratification of the appointment of PricewaterhouseCoopers LLP
as the Company’s independent registered public accounting firm for fiscal year 2024.
For Proposal No. 6, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for ratification.
Abstentions will have no impact on this proposal if a quorum is present.
Vote Required
Axon Enterprise, Inc. | 2024 Proxy Statement | 106
OTHER MATTERS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Statements in this proxy statement that are not historical facts are hereby identified as “forward-looking
statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act, and Section 27A of the
Securities Act. These forward-looking statements, wherever they occur in this proxy statement, are necessarily estimates
reflecting the best judgment of the management of Axon and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various important factors, including those set forth in this proxy
statement.
Words such as “may,” “will,” “estimate,” “project,” “plan,” “potential,” “continue,” “future,” “intend,” “expect,”
“anticipate,” “believe,” “would,” “should,” “could” and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places throughout this proxy statement. Important
factors that could cause actual results to differ materially from those indicated by such forward-looking statements include
those set forth in Axon’s filings with the SEC, including the 2023 Annual Report, which accompanies this proxy statement.
Axon undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by law. In the event that Axon does update any forward-looking statement,
no inference should be made that Axon will make additional updates with respect to that statement, related matters or any
other forward-looking statements.
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company’s proxy materials for the 2025 Annual Meeting of Shareholders, a proposal
intended to be presented by a shareholder for action at that meeting must, in addition to complying with the shareholder
eligibility and other requirements of the SEC’s rules governing such proposals, be received not later than November 29,
2024 by the Corporate Secretary of the Company at the Company’s principal executive offices, 17800 North 85th Street,
Scottsdale, Arizona 85255.
Shareholders may bring business before an annual meeting of shareholders that is not submitted for inclusion in the
Company’s proxy materials pursuant to the process set forth above (including the nomination of any person to be elected
as a director) only if the shareholder proceeds in compliance with the Company’s Bylaws. For business to be properly
brought before an annual meeting of shareholders by a shareholder that is not submitted for inclusion in the Company’s
proxy materials (including the nomination of any person to be elected as a director), shareholders are advised to review
the Company’s Bylaws as they contain requirements with respect to advance notice of proposed business. To be timely,
in accordance with the Company’s Bylaws, notice must be delivered to the Corporate Secretary of the Company in proper
written form not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual
meeting. Accordingly, any such shareholder proposal or director nomination must be received between January 10, 2025
and February 9, 2025 for the 2025 Annual Meeting of Shareholders. In the event that the date of the 2025 Annual Meeting
of Shareholders is more than 30 days before or more than 60 days after May 10, 2025, notice by the shareholder, to be
timely, must be so delivered no later than the close of business on the 90th day prior to the date of the 2025 Annual Meeting
of Shareholders and the 10th day following the day on which public announcement of the date of the 2025 Annual Meeting
of Shareholders is first made by the Company. In addition to satisfying the foregoing advance notice deadlines and
information requirements set forth in the Company's Bylaws, any shareholder intending to submit a nomination for director
to the Board other than the Company’s nominees must comply with the additional requirements prescribed by Rule 14a-19
under the Exchange Act.
The presiding officer at any annual meeting will determine whether any matter was properly brought before the meeting
in accordance with the above provisions. If the presiding officer should determine that any matter has not been properly
brought before the meeting, he or she will so declare at the meeting and any such matter will not be considered or acted
upon.
Axon Enterprise, Inc. | 2024 Proxy Statement | 107
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some brokers and other nominee record holders may be participating in the practice of “householding” proxy statements
and annual reports. This means that only one copy of this proxy statement and 2023 Annual Report may have been sent to
multiple shareholders in a shareholder’s household. The Company will promptly deliver a separate copy of either document
to any shareholder who contacts the Company’s investor relations department at 17800 North 85th Street, Scottsdale,
Arizona 85255, phone number (480) 515-6330, requesting such copies. If a shareholder is receiving multiple copies of this
proxy statement and 2023 Annual Report at the shareholder’s household and would like to receive a single copy of the
proxy statement and annual report for a shareholder’s household in the future, shareholders should contact their broker,
other nominee record holder, or the Company’s investor relations department to request mailing of a single copy of the
proxy statement and annual report.
A copy of the Company’s 2023 Annual Report is available to shareholders without charge upon request to: Investor
Relations, Axon Enterprise, Inc., 17800 North 85th Street, Scottsdale, Arizona 85255.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE ANNUAL SHAREHOLDER MEETING TO BE HELD ON MAY 10, 2024
The proxy materials for the Company’s Annual Meeting of Shareholders, including the 2023 Annual Report and this proxy
statement, are available over the Internet by accessing the investor relations page of the Company’s website at
http://investor.axon.com. Other information on the Company’s website does not constitute part of the Company’s proxy
materials.
By Order of the Board of Directors,
/s/ ISAIAH FIELDS
Isaiah Fields
Corporate Secretary
March 29, 2024
Axon Enterprise, Inc. | 2024 Proxy Statement | 108
Reconciliation of Non-GAAP Measures
(in thousands, except footnotes)
To supplement our financial results presented in accordance with accounting principles generally accepted in the United
States (“GAAP”), we present the non-GAAP financial measures of EBITDA and Adjusted EBITDA as defined below.
Management uses these non-GAAP financial measures in making operating decisions, allocating financial resources and
evaluating our performance in comparison to prior periods. We believe that both management and investors benefit from
referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our
future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.
• EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment
interest income, income taxes, depreciation and amortization.
• Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense,
investment interest income, income taxes, depreciation, amortization, non-cash stock-based compensation
expense, fair value adjustments to strategic investments and marketable securities, transaction costs related to
acquisitions and investments, and other unusual, non-recurring pre-tax items that are not considered
representative of our underlying operating performance.
• Adjusted EBITDA margin (most comparable GAAP measure: Net income margin)- Adjusted EBITDA as a
percentage of Net sales. Adjusted EBITDA and Adjusted EBITDA margin reconcile to Net income and Net
income margin, respectively.
Year Ended December 31,
2023
2022
2021
2020
Net income
Depreciation and amortization
Interest expense
Investment interest income
Provision for income taxes
EBITDA
Non-GAAP adjustments:
$ 174,227 $ 147,139 $ (60,018) $ (1,724)
12,475
55
(4,086)
(4,567)
2,153
$ 145,526 $ 216,605 $ (124,164) $
32,638
6,995
(49,107)
(19,227)
18,694
28
(1,511)
(81,357)
24,381
488
(4,782)
49,379
Stock-based compensation expense
Unrealized loss (gain) on strategic investments and marketable
securities, net
Transaction costs related to strategic investments and acquisitions
Loss on disposal, abandonment, and impairment of property, equipment
and intangible assets, net
Insurance recoveries
Costs related to FTC litigation
Payroll taxes related to XSPP vesting and CEO Award option exercises
Adjusted EBITDA
Net Sales
Net income margin (Net income as a percentage of Net sales)
Adjusted EBITDA margin (Adjusted EBITDA as a percentage of Net
sales)
131,358
106,176
303,331
133,572
41,785
4,501
(98,943)
2,368
(23,035)
2,068
(2,055)
1,032
317
(3,404)
241
9,011
2,042
5,562
—
—
19,064
545
—
—
$ 329,335 $ 232,313 $ 178,112 $ 155,808
238
—
741
18,933
$ 1,563,391 $ 1,189,935 $ 863,381 $ 681,003
12.4 %
11.1 %
(7.0)%
(0.3)%
21.1 %
19.5 %
20.6 %
22.9 %
Axon Enterprise, Inc. | 2024 Proxy Statement | 109
[This Page Intentionally Left Blank]
AXON ENTERPRISE, INC.
AMENDED AND RESTATED 2022 STOCK INCENTIVE PLAN
SECTION 1
ESTABLISHMENT, PURPOSE, EFFECTIVE DATE, EXPIRATION DATE
ANNEX A
Establishment. Axon Enterprise, Inc., a Delaware corporation (the “Company”), hereby amends and restates the
1.1.
Axon Enterprise, Inc. 2022 Stock Incentive Plan (originally the “2022 Plan”, and as hereby amended and restated, the
“Plan”). The 2022 Plan was originally adopted by the Board on March 24, 2022 and approved by the Company’s
shareholders on May 20, 2022. No awards shall be made pursuant to any Prior Plan on or after the Effective Date; provided
that the Prior Plans shall remain in effect until all outstanding awards granted prior to the Effective Date under such Prior
Plans have been exercised, forfeited, canceled, expired or otherwise terminated in accordance with the terms of such
Awards.
1.2.
Purpose. The purpose of the Plan is to advance the interests of the Company and its shareholders by enhancing
the Company’s ability to attract and retain qualified persons to perform services for the Company, by providing incentives
to such persons to put forth maximum efforts for the Company and by rewarding persons who contribute to the
achievement of the Company’s economic objectives. To further these objectives, the Plan provides for the grant of Options,
Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards, Performance Shares,
Performance Share Units, and Performance Cash.
1.3.
2024 Annual Meeting of Shareholders (the “Effective Date”).
Effective Date. The Plan shall become effective on the date it is approved by the shareholders at the Company’s
Expiration Date. The Plan shall expire on, and no Award may be granted under the Plan after, the tenth (10th)
1.4.
anniversary of the Effective Date (the “Expiration Date”). Any Awards that are outstanding on the Expiration Date shall
remain in force according to the terms of the Plan and the applicable Award Agreement.
SECTION 2
GLOSSARY AND INTERPRETATION
2.1.
attached Glossary, which is incorporated into and is part of the Plan.
Glossary. Capitalized words used but not defined herein shall be given the meaning ascribed to them in the
2.2.
Interpretation. Pronouns and other words of gender shall be read as gender-neutral. The singular shall include
the plural and the plural shall include the singular. The words “include”, “includes” or “including” shall be deemed to be
followed by the words “without limitation”. If any provision of this Plan is determined to be for any reason invalid or
unenforceable, the remaining provisions shall continue in full force and effect.
SECTION 3
ELIGIBILITY AND PARTICIPATION
3.1.
General Eligibility. Persons eligible to participate in the Plan consist of all employees, officers and Non-
Employee Directors of, and Consultants to, the Company or any Affiliate. Awards may also be granted to prospective
employees or Non-Employee Directors but no portion of any such Award shall vest, become exercisable, be issued, or
become effective prior to the date on which such individual begins to provide services to the Company or its Affiliates.
3.2.
Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from
among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each
Award.
A-1
SECTION 4
ADMINISTRATION
4.1.
General. The Plan shall be administered by the Committee or, with respect to individuals who are Non-Employee
Directors, the Board. All references in the Plan to the “Committee” shall refer to the Committee or Board, as applicable.
The Committee, by majority action thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations as it may deem necessary or advisable to administer the Plan, to provide for conditions and assurances deemed
necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable
for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations,
interpretations, or other actions made or taken by the Committee in good faith pursuant to the provisions of the Plan shall
be final, binding and conclusive for all purposes of the Plan.
4.2.
Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have the authority to:
(a) designate the Participants who are entitled to receive Awards under the Plan; (b) determine the types of Awards and
the times when Awards shall be granted; (c) determine the number of Awards to be granted and the number of shares of
Stock underlying an Award; (d) determine the terms and conditions of any Award, including the purchase price or exercise
price or base value, the grant price, the period(s) during which such Awards shall be exercisable (whether in whole or in
part); (e) determine any restrictions or limitations on the Award, any schedule for lapse of restrictions or limitations, and
accelerations or waivers thereof, based in each case on such considerations as the Committee determines; provided,
however, that except in the case of (i) a Change in Control or (ii) a Termination of Employment or Termination of Service,
the Committee shall not have the authority to accelerate the vesting or waive the forfeiture restrictions on any Award
subject to the minimum vesting requirement set forth in Section 12.9 prior to the date on which such minimum vesting
requirements are satisfied; (f) determine whether, to what extent, and in what circumstances an Award may be settled in,
or the exercise price or purchase price of an Award may be paid in cash, Stock or other property, or whether an Award
may be canceled, forfeited, exchanged or surrendered; (g) prescribe the form of each Award Agreement, which need not
be the same for each Participant; (h) decide all other matters that must be determined in connection with an Award;
(i) interpret the terms of, and determine any matter arising pursuant to, the Plan or any Award Agreement; (j) make any
other decisions or determinations that may be required pursuant to the Plan or an Award Agreement as the Committee
deems necessary or advisable to administer the Plan, including establishing, adopting or revising any rules and regulations
as it deems necessary or advisable to administer the Plan; and (k) correct any defects and reconcile any inconsistencies in
the Plan or any Award Agreement. The Committee shall also have the authority to modify existing Awards to the extent
that such modification is within the power and authority of the Committee as set forth in the Plan. The foregoing list of
powers is not intended to be complete or exclusive and, to the extent not contrary to the express provisions of the Plan, the
Committee shall have such powers, whether or not expressly set forth in the Plan, that it may determine necessary or
appropriate to administer the Plan.
4.3.
Decisions Final. The Committee’s interpretation of the Plan and any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan and the Award Agreements are final, binding and conclusive on
all parties. All authority of the Committee with respect to Awards issued pursuant to the Plan, including the authority to
amend outstanding Awards, shall continue after the termination of the Plan so long as any Award remains outstanding.
Any action authorized to be taken by the Committee pursuant to the Plan may be taken or not taken by the Committee as
long as such action or decision not to act is not inconsistent with a provision of the Plan. No member of the Committee
shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the
Plan.
4.4.
Delegation to CEO. The Committee may, in its discretion, delegate to the CEO, in writing, the power and
authority to grant Awards to individuals (other than to employees who are or may become, upon hiring, employees subject
to Section 16 of the Exchange Act) to expedite the hiring process or to retain talented employees. The Committee’s
delegation to the CEO may be revoked or modified at any time. Any such delegation must be consistent with applicable
law and shall be subject to such restrictions or limitations as may be imposed by the Committee and must, at a minimum,
specify the total number of shares of Stock subject to such Awards and the time period in which such shares of Stock may
be issued.
A-2
SECTION 5
SHARES AVAILABLE FOR GRANT
5.1.
Number of Shares. Subject to adjustment as provided in Section 5.4, the aggregate number of shares of Stock
reserved and available for grant pursuant to the Plan shall be 2,231,811 shares of Stock, plus the number of shares of Stock
that are authorized but unissued under the Prior Plans as of the Effective Date. The shares of Stock delivered pursuant to
any Award may consist, in whole or in part, of authorized but unissued Stock, treasury Stock not reserved for any other
purposes, or Stock purchased on the open market.
5.2.
Stock available for grant under the Plan at any given time:
Share Counting. The following rules shall apply solely for purposes of determining the number of shares of
a.
for each share subject to Awards granted under the Plan.
The number of shares of Stock available for grant under the Plan shall be reduced by one share of Stock
b.
In the event any Award granted under the Plan, or any award outstanding under any Prior Plan after the
Effective Date, is terminated, expired, forfeited, or canceled for any reason, the number of shares of Stock subject
to such Award, to the extent of any such termination, expiration, forfeiture, or cancellation, shall again be
available for grant under the Plan.
c.
If shares of Stock are not delivered in connection with an Award because the Award is settled in cash
rather than in Stock, no shares of Stock shall be counted against the limit set forth in Section 5.1. If an Award
may be settled in cash or Stock, the rules set forth in Section 5.2(a) shall apply until the Award is settled, at which
time, if the Award is settled in cash, the underlying shares of Stock shall be added back to the shares available
for grant pursuant to Section 5.1.
The exercise of a stock-settled SAR or broker-assisted “cashless” exercise of an Option (or a portion
d.
thereof) shall reduce the number of shares of Stock available for grant under Section 5.1 by the entire number of
shares of Stock subject to such SAR or Option (or applicable portion thereof), even though a smaller number of
shares of Stock shall be issued upon such an exercise.
e.
Shares of Stock tendered to pay the exercise price of an Option or tendered, withheld or otherwise
relinquished by a Participant to satisfy a tax withholding obligation arising in connection with an Award shall
again become available for grant under the Plan. Moreover, shares of Stock purchased on the open market with
cash proceeds generated by the exercise of an Option or SAR shall increase or replenish the number of shares
available for grant under Section 5.1.
f.
If the provisions of this Section 5.2 are inconsistent with the requirements of any regulations issued
pursuant to Section 422 of the Code, the provisions of such regulations shall control over the provisions of this
Section 5.2, but only as this Section 5.2 relates to Incentive Stock Options.
5.3.
5.4:
Award limits. Notwithstanding any other provision in the Plan, and subject to adjustment as provided in Section
a.
shall be the same numeric limit set forth in Section 5.1.
The maximum number of shares of Stock that may be issued as Incentive Stock Options under the Plan
A-3
The sum of the total cash compensation earned and paid and the aggregate grant date fair value
b.
(calculated as of the Date of Grant in accordance with applicable accounting rules) of shares of Stock subject to
Awards granted to any one Participant who is a Non-Employee Director during any one 12-month period shall
not exceed $750,000. For the avoidance of doubt, if a Non-Employee Director serves the Company in more than
one capacity during any 12-month period, the total compensation limit described in this Section 5.3(b) shall only
apply to the compensation paid for services performed as a Non-Employee Director. To the extent any Non-
Employee Director compensation is deferred, it shall be counted toward this total compensation limit for the year
in which the compensation was first earned or granted.
The maximum number of shares of Stock that may be granted with respect to Awards that do not satisfy
c.
the minimum vesting requirement set forth in Section 12.9 shall be five percent (5%) of the numeric limit set
forth in Section 5.1 (subject to adjustment as provided in Section 5.4).
Adjustment in Capitalization. Except as otherwise provided in an applicable Award Agreement, in the event of
5.4.
any change in the outstanding shares of Stock by reason of a stock dividend or split, split-up or spin-off, extraordinary
dividend or other extraordinary distribution (whether in the form of cash, Stock or other property), Change in Control,
recapitalization, rights offering, liquidation, merger, consolidation, combination, exchange of shares, or other similar
corporate change or event in respect of the Stock, the Committee shall equitably adjust, in the manner the Committee
determines appropriate, any or all of: (a) the number and class of shares of Stock made available for grant pursuant to
Section 5.1; (b) any numeric or share-based limit expressed in the Plan; (c) the number and class of and/or price of shares
of Stock subject to then outstanding Awards; (d) the performance period, performance targets and/or other goals applicable
to any outstanding Awards; or (e) any other terms of an Award that are affected by the event. Moreover, in the event of
any such transaction described in the preceding sentence, except as otherwise provided in an applicable Award Agreement,
the Committee, in its discretion, may provide in substitution for any or all outstanding Awards such alternative
consideration (including cash) as it, in good faith, may determine, including (i) making provision for a cash payment to
the holder of an outstanding Award in consideration for the cancelation of such Award, including, in the case of an
outstanding Option or SAR, a cash payment to the holder of such Option or SAR in consideration for the cancelation of
such Option or SAR in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the
Committee) of the shares of Stock subject to such Option or SAR over the aggregate exercise price of such Option or SAR,
(ii) canceling and terminating any Option or SAR having a per-share exercise price equal to, or in excess of, the Fair
Market Value of a share of Stock subject to such Option or SAR without any payment or consideration therefor or (iii) in
the case of an outstanding Option or SAR, establishing a date upon which such Award will expire unless exercised prior
thereto. Any action taken pursuant to this Section 5.4 shall be taken in a manner consistent with the requirements of Section
409A of the Code and, in the case of Incentive Stock Options, in accordance with the requirements of Section 424(a) of
the Code. The adjustments permitted under this Section 5.4 shall be binding on all Participants without their consent or
further action thereby.
5.5.
Replacement Awards. In the event of any corporate transaction in which the Company or an Affiliate acquires
a corporate entity which, at the time of such transaction, maintains an equity compensation plan pursuant to which awards
of stock options, stock appreciation rights, restricted stock, or any other form of equity based compensation are then
outstanding (the “Acquired Plan”), the Committee may make Awards to assume, substitute or convert such outstanding
awards in such manner as may be determined to be appropriate and equitable by the Committee; provided, however, that
the number of shares of Stock subject to any Award shall always be a whole number by rounding any fractional share to
the nearest whole share. To the extent permitted by Section 409A of the Code, Options or SARs issued pursuant to this
Section 5.5 shall not be subject to the requirement that the exercise price of such Award not be less than the Fair Market
Value of Stock on the date the Award is granted. Shares used in connection with an Award granted in substitution for an
award outstanding under an Acquired Plan under this Section 5.5 shall not be counted against the number of shares of
Stock available for grant under Section 5.1. Any shares of Stock authorized and available for issuance under the Acquired
Plan during its remaining term may, subject to adjustment as described in Section 5.4, be available for use in making
Awards under the Plan with respect to persons eligible under such Acquired Plan, by virtue of the Company’s assumption
of such Acquired Plan, consistent with NASDAQ Rules (or rules of any other exchange upon which the Stock is then
traded), including NASDAQ Rule 5635(c), including IM-5635-1, as such Rules may be amended or replaced from time to
time.
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Fractional Shares. No fractional shares of Stock shall be issued pursuant to the Plan. Unless the Committee
5.6.
specifies otherwise in the Award Agreement, or pursuant to any policy adopted by the Committee, cash shall be given in
lieu of fractional shares. In the event of adjustment as provided in Section 5.4 or the issuance of replacement awards as
provided in Section 5.5, the total number of shares of Stock subject to any affected Award shall always be a whole number
by rounding any fractional share to a whole share in a manner that complies with Section 409A.
SECTION 6
OPTIONS
Options. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may
6.1.
grant Options to one or more Participants upon such terms and conditions and in such amounts, as shall be determined by
the Committee. Options are also subject to the following additional terms and conditions:
a.
of one share of Stock on the Date of Grant.
Exercise Price. No Option shall be granted at an exercise price that is less than the Fair Market Value
b.
Exercise of Option. Options shall be exercisable at such times and in such manner, and shall be subject
to such restrictions or conditions, as the Committee shall in each instance approve, which need not be the same
for each grant or for each Participant.
c.
however, that no Option shall be exercisable later than the tenth (10th) anniversary of the Date of Grant.
Term of Option. Each Option shall expire at such time as determined by the Committee; provided,
d.
Payment. The exercise price for any Option shall be paid in cash or shares of Stock held for longer than
six (6) months (through actual tender or by attestation). In the Award Agreement, the Committee also may
prescribe other methods by which the exercise price of an Option may be paid and the form of payment including
any net-issuance arrangement or other property acceptable to the Committee (including broker-assisted “cashless
exercise” arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered
to Participants. The Committee, in consideration of applicable accounting standards and applicable law, may
waive the six (6) month share holding period described in the first sentence of this Section 6.1(d) in the event
payment of an Option is made through the tendering of shares.
e.
Repricing of Options. Except as otherwise provided in Section 5.4 with respect to an adjustment in
capitalization, notwithstanding any other provision in the Plan to the contrary, without approval of the Company’s
shareholders, an Option may not be amended, modified or repriced to reduce the exercise price after the Date of
Grant. Except as otherwise provided in Section 5.4 with respect to an adjustment in capitalization, an Option also
may not be surrendered in consideration of or exchanged for cash, other Awards or a new Option having an
exercise price below the exercise price of the Option being surrendered or exchanged.
Non-Transferability of Options. No Option may be sold, transferred, pledged, assigned, or otherwise
f.
alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options
granted to a Participant shall be exercisable during his or her lifetime only by such Participant or his or her legal
representative. Notwithstanding the foregoing, the Committee may, in its discretion, permit the transfer of an
Option to a Family Member, trust (including a Donor Advised Fund) or partnership, or to a charitable
organization; provided that no value or consideration is received by the Participant with respect to such transfer.
g.
connection with any Option granted under the Plan.
No Dividends or Dividend Equivalents. No dividends or dividend equivalents may be awarded in
h.
Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment
or Termination of Service during the applicable period of restriction, any Option that is at that time subject to
restrictions shall be forfeited.
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Incentive Stock Options. Incentive Stock Options shall be granted only to Participants who are employees and
6.2.
the terms of any Incentive Stock Options granted pursuant to the Plan must comply with the following additional provisions
of this Section 6.2:
a.
Exercise Price. Subject to Section 6.2(e), the exercise price per share of Stock granted pursuant to any
Incentive Stock Option shall be set by the Committee; provided that the exercise price for any Incentive Stock
Option shall not be less than the Fair Market Value of one share of Stock as of the Date of Grant.
b.
Term of Incentive Stock Option. In no event may any Incentive Stock Option be exercisable for more
than ten (10) years from the Date of Grant. Incentive Stock Options shall not be granted more than ten (10) years
after the earlier of the adoption of the Plan or the approval of the Plan by the Company’s shareholders.
c.
Lapse of Option. An Incentive Stock Option shall lapse in the following circumstances:
i.
time is set forth in the Award Agreement;
The Incentive Stock Option shall lapse ten (10) years from the Date of Grant, unless an earlier
ii.
than the Participant’s death or Disability, unless otherwise provided in the Award Agreement; and
The Incentive Stock Option shall lapse upon a Termination of Employment for any reason other
iii.
If the Participant incurs a Termination of Employment on account of Disability or death before
the Option lapses pursuant to paragraph (i) or (ii) above, the Incentive Stock Option shall lapse, unless
it is previously exercised, on the earlier of: (A) the scheduled termination date of the Option; or (B) 12
months after the date of the Participant’s Termination of Employment on account of death or Disability.
Upon the Participant’s death or Disability, any Incentive Stock Options exercisable at the Participant’s
death or Disability may be exercised by the Participant’s legal representative or representatives, by the
person or persons entitled to do so pursuant to the Participant’s last will and testament in the case of
death, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies
intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the
applicable laws of descent and distribution.
d.
Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time an Award
is made and in accordance with Section 422 of the Code) of all shares of Stock subject to Incentive Stock Options
that are first exercisable by a Participant in any one calendar year may not exceed $100,000 or such other
limitation as may then be imposed by Section 422(d) of the Code, or any successor provision. To the extent that
Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be
considered Non-Qualified Stock Options.
e.
Ten Percent Owners. An Incentive Stock Option may be granted to any employee who, at the Date of
Grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of
Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value
on the Date of Grant and the Option is exercisable for no more than five (5) years from the Date of Grant.
f.
only by the Participant during the Participant’s lifetime.
Right to Exercise. Except as provided in Section 6.2(c)(iii), an Incentive Stock Option may be exercised
g.
Limitation on Number of Shares Subject to Awards. In accordance with Section 5.3(a), but subject
to adjustment as provided in Section 5.4, the maximum number of shares of Stock that may be issued as Incentive
Stock Options under the Plan shall be the same numeric limit set forth in Section 5.1.
h.
Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment
or Termination of Service during the applicable period of restriction, any Incentive Stock Option that is at that
time subject to restrictions shall be forfeited.
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SECTION 7
STOCK APPRECIATION RIGHTS
7.1.
Stock Appreciation Rights. Subject to the terms and provisions of the Plan, the Committee, at any time and from
time to time, may grant SARs to one or more Participants upon such terms and conditions and in such amounts, as shall
be determined by the Committee. SARs may be granted in connection with the grant of an Option, in which case the
exercise of such SARs shall result in the surrender of the right to purchase the shares under the Option as to which the
SARs were exercised. When SARs are granted in connection with an Incentive Stock Option, the SARs shall have such
terms and conditions as shall be required by Section 422 of the Code. Alternatively, SARs may be granted independently
of Options. SARs are also subject to the following additional terms and conditions:
a.
of Stock on the Date of Grant.
Base Value. No SAR shall be granted at a base value that is less than the Fair Market Value of one share
b.
conditions as the Committee shall, in each instance approve, which need not be the same for all Participants.
Exercise of SARs. SARs shall be exercisable at such times and be subject to such restrictions and
c.
that no SAR shall be exercisable later than the tenth (10th) anniversary the Date of Grant.
Term of SARs. Each SAR shall expire at such time as determined by the Committee; provided, however,
d.
Payment of SAR Amount. Upon the exercise of a SAR, the Participant shall be entitled to receive an
amount determined by multiplying: (i) the excess, if any, of the Fair Market Value of a share of Stock on the date
of exercise, over the base value fixed by the Committee on the Date of Grant; by (ii) the number of shares with
respect to which the SAR is exercised. Payment for SARs shall be made in the manner and at the time specified
by the Committee in the Award Agreement. At the discretion of the Committee, the Award Agreement may
provide for payment of SARs in cash, shares of Stock of equivalent value, or in a combination thereof.
e.
Repricing of SARs. Except as otherwise provided in Section 5.4 with respect to an adjustment in
capitalization, notwithstanding any other provision in the Plan to the contrary, without approval of the Company’s
shareholders, a SAR may not be amended, modified or repriced to reduce the base value after the Date of Grant.
Except as otherwise provided in Section 5.4 with respect to an adjustment in capitalization, a SAR also may not
be surrendered in consideration of or exchanged for cash, other Awards or a new SAR having a base value below
the base value of the SAR being surrendered or exchanged.
f.
Non-Transferability of SARs. No SAR may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all SARs granted
to a Participant shall be exercisable during his or her lifetime only by such Participant or his or her legal
representative. Notwithstanding the foregoing, the Committee may, in its discretion, permit the transfer of a SAR
to a Family Member, trust (including a Donor Advised Fund) or partnership, or to a charitable organization;
provided that no value or consideration is received by the Participant with respect to such transfer.
g.
connection with any SAR granted under the Plan.
No Dividends or Dividend Equivalents. No dividends or dividend equivalents may be awarded in
h.
Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment
or Termination of Service during the applicable period of restriction, any SAR that is at that time subject to
restrictions shall be forfeited.
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SECTION 8
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1.
Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to
time, may grant Restricted Stock to one or more Participants upon such terms and conditions, and in such amounts, as
shall be determined by the Committee. Restricted Stock Awards are also subject to the following additional terms and
conditions:
a.
Issuance and Restrictions. Restricted Stock shall be subject to such conditions and/or restrictions as
the Committee may impose (including limitations on transferability, the right to receive dividends, or the right to
vote the Restricted Stock), which need not be the same for each grant or for each Participant. These restrictions
may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or
otherwise, as determined by the Committee. To the extent that Restricted Stock includes the right to receive
dividends, any dividends paid by the Company during the period of restriction shall accrue and shall not be paid
to the Participant until and only to the extent the Restricted Stock vests and becomes nonforfeitable. Except as
otherwise provided in the Award Agreement, Participants holding shares of Restricted Stock may not exercise
voting rights with respect to the shares of Restricted Stock during the period of restriction.
b.
Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment
or Termination of Service during the applicable period of restriction, Restricted Stock that is at that time subject
to restrictions shall be forfeited.
Evidence of Ownership for Restricted Stock. Restricted Stock granted pursuant to the Plan may be
c.
evidenced in such manner as the Committee shall determine, which may include an appropriate book entry credit
on the books of the Company or a duly authorized transfer agent of the Company. If certificates representing
shares of Restricted Stock are registered in the name of the Participant, the certificates must bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company
may, in its discretion, retain electronic possession of the certificate until such time as all applicable restrictions
lapse.
Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from
8.2.
time to time, may grant Restricted Stock Units to one or more Participants upon such terms and conditions, and in such
amounts, as shall be determined by the Committee. Restricted Stock Units are also subject to the following additional
terms and conditions:
Issuance and Restrictions. Restricted Stock Units grant a Participant the right to receive a specified
a.
number of shares of Stock, or a cash payment equal to the Fair Market Value (determined as of a specified date)
of a specified number of shares of Stock, subject to such conditions and/or restrictions as the Committee may
impose, which need not be the same for each grant or for each Participant. These restrictions may lapse separately
or in combination at such times, in such circumstances, in such installments, or otherwise, as determined by the
Committee. To the extent that an Award of Restricted Stock Units includes the right to receive dividend
equivalents, any dividend equivalents awarded by the Company during the period of restriction shall accrue and
shall not be paid to the Participant until and only to the extent the Restricted Stock Units vest and become
nonforfeitable.
b.
Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment
or Termination of Service during the applicable period of restriction, Restricted Stock Units that are at that time
subject to restrictions shall be forfeited.
c.
Form and Timing of Payment. Payment for vested Restricted Stock Units shall be made in the manner
and at the time designated by the Committee in the Award Agreement. In the Award Agreement, the Committee
may provide that payment shall be made in cash, shares of Stock of equivalent value, or in a combination thereof,
in each case, consistent with the terms set forth in Section 16.12.
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SECTION 9
OTHER STOCK-BASED AWARDS
9.1.
Stock Grants. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time,
may grant Stock Grant Awards to one or more Participants upon such terms and conditions, and in such amounts, as shall
be determined by the Committee. A Stock Grant Award grants the Participant the right to receive (or purchase at such
price as determined by the Committee) a designated number of shares of Stock free of any vesting restrictions. The
purchase price, if any, for a Stock Grant Award shall be payable in cash or other form of consideration acceptable to the
Committee. A Stock Grant Award may be granted or sold as described in the preceding sentence in respect of past services
or other valid consideration, or in lieu of any cash compensation due to such Participant.
9.2.
Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time,
may grant Stock Unit Awards to one or more Participants upon such terms and conditions, and in such amounts, as shall
be determined by the Committee. A Stock Unit Award grants the Participant the right to receive a designated number of
shares of Stock, or a cash payment equal to the Fair Market Value (determined as of a specified date) of a designated
number of shares of Stock, in the future free of any vesting restrictions. A Stock Unit Award may be granted as described
in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due
to such Participant.
SECTION 10
PERFORMANCE SHARES, PERFORMANCE SHARE UNITS, AND PERFORMANCE CASH
Performance Shares. Subject to the terms and provisions of the Plan, the Committee, at any time and from time
10.1.
to time, may grant Performance Shares to one or more Participants upon such terms and conditions, and in such amounts,
as shall be determined by the Committee. A Performance Share grants the Participant the right to receive a specified
number of shares of Stock depending on the satisfaction of any one or more Performance Goals. Performance may be
measured on a specified date or dates or over any period or periods determined by the Committee. Unless otherwise
provided in the Award Agreement, payment for vested Performance Shares shall be made in Stock. To the extent that an
Award of Performance Shares includes the right to receive dividends, any dividends paid by the Company during the
period of restriction shall accrue and shall not be paid to the Participant until and only to the extent the Performance Shares
vest and become nonforfeitable.
10.2.
Performance Share Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from
time to time, may grant Performance Share Units to one or more Participants upon such terms and conditions, and in such
amounts, as shall be determined by the Committee. A Performance Share Unit grants the Participant the right to receive a
specified number of shares of Stock or a cash payment equal to the Fair Market Value (determined as of a specified date)
of a specified number of shares of Stock depending on the satisfaction of any one or more Performance Goals. Performance
may be measured on a specified date or dates or over any period or periods determined by the Committee. At the discretion
of the Committee, the Award Agreement may provide for payment for vested Performance Share Units in cash, shares of
Stock of equivalent value, or in a combination thereof. To the extent that an Award of Performance Shares includes the
right to receive dividend equivalents, any dividend equivalents awarded by the Company during the period of restriction
shall accrue and shall not be paid to the Participant until and only to the extent the Performance Shares vest and become
nonforfeitable.
10.3.
Performance Cash. Subject to the terms and provisions of the Plan, the Committee, at any time and from time
to time, may grant Performance Cash to one or more Participants upon such terms and conditions, and in such amounts,
as shall be determined by the Committee. An award of Performance Cash grants the Participant the right to receive an
amount of cash depending on the satisfaction of any one or more Performance Goals. Performance may be measured on a
specified date or dates or over any period or periods determined by the Committee.
10.4.
Performance Goals. The Performance Goal or Goals applicable to any Performance Share, Performance Share
Unit or Performance Cash awards shall be specified by the Committee in the Award Agreement. The Committee shall
retain the power to adjust the Performance Goals, the level of attainment of the Performance Goals or otherwise increase
or decrease the amount payable with respect to any Award made pursuant to this Section 10.
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SECTION 11
CHANGE IN CONTROL
11.1. Double Trigger Vesting. Notwithstanding any other provision in the Plan to the contrary, and except as otherwise
provided in an applicable Award Agreement, the applicable Change in Control transaction documents or any employment
agreement between the Company and a Participant, in the event that an employee Participant incurs a Termination of
Employment without Cause within 12 months following a Change in Control, any Awards that are still outstanding
following such Change in Control shall become fully vested and exercisable and all restrictions on such Awards shall lapse
as of the date of the Participant’s Termination of Employment without Cause. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Section 422(d) of the Code or any successor provision,
the excess Options shall be deemed to be Non-Qualified Stock Options.
11.2.
Substitution or Assumption. Notwithstanding Section 11.1 and except to the extent the Committee specifically
established otherwise in an applicable Award Agreement, and except as provided in Section 11.4, in the event of a Change
in Control, unless provision is made in connection with the Change in Control for assumption or continuation of Awards
previously granted or substitution of such Awards for new awards covering shares of a successor corporation or its “parent
corporation” (as defined in Section 424(e) of the Code) or “subsidiary corporation” (as defined in Section 424(f) of the
Code) with appropriate adjustments as to the number and kinds of shares and, if applicable, exercise prices and
Performance Goals, in each case, that the Committee determines shall preserve the material terms and conditions of such
Awards as in effect immediately prior to the Change in Control (including with respect to the vesting schedules, the
intrinsic value of the awards (if any) as of the Change in Control, the difficulty of achieving Performance Goals (if
applicable) and transferability of the shares underlying such Awards), immediately upon the occurrence of a Change in
Control, any Awards that are still outstanding following such Change in Control shall become fully vested and exercisable
and all restrictions on such Awards shall lapse as of the date of the Change in Control.
11.3.
Participant Consent Not Required. Nothing in this Section 11 or any other provision of the Plan is intended to
provide any Participant with any right to consent to or object to any transaction that might result in a Change in Control
and each provision of the Plan shall be interpreted in a manner consistent with this intent. Similarly, nothing in this Section
11 or any other provision of the Plan is intended to provide any Participant with any right to consent to or object to any
action taken by the Board or Committee in connection with a Change in Control transaction.
11.4. Awards Subject to Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, unless
otherwise provided in the applicable Award Agreement, if any amount payable pursuant to an Award constitutes deferred
compensation (within the meaning of Section 409A of the Code), in the event of a Change in Control, to the extent provided
in this Section 11, any unvested but outstanding Awards shall automatically vest as of the date of such Change in Control
and shall not be subject to the forfeiture restrictions following such Change in Control; provided that, in the event that
such Change in Control does not qualify as an event described in Section 409A(a)(2)(A)(v) of the Code, such Awards (and
any other Awards that constitute deferred compensation that vested prior to the date of such Change in Control but are
outstanding as of such date) shall not be settled until the earliest permissible payment event under Section 409A of the
Code following such Change in Control.
SECTION 12
OTHER PROVISIONS APPLICABLE TO AWARDS
12.1. Award Agreements. All Awards shall be evidenced by an Award Agreement. The Award Agreement shall
include such terms and provisions as the Committee determines appropriate including non-solicitation provisions, non-
competition provisions, confidentiality provisions and other restrictive covenants the Committee deems appropriate. The
terms of the Award Agreement may vary depending on the type of Award, the employee or classification of the employee
to whom the Award is made and such other factors as the Committee deems appropriate.
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Termination of Employment or Service. Subject to the provisions of the Plan, the Committee shall determine
12.2.
and set forth in the applicable Award Agreement the extent to which a Participant shall have the right to retain and/or
exercise an Award following a Termination of Employment or Termination of Service. Such provisions need not be
uniform among all types of Awards and may reflect distinctions based on the reasons for such terminations, including
death, Disability, a termination for Cause or reasons relating to the breach or threatened breach of restrictive covenants.
12.3.
Form of Payment. Subject to the provisions of the Plan, the Award Agreement and any applicable law, payments
or transfers to be made by the Company or any Affiliate on the grant, exercise, or settlement of any Award may be made
in such form as determined by the Committee including cash, Stock, other Awards, or other property, or any combination
thereof, and may be made in a single payment or transfer, in installments, or any combination thereof, in each case
determined by rules adopted by the Committee.
12.4.
Limits on Transfer.
a.
General. Except as provided in Section 6.1(f), Section 7.1(f), Section 12.4(b) or Section 12.5, no Award
may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution or, if applicable, until the expiration of any period during which any restrictions
are applicable or any Performance Period as determined by the Committee.
b.
Transfer to Family Members. The Committee shall have the authority to adopt a written policy that is
applicable to existing Awards, new Awards, or both, which permits a Participant to transfer Awards during his
or her lifetime to any Family Member. In the event an Award is transferred as permitted by such policy, such
transferred Award may not be subsequently transferred by the transferee (other than another transfer meeting the
conditions set forth in the policy) except by will or the laws of descent and distribution. A transferred Award shall
continue to be governed by and subject to the terms and limitations of the Plan and relevant Award Agreement,
and the transferee shall be entitled to the same rights as the Participant, as if the transfer had not taken place.
12.5.
Beneficiaries. Notwithstanding Section 12.4(a), a Participant may, in the manner determined by the Committee,
designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award
upon the Participant’s death, and in accordance with Section 6.2(c)(iii), upon the Participant’s Disability. A beneficiary,
legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and
conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award
Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no
beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant
to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be
changed or revoked by a Participant at any time provided the change or revocation is provided to the Committee.
12.6.
Evidence of Ownership. Notwithstanding anything herein to the contrary, the Company shall not be required to
issue or deliver any certificates, make any book entry credits, or take any other action to evidence shares of Stock pursuant
to the exercise of any Award, unless and until the Company has determined, with advice of counsel, that the issuance and
delivery of such certificates, book entry credits, or other evidence of ownership is in compliance with all applicable laws,
regulations of governmental authorities and, if applicable, the requirements of any exchange or quotation system on which
the shares of Stock are listed, quoted or traded. All Stock certificates, book entry credits, or other evidence of ownership
delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Company deems necessary
or advisable to comply with federal, state, local, or foreign jurisdiction, securities or other laws, rules and regulations and
the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded.
The Company may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to
the terms and conditions provided herein, the Company may require that a Participant make such reasonable covenants,
agreements, and representations as the Company, in its discretion, deems advisable in order to comply with any such laws,
regulations, or requirements. No Participant shall, with respect to any Award, make the election described in Section
83(b) of the Code without the prior written consent of the Company.
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12.7. Clawback. Every Award issued pursuant to the Plan is subject to potential forfeiture or recovery to the fullest
extent called for by law, any applicable listing standard, or any current or future clawback policy that may be adopted by
the Company from time to time, including the Company’s clawback policy adopted pursuant to Rule 10D-1 of the
Exchange Act and the applicable NASDAQ Stock Market listing standards implementing such rule as may be amended
from time to time. By accepting an Award, each Participant consents to the potential forfeiture or recovery of his or her
Awards pursuant to applicable law, listing standard, and/or Company clawback policy, and agrees to be bound by and
comply with the clawback policy and to return the full amount required by the clawback policy. As a condition to the
receipt of any Award, a Participant may be required to execute any requested additional documents consenting to and
agreeing to abide by the Company clawback policy as it may be amended from time to time.
12.8.
by and comply with the Company’s stock ownership guidelines as such guidelines may be amended from time to time.
Stock Ownership Guidelines. By accepting an Award, each Participant who is subject thereto agrees to be bound
12.9. Minimum Vesting Requirement. Subject to Sections 4.2 and 5.3(c), no Award shall vest in full prior to the
12-month anniversary of the Date of Grant.
12.10. Dividend Equivalents. In no event shall any dividend equivalent award vest or be paid prior to the vesting of the
corresponding Award and such dividend equivalent awards shall only be paid to the Participant if and to the extent that
the Award vests and becomes nonforfeitable. Notwithstanding the foregoing, the Committee may determine that upon the
vesting of any dividend equivalent award, such vested dividend equivalent award may be applied to partially offset a
portion of the taxation obligation incurred pursuant to the vesting and/or settlement of the underlying Award.
SECTION 13
AMENDMENT, MODIFICATION, AND TERMINATION
13.1. Amendment, Modification and Termination of the Plan. The Board may at any time, and from time to time,
terminate, amend or modify the Plan; provided, however, that any such action of the Board shall be subject to approval of
the shareholders to the extent required by law, regulation or the rules of any exchange on which shares of Stock are listed.
Notwithstanding the above, to the extent permitted by law and the Company’s charters (including the charter of the
Committee), the Board may delegate to the Committee or the CEO the authority to approve immaterial amendments to the
Plan. Except as provided in Section 5.4, neither the Board, the CEO, nor the Committee may, without the approval of the
shareholders: (a) reduce the exercise price or base value of any outstanding Award, including any Option or SAR;
(b) increase the number of shares available under the Plan; (c) grant Options or SARs with an exercise price or base value
that is below Fair Market Value on the Date of Grant; (d) reprice previously granted Options or SARs or take any action
relative to any Options or SARs that would be treated as a repricing under applicable NASDAQ Listing Rules (or the rules
of any exchange on which the Stock is then listed); (e) cancel any Option or SAR in exchange for cash or any other Award
or in exchange for any Option or SAR with an exercise price or base value that is less than the exercise price or base value
for the original Option or SAR; (f) extend the exercise period or term of any Option or SAR beyond ten (10) years from
the Date of Grant; (g) expand the types of Award available for grant under the Plan; or (h) expand the class of individuals
eligible to participant in the Plan.
13.2. Awards Previously Granted. No amendment, modification, or termination of the Plan or any Award under the
Plan shall in any manner adversely affect in any material way the rights of the holder under any Award previously granted
pursuant to the Plan without the prior written consent of the holder of the Award. Such consent shall not be required if the
change: (a) is required by law or regulation; (b) does not adversely affect in any material way the rights of the holder; (c) is
required to cause the benefits under the Plan to comply with the requirements of Section 409A of the Code; or (d) is made
pursuant to any adjustment described in Section 5.4.
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SECTION 14
TAX WITHHOLDING
The Company shall have the power to withhold, or require a Participant to remit to the Company, up to the
maximum statutory amount necessary, in the applicable jurisdiction, to satisfy any federal, state, local or foreign taxes
required to be withheld or otherwise due in respect of any Award; provided that the amount of withholding will reflect the
required minimum amount necessary to satisfy taxes if withholding at the minimum amount is necessary to avoid adverse
accounting consequences. The Committee may, in its sole discretion, permit or require the Participant to satisfy a tax
withholding obligation by: (a) directing the Company to withhold shares of Stock, or sell shares of Stock, to which the
Participant is entitled pursuant to the Award in an amount sufficient to cover the amount of taxes to be withheld (as such
withholding amount may be determined by the Committee or, if and to the extent the Committee may allow, elected by
the Participant, based on a withholding rate no less than the Participant’s minimum statutory tax withholding rate and no
greater than the maximum statutory tax rate, in each case, applicable in the Participant’s jurisdiction(s)) (in a manner
limited so as to avoid adverse accounting treatment for the Company and permitted under applicable withholding rules
promulgated by the U.S. Internal Revenue Service or other applicable governmental entity in a Participant’s
jurisdiction(s)); (b) tendering previously-owned shares of Stock held by the Participant for six (6) months or longer (in a
manner limited so as to avoid adverse accounting treatment for the Company) to satisfy the Company’s applicable federal,
state, local, or foreign income and employment tax withholding obligations with respect to the Participant (which holding
period may be waived in accordance with Section 6.1(d)); (c) a broker-assisted “cashless” transaction (in a manner limited
so as to avoid adverse accounting treatment for the Company); or (d) funding the Participant’s E*TRADE account;
provided that, in the event shares of Stock are withheld in connection with the vesting of an Award of Restricted Stock,
such withheld shares of Stock shall be immediately canceled by the Company and shall not constitute treasury shares.
SECTION 15
INDEMNIFICATION
Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may
be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against
and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding against him or her; provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend
it on his or her behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification
to which such person may be entitled under the Company’s articles of incorporation, bylaws, resolution or agreement, as
a matter of law, or otherwise.
SECTION 16
GENERAL PROVISIONS
16.1. No Rights to Awards. No Participant or other person shall have any claim to be granted any Award and neither
the Company nor the Committee is obligated to treat Participants and other persons uniformly.
16.2. Continued Employment. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way
the right of the Company or any Affiliate to terminate any Participant’s employment or service at any time, nor confer
upon any Participant any right to continue in the employ or service of the Company.
16.3.
Funding. The Company shall not be required to segregate any of its assets to ensure the payment of any Award
under the Plan. Neither the Participant nor any other persons shall have any interest in any fund or in any specific asset or
assets of the Company or any other entity by reason of any Award, except to the extent expressly provided hereunder. The
interests of each Participant and former Participant hereunder are unsecured and shall be subject to the general creditors
of the Company.
16.4.
Expenses. The expenses of administering the Plan shall be borne by the Company.
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16.5. No Stockholders Rights. No Award gives the Participant any of the rights of a shareholder of the Company
unless and until shares of Stock are in fact issued to such person in connection with such Award.
16.6.
Titles and Headings. The titles and headings of the Sections in the Plan and any Award Agreement are for
convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings,
shall control.
16.7.
Successors and Assigns. The Plan and any Award Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of the Company, including whether by way of merger, consolidation, operation of
law, assignment, purchase, or other acquisition of substantially all of the assets or business of the Company, and any and
all such successors and assigns shall absolutely and unconditionally assume all of the Company’s obligations under the
Plan.
Survival of Provisions. The rights, remedies, agreements, obligations and covenants contained in or made
16.8.
pursuant to the Plan, any Award Agreement, and any other notices or agreements in connection therewith, shall survive
the execution and delivery of such notices and agreements and the delivery and receipt of such shares of Stock.
16.9. Requirements of Law. The granting of Awards and the issuance of shares and/or cash under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. The Company shall be under no obligation to register pursuant to the Securities
Act, any of the shares of Stock paid pursuant to the Plan. If the shares of Stock paid pursuant to the Plan may in certain
circumstances be exempt from registration pursuant to the Securities Act, the Company may restrict the transfer of such
shares in such manner as it deems advisable to ensure the availability of any such exemption. The Committee shall impose
such restrictions on any Award as it may deem advisable, including restrictions under applicable federal securities law,
under the requirements of the NASDAQ (or any other exchange upon which the Stock is then traded), and under any other
blue sky or state securities law applicable to such Award.
16.10. Governing Law. The Plan shall be governed and construed in accordance with the laws of the State of Delaware,
and the rights and obligations of any and all persons having or claiming to have had an interest under the Plan or any
Award Agreement shall be governed by and construed exclusively and solely in accordance with the laws of the State of
Delaware without regard to the conflict of laws provisions of any jurisdictions. All parties agree to submit to the jurisdiction
of the state and federal courts of Arizona with respect to matters relating to the Plan and any Award and agree not to raise
or assert the defense that such forum is not convenient for such party. The Plan is an unfunded performance-based bonus
plan for a select group of management or highly compensated employees and is not intended to be either an employee
pension or welfare benefit plan subject to ERISA.
16.11. Securities Law Compliance. With respect to any Participant who is, on the relevant date, obligated to file reports
pursuant to Section 16 of the Exchange Act, transactions pursuant to the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors pursuant to the Exchange Act. Notwithstanding any other provision of the Plan
or any Award Agreement, the Committee may impose such conditions on the exercise of any Award as may be required
to satisfy the requirements of Rule 16b-3 or its successors pursuant to the Exchange Act. To the extent any provision of
the Plan or Award Agreement or action by the Committee fails to so comply, it shall be void to the extent permitted by
law and voidable as deemed advisable by the Committee.
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16.12. Section 409A of the Code.
a.
General Compliance. Some of the Awards that may be granted pursuant to the Plan (including
Restricted Stock Unit Awards, Performance Share Awards, Performance Share Unit Awards, Performance Cash
and Stock Unit Awards) may be considered to be “non-qualified deferred compensation” subject to Section 409A
of the Code. If an Award is subject to Section 409A of the Code, the Company intends (but cannot and does not
guarantee) that the Award Agreement and the Plan comply with and meet all of the requirements of Section 409A
of the Code or an exception thereto and the Award Agreement shall include such provisions, in addition to the
provisions of the Plan, as may be necessary to assure compliance with Section 409A of the Code or an exception
thereto. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties
that may be imposed on the Participant or for the Participant’s account in connection with any Award (including
any taxes and penalties under Section 409A of the Code), and the Company shall have no obligation to indemnify
or otherwise hold a Participant harmless from any or all of such taxes or penalties. The Company makes no
representations concerning the tax consequences of receipt of any Award under Section 409A or any other U.S.
federal, state or local tax law.
b.
Delay for Specified Employees. If, at the time of a Participant’s “separation from service” (as defined
in Treasury Regulation Section 1.409A-1(h)), the Company has any Stock which is publicly traded on an
established securities market or otherwise, and if the Participant is considered to be a Specified Employee, to the
extent any payment for any Award is subject to the requirements of Section 409A of the Code and is payable
upon the Participant’s separation from service, such payment shall not commence prior to the first business day
following the date which is six (6) months after the Participant’s separation from service (or the date of the
Participant’s death if earlier than the end of the six (6) month period). Any amounts that would have been
distributed during such six (6) month period shall be distributed on the day following the expiration of the six
(6) month period.
Prohibition on Acceleration or Deferral. Under no circumstances may the time or schedule of any
c.
payment for any Award that is subject to the requirements of Section 409A of the Code be accelerated or subject
to further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued
pursuant to Section 409A of the Code. If the Company fails to make any payment pursuant to the payment
provisions applicable to an Award that is subject to Section 409A of the Code, either intentionally or
unintentionally, within the time period specified in such provisions, but the payment is made within the same
calendar year, such payment shall be treated as made within the specified time period. In addition, in the event of
a dispute with respect to any payment, such payment may be delayed in accordance with the regulations and other
guidance issued pursuant to Section 409A of the Code.
16.13. Section 280G of the Code. Notwithstanding any other provision in the Plan to the contrary, in the event that it
is determined (by the reasonable computation of an independent nationally recognized certified public accounting firm
that shall be selected by the Company prior to the applicable Change in Control) that the vesting of an Award, together
with the aggregate amount of any other payments, distributions, benefits and entitlements of any type payable by the
Company or any affiliate to a Participant or for a Participant’s benefit, in each case, could be considered “parachute
payments” within the meaning of Section 280G of the Code that, but for this Section 16.13, would be payable to the
Participant (such payments, the “Parachute Payments”), exceeds the greatest amount of Parachute Payments that could be
paid to the Participant without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (or any
successor provision thereto) or any similar tax imposed by state or local law, or any interest or penalties with respect to
such tax (such tax or taxes, together with any such interest or penalties, collectively referred to as the “Excise Tax”), then
the aggregate amount of Parachute Payments payable to the Participant shall not exceed the amount which produces the
greatest after-tax benefit to the Participant after taking into account any Excise Tax to be payable by the Participant. For
the avoidance of doubt, this provision shall reduce the amount of Parachute Payments otherwise payable to a Participant,
if doing so would place the Participant in a more favorable net after-tax economic position as compared with not reducing
the amount of Parachute Payments (taking into account the Excise Tax payable in respect of such Parachute
Payments). Parachute Payments shall be reduced by first reducing amounts considered to be non-qualified deferred
compensation subject to Section 409A of the Code; provided that in no event may the Parachute Payments be reduced in
a manner that would subject a Participant to additional taxation under Section 409A of the Code.
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GLOSSARY
a.
“Affiliate” means any member of a “controlled group of corporations” (within the meaning of Section 414(b) of
the Code as modified by Section 415(h) of the Code) that includes the Company as a member of the group. In applying
Sections 1563(a)(1), (2) and (3) of the Code for purposes of determining the members of a controlled group of corporations
under Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each
place it appears in Sections 1563(a)(1), (2) and (3).
b.
“Award” means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Grant
Award, Stock Unit, Performance Share, Performance Share Unit, or Performance Cash granted to a Participant under the
Plan.
c.
“Award Agreement” means any written agreement, contract, or other instrument or document, including an
electronic agreement or document, evidencing an Award, which may (but need not) require Participant’s signature or
electronic acknowledgment.
d.
“Board” means the Board of Directors of the Company, as constituted from time to time.
e.
Award Agreement, means any of the following:
“Cause” unless otherwise defined in an employment agreement between the Participant and the Company or
i.
misrepresentation, theft or embezzlement of Company assets;
the Participant’s commission of, or assistance to or conspiracy with others to commit, fraud,
ii.
applicable law or of Company policy;
the Participant’s violation, or assistance to or conspiracy with others to commit any violation, of
iii.
duties or duties as a Non-Employee Director; or
the Participant’s repeated insubordination or failure to substantially perform his or her employment
iv.
customers or partners, or any employees, representatives or agents of any such parties.
the Participant’s engagement in conduct that is injurious to the Company, any Affiliate or the Company’s
f.
g.
“CEO” means the Chief Executive Officer of the Company.
“Change in Control” means any of the following:
i.
The consummation of (A) a merger, consolidation, statutory share exchange or similar form of
transaction involving (x) the Company or (y) any of its Subsidiaries, but in the case of this clause (y), only if
Company Voting Securities (as defined below) are issued or issuable (a “Reorganization”), or (B) the sale,
transfer or other similar disposition of all or substantially all the assets of the Company to any Person or Persons,
(other than (1) any disposition to an Affiliate or (2) any dividend or distribution of assets (including the stock of
any Affiliate) to the shareholders of the Company) (a “Sale”), unless immediately following such Reorganization
or Sale, (x) all or substantially all the Persons who were the “beneficial owners” (as used in Rule 13d 3 under the
Exchange Act (or a successor rule thereto)) of the securities eligible to vote for the election of the Board
(“Company Voting Securities”) outstanding immediately prior to the consummation of such Reorganization or
Sale continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities of the corporation or other entity resulting from such Reorganization or Sale
(including a corporation or other entity that, as a result of such transaction, owns the Company or all or
substantially all the Company’s assets either directly or through one or more subsidiaries) (the “Continuing
Company”) in substantially the same proportions as their ownership, immediately prior to the consummation of
such Reorganization or Sale, of the outstanding Company Voting Securities (excluding, for such purposes, any
outstanding voting securities of the Continuing Company that such beneficial owners hold immediately following
the consummation of the Reorganization or Sale as a result of their ownership prior to such consummation of
voting securities of any corporation or other entity involved in or forming part of such Reorganization or Sale
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other than the Company), (y) no Person (excluding any employee benefit plan (or related trust) sponsored or
maintained by the Continuing Company or any entity controlled by the Continuing Company) beneficially owns,
directly or indirectly, 30% or more of the combined voting power of the then outstanding voting securities of the
Continuing Company and (z) at least a majority of the members of the board of directors of the Continuing
Company were Incumbent Directors (as defined below) at the time of the execution of the definitive agreement
providing for such Reorganization or Sale or, in the absence of such an agreement, at the time at which approval
of the Board was obtained for such Reorganization or Sale;
ii.
any Person, corporation or other entity (other than (A) the Company or (B) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or an Affiliate) becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of
the Company Voting Securities; provided, however, that, for purposes of this subparagraph (ii), the following
acquisitions shall not constitute a Change in Control: any acquisition (x) directly from the Company, (y) by an
underwriter temporarily holding such Company Voting Securities pursuant to an offering of such securities or
any acquisition by a pledgee of Company Voting Securities holding such securities as collateral or temporarily
holding such securities upon foreclosure of the underlying obligation or (z) pursuant to a Reorganization or Sale
that does not constitute a Change in Control for purposes of subparagraph (i) above;
the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company,
iii.
unless such liquidation or dissolution is part of a transaction or series of transactions described in subparagraph
(i) above that does not otherwise constitute a Change in Control; or
during any period of twenty-four (24) consecutive calendar months, individuals who were Directors on
iv.
the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the non-
employee members of the Board, provided that any person becoming a Director subsequent to the first day of
such period whose election, or nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the Incumbent Directors shall be deemed to be an Incumbent Director; provided, further,
that no such individual shall be an Incumbent Director if such individual’s initial assumption of office occurs as
a result of, or in connection with, (A) an actual or threatened proxy contest with respect to the election or removal
of Directors, (B) actual or threatened solicitation of proxies or consents by or on behalf of any person or persons
(whether or not acting in concert) other than the Board or (C) agreement with any Person or Persons (whether or
not acting in concert) to avoid or settle any such contest or solicitation.
h.
provisions and regulations thereto.
“Code” means the Internal Revenue Code of 1986, as amended, including regulations thereunder and successor
i.
“Committee”, except as set forth in Section 4.1, means the Compensation Committee of the Board.
j.
“Consultant” means a consultant or adviser that (i) provides bona fide services to the Company or an Affiliate as
an independent contractor and not as an employee; (ii) is a natural person; and (iii) does not provide services in connection
with the offer or sale of the Company’s securities in a capital-raising transaction and does not directly or indirectly promote
or maintain a market for the Company’s securities.
k.
determines the Award shall become effective.
“Date of Grant” means the date the Committee approves the Award or a date in the future on which the Committee
l.
the Board.
“Director” means any non-employee member of the Board, but solely in his or her capacity as such a member of
m.
“Disability” means the inability of a Participant to engage in any substantially gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months. The permanence and degree of impairment shall be
supported by medical evidence. To the extent an Award subject to Section 409A of the Code shall become payable upon
a Participant’s Disability, a Disability shall not be deemed to have occurred for such purposes unless the circumstances
would also result in a “disability” within the meaning of Section 409A of the Code, unless otherwise provided in an Award
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Agreement. For purposes of an Incentive Stock Option, “Disability” shall have the meaning ascribed to it in Section
22(e)(3) of the Code.
n.
thereunder and successor provisions and regulations thereto.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, including regulations
o.
successor provisions and regulations thereto.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, including regulations thereunder and
“Fair Market Value” means, as of any date, the closing price for one share of Stock as reported on the NASDAQ
p.
(or any other exchange on which the Stock is then listed) for that date or, if no prices are reported for that date, the closing
price on the last day on which such prices were reported.
“Family Member” means a Participant’s spouse and any parent, stepparent, grandparent, child, stepchild, or
q.
grandchild, including adoptive relationships or a trust or any other entity in which these persons (or the Participant) have
more than 50% of the beneficial interest.
r.
or any successor provision thereto.
“Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code
s.
t.
“Non-Employee Director” means a member of the Board who is not a common-law employee of the Company.
“Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.
u.
Option or a Non-Qualified Stock Option.
“Option” means a right granted to a Participant under Section 6. An Option may be either an Incentive Stock
v.
w.
“Participant” means a person who has been granted an Award.
“Performance Cash” means a right granted to a Participant pursuant to Section 10.
x.
“Performance Goals” means, for a Performance Period, the goals established by the Committee for such
Performance Period. The Performance Goals may be expressed in terms of overall Company performance or the
performance of a division, business unit or an individual. The Performance Goals may be stated in terms of absolute levels
or relative to another company or companies or to an index or indices.
y.
“Performance Period” means one or more periods of time, which may be of varying and overlapping durations,
as the Committee may select, over which the attainment of one or more Performance Goals shall be measured for the
purpose of determining a Participant’s right to, and the payment of, an Award.
z.
“Performance Share” means Stock granted to a Participant under Section 10.
aa.
“Performance Share Unit” means a right granted to a Participant under Section 10.
bb.
Act.
“Person” means a “person” or “group” within the meaning of Sections 3(a)(9), 13(d) and 14(d) of the Exchange
“Prior Plan” means each of the Axon Enterprise, Inc. 2019 Stock Incentive Plan, the Axon Enterprise, Inc. 2018
cc.
Stock Incentive Plan and any other similar plan adopted by the Company at any time in the past, which has not yet lapsed
or expired.
dd.
“Restricted Stock” means Stock granted to a Participant under Section 8.
ee.
“Restricted Stock Unit” means a right granted to a Participant under Section 8.
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ff.
provisions and regulations thereto.
“Securities Act” means the Securities Act of 1933, as amended, including regulations thereunder and successor
gg.
Treasury Regulation Section 1.409A-1(i).
“Specified Employee” means certain officers and highly compensated employees of the Company as defined in
hh.
Company that may be substituted for Stock pursuant to Section 5.
“Stock” means the common stock of the Company, par value $0.00001 per share, and such other securities of the
ii.
jj.
“Stock Appreciation Right” or “SAR” means a right granted to a Participant under Section 7.
“Stock Grant Award” means a right granted to a Participant under Section 9.
kk.
“Stock Unit” means a right granted to a Participant under Section 9.
ll.
combined voting power of all classes of its stock.
“Subsidiary” means any entity in which the Company, directly or indirectly, possesses 50% or more of the total
mm.
“Termination of Employment” or “Termination of Service” means the cessation of performance of services for
the Company. For this purpose, the transfer of a Participant among the Company and any Affiliate, or transfer from a
position as a member of the Board to employee, shall not be considered a Termination of Service or a Termination of
Employment with the Company. In the context of an Award that is subject to the requirements of Section 409A of the
Code, the terms “Termination of Service” and “Termination of Employment” mean a “separation from service” (as defined
in Treasury Regulation Section 1.409A-1(h)).
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AXON ENTERPRISE, INC.
2024 EXPONENTIAL STOCK PLAN
ANNEX B
SECTION 1
ESTABLISHMENT, PURPOSE, EFFECTIVE DATE, EXPIRATION DATE
1.1.
Enterprise, Inc. 2024 eXponential Stock Plan (the “Plan”).
Establishment. Axon Enterprise, Inc., a Delaware corporation (the “Company”), hereby establishes the Axon
1.2.
Purpose. The purpose of the Plan is to advance the interests of the Company and its shareholders by enhancing
the Company’s ability to attract and retain qualified persons to perform services for the Company, by providing incentives
to such persons to put forth maximum efforts for the Company and by rewarding persons who contribute to the
achievement of the Company’s economic objectives. To further these objectives, the Plan provides for the grant of
eXponential Stock Units.
1.3.
2024 Annual Meeting of Shareholders (the “Effective Date”).
Effective Date. The Plan shall become effective on the date it is approved by the shareholders at the Company’s
1.4.
Expiration Date. The Plan shall expire on, and no Award may be granted under the Plan after, the tenth (10th)
anniversary of the Effective Date (the “Expiration Date”). Any Awards that are outstanding on the Expiration Date shall
remain in force according to the terms of the Plan and the applicable Award Agreement.
SECTION 2
GLOSSARY AND INTERPRETATION
2.1.
Glossary, which is incorporated into and is part of the Plan.
Glossary. Capitalized words used but not defined herein shall be given the meaning ascribed to it in the attached
Interpretation. Pronouns and other words of gender shall be read as gender-neutral. The singular shall include
2.2.
the plural and the plural shall include the singular. The words “include”, “includes” or “including” shall be deemed to be
followed by the words “without limitation”. If any provision of this Plan is determined to be for any reason invalid or
unenforceable, the remaining provisions shall continue in full force and effect.
SECTION 3
ELIGIBILITY AND PARTICIPATION
General Eligibility. Persons eligible to participate in the Plan consist of all employees and officers of, and
3.1.
Consultants to, the Company or any Affiliate. Awards may also be granted to prospective employees but no portion of any
such Award shall vest, become exercisable, be issued, or become effective prior to the date on which such individual
begins to provide services to the Company or its Affiliates.
Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from
3.2.
among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each
Award.
B-1
SECTION 4
ADMINISTRATION
4.1.
General. The Plan shall be administered by the Committee. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations as it may deem necessary or
advisable to administer the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the
interests of the Company, and to make all other determinations necessary or advisable for the administration of the Plan,
but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions
made or taken by the Committee in good faith pursuant to the provisions of the Plan shall be final, binding and conclusive
for all purposes of the Plan.
4.2.
Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have the authority to:
(a) designate the Participants who are entitled to receive Awards under the Plan; (b) determine the times when Awards
shall be granted; (c) determine the number of Awards to be granted and the number of shares of Stock to which an Award
shall relate; (d) determine the terms and conditions of any Award, including the grant price; (e) determine any restrictions
or limitations on the Award, any schedule for lapse of restrictions or limitations, and accelerations or waivers thereof,
based in each case on such considerations as the Committee determines; (f) determine whether, to what extent, and in what
circumstances an Award may be settled in cash, Stock or other property, or whether an Award may be canceled, forfeited,
exchanged or surrendered; (g) prescribe the form of each Award Agreement, which need not be the same for each
Participant; (h) decide all other matters that must be determined in connection with an Award; (i) interpret the terms of,
and determine any matter arising pursuant to, the Plan or any Award Agreement; (j) make any other decisions or
determinations that may be required pursuant to the Plan or an Award Agreement as the Committee deems necessary or
advisable to administer the Plan, including establishing, adopting or revising any rules and regulations as it deems
necessary or advisable to administer the Plan; and (k) correct any defects and reconcile any inconsistencies in the Plan or
any Award Agreement. The Committee shall also have the authority to modify existing Awards to the extent that such
modification is within the power and authority of the Committee as set forth in the Plan. The foregoing list of powers is
not intended to be complete or exclusive and, to the extent not contrary to the express provisions of the Plan, the Committee
shall have such powers, whether or not expressly set forth in the Plan, that it may determine necessary or appropriate to
administer the Plan.
4.3.
Decisions Final. The Committee’s interpretation of the Plan and any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan and the Award Agreements are final, binding and conclusive on
all parties. All authority of the Committee with respect to Awards issued pursuant to the Plan, including the authority to
amend outstanding Awards, shall continue after the termination of the Plan so long as any Award remains outstanding.
Any action authorized to be taken by the Committee pursuant to the Plan may be taken or not taken by the Committee as
long as such action or decision not to act is not inconsistent with a provision of the Plan. No member of the Committee
shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the
Plan.
Delegation to CEO. The Committee may, in its discretion, delegate to the CEO, in writing, the power and
4.4.
authority to grant Awards to individuals (other than to employees who are or may become, upon hiring, employees subject
to Section 16 of the Exchange Act) to expedite the hiring process or to retain talented employees. The Committee’s
delegation to the CEO may be revoked or modified at any time. Any such delegation must be consistent with applicable
law and shall be subject to such restrictions or limitations as may be imposed by the Committee and must, at a minimum,
specify the total number of shares of Stock subject to such Awards and the vesting schedule applicable to such Awards.
SECTION 5
SHARES AVAILABLE FOR GRANT
5.1.
Number of Shares. Subject to adjustment as provided in Section 5.3, the aggregate number of shares of Stock
reserved and available for grant pursuant to the Plan shall be 4,516,370. The shares of Stock delivered pursuant to any
Award may consist, in whole or in part, of authorized but unissued Stock, treasury Stock not reserved for any other
purposes, or Stock purchased on the open market.
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5.2.
Stock available for grant under the Plan at any given time:
Share Counting. The following rules shall apply solely for purposes of determining the number of shares of
a.
for each share subject to Awards granted under the Plan.
The number of shares of Stock available for grant under the Plan shall be reduced by one share of Stock
b.
In the event any Award granted under the Plan is terminated, expired, forfeited, or canceled for any
reason, the number of shares of Stock subject to such Award, to the extent of any such termination, expiration,
forfeiture, or cancellation, shall again be available for grant under the Plan.
c.
If shares of Stock are not delivered in connection with an Award because the Award is settled in cash
rather than in Stock, no shares of Stock shall be counted against the limit set forth in Section 5.1. If an Award
may be settled in cash or Stock, the rules set forth in Section 5.2(a) shall apply until the Award is settled, at which
time, if the Award is settled in cash, the underlying shares of Stock shall be added back to the shares available
for grant pursuant to Section 5.1.
d.
obligation arising in connection with an Award shall again become available for grant under the Plan.
Shares of Stock tendered, withheld or otherwise relinquished by a Participant to satisfy a tax withholding
5.3.
Adjustment in Capitalization. Except as otherwise provided in an applicable Award Agreement, in the event of
any change in the outstanding shares of Stock by reason of a stock dividend or split, split-up or spin-off, extraordinary
dividend or other extraordinary distribution (whether in the form of cash, Stock or other property), Change in Control,
recapitalization, rights offering, liquidation, merger, consolidation, combination, exchange of shares, or other similar
corporate change or event in respect of the Stock, the Committee shall equitably adjust, in the manner the Committee
determines appropriate, any or all of: (a) the number and class of shares of Stock made available for grant pursuant to
Section 5.1; (b) any numeric or share-based limit expressed in the Plan; (c) the number and class of and/or price of shares
of Stock subject to then outstanding Awards; (d) the performance period, performance targets and/or other goals applicable
to any outstanding Awards; or (e) any other terms of an Award that are affected by the event. Moreover, in the event of
any such transaction described in the preceding sentence, except as otherwise provided in an applicable Award Agreement,
the Committee, in its discretion, may provide in substitution for any or all outstanding Awards such alternative
consideration (including cash) as it, in good faith, may determine, including making provision for a cash payment to the
holder of an outstanding Award in consideration for the cancelation of such Award. Any action taken pursuant to this
Section 5.3 shall be taken in a manner consistent with the requirements of Section 409A of the Code. The adjustments
permitted under this Section 5.3 shall be binding on all Participants without their consent or further action thereby.
Fractional Shares. No fractional shares of Stock shall be issued pursuant to the Plan. Unless the Committee
5.4.
specifies otherwise in the Award Agreement, or pursuant to any policy adopted by the Committee, cash shall be given in
lieu of fractional shares. In the event of adjustment as provided in Section 5.3, the total number of shares of Stock subject
to any affected Award shall always be a whole number by rounding any fractional share to a whole share in a manner that
complies with Section 409A.
SECTION 6
EXPONENTIAL STOCK UNITS
6.1.
eXponential Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from
time to time, may grant eXponential Stock Units to one or more Participants upon such terms and conditions, and in such
amounts, as shall be determined by the Committee. An eXponential Stock Unit is a performance-based restricted stock
unit that grants the Participant the right to receive a specified number of shares of Stock or a cash payment equal to the
Fair Market Value (determined as of a specified date) of a specified number of shares of Stock depending on the satisfaction
of any one or more Performance Goals. Performance may be measured on a specified date or dates or over any period or
periods determined by the Committee. At the discretion of the Committee, the Award Agreement may provide for payment
for vested eXponential Stock Units in cash, shares of Stock of equivalent cash value, or in a combination thereof.
6.2.
Performance Goals. The Performance Goal or Goals applicable to any eXponential Stock Unit awards shall be
specified by the Committee in the Award Agreement. The Committee shall retain the power to adjust the Performance
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Goals, the level of attainment of the Performance Goals or otherwise increase or decrease the amount payable with respect
to any Award made pursuant to this Section 6.
SECTION 7
CHANGE IN CONTROL
Upon a Change in Control, each Award shall be treated as provided in the applicable Award Agreement. Nothing
in the Plan is intended to provide any Participant with any right to consent to or object to any transaction that might result
in a Change in Control and each provision of the Plan shall be interpreted in a manner consistent with this intent. Similarly,
nothing in the Plan is intended to provide any Participant with any right to consent to or object to any action taken by the
Board or Committee in connection with a Change in Control transaction.
SECTION 8
OTHER PROVISIONS APPLICABLE TO AWARDS
8.1.
Award Agreements. All Awards shall be evidenced by an Award Agreement. The Award Agreement shall
include such terms and provisions as the Committee determines appropriate including non-solicitation provisions, non-
competition provisions, confidentiality provisions and other restrictive covenants the Committee deems appropriate. The
terms of the Award Agreement may vary depending on the type of Award, the employee or classification of the employee
to whom the Award is made and such other factors as the Committee deems appropriate.
8.2.
Termination of Employment or Service. Subject to the provisions of the Plan, the Committee shall determine
and set forth in the applicable Award Agreement the extent to which a Participant shall have the right to retain and/or
exercise an Award following a Termination of Employment or Termination of Service. Such provisions need not be
uniform among all types of Awards and may reflect distinctions based on the reasons for such terminations, including
death, Disability, a termination for Cause or reasons relating to the breach or threatened breach of restrictive covenants.
8.3.
Form of Payment. Subject to the provisions of the Plan, the Award Agreement and any applicable law, payments
or transfers to be made by the Company or any Affiliate on the grant or settlement of any Award may be made in such
form as determined by the Committee including cash, Stock, other Awards, or other property, or any combination thereof,
and may be made in a single payment or transfer, in installments, or any combination thereof, in each case determined by
rules adopted by the Committee.
8.4.
alienations or hypothecations as set forth in the applicable Award Agreement.
Limits on Transfer. All Awards will be subject to limitations on sales, transfers, pledges, assignments or other
8.5.
Beneficiaries. Notwithstanding any provisions in the Award Agreement to the contrary, a Participant may, in the
manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any
distribution with respect to any Award upon the Participant’s death and upon the Participant’s Disability. A beneficiary,
legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and
conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award
Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no
beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant
to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be
changed or revoked by a Participant at any time provided the change or revocation is provided to the Committee.
8.6.
Evidence of Ownership. Notwithstanding anything herein to the contrary, the Company shall not be required to
issue or deliver any certificates, make any book entry credits, or take any other action to evidence shares of Stock pursuant
to the exercise of any Award, unless and until the Company has determined, with advice of counsel, that the issuance and
delivery of such certificates, book entry credits, or other evidence of ownership is in compliance with all applicable laws,
regulations of governmental authorities and, if applicable, the requirements of any exchange or quotation system on which
the shares of Stock are listed, quoted or traded. All Stock certificates, book entry credits, or other evidence of ownership
delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Company deems necessary
or advisable to comply with Federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the
rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded.
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The Company may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to
the terms and conditions provided herein, the Company may require that a Participant make such reasonable covenants,
agreements, and representations as the Company, in its discretion, deems advisable in order to comply with any such laws,
regulations, or requirements. No Participant shall, with respect to any Award, make the election described in Section
83(b) of the Code without the prior written consent of the Company.
8.7.
Clawback. Every Award issued pursuant to the Plan is subject to potential forfeiture or recovery to the fullest
extent called for by law, any applicable listing standard, or any current or future clawback policy that may be adopted by
the Company from time to time, including Rule 10D-1 of the Exchange Act and the applicable NASDAQ Stock Market
listing standards implementing such rule as may be amended from time to time. By accepting an Award, each Participant
consents to the potential forfeiture or recovery of his or her Awards pursuant to applicable law, listing standard, and/or
Company clawback policy, and agrees to be bound by and comply with the clawback policy and to return the full amount
required by the clawback policy. As a condition to the receipt of any Award, a Participant may be required to execute any
requested additional documents consenting to and agreeing to abide by the Company clawback policy as it may be amended
from time to time.
8.8.
by and comply with the Company’s stock ownership guidelines as such guidelines may be amended from time to time.
Stock Ownership Guidelines. By accepting an Award, each Participant who is subject thereto agrees to be bound
8.9.
Dividend Equivalents. In no event shall any dividend equivalent award vest or be paid prior to the vesting of the
corresponding Award and such dividend equivalent awards shall only be paid to the Participant if and to the extent that
the Award vests and becomes nonforfeitable.
SECTION 9
AMENDMENT, MODIFICATION, AND TERMINATION
The Board may at any time, and from time to time, terminate, amend or modify the Plan; provided, however, that
any such action of the Board shall be subject to approval of the shareholders to the extent required by law, regulation or
any stock exchange rule for any exchange on which shares of Stock are listed. Notwithstanding the above, to the extent
permitted by law and the Company’s charters (including the charter of the Committee), the Board may delegate to the
Committee or the CEO the authority to approve immaterial amendments to the Plan. Except as provided in Section 5.3,
neither the Board, the CEO, nor the Committee may, without the approval of the shareholders: (a) increase the number of
shares available under the Plan; (b) expand the types of Award available for grant under the Plan; or (c) expand the class
of individuals eligible to participant in the Plan.
SECTION 10
TAX WITHHOLDING
The Company shall have the power to withhold, or require a Participant to remit to the Company, up to the
maximum statutory amount necessary, in the applicable jurisdiction, to satisfy any federal, state or local taxes required to
be withheld or otherwise due in respect of any Award; provided that the amount of withholding will reflect the required
minimum amount necessary to satisfy taxes if withholding at the minimum amount is necessary to avoid adverse
accounting consequences. The Committee may permit the Participant to satisfy a tax withholding obligation by:
(a) directing the Company to withhold shares of Stock to which the Participant is entitled pursuant to the Award in an
amount sufficient to cover the amount of taxes to be withheld (as such withholding amount may be determined by the
Committee or, if and to the extent the Committee may allow, elected by the Participant, based on a withholding rate no
less than the Participant’s minimum statutory tax withholding rate and no greater than the maximum statutory tax rate, in
each case, applicable in the Participant’s jurisdiction(s)) (in a manner limited so as to avoid adverse accounting treatment
for the Company and permitted under applicable withholding rules promulgated by the U.S. Internal Revenue Service or
other applicable governmental entity in a Participant’s jurisdiction(s)); (b) tendering previously-owned shares of Stock
held by the Participant for six (6) months or longer (in a manner limited so as to avoid adverse accounting treatment for
the Company) to satisfy the Company’s applicable federal, state, local, or foreign income and employment tax withholding
obligations with respect to the Participant; (c) a broker-assisted “cashless” transaction (in a manner limited so as to avoid
adverse accounting treatment for the Company); or (d) personal check or other cash equivalent acceptable to the Company.
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SECTION 11
INDEMNIFICATION
Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may
be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against
and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend
it on his or her behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification
to which such person may be entitled under the Company’s articles of incorporation, bylaws, resolution or agreement, as
a matter of law, or otherwise.
SECTION 12
GENERAL PROVISIONS
12.1. No Rights to Awards. No Participant or other person shall have any claim to be granted any Award and neither
the Company nor the Committee is obligated to treat Participants and other persons uniformly.
12.2. Continued Employment. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way
the right of the Company or any Affiliate to terminate any Participant’s employment or service at any time, nor confer
upon any Participant any right to continue in the employ or service of the Company.
12.3.
Funding. The Company shall not be required to segregate any of its assets to ensure the payment of any Award
under the Plan. Neither the Participant nor any other person shall have any interest in any fund or in any specific asset or
assets of the Company or any other entity by reason of any Award, except to the extent expressly provided hereunder. The
interests of each Participant and former Participant hereunder are unsecured and shall be subject to the general creditors
of the Company.
12.4.
Expenses. The expenses of administering the Plan shall be borne by the Company.
12.5. No Stockholders Rights. No Award gives the Participant any of the rights of a shareholder of the Company
unless and until shares of Stock are in fact issued to such person in connection with such Award.
Titles and Headings. The titles and headings of the Sections in the Plan and any Award Agreement are for
12.6.
convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings,
shall control.
Successors and Assigns. The Plan and any Award Agreement shall be binding upon and inure to the benefit of
12.7.
the successors and permitted assigns of the Company, including whether by way of merger, consolidation, operation of
law, assignment, purchase, or other acquisition of substantially all of the assets or business of the Company, and any and
all such successors and assigns shall absolutely and unconditionally assume all of the Company’s obligations under the
Plan.
12.8.
Survival of Provisions. The rights, remedies, agreements, obligations and covenants contained in or made
pursuant to the Plan, any Award Agreement, and any other notices or agreements in connection therewith, shall survive
the execution and delivery of such notices and agreements and the delivery and receipt of such shares of Stock.
12.9. Requirements of Law. The granting of Awards and the issuance of shares and/or cash under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. The Company shall be under no obligation to register pursuant to the Securities
Act, any of the shares of Stock paid pursuant to the Plan. If the shares of Stock paid pursuant to the Plan may in certain
circumstances be exempt from registration pursuant to the Securities Act, the Company may restrict the transfer of such
shares in such manner as it deems advisable to ensure the availability of any such exemption. The Committee shall impose
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such restrictions on any Award as it may deem advisable, including restrictions under applicable federal securities law,
under the requirements of the NASDAQ (or any other exchange upon which the Stock is then traded), and under any other
blue sky or state securities law applicable to such Award.
12.10. Governing Law. The Plan shall be governed and construed in accordance with the laws of the State of Delaware,
and the rights and obligations of any and all persons having or claiming to have had an interest under the Plan or any
Award Agreement shall be governed by and construed exclusively and solely in accordance with the laws of the State of
Delaware without regard to the conflict of laws provisions of any jurisdictions. All parties agree to submit to the jurisdiction
of the state and federal courts of Arizona with respect to matters relating to the Plan and any Award and agree not to raise
or assert the defense that such forum is not convenient for such party. The Plan is an unfunded performance- based bonus
plan and is not intended to be either an employee pension or welfare benefit plan subject to ERISA.
12.11. Securities Law Compliance. With respect to any Participant who is, on the relevant date, obligated to file reports
pursuant to Section 16 of the Exchange Act, transactions pursuant to the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors pursuant to the Exchange Act. Notwithstanding any other provision of the Plan
or any Award Agreement, the Committee may impose such conditions on the exercise of any Award as may be required
to satisfy the requirements of Rule 16b-3 or its successors pursuant to the Exchange Act. To the extent any provision of
the Plan or Award Agreement or action by the Committee fails to so comply, it shall be void to the extent permitted by
law and voidable as deemed advisable by the Committee.
12.12. Section 409A of the Code.
General Compliance. If an Award is subject to Section 409A of the Code, the Company intends (but
a.
cannot and does not guarantee) that the Award Agreement and the Plan comply with and meet all of the
requirements of Section 409A of the Code or an exception thereto and the Award Agreement shall include such
provisions, in addition to the provisions of the Plan, as may be necessary to assure compliance with Section 409A
of the Code or an exception thereto. In any case, a Participant shall be solely responsible and liable for the
satisfaction of all taxes and penalties that may be imposed on the Participant or for the Participant’s account in
connection with any Award (including any taxes and penalties under Section 409A of the Code), and the Company
shall have no obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or
penalties. The Company makes no representations concerning the tax consequences of receipt of any Award
under Section 409A or any other U.S. federal, state or local tax law.
b.
Delay for Specified Employees. If, at the time of a Participant’s “separation from service” (as defined
in Treasury Regulation Section 1.409A-1(h)), the Company has any Stock which is publicly traded on an
established securities market or otherwise, and if the Participant is considered to be a Specified Employee, to the
extent any payment for any Award is subject to the requirements of Section 409A of the Code and is payable
upon the Participant’s separation from service, such payment shall not commence prior to the first business day
following the date which is six (6) months after the Participant’s separation from service (or the date of the
Participant’s death if earlier than the end of the six (6) month period). Any amounts that would have been
distributed during such six-month period shall be distributed on the day following the expiration of the six
(6) month period.
Prohibition on Acceleration or Deferral. Under no circumstances may the time or schedule of any
c.
payment for any Award that is subject to the requirements of Section 409A of the Code be accelerated or subject
to further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued
pursuant to Section 409A of the Code. If the Company fails to make any payment pursuant to the payment
provisions applicable to an Award that is subject to Section 409A of the Code, either intentionally or
unintentionally, within the time period specified in such provisions, but the payment is made within the same
calendar year, such payment shall be treated as made within the specified time period. In addition, in the event of
a dispute with respect to any payment, such payment may be delayed in accordance with the regulations and other
guidance issued pursuant to Section 409A of the Code.
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12.13. Section 280G of the Code. Notwithstanding any other provision in the Plan to the contrary, in the event that it
is determined (by the reasonable computation of an independent nationally recognized certified public accounting firm
that shall be selected by the Company prior to the applicable Change in Control) that the vesting of an Award, together
with the aggregate amount of any other payments, distributions, benefits and entitlements of any type payable by the
Company or any affiliate to a Participant or for a Participant’s benefit, in each case, that could be considered “parachute
payments” within the meaning of Section 280G of the Code (such payments, the “Parachute Payments”) that, but for this
Section 12.13, would be payable to the Participant, exceeds the greatest amount of Parachute Payments that could be paid
to the Participant without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (or any
successor provision thereto) or any similar tax imposed by state or local law, or any interest or penalties with respect to
such tax (such tax or taxes, together with any such interest or penalties, collectively referred to as the “Excise Tax”), then
the aggregate amount of Parachute Payments payable to the Participant shall not exceed the amount which produces the
greatest after-tax benefit to the Participant after taking into account any Excise Tax to be payable by the Participant. For
the avoidance of doubt, this provision shall reduce the amount of Parachute Payments otherwise payable to a Participant,
if doing so would place the Participant in a more favorable net after-tax economic position as compared with not reducing
the amount of Parachute Payments (taking into account the Excise Tax payable in respect of such Parachute
Payments). Parachute Payments shall be reduced by first reducing amounts considered to be nonqualified deferred
compensation subject to Section 409A of the Code; provided that in no event may the Parachute Payments be reduced in
a manner that would subject a Participant to additional taxation under Section 409A of the Code.
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GLOSSARY
a.
“Affiliate” means any member of a “controlled group of corporations” (within the meaning of Section 414(b) of
the Code as modified by Section 415(h) of the Code) that includes the Company as a member of the group. In applying
Sections 1563(a)(1), (2) and (3) of the Code for purposes of determining the members of a controlled group of corporations
under Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each
place it appears in Sections 1563(a)(1), (2) and (3).
b.
“Award” means any eXponential Stock Unit granted to a Participant under the Plan.
c.
“Award Agreement” means any written agreement, contract, or other instrument or document, including an
electronic agreement or document, evidencing an Award, regardless of whether the Participant’s signature or
acknowledgment is required.
d.
“Board” means the Board of Directors of the Company, as constituted from time to time.
e.
Award Agreement, means any of the following:
“Cause” unless otherwise defined in an employment agreement between the Participant and the Company or
i.
misrepresentation, theft or embezzlement of Company assets;
the Participant’s commission of, or assistance to or conspiracy with others to commit, fraud,
ii.
applicable law or of Company policies;
the Participant’s violations, or assistance to or conspiracy with others to commit any violations, of
iii.
duties; or
the Participant’s repeated insubordination or failure to substantially perform his or her employment
iv.
customers or partners, or any employees, representatives or agents of any such parties.
the Participant’s engagement in conduct that is injurious to the Company, any Affiliate or the Company’s
f.
g.
“CEO” means the Chief Executive Officer of the Company.
“Change in Control” means any of the following:
i.
The consummation of (A) a merger, consolidation, statutory share exchange or similar form of
transaction involving (x) the Company or (y) any of its Subsidiaries, but in the case of this clause (y), only if
Company Voting Securities (as defined below) are issued or issuable (a “Reorganization”) or (B) the sale, transfer
or other similar disposition of all or substantially all the assets of the Company to any Person or Persons, (other
than (1) any disposition to an Affiliate or (2) any dividend or distribution of assets (including the stock of any
Affiliate) to the shareholders of the Company) (a “Sale”), unless immediately following such Reorganization or
Sale, (1) all or substantially all the Persons who were the “beneficial owners” (as used in Rule 13d 3 under the
Exchange Act (or a successor rule thereto)) of the securities eligible to vote for the election of the Board
(“Company Voting Securities”) outstanding immediately prior to the consummation of such Reorganization or
Sale continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities of the corporation or other entity resulting from such Reorganization or Sale
(including a corporation or other entity that, as a result of such transaction, owns the Company or all or
substantially all the Company’s assets either directly or through one or more subsidiaries) (the “Continuing
Company”) in substantially the same proportions as their ownership, immediately prior to the consummation of
such Reorganization or Sale, of the outstanding Company Voting Securities (excluding, for such purposes, any
outstanding voting securities of the Continuing Company that such beneficial owners hold immediately following
the consummation of the Reorganization or Sale as a result of their ownership prior to such consummation of
voting securities of any corporation or other entity involved in or forming part of such Reorganization or Sale
other than the Company), (2) no Person (excluding any employee benefit plan (or related trust) sponsored or
maintained by the Continuing Company or any entity controlled by the Continuing Company) beneficially owns,
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directly or indirectly, 30% or more of the combined voting power of the then outstanding voting securities of the
Continuing Company and (3) at least a majority of the members of the board of directors of the Continuing
Company were Incumbent Directors (as defined below) at the time of the execution of the definitive agreement
providing for such Reorganization or Sale or, in the absence of such an agreement, at the time at which approval
of the Board was obtained for such Reorganization or Sale;
ii.
any Person, corporation or other entity (other than (A) the Company or (B) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or an Affiliate) becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of
the Company Voting Securities; provided, however, that for purposes of this subparagraph (ii), the following
acquisitions shall not constitute a Change in Control: any acquisition (x) directly from the Company, (y) by an
underwriter temporarily holding such Company Voting Securities pursuant to an offering of such securities or
any acquisition by a pledgee of Company Voting Securities holding such securities as collateral or temporarily
holding such securities upon foreclosure of the underlying obligation or (z) pursuant to a Reorganization or Sale
that does not constitute a Change in Control for purposes of subparagraph (i) above;
iii.
the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company,
unless such liquidation or dissolution is part of a transaction or series of transactions described in subparagraph
(i) above that does not otherwise constitute a Change in Control; or
iv.
during any period of twenty-four (24) consecutive calendar months, individuals who were Directors on
the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the non-
employee members of the Board, provided that any person becoming a Director subsequent to the first day of
such period whose election, or nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the Incumbent Directors shall be deemed to be an Incumbent Director; provided, further,
however, that no such individual shall be an Incumbent Director if such individual’s initial assumption of office
occurs as a result of, or in connection with, (A) an actual or threatened proxy contest with respect to the election
or removal of Directors, (B) actual or threatened solicitation of proxies or consents by or on behalf of any person
or persons (whether or not acting in concert) other than the Board or (C) agreement with any Person or Persons
(whether or not acting in concert) to avoid or settle any such contest or solicitation.
h.
provisions and regulations thereto.
“Code” means the Internal Revenue Code of 1986, as amended, including regulations thereunder and successor
i.
“Committee”, except as set forth in Section 4.1, means the Compensation Committee of the Board.
j.
“Consultant” means a consultant or adviser that (i) provides bona fide services to the Company or an Affiliate as
an independent contractor and not as an employee; (ii) is a natural person; and (iii) does not provide services in connection
with the offer or sale of the Company’s securities in a capital-raising transaction and does not directly or indirectly promote
or maintain a market for the Company’s securities.
k.
determines the Award shall become effective.
“Date of Grant” means the date the Committee approves the Award or a date in the future on which the Committee
l.
the Board.
“Director” means any non-employee member of the Board, but solely in his or her capacity as such a member of
m.
“Disability” means the inability of a Participant to engage in any substantially gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months. The permanence and degree of impairment shall be
supported by medical evidence.
n.
thereunder and successor provisions and regulations thereto.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, including regulations
B-10
o.
successor provisions and regulations thereto.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, including regulations thereunder and
p.
“eXponential Stock Unit” or “XSU” means a right granted to a Participant under Section 6.
q.
“Fair Market Value” means, as of any date, the closing price for one share of Stock as reported on the NASDAQ
(or any other exchange on which the Stock is then listed) for that date or, if no prices are reported for that date, the closing
price on the last day on which such prices were reported.
“Family Member” means a Participant’s spouse and any parent, stepparent, grandparent, child, stepchild, or
r.
grandchild, including adoptive relationships or a trust or any other entity in which these persons (or the Participant) have
more than 50% of the beneficial interest.
s.
“Participant” means a person who has been granted an Award.
t.
“Performance Goals” means, for a Performance Period, the goals established by the Committee for such
Performance Period. The Performance Goals may be expressed in terms of overall Company performance or the
performance of a division, business unit or an individual. The Performance Goals may be stated in terms of absolute levels
or relative to another company or companies or to an index or indices.
u.
“Performance Period” means one or more periods of time, which may be of varying and overlapping durations,
as the Committee may select, over which the attainment of one or more Performance Goals shall be measured for the
purpose of determining a Participant’s right to, and the payment of, an Award.
v.
Act.
“Person” means a “person” or “group” within the meaning of Sections 3(a)(9), 13(d) and 14(d) of the Exchange
w.
provisions and regulations thereto.
“Securities Act” means the Securities Act of 1933, as amended, including regulations thereunder and successor
x.
Treasury Regulation Section 1.409A-1(i).
“Specified Employee” means certain officers and highly compensated employees of the Company as defined in
y.
Company that may be substituted for Stock pursuant to Section 5.
“Stock” means the common stock of the Company, par value $0.00001 per share, and such other securities of the
z.
combined voting power of all classes of its stock.
“Subsidiary” means any entity in which the Company, directly or indirectly, possesses 50% or more of the total
“Termination of Employment” or “Termination of Service” means the cessation of performance of services for
aa.
the Company. For this purpose, the transfer of a Participant among the Company and any Affiliate, or transfer from a
position as a member of the Board to employee, shall not be considered a Termination of Service or a Termination of
Employment with the Company. In the context of an Award that is subject to the requirements of Section 409A of the
Code, the terms “Termination of Service” and “Termination of Employment” mean a “separation from service” (as defined
in Treasury Regulation Section 1.409A-1(h)).
B-11
[This Page Intentionally Left Blank]
[Consolidated Form – U.S. and Non-U.S. Grantees]
ANNEX C
AXON ENTERPRISE, INC.
2024 EXPONENTIAL STOCK PLAN
EXPONENTIAL STOCK UNIT
GRANT NOTICE1
This eXponential Stock Unit Award Agreement (this “Agreement”) consists of this Grant Notice (this “Grant
Notice”) and the attached Award Terms Agreement [ONLY FOR NON-U.S. GRANTEES: for Non-U.S. Grantees
(including the appendix attached thereto),] (the “Award Terms Agreement”). This Agreement sets forth the specific terms
and conditions governing an award (this “Award”) of eXponential Stock Units (“XSUs”) granted pursuant to the Axon
Enterprise, Inc. 2024 eXponential Stock Plan (the “Plan”). Capitalized terms used in this Grant Notice, but not otherwise
defined herein (including the Schedules hereto), shall have the meanings ascribed to them in the Award Terms Agreement
or in the Plan.
Name of Grantee:
Total No. of XSUs subject to this Award:
Date of Grant:
Expiration Date:
Vesting Schedule:
Contingent Award:
[ ]
[ ]
[•], 2023
[•], 2032
Subject to the other vesting terms and conditions of this
Agreement, this Award shall vest solely to the extent that the
performance-based vesting conditions set forth in Schedule
A hereto have been attained. [ONLY FOR ELECTION
EMPLOYEES/SECTION
OFFICERS/NOT
APPLICABLE TO ONE-TIME GRANTS: Thereafter,
any shares of Stock issued upon settlement of this Award
shall be subject to the Holding Period Requirements
described in the Award Terms Agreement.]
Notwithstanding the foregoing, this Award is subject to
stockholder approval of the Plan at the Axon Enterprise, Inc.
2024 Annual Meeting of Stockholders (the “Annual
Meeting”). If the Plan is not approved by stockholders at the
Annual Meeting, this Award shall be void ab initio and have
no further force or effect. No shares of Stock may be issued
hereunder absent such stockholder approval at the Annual
Meeting.
16
BY CLICKING THE “ACCEPT” BUTTON ON THE E*TRADE STOCK PLAN PORTAL, THE GRANTEE
ACKNOWLEDGES THAT HE OR SHE HAS READ AND UNDERSTANDS THE PROVISIONS OF THE PLAN,
THIS GRANT NOTICE AND THE AWARD TERMS AGREEMENT, AND AGREES THAT THE PLAN, THIS
GRANT NOTICE AND THE AWARD TERMS AGREEMENT SHALL GOVERN THE TERMS AND
CONDITIONS OF THIS AWARD.
[Remainder of page intentionally blank]
1 This consolidated form includes bracketed language applicable to both U.S. and Non-U.S. Grantees under the Plan. In
addition, additional bracketed provisions have been included which are only applicable to election employees, Section 16
officers and one-time grants.
C-1
Schedule A – Performance-Based Vesting Requirements
The total number of XSUs subject to this Award shall be deemed to consist of seven substantially equal
installments (each, a “Tranche”). The number of XSUs in each Tranche is set forth in Chart 1 of Schedule A hereto.
The Committee shall, in good faith, periodically evaluate whether the Stock Price Goals and/or Operational Goals
(collectively, the “Performance-Based Vesting Requirements”) with respect to any Tranche have been achieved; provided
that the Committee shall perform such evaluation no less frequently than (i) within 30 days following the Company’s filing
with the SEC of any Form 10-Q or 10-K and (ii) within 30 days following the satisfaction of any Stock Price Goal.
The Performance-Based Vesting Requirements with respect to any Tranche shall be deemed achieved upon the
Committee’s determination that: (a) the Stock Price Goal set forth next to such Tranche in Chart 1 of Schedule A hereto
has been attained and (b) one of the applicable Operational Goals set forth next to the applicable Operational Milestone
Tier in Chart 2 of Schedule A hereto has been attained, in each case, prior to the applicable Goal Expiration Date (the date
that the Committee makes any such determination, a “Determination Date”). On each Determination Date, the Committee
shall also determine the date on which the Performance-Based Vesting Requirements were attained (a “Goal Attainment
Date”), provided that (i) in the event the applicable Goals are attained on different dates, the Performance-Based Vesting
Requirements shall be deemed to have been attained on (and the Goal Attainment Date shall be) the date on which the last
applicable Goal was attained and (ii) each Operational Goal shall be deemed to be attained (if at all) on the last day of the
last fiscal quarter of the Company to which such Goal relates.
C-2
Schedule A – Performance-Based Vesting Requirements
Chart 1 – Stock Price Goals and Operational Goals
Tranche
#
Number
of XSUs
Stock Price
Goal ($)
Operational Goals
Goal Expiration Date
Vesting Requirements
1
2
3
4
5
6
7
Total:
[ ] $
247.40
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
$
$
$
$
$
$
309.25
386.56
483.20
604.00
755.00
943.75
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 1
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 2
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 3
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 4
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 5
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 6
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 7
December 31, 2026
December 31, 2027
December 31, 2028
December 31, 2029
December 31, 2030
December 31, 2031
December 31, 2032
With respect to each Tranche, the applicable Stock Price Goal shall be deemed to have been attained as of any date if, and
only if, the Ninety-Day VWAP is equal to or greater than the Stock Price Goal target amount set forth next to such Tranche
in Chart 1 on such date; provided that the calculation of the Ninety-Day VWAP shall begin no earlier than the Date of
Grant and shall not include any Daily VWAP with respect to any date prior to the Date of Grant.
Following any attainment of a Stock Price Goal, any subsequent change in Daily VWAP or the Ninety-Day VWAP shall
have no effect on the attainment of such Goal.
The Stock Price Goals and Operational Goals are subject to adjustment, as determined by the Committee, as described in
Schedule B.
Notwithstanding the foregoing, the Stock Price Goal for any Tranche shall only be deemed attained to the extent that the
Ninety-Day VWAP equals or exceeds the applicable target amount on or prior to the Goal Expiration Date set forth next
to such Tranche in Chart 1; provided, however, that such Tranche shall be deemed to have attained such Stock Price Goal
in the event that all the Performance-Based Vesting Requirements with respect to any subsequent Tranche have been
achieved on or before the Goal Expiration Dates for such subsequent Tranche (e.g., if the Stock Price Goal for Tranche 1
is not attained by December 31, 2026, such Stock Price Goal will be deemed to have been attained if, prior to December 31,
2027, the Stock Price Goal and Operational Goal for Tranche 2 are achieved).
C-3
Schedule A – Performance-Based Vesting Requirements (Continued)
Chart 2 – Operational Goals
Operational
Milestone Tier
1
2
3
4
5
6
7
$
$
$
$
$
$
$
Revenue Goals
(millions)
OR
Adjusted EBITDA Goals
(millions)
Goal Expiration
Date
1,834
2,293
2,866
3,583
4,479
5,599
6,999
$
$
$
$
$
$
$
393 December 31, 2026
508 December 31, 2027
655 December 31, 2028
845 December 31, 2029
1,088 December 31, 2030
1,400 December 31, 2031
1,750 December 31, 2032
The attainment of the Operational Goals with respect to any Operational Milestone Tier shall be deemed to have occurred
when either the applicable Revenue Goal or Adjusted EBITDA Goal has been attained, as described further below. The
attainment of the Operational Goals shall be measured as of the last day of each full fiscal quarter ending after the fiscal
quarter in which the Date of Grant occurs. Following the attainment of either the Revenue Goal or Adjusted EBITDA
Goal for any Operational Milestone Tier, the other Operational Goal shall not count toward the attainment of any other
Operational Milestone Tier.
Each Revenue Goal shall be deemed to have been attained as of any fiscal quarter end date if, and only if, Revenue is equal
to or greater than the Revenue Goal target amount set forth in Chart 2 as of such date. Following any attainment of a
Revenue Goal, any subsequent change in Revenue shall have no effect on the attainment of such Goal.
Each Adjusted EBITDA Goal shall be deemed to have been attained as of any fiscal quarter end date if, and only if,
Adjusted EBITDA is equal to or greater than the Adjusted EBITDA Goal target amount set forth in Chart 2 as of such
date. Following any attainment of an Adjusted EBITDA Goal, any subsequent change in Adjusted EBITDA shall have
no effect on the attainment of such Goal.
Notwithstanding the foregoing, the calculation of Revenue and Adjusted EBITDA shall begin with the first full fiscal
quarter ending after the fiscal quarter in which the Date of Grant occurs and shall not include any fiscal quarter of the
Company prior to such fiscal quarter.
The Operational Goals are subject to adjustment, as determined by the Committee, as described in Schedule B.
Notwithstanding the foregoing, the Operational Goals for any Tranche shall only be deemed attained to the extent that the
Revenue Goal or Adjusted EBITDA Goal in the applicable Operational Milestone Tier equals or exceeds the applicable
target amount on or prior to the Goal Expiration Date set forth next to such Operational Milestone Tier in Chart 2; provided,
however, that such Operational Goal in such Operational Milestone Tier shall be deemed to have been achieved in the
event that all the Performance-Based Vesting Requirements with respect to any subsequent Tranche have been achieved
on or before the applicable Goal Expiration Dates for such subsequent Tranche (e.g., if the Operational Goals for Tranche
1 are not achieved by December 31, 2026, such Operational Goals will be deemed to have been attained if, prior to
December 31, 2027, the Stock Price Goal and Operational Goal for Tranche 2 are achieved).
C-4
Schedule B - Adjustment of Stock Price Goals and Operational Goals for Certain Acquisitions and Divestitures
Adjustments for Acquisitions
• Any Revenue Goals that have not been attained as of the date the Company closes a merger or purchase of
substantially all of the assets of another corporation or entity (an “Acquisition”), in each case with Target Revenue
in excess of 5% of the Company’s total revenues for the most recently completed trailing four fiscal quarters prior
to such Acquisition with respect to which the Company has filed a Form 10-Q or 10-K with the SEC (such
percentage of Revenue, the “Revenue Threshold”), shall be (i) increased by a dollar amount equal to 25% of such
Target Revenue beginning with the first full fiscal quarter of the Company ending after the Acquisition; (ii) then
increased by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Target Revenue in the
second full fiscal quarter of the Company ending after the Acquisition; (iii) then increased by a dollar amount
equal to an additional 25%, or a cumulative 75%, of such Target Revenue in the third full fiscal quarter of the
Company ending after the Acquisition; and (iv) then increased by a dollar amount equal to an additional 25%, or
a cumulative 100%, of such Target Revenue in the fourth full fiscal quarter of the Company ending after the
Acquisition and all future fiscal quarters of the Company thereafter.
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes an Acquisition with
Target Adjusted EBITDA in excess of 5% of Adjusted EBITDA for the most recently completed trailing four
fiscal quarters prior to such Acquisition with respect to which the Company has filed a Form 10-Q or 10-K with
the SEC (such percentage of Adjusted EBITDA, the “Adjusted EBITDA Threshold”) shall be (i) increased by a
dollar amount equal to 25% of such Target Adjusted EBITDA beginning with the first full fiscal quarter of the
Company ending after the Acquisition; (ii) then increased by a dollar amount equal to an additional 25%, or a
cumulative 50%, of such Target Adjusted EBITDA in the second full fiscal quarter of the Company ending after
the Acquisition; (iii) then increased by a dollar amount equal to an additional 25% or a cumulative 75%, of such
Target Adjusted EBITDA in the third full fiscal quarter of the Company ending after the Acquisition; and (iv) then
increased by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Target Adjusted EBITDA
in the fourth full fiscal quarter of the Company ending after the Acquisition and all future fiscal quarters of the
Company thereafter.
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes an Acquisition with
Target Adjusted EBITDA losses in excess of the Adjusted EBITDA Threshold shall be (i) decreased by a dollar
amount equal to 25% of such Target Adjusted EBITDA losses beginning with the first full fiscal quarter of the
Company ending after the Acquisition; (ii) then decreased by a dollar amount equal to an additional 25%, or a
cumulative 50%, of such Target Adjusted EBITDA losses in the second full fiscal quarter of the Company ending
after the Acquisition; (iii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 75%, of
such Target Adjusted EBITDA losses in the third full fiscal quarter of the Company ending after the Acquisition;
and (iv) then decreased by a dollar amount equal to an additional 25%, or a cumulative 100% of such Target
Adjusted EBITDA losses in the fourth full fiscal quarter of the Company ending after the Acquisition and all
future fiscal quarters of the Company thereafter.
Adjustments for Divestitures
• Any Revenue Goals that have not been attained as of the date the Company closes a split-up, spin-off, divestiture
or disposition (a “Divestiture”) involving Divestiture Revenue in excess of the Revenue Threshold shall be
(i) decreased by a dollar amount equal to 25% of such Divestiture Revenue beginning with the first full fiscal
quarter of the Company ending after the Divestiture; (ii) then decreased by a dollar amount equal to an additional
25%, or a cumulative 50%, of such Divestiture Revenue in the second full fiscal quarter of the Company ending
after the Divestiture; (iii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 75%, of
such Divestiture Revenue in the third full fiscal quarter of the Company ending after the Divestiture; and (iv) then
decreased by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Divestiture Revenue in
the fourth full fiscal quarter of the Company ending after the Divestiture and all future fiscal quarters of the
Company thereafter.
C-5
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes a Divestiture with
Divestiture Adjusted EBITDA in excess of the Adjusted EBITDA Threshold shall be (i) decreased by a dollar
amount equal to 25% of such Divestiture Adjusted EBITDA beginning with the first full fiscal quarter of the
Company ending after the Divestiture; (ii) then decreased by a dollar amount equal to an additional 25%, or a
cumulative 50%, of such Divestiture Adjusted EBITDA in the second full fiscal quarter of the Company ending
after the Divestiture; (iii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 75%, of
such Divestiture Adjusted EBITDA in the third full fiscal quarter of the Company ending after the Divestiture;
and (iv) then decreased by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Divestiture
Adjusted EBITDA in the fourth full fiscal quarter of the Company ending after the Divestiture and all future fiscal
quarters of the Company thereafter.
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes a Divestiture with
Divestiture Adjusted EBITDA losses in excess of the Adjusted EBITDA Threshold shall be (i) increased by a
dollar amount equal to 25% of such Divestiture Adjusted EBITDA losses beginning with the first full fiscal
quarter of the Company ending after the Divestiture; (ii) then increased by a dollar amount equal to an additional
25%, or a cumulative 50%, of such Divestiture Adjusted EBITDA losses in the second full fiscal quarter of the
Company ending after the Divestiture; (iii) then increased by a dollar amount equal to an additional 25%, or a
cumulative 75%, of such Divestiture Adjusted EBITDA losses in the third full fiscal quarter of the Company
ending after the Divestiture; and (iv) then increased by a dollar amount equal to an additional 25%, or a
cumulative 100%, of such Divestiture Adjusted EBITDA losses in the fourth full fiscal quarter of the Company
ending after the Divestiture and all future fiscal quarters of the Company thereafter.
•
In the event of any split-up, spin-off, ordinary or extraordinary dividend or similar transaction, the Daily VWAP
shall be calculated as determined in good faith by the Committee in accordance with Section 8 of the Award
Terms Agreement.
EXPONENTIAL STOCK UNIT AWARD TERMS AGREEMENT [ONLY FOR NON-U.S. GRANTEES: FOR
NON-US GRANTEES]
This eXponential Stock Unit Award Terms Agreement [ONLY FOR NON-U.S. GRANTEES: for Non-U.S.
Grantees, including any additional terms and conditions for the Grantee’s country set forth in the appendix attached hereto
(the “Appendix,” and together with the eXponential Stock Unit Award Terms Agreement for Non-U.S. Grantees, the
“Award Terms Agreement”)], together with the Grant Notice to which it is attached (the “Grant Notice”), supplements
and forms a part of the Agreement identified in the Grant Notice between Axon Enterprise, Inc., a Delaware corporation
(the “Company”), and the individual identified in the Grant Notice (the “Grantee”), and is effective as of the date of grant
set forth in the Grant Notice (the “Date of Grant”). Capitalized terms used in this Award Terms Agreement, but not
otherwise defined herein or in the Grant Notice, shall have the meanings ascribed to them in the Plan.
1.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a)
(b)
“Acquired Shares” means any shares of Stock acquired upon settlement of any XSU.
“Acquisition” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(c)
“Adjusted EBITDA” means, as of any date, for the previous four consecutive fiscal quarters,
the Company’s net (loss) income attributable to common stockholders before interest expense, interest and other income
(such as dividends), adjusted for one-time or non-recurring items, including gains and losses on investments (inclusive of
strategic and non-strategic non-controlling minority investments and joint ventures or similar arrangements), transaction
costs related to strategic investments and acquisitions (or divestitures), gains or losses or impairments related to
dispositions of businesses, disposals and/or abandonments of intangible assets, disposals or impairment of land, property
and/or equipment, insurance recoveries, restructuring costs (including non-recurring costs related to a reduction in force
and/or to closing or exiting facilities), (benefit) provision for income taxes, depreciation and amortization and stock based
compensation.
C-6
Notice.
(d)
“Adjusted EBITDA Threshold” shall have the meaning ascribed to it in Schedule B of the Grant
(e)
(f)
(g)
(h)
(i)
“Agreement” shall have the meaning ascribed to it in the Grant Notice.
“Annual Meeting” shall have the meaning ascribed to it in the Grant Notice.
“Award” shall have the meaning ascribed to it in the Grant Notice.
“Award Terms Agreement” shall have the meaning ascribed to it in the Grant Notice.
“Board” means the Company’s Board of Directors, as constituted from time to time.
“Cause” shall, in the event the Grantee is party to an Employment Agreement, have the meaning
set forth in the Grantee’s Employment Agreement. In all other cases, Cause shall have the meaning ascribed to such term
in the Plan.
(j)
(k)
“CIC Unit” means, with respect to any Change in Control, (i) any XSU in a Tranche for which
the Stock Price Goal would be attained if the Ninety-Day VWAP was deemed to be equal to the greater of (A) the most
recent closing price of the Stock immediately prior to the Closing Date and (B) the per share Stock price received by the
Company’s stockholders in connection with such Change in Control (such greater price, the “CIC Price”) and (ii) in the
event the CIC Price is greater than the Stock Price Goal applicable to any Tranche but less than the Stock Price Goal
applicable to the next Tranche, a pro rata portion of the XSUs in such next Tranche, based on a fraction the numerator of
which is the excess of the CIC Price over the Stock Price Goal applicable to the first Tranche and the denominator of
which is the excess of the Stock Price Goal applicable to the second Tranche over the Stock Price Goal applicable to the
first Tranche. All such determinations shall be made by the Committee in its discretion, which shall also have the discretion
to make any such determination prior to the applicable Closing Date.
(l)
“Closing Date” means the date on which a Change in Control is consummated.
time.
(m)
“Committee” means the Compensation Committee of the Board, as constituted from time to
Stock as reported by S&P Capital IQ (or such other source as the Committee may determine) for such trading day.
(n)
“Daily VWAP” means, as of any trading day, the volume weighted average price of a share of
(o)
(p)
“Delivery Date” shall have the meaning ascribed to it in Section 5(a).
“Divestiture” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(q)
“Divestiture Adjusted EBITDA” means, as of any date, the cumulative Adjusted EBITDA of
the spun-off, split-off, divested or disposed business or entity for the four consecutive fiscal quarters completed
immediately prior to the closing date of the relevant Divestiture; provided that if such business or entity does not have four
fiscal quarters of operating history, the calculation shall be annualized based on available quarterly financial data, as
determined in good faith by the Committee.
(r)
“Divestiture Revenue” means, as of any date, the cumulative revenue of the spun off, split-off,
divested or disposed business or entity for the four consecutive fiscal quarters completed immediately prior to the closing
date of the relevant Divestiture; provided that if such business or entity does not have four fiscal quarters of operating
history, the calculation will be annualized based on available quarterly financial data, as determined in good faith by the
Committee.
(s)
“Determination Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
C-7
Section 5(b)(i).]
(t)
[ONLY FOR NON-U.S. GRANTEES: “Employer” shall have the meaning ascribed to it in
Company and the Grantee (if any).
(u)
“Employment Agreement” means any individual employment agreement between the
thereunder and successor provisions and regulations thereto.
(v)
“Exchange Act” means the Securities Exchange Act of 1934, as amended, including regulations
(w)
“Expiration Date” means the expiration date set forth in the Grant Notice.
(x)
(y)
Notice.
“Goal” means any Stock Price Goal or Operational Goal.
“Goal Attainment Date” shall have the meaning ascribed to it in Schedule A of the Grant
(z)
“Goal Expiration Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
meaning set forth in the Grantee’s Employment Agreement.
(aa)
“Good Reason” shall, in the event the Grantee is party to an Employment Agreement, have the
16 OFFICERS/NOT
APPLICABLE TO ONE-TIME GRANTS: “Holding Period Requirements” shall have the meaning ascribed to it in
Section 6(a).]
FOR ELECTION EMPLOYEES/SECTION
[ONLY
(bb)
“Minimum Service Date” means, with respect to any Tranche, the first business day on or
following the date that is a number of years after December 1, 2023 equal to (i) the number of such Tranche (i.e., in the
case of Tranche 1, one; in the case of Tranche 7, seven), divided by two, plus (ii) one.
(cc)
the Daily VWAP, measured over a consecutive 90-day period.
(dd)
“Ninety-Day VWAP” means the volume weighted average price of a share of Stock, based on
(ee)
“Normal Vesting Date” shall have the meaning ascribed to it in Section 3(a).
EBITDA as listed in Chart 2 of Schedule A of the Grant Notice.
(ff)
“Operational Goal” means any of the specified target amounts of either Revenue or Adjusted
(gg)
A of the Grant Notice.
“Performance-Based Vesting Requirements” shall have the meaning ascribed to it in Schedule
(hh)
“Plan” shall have the meaning ascribed to it in the Grant Notice.
(ii)
(jj)
Incentive Plan.
“Post-CIC Award” shall have the meaning ascribed to it in Section 3(f)(iii).
“Prior Plans” means the Company’s 2019 Stock Incentive Plan and the Company’s 2022 Stock
(kk)
“Revenue” means, as of any date, the Company’s total revenues, as reported by the Company
in its financial statements on Forms 10-Q and 10-K filed with the SEC (but without giving effect to any rounding used in
reporting the amounts in Forms 10-Q and 10-K), for the previous four consecutive fiscal quarters of the Company,
beginning with the Company’s first full fiscal quarter ending after the fiscal quarter in which the Date of Grant occurs.
(ll)
“Revenue Threshold” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
C-8
(mm)
“SEC” means the U.S. Securities and Exchange Commission.
(nn)
“Section 409A” shall have the meaning ascribed to it in Section 17.
Chief Executive Officer, President and Chief Financial Officer.
(oo)
“Specified Officers” shall mean any two of the following, acting together: the Company’s
forth in Chart 1 of Schedule A of the Grant Notice.
(pp)
“Stock Price Goal” means any of the specified target amounts of Ninety-Day VWAP as set
(qq)
“Target Adjusted EBITDA” means, as of any date, the applicable cumulative Adjusted
EBITDA of the relevant target business or entity (or, to the extent applicable, any predecessor to the relevant target entity)
for the four consecutive fiscal quarters completed immediately prior to the closing date of the relevant Acquisition;
provided that, if the relevant target business or entity does not have four fiscal quarters of operating history, the calculation
will be annualized based on available quarterly financial data, as determined in good faith by the Committee.
(rr)
“Target Revenue” means, as of any date, the applicable cumulative revenue of the relevant
target business or entity (or, to the extent applicable, any predecessor to the relevant target entity) for the four consecutive
fiscal quarters completed immediately prior to the closing date of the relevant Acquisition; provided that, if the relevant
target company or entity does not have four fiscal quarters of operating history, the calculation will be annualized based
on available quarterly financial data, as determined in good faith by the Committee.
(ss)
to in Section 5(b)(i).]
[ONLY FOR NON-U.S. GRANTEES: “Tax-Related Items” shall have the meaning ascribed
(tt)
“Tranche” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
meaning ascribed to in Section 3(g).]
(uu)
[ONLY FOR NON-U.S. GRANTEES: “Termination of Employment” shall have the
(vv)
“Unvested CIC Units” shall have the meaning ascribed to it in Section 3(f)(ii).
pursuant to Section 3.
(ww)
“Vesting Date” means, with respect to any XSU, the date (if any) on which such XSU vested
(xx)
“XSU” shall have the meaning ascribed to it in the Grant Notice.
2.
Grant of XSUs. Subject to the terms of this Agreement, the Company grants to the Grantee the total
number of XSUs specified in the Grant Notice effective as of the Date of Grant (but subject to stockholder approval as set
forth in Section 4 and in the Grant Notice).
3.
Vesting of Tranches.
(a)
General. Except as otherwise provided in this Section 3, with respect to each outstanding
unvested Tranche, subject to (i) the Committee’s determination that the applicable Performance-Based Vesting
Requirements have been achieved and (ii) the Grantee’s continued employment with the Company or any Affiliate through
the later of (x) the applicable Determination Date and (y) the applicable Minimum Service Date (such later date, a “Normal
Vesting Date”), such Tranche shall vest as of such Normal Vesting Date.
C-9
(b)
Expiration of Award. Upon the Expiration Date, any outstanding Tranche that has not vested
as of such date shall be forfeited, cancelled and cease to be outstanding; provided, however, that the Expiration Date shall
be deemed to be extended until the first Determination Date after the original Expiration Date solely for purposes of
determining whether any Operational Goal for the last fiscal quarter ending on or prior to the original Expiration Date has
been attained, and any Tranche that vests because of the attainment of any such Operational Goal shall be deemed to have
vested prior to the Expiration Date.
(c)
Termination Without Cause. [ONLY FOR NON-SECTION 16 OFFICERS: In the event
of the Grantee’s Termination of Employment by the Company without Cause, any outstanding XSUs for which the Goal
Attainment Date occurs prior to the date of such termination, without regard to the Minimum Service Requirement, shall
be deemed vested as of such date of termination. Any outstanding Tranches remaining unvested after giving effect to this
Section 3(c) shall be forfeited, cancelled and cease to be outstanding.]
[ONLY FOR SECTION 16 OFFICERS: Notwithstanding anything in Section 3(a) or (f) to
the contrary, if the Grantee’s employment is terminated by the Company without Cause, then, subject to a release of claims
in form and substance satisfactory to the Company in accordance with Section 3(i), any then outstanding Tranche shall
vest as of the date of such termination based solely on attainment of the applicable Stock Price Goals as of such date,
without regard to the otherwise applicable Operational Goals. In addition to any Tranches that vest as a result of the
preceding sentence of this Section 3(c), a pro rata portion of the next outstanding unvested Tranche (if any are remaining)
shall also vest as of such date, based on a fraction the numerator of which is the excess (if any) of the Ninety-Day VWAP
as of such date over the Stock Price Goal applicable to the first Tranche and the denominator of which is the excess of the
Stock Price Goal applicable to the second Tranche over the Stock Price Goal applicable to the first Tranche.]
(d)
[ONLY FOR NON-SECTION 16 OFFICERS: Death. In the event of the Grantee’s death
after the first anniversary of the Date of Grant, any outstanding Tranches shall remain outstanding and eligible to vest,
without regard to Grantee’s continued employment, to the extent that the Determination Date with respect thereto occurs
within 24 months after the Grantee’s death, including for the avoidance of doubt, upon a Change in Control within such
period; provided, however, that no such Tranche shall vest unless the applicable Determination Date occurs within the
same calendar year as the applicable Goal Attainment Date. Any outstanding Tranches remaining unvested after giving
effect to this Section 3(d) shall be forfeited, cancelled and cease to be outstanding.]
[ONLY FOR SECTION 16 OFFICERS: Death/Disability. In the event that the Grantee’s
employment terminates due to the Grantee’s death or Disability prior to the applicable Minimum Service Date, any then
outstanding Tranche shall vest as of such termination based solely on attainment of the applicable Performance-Based
Vesting Requirements as of such date, without regard to the Grantee’s continued employment.]
outstanding and eligible to vest during any period of time in which the Grantee is on an approved leave of absence.
(e)
Leave of Absence. Unless otherwise determined by the Committee, the Tranches shall remain
shall determine whether any XSU in any Tranche is a CIC Unit with respect to such Change in Control.
(f)
Change in Control. (i) Prior to the consummation of a Change in Control, the Committee
(ii) If the Grantee is employed by the Company or any Affiliate on the Closing Date, (x) any
outstanding CIC Units with respect to which the applicable Minimum Service Date occurred prior to the Closing Date
shall, without regard to whether the applicable Operational Goals were attained, vest effective as of the Closing Date and
(y) any other CIC Unit shall remain outstanding and eligible to vest subject solely to the Grantee’s continued employment
through the applicable Minimum Service Date and without regard to the Performance-Based Vesting Conditions (any CIC
Units described in this clause (y), “Unvested CIC Units”). Any outstanding XSUs in a Tranche that is not a CIC Unit shall
be forfeited, cancelled and cease to be outstanding as of the Closing Date.
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(iii) In connection with a Change in Control, any CIC Unit shall be subject to the authority of
the Committee under Section 5.3 of the Plan. In the event that Unvested CIC Units remain outstanding following the
Closing Date, whether by assumption, continuation or substitution of a new award (a “Post-CIC Award”), such Post-CIC
Award shall vest in full in the event that, during the 24-month period following the Closing Date, the Grantee’s
employment is terminated by the Company without Cause or, if the Grantee is subject to Section 16 under the Exchange
Act as of immediately prior to the Closing Date, the Grantee resigns for Good Reason.
(g)
Other Termination of Employment. Except as otherwise provided in this Section 3, upon
the earlier of (i) the Grantee ceasing to be employed and (ii) the Grantee’s Termination of Employment for any reason,
[ONLY FOR NON-US GRANTEES as determined pursuant to the below paragraph,] any outstanding unvested Tranche
shall be forfeited, canceled and cease to be outstanding.
[FOR NON-US GRANTEES For purposes of this Award, “Termination of Employment” is considered
to occur as of the date the Grantee is no longer actively providing services to the Company or any Affiliate (regardless of
the reason for such termination and whether or not later found to be invalid or in breach of applicable laws in the
jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any), and will not be
extended by any notice period (e.g., the Grantee’s period of employment will not include any contractual notice period or
any period of “garden leave” or similar period mandated under applicable laws in the jurisdiction where the Grantee is
employed or the terms of Grantee’s employment agreement, if any). The Company (or, in the event that the Grantee is
subject to Section 16 under the Exchange Act, the Committee) shall have the exclusive discretion to determine when the
Grantee is no longer actively providing services for purposes of this Award (including whether the Grantee may still be
considered to be providing services while on a leave of absence).]
(h)
Additional Acceleration. In addition to the foregoing, upon the [termination of the Grantee’s
employment with the Company] [Grantee’s Termination of Employment], the Specified Officers, may, in their sole
discretion, accelerate the vesting of all or a portion of one otherwise unvested outstanding Tranche, subject to the Grantee’s
execution and non-revocation of a release of claims in form and substance satisfactory to the Company in accordance with
Section 3(i). This Section 3(h) shall not apply in the event that, at the time of such Termination of Employment, the
Grantee is subject to Section 16 under the Exchange Act.
(i)
[ONLY FOR ELECTION EMPLOYEES/SECTION 16 OFFICERS:
Release
Requirement. The accelerated vesting pursuant to Sections 3(c) and 3(h) is conditioned on the Grantee’s execution and
delivery to the Company of a release of claims in favor of the Company, in a form provided by the Company, no later than
50 days following such Termination of Employment and the Grantee’s non-revocation of such release during the period
specified therein (which will end no later than 60 days following such Termination of Employment).]
4.
Stockholder Approval. The Grantee acknowledges and agrees that this Award is being made pursuant
to the Plan prior to the approval of the Plan by the Company’s stockholders. The Company presently intends to submit
the Plan for the approval of the Company’s stockholders at the Annual Meeting. Notwithstanding anything in Section 3
or otherwise herein to the contrary, no portion of this Award shall vest and no shares of Stock shall be delivered pursuant
to this Award prior to such stockholder approval. The Grantee acknowledges and agrees that, if the Company’s
stockholders do not approve the Plan at the Annual Meeting (as determined by the Board in its sole discretion), this Award
shall expire and have no further force or effect, and any portion of this Award that may have otherwise vested prior to such
date shall be forfeited, cancelled and cease to be outstanding.
C-11
5.
Timing and Manner of Settlement of XSUs.
(a)
Settlement of XSUs. Upon the vesting of any XSUs under any provision of this Agreement,
the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of XSUs that so
vested. Such shares shall be delivered to the Grantee no later than 30 days after the applicable Vesting Date and, in no
event, later than March 15 of the year following the year in which such Vesting Date occurs, except as specifically provided
herein; provided that, in the event that a Vesting Date occurs during a Company “blackout period”, the Committee shall,
to the extent permissible under Section 409A, be entitled to delay the issuance of the applicable shares of Stock, but not
later than March 15 of the year following the year in which such Vesting Date occurs (the date the shares of Stock are
delivered in accordance with this Section 5(a), the “Delivery Date”).
(b)
[ONLY FOR U.S. GRANTEES: Tax Withholding. The Company’s obligation to deliver
shares of Stock pursuant to Section 5(a) is subject to the Grantee’s satisfaction of all applicable tax withholding obligations
(as determined by the Company) arising as a result of the vesting or settlement of any portion of this Award. The Grantee
may satisfy any such tax withholding obligation by (i) personal check or other cash equivalent acceptable to the Company
or (ii) to the extent approved by the Committee, any other method permitted under Section 10 of the Plan.][ONLY FOR
NON-U.S. GRANTEES: Responsibility for Taxes.
(i)
The Grantee acknowledges that, regardless of any action taken by the Company or, if different,
any Affiliate which employs the Grantee (the “Employer”), the ultimate liability for all income tax, social insurance,
payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the
Plan and legally applicable to the Grantee or deemed by the Company or the Employer, in its discretion, to be an
appropriate charge to the Grantee even if legally applicable to the Company or the Employer (“Tax-Related Items”) is
and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer.
The Grantee further acknowledges that the Company and/or the Employer (1) make no representations or undertakings
regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including but not limited
to, the grant, vesting or settlement of this Award, the subsequent sale of shares of Stock acquired pursuant to such
settlement and the receipt of any dividends; and (2) do not commit to and are under no obligation to structure the terms
of the grant or any aspect of this Award to reduce or eliminate Grantee’s liability for Tax-Related Items or achieve any
particular tax result. Further, if Grantee is subject to Tax-Related Items in more than one jurisdiction, the Grantee
acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold
or account for Tax-Related Items in more than one jurisdiction.
(ii) In connection with the relevant taxable or tax withholding event, the Grantee agrees to make
adequate arrangements satisfactory to the Company or the Employer to satisfy all Tax-Related Items. In this regard, by
accepting this Award, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their
discretion, to satisfy any applicable withholding obligations or rights with regard to all Tax-Related Items by one or a
combination of the following:
(1)
broker;
requiring the Grantee to make a payment in a form acceptable to the Company or designated
(2)
withholding from Grantee’s wages or other cash compensation payable to the Grantee;
(3)
withholding from proceeds of the sale of shares of Stock acquired upon settlement of this
Award either through a voluntary sale or through a mandatory sale arranged by the Company (on the
Grantee’s behalf pursuant to this authorization without further consent); or
C-12
(4)
withholding shares of Stock to be issued upon settlement of this Award;
(iii)
The Company may withhold or account for Tax-Related Items by considering applicable
minimum statutory withholding rates or other applicable withholding rates, including maximum withholding rates
applicable in the Grantee’s jurisdiction(s). In the event of over-withholding, the Grantee may receive a refund of any over-
withheld amount in cash and (with no entitlement to the equivalent in shares of Stock) or if not refunded, the Grantee may
seek a refund from the local tax authorities. In the event of under-withholding, the Grantee may be required to pay any
additional Tax-Related Items directly to the applicable tax authority or to the Company and/or the Employer. If any
obligation for Tax-Related Items is satisfied by withholding shares of Stock, for tax purposes, the Grantee is deemed to
have been issued the full number of shares of Stock subject to the vested Award, notwithstanding that a number of the
shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(iv)
The Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items
that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in
the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the
shares of Stock in settlement of this Award if the Grantee fails to comply with the Grantee’s obligations in connection
with the Tax-Related Items.]
(c)
No Deferred Compensation Program (DCP) Elections. The Grantee shall not have any right
to make any election regarding the time or form of any payment due pursuant to this Agreement. In addition, the Grantee
shall not have any right to elect to receive cash consideration in lieu of the XSUs awarded to the Grantee pursuant to this
Agreement as consideration for the Grantee’s services to the Company.
(d)
Payment Treated As Made Upon A Designated Event. If the Company fails to make any
payment under this Agreement, either intentionally or unintentionally, within the time period specified in this Section 5,
but the payment is made within the same calendar year, such payment shall be treated as made within the time period
specified in this Section 5 pursuant to Treasury Regulation Section 1.409A-3(d). In addition, if a payment is not made due
to a dispute with respect to such payment, the payment may be delayed in accordance with Treasury Regulation Section
1.409A-3(g).
(e)
[ONLY
FOR ELECTION EMPLOYEES/SECTION
16 OFFICERS/NOT
APPLICABLE TO ONE-TIME GRANTS OR NON-US GRANTEES: Section 83(b) Election. Within 30 days
following each date the Grantee receives shares of Stock upon the settlement of any Tranche that are subject to the Holding
Period Requirements, the Grantee shall execute and file with the Internal Revenue Service an election under Section
83(b) of the Code with respect to such Acquired Shares in a form satisfactory to the Company, and the Grantee shall
provide the Company with a copy of such executed and filed election promptly thereafter.]
6.
[ONLY FOR ELECTION EMPLOYEES/SECTION 16 OFFICERS/NOT APPLICABLE TO
ONE-TIME GRANTS: Holding Period Requirement. (a) General. Following the vesting and settlement of any
Tranche in accordance with Section 5, the Grantee shall not, without regard to whether the Grantee continues to be
employed by the Company or any Affiliate, sell, transfer, pledge, assign or otherwise alienate or hypothecate any Acquired
Shares received with respect to such Tranche (except as required to satisfy withholding taxes due in connection with such
settlement in accordance with Section 5(b)) until the earlier of (i) December 31, 2030 and (ii) the date that a subsequent
Tranche vests and settles in accordance with Section 5 and becomes subject to this Section 6(a) (the “Holding Period
Requirements”); provided that, for purposes of the Holding Period Requirements, a Tranche shall only refer to the number
of XSUs in one Tranche set forth on Chart 1 in Schedule A of the Grant Notice, regardless of whether any prior
Tranche(s) vest at the same time. For the avoidance of doubt, (A) the Holding Period Requirements shall only apply to
the Acquired Shares received with respect to one Tranche and (B) in the event that more than one Tranche vests, only the
most recently vested Tranche shall be subject to such requirements and all earlier vested Tranches shall cease to be subject
thereto. Except as required to satisfy any applicable tax withholding obligations, any dividends or other distributions by
the Company on any Acquired Share subject to the Holding Period Requirements shall accrue and be held and retained by
the Company on the same basis as such Acquired Share, and shall not be paid to the Grantee until and unless such Acquired
Share is no longer subject to the Holding Period Requirements.
C-13
(b)
Early Release of Acquired Shares. Notwithstanding Section 6(a), the Holding Period
Requirements shall be automatically waived as to all Acquired Shares (i) upon the consummation of a Change in Control
(and, for the avoidance of doubt, in the event the Grantee receives any Acquired Shares following the Closing Date
pursuant to Section 3(f)(ii), the Holding Period Requirements shall not be applicable thereto) or (ii) in the event that the
Grantee’s employment terminates due to the Grantee’s death or Disability. In addition, the Specified Officers may, in
their sole discretion, waive the Holding Period Requirements upon the termination of the [termination of the Grantee’s
employment with the Company] [ONLY FOR NON-US GRANTEES: Grantee’s Termination of Employment] for any
reason, subject to the Grantee’s execution and non-revocation of a release of claims in form and substance satisfactory to
the Company in accordance with Section 6(e); provided, however, this sentence shall not apply in the event that, at the
time of such Termination of Employment, the Grantee is subject to Section 16 under the Exchange Act.
(c)
Escrow. The Company shall hold any Acquired Shares subject to the Holding Period
Requirement in escrow together with separate stock powers executed by the Grantee in blank for transfer. The Company
shall not dispose of shares held in escrow pursuant to this Section 6(c) except as otherwise provided in this Agreement. At
such time as any Acquired Share is no longer subject to the Holding Period Requirements, the Company shall release such
share from escrow.
(d)
Forfeiture of Acquired Shares. If, at the time that the Grantee’s employment is terminated
by the Company for Cause or the Grantee terminates his or her employment for any reason, any Acquired Shares are
subject to the Holding Period Requirements, such Acquired Shares shall be forfeited without any payment or consideration
therefor. In the event of any such forfeiture, the Company is hereby authorized by the Grantee, as the Grantee’s attorney-
in-fact, to date and complete the stock powers necessary for the transfer of the Acquired Shares being forfeited and to
transfer such Acquired Shares in accordance with the terms hereof. Notwithstanding the foregoing, the Specified Officers
may, in their sole discretion, waive such forfeiture of Acquired Shares, subject to the Grantee’s execution and non-
revocation of a release of claims in form and substance satisfactory to the Company in accordance with Section 6(e);
provided, however, this sentence shall not apply in the event that, at the time of such Termination of Employment, the
Grantee is subject to Section 16 under the Exchange Act.
(e)
Release Requirement. The early release or waiver of forfeiture of Acquired Shares pursuant
to Section 6(b) or Section 6(d) is conditioned on the Grantee’s execution and delivery to the Company of a release of
claims in favor of the Company, in a form provided by the Company, no later than 50 days following the Specified
Officers’ exercise of discretion and the Grantee’s non-revocation of such release during the period specified therein (which
will end no later than 60 days following such exercise of discretion).]
7.
Clawback. The XSUs and any Acquired Shares (and any other amounts payable under this Award) are
subject to forfeiture or recoupment to the fullest extent required by applicable law, any applicable stock exchange listing
standard and any recoupment or clawback policy adopted by the Company to comply with Rule 10D-1 under the Exchange
Act. By accepting this Award, the Grantee consents to the potential forfeiture or recoupment of his or her Award and any
Acquired Shares (and any other amount payable under this Award) pursuant to any applicable law, listing standard or
Company policy, and agrees to be bound by and comply with such requirements and to return or repay the full amount
required by such requirements.
8.
Adjustments Upon Specified Events. Upon the occurrence of certain events relating to the Stock
contemplated by Sections 5.3 of the Plan, the Committee shall have the authority described therein to make adjustments if
appropriate in the Stock Price Goals, the number of XSUs, the number and kind of securities or other property that may
be issued in respect thereof and the other terms and conditions of this Award.
C-14
9.
Non-Transferability of XSUs. The XSUs shall not be transferable by the Grantee or any other person
claiming through the Grantee, either voluntarily or involuntarily, except by will or the laws of descent and distribution.
Notwithstanding the foregoing sentence, the Committee may, in its sole discretion and in compliance with applicable
federal or state securities laws, regulations, or rules of the NASDAQ Stock Market (or such other exchange on which the
Stock is then traded), permit the transfer of XSUs to a Family Member, trust (including a donor advised fund) or
partnership, or to a charitable organization (including, without limitation, law enforcement based charitable organizations),
in each case, for estate planning or charitable purposes; provided that no value or consideration is received by the Grantee
with respect to such transfer.
10.
[ONLY FOR NON-U.S. GRANTEES: Nature of Grant. By accepting this Award, the Grantee
acknowledges, understands and agrees that:
the Company;
(a)
all decisions with respect to future XSUs or other grants, if any, will be at the sole discretion of
(b)
nothing contained in this Agreement or the Plan constitutes a continued employment by the
Company or any Affiliate, should be interpreted as forming an employment or service contract with the Company or any
Affiliate, should interfere in any way with the right of the Company or any Affiliate, as applicable, to terminate the
Grantee’s employment (if any);
the grant of XSUs and any shares of Stock acquired under the Plan, and the income from and
value of same, are extraordinary items that do not constitute compensation of any kind for services of any kind rendered
to the Company or any Affiliate, and that are outside the scope of the Grantee’s employment, if any;
(c)
(d)
the grant of XSUs and any shares of Stock acquired under the Plan, and the income from and
value of same, are not part of normal or expected compensation or salary for any purpose, including, without limitation,
calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay,
bonuses, long-service awards, leave-related payments, pension or retirement or welfare benefits or similar payments; and
(e)
no claim or entitlement to compensation or damages shall arise from (i) forfeiture of the XSUs
resulting from the Grantee’s Termination of Employment (for any reason whatsoever, whether or not later found to be
invalid or in breach of applicable laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s
employment agreement, if any) and/or (ii) the application of Section 7 of the Award Terms Agreement.]
11.
Notices. Any notice to be given under the terms of this Agreement to the Company shall be in writing
and addressed to the Company at Legal@axon.com or its principal office to the attention of the Secretary, or at such other
address as the Company may hereafter designate in writing to the Grantee. Any notice to be given under the terms of this
Agreement to the Grantee shall be provided either, in the Company’s sole discretion, through the equity plan administrator
for the Plan or at the Grantee’s last address reflected on the Company’s records, or at such other address as the Grantee
may hereafter designate in writing to the Company. Any such notice shall be deemed to be given only when received, but
if the Grantee is no longer employed by the Company or any Affiliate, such notice shall be deemed to have been duly
given by the Company when either, in the Company’s sole discretion, it is given through the equity plan administrator for
the Plan or enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage
and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States
Government.
12.
Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, and the rights and obligations of any and all persons having or claiming to have had an
interest under this Agreement shall be governed by and construed exclusively and solely in accordance with the laws of
the State of Delaware without regard to the conflict of laws provisions of any jurisdictions. The parties agree that any
action or proceeding that cannot be arbitrated in accordance with this Section [11][12] shall be brought solely in the State
of Arizona. Any dispute involving or affecting this Agreement shall be determined and resolved by binding arbitration in
the County of Maricopa, State of Arizona, in accordance with the Rules of the American Arbitration Association then in
effect, and with applicable law. BY SIGNING THIS AGREEMENT, EACH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY WITH RESPECT
C-15
TO ANY DISPUTE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. Both
parties will bear their own costs, attorneys’ fees and other expenses incurred in connection with the preparation and/or
review of this Agreement. Should the Grantee or the Company employ an attorney to enforce any of the provisions of this
Agreement, or to recover damages for the breach of any terms of this Agreement, the prevailing party shall be entitled to
recover all reasonable costs, damages and expenses, including attorneys’ fees incurred or expended in connection
therewith. The phrase “prevailing party” shall mean the party who is determined in the proceeding to have prevailed or
who prevails by dismissal, default, judgment or otherwise.
13.
Entire Agreement. [(a)] This Agreement (including the Grant Notice) and the Plan together constitute
the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with
respect to the subject matter hereof. The Plan and this Agreement may be amended pursuant to the provisions of the Plan.
Without limiting the foregoing, in the event the Grantee is party to an Employment Agreement, the Grantee acknowledges
and agrees that this Award is not subject to any terms or conditions of the Employment Agreement, including the provisions
of the Employment Agreement relating to Equity Awards (as defined therein) or to awards made under the Prior Plans.
[ONLY FOR U.S. GRANTEES: (b)
In the event the Grantee is resident in, or subject to the laws of, any
jurisdiction outside of the United States, the terms and conditions of this Agreement shall be deemed to be modified by
any applicable terms and conditions determined by the Company.]
14.
[ONLY FOR NON-U.S. GRANTEES: Appendix. Notwithstanding any provision of this Agreement,
the grant of XSUs shall be subject to any additional terms and conditions set forth in the Appendix for the Grantee’s
country. Moreover, if the Grantee relocates to one of the countries included in the Appendix during the life of this Award,
the additional terms and conditions for such country will apply to the Grantee, to the extent the Company determines that
the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix
constitutes part of this Agreement.]
15.
Limitation on Grantee’s Rights. Participation in the Plan and the grant of this Award confers no rights
or interests other than as herein provided. Nothing contained in this Agreement or the Plan constitutes a continued
employment commitment by the Company or any Affiliate or interferes with the right of the Company or any Affiliate to
increase or decrease the compensation of the Grantee from the rate in existence at any time. The Grantee shall have no
rights as a stockholder of the Company, and shall have no dividend rights or voting rights, with respect to the XSUs or any
Acquired Shares until such shares of Stock are actually issued to and held of record by the Grantee. No adjustments shall
be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the stock
certificate (or book entry credit or other indicia of ownership). This Agreement creates only a contractual obligation on
the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any
underlying program, in and of itself, has any assets. The Grantee shall have only the rights of a general unsecured creditor
of the Company with respect to amounts credited and benefits payable in cash, if any, with respect to the XSUs, and rights
no greater than the right to receive the Stock as a general unsecured creditor with respect to XSUs, as and when issuable
hereunder.
16.
Requirements of Law. Without limiting Section 12.9 of the Plan, the issuance of Stock under this
Award shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required. [ONLY FOR NON-U.S. GRANTEES: Unless there is an available
exemption from any registration, qualification or other legal requirement applicable to the shares of Stock, the Company
shall not be required to deliver any shares of Stock issuable upon settlement of this Award prior to the completion of any
registration or qualification of shares under any U.S. or non-U.S. local, state or federal securities or exchange control law
or under rulings or regulations of the SEC or of any other governmental regulatory body, or prior to obtaining any approval
or other clearance from any U.S. or non-U.S. local, state or federal governmental agency, which registration, qualification
or approval the Company shall, in its absolute discretion, deem necessary or advisable. The Grantee understands that the
Company is under no obligation to register or qualify the shares of Stock with the SEC or any state or foreign securities
commission or to seek approval or clearance from any governmental authority for the issuance or sale of the shares.
Further, the Grantee agrees that the Company shall have unilateral authority to amend the Plan and the Agreement without
Grantee’s consent to the extent necessary to comply with securities or other laws applicable to the issuance of shares.
C-16
17.
Foreign Asset/Account, Exchange Control and Tax Obligations. The Grantee acknowledges that,
depending on the Grantee’s country, the Grantee may be subject to foreign asset/account, exchange control and/or tax
reporting requirements as the result of the acquisition of shares of Stock or cash (including dividends, and the proceeds of
the shares of Stock) derived from the Grantee’s participation in the Plan in, to and/or from a brokerage/bank account or
legal entity located outside the Grantee’s country. The applicable laws of the Grantee’s country may require that the
Grantee report such accounts, assets, the balances therein, the value thereof and/or the transactions related thereto to the
applicable authorities in the Grantee’s country. The Grantee may also be required to repatriate cash received from
participating in the Plan to the Grantee’s country within a certain time after receipt. The Grantee acknowledges that the
Grantee is responsible for ensuring compliance with any applicable foreign asset/account, exchange control and tax
reporting requirements and should consult his or her personal tax, legal and/or financial advisors regarding the same.]
18.
Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute one and the same instrument.
19.
Section Headings. The section headings of this Agreement are for convenience of reference only and
shall not be deemed to alter or affect any provision hereof.
20.
Section 409A. This Agreement has been drafted with the intent that payments (and the right to payments)
under it are exempt from the requirements of Section 409A of the Code (“Section 409A”). This Agreement shall be
interpreted in a manner consistent with such intent. To the extent that any payment or benefit under this Agreement
qualifies as “non-qualified deferred compensation” within the meaning of Section 409A and is payable upon the Grantee’s
Termination of Employment, then such payments or benefits shall be payable only upon the Grantee’s “Separation from
Service” within the meaning of Section 409A. Anything in this Agreement to the contrary notwithstanding, if at the time
of the Grantee’s Separation from Service (as defined in Treasury Regulation Section 1.409A-1(h)), the Company
determines that the Grantee is a Specified Employee, then to the extent any payment or benefit that the Grantee becomes
entitled to under this Agreement on account of the Grantee’s Separation from Service would be considered deferred
compensation otherwise subject to the 20% additional tax imposed pursuant to Section 409A(a) of the Code as a result of
the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall be payable and such benefit shall be provided
no earlier than the date that is the earlier of (A) six (6) months and one day after the Grantee’s Separation from Service,
or (B) the Grantee’s death. In any case, the Grantee shall be solely responsible and liable for the satisfaction of all taxes
and penalties that may be imposed on the Grantee or for the Grantee’s account in connection with any Award (including
any taxes and penalties under Section 409A), and the Company shall have no obligation to indemnify or otherwise hold
the Grantee harmless from any or all of such taxes or penalties. The Company makes no representations concerning the
tax consequences of receipt of any Award under Section 409A or any other U.S. federal, state or local tax law.
C-17
ONLY FOR NON-U.S. GRANTEES:
APPENDIX
ADDITIONAL TERMS AND CONDITIONS FOR GRANTEES OUTSIDE THE U.S.
Capitalized terms used but not defined in this Appendix shall have the same meanings assigned to them in the Plan and
the Election Form.
Terms and Conditions
This Appendix contains additional terms and conditions that will apply to the Grantee if the Grantee works and/or resides
in one of the countries listed below.
If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or
residing, transfers to another country after the Date of Grant, or is considered a resident of another country for local law
purposes, the Company shall, in its discretion, determine the extent to which the additional terms and conditions contained
herein shall be applicable to the Grantee.
Notifications
This Appendix also includes information regarding securities laws, exchange controls, and certain other issues of which
the Grantee should be aware with respect to the Grantee’s participation in the Plan. Such laws are often complex and
change frequently. The information is based on the securities, exchange controls and other laws in effect in the respective
countries as of November 2023. As a result, the Company strongly recommends that the Grantee not rely on the
information noted herein as the only source of information relating to the consequences of the Grantee’s participation in
the Plan because the information may be out of date by the time the Grantee vests in the XSUs or sells any shares of Stock.
In addition, the information contained in this Appendix is general in nature and may not apply to the Grantee’s particular
situation, and the Company is not in a position to assure the Grantee of any particular result. Accordingly, the Grantee is
advised to seek appropriate professional advice as to how the applicable laws in the Grantee’s country may apply to their
situation.
Finally, the Grantee understands that if the Grantee is a citizen or resident of a country other than the one in which the
Grantee is currently residing and/or working, transfers to another country after the Date of Grant, or is considered a resident
of another country for local law purposes, the notifications contained herein may not be applicable to the Grantee in the
same manner.
C-18
Notifications
AUSTRALIA
Tax Notification. The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies
(subject to conditions in the Act).
Exchange Control Information. Exchange control reporting is required for cash transactions exceeding AUD 10,000 and
international fund transfers. The Australian bank assisting with the transaction will file the report. If there is no Australian
bank involved in the transfer, the Grantee personally will be required to file the report.
Notifications
BELGIUM
Exchange Control Information. Belgian residents are also required to provide the National Bank of Belgium with the
account details of any such foreign accounts. This report, as well as additional information on how to complete it, can be
found on the website of the National Bank of Belgium, www.nbb.be, under the Kredietcentrales / Centrales des crédits
caption.
Notifications
BULGARIA
Exchange Control Information. The Grantee will be required to file statistical forms with the Bulgarian National Bank
annually regarding his or her receivables in bank accounts held abroad, as well as securities held abroad (e.g., shares of
Stock acquired under the Plan) if the aggregate value of all such receivables and securities equals or exceeds a certain
threshold (currently BGN 50,000). The reports are due by March 31.
Terms and Conditions
CANADA
Settlement. Notwithstanding any discretion in the Plan or anything to the contrary in the Award Agreement, the XSUs
shall only be settled in shares of Stock.
Termination of Employment. The following provision replaces in its entirety the second paragraph of Section [3(g)] of
the Award Agreement:
For purposes of the XSUs, the Grantee’s Termination of Employment is deemed to occur (regardless of the reason for the
termination and whether or not later found to be invalid or in breach of applicable laws in the jurisdiction where the Grantee
is employed or the terms of the Grantee’s employment agreement, if any) on the date (the “Termination Date”) that is the
earliest of (1) the termination date of the Grantee’s employment, (2) the date the Grantee receives written notice of
termination of the Grantee’s employment, or (3) the date the Grantee is no longer actively employed by or actively
providing services to the Company or any of its Affiliates regardless of any notice period or period of pay in lieu of such
notice mandated under applicable laws (including, but not limited to, statutory law, regulatory law and/or common law)
in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any. The
Company shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for
purposes of the XSUs (including whether the Grantee may still be considered to be providing services while on a leave of
absence) and, hence, the Termination Date.
C-19
Notwithstanding the foregoing, if applicable employment standards legislation explicitly requires continued participation
in the Plan during a statutory notice period, the Grantee acknowledges that the Grantee’s right to participate in the Plan, if
any, will terminate effective as of the last day of the Grantee’s minimum statutory notice period, but the Grantee will not
earn or be entitled to pro-rata vesting if the vesting date falls after the end of the Grantee’s statutory notice period, nor will
the Grantee be entitled to any compensation for lost vesting.
Notifications
Securities Law Information. The Grantee is permitted to sell shares of Stock acquired upon the vesting and settlement of
the XSUs (subject to certain holding period requirements, if applicable) through the designated broker appointed under
the Plan, if any, provided the resale of shares of Stock acquired under the Plan takes place outside of Canada through the
facilities of a stock exchange on which the shares of Stock are listed. The Shares are currently listed on the NASDAQ
Stock Market.
There are no country-specific provisions.
Notifications
FINLAND
FRANCE
Tax Information. The XSUs are not intended to qualify for special tax or social security treatment in France.
Notifications
GERMANY
Exchange Control Information. Certain transactions related to the XSUs must be reported to the German Federal Bank
(Bundesbank) if the value of the transaction exceeds €12,500 (the “Threshold”). If the Grantee acquires shares of Stock
with a value in excess of the Threshold, the Employer will generally not report the acquisition of the shares, and the
Grantee may personally be obligated to report it, to the Bundesbank.
In addition, the Grantee will be required to report (i) any shares of Stock withheld or sold by the Company to satisfy the
Employer’s withholding obligations for Tax-Related Items, and (ii) any sale proceeds received when the Grantee
subsequently sells the shares, in either case if the value of the shares exceeds the Threshold. Note that, if the Grantee
reports the receipt of sale proceeds, the Grantee would not need to file a separate report when repatriating the sale proceeds
to Germany.
The reports must be filed with the Bundesbank, either electronically using the General Statistics Reporting Portal
(“Allgemeine Meldeportal Statistik”) available via the Bundesbank’s website (www.bundesbank.de) or by such other
method (e.g., email or telephone) as permitted or required by Bundesbank. The report must be submitted monthly or
within such other timing as permitted or required by Bundesbank.
C-20
Notifications
INDIA
Exchange Control Information. Any funds realized in connection with the Plan (e.g., proceeds from the sale of shares of
Stock and cash dividends paid on the shares of Stock) must be repatriated to India within a specified period of time after
receipt as prescribed under Indian exchange control laws. The Grantee is personally responsible for obtaining a foreign
inward remittance certificate (“FIRC”) from the bank where the Grantee deposits the foreign currency and holding the
FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of
repatriation. The Grantee is personally responsible for complying with exchange control laws in India, and neither the
Company nor the Employer will be liable for any fines or penalties resulting from the Grantee’s failure to comply with
applicable laws. The Grantee should consult with the Grantee’s personal advisor(s) regarding any personal legal,
regulatory or foreign exchange obligations Grantee may have in connection with Grantee’s participation in the Plan.
Terms and Conditions
ITALY
Plan Document Acknowledgment. By accepting this grant of XSUs, the Grantee acknowledges that (i) the Grantee has
received a copy of the Plan and this Agreement; (ii) the Grantee has reviewed such documents in their entirety and fully
understands the contents thereof; and (iii) the Grantee accepts all provisions of the Plan and this Agreement. The Grantee
further acknowledges that the Grantee has read and specifically and expressly approves, without limitation, the sections
of the Award Terms Agreement including “Vesting of Tranches,” “Stockholder Approval,” “Timing and Manner of
Settlement of XSUs,” “Holding Period Requirement” (if any), “Clawback,” “Nature of Grant,” “Plan,” “Appendix,” and
“Requirements of Law.”
There are no country-specific provisions.
Terms and Conditions
NETHERLANDS
SPAIN
Nature of Grant. The following provision supplements Sections 3 and 10 of the Award Terms Agreement:
By accepting this grant of XSUs, the Grantee consents to participation in the Plan and acknowledges that the Grantee has
received a copy of the Plan.
The Grantee understands that the Company has decided to grant XSUs under the Plan to eligible individuals throughout
the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant
will not bind the Company or any Affiliate of the Company, other than to the extent set forth in this Agreement.
Consequently, the Grantee understands that the XSUs are granted on the assumption and condition that the XSUs and any
shares of Stock acquired at settlement of the XSUs are not part of any employment or service agreement (either with the
Company or any Affiliate of the Company, including the Employer), and shall not be considered a mandatory benefit,
salary for any purposes (including severance compensation), or any other right whatsoever. In addition, the Grantee
understands that this grant of XSUs would not be made but for the assumptions and conditions referred to above; thus, the
Grantee acknowledges and freely accepts that, should any or all of the assumptions be mistaken or should any of the
conditions not be met for any reason, then any award of or right to the XSUs shall be null and void.
C-21
Further, the Grantee understands that the Grantee will not be entitled to continue vesting in any XSUs once Grantee
experiences a Termination of Employment. This will be the case, for example, even in the event of a termination of the
Grantee by reason of, but not limited to, resignation, retirement, disciplinary dismissal adjudged to be with cause,
disciplinary dismissal adjusted or recognized to be without cause, individual or collective dismissal or objective grounds,
whether adjudged or recognized to be without cause, material modification of the terms of employment or service under
Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, Article 50 of the Workers’ Statute,
unilateral withdrawal by the Employer and under Article 10.3 of the Royal Decree 1382/1985. The Grantee acknowledges
that the Grantee has read and specifically accepts the conditions referred to in Sections 3 and 10 of the Award Terms
Agreement.
Notifications
Exchange Control Information. The Grantee is required to declare electronically to the Bank of Spain any securities
accounts (including brokerage accounts held abroad), any foreign instruments (e.g., shares of Stock) and any transactions
with non-Spanish residents (including any payments of cash or shares of Stock made to the Grantee by the Company or
any U.S. brokerage account) if the balances in such accounts together with the value of such instruments as of
December 31, or the volume of transactions with non-Spanish residents during the prior or current year, exceed €1 million.
Terms and Conditions
UNITED KINGDOM
Responsibility for Taxes. The following provision supplements Section 5(b) of the Award Terms Agreement:
Without limitation to Section 5(b) of the Award Terms Agreement, the Grantee agrees that the Grantee is liable for all
Tax-Related Items and hereby covenants to pay all such Tax-Related Items as and when requested by the Company or the
Employer or by HM Revenue and Customs (“HMRC”) (or any other tax authority or any other relevant authority). The
Grantee also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items
that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant
authority) on the Grantee’s behalf.
Notwithstanding the foregoing, if the Grantee is a director or executive officer (within the meaning of Section 13(k) of the
Exchange Act), the terms of the immediately foregoing provision will not apply in case the indemnification is viewed as
a loan. In this case, any income tax not collected within ninety (90) days of the end of the U.K. tax year in which an event
giving rise to the Tax-Related Items occurs may constitute a benefit to the Grantee on which additional income tax and
employee National Insurance contributions (“NICs”) may be payable. The Grantee understands that the Grantee will be
responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-
assessment regime and for paying the Company and/or the Employer (as appropriate) for the value of employee NICs due
on this additional benefit which the Company and/or the Employer may obtain by any of the means referred to in Section
5(b) of the Award Agreement.
Section 431 Election. As a condition of participation in the Plan and the vesting of the XSUs, the Grantee agrees that,
jointly with the Employer, the Grantee will enter into the joint election within Section 431 of the U.K. Income Tax
(Earnings and Pensions) Act 2003 (“ITEPA 2003”) in respect of computing any tax charge on the acquisition of “Restricted
Securities” (as defined in Sections 423 and 424 of ITEPA 2003), and that the Grantee will not revoke such election at any
time. This election will be to treat the shares of Stock acquired pursuant to the vesting of the XSUs as if such shares of
Stock were not Restricted Securities (for U.K. tax purposes only). The Grantee must enter into the form of 431 election
attached to this Appendix in connection with, or promptly following, the acceptance of the Agreement.
C-22
IMPORTANT NOTE: By accepting this grant of XSUs via the Company’s designated electronic acceptance
procedures, the Grantee is agreeing to be bound by the terms of the Section 431 Election. The Grantee should read the
terms of the Section 431 Election carefully before accepting the Agreement and the Section 431 Election. If requested
by the Company, the Grantee agrees to execute the Section 431 Election in hard copy even if the Grantee has accepted
the Agreement through the Company’s electronic acceptance procedure.
By entering into the Section 431 Election, the Grantee agrees that he or she will be subject to income tax and, where
applicable, National Insurance contributions on the full unrestricted market value of the shares of Stock that the
Grantee acquires pursuant to the vesting of the XSUs.
C-23
United Kingdom
Section 431 Joint Election Form
Joint Election under s431 ITEPA 2003
for full disapplication of Chapter 2 Income Tax (Earnings and Pensions) Act 2003
One Part Election
1. Between
the Employee: [Name of Grantee]
whose National Insurance Number is: [National Insurance Number of Grantee]
and
the Company (who is the Employee’s employer) [Axon Public Safety UK Limited]
of Company Registration Number [Company Registration Number]
2. Purpose of Election
This joint election is made pursuant to section 431(1) or 431(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA)
and applies where employment-related securities, which are restricted securities by reason of section 423 ITEPA, are
acquired.
The effect of an election under section 431(1) is that, for the relevant Income Tax and NIC purposes, the employment-
related securities and their market value will be treated as if they were not restricted securities and that sections 425 to 430
ITEPA do not apply. An election under section 431(2) will ignore one or more of the restrictions in computing the charge
on acquisition. Additional Income Tax will be payable (with PAYE and NIC where the securities are Readily Convertible
Assets).
Should the value of the securities fall following the acquisition, it is possible that income tax/NICs that would have
arisen because of any future chargeable event (in the absence of an election) would have been less than the income
tax/NICs due by reason of this election. Should this be the case, there is no income tax/NICs relief available under
Part 7 of ITEPA 2003; nor is it available if the securities acquired are subsequently transferred, forfeited or revert
to the original owner.
3. Application
This joint election is made not later than 14 days after the date of acquisition of the securities by the employee and applies
to:
Number of securities All securities
Description of securities Common Stock of Axon Enterprise, Inc.
Name of issuer of securities Axon Enterprise, Inc.
To be acquired by the Employee under the terms of the Axon Enterprise Inc., 2024 Exponential Stock Plan.
C-24
4. Extent of Application
This election disapplies:
S.431(1) ITEPA: All restrictions attaching to the securities.
5. Declaration
This election will become irrevocable upon the later of its signing or the acquisition (and each subsequent acquisition) of
employment-related securities to which this election applies.
The Employee acknowledges that, [by clicking on the “ACCEPT” box] [accepting the Agreement], the Employee
agrees to be bound by the terms of this election.
[Name of Grantee]
Signature (Employee)
[Acceptance Date]
Date
The Company acknowledges that, by signing this election or arranging for the scanned signature of an authorised
representative to appear on this election, the Company agrees to be bound by the terms of this election.
Signature (for and on behalf of the Company)
[Acceptance Date]
Date
Title: [Signatory’s Title]
Note: Where the election is in respect of multiple acquisitions, prior to the date of any subsequent acquisition of a security
it may be revoked by agreement between the employee and employer in respect of that and any later acquisition.
C-25
[This Page Intentionally Left Blank]
EXECUTION VERSION
ANNEX D
AXON ENTERPRISE, INC.
EXPONENTIAL STOCK UNIT
GRANT NOTICE
This eXponential Stock Unit Award Agreement (this “Agreement”) consists of this Grant Notice (this “Grant
Notice”) and the attached Award Terms Agreement (the “Award Terms Agreement”). This Agreement sets forth the
specific terms and conditions governing an award (this “Award”) of eXponential Stock Units (“XSUs”). Capitalized terms
used in this Grant Notice, but not otherwise defined herein, shall have the meanings ascribed to them in the Award Terms
Agreement.
Name of Grantee:
Total No. of XSUs subject to this Award:
Date of Grant:
Expiration Date:
Vesting Schedule:
Contingent Award:
Patrick W. Smith
679,102
December 22, 2023
December 31, 2032
Subject to the other vesting terms and conditions of this
Agreement, this Award shall vest solely to the extent that
the performance-based vesting conditions set forth in
Schedule A hereto have been attained. Thereafter, any
shares of Stock issued upon settlement of this Award shall
be subject to the Holding Period Requirements described in
the Award Terms Agreement.
Notwithstanding the foregoing, this Award is subject to
stockholder approval at the Axon Enterprise, Inc. 2024
Annual Meeting of Stockholders (the “Annual Meeting”).
If this Award is not approved by stockholders at the Annual
Meeting, this Award shall be void ab initio and have no
further force or effect. No shares of Stock may be issued
hereunder absent such stockholder approval at the Annual
Meeting.
BY EXECUTING THIS AGREEMENT, THE GRANTEE ACKNOWLEDGES THAT HE HAS READ AND
UNDERSTANDS THE PROVISIONS OF THIS GRANT NOTICE AND THE AWARD TERMS AGREEMENT
AND AGREES THAT THIS GRANT NOTICE AND THE AWARD TERMS AGREEMENT SHALL GOVERN
THE TERMS AND CONDITIONS OF THIS AWARD.
[Intentionally blank; signature page follows]
D-1
IN WITNESS WHEREOF, the Company and the Grantee have duly executed this Agreement, and this
Agreement shall be effective as of the Date of Grant set forth above.
AXON ENTERPRISE, INC.
GRANTEE
By:
Name: Joshua Isner
Signature
Title: President
Patrick W. Smith
D-2
Schedule A – Performance-Based Vesting Requirements
The total number of XSUs subject to this Award shall be deemed to consist of seven substantially equal
installments (each, a “Tranche”). The number of XSUs in each Tranche is set forth in Chart 1 of Schedule A hereto.
The Committee shall, in good faith, periodically evaluate whether the Stock Price Goals and/or Operational Goals
(collectively, the “Performance-Based Vesting Requirements”) with respect to any Tranche have been achieved; provided
that the Committee shall perform such evaluation no less frequently than (i) within 30 days following the Company’s filing
with the SEC of any Form 10-Q or 10-K and (ii) within 30 days following the satisfaction of any Stock Price Goal.
The Performance-Based Vesting Requirements with respect to any Tranche shall be deemed achieved upon the
Committee’s determination that: (a) the Stock Price Goal set forth next to such Tranche in Chart 1 of Schedule A hereto
has been attained and (b) one of the applicable Operational Goals set forth next to the applicable Operational Milestone
Tier in Chart 2 of Schedule A hereto has been attained, in each case, prior to the applicable Goal Expiration Date (the date
that the Committee makes any such determination, a “Determination Date”). On each Determination Date, the Committee
shall also determine the date on which the Performance-Based Vesting Requirements were attained (a “Goal Attainment
Date”), provided that (i) in the event the applicable Goals are attained on different dates, the Performance-Based Vesting
Requirements shall be deemed to have been attained on (and the Goal Attainment Date shall be) the date on which the last
applicable Goal was attained and (ii) each Operational Goal shall be deemed to be attained (if at all) on the last day of the
last fiscal quarter of the Company to which such Goal relates.
D-3
Schedule A – Performance-Based Vesting Requirements
Chart 1 – Stock Price Goals and Operational Goals
Tranche
#
Number
of XSUs
Stock Price
Goal ($)
Operational Goals
Goal Expiration Date
Vesting Requirements
1
2
3
4
5
6
97,015 $
247.40
97,015
97,015
97,015
97,014
97,014
$
$
$
$
$
$
309.25
386.56
483.20
604.00
755.00
943.75
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 1
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 2
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 3
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 4
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 5
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 6
Attainment of either Operational Goal listed in
Chart 2 for Operational Milestone Tier 7
December 31, 2026
December 31, 2027
December 31, 2028
December 31, 2029
December 31, 2030
December 31, 2031
December 31, 2032
7
Total:
97,014
679,102
With respect to each Tranche, the applicable Stock Price Goal shall be deemed to have been attained as of any date if, and
only if, the Ninety-Day VWAP is equal to or greater than the Stock Price Goal target amount set forth next to such Tranche
in Chart 1 on such date; provided that the calculation of the Ninety-Day VWAP shall begin no earlier than the Date of
Grant and shall not include any Daily VWAP with respect to any date prior to the Date of Grant.
Following any attainment of a Stock Price Goal, any subsequent change in Daily VWAP or the Ninety-Day VWAP shall
have no effect on the attainment of such Goal.
The Stock Price Goals and Operational Goals are subject to adjustment, as determined by the Committee, as described in
Schedule B.
Notwithstanding the foregoing, the Stock Price Goal for any Tranche shall only be deemed attained to the extent that the
Ninety-Day VWAP equals or exceeds the applicable target amount on or prior to the Goal Expiration Date set forth next
to such Tranche in Chart 1; provided, however, that such Tranche shall be deemed to have attained such Stock Price Goal
in the event that all the Performance-Based Vesting Requirements with respect to any subsequent Tranche have been
achieved on or before the Goal Expiration Dates for such subsequent Tranche (e.g., if the Stock Price Goal for Tranche 1
is not attained by December 31, 2026, such Stock Price Goal will be deemed to have been attained if, prior to December 31,
2027, the Stock Price Goal and Operational Goal for Tranche 2 are achieved).
D-4
Schedule A – Performance-Based Vesting Requirements (Continued)
Chart 2 – Operational Goals
Operational
Milestone Tier
1
2
3
4
5
6
7
$
$
$
$
$
$
$
Revenue Goals
(millions)
OR
Adjusted EBITDA
Goals (millions)
1,834
2,293
2,866
3,583
4,479
5,599
6,999
$
$
$
$
$
$
$
393
508
655
845
1,088
1,400
1,750
Goal Expiration Date
December 31, 2026
December 31, 2027
December 31, 2028
December 31, 2029
December 31, 2030
December 31, 2031
December 31, 2032
The attainment of the Operational Goals with respect to any Operational Milestone Tier shall be deemed to have occurred
when either the applicable Revenue Goal or Adjusted EBITDA Goal has been attained, as described further below. The
attainment of the Operational Goals shall be measured as of the last day of each full fiscal quarter ending after the fiscal
quarter in which the Date of Grant occurs. Following the attainment of either the Revenue Goal or Adjusted EBITDA
Goal for any Operational Milestone Tier, the other Operational Goal shall not count toward the attainment of any other
Operational Milestone Tier.
Each Revenue Goal shall be deemed to have been attained as of any fiscal quarter end date if, and only if, Revenue is equal
to or greater than the Revenue Goal target amount set forth in Chart 2 as of such date. Following any attainment of a
Revenue Goal, any subsequent change in Revenue shall have no effect on the attainment of such Goal.
Each Adjusted EBITDA Goal shall be deemed to have been attained as of any fiscal quarter end date if, and only if,
Adjusted EBITDA is equal to or greater than the Adjusted EBITDA Goal target amount set forth in Chart 2 as of such
date. Following any attainment of an Adjusted EBITDA Goal, any subsequent change in Adjusted EBITDA shall have
no effect on the attainment of such Goal.
Notwithstanding the foregoing, the calculation of Revenue and Adjusted EBITDA shall begin with the first full fiscal
quarter ending after the fiscal quarter in which the Date of Grant occurs and shall not include any fiscal quarter of the
Company prior to such fiscal quarter.
The Operational Goals are subject to adjustment, as determined by the Committee, as described in Schedule B.
Notwithstanding the foregoing, the Operational Goals for any Tranche shall only be deemed attained to the extent that the
Revenue Goal or Adjusted EBITDA Goal in the applicable Operational Milestone Tier equals or exceeds the applicable
target amount on or prior to the Goal Expiration Date set forth next to such Operational Milestone Tier in Chart 2; provided,
however, that such Operational Goal in such Operational Milestone Tier shall be deemed to have been achieved in the
event that all the Performance-Based Vesting Requirements with respect to any subsequent Tranche have been achieved
on or before the applicable Goal Expiration Dates for such subsequent Tranche (e.g., if the Operational Goals for Tranche
1 are not achieved by December 31, 2026, such Operational Goals will be deemed to have been attained if, prior to
December 31, 2027, the Stock Price Goal and Operational Goal for Tranche 2 are achieved).
D-5
Schedule B - Adjustment of Stock Price Goals and Operational Goals for Certain Acquisitions and Divestitures
Adjustments for Acquisitions
• Any Revenue Goals that have not been attained as of the date the Company closes a merger or purchase of
substantially all of the assets of another corporation or entity (an “Acquisition”), in each case with Target Revenue
in excess of 5% of the Company’s total revenues for the most recently completed trailing four fiscal quarters prior
to such Acquisition with respect to which the Company has filed a Form 10-Q or 10-K with the SEC (such
percentage of Revenue, the “Revenue Threshold”), shall be (i) increased by a dollar amount equal to 25% of such
Target Revenue beginning with the first full fiscal quarter of the Company ending after the Acquisition; (ii) then
increased by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Target Revenue in the
second full fiscal quarter of the Company ending after the Acquisition; (iii) then increased by a dollar amount
equal to an additional 25%, or a cumulative 75%, of such Target Revenue in the third full fiscal quarter of the
Company ending after the Acquisition; and (iv) then increased by a dollar amount equal to an additional 25%, or
a cumulative 100%, of such Target Revenue in the fourth full fiscal quarter of the Company ending after the
Acquisition and all future fiscal quarters of the Company thereafter.
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes an Acquisition with
Target Adjusted EBITDA in excess of 5% of Adjusted EBITDA for the most recently completed trailing four
fiscal quarters prior to such Acquisition with respect to which the Company has filed a Form 10-Q or 10-K with
the SEC (such percentage of Adjusted EBITDA, the “Adjusted EBITDA Threshold”) shall be (i) increased by a
dollar amount equal to 25% of such Target Adjusted EBITDA beginning with the first full fiscal quarter of the
Company ending after the Acquisition; (ii) then increased by a dollar amount equal to an additional 25%, or a
cumulative 50%, of such Target Adjusted EBITDA in the second full fiscal quarter of the Company ending after
the Acquisition; (iii) then increased by a dollar amount equal to an additional 25% or a cumulative 75%, of such
Target Adjusted EBITDA in the third full fiscal quarter of the Company ending after the Acquisition; and (iv) then
increased by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Target Adjusted EBITDA
in the fourth full fiscal quarter of the Company ending after the Acquisition and all future fiscal quarters of the
Company thereafter.
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes an Acquisition with
Target Adjusted EBITDA losses in excess of the Adjusted EBITDA Threshold shall be (i) decreased by a dollar
amount equal to 25% of such Target Adjusted EBITDA losses beginning with the first full fiscal quarter of the
Company ending after the Acquisition; (ii) then decreased by a dollar amount equal to an additional 25%, or a
cumulative 50%, of such Target Adjusted EBITDA losses in the second full fiscal quarter of the Company ending
after the Acquisition; (iii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 75%, of
such Target Adjusted EBITDA losses in the third full fiscal quarter of the Company ending after the Acquisition;
and (iv) then decreased by a dollar amount equal to an additional 25%, or a cumulative 100% of such Target
Adjusted EBITDA losses in the fourth full fiscal quarter of the Company ending after the Acquisition and all
future fiscal quarters of the Company thereafter.
Adjustments for Divestitures
• Any Revenue Goals that have not been attained as of the date the Company closes a split-up, spin-off, divestiture
or disposition (a “Divestiture”) involving Divestiture Revenue in excess of the Revenue Threshold shall be
(i) decreased by a dollar amount equal to 25% of such Divestiture Revenue beginning with the first full fiscal
quarter of the Company ending after the Divestiture; (ii) then decreased by a dollar amount equal to an additional
25%, or a cumulative 50%, of such Divestiture Revenue in the second full fiscal quarter of the Company ending
after the Divestiture; (iii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 75%, of
such Divestiture Revenue in the third full fiscal quarter of the Company ending after the Divestiture; and (iv) then
decreased by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Divestiture Revenue in
the fourth full fiscal quarter of the Company ending after the Divestiture and all future fiscal quarters of the
Company thereafter.
D-6
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes a Divestiture with
Divestiture Adjusted EBITDA in excess of the Adjusted EBITDA Threshold shall be (i) decreased by a dollar
amount equal to 25% of such Divestiture Adjusted EBITDA beginning with the first full fiscal quarter of the
Company ending after the Divestiture; (ii) then decreased by a dollar amount equal to an additional 25%, or a
cumulative 50%, of such Divestiture Adjusted EBITDA in the second full fiscal quarter of the Company ending
after the Divestiture; (iii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 75%, of
such Divestiture Adjusted EBITDA in the third full fiscal quarter of the Company ending after the Divestiture;
and (iv) then decreased by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Divestiture
Adjusted EBITDA in the fourth full fiscal quarter of the Company ending after the Divestiture and all future fiscal
quarters of the Company thereafter.
• Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes a Divestiture with
Divestiture Adjusted EBITDA losses in excess of the Adjusted EBITDA Threshold shall be (i) increased by a
dollar amount equal to 25% of such Divestiture Adjusted EBITDA losses beginning with the first full fiscal
quarter of the Company ending after the Divestiture; (ii) then increased by a dollar amount equal to an additional
25%, or a cumulative 50%, of such Divestiture Adjusted EBITDA losses in the second full fiscal quarter of the
Company ending after the Divestiture; (iii) then increased by a dollar amount equal to an additional 25%, or a
cumulative 75%, of such Divestiture Adjusted EBITDA losses in the third full fiscal quarter of the Company
ending after the Divestiture; and (iv) then increased by a dollar amount equal to an additional 25%, or a
cumulative 100%, of such Divestiture Adjusted EBITDA losses in the fourth full fiscal quarter of the Company
ending after the Divestiture and all future fiscal quarters of the Company thereafter.
•
In the event of any split-up, spin-off, ordinary or extraordinary dividend or similar transaction, the Daily VWAP
shall be calculated as determined in good faith by the Committee in accordance with Section 9 of the Award
Terms Agreement.
EXPONENTIAL STOCK UNIT AWARD TERMS AGREEMENT
This eXponential Stock Unit Award Terms Agreement, together with the Grant Notice to which it is attached (the
“Grant Notice”), supplements and forms a part of the Agreement identified in the Grant Notice between Axon Enterprise,
Inc., a Delaware corporation (the “Company”), and the individual identified in the Grant Notice (the “Grantee”), and is
effective as of the date of grant set forth in the Grant Notice (the “Date of Grant”).
1.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a)
(b)
“Acquired Shares” means any shares of Stock acquired upon settlement of any XSU.
“Acquisition” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(c)
“Adjusted EBITDA” means, as of any date, for the previous four consecutive fiscal quarters,
the Company’s net (loss) income attributable to common stockholders before interest expense, interest and other income
(such as dividends), adjusted for one-time or non-recurring items, including gains and losses on investments (inclusive of
strategic and non-strategic non-controlling minority investments and joint ventures or similar arrangements), transaction
costs related to strategic investments and acquisitions (or divestitures), gains or losses or impairments related to
dispositions of businesses, disposals and/or abandonments of intangible assets, disposals or impairment of land, property
and/or equipment, insurance recoveries, restructuring costs (including non-recurring costs related to a reduction in force
and/or to closing or exiting facilities), (benefit) provision for income taxes, depreciation and amortization and stock based
compensation.
Notice.
(d)
“Adjusted EBITDA Threshold” shall have the meaning ascribed to it in Schedule B of the Grant
D-7
(e)
“Affiliate” means any member of a “controlled group of corporations” (within the meaning of
Section 414(b) of the Code as modified by Section 415(h) of the Code) that includes the Company as a member of the
group. In applying Sections 1563(a)(1), (2) and (3) of the Code for purposes of determining the members of a controlled
group of corporations under Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at
least 80 percent” each place it appears in Sections 1563(a)(1), (2) and (3).
(f)
(g)
(h)
(i)
(j)
“Agreement” shall have the meaning ascribed to it in the Grant Notice.
“Annual Meeting” shall have the meaning ascribed to it in the Grant Notice.
“Award” shall have the meaning ascribed to it in the Grant Notice.
“Award Terms Agreement” shall have the meaning ascribed to it in the Grant Notice.
“Board” means the Company’s Board of Directors, as constituted from time to time.
by and between the Company and the Grantee, dated as of December 8, 2023.
(k)
“Cause” shall have the meaning ascribed to it in that certain Executive Employment Agreement,
(l)
“Change in Control” means any of the following:
i.
The consummation of (A) a merger, consolidation, statutory share exchange or similar form of
transaction involving (x) the Company or (y) any of its subsidiaries, but in the case of this clause (y), only if
Company Voting Securities (as defined below) are issued or issuable (a “Reorganization”) or (B) the sale, transfer
or other similar disposition of all or substantially all the assets of the Company to any Person or Persons, (other
than (1) any disposition to an Affiliate or (2) any dividend or distribution of assets (including the stock of any
Affiliate) to the stockholders of the Company) (a “Sale”), unless immediately following such Reorganization or
Sale, (1) all or substantially all the Persons who were the “beneficial owners” (as used in Rule 13d-3 under the
Exchange Act (or a successor rule thereto)) of the securities eligible to vote for the election of the Board
(“Company Voting Securities”) outstanding immediately prior to the consummation of such Reorganization or
Sale continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities of the corporation or other entity resulting from such Reorganization or Sale
(including a corporation or other entity that, as a result of such transaction, owns the Company or all or
substantially all the Company’s assets either directly or through one or more subsidiaries) (the “Continuing
Company”) in substantially the same proportions as their ownership, immediately prior to the consummation of
such Reorganization or Sale, of the outstanding Company Voting Securities (excluding, for such purposes, any
outstanding voting securities of the Continuing Company that such beneficial owners hold immediately following
the consummation of the Reorganization or Sale as a result of their ownership prior to such consummation of
voting securities of any corporation or other entity involved in or forming part of such Reorganization or Sale
other than the Company), (2) no Person (excluding any employee benefit plan (or related trust) sponsored or
maintained by the Continuing Company or any entity controlled by the Continuing Company) beneficially owns,
directly or indirectly, 30% or more of the combined voting power of the then outstanding voting securities of the
Continuing Company and (3) at least a majority of the members of the board of directors of the Continuing
Company were Incumbent Directors (as defined below) at the time of the execution of the definitive agreement
providing for such Reorganization or Sale or, in the absence of such an agreement, at the time at which approval
of the Board was obtained for such Reorganization or Sale;
D-8
ii.
any Person, corporation or other entity (other than (A) the Company or (B) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or an Affiliate) becomes the
beneficial owner, directly or indirectly, of securities of the Company representing 30% or more of the combined
voting power of the Company Voting Securities; provided, however, that for purposes of this subparagraph (ii),
the following acquisitions shall not constitute a Change in Control: any acquisition (x) directly from the
Company, (y) by an underwriter temporarily holding such Company Voting Securities pursuant to an offering of
such securities or any acquisition by a pledgee of Company Voting Securities holding such securities as collateral
or temporarily holding such securities upon foreclosure of the underlying obligation or (z) pursuant to a
Reorganization or Sale that does not constitute a Change in Control for purposes of subparagraph (i) above;
iii.
the stockholders of the Company approve a plan of complete liquidation or dissolution of the
Company, unless such liquidation or dissolution is part of a transaction or series of transactions described in
subparagraph (i) above that does not otherwise constitute a Change in Control; or
iv.
during any period of twenty-four (24) consecutive calendar months, individuals who were
Directors on the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority
of the non-employee members of the Board, provided that any person becoming a Director subsequent to the first
day of such period whose election, or nomination for election by the Company’s stockholders, was approved by
a vote of at least a majority of the Incumbent Directors shall be deemed to be an Incumbent Director; provided,
further, however, that no such individual shall be an Incumbent Director if such individual’s initial assumption
of office occurs as a result of, or in connection with, (A) an actual or threatened proxy contest with respect to the
election or removal of Directors, (B) actual or threatened solicitation of proxies or consents by or on behalf of
any person or persons (whether or not acting in concert) other than the Board or (C) agreement with any Person
or Persons (whether or not acting in concert) to avoid or settle any such contest or solicitation.
(m)
“CIC Unit” means, with respect to any Change in Control, (i) any XSU in a Tranche for which
the Stock Price Goal would be attained if the Ninety-Day VWAP was deemed to be equal to the greater of (A) the most
recent closing price of the Stock immediately prior to the Closing Date and (B) the per share Stock price received by the
Company’s stockholders in connection with such Change in Control (such greater price, the “CIC Price”) and (ii) in the
event the CIC Price is greater than the Stock Price Goal applicable to any Tranche but less than the Stock Price Goal
applicable to the next Tranche, a pro rata portion of the XSUs in such next Tranche, based on a fraction the numerator of
which is the excess of the CIC Price over the Stock Price Goal applicable to the first Tranche and the denominator of
which is the excess of the Stock Price Goal applicable to the second Tranche over the Stock Price Goal applicable to the
first Tranche. All such determinations shall be made by the Committee in its discretion, which shall also have the discretion
to make any such determination prior to the applicable Closing Date.
(n)
(o)
“Closing Date” means the date on which a Change in Control is consummated.
“Code” means the Internal Revenue Code of 1986, as amended, including regulations
thereunder and successor provisions and regulations thereto.
time.
(p)
“Committee” means the Compensation Committee of the Board, as constituted from time to
Stock as reported by S&P Capital IQ (or such other source as the Committee may determine) for such trading day.
(q)
“Daily VWAP” means, as of any trading day, the volume weighted average price of a share of
(r)
“Delivery Date” shall have the meaning ascribed to in Section 5(a).
(s)
“Disability” means the inability of the Grantee to engage in any substantially gainful activity
by reason of any medically determinable physical or mental impairment that can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of
impairment shall be supported by medical evidence.
(t)
“Divestiture” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
D-9
(u)
“Divestiture Adjusted EBITDA” means, as of any date, the cumulative Adjusted EBITDA of
the spun-off, split-off, divested or disposed business or entity for the four consecutive fiscal quarters completed
immediately prior to the closing date of the relevant Divestiture; provided that if such business or entity does not have four
fiscal quarters of operating history, the calculation shall be annualized based on available quarterly financial data, as
determined in good faith by the Committee.
(v)
“Divestiture Revenue” means, as of any date, the cumulative revenue of the spun off, split-off,
divested or disposed business or entity for the four consecutive fiscal quarters completed immediately prior to the closing
date of the relevant Divestiture; provided that if such business or entity does not have four fiscal quarters of operating
history, the calculation will be annualized based on available quarterly financial data, as determined in good faith by the
Committee.
(w)
“Determination Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
thereunder and successor provisions and regulations thereto.
(x)
“Exchange Act” means the Securities Exchange Act of 1934, as amended, including regulations
(y)
“Expiration Date” means the expiration date set forth in the Grant Notice.
“Family Member” means the Grantee’s spouse and any parent, stepparent, grandparent, child,
stepchild or grandchild, including adoptive relationships or a trust or any other entity in which these persons (or the
Grantee) have more than 50% of the beneficial interest.
(z)
(aa)
“Goal” means any Stock Price Goal or Operational Goal.
Notice.
(bb)
“Goal Attainment Date” shall have the meaning ascribed to it in Schedule A of the Grant
(cc)
“Goal Expiration Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
(dd)
“Good Reason” means a material reduction of the Grantee’s duties, authority or responsibilities,
in effect immediately prior to such reduction; provided, however, that changes by the Board to the Grantee’s specific job
duties or reporting relationships which do not materially diminish the Grantee’s authority and responsibilities shall not
constitute Good Reason. Notwithstanding the foregoing, no termination by the Grantee shall constitute a termination for
Good Reason unless: (i) the Grantee gives the Company notice of the existence of the condition constituting Good Reason
within 30 days following the initial occurrence thereof; (ii) the Company does not remedy or cure the Good Reason
condition within 30 days of receiving the notice described in clause (ii); and (iii) the Grantee terminates his employment
within 30 days following the end of the cure period described in clause (ii).
(ee)
“Holding Period Requirements” shall have the meaning ascribed to it in Section 6(a).
“Minimum Service Date” means, with respect to Tranche 1 or Tranche 2, December 31, 2028;
with respect to Tranche 3 or Tranche 4, December 31, 2029; and, with respect to Tranche 5, Tranche 6 or Tranche 7,
December 31, 2030.
(ff)
the Daily VWAP, measured over a consecutive 90-day period.
(gg)
“Ninety-Day VWAP” means the volume weighted average price of a share of Stock, based on
(hh)
“Normal Vesting Date” shall have the meaning ascribed to it in Section 3(a).
EBITDA as listed in Chart 2 of Schedule A of the Grant Notice.
(ii)
“Operational Goal” means any of the specified target amounts of either Revenue or Adjusted
A of the Grant Notice.
(jj)
“Performance-Based Vesting Requirements” shall have the meaning ascribed to it in Schedule
D-10
14(d) of the Exchange Act.
(kk)
“Person” means a “person” or “group” within the meaning of Sections 3(a)(9), 13(d) and
(ll)
“Post-CIC Award” shall have the meaning ascribed to it in Section 3(f)(iii).
(mm)
“Reputational Harm” shall have the meaning ascribed to it in Section 7(b).
(nn)
“Required Position” means the Grantee’s service in the role of Chief Executive Officer of the
Company or in such other role as mutually agreed between the Grantee and the Committee, in each case, pursuant to which
the Grantee is devoting substantially all the Grantee’s business time, attention, skill and efforts to the business and affairs
of the Company and its subsidiaries. Notwithstanding the foregoing, unless otherwise determined by the Committee, the
Grantee shall be deemed to not be in the Required Position if the Grantee is the chief executive officer of any operating
company that is not affiliated with the Company, excluding any limited liability company or other entity associated with
managing the Grantee’s investments and those of the Grantee’s family.
(oo)
“Revenue” means, as of any date, the Company’s total revenues, as reported by the Company
in its financial statements on Forms 10-Q and 10-K filed with the SEC (but without giving effect to any rounding used in
reporting the amounts in Forms 10-Q and 10-K), for the previous four consecutive fiscal quarters of the Company,
beginning with the Company’s first full fiscal quarter ending after the fiscal quarter in which the Date of Grant occurs.
(pp)
“Revenue Threshold” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(qq)
“SEC” means the U.S. Securities and Exchange Commission.
(rr)
“Section 409A” shall have the meaning ascribed to it in Section 20.
thereunder and successor provisions and regulations thereto.
(ss)
“Securities Act” means the Securities Act of 1933, as amended, including regulations
other securities of the Company that may be substituted for Stock pursuant to Section 9.
(tt)
“Stock” means the common stock of the Company, par value $0.00001 per share, and such
forth in Chart 1 of Schedule A of the Grant Notice.
(uu)
“Stock Price Goal” means any of the specified target amounts of Ninety-Day VWAP as set
(vv)
“Target Adjusted EBITDA” means, as of any date, the applicable cumulative Adjusted
EBITDA of the relevant target business or entity (or, to the extent applicable, any predecessor to the relevant target entity)
for the four consecutive fiscal quarters completed immediately prior to the closing date of the relevant Acquisition;
provided that, if the relevant target business or entity does not have four fiscal quarters of operating history, the calculation
will be annualized based on available quarterly financial data, as determined in good faith by the Committee.
(ww)
“Target Revenue” means, as of any date, the applicable cumulative revenue of the relevant
target business or entity (or, to the extent applicable, any predecessor to the relevant target entity) for the four consecutive
fiscal quarters completed immediately prior to the closing date of the relevant Acquisition; provided that, if the relevant
target company or entity does not have four fiscal quarters of operating history, the calculation will be annualized based
on available quarterly financial data, as determined in good faith by the Committee.
(xx)
“Tranche” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
D-11
(yy)
“Termination of Employment” means the cessation of performance of services for the
Company. For this purpose, the transfer of the Grantee among the Company and any Affiliate, or transfer from a position
as a member of the Board to employee, shall not be considered a Termination of Employment with the Company; provided
that, for the avoidance of doubt, nothing in this definition shall be deemed to override any requirement in this Agreement
that the Grantee serve in the Required Position. In the context of an Award that is subject to the requirements of Section
409A of the Code, the term “Termination of Employment” means a “separation from service” (as defined in Treasury
Regulation Section 1.409A-1(h)).
(zz)
“Unvested CIC Units” shall have the meaning ascribed to it in Section 3(f)(ii).
(aaa)
pursuant to Section 3.
“Vesting Date” means, with respect to any XSU, the date (if any) on which such XSU vested
(bbb)
“XSU” shall have the meaning ascribed to it in the Grant Notice.
2.
Grant of XSUs. Subject to the terms of this Agreement, the Company grants to the Grantee the total
number of XSUs specified in the Grant Notice effective as of the Date of Grant (but subject to stockholder approval as set
forth in Section 4 and in the Grant Notice).
3.
Vesting of Tranches.
(a)
General. Except as otherwise provided in this Section 3, with respect to each outstanding
unvested Tranche, subject to (i) the Committee’s determination that the applicable Performance-Based Vesting
Requirements have been achieved and (ii) the Grantee’s continued employment in the Required Position through the later
of (x) the applicable Determination Date and (y) the applicable Minimum Service Date (such later date, a “Normal Vesting
Date”), such Tranche shall vest as of such Normal Vesting Date.
(b)
Expiration of Award. Upon the Expiration Date, any outstanding Tranche that has not vested
as of such date shall be forfeited, cancelled and cease to be outstanding; provided, however, that the Expiration Date shall
be deemed to be extended until the first Determination Date after the original Expiration Date solely for purposes of
determining whether any Operational Goal for the last fiscal quarter ending on or prior to the original Expiration Date has
been attained, and any Tranche that vests because of the attainment of any such Operational Goal shall be deemed to have
vested prior to the Expiration Date.
(c)
Termination Without Cause. Notwithstanding anything in Section 3(a) or (f) to the contrary,
if either (i) the Company removes the Grantee from the Required Position (other than in connection with a termination of
the Grantee’s employment by the Company for Cause or in connection with the Grantee’s death or Disability) or (ii) the
Grantee’s employment is terminated by the Company without Cause, then, subject to a release of claims in form and
substance satisfactory to the Company in accordance with Section 3(h), any then outstanding Tranche shall vest as of the
date of such termination based solely on attainment of the applicable Stock Price Goals as of such date, without regard to
the otherwise applicable Operational Goals. In addition to any Tranches that vest as a result of the preceding sentence of
this Section 3(c), a pro rata portion of the next outstanding unvested Tranche (if any are remaining) shall also vest as of
such date, based on a fraction the numerator of which is the excess (if any) of the Ninety-Day VWAP as of such date over
the Stock Price Goal applicable to the first Tranche and the denominator of which is the excess of the Stock Price Goal
applicable to the second Tranche over the Stock Price Goal applicable to the first Tranche.
(d)
Death/Disability. In the event that the Grantee’s employment terminates due to the Grantee’s
death or Disability prior to the applicable Minimum Service Date, any then outstanding Tranche shall vest as of such
termination based solely on attainment of the applicable Performance-Based Vesting Requirements as of such date, without
regard to the Grantee’s continued employment.
outstanding and eligible to vest during any period of time in which the Grantee is on an approved leave of absence.
(e)
Leave of Absence. Unless otherwise determined by the Committee, the Tranches shall remain
D-12
shall determine whether any XSU in any Tranche is a CIC Unit with respect to such Change in Control.
(f)
Change in Control. (i) Prior to the consummation of a Change in Control, the Committee
(ii) If the Grantee is employed by the Company in the Required Position on the Closing Date,
(x) any outstanding CIC Units with respect to which the applicable Minimum Service Date occurred prior to the Closing
Date shall, without regard to whether the applicable Operational Goals were attained, vest effective as of the Closing Date
and (y) any other CIC Unit shall remain outstanding and eligible to vest subject solely to the Grantee’s continued
employment through the applicable Minimum Service Date and without regard to the Performance-Based Vesting
Conditions (any CIC Units described in this clause (y), “Unvested CIC Units”). Any outstanding XSUs in a Tranche that
is not a CIC Unit shall be forfeited, cancelled and cease to be outstanding as of the Closing Date.
(iii) In connection with a Change in Control, any CIC Unit shall be subject to the authority of
the Committee hereunder, including Section 9 of this Agreement. In the event that Unvested CIC Units remain outstanding
following the Closing Date, whether by assumption, continuation or substitution of a new award (a “Post-CIC Award”),
such Post-CIC Award shall vest in full in the event that, during the 24-month period following the Closing Date, the
Grantee’s employment is terminated by the Company without Cause or the Grantee resigns for Good Reason.
Other Termination of Employment. Except as otherwise provided in this Section 3, upon
the earlier of (i) the Grantee ceasing to be employed in the Required Position and (ii) the Grantee’s Termination of
Employment for any reason, any outstanding unvested Tranche shall be forfeited, canceled and cease to be outstanding.
(g)
(h)
Release Requirement. The accelerated vesting pursuant to Section 3(c) is conditioned on the
Grantee’s execution and delivery to the Company of a release of claims in favor of the Company, in a form provided by
the Company, no later than 50 days following such Termination of Employment and the Grantee’s non-revocation of such
release during the period specified therein (which will end no later than 60 days following such Termination of
Employment).
4.
Stockholder Approval. The Grantee acknowledges and agrees that this Agreement and this Award is
being made prior to the approval of this Award by the Company’s stockholders. The Company presently intends to submit
this Award for the approval of the Company’s stockholders at the Annual Meeting. Notwithstanding anything in Section
3 or otherwise herein to the contrary, no portion of this Award shall vest and no shares of Stock shall be delivered pursuant
to this Award prior to such stockholder approval. The Grantee acknowledges and agrees that, if the Company’s
stockholders do not approve this Award at the Annual Meeting (as determined by the Board in its sole discretion), this
Award Agreement and this Award shall expire and have no further force or effect, and any portion of this Award that may
have otherwise vested prior to such date shall be forfeited, cancelled and cease to be outstanding.
5.
Timing and Manner of Settlement of XSUs.
(a)
Settlement of XSUs. Upon the vesting of any XSUs under any provision of this Agreement,
the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of XSUs that so
vested. Such shares shall be delivered to the Grantee no later than 30 days after the applicable Vesting Date and, in no
event, later than March 15 of the year following the year in which such Vesting Date occurs, except as specifically provided
herein; provided that, in the event that a Vesting Date occurs during a Company “blackout period”, the Committee shall,
to the extent permissible under Section 409A, be entitled to delay the issuance of the applicable shares of Stock, but not
later than March 15 of the year following the year in which such Vesting Date occurs (the date the shares of Stock are
delivered in accordance with this Section 5(a), the “Delivery Date”).
D-13
(b)
Tax Withholding; Tax Advice. The Company shall have the power to withhold, or require
the Grantee to remit to the Company, up to the maximum statutory amount necessary, in the applicable jurisdiction, to
satisfy any federal, state or local taxes required to be withheld or otherwise due with respect to the settlement of the XSUs;
provided that the amount of withholding will reflect the required minimum amount necessary to satisfy taxes if withholding
at the minimum amount is necessary to avoid adverse accounting consequences. To the extent that alternative methods of
withholding are available under applicable law, the Committee shall have the power to choose among such methods
including by: (i) using already owned shares of Stock; (ii) a broker-assisted “cashless” transaction; (iii) directing the
Company to apply shares of Stock to which the Grantee is otherwise entitled to satisfy the required withholding amount;
(iv) certified personal check or other cash equivalent acceptable to the Company; or (v) cashless net-issuance arrangement.
By signing this Agreement, the Grantee acknowledges that neither the Company nor any of its representatives has provided
the Grantee any tax-related advice with respect to the matters covered by this Agreement. The Grantee understands and
acknowledges that the Grantee is solely responsible for obtaining his own tax advice with respect to the matters covered
by this Agreement.
(c)
No Deferred Compensation Program (DCP) Elections. The Grantee shall not have any right
to make any election regarding the time or form of any payment due pursuant to this Agreement. In addition, the Grantee
shall not have any right to elect to receive cash consideration in lieu of the XSUs awarded to the Grantee pursuant to this
Agreement as consideration for the Grantee’s services to the Company.
(d)
Payment Treated As Made Upon A Designated Event. If the Company fails to make any
payment under this Agreement, either intentionally or unintentionally, within the time period specified in this Section 5,
but the payment is made within the same calendar year, such payment shall be treated as made within the time period
specified in this Section 5 pursuant to Treasury Regulation Section 1.409A-3(d). In addition, if a payment is not made due
to a dispute with respect to such payment, the payment may be delayed in accordance with Treasury Regulation Section
1.409A-3(g).
(e)
Section 83(b) Election. Within 30 days following each date the Grantee receives shares of
Stock upon the settlement of any Tranche that are subject to the Holding Period Requirements, the Grantee shall execute
and file with the Internal Revenue Service an election under Section 83(b) of the Code with respect to such Acquired
Shares in a form satisfactory to the Company, and the Grantee shall provide the Company with a copy of such executed
and filed election promptly thereafter.
6.
Holding Period Requirement. (a) General. Following the vesting and settlement of any Tranche in
accordance with Section 5, the Grantee shall not, without regard to whether the Grantee continues to be employed by the
Company, sell, transfer, pledge, assign or otherwise alienate or hypothecate any Acquired Shares received with respect to
such Tranche (except as required to satisfy withholding taxes due in connection with such settlement in accordance with
Section 5(b)) until the earlier of (i) December 31, 2030 and (ii) the date that a subsequent Tranche vests and settles in
accordance with Section 5 and becomes subject to this Section 6(a) (the “Holding Period Requirements”); provided that,
for purposes of the Holding Period Requirements, a Tranche shall only refer to the number of XSUs in one Tranche set
forth on Chart 1 in Schedule A of the Grant Notice, regardless of whether any prior Tranche(s) vest at the same time. For
the avoidance of doubt, (A) the Holding Period Requirements shall only apply to the Acquired Shares received with respect
to one Tranche and (B) in the event that more than one Tranche vests, only the most recently vested Tranche shall be
subject to such requirements and all earlier vested Tranches shall cease to be subject thereto. Except as required to satisfy
any applicable tax withholding obligations, any dividends or other distributions by the Company on any Acquired Share
subject to the Holding Period Requirements shall accrue and be held and retained by the Company on the same basis as
such Acquired Share, and shall not be paid to the Grantee until and unless such Acquired Share is no longer subject to the
Holding Period Requirements.
(b)
Early Release of Acquired Shares. Notwithstanding Section 6(a), the Holding Period
Requirements shall be automatically waived as to all Acquired Shares (i) upon the consummation of a Change in Control
(and, for the avoidance of doubt, in the event the Grantee receives any Acquired Shares following the Closing Date
pursuant to Section 3(f)(ii), the Holding Period Requirements shall not be applicable thereto) or (ii) in the event that the
Grantee’s employment is terminated by the Company without Cause or due to the Grantee’s death or Disability.
D-14
(c)
Escrow. The Company shall hold any Acquired Shares subject to the Holding Period
Requirement in escrow together with separate stock powers executed by the Grantee in blank for transfer. The Company
shall not dispose of shares held in escrow pursuant to this Section 6(c) except as otherwise provided in this Agreement.
At such time as any Acquired Share is no longer subject to the Holding Period Requirements, the Company shall release
such share from escrow.
(d)
Forfeiture of Acquired Shares. If, at the time that the Grantee’s employment is terminated
by the Company for Cause or the Grantee terminates his employment for any reason, any Acquired Shares are subject to
the Holding Period Requirements, such Acquired Shares shall be forfeited without any payment or consideration therefor.
In the event of any such forfeiture, the Company is hereby authorized by the Grantee, as the Grantee’s attorney-in-fact, to
date and complete the stock powers necessary for the transfer of the Acquired Shares being forfeited and to transfer such
Acquired Shares in accordance with the terms hereof.
7.
Clawback. (a) General. This Award and any Acquired Shares (and any other amounts payable under
this Award) are subject to forfeiture or recoupment to the fullest extent required by applicable law, any applicable stock
exchange listing standard, Section 7(b) of this Agreement and any recoupment or clawback policy adopted by the
Company to comply with Rule 10D-1 under the Exchange Act. By accepting this Award, the Grantee consents to the
potential forfeiture or recoupment of his Award and any Acquired Shares (and any other amount payable under this Award)
pursuant to any applicable law, listing standard, provision of this Agreement or Company policy, and agrees to be bound
by and comply with such requirements and to return or repay the full amount required by such requirements.
(b)
Reputational Harm. Without limiting any other rights and remedies available to the
Company, in the event the Grantee’s employment is terminated by the Company for Cause due to willful actions or
omissions by the Grantee after the Date of Grant that cause material reputational harm to the Company (“Reputational
Harm”), then the Company may, at any time after such termination, (i) terminate or cancel all or any unvested portion of
this Award, (ii) recover from the Grantee any Acquired Shares (or other amounts paid under this Award) that are held in
escrow pursuant to the Holding Period Requirements, or (iii) require the Grantee to remit to the Company the after-tax net
value of any amount previously paid to or received by the Grantee in respect of this Award (including Acquired Shares no
longer subject to the Holding Period Requirements); provided that any recovery or remittance described in clause (ii) or
(iii) above shall only apply with respect to amounts paid or received within the three-year period prior to the Grantee’s
Termination of Employment for Reputational Harm. The amount that the Company may recover from the Grantee in the
event of a termination due to Reputational Harm shall be based on such factors the Board reasonably determines in its
good-faith judgment are appropriate, including the impact of individuals other than the Grantee or events beyond the
control of the Grantee, the cooperation of the Grantee in mitigating the Reputational Harm and the judgment of the Board
as to the magnitude of the Reputational Harm to the Company. No act or omission by the Grantee shall be considered
“willful” for purposes of this Agreement (i) unless done, or failed to be done, by the Grantee intentionally and in bad faith
or (ii) if done, or failed to be done, by the Grantee following advice of the Company’s legal counsel,
(c)
Reputational Harm Determination. Notwithstanding anything in Section 7(b) to the
contrary, the cessation of the Grantee’s employment shall not be deemed to be due to Reputational Harm unless and until
there shall have been delivered to the Grantee a copy of a resolution duly adopted by the affirmative vote of a majority of
the entire membership of the Board (excluding for all purposes the Grantee) at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with
counsel for the Grantee, to be heard before the Board), finding that, in the good-faith opinion of the Board, Cause and
Reputational Harm exist and specifying the particulars thereof in detail.
D-15
8.
Administration by Committee. This Agreement shall at all times be administered by the Committee.
The Committee shall have the sole and complete discretion with respect to all matters under this Agreement and decisions
of the Committee with respect thereto and to this Agreement shall be final and binding upon the Grantee and the Company.
Each member of the Committee shall be indemnified and held harmless by the Company against and from any loss, cost,
liability or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting
from any claim, action, suit or proceeding to which such member may be a party or in which such member may be involved
by reason of any action taken or failure to act in connection with the administration of this Agreement. The foregoing
right of indemnification shall not be exclusive of any other rights of indemnification to which such member of the
Committee may be entitled under the Company’s articles of incorporation, bylaws, resolution or agreement, as a matter of
law, or otherwise.
9.
Adjustments Upon Specified Events. In the event of any change in the outstanding shares of Stock by
reason of a stock dividend or split, split-up or spin-off, extraordinary dividend or other extraordinary distribution (whether
in the form of cash, Stock or other property), Change in Control, recapitalization, rights offering, liquidation, merger,
consolidation, combination, exchange of shares, or other similar corporate change or event in respect of the Stock, the
Committee shall equitably adjust, in the manner the Committee determines appropriate, any or all of: (a) the number and
class of shares of Stock or other property subject to this Award; (b) any numeric or share-based limit expressed in this
Agreement; (c) the number and class of and/or price of shares of Stock subject to this Award; (d) the performance period,
performance targets and/or other goals applicable to this Award; or (e) any other terms of an Award that are affected by
the event. In the event of any such transaction, the Committee, in its discretion, may provide in substitution for any or all
of this Award such alternative consideration (including cash) as it, in good faith, may determine, including making
provision for a cash payment to the Grantee in consideration for the cancelation of this Award. Any action taken pursuant
to this Section 9 shall be taken in a manner consistent with the requirements of Section 409A. The adjustments permitted
under this Section 9 shall be binding on the Grantee without the Grantee’s consent or further action thereby.
10.
Nontransferability of XSUs. The XSUs shall not be transferable by the Grantee or any other person
claiming through the Grantee, either voluntarily or involuntarily, except by will or the laws of descent and distribution.
Notwithstanding the foregoing sentence, the Committee may, in its sole discretion and in compliance with applicable
federal or state securities laws, regulations, or rules of the NASDAQ Stock Market (or such other exchange on which the
Stock is then traded), permit the transfer of XSUs to a Family Member, trust (including a donor advised fund) or
partnership, or to a charitable organization (including, without limitation, law enforcement based charitable organizations),
in each case, for estate planning or charitable purposes; provided that no value or consideration is received by the Grantee
with respect to such transfer.
11.
Notices. Any notice to be given under the terms of this Agreement to the Company shall be in writing
and addressed to the Company at Legal@axon.com or its principal office to the attention of the Secretary, or at such other
address as the Company may hereafter designate in writing to the Grantee. Any notice to be given under the terms of this
Agreement to the Grantee shall be provided either, in the Company’s sole discretion, through the equity plan administrator
for this Award or at the Grantee’s last address reflected on the Company’s records, or at such other address as the Grantee
may hereafter designate in writing to the Company. Any such notice shall be deemed to be given only when received, but
if the Grantee is no longer employed by the Company, such notice shall be deemed to have been duly given by the Company
when either, in the Company’s sole discretion, it is given through the equity plan administrator for this Award or enclosed
in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or
certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government.
12.
Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, and the rights and obligations of any and all persons having or claiming to have had an
interest under this Agreement shall be governed by and construed exclusively and solely in accordance with the laws of
the State of Delaware without regard to the conflict of laws provisions of any jurisdictions. The parties agree that any
action or proceeding that cannot be arbitrated in accordance with this Section 12 shall be brought solely in the State of
Arizona. Any dispute involving or affecting this Agreement shall be determined and resolved by binding arbitration in the
County of Maricopa, State of Arizona, in accordance with the Rules of the American Arbitration Association then in effect,
and with applicable law. BY SIGNING THIS AGREEMENT, EACH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY WITH RESPECT
TO ANY DISPUTE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. Both
D-16
parties will bear their own costs, attorneys’ fees and other expenses incurred in connection with the preparation and/or
review of this Agreement. Should the Grantee or the Company employ an attorney to enforce any of the provisions of this
Agreement, or to recover damages for the breach of any terms of this Agreement, the prevailing party shall be entitled to
recover all reasonable costs, damages and expenses, including attorneys’ fees incurred or expended in connection
therewith. The phrase “prevailing party” shall mean the party who is determined in the proceeding to have prevailed or
who prevails by dismissal, default, judgment or otherwise.
13.
Entire Agreement; Amendment. This Agreement (including the Grant Notice) constitutes the entire
agreement and supersedes all prior understandings and agreements, written or oral, of the parties hereto with respect to the
subject matter hereof. This Agreement may be amended only by a written agreement executed by the Company and the
Grantee. The provisions of this Agreement may not be waived or modified unless such waiver or modification is in writing
and signed by a representative of the Committee.
14.
No Right to Continued Employment. This Agreement shall not be construed to confer upon the
Grantee any right to continue employment with the Company (or continue employment as the Company’s Chief Executive
Officer) and shall not limit the right of the Company, in its sole and absolute discretion, to terminate the Grantee’s
employment at any time for any reason.
15.
Compliance with Securities and Applicable Laws. (a) General. Notwithstanding anything in this
Agreement to the contrary, the Company shall not be required to deliver any Acquired Shares or issue or deliver any
related certificates evidencing shares of Stock, make any book-entry credits, or take any other action to evidence the
ownership of shares of Stock pursuant to the settlement of the XSUs if, in the opinion of counsel for the Company, such
issuance would violate the Securities Act, the Exchange Act, or any other applicable federal or state securities laws,
regulations, or rules of the NASDAQ Stock Market (or such other exchange on which the Stock is then traded). All Stock
certificates, book-entry credits, or other evidence of ownership delivered pursuant to this Agreement are subject to any
stop-transfer orders and other restrictions as the Company deems necessary or advisable to comply with applicable law
and the rules and regulations and the rules of the NASDAQ Stock Market (or such other exchange on which the Stock is
then traded). The Company may place legends on any Stock certificate to reference restrictions applicable to the Stock.
In addition to the terms and conditions provided herein, the Company may require that the Grantee make such reasonable
covenants, agreements and representations as the Company, or its counsel, deem advisable in order to comply with any
such laws, regulations or requirements.
(b)
Further Limits on Disposition. The Grantee understands and acknowledges that, as of the
Date of Grant, any XSUs and any shares of Stock subject to the XSU are not registered under the Securities Act or any
applicable state securities laws and may not be sold, assigned, transferred or disposed of (including transfer by gift or
operation of law) except in accordance with this Agreement. If this Award is approved by stockholders at the Annual
Meeting, the Company shall have on file with the SEC a registration statement on an appropriate form under the Securities
Act with respect to the shares of Stock subject to this Award.
16.
No Stockholder Rights. The Grantee shall have no voting rights or any other rights as a stockholder of
the Company with respect to any XSU unless and until shares of Stock are in fact issued to the Grantee in connection with
the settlement of such XSU.
17.
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors
and permitted assigns of the Company, including whether by way of merger, consolidation, operation of law, assignment,
purchase or other acquisition of substantially all of the assets or business of the Company, and any and all such successors
and assigns shall absolutely and unconditionally assume all of the Company’s obligations under this Agreement.
18.
Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute one and the same instrument.
D-17
19.
Interpretation. The section headings of this Agreement are for convenience of reference only and shall
not be deemed to alter or affect any provision hereof. Wherever the words “include”, “includes” or “including” are used
in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein”
and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. Words in the singular shall be held to include the plural and vice versa
and words of one gender shall be held to include the other gender and the neuter as the context requires.
20.
Section 409A. This Agreement has been drafted with the intent that payments (and the right to payments)
under it are exempt from the requirements of Section 409A of the Code (“Section 409A”). This Agreement shall be
interpreted in a manner consistent with such intent. To the extent that any payment or benefit under this Agreement
qualifies as “non-qualified deferred compensation” within the meaning of Section 409A and is payable upon the Grantee’s
Termination of Employment, then such payments or benefits shall be payable only upon the Grantee’s “Separation from
Service” within the meaning of Section 409A. Anything in this Agreement to the contrary notwithstanding, if at the time
of the Grantee’s Separation from Service (as defined in Treasury Regulation Section 1.409A-1(h)), the Company
determines that the Grantee is a Specified Employee, then to the extent any payment or benefit that the Grantee becomes
entitled to under this Agreement on account of the Grantee’s Separation from Service would be considered deferred
compensation otherwise subject to the 20% additional tax imposed pursuant to Section 409A(a) of the Code as a result of
the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall be payable and such benefit shall be provided
no earlier than the date that is the earlier of (A) six (6) months and one day after the Grantee’s Separation from Service,
or (B) the Grantee’s death. In any case, the Grantee shall be solely responsible and liable for the satisfaction of all taxes
and penalties that may be imposed on the Grantee or for the Grantee’s account in connection with any Award (including
any taxes and penalties under Section 409A), and the Company shall have no obligation to indemnify or otherwise hold
the Grantee harmless from any or all of such taxes or penalties. The Company makes no representations concerning the
tax consequences of receipt of any Award under Section 409A or any other U.S. federal, state or local tax law.
21.
Independent Counsel. The Grantee acknowledges that he has been advised to seek, and has had the
opportunity to seek, the advice and representation of independent counsel and tax advisors prior to entering into this
Agreement and the transactions contemplated hereby.
D-18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 001-16391
Axon Enterprise, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
17800 North 85th Street
Scottsdale, Arizona
(Address of principal executive offices)
86-0741227
(I.R.S. Employer
Identification No.)
85255
(Zip Code)
Registrant’s telephone number, including area code:
(480) 991-0797
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.00001 par value per share
Trading Symbol(s)
AXON
Name of exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1409) No (cid:1407)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1407) No (cid:1409)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1409) No (cid:1407)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:1409) No (cid:1407)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(cid:1409)
(cid:1407)
Accelerated filer(cid:1407)
Smaller reporting company(cid:1407)
Emerging growth company(cid:1407)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:1409)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements. (cid:1407)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:1407)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:1407) No (cid:1409)
As of June 30, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $14.3 billion based on the closing sale price as
reported on The NASDAQ Global Select Market.
The number of shares of the registrant’s common stock outstanding as of February 23, 2024 was 75,302,832
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for its 2024 Annual Meeting of Shareholders to be prepared and filed with the Securities and Exchange Commission not later than 120 days
after December 31, 2023 are incorporated by reference into Part III of this Form 10-K.
Page
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AXON ENTERPRISE, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
PART III
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
2
PART I
Statements contained in this Annual Report on Form 10-K that are not historical are “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations,
beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the
safe-harbor provided by the Private Securities Litigation Reform Act of 1995. Such statements give our current
expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,”
“will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,”
“believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements.
However, not all forward-looking statements contain these identifying words.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent
in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate
assumptions. Many events beyond our control may determine whether results we anticipate will be achieved. Should
known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results
could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you
consider forward-looking statements. This report lists various important factors that could cause actual results to differ
materially from historical and expected results. These factors are intended as cautionary statements for investors within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Readers can find them under the
heading “Risk Factors” in this Annual Report on Form 10-K, and investors should refer to them. You should understand
that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a
result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we
make on related subjects in our Form 8-K, 10-Q and 10-K reports to the Securities and Exchange Commission (“SEC”).
Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.
Risk Factor Summary
The following is only a summary of the principal risks that may materially adversely affect our business, financial
condition, results of operations and cash flows. The following should be read in conjunction with the more complete
discussion of the risks we face, which are set forth more fully in “Part I. Item 1A. Risk Factors.”
Strategic Risks
•
•
•
If law enforcement agencies do not continue to purchase and use our products and services, our growth prospects,
operating results and financial condition will be materially adversely affected.
If our TASER conducted energy devices (“CEDs”) do not continue to be widely accepted, our growth prospects,
operating results and financial condition will be diminished.
If we are unable to design, introduce, sell and deploy new products or new product features successfully, our
business and financial results could be adversely affected.
• We face risks associated with rapid technological change and new competing products.
• Our future success is dependent on our ability to expand sales through direct sales and distributors and our
inability to increase direct sales or recruit new distributors would negatively affect our sales.
• Negative publicity could adversely impact sales, which could cause our revenues or operating results to decline.
• Acquisitions of, or investments in, other products, technologies or businesses could disrupt our business, dilute
shareholder value, and adversely affect our operating results.
• Our failure to retain executive officers, including Patrick W. Smith, could adversely impact our business.
3
Operational Risks
• Unavailability of materials or higher costs could adversely affect our financial results.
• Material adverse developments in domestic and global economic conditions, or the occurrence of other world
events, could materially adversely affect our revenue and results of operations.
• To the extent demand for our products increases, our future success will be dependent upon our ability to manage
our growth and to increase manufacturing production capacity.
• Delays in product development schedules could adversely affect our revenues and cash flows.
• We expend significant resources in anticipation of a sale and may receive no revenue in return.
• Changes in civil forfeiture laws may affect our customers’ ability to purchase our products.
•
If our security measures or those of our third-party providers, including cloud storage providers, are breached
and unauthorized access is obtained to customers’ data or our data, our network, data centers and service may
be perceived as not being secure, customers may curtail or stop using our products and services, and we may
incur significant legal and financial exposure and liabilities.
• Catastrophic events could materially adversely affect our business, results of operations and/or financial
condition.
• Uncertainty in the development, deployment and use of artificial intelligence (“AI”) in our products and services,
as well as our business more broadly, could adversely affect our business and reputation.
• Defects or disruptions in our services could impact demand for our services and subject us to substantial liability.
• Defects in our products could reduce demand for our products or result in product recalls and result in a loss of
sales, delay in market acceptance and damage to our reputation.
• Our international operations expose us to additional risks that could harm our business, operating results and
financial condition.
• We depend on our ability to attract and retain our key management, sales and technical personnel.
•
If we fail to comply with federal, state or local regulations applicable to TASER 10, we may be subject to
governmental actions or litigation that could materially harm our business.
If we fail to maintain effective internal control over financial reporting or identify a material weakness or
significant deficiency, our ability to accurately and timely report our financial condition and results of operations
could be adversely affected, investor confidence could diminish, and the value of our common stock may decline.
•
Financial Risks
• An increasing percentage of our revenue is derived from subscription billing arrangements that may result in
delayed cash collections and may increase customer credit risk on receivables and contract assets.
• Our gross margin is dependent on a number of factors, including our product mix, cost structure and acquisitions
we may make, any of which could cause our gross margin to decline.
• Software-as-a-Service (“SaaS”) revenue for Axon Evidence is recognized over the terms of the contracts, which
may be several years, and, as such, trends in new business may not be immediately reflected in our operating
results.
• Most of our end-user customers are subject to budgetary and political constraints that may delay or prevent sales.
• Due to government funding rules, certain of our contracts are subject to various cancellation clauses, which could
allow our customers to cancel or not exercise options to renew contracts in the future.
• The open bidding process creates uncertainty in predicting future contract awards.
• We maintain most of our cash balances, some of which are not insured, at two depository institutions.
• Stock transactions may have a material, unpredictable impact on our results of operations and may result in
dilution to existing shareholders.
• Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local
currencies.
4
• Unanticipated changes in our effective tax rate and additional tax liabilities may impact our operating results and
financial condition.
• Our revenues and operating results may fluctuate unexpectedly, which may cause our stock price to decline.
• Our profitability could suffer from declines in fair value or impairment of our investments, including our
strategic investments, and could fluctuate if the fair values of our investments increase.
Legal and Compliance Risks
• We may face personal injury, wrongful death, product liability and other liability claims that harm our reputation
and adversely affect our sales and financial condition.
• Other litigation, government inquiries and regulatory actions may subject us to significant costs and judgments
and divert management attention from our business.
• We have been, and may be in the future, subject to intellectual property infringement and other claims, which
could incur substantial litigation costs, result in significant damages awards, inhibit our use of certain
technologies, and divert management attention from our business.
If we are unable to protect our intellectual property, the value of our brands and products may decrease and we
may lose our competitive market advantage.
•
• We may be unable to enforce patent rights internationally, which may limit our ability to prevent our product
features from being used by competitors in some foreign jurisdictions.
• The use of open source software in our products, services and technologies may expose us to additional risks
and harm our intellectual property.
• A variety of new and existing laws and/or interpretations could materially and adversely affect our business.
• We are subject to evolving corporate governance and public disclosure regulations and expectations that could
expose us to numerous risks.
• Our amended and restated bylaws include exclusive forum provisions that could increase costs to bring a claim,
discourage claims or limit the ability of our shareholders to bring a claim in a judicial forum viewed by
shareholders as more favorable for disputes.
Risks Related to our Convertible Notes
• Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow to pay our
substantial debt.
• The conditional conversion feature of the Notes, if triggered, may adversely affect our operating results.
• Conversion of the Notes may dilute the ownership interest of our shareholders or may otherwise depress the
price of our common stock.
• Changes in the accounting treatment for the Notes may have a material effect on our reported financial results.
• The convertible note hedge and warrant transactions may affect the value of the Notes and our common stock.
• We are subject to counterparty risk with respect to the convertible note hedge transactions.
5
Item 1. Business
Overview
Axon Enterprise, Inc. (“Axon,” the “Company,” “we” or “us”) is a market-leading provider of law enforcement
technology solutions with a mission to protect life in service of promoting peace, justice and strong institutions. In 2022,
we announced our moonshot goal to cut gun-related deaths between police and the public in the United States in half by
2033.
Axon is building the public safety operating system of the future by integrating a suite of hardware devices and cloud
software solutions that not only revolutionize modern policing but also cater to federal agencies, corrections, justice and
enterprise-level security needs. Axon’s suite includes cloud-hosted digital evidence management, productivity and real-
time operations software, body-worn cameras, in-car cameras, TASER energy devices, robotic security and training
solutions.
Our hardware and software solutions advance our long-term strategic vision of (i) obsoleting the bullet, (ii) reducing
social conflict, (iii) enabling a fair and effective justice system, and (iv) building for racial equity, diversity, and inclusion.
Our products solve some of society's most challenging problems and our mission attracts top talent. We aim to invent and
deliver public safety products that progressively make the right things easier and the wrong things harder every day.
Our research & development (“R&D”) investments support continuous innovation on behalf of our customers. Our
financial strategy is to build highly recurring, highly profitable businesses and to drive growth through this purposeful
product innovation.
Axon’s operations comprise two reportable segments:
1. TASER: Axon is the market leader in the development, manufacture and sale of CEDs, which we sell
under our brand name, TASER.
2. Software and Sensors: We develop, manufacture and sell fully integrated hardware and cloud-based
software solutions that enable law enforcement to capture, securely store, manage, share and analyze
video and other digital evidence. Our software offerings also support productivity and real-time
operations.
Further information about our reportable segments and sales by geographic region is included in Notes 1, 2 and 19
of the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10(cid:4137)K. For future contracted
revenue by reportable segment, refer to Part II, Item 7 of this Annual Report on Form 10(cid:4137)K.
Axon employees are distributed across multiple geographies and report to work via a remote-hybrid model, which
leverages both in-person collaboration environments as well as cloud-based software tools that enable remote productivity.
Our headquarters in Scottsdale, Arizona and our software hub in Seattle, Washington house the majority of our in-person
employees located in the United States, including members of our executive management team, and sales, marketing,
certain engineering, manufacturing, finance and other administrative support functions. We also have subsidiaries and / or
offices located in Australia, Belgium, Canada, Finland, France, Germany, Hong Kong, India, Italy, the Netherlands, Spain,
the United Kingdom and Vietnam.
Key Product Category Revenue Drivers: What We Offer
Axon products are generally cloud-connected, designed to drive better outcomes and customer experiences, and sold
via mutually reinforcing integrated bundles. Our key revenue drivers belong to three broad product categories:
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• Software: Axon is building a suite of cloud-based, SaaS solutions that integrate with our sensors and TASER
devices to benefit customers and drive annual recurring revenue, which totaled $697 million1 as of December 31,
2023. We have many SaaS solutions, which can best be trisected into three categories: digital evidence
management, productivity and real-time operations solutions. Axon Evidence is the world’s largest cloud-hosted
public safety data repository of public safety video data and other types of digital evidence. Our productivity
suite, which includes Axon Records, is designed to save officers time spent writing reports and doing paperwork.
Our real-time operations capabilities, which include Axon Respond, integrates location data, signal alerts and
video feeds to provide a complete picture of evolving situations.
• Sensors: Axon devices address many needs, including transparency, real-time situational awareness, and
accurate capture and integration of evidence with software workflows. Product categories within sensors include
Axon Body cameras, Axon Fleet in-car systems, and other devices that work with our software. Our software
solutions also support an open ecosystem of connected devices produced by other vendors.
• TASER: We develop smart devices, tools and services that support public safety officers in de-escalating
situations, avoiding or minimizing use of force and aiding consumer personal protection. These tools include
TASER devices, virtual reality (“VR”) training services and consumer devices. Research has shown that TASER
devices are the most effective less-than-lethal force option, with the lowest likelihood of injury to officers and
assailants. Since our inception in 1993, TASER devices have been adopted by a majority of U.S. state and local
law enforcement and are used daily to help keep communities safe. Global adoption of TASER devices remains
early and we are expanding into new geographies. Axon VR solutions make public safety training more
accessible, relevant and affordable — with the goal of using new immersive VR technologies to better prepare
officers for real-life situations in the field.
Sales and Distribution: Who We Sell To and Where We Deliver
We think of our core customers as falling into roughly four categories of funding sources: U.S. state and local
governments, the U.S. federal government, international government customers and commercial enterprises. Additionally,
the types of customers who find value in our product offerings are expanding beyond law enforcement to include attorneys,
corrections, fire and emergency medical services personnel and the U.S. military.
Axon’s sales force and strong customer relationships represent key strategic advantages. The majority of our revenues
are generated via direct sales, including our online store, although we do leverage distribution partners and third-party
resellers.
No customer represented more than 10% of total net sales for the years ended December 31, 2023, 2022 or 2021.
We are diversifying into new markets by adding new types of customer profiles, or users, and by adding to our core
customer base. In recent years, we have been investing in sales personnel to capture these new markets, and we continue
to focus on strategic headcount additions to support key new markets and new products.
Governmental agencies generally have the ability to terminate our contracts, in whole or in part, for reasons including
non-appropriation of funds. We continue to monitor developments in federal government funding.
1 Calculated as monthly recurring license, integration, warranty, and storage revenue for the year ended December 31,
2023. Annual recurring revenue is a performance indicator that management believes provides more visibility into the
growth of our revenue generated by our highest margin, recurring services. Annual recurring revenue should be viewed
independently of revenue and deferred revenue because it is an operating measure and is not intended to be combined
with or to replace GAAP revenue or deferred revenue, as they can be impacted by contract start and end dates and
renewal rates. Annual recurring revenue is not intended to be a replacement or forecast of revenue or deferred revenue.
7
Resources
Manufacturing and Supply Chain
We perform light manufacturing, final assembly and final test operations at our facilities in Scottsdale, Arizona, and
own substantially all of the equipment required to develop, prototype, manufacture and assemble our finished products.
We have continued to maintain both our ISO 9001 and our ISO 9001:2015 certifications.
We continue to take steps to diversify our supply chain and global manufacturing footprint, which positions us well
to manage supply chain disruptions. Material availability has mostly stabilized from prior supply chain challenges while
general levels of risk continue to exist in all businesses that manufacture products. Supplier decommitments remain a top
area of risk. However, we have put programs in place to mitigate this risk. We proactively manage our supply chain down
to third tier suppliers to overcome material shortages as they arise. These actions align to our strategic model to help meet
strong product demand while also preparing us to stagger factory work schedules as needed, which enables us to meet
compressed build schedules over short periods of time. We continue to adjust strategic inventory levels in both raw and
finished goods based on areas of risk to mitigate potential supply disruptions.
In light of our broad domestic and international supplier base, we are continuously monitoring our supply chain to
manage through potential impacts, identifying alternate shipping and logistic sources, and working with foreign regulators
to ensure that our suppliers can provide parts.
Even as we continue to expand our second sourcing of materials across our supply chain, we still obtain some unique
components from single source suppliers. However, because we own substantially all of the injection molded component
tooling used in their production, we believe we could obtain alternative suppliers in most cases with varying levels of
interruption. In addition, we also have programs to hold additional raw materials (such as resins and critical
semiconductors) to mitigate supply and better manage costs. For additional discussion of sources and availability of raw
materials, refer to Note 1 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on
Form 10-K.
We provide limited manufacturer’s warranties on our Axon devices and CEDs, and customers also have the option
to purchase extended warranties. For additional information about our warranties, refer to Note 1 in the consolidated
financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Intellectual Property
We protect our intellectual property with U.S. and international patents and trademarks. Our patents and pending
patent applications relate to technology used by us in connection with our products. We also rely on international treaties,
organizations and laws to protect our intellectual property. As of December 31, 2023, we hold over 300 U.S. patents, over
125 U.S. registered trademarks, over 240 international patents and over 450 international registered trademarks, as well as
numerous patent and trademark applications pending.
We continuously assess whether and where to seek formal protection for particular innovations and technologies
based on such factors as the commercial significance to our operations and our competitors’ operations in particular
countries and regions, our strategic technology or product directions in different countries, and the degree to which
intellectual property laws exist and are meaningfully enforced in different jurisdictions. We have the exclusive rights to
many Internet domain names, primarily including “Axon.com,” “Evidence.com” and “TASER.com.” We also vigorously
protect our intellectual property, including patents, trademarks and trade secrets against third-party infringement.
Confidentiality agreements are used with employees, consultants and key suppliers to help ensure the confidentiality
of our trade secrets.
8
Competition
Sensors — Connected Cameras and Digital Evidence Management Software: The body-worn camera and in-car
video/automatic license plate readers industry is highly competitive. Our competition includes Axis Communications
AB, Digital Ally Inc., Getac Technology Corporation, Halo Body Cameras, i-PRO, LensLock Inc., Motorola Solutions,
Reveal Media, Safe Fleet, Utility Associates, Versaterm Inc., Wolfcom Enterprises, Wrap Technologies Inc. and Zepcam
B.V., Applied Concepts Inc., Genetec Inc. and Insight LPR.
The market for software solutions to improve public safety agency workflows is both highly fragmented and highly
competitive. Our cloud-based digital evidence management system, Axon Evidence, competes with both cloud-based
platforms and on-premises based systems designed by third-parties or developed internally by an agency's technology
staff. Our competition includes FileOnQ, FotoWare, Genetec Inc., IBM, i-PRO, Motorola Solutions, NICE, OpenText
Corporation, Oracle, QueTel Corporation, Revir Technologies, Utility Associates and Vidizmo, LLC, among others.
Key competitive factors in this product category include product performance, product features (including live-
streaming, GPS tracking and pre-event buffering), battery life, product quality and warranty, total cost of ownership, data
security, data and information workflows, company reputation and financial strength, and customer satisfaction and
relationships.
Productivity and Real-Time Operations Software — Records Management System (“RMS”) and Computer Aided
Dispatch (“CAD”): The RMS and CAD verticals are highly competitive and highly fragmented. We have identified more
than 50 software providers, including 365Labs, Beacon Software Solutions Inc., Caliber Public Safety (parent, Harris
Computer Systems), Central Square Technologies (formerly Superion, TriTech and Aptean), CivicEye, Core Technology
Corporation, CSI Technology Group, EForce Software, Executive
Inc., Hexagon
AB, Kologik, LawSoft Inc., Mark43 Inc, Motorola Solutions, Niche Technology Inc., Saab, SmartCop, SOMA
Global, Sopra Steria, Southern Software, Sun Ridge Systems Inc. and Tyler Technologies. In addition, not all law
enforcement agencies use software for report writing — some still use paper. We believe our network of camera sensors
and digital evidence management platform give us a strategic advantage in these product categories. Our Axon Respond
offering competes both with real-time operations platforms that ingest body camera video feeds, like Genetec's Citigraf,
Motorola’s CommandCentral Aware and Utility Associates’ Titan, as well as platforms that ingest video feeds exclusively
from surveillance cameras, like Hexagon's Connect, Live Earth and Spatialitics's GeoShield among others.
Information Services
TASER for Professional Users: Our CEDs compete with a variety of less-lethal alternatives to firearms, including
rubber bullets or rubber baton rounds, such as those made by Combined Systems, Inc.; pepper spray, pepper spray
projectiles, such as those made by Byrna Technologies Inc. (dba Fox Labs), SABRE Corporation and Mace Security
International, Inc.; traditional stun guns, such as those made by UZI and Jolt; hand-held remote restraint devices involving
a tether, such as the one made by Wrap Technologies Inc.; laser dazzlers that cause temporary blindness, such as the one
made by B.E. Meyers & Co., Inc.; stun grenades, such as those made by Combined Systems, Inc.; long-range acoustic
devices, such as the one made by Genasys Inc.; and police batons and night sticks, such as those made by Monadnock and
by Armament Systems and Procedures, Inc. TASER devices offer advanced technology, versatility, portability,
effectiveness, built-in accountability systems and low injury rates, which enable us to compete effectively against other
less-lethal alternatives. TASER devices also offer connectivity to our cloud network, which allows law enforcement
agencies and other professional users to more effectively manage their less-lethal programs and automate use-of-force
reporting.
The key competitive factors in this product category include a device’s accuracy, effectiveness, reputation, safety,
cost, ease of use, and exceptional customer experience. The design maturity of the TASER platform, as well as our
development and sale of a multi-shot device, are also key competitive differentiators. We are aware of competitors
providing competing CED products primarily outside of the United States.
9
VR De-Escalation Training for Law Enforcement, Corrections and Private Security: Our VR Training platform
competes with several other companies in the space who offer simulation scenarios, including simulated training on the
use of both lethal and less-lethal alternatives. Our competition in this space includes Adaptive VR Ltd., Apex Officer,
Hologate GmbH, InVeris Training Solutions Inc., Laser Shot Inc., MILO, Street Smarts VR, Ti Training Corp, V-Armed,
VirTra Inc. and Wrap Technologies.
Key competitive factors in this product category include scale of content library, integration to additional sensors
and devices (e.g. haptic suit, TASER), ease of use, visual fidelity and realism, quality of immersion experience (enhanced
by capabilities such as eye tracking and speech recognition) and portability.
TASER for Personal Safety: In the private citizen space, TASER devices compete with firearms and with other less-
than-lethal self-defense options such as stun guns and pepper spray-based products, including pepper guns and miniature
spray cans. Leading competitors in the less-than-lethal space include Byrna Technologies, Inc., Mace, PepperBall,
SABRE, Salt Supply Co. and Vipertek. The TASER StrikeLight competes in the flashlight category, in which there are
dozens, if not hundreds, of competitors, including tactical flashlight providers with and without stun-gun capabilities.
TASER Bolt and TASER Pulse are not stun guns, and have different capabilities, including neuromuscular
incapacitation functionality. The broader market for personal safety and home defense is far-reaching, and categories range
from threat detection and accountability (dash and doorbell cameras), to home security (home alarms, locks and response
services) to personal defense (firearms, stun guns, TASER devices, pepper spray, tactical flashlights and personal alarms),
to personal tracking and emergency notification mobile applications.
The primary benefit of TASER devices is in less-lethal incapacitation. Other competitive factors include a device’s
cost, effectiveness, safety, ease of use, and available training options.
Axon Air: Our end-to-end drone management software platform competes with a select set of companies in the space
who offer drone programs and flight management software solutions. Our competition in this space includes Aerodome
Inc., Auterion Ltd., Motorola Solutions’ CAPE, Paladin Drones’ Watchtower and Votix, LLC, among a few others. Key
competitive factors in this product category include integration and compatibility with various drone hardware providers
and other technology systems used by first responders (e.g., digital evidence management), drone program management
and real-time situational awareness capabilities, intuitiveness of the user interface, the level of training and customer
support provided (particularly for the drone-as-first-responder use case), the customization and flexibility allowed by the
platform to meet specific operational needs and requirements of different customers (e.g., customizable flight restrictions)
and the autonomy capabilities provided by the platform (e.g., creation of autonomous missions).
Our indoor tactical drone hardware platform, Sky-Hero, competes with a few other companies in the space, including
Brinc, Indoor Robotics and XTEND. Key competitive factors in this product category include variety and weight limits of
compatible payloads, battery life and associated flight range, maneuverability and size, autonomy and onboard intelligence
(including ability to navigate in GPS denied environments), sensor and imaging technology, durability and robustness of
the drone, cost and maintenance required, reliability and security of communication and control systems, the simplicity of
the drone piloting user interface and the training required to operate the drones.
Non-Axon trademarks are property of their respective owners.
Seasonality
We have historically experienced higher net sales in our fourth quarter compared to other quarters in our fiscal(cid:3031)year
due primarily to municipal budget cycles. Additionally, new product introductions can significantly impact the cadence of
net sales, product costs and operating expenses. Municipal law enforcement budgets tend to feature a mix of fiscal years
that end in either June, September or December, while U.S. federal budget year end is in September. However, historical
seasonal patterns, municipal budgets or historical patterns of product introductions should not be considered reliable
indicators of our future net sales or financial performance.
10
Governmental Regulation
We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our
business, including laws and regulations related to: privacy and data protection, security, retention and deletion; rights of
publicity; content; intellectual property; regulation of certain of our CEDs as firearms; advertising; marketing; distribution;
electronic contracts and other communications; competition; consumer protection; telecommunications; product liability;
taxation; labor and employment; sustainability; economic or other trade prohibitions or sanctions; securities; and online
payment services. There are a number of legislative proposals in the United States, at both the federal and state level, that
could impose new obligations in areas affecting our business. Foreign laws and regulations can impose different
obligations or be more restrictive than those in the United States.
These U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties
in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the
application, interpretation, and enforcement of these laws and regulations are often uncertain and may be interpreted and
applied inconsistently from country to country and inconsistently with our current policies and practices. See “Item 1A.
Risk Factors – Legal and Compliance Risks - A variety of new and existing laws and/or interpretations could materially
and adversely affect our business.”
Radio Spectrum and Unmanned Aerial and Ground-Based Robotic Devices
Certain of our products utilize radio spectrum to provide wireless voice, data and video communications services.
The allocation of spectrum is regulated in the United States and other countries and limited spectrum space is allocated to
wireless services and specifically to public safety users. We manufacture and market products in spectrum bands already
made available by regulatory bodies. If current products do not comply with the regulations set forth by these regulatory
bodies, we may be unable to sell our products or could incur penalties. Our results could be negatively affected by the
rules and regulations adopted from time to time by the U.S. Federal Communications Commission (“FCC”), Innovation,
Science and Economic Development Canada (“ISED”), the European Union Directorate-General for Environment or
regulatory bodies in other countries. Regulatory changes in current spectrum bands may also require modifications to some
of our products so they can continue to be manufactured and marketed.
Axon body-worn cameras, docks, Axon Fleet vehicle cameras and Axon Signal devices are subject to the FCC’s
rules and regulations in the United States, as well as rules and regulations as applicable outside of the United States. These
regulations affect CEDs with Axon Signal technology, including the TASER 7, Signal Performance Power Magazine
(“SPPM”), TASER 10, and future CEDs implementing wireless technology. Compliance with government regulations
could increase our operations and product costs and impact our future financial results.
Additionally, some of our products depend on drones or other unmanned aerial and ground-based systems that
operate on the radio spectrum. The FCC, the Federal Aviation Administration and other agencies at the federal, state and
local levels (as well as in foreign jurisdictions) are beginning to address some of the numerous certification, regulatory
and legal challenges associated with drones, but a comprehensive set of standards and enforcement procedures has yet to
be developed. Changes to the regulation of drones or other unmanned aerial systems may impact our future financial
results.
Axon and TASER Devices
For our TASER products, we rely on the opinions of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives
(“ATF”), including the determination that a device that does not expel projectiles by the action of an explosive is not
classified as a firearm. See “Item 1A. Risk Factors – Legal and Compliance Risks - A variety of new and existing laws
and/or interpretations could materially and adversely affect our business.”
Federal regulation of sales in the United States: The majority of our currently offered CEDs are not classified as
firearms regulated by the ATF. However, the ATF regulates TASER 10 as a firearm under the Gun Control Act of 1968
(“GCA”) due to a technological advancement specific to the propulsion design of TASER 10 cartridges. In the event we
make TASER 10 available to our private citizen and enterprise customers, demand could be substantially
reduced as a result of this classification because non-governmental end-users would be required to comply with
11
federal, state or local firearm transfer requirements prior to purchasing TASER 10. In addition, the implications of such
classification on use-of-force standards and regulations could impact our ability to sell TASER 10 to law enforcement and
government entities. Because Axon must maintain a federal firearms license to manufacture and sell TASER 10, we are
subject to periodic compliance inspections by the ATF. License violations discovered by the ATF can result in fines,
penalties, warning letters or license revocation, leading to disruptions in operations. Further, we are required to administer,
track and remit firearm excise taxes as applicable.
Our CED products are also subject to testing, safety and other standards by organizations such as the American
National Standards Institute, the International Electrotechnical Commission, the National Institute of Standards and
Technology and Underwriters Laboratories. These regulations also affect CEDs with Axon Signal technology, including
SPPM technology, and TASER 7 and TASER 10 battery packs.
Federal regulation of international sales: Our CEDs are considered a “crime control” product by the U.S.
Department of Commerce (“DOC”) for export directly from the United States, which requires us to obtain an export license
from the DOC for the export of our CED devices from the United States to any country other than Canada. Future products
and services may require classifications from the DOC before they may be shipped internationally. Our inability to obtain
DOC export licenses or classifications on a timely basis for sales of our products and services to our international customers
could significantly and adversely affect our international sales. Although TASER 10 is regulated by the ATF for domestic
sales, the DOC has ruled that the product’s unique propulsion design has no impact on its export classification and that the
TASER 10 model’s export classification remains consistent with all other TASER CED models.
Federal regulation of foreign national employees: Our CED development and production is also considered
controlled “technology” by the DOC and is categorized as a “deemed export” for any foreign national employees exposed
to the technology within the United States. Consequently, we must obtain export licenses from the DOC for any deemed
export within the United States made to a foreign national employee exposed to the controlled technology. Deemed export
licenses are subject to DOC approvals and issued licenses require annual status reports for the stated employees. Inability
to obtain proper licensing could curtail the Company’s ability to execute R&D and production related to CED technology.
State and local regulation: Our CEDs are controlled, restricted or, less frequently, prohibited by some state and local
governments. Other jurisdictions may ban or restrict the sale of our TASER-branded devices, or restrict their use through
changes to use-of-force laws or regulations, and our product sales may be significantly affected by additional state, county
and city governmental regulation. The change in TASER 10’s propulsion design may impact how TASER 10 is regulated
at the state and/or local level depending on each state’s firearm laws.
International regulation of foreign imports and sales: Certain jurisdictions prohibit, restrict or require a permit for
the importation, sale, possession or use of CEDs, including in some countries by law enforcement agencies, limiting our
international sales opportunities.
U.S. and international regulation of component movements globally: We rely on a global supply chain of components
across our product lines with most final assembly occurring in the United States. Export of these components from abroad
is subject to shifting regulatory landscapes imposed by both the foreign government and U.S. authorities upon import.
Abrupt changes to these regulations can result in delays or interruptions to final product supplies. Additionally, ATF
regulation of certain imports of TASER 10 components may limit Axon’s supply chain agility.
International regulation of foreign-based operations: We maintain foreign operations in several countries globally
for purposes of logistics, sales, general and administrative (“SG&A”) services, and R&D support. Depending on these
activities, regulations can include business activity licensing and registration, import permits and recordkeeping,
warehousing and storage security and permitting, and government reporting. Any failure to comply with these
requirements could limit our ability to sell, support or develop our products and services both internationally and in the
United States.
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Privacy Regulations
We are subject to various U.S. and foreign laws and regulations associated with the collection, processing, storage
and transmission of personally identifiable information and other sensitive and confidential information. This data is wide
ranging and relates to our employees, customers and other third parties, including the subjects of law enforcement. Our
compliance obligations include those prescribed under laws and regulations that dictate whether, how and under what
circumstances we can receive, process, hold and/or transfer certain data that is critical to our operations, including data
shared between countries or regions in which we operate and data shared among our products and services. If one or more
of the legal mechanisms for transferring data from other countries to the United States is invalidated, if we are unable to
transfer data between and among countries and regions in which we operate, or if we are prohibited from sharing data
among our products and services, it could affect the manner in which we provide our products and services or adversely
affect our financial results. Countries may also pass legislation implementing data protection requirements or requiring
local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our
products and services and expose us to significant penalties for non-compliance. The European Parliament adopted the
General Data Protection Regulation (“GDPR”), effective May 2018, that extended the scope of European privacy laws to
any entity that controls or processes personal data of E.U. residents in connection with the offer of goods or services or
the monitoring of behavior and imposes compliance obligations concerning the handling of personal data. Further,
Vietnam's Personal Data Protection Decree (“PDPD”), which entered into force July 1, 2023, applies to organizations
(wherever based) so long as they participate in personal data processing in Vietnam. We are also subject to U.S. laws and
regulations, including the California Privacy Rights Act (“CPRA”), which provides for enhanced consumer protections
for California residents, a private right of action for data breaches and statutory (cid:191)nes and damages for data breaches or
other California Consumer Privacy Act (“CCPA”) violations, as well as a requirement of “reasonable” cybersecurity,
which could subject us to additional compliance costs as well as potential fines, individual claims, class actions and
commercial liabilities.
Any inability, or perceived inability, by us to adequately address privacy concerns, or comply with applicable laws,
regulations, policies, industry standards and guidance, contractual obligations or other legal obligations, even if unfounded,
could result in signi(cid:191)cant regulatory and third-party liability, increased costs, disruption of our business and operations,
and a loss of con(cid:191)dence and other reputational damage. Furthermore, as new privacy related laws and regulations are
implemented, the time and resources needed for us to comply with such laws and regulations continues to increase and
become a signi(cid:191)cant compliance workstream.
Environmental Regulations
We are subject to various U.S. federal, state, local and foreign laws and regulations governing the environment,
including restricting the presence of certain substances in our products and making us financially responsible for the
collection, treatment, recycling and disposal of such products. In addition, further environmental or climate change
disclosure legislation may be enacted in other jurisdictions, including the United States (under federal and state laws) and
other countries, the cumulative impact of which could be significant. For example, in September 2023, California passed
the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, requiring increased climate-
related reporting.
The European Union has published Directives on the restriction of certain hazardous substances in electronic and
electrical equipment (the “RoHS Directive”) and on electronic and electrical waste management (the “WEEE Directive”).
The RoHS Directive restricts the use of a number of substances, including lead. The WEEE Directive directs members of
the European Union to enact laws, regulations and administrative provisions to ensure that producers of electric and
electronic equipment are financially responsible for the collection, recycling, treatment and environmentally responsible
disposal of certain products sold into the European Union. In addition, similar environmental legislation has been enacted
in other jurisdictions, including the United States (under federal and state laws) and other countries.
In addition, the European Union has defined a regulation for the registration, evaluation, authorization and restriction
of chemicals that places responsibility on companies to manage the risks from chemicals contained in products and to
provide safety
to gather
information on the properties of the chemical substances in their products and provide for their safe handling. As of
information about such substances. Manufacturers and
importers are required
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January 5, 2021, companies supplying products in the European Union containing substances of very high concern as
identified by the European Union have to submit information on these products to the European Chemicals Agency. The
information in their database is then made available to waste operators and consumers.
Other countries have adopted chemical restrictions regulations, including the United States, Canada and Australia.
New, or changes in, environmental safety laws, regulations or rules could also lead to increased costs of compliance,
including remediations of any discovered issues and changes to our operations, which may be significant. Any failures to
comply could result in significant expenses, delays or fines and could adversely affect our financial results.
Human Capital Resources
Our success depends on the continued service of our employees and on our ability to continue to attract, retain and
motivate top talent. To facilitate this, we strive to create a diverse and inclusive environment at Axon, with equitable
opportunities for employee growth and development, supported by strong compensation and benefits and by programs that
build connections between our employees and their communities. Axon’s mission is central to our recruiting and retention
efforts.
As of December 31, 2023, we had approximately 3,330 full-time employees and approximately 930 temporary
employees (which include contractors, interns and individual consultants). During 2023, the number of full-time
employees increased by 512 or 18%, primarily in sales operations, R&D and other support organizations.
Our employees are not covered by any collective bargaining agreement, and we have never experienced a work
stoppage.
We believe that our relations with our employees are strong. We closed the year with our regrettable attrition rate2
less than 1%, well under the annual goal of 2.5%. Employees reported a higher than 88% satisfaction score for feeling
proud to work at Axon during 2023’s employee engagement survey and an 82% satisfaction score on recommending Axon
as a great place to work.
Diversity and Inclusion
We embrace diversity, equity and inclusion. A truly innovative workforce needs to be diverse, leverage the skills and
perspectives of a wealth of backgrounds and experiences, and ensure that all employees are equitably empowered to
succeed. We continue to focus on the hiring, retention, development and advancement of women and underrepresented
communities. We are focused on recruiting diverse candidates and on internal talent development of our diverse leaders
so that they can advance their careers and move into leadership positions.
Our Employee Resource Groups (“ERGs”) are company-sponsored, employee-led communities that address specific
needs, priorities and barriers to success for each community of focus. These groups provide a forum for employees to
discuss problems and craft solutions for each community of focus, while also creating leadership and professional
development opportunities for members. Throughout 2023 we continued to see active participation in all six of our
ERGs — Axon Allies for LGBTQ+ employees, APIA for Asian Pacific Islander employees, HOLA for Hispanic
employees, Axon Mosaic for Black employees, Axon Vets for service veterans, and Women at Axon. Each group is
inclusive of employees who identify as members of each community, as well as allies.
We believe that our ability to retain our workforce is dependent upon fostering an environment that is sustainably
safe, respectful, fair and inclusive of everyone and promotes diversity, equity and inclusion inside and outside of our
business. Internally, we continue to listen to our employees with town hall sessions, provide expert-led webinars and host
community round tables.
2 Regrettable attrition is defined as rolling 12-month attrition of employees rated as top performing in the prior
performance rating cycle.
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In 2022, we formed the Ethics & Equity Advisory Council (“EEAC”) to ensure that ethics and equity are at the
forefront of our services and product development. The EEAC functions as an impartial advocate for marginalized voices,
actively engaging in partnership spaces such as conferences and community events. EEAC members offer critical
evaluations of Axon’s products in accordance with ethical standards and aid in training product managers on equitable
development practices. While EEAC members play a crucial role in providing feedback and shaping product development,
it is important to note that they do not define Axon’s ethical guidelines, approve or disprove product development, engage
in sales activities, or serve as the exclusive source of community perspectives or recommendations.
Health and Safety
The health and safety of our employees is of utmost importance to us. We conduct regular self-assessments and audits
to ensure compliance with our health and safety guidelines and regulatory requirements. Our ultimate goal is to achieve a
level of work-related injuries as close to zero as possible through continuous investment in our safety programs. We
provide protective gear (e.g. eye protection, masks and gloves) as required by applicable standards and as appropriate
given employee job duties.
To promote mental and emotional wellbeing, all full-time employees are provided free access by Axon to Modern
Health. Modern Health is a 24/7 resource that includes individualized virtual coaching and therapy in addition to access
to articles and activities offering guidance on maintaining emotional balance.
Additionally, we have a Wellness Incentive Program for our domestic employees that incentivizes healthy lifestyles.
The program rewards employees for completing a variety of well-being activities that help foster their financial wellness,
mental health, social wellbeing, community engagement and nutrition.
Corporate Information
We were incorporated in Arizona in September 1993 as ICER Corporation. We changed our name to AIR
TASER, Inc. in December 1993 and to TASER International, Incorporated in April 1998. In January 2001, we
reincorporated in Delaware as TASER International, Inc. and, in April 2017, changed our name to Axon Enterprise, Inc.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and amendments to those reports filed with or furnished to the SEC are available free of charge on our website
at http://investor.axon.com as soon as reasonably practicable after we electronically file with or furnish to the SEC such
material. The information on our website, including information about our trademarks, is not incorporated by reference
into or otherwise a part of this Annual Report on Form 10-K. The SEC maintains a website that contains reports, proxy
statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Item 1A. Risk Factors
Because of the following factors, as well as other variables affecting our operating results, our past financial
performance may not be a reliable indicator of our future performance and historical trends should not be used to anticipate
our results or trends in future periods. You should carefully consider the trends, risks and uncertainties described below
and other information in this Annual Report on Form 10-K and subsequent reports filed with or furnished to the SEC
before making any investment decision with respect to our securities. If any of the following trends, risks or uncertainties
actually occurs or continues, our business, financial condition or operating results could be materially adversely affected,
the trading prices of our securities could decline, and you could lose all or part of your investment. All forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary
statement.
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Strategic Risks
We are substantially dependent on acceptance of our products and services by law enforcement agencies
throughout the world. If law enforcement agencies do not continue to purchase and use our products and services,
our growth prospects, operating results and financial condition will be materially adversely affected.
Our largest customer segment is U.S. state and local law enforcement. Axon has a customer relationship with a
substantial number of state and local law enforcement agencies in the United States. At any point, whether or not related
to the performance of our products and services, law enforcement agencies may elect to no longer purchase or use our
CEDs or other products and services. For example, we believe that in the past our sales were adversely impacted by
negative coverage and publicity surrounding our products and services and their use. If law enforcement agencies no longer
purchase our products and services, or materially decrease their purchases, our growth prospects, operating results and
financial condition will be materially adversely affected.
We substantially depend on sales of our TASER CEDs, and if these products do not continue to be widely accepted,
our growth prospects, operating results and financial condition will be diminished.
In each of the years ended December 31, 2023, 2022 and 2021, we derived a significant portion of our revenues from
sales of TASER brand devices and related cartridges, whether on a standalone basis or as part of a bundled offering, and
expect to depend on sales of these products for a significant portion of our revenue for the foreseeable future. The
acceptance of these devices is critical to our growth prospects, operating results and financial condition. If we are unable
to continue to meet customer demands or to achieve more widespread market acceptance of these products, our growth
prospects, operating results and financial condition will be materially adversely affected.
Demand for these offerings is affected by a number of factors (some of which are beyond our control), including
continued market acceptance of these products by our customers, technological change and growth or contraction of the
economy in general. Our TASER CEDs and other offerings or products could fail to maintain or attain sufficient customer
acceptance for many reasons, including:
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our failure to predict market demand accurately in terms of product functionality and to supply offerings that
meet this demand;
real or perceived defects, errors or failures;
negative publicity about their performance or effectiveness;
delays in releasing to the market our improved offerings or enhancements;
introduction or anticipated introduction of competing products; and
budget constraints or other limitations for our customers.
A decrease in the selling prices of or demand for these products, or their failure to maintain broad market acceptance,
would significantly harm our competitive position, growth prospects, operating results and financial condition.
If we are unable to design, introduce, sell and deploy new products or new product features successfully, our
business and financial results could be adversely affected.
Our future success will depend on our ability to develop new products or new product features that achieve market
acceptance in a timely and cost-effective manner. The development of new products and new product features is complex,
time-consuming and expensive, and we may experience delays in completing the development and introduction of new
products. We may choose to carry higher levels of inventory to mitigate the risk of production delays, which may in turn
expose us to an increased risk of obsolescence.
We have devoted, and continue to devote, significant resources to develop and deploy our cloud-based
productivity and real-time operations SaaS solutions, which we continue to broadly deploy to a large number of
customers. Customers’ requirements for these products are complex and varied. If we cannot develop scalable
solutions that can be consistently configured for customers with minimal effort or grow a professional services team
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that can consistently configure our products to meet the requirements of large numbers of customers in a timely and cost-
effective manner, our ability to broadly scale our cloud-based productivity and real-time operations SaaS solutions could
be negatively impacted, and our business prospects, operating results and financial condition could be negatively impacted.
We cannot provide any assurance that products that we may develop in the future will achieve market acceptance. If
we fail to develop new products or new product features on a timely basis that achieve market acceptance, our business,
financial results and competitive position could be adversely affected.
We face risks associated with rapid technological change and new competing products.
The technology associated with law enforcement devices and software is receiving significant attention and is rapidly
evolving. The introduction of products embodying new technologies (such as the use of AI and machine learning) and the
emergence of new industry standards can render existing products obsolete and unmarketable. Additionally, our products
are expected to meet and keep pace with evolving security standards and requirements of our industry and customers,
including those of the U.S. federal government and international governments. While we have some patent protection in
certain key areas of our Axon device, CED and SaaS technology, new technology may result in competing products that
operate outside our patents and could present significant competition for our products, which could adversely affect our
business, financial results and competitive position. Additionally, our competitors may develop competing technologies
or products that provide superior features or are less expensive than our products, or our competitors may respond more
quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial,
marketing, manufacturing and other resources than we do, or may be more successful in attracting potential customers,
employees and strategic partners. If we are not able to compete effectively, our business and financial results could be
adversely affected.
Our future success is dependent on our ability to expand sales through direct sales and distributors and our inability
to increase direct sales or recruit new distributors would negatively affect our sales.
Our distribution strategy is to pursue sales through multiple channels, which are principally direct sales and
independent distributors. We are focusing on direct sales to larger agencies through our regional sales managers and our
inability to grow sales to these agencies in this manner would materially adversely affect our business prospects, operating
results and financial condition. In addition, our inability to establish relationships with and retain law enforcement
equipment distributors, who we believe can successfully sell our products, would materially adversely affect our business
prospects, operating results and financial condition. If we do not competitively price our products, meet the requirements
of our distributors or end-users, provide adequate marketing support, or comply with the terms of our distribution
arrangements, our distributors may fail to aggressively market our products or may terminate their relationships with us.
These developments would likely have a material adverse effect on our sales. Our reliance on the sales of our products by
others also makes it more difficult to predict our revenues, cash flow and operating results.
In certain states and foreign jurisdictions, we have decided to pursue sales directly with law enforcement customers,
rather than working through established distribution channels. Our customers may have strong working relationships with
distributors, and we may face resistance to this change. If we do not overcome this resistance and effectively build a direct
relationship with our customers, sales may be adversely affected.
Negative publicity could adversely impact sales, which could cause our revenues or operation results to decline.
Our business is dependent upon the reputation of the Axon brand. If we are unable to maintain the position of the
Axon brand, our business may be adversely affected by diminishing the appeal of the brand to our customer base. This
could result in lower sales and earnings.
In addition, unfavorable media or investor and analyst reports related to our industry, company, brand, marketing,
personnel, operations, business performance or prospects may affect our stock price and the performance of our
business, regardless of accuracy. Furthermore, the speed at which negative publicity is disseminated has increased
dramatically through the use of electronic communication, including social media outlets, websites and other digital
platforms. Our success in maintaining and enhancing our brand depends on our ability to adapt to this rapidly changing
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media environment. Adverse publicity or negative commentary from any media outlets could damage our reputation and
reduce the demand for our products and services, which would adversely affect our business and financial results.
Acquisitions of, or investments in, other products, technologies or businesses could disrupt our business, dilute
shareholder value, and adversely affect our operating results.
Our business strategy has in the past and may in the future include acquiring or making investments in other
complementary products, technologies or businesses. Identifying and negotiating these transactions can be time-
consuming, difficult and expensive, and our ability to close these transactions has in the past and may in the future be
subject to third-party approvals, such as government regulatory approvals and clearances, which are beyond our control.
Consequently, we can make no assurance that these transactions once undertaken and announced, will close.
These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. If we
acquire businesses, technologies or products, we may not be able to integrate the acquired personnel, operations,
technologies or products successfully, or effectively manage the combined business following the acquisition. We also
may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
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inability to integrate or benefit from acquired products, technologies or businesses in a profitable manner;
inability to correct or achieve regulatory approvals or certifications;
unanticipated costs or liabilities associated with the acquisition, including potential liabilities due to litigation
and potential identified or unknown security vulnerabilities in acquired technologies that expose us to additional
security risks or delay our ability to integrate the acquired products into our offerings or recognize the benefits
of our investment;
differences between our values and those of an acquired company, as well as potential disruptions to our
workplace culture or how we are perceived by investors;
incurrence of acquisition-related costs, including costs related to integration activities;
difficulty integrating the accounting and information systems, operations and personnel of the acquired business;
inability to augment the acquired technologies and platforms to the levels that are consistent with our brand and
reputation;
difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the
acquired business;
challenges converting the acquired company’s revenue recognition policies and forecasting the related revenues,
including subscription-based revenues and software license revenues;
potential write-offs of acquired assets or investments, and potential financial and credit risks associated with
acquired customers;
difficulty converting the customers of the acquired business onto our platform and contract terms;
diversion of management’s attention and other company resources;
harm to our existing business relationships with business partners and customers as a result of the acquisition;
the potential loss of key employees;
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use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
We cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we
would not be exposed to unknown liabilities or risks. Integrating an acquired technology, asset or business into our
operations can be challenging, complex and costly and we cannot assure you that we will be successful or that the
anticipated benefits of the acquisitions that we complete will be realized or outweigh their costs. If our integration and
development efforts are not successful and the anticipated benefits of the acquisitions that we complete are not achieved,
our business, operating results, financial condition and prospects could be adversely affected.
In connection with these types of transactions, we may issue additional equity securities that would dilute our
shareholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that
we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business
cultures and values, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation
charges. These challenges could adversely affect our business, operating results, financial condition and prospects.
We are highly dependent on the services of our executive officers, including Patrick W. Smith, our Chief Executive
Officer. Our failure to retain executive officers could adversely impact our business.
Our future success depends upon our ability to retain executive officers, including Patrick W. Smith, and any failure
to do so could adversely impact our business, prospects, new product development, financial condition and operating
results.
Among other qualifications, Patrick W. Smith is the founder of Axon and brings extensive executive leadership
experience in the technology industry, including the management of worldwide operations, sales, service and support as
well as technology innovation as an inventor listed on 52 U.S. patents. Mr. Smith has been instrumental in building the
public safety operating system of the future by integrating a suite of hardware devices and cloud software solutions that
lead to modern policing and help save lives. From the early days of founding the organization to today as a market leader,
Mr. Smith’s expertise has brought forth entirely new product categories, including the less-lethal TASER de-escalation
platform, body-worn cameras and cloud software that lead to modernized public safety.
The loss of any of our senior management, including Patrick W. Smith, could interrupt our ability to execute our
business plan, as such individuals may be difficult to replace.
Operational Risks
Unavailability of materials or higher costs could adversely affect our financial results.
We depend on certain domestic and international suppliers for the delivery of components used in the assembly of
our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate
supply of components or sub-assemblies and reduced control over pricing and timing of delivery of components and sub-
assemblies, including single or sole-source components used in the manufacture of our products. Specifically, we depend
on suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire
fabrications and other miscellaneous customer parts for our products. Although we have and are implementing additional
long-term agreements with strategic suppliers to mitigate the risk of supply continuity, there remains risk across our supply
chain while we extend our supplier contract program, and there is no guarantee that supply will not be interrupted.
Additionally, if our suppliers do not accurately forecast and effectively allocate production or if they are not willing to
allocate sufficient production to us, or they decommit to us previously agreed-to supply levels, it may reduce our access
to components and require us to search for new suppliers. As the scale of our hardware production increases, we will also
need to accurately forecast, purchase, warehouse and transport components at high volumes to our manufacturing facilities.
If we are unable to accurately match the timing and quantities of component purchases to our actual needs, we may incur
unexpected production disruption, storage, transportation and write-off costs, which may harm our business and financial
results.
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Due to the unique requirements of TASER 10, including the regulation of certain TASER 10 components for import
into the United States and export from foreign sources, we purchase our raw materials from a limited number of suppliers.
Some of the raw materials that are used in TASER 10 may be subject to fluctuations in market price, which we may be
unable to pass through to our customers to offset market fluctuations. Because of the unique requirements of TASER 10,
we cannot change suppliers easily. We may be slower to establish alternative sources of supply for TASER 10 components
as we continue to refine the design of the product. Any delay or interruption in the supply of the raw materials that are
used in TASER 10 could impair our ability to manufacture and deliver TASER 10, harm our reputation or cause a reduction
in revenues.
A significant number of our raw materials or components comprise petroleum-based products or incur some form of
landed cost associated with transporting the raw materials or components to our facility. Our freight and import costs and
the timely delivery of our products could be adversely impacted by the materialization or re-emergence of a number of
factors that could reduce the profitability of our operations, including: higher fuel costs (including increased petroleum
prices as a result of, among other things, climate change-related regulations); potential port closures or shipping
disruptions; customs clearance issues; increased government regulation or regulatory changes for imports of foreign
products into the United States and exports from foreign sources; delays created by terrorist attacks or threats, public health
issues, national disasters or work stoppages; and other matters. We are also subject to supply chain disruption should we
learn that any of our suppliers is in violation of legislation that bans the import of goods based on their method of
production, such as using forced labor or otherwise. This may also result in negative publicity regarding our production
methods, and alleged unethical or illegal practices of any of our suppliers could adversely affect our reputation. Any
interruption of supply for any material components of our products could significantly delay the shipment of our products
and have a material adverse effect on our revenues, profitability and financial condition. For example, there have been and
may continue to be disruptions in the semi-conductor supply chain that could negatively impact our ability to make our
products.
Domestic or international geopolitical or other events, including the imposition of new or increased tariffs and/or
quotas by the U.S. Government on any of these raw materials or components and other government trade policies, could
adversely impact the supply and cost of these raw materials or components, and could adversely impact our revenues,
profitability and financial condition. In particular, the implementation of tariffs and trade restrictions as well as changes
in trade policies between the United States and China have in the past led to some increases in our supply costs and have
made it more difficult to obtain suppliers, and may in the future have an adverse effect on our supply chain from a cost
and sourcing perspective. We source certain raw materials from China, as do some of our suppliers. We may be unable to
transition away from China to other jurisdictions or obtain secondary sources for raw materials, which could result in a
material adverse effect on component availability and could result in a material adverse effect on our revenues, profitability
and financial condition.
Material adverse developments in domestic and global economic conditions, or the occurrence of other world
events, could materially adversely affect our revenue and results of operations.
Various factors contribute to the uncertain economic environment, including the ongoing conflicts in Gaza and
Ukraine, the increase in, and volatility of, interest rates, high inflation, an actual recession or fears of a recession, trade
policies and tariffs and geopolitical tensions. Our inability to offset price inflation in our materials, components, shipping
or labor through increased prices to customers with long-term fixed-price contracts and formula-based or long-term fixed-
price contracts with suppliers could adversely affect our business, financial condition and results of operations. Global
supply chain and labor market challenges could also negatively affect our performance as well as the performance of our
suppliers. Interest rate increases have also created financial market volatility and could further negatively impact financial
markets, lead to an economic downturn or recession or have an adverse effect on our financial results. Economic
slowdowns can also negatively impact municipal and state tax collections and put pressure on law enforcement budgets,
which may increase the risk that our customers will be unable to appropriate funds for existing or future contracts with us.
In addition, geopolitical risks could affect our customers’ budgets and policies. These and other factors may adversely
affect customer demand and ability to pay, cause decrease in sales, and negatively impact the realizability of our accounts
and notes receivable and contract assets.
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To the extent demand for our products increases, our future success will be dependent upon our ability to manage
our growth and to increase manufacturing production capacity.
To the extent demand for our products increases significantly in future periods, one of our key challenges will be to
increase our production capacity to meet sales demand while maintaining product quality. Our primary strategies to
accomplish this include introducing additional shifts, increasing the physical size of our assembly facilities, the hiring of
additional production staff, and the implementation of additional customized manufacturing automation equipment. As we
develop additional products, we may need to bring new equipment on-line, implement new systems, technology, methods
and processes and hire personnel with different qualifications. The costs associated with implementing new manufacturing
technologies, methods and processes, including the purchase of new equipment, and any resulting delays, inefficiencies
and loss of sales, could harm our financial results. The investments we make in equipment, technologies or personnel may
not yield the anticipated labor and material efficiencies, and we may experience difficulty in attracting and retaining
qualified personnel. Our inability to meet any future increase in sales demand or effectively manage our expansion could
have a material adverse effect on our revenues, operating results and financial condition.
Delays in product development schedules may adversely affect our revenues and cash flows.
The development of CEDs, devices, sensors and software is a complex and time-consuming process. To achieve
market acceptance for our products, we must effectively anticipate customer requirements, and we must offer products
that meet changing customer demands in a timely and cost-effective manner. Customers may require product features and
capabilities that our current products do not have. If we fail to develop products that satisfy customer requirements, our
ability to create or increase demand for our products will be harmed.
Without the timely and cost-effective introduction of new products, services and enhancements, our offerings will
likely become less competitive over time, in which case our competitive position and operating results could suffer. New
products, and services, as well as enhancements to existing products and services, can require long development and testing
periods and may require significant investment, including substantial R&D, development of different engineering and
manufacturing workflows, and adjustments to our data and analytics infrastructure. Our focus on our SaaS platform also
presents complex development issues. Significant delays in new product or service releases or significant problems in
creating new products or services could adversely affect our business, growth prospects, operating results, cash flows and
competitive position.
We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue
in return.
Generally, law enforcement and corrections agencies consider a wide range of issues before committing to purchase
our products, including product benefits, training costs, the cost to use our products in addition to, or in place of, other
products, budget constraints and product reliability, safety and efficacy. Because we sell to various types of government
entities of multiple sizes, including national agencies, state agencies, county agencies and municipal agencies, which can
require varying levels of approvals followed by appropriations, the length of our sales cycle may range from a few weeks
to as long as several years. Adverse publicity surrounding our products or the safety of such products has in the past, and
could in the future, lengthen our sales cycle with customers. We believe that in the past our sales were adversely impacted
by negative coverage and publicity surrounding our products or the use of our products. We may incur substantial selling
costs and expend significant effort in connection with the evaluation of our products by potential customers before they
place an order. If these potential customers do not purchase our products, we will have expended significant resources and
received no revenue in return.
Changes in civil forfeiture laws may affect our customers’ ability to purchase our products.
Some of our customers use funds seized through civil forfeiture proceedings to fund the purchase of our products.
From time to time, civil forfeiture proceedings have in the past received and may in the future receive media scrutiny and
public criticism. Legislative changes could impact our customers’ ability to seize funds or use seized funds to fund
purchases. Changes in civil forfeiture statutes or regulations could limit the amount of funds available to our customers,
which could adversely affect the sale of our products.
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If our security measures or those of our third-party providers, including cloud storage providers, are breached and
unauthorized access is obtained to customers’ data or our data, our network, data centers and service may be
perceived as not being secure, customers may curtail or stop using our products and services, and we may incur
significant legal and financial exposure and liabilities.
Security breaches of Axon body-worn cameras, docks, Axon Fleet vehicle cameras, Axon Signal devices and Axon
Evidence and other cloud services or products could result in the unauthorized release, gathering, monitoring, misuse, loss
or destruction of our customers’ data. Additionally, breaches of our network or data security measures or those of our
third-party providers, including cloud storage providers, could disrupt the security of our internal systems and business
applications, impair our ability to provide products and services to our customers and protect the privacy of their data,
result in product development delays, result in theft or misuse of our intellectual property or other assets, require us to
allocate more resources to improve technologies, or otherwise adversely affect our business. Any security breach could
result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, lead to legal
liability, and negatively impact our future sales.
Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently, grow more
complex over time, and generally are not recognized until launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative measures. Moreover, our security measures and those of our third-party
service providers or customers have not in the past and may not in the future immediately detect such security breaches if
they occur. Although we have developed systems and processes that are designed to protect our data and user data, to
prevent data loss, and to prevent or detect security breaches, we have been in the past and expect to continue to be a
frequent target of third-party cybersecurity intrusion attempts and we cannot assure that such measures will provide
absolute security. We may incur significant costs in protecting against or remediating cyber-attacks.
We devote significant resources to engineer secure products and ensure security vulnerabilities are mitigated, and we
require our third-party service providers to do so as well; however, security breaches that have not had a material effect
on our business or our third-party service providers have occurred and will continue to occur, including as a result of third-
party action, employee error, malfeasance or otherwise. Remote-work arrangements may also make our systems and
employees more susceptible to attack. Breaches could occur during transfer of data to data centers or at any time, and
result in unauthorized physical or electronic access to our data or our customers’ data. Third parties may attempt to
fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords or other
information in order to gain access to our data or our customers’ data. Additionally, hackers may develop and deploy
viruses, worms and other malicious software programs that attack or gain access to our networks and data centers. Recent
developments in the threat landscape include use of AI and machine learning, as well as an increased number of cyber
extortion and ransomware attacks, with higher financial ransom demand amounts and increasing sophistication and variety
of ransomware techniques and methodology. Increasing socioeconomic and political instability in some countries has
heightened these risks. In addition, retaliatory acts by foreign governments in response to Western sanctions could include
cyber-attacks that could directly or indirectly impact our operations.
A security breach could expose us to a risk of loss or inappropriate use of proprietary and sensitive data, or the denial
of access to this data. A real or perceived security breach could also result in a loss of confidence in the security of our
products and services, disrupt our business, damage our reputation, subject us to third-party lawsuits, regulatory fines or
investigations or otherwise subject us to legal liability, negatively impact our future sales and significantly harm our growth
prospects, operating results and financial condition. Even the perception of inadequate security may damage our reputation
and negatively affect our ability to win new customers or retain existing customers.
Catastrophic events could materially adversely affect our business, results of operations and/or financial condition.
A disruption or failure of our systems or operations in the event of a major earthquake, weather event (including
those caused or exacerbated by the effects of climate change), fire, explosion, failure to contain hazardous materials,
industrial accident, utility failure, cyber-attack, terrorist attack, public health crisis, pandemic, or other catastrophic
event could cause delays in completing sales, providing products and services, or performing other mission-critical
functions. A catastrophic event that results in the destruction or disruption of any of our critical operations, or of the
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capacity, reliability or security of our information technology systems, could harm our ability to conduct normal business
activities and our operating results as well as expose us to claims, litigation and governmental investigations and fines. In
addition, catastrophes may put pressure on federal, state and municipal government budgets, which may increase the risk
that our customers will be unable to appropriate funds for existing or future contracts with us. These and other factors may
adversely affect customer demand and ability to pay, cause decrease in sales, and negatively impact the realizability of our
accounts receivable and contract assets.
Public health emergencies such as the COVID-19 global pandemic have adversely affected workforces, economies,
and financial markets globally, and led to an economic downturn in the past and may do so again in the future. As an
essential provider of products and services for law enforcement and other first responders, we remain focused on protecting
the health and well-being of our employees while assuring the continuity of our business operations.
If our backup and mitigation plans are not sufficient to minimize business disruption, our financial results could be
adversely affected. We are continuously monitoring our operations and intend to take appropriate actions to mitigate the
risks arising from catastrophic events, but there can be no assurances that we will be successful in doing so.
Uncertainty in the development, deployment and use of AI in our products and services, as well as our business
more broadly, could adversely affect our business and reputation.
We are building and expect to use systems and tools that incorporate AI-based technologies, including generative
AI, for customers and our workforce. As with many new and emerging technologies, AI presents numerous risks and
challenges that could adversely affect our business. The development, adoption and use of generative AI technology
remains in early stages, and ineffective or inadequate AI or generative AI development or deployment practices by us or
third parties could result in unintended consequences. For example, AI algorithms that we use may be flawed or may be
(or may be perceived to be) based on datasets that are biased or insufficient. In addition, any latency, disruption or failure
in our AI systems or infrastructure could result in delays or errors in our offerings. Developing, testing and deploying
resource-intensive AI systems may require additional investment and increase our costs. There also may be real or
perceived social harm, unfairness or other outcomes that undermine public confidence in the deployment and use of AI.
In addition, third parties may deploy AI technologies in a manner that reduces customer demand for our products and
services. Any of the foregoing may result in decreased demand for our products and services or harm to our business,
financial results or reputation.
The legal and regulatory landscape surrounding AI technologies is rapidly evolving and uncertain, including in
relation to the areas of intellectual property, cybersecurity, and privacy and data protection. For example, there is
uncertainty around the validity and enforceability of intellectual property rights related to our development, deployment
and use of AI. Compliance with new or changing laws, regulations or industry standards relating to AI may impose
significant operational costs and may limit our ability to develop, deploy or use AI technologies. Failure to appropriately
respond to this evolving landscape may result in legal liability, regulatory action, or brand and reputational harm.
Defects or disruptions in our services could impact demand for our services and subject us to substantial liability.
We currently serve our Axon Evidence customers from third-party cloud storage providers based in the United States
and other countries. The use of these cloud storage providers gives us greater flexibility in efficiently delivering a more
tailored, scalable customer experience, but also exposes us to additional risks and vulnerabilities. Lack of availability of
this infrastructure could be due to a number of potential causes, including technical failures, natural disasters, fraud or
security attacks that we cannot predict or prevent. Interruptions in our service, or loss or corruption of digital evidence,
may reduce our revenue, cause us to issue credits or pay penalties, cause customers to file litigation against us, cause
customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new
customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable.
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Since our customers use our services for important aspects of their operations, any errors, defects, disruptions in
service or other performance problems could hurt our reputation and may damage our customers’ operations. As a result,
customers could elect not to renew our services or to delay or withhold payment to us. We could also lose future sales or
customers may make warranty or other claims against us, which could result in an increase in our warranty expense, an
increase in collection cycles for and decline in the collectability of accounts receivable or in the convertibility of contract
assets to cash, and an increase in the expense and risk of litigation.
Defects in our products could reduce demand for our products or result in product recalls and result in a loss of
sales, delay in market acceptance and damage to our reputation.
Complex components and assemblies used in our products may contain undetected defects that could be subsequently
discovered at any point in the life of the product. Errors or defects in our products may only be discovered after they have
been tested, commercialized and deployed. If that is the case, we may incur significant additional development costs and
product recall, repair or replacement costs, or liability for personal injury or property damage caused by such errors or
defects. Our reputation or brand may be damaged as a result of these problems and may result in difficulty retaining current
customers and securing new contracts. Defects in our products could result in a loss of sales, delay in market acceptance,
damage to our reputation and increased warranty costs, which could adversely affect our business, financial results and
competitive position.
Additionally, we are subject to the U.S. Consumer Products Safety Act of 1972, as amended by the Consumer Product
Safety Improvement Act of 2008, which empowers the Consumer Products Safety Commission to exclude from the market
products that are found to be unsafe or hazardous, and similar laws under foreign jurisdictions. Under certain
circumstances, the Consumer Products Safety Commission or comparable foreign agency could require us to repurchase
or recall one or more of our products. If we were required to remove, or we voluntarily remove, our products from the
market, our reputation could be tarnished, and we might have large quantities of finished products that we could not sell.
Our international operations expose us to additional risks that could harm our business, operating results and
financial condition.
Our international operations are significant, and we plan to continue growing internationally by acquiring existing
entities and/or setting up new legal entities in new markets. In certain international markets, we have limited operating
experience and may not benefit from first-to-market advantages or otherwise succeed. Our international operations expose
us to other risks, including:
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restrictions on foreign ownership and investments and stringent foreign exchange controls that might prevent us
from repatriating cash earned in countries outside the United States;
import and export requirements, tariffs, trade disputes and barriers, product certification requirements, sanctions
and customs classifications that may prevent us from offering products or providing services in a particular
country or obtaining necessary parts and components to manufacture products;
longer payment cycles in some countries, increased credit risk, and higher levels of payment fraud;
uncertainty regarding liability for our products and services, including uncertainty resulting from local laws and
lack of legal precedent; and
different labor laws and customs, existence of workers’ councils and labor unions, and other challenges caused
by distance, language and cultural differences.
In addition, our suite of TASER devices are regulated by the U.S. Bureau of Industry and Security and require licenses
for export abroad. Changes in U.S. foreign policy, foreign governmental status and evolving international human rights
policy objectives may impact Axon’s ability to obtain licenses.
Changes to foreign political, economic, regulatory, tax, social and labor conditions may adversely harm our
business. Compliance with complex foreign and U.S. laws and regulations makes it harder to do business in certain
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jurisdictions, potentially decreases sales, and increases our cost of doing business. These numerous and sometimes
conflicting laws and regulations include, among others, environmental regulations, climate- and sustainability-related
regulations, tax and statutory financial regulations, customs and duties regulations, internal control and disclosure rules,
privacy and data protection requirements, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and other
local laws prohibiting corrupt payments to governmental officials, and competition regulations, among others.
Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our
directors, officers or employees, prohibitions on the conduct of our business and on our ability to offer our products and
services in one or more countries, and could also materially adversely affect our brand, international growth efforts, ability
to attract and retain employees, business and operating results. Although we have implemented policies and procedures
designed to ensure compliance with these laws and regulations, there can be no assurance that our directors, officers,
employees, contractors or agents will not violate our policies.
We depend on our ability to attract and retain our key management, sales and technical personnel.
Our success depends upon the continued service of our key management personnel. Our success also depends on our
ability to continue to attract, retain and motivate qualified technical employees. Our ability to compete effectively and our
future success depends on our continuing to identify, hire, develop, motivate and retain highly skilled personnel. In
addition, our compensation arrangements, such as our equity incentives, may not always be successful in attracting new
employees and retaining and motivating our existing employees. Restrictive immigration policy and regulatory changes
may also affect our ability to hire, mobilize, or retain some of our global talent. Although we have employment agreements
with our officers and other members of our executive management team, the employment of such persons is “at-will” and
either we or the employee can terminate the employment relationship at any time, subject to the applicable terms of the
employment agreements. In particular, we expect to continue to face significant challenges in hiring personnel, particularly
for executive-level engineering talent, whether as a result of competition with other companies or other factors.
We have had and expect to continue to have unique equity incentives designed to attract and retain long-term
employees. We utilize these plans to align pay and performance and drive shareholder returns while reducing near-term
cash expenditures. Our equity incentives and ongoing stock and option grants are subject to having sufficient shares under
our stock plan and any new plans or increases in the number of shares available for grant under existing plans must be
approved by our shareholders. If we are unable to obtain shareholder approval, we may be unable to attract and retain top
talent, including senior executives. Our ability to attract, retain and motivate employees may also be adversely affected by
stock price volatility. The loss of the service of one or more of our key personnel could adversely impact our business,
prospects, financial condition and operating results.
If we fail to comply with federal, state or local regulations applicable to our firearm product, TASER 10, we may
be subject to governmental actions or litigation that could materially harm our business, operating results and
financial condition.
TASER 10 is primarily regulated by the ATF, which licenses the manufacture, sale and import of firearms in the
United States. The primary federal laws are the National Firearms Act of 1934, the GCA and the Firearms Owners’
Protection Act of 1986, which have been amended from time to time.
The ATF conducts periodic audits of our Arizona facilities that hold federal firearms licenses. If we fail to comply
with ATF rules and regulations, the ATF may limit our TASER 10 activities or growth, fine us, or, ultimately, suspend
our ability to produce and sell the TASER 10 product line. There are also various state and local laws, regulations and
ordinances relating to firearm characteristics, features and sales. Axon and local distributors must comply with state and
local laws, regulations and ordinances pertaining to firearm and magazine sales in the jurisdictions where TASER 10 is
sold. Additionally, certain TASER 10 components are regulated for import into the United States by the ATF and are
subject to ATF import permits that limit Axon’s ability to source from some suppliers leading to a potential decrease in
supply chain agility. Supply chain constraints or an inability to source TASER 10 components could have a material
adverse effect on our business, prospects, financial condition and operating results.
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Federal and state legislatures frequently consider legislation relating to the regulation of firearms, including the
amendment or repeal of existing legislation. Existing laws may also be affected by future judicial rulings and
interpretations. These possible changes to existing legislation or the enactment of new legislation may seek to restrict the
makeup of a firearm, mandate the use of certain technologies in a firearm, remove existing legal defenses in lawsuits, set
minimum age limits to purchase certain firearms, or ban the sale and, in some cases, the ownership of various types of
firearms and accessories. Such restrictions or bans could have a material adverse effect on our business, prospects, financial
condition and operating results.
If we fail to maintain effective internal control over financial reporting or identify a material weakness or significant
deficiency in our internal control over financial reporting, our ability to report our financial condition and results
of operations in a timely and accurate manner could be adversely affected, investor confidence in our company
could diminish, and the value of our common stock may decline.
Preparing our consolidated financial statements involves a number of complex manual and automated processes,
which are dependent upon individual data input or review and require significant management judgment. One or more of
these processes may result in errors that may not be detected and could result in a material misstatement or other errors in
our consolidated financial statements. Such errors may be more likely to occur when implementing new systems and
processes, particularly when implementing evolving and complex accounting rules. The Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”) requires, among other things, that as a publicly-traded company we disclose whether our internal
control over financial reporting and disclosure controls and procedures are effective.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis. While we continually undertake steps to improve our internal control over financial
reporting as our business changes, we may not be successful in making the improvements and changes necessary to be
able to identify and remediate control deficiencies or material weaknesses on a timely basis. For example, we identified a
material weakness in our internal controls over revenue recognition and the reporting of deferred revenue for the year
ended December 31, 2022 which has been remediated as further discussed in “Item 9A. Controls and Procedures.” If we
are unable to successfully remediate any future material weaknesses in our internal control over financial reporting, the
accuracy and timing of our financial reporting may be adversely affected; our liquidity, access to capital markets and
perceptions of our creditworthiness may be adversely affected; we may be unable to maintain compliance with securities
laws, stock exchange listing requirements and debt instruments’ covenants regarding the timely filing of periodic reports;
we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; we
may suffer defaults under our debt instruments; and our stock price may decline.
Financial Risks
An increasing percentage of our revenue is derived from subscription billing arrangements that may result in
delayed cash collections and may increase customer credit risk on receivables and contract assets.
Our strategy includes continuing to shift an increasing amount of our business to a subscription model, to better
match the municipal budgeting process of our customers as well as to allow for multiple product offerings to be bundled
into existing subscriptions. This is in contrast to a traditional CED sale in which the entire amount being charged for the
hardware is invoiced upon shipment. This impacts liquidity in a commensurate fashion, with the cash for the subscription
or installment purchase received in multiple installments rather than up front. While we record an estimate of expected
credit losses and perform ongoing reviews of trade accounts receivables, if we become aware of information related to the
creditworthiness of a major customer, or if future actual default rates on receivables in general differ from those currently
anticipated, we may have to adjust our expected credit loss reserve, which could adversely affect our business, financial
condition or operating results.
Our gross margin is dependent on a number of factors, including our product mix, cost structure and acquisitions
we may make, any of which could cause our gross margin to decline.
Our gross margin could decline in future periods due to adverse impacts from various factors, including:
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changes in product mix;
changes in shipment volume;
increased warranty costs;
sales discounts;
entry into new markets or growth in lower margin markets, including markets with different pricing and cost
structures, through acquisitions or internal development;
our ability to reduce production costs;
increases in material, labor or other manufacturing-related costs or higher supply chain logistics costs;
excess inventory and obsolescence charges;
increased amortization of purchased intangible assets, especially from acquisitions; and
how well we execute on our strategy and operating plans.
Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in
our gross margin. This variability and unpredictability could result in our failure to meet internal expectations or those of
securities analysts or investors for a particular period. Failure to meet or exceed such expectations for these or any other
reasons may adversely affect the market price of our stock.
SaaS revenue for Axon Evidence is recognized over the terms of the contracts, which may be several years, and, as
such, trends in new business may not be immediately reflected in our operating results.
Our SaaS service revenue is generally recognized ratably over the terms of the contracts, which generally range from
one to ten years. As a result, most of the SaaS revenue we report each quarter is the result of agreements entered into
during previous quarters. Consequently, current trends, whether positive or negative, in this portion of our business may
not be fully reflected in our revenue results for several periods, and a decline in new or renewed SaaS contracts in any
period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our
revenue in future reporting periods. If any of our assumptions about revenue from our SaaS delivery model prove incorrect,
our actual results may vary materially from those anticipated, estimated or projected.
Most of our end-user customers are subject to budgetary and political constraints that may delay or prevent sales.
Most of our end-user customers are government agencies. These agencies often do not set their own budgets and
therefore, have limited control over the amount of money they can spend. In addition, these agencies experience political
pressure that may dictate the manner in which they spend money. As a result, even if an agency wants to acquire our
products, it may be unable to purchase them due to budgetary or political constraints, particularly in challenging economic
environments. There can be no assurance that the economic, budgeting or political issues will not worsen and adversely
impact sales of our products. Some government agency orders may also be canceled or substantially delayed due to
budgetary, political or other scheduling delays, which frequently occur in connection with the acquisition of products by
such agencies, and such cancellations may accelerate or be more severe than we have experienced historically. federal
agencies may be particularly impacted by governmental impasse regarding continued government funding and debt limit
constraints, which has resulted in shutdowns of the federal government in 2018 and 2019.
Due to government funding rules, certain of our contracts are subject to appropriation, termination for
convenience, or similar cancellation clauses, which could allow our customers to cancel or not exercise options to
renew contracts in the future.
Although we have entered into contracts for the delivery of products and services in the future and anticipate the
contracts will be completed, if agencies do not appropriate money in future year budgets, terminate contracts for
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convenience or if other cancellation clauses are invoked, revenue and cash associated with these bookings will not
ultimately be recognized, and could result in a reduction to bookings and revenue. Termination without cause provisions
generally allow agencies to terminate a contract at any time and enable us to recover only our costs incurred or committed
and settlement expenses and profit, if any, on the work completed prior to termination. We may or may not be able to
recover all the costs incurred during the start-up phase of a terminated contract. The unexpected termination of significant
contracts could result in significant revenue shortfalls. If revenue shortfalls occur and are not offset by corresponding
reductions in expenses, our business could be adversely affected. We cannot anticipate if, when, or to what extent our
customers might terminate their contracts with us.
The open bidding process creates uncertainty in predicting future contract awards.
Many governmental agencies purchase products and services through an open bidding process. Generally, a
governmental entity will publish an established list of requirements requesting potential vendors to propose solutions for
the established requirements. To respond successfully to these requests for proposals, we must accurately estimate our cost
structure for servicing a proposed contract, the time required to establish operations for the proposed customer, and the
likely terms of any other third-party proposals submitted. We cannot guarantee that we will win any bids in the future
through the request for proposal process, or that any winning bids will ultimately result in contracts on favorable terms.
Our contracts typically run for a fixed number of years and may be extended for an additional specified number of years
if the contracting entity or its agent elects to do so. When these contracts expire, they may be opened for bidding by
competing bidders, and there is no guarantee that the contracts will be renewed or extended. Our customers may elect
to open bidding processes up earlier than anticipated, resulting in increased competition prior to the anticipated end of
contracts. Our failure to secure contracts through the open bidding process, or to secure such contracts on favorable terms,
may adversely affect our revenues and gross margins.
We maintain most of our cash balances, some of which are not insured, at two depository institutions.
We maintain the majority of our cash and cash equivalents accounts at two depository institutions. As of
December 31, 2023, the aggregate balances in such accounts at these two institutions were $560.4 million. Our balances
with these and other institutions regularly exceed Federal Deposit Insurance Corporation insured limits for domestic
deposits and various foreign deposit insurance programs covering our deposits in Australia, Belgium, Canada, Finland,
France, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United Kingdom and Vietnam.
We could suffer losses with respect to the uninsured balances if the depository institutions failed (such as the bank
failures at several U.S. banks in spring 2023) and the institution’s assets were insufficient to cover its deposits and/or the
governments did not take actions to support deposits in excess of existing insurance limits. Any such losses or delays in
access to funds as a result of such events could have a material adverse effect on our liquidity, financial condition and
results of operations.
Stock transactions may have a material, unpredictable impact on our results of operations and may result in
dilution to existing shareholders.
We have historically granted and expect to continue to grant stock-based compensation to key employees and non-
employee directors as a means of attracting and retaining highly qualified personnel. All stock-based awards are required
to be recognized in our financial statements based on their grant date fair values. The amount recognized for stock
compensation expense could vary depending on a number of assumptions or changes that may occur.
Changes in the subjective and probability-based assumptions can materially affect the estimates of the fair value of
the awards and timing of recognition of stock-based compensation expense and, consequently, the related amount
recognized in our statements of operations and comprehensive income.
As we continue to mature, the incentives to attract, retain and motivate employees provided by our equity awards
or by future arrangements may not be as effective as in the past. We may also issue equity securities to pay for
acquisitions and grant stock-based awards to retain the employees of acquired companies. If we issue significant equity
to attract additional employees, to retain our existing employees, or related to acquisitions, we could incur substantial
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additional share-based compensation expense and the ownership of our existing shareholders would be further diluted,
which could depress the market price of our stock.
Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local
currencies.
For current and potential international customers whose contracts are denominated in U.S. dollars, the relative change
in local currency values creates relative fluctuations in our product pricing. These changes in international end-user costs
may result in lost orders and reduce the competitiveness of our products in certain foreign markets. Additionally,
intercompany sales to our non-U.S. dollar functional currency international subsidiaries are transacted in U.S. dollars,
which could increase our foreign exchange rate risk caused by foreign currency transaction gains and losses.
For non-U.S. dollar denominated sales, weakening of foreign currencies relative to the U.S. dollar generally leads us
to raise international pricing, potentially reducing demand for our products. Should we decide not to raise local prices to
fully offset the dollar’s strengthening, the U.S. dollar value of our foreign currency denominated sales and earnings would
be adversely affected. We do not currently engage in hedging activities related to fluctuations in foreign currency.
Fluctuations in foreign currency could result in a change in the U.S. dollar value of our foreign denominated assets and
liabilities, including accounts receivable. Therefore, the U.S. dollar equivalent collected on a given sale could be less than
the amount invoiced causing the sale to be less profitable than contemplated.
We also import selected components that are used in the manufacturing of some of our products. Although our
purchase orders are generally in U.S. dollars, weakness in the U.S. dollar could lead to price increases for the components.
Unanticipated changes in our effective tax rate and additional tax liabilities may impact our operating results and
financial condition.
We are subject to income taxes in the United States and various jurisdictions outside of the United States. Our
effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax
rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits
related to exercises of stock options and vesting of restricted stock units (“RSUs”), changes in the valuation of deferred
tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, and changes in our liability
for unrecognized tax benefits.
We are subject to potential tax examinations in multiple jurisdictions. While we regularly evaluate new information
that may change our judgment resulting in recognition, derecognition or change in measurement of a tax position taken,
there can be no assurance that the final determination of any examinations will not have an adverse effect on our operating
results and financial condition.
Our tax provision could also be impacted by changes in U.S. federal, state and local or foreign tax laws, including
fundamental tax law changes applicable to corporate multinationals, and proposals by the current U.S. President or
Congress.
Additionally, we may be subject to additional tax liabilities due to changes in non-income-based taxes resulting from
changes in U.S. federal, state and local or foreign tax laws, changes in taxing jurisdictions’ administrative interpretations,
decisions, policies and positions, results of tax examinations, settlements or judicial decisions, changes in accounting
principles, changes to our business operations, including acquisitions, as well as the evaluation of new information that
results in a change to a tax position taken in a prior period.
Further, recommendations from the Organization for Economic Co-operation and Development (“OECD”) regarding
a global minimum income tax and other changes are being considered and/or implemented in jurisdictions where we
operate. We believe enactment of the recommended framework in jurisdictions where we operate will result in minimal
impacts to our financial results in the near term. The impact of any new tax legislation may differ materially from our
estimates due to future regulatory guidance or changes in our interpretations or assumptions we have made.
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Our revenues and operating results may fluctuate unexpectedly from quarter-to-quarter, which may cause our
stock price to decline.
Our revenues and operating results have varied significantly in the past and may vary significantly in the future due
to various factors, including:
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budgetary cycles of municipal, state and federal law enforcement and corrections agencies;
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the outcome of any existing or future litigation;
the timing of large domestic and international orders;
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adverse publicity surrounding our products, the safety of our products, or the use of our products;
changes in our sales mix;
new product introduction costs;
increased raw material expenses;
changes in our operating expenses, including stock-based compensation expense;
changes in foreign currency exchange rates, inflation and interest rates;
inventory obsolescence;
changes in warranty reserve;
existing or future tariffs; and
regulatory changes that may affect the marketability of our products and services.
As a result of these and other factors, we believe that period-to-period comparisons of our operating results may not
be meaningful in the short term, and our performance in a particular period may not be indicative of our performance in
any future period. Fluctuations in our revenues and operating results may also cause our stock price to decline.
Our profitability could suffer from declines in fair value or impairment of our investments, including our strategic
investments, and could fluctuate if the fair values of our investments increase.
We invest a portion of available funds in a portfolio consisting of equity securities of various types. Our equity
investments consist of investments in both marketable and non-marketable securities. Investments in marketable securities
are measured at fair value on a recurring basis. We have elected to apply the measurement alternative for non-marketable
securities. Under the alternative, we measure investments without readily determinable fair values at cost, less impairment,
adjusted by observable price changes and we assess for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Our future investment income may fall short of expectations due to
changes in interest rates, or due to certain inherent risks involved in investments in early-stage privately held companies.
For example, we have recognized and may in the future recognize an unrealized loss on an investment if we determine
that our carrying amount for an investment without a readily determinable fair value is not expected to be fully recovered,
which would cause our earnings performance to suffer from such losses. By contrast, we have recorded and may in the
future record an unrealized gain on an investment if we determine the fair value exceeds the carrying amount, which would
benefit our earnings performance.
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Legal and Compliance Risks
We may face personal injury, wrongful death, product liability and other liability claims that harm our reputation
and adversely affect our sales and financial condition.
Our CED products are often used in aggressive confrontations that may result in serious, permanent bodily injury or
death to those involved. Our CED products may be associated with these injuries. A person, or the family members of a
person, injured or killed in a confrontation or otherwise in connection with the use of our products, may bring legal action
against us to recover damages on the basis of a number of theories, including wrongful death, personal injury, negligent
design, defective product, product performance issues, or inadequate warnings or training. We are currently subject to a
number of such lawsuits and have been and may be in the future subject to significant adverse judgments and settlements.
We may also be subject to lawsuits involving allegations of criminal misuse of our products. We have no control over how
our products are used by our customers or other end-users and cannot assure they are used consistent with our
specifications, design and warnings. While our products are designed to be non-lethal, we cannot guarantee they will be
used in a manner consistent with their intended use and any misuse exposes us to litigation, reputational harm and
controversy.
Although we maintain product liability insurance in amounts that we believe are reasonable, we may not be able to
maintain such insurance on acceptable terms, if at all, and product liability claims could result in a potential award of
monetary damages in excess of the amount of insurance coverage available to us. Because we manufacture and sell CEDs,
insurance carriers may decide not to insure our products or our company in the future.
Similar to product liability claims, we face exposure to class action lawsuits related to the design, performance,
safety, pricing or advertising of our products. Such class action lawsuits could also result in substantial monetary
judgments, defense costs, business distraction, reallocation of internal resources, injunctions related to the sale of products,
and potentially harm our reputation.
If successful, wrongful death, personal injury, misuse and other claims could result in adverse judgments or
unfavorable settlements. We incur significant legal expenses in defending these cases, and significant litigation could
result in a diversion of management’s attention and resources and could also result in negative publicity about our products.
The outcome of any litigation is inherently uncertain and there can be no assurance that our existing or any future litigation
will not have a material adverse effect on our business, financial condition or operating results.
Other litigation, government inquiries and regulatory actions may subject us to significant costs and judgments
and divert management attention from our business.
We have been and could in the future be involved in numerous other litigation, government inquiries and regulatory
matters relating to our products, contracts, employees and business relationships, including litigation against persons or
entities we believe have infringed on our intellectual property, infringement litigation filed against us, litigation against a
competitor, antitrust litigation, and enforcement actions filed against us. See discussion of litigation in Note 12 to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Such matters have resulted, and are expected to continue to result in, substantial costs to us, including in the form of
attorneys’ fees and costs, damages, fines or other penalties, whether pursuant to an adverse judgment or settlement, and
diversion of our management’s attention, which could adversely affect our business, financial condition or operating
results.
We have been, and may be in the future, subject to intellectual property infringement and other claims, which could
incur substantial litigation costs, result in significant damages awards, inhibit our use of certain technologies, and
divert management attention from our business.
Many companies own intellectual property rights that are directly or indirectly related to public safety
technologies. These companies periodically demand licensing agreements or engage in litigation based on allegations
of infringement or other violations of their patents, trademarks, copyrights or trade secrets. Non-practicing entities
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also have patents they have been granted or otherwise acquired, including patents that are directly or indirectly related to
public safety technologies. These entities may seek compensation for perceived infringement of their patents, including
by filing claims against us, independent of the merit of any such claims. As we enter new markets, expand into new product
categories, and otherwise offer new products, services and technologies, additional intellectual property claims may be
filed against us by these companies, entities and other third parties. Our use of AI tools in our business may increase the
likelihood that third parties will claim that we infringe their intellectual property rights. Intellectual property claims may
also be filed against us as our current products, services and technologies gain additional market share.
If our products, services or technologies were found to infringe a third-party’s proprietary rights, we could be forced
to discontinue use of the protected technology or enter into costly royalty or licensing agreements in order to be able to
sell our products, services or technologies. Such royalty and licensing agreements may not be available on terms acceptable
to us or at all. We could also be required to pay substantial damages, fines or other penalties, indemnify customers or
distributors, cease the manufacture, use or sale of infringing products or processes, make proprietary source code publicly
available, and/or expend significant resources to develop or acquire non-infringing technologies. Our suppliers may not
provide, or we may not be able to obtain, intellectual property indemnification sufficient to offset all damages, fines or
other penalties resulting from any claims of intellectual property infringement brought against us or our customers. There
is no guarantee that our use of conventional technology searching and brand clearance searching will identify all potential
rights holders. Rights holders may demand payment for past infringements and/or force us to accept costly license terms
or discontinue use of protected technology and/or works of authorship that may include, for example, photos, videos and
software. Our current R&D focus on developing software-based products, including that which is related to AI or VR,
increases this risk.
If we are unable to protect our intellectual property, the value of our brands and products may decrease and we
may lose our competitive market advantage.
Our future success depends upon our proprietary technology. Our protective measures for this proprietary technology
include patents, trademarks, copyrights and trade secret protection. However, these protective measures, as well as our
efforts to pursue such protective measures, may prove inadequate. For example, the value of intellectual property
protection in certain countries may not be apparent until after such protection can no longer be pursued. As such, our
intellectual property protection may not extend to all countries in which our products are distributed or will be distributed
in the future. Though we work to protect our innovations, we may not be able to obtain protection for certain innovations.
For example, we may be unable to patent some software-based products. Furthermore, any use of AI tools to create content
or code that may be incorporated into our products or services may also impact our ability to obtain or successfully defend
certain intellectual property rights. The scope of any patent protection we have obtained, or may obtain, may not prevent
others from developing and selling competing products. Despite our efforts, any intellectual property protection we obtain
may be later determined to be insufficient or ineffective.
Our protective measures may prove inadequate for reasons outside of our control. Varying intellectual property laws
across countries may lead to differences in protection between such countries. In certain countries in which our products
are distributed, the ability to effectively enforce intellectual property rights may not exist. Patent requirements differ by
country and certain domestic or international laws may prohibit us from satisfying these requirements, creating a risk that
some of our international patents may become unenforceable. Patents for older technologies, such as those first introduced
in our M26 and X26 models of CEDs, have expired or will expire due to statutory limits on patent term. Despite policies
and efforts to maintain secrecy of trade secrets and other confidential information, such information could be compromised
by employees, partners or other third parties.
Once established, there is no guarantee that our intellectual property rights will remain in force. Issued patents
may be re-examined and subsequently ruled invalid or unenforceable. Our registered trademarks may also be
diminished or lost. For example, there is a risk that our “TASER” trademark could become synonymous with the
general product category of “conducted energy devices” resulting in claims of genericness that could interfere with
our enforcement efforts and create customer confusion as to product source. The right to stop others from misusing
our trademarks and service marks in commerce depends, to some extent, on our ability to show evidence of
enforcement of our rights against such misuse in commerce. Our efforts to stop improper use, if ineffective, may lead
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to loss of trademark and service mark rights, brand loyalty and notoriety among our customers and prospective customers.
Inability to protect our intellectual property could negatively impact our commercial efforts and competitive market
advantage. Regardless of outcome, the prosecution of patent and other intellectual property claims is both costly and time-
consuming. Unauthorized use of our proprietary technology could divert our management’s attention from our business
and could result in a material adverse effect on our business, financial position and operating results.
We may be unable to enforce patent rights internationally, which may limit our ability to prevent our product
features from being used by competitors in some foreign jurisdictions.
Our U.S. patents protect us from imported infringing products coming into the United States from abroad. We have
filed applications for patents in foreign countries; however, these may be inadequate to protect markets for our products
in these foreign countries. Each patent is examined and granted according to the law of the country where it was filed
independent of whether a U.S. patent on similar technology was granted. Certain foreign countries have patent working
requirements that require a patent owner to practice a patented invention within the respective country. A patent in a
foreign country may be subject to cancellation, forfeiture, compulsory license or other penalty if the claimed invention has
not been worked in that country. Meeting the requirements of working an invention differs by country and ranges from
sales in the country to manufacturing in the country. U.S. export law, or the laws of some foreign countries, may prohibit
us from satisfying the requirements for working the invention, creating a risk that some of our international patents may
become unenforceable. In a country in which we do not have a patent or a country in which our patent in that country is
unenforceable or unenforced, other companies and makers of similar products may be able to copy our products or features
of our products without consequence, thus limiting our ability to capture market share or protect our technology, which
could materially harm our growth prospects and operating results.
The use of open source software in our products, services and technologies may expose us to additional risks and
harm our intellectual property.
Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses
require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly
part or all of the source code to the user’s software or require the user of such software to make any derivative works of
the open source code available to others on potentially unfavorable terms or at no cost. The terms of many open source
licenses have not been interpreted by courts, and there is a risk that those licenses could be construed in a manner that
imposes unanticipated conditions or restrictions on our ability to commercialize our products, services and technologies.
In that event, we could be required to seek licenses from third parties in order to continue offering our products, to re-
develop our products, to discontinue sales of our products or to release our proprietary software code under the terms of
an open source license, any of which could harm our business. Although we aim to avoid any use of open source software
in our products, services and technologies, and otherwise only use open source software available under permissive open
source licenses, it is possible that other manners of use, including those that a third party may allege to be in breach of a
corresponding open source license, may have inadvertently occurred in deploying our products, services and technologies.
If a third-party software provider has incorporated certain types of open source software into software we license from
such third party for our products, services and technologies without our knowledge, we could be required to disclose the
source code to our products, services and technologies. This could harm our intellectual property position as well as our
business, financial condition, cash flows and results of operations.
A variety of new and existing laws and/or interpretations could materially and adversely affect our business.
As detailed in “Item I. Business – Government Regulation,” we are subject to a variety of laws and regulations
in the United States and abroad that involve matters central to our business, including laws and regulations related to:
privacy, data protection, security, retention and deletion; rights of publicity; content; intellectual property; regulation
of certain of our CEDs as firearms; advertising; marketing; distribution; electronic contracts and other
communications; competition; consumer protection; telecommunications; product liability; taxation; labor and
employment; sustainability; economic or other trade prohibitions or sanctions; securities law; and online payment
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services. The introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we
may take may subject us to additional laws, regulations or other government scrutiny. In addition, foreign privacy, data
protection, content, competition, sustainability and other laws and regulations can impose different obligations or be more
restrictive than those in the United States.
These U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties
in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the
application, interpretation, and enforcement of these laws and regulations are often uncertain and may be interpreted and
applied inconsistently from country to country and inconsistently with our current policies and practices. New laws and
regulations (or new interpretations of existing laws and regulations) may require us to incur substantial costs, expose us to
unanticipated civil or criminal liability, or cause us to change our business practices.
The cost of compliance with these laws and regulations is high and is likely to increase in the future. Additionally,
these laws and regulations, or any associated inquiries or investigations or other government actions, may delay or impede
the development of new products, result in negative publicity, cause customers to delay purchases, require significant
management time and attention, and subject us to remedies that may harm our business, including fines or demands or
orders that we modify or cease existing business practices. For example, as has been reported in the press, there is a grand
jury investigation being conducted by the U.S. Attorney’s Office for the Northern District of Illinois. We have fully
cooperated with the investigation and continue to do so. While we conducted an extensive internal investigation into,
among other things, lobbying activities, and have found no indication of any wrongdoing by any Axon employee, there
can be no assurance that this matter will not harm our business.
Radio Spectrum and Unmanned Aerial and Ground-Based Robotic Devices
Certain of our products utilize radio spectrum to provide wireless voice, data and video communications services.
The allocation of spectrum is regulated in the United States and other countries and limited spectrum space is allocated to
wireless services and specifically to public safety users. We manufacture and market products in spectrum bands already
made available by regulatory bodies. If current products do not comply with the regulations set forth by these regulatory
bodies, we may be unable to sell our products or could incur penalties. Our results could be negatively affected by the
rules and regulations adopted from time to time by the FCC, ISED, the European Union Directorate-General for
Environment or regulatory bodies in other countries. Regulatory changes in current spectrum bands may also require
modifications to some of our products so they can continue to be manufactured and marketed.
Axon body-worn cameras, docks, Axon Fleet vehicle cameras and Axon Signal devices are subject to the FCC’s
rules and regulations in the United States, as well as rules and regulations as applicable outside of the United States. These
regulations affect CEDs with Axon Signal technology, including the TASER 7, SPPM, TASER 10, and future CEDs
implementing wireless technology. Compliance with government regulations could increase our operations and product
costs and impact our future financial results.
Additionally, some of our products depend on drones or other unmanned aerial and ground-based systems that
operate on the radio spectrum. The FCC, the Federal Aviation Administration and other agencies at the federal, state and
local levels (as well as in foreign jurisdictions) are beginning to address some of the numerous certification, regulatory
and legal challenges associated with drones, but a comprehensive set of standards and enforcement procedures has yet to
be developed. Changes to the regulation of drones or other unmanned aerial systems may impact our future financial
results.
Axon and TASER Devices
For our TASER products, we rely on the opinions of the ATF, including the determination that a device that does
not expel projectiles by the action of an explosive is not classified as a firearm. Changes in laws, regulations and
interpretations outside of our control may result in our products being classified or reclassified as firearms. If this were to
occur, our private citizen demand could be substantially reduced because consumers would be required to comply with
federal, state or local firearm transfer requirements prior to purchasing our products.
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Federal regulation of sales in the United States: The majority of our currently offered CEDs are not classified as
firearms regulated by the ATF. However, the ATF regulates TASER 10 as a firearm under the GCA due to a technological
advancement specific to the propulsion design of TASER 10 cartridges. In the event we make TASER 10 available to our
private citizen and enterprise customers, demand could be substantially reduced as a result of this classification because
non-governmental end-users would be required to comply with federal, state or local firearm transfer requirements prior
to purchasing TASER 10. In addition, the implications of such classification on use-of-force standards and regulations
could impact our ability to sell TASER 10 to law enforcement and government entities. Because Axon must maintain a
federal firearms license to manufacture and sell TASER 10, we are subject to periodic compliance inspections by the ATF.
License violations discovered by the ATF can result in fines, penalties, warning letters or license revocation, leading to
disruptions in operations. Further, we are required to administer, track and remit firearm excise taxes as applicable.
Our CED products are also subject to testing, safety and other standards by organizations such as the American
National Standards Institute, the International Electrotechnical Commission, the National Institute of Standards and
Technology, and Underwriters Laboratories. These regulations also affect CEDs with Axon Signal technology, including
SPPM technology, and TASER 7 and TASER 10 battery packs.
Federal regulation of international sales: Our CEDs are considered a “crime control” product by the DOC for export
directly from the United States which requires us to obtain an export license from the DOC for the export of our CED
devices from the United States to any country other than Canada. Future products and services may require classifications
from the DOC before they may be shipped internationally. Our inability to obtain DOC export licenses or classifications
on a timely basis for sales of our products and services to our international customers could significantly and adversely
affect our international sales. Although TASER 10 is regulated by the ATF for domestic sales, the DOC has ruled that the
product’s unique propulsion design has no impact on its export classification and that the TASER 10 model’s export
classification remains consistent with all other TASER CED models.
Federal regulation of foreign national employees: Our CED development and production is also considered
controlled “technology” by the DOC and is categorized as a “deemed export” for any foreign national employees exposed
to the technology within the United States. Consequently, we must obtain export licenses from the DOC for any deemed
export within the United States made to a foreign national employee exposed to the controlled technology. Deemed export
licenses are subject to DOC approvals and issued licenses require annual status reports for the stated employees. Inability
to obtain proper licensing could curtail the Company’s ability to execute R&D and production related to CED technology.
State and local regulation: Our CEDs are controlled, restricted or, less frequently, prohibited by some state and local
governments. Other jurisdictions may ban or restrict the sale of our TASER-branded devices, or restrict their use through
changes to use-of-force laws or regulations, and our product sales may be significantly affected by additional state, county
and city governmental regulation. The change in TASER 10’s propulsion design may impact how TASER 10 is regulated
at the state and/or local level depending on each state’s firearm laws.
International regulation of foreign imports and sales: Certain jurisdictions prohibit, restrict, or require a permit for
the importation, sale, possession or use of CEDs, including in some countries by law enforcement agencies, limiting our
international sales opportunities.
U.S. and international regulation of component movements globally: We rely on a global supply chain of components
across our product lines with most final assembly occurring in the United States. Export of these components from abroad
is subject to shifting regulatory landscapes imposed by both the foreign government and U.S. authorities upon import.
Abrupt changes to these regulations can result in delays or interruptions to final product supplies. Additionally, ATF
regulation of certain imports of TASER 10 components may limit Axon’s supply chain agility.
International regulation of foreign-based operations: We maintain foreign operations in several countries
globally for purposes of logistics, SG&A services and R&D support. Depending on these activities, applicable
regulations include business activity licensing and registration, import permits and recordkeeping, warehousing and
35
storage security and permitting, and government reporting. Any failure to comply with these requirements could limit our
ability to sell, support or develop our products and services both internationally and in the United States.
Privacy Regulations
We are subject to various U.S. and foreign laws and regulations associated with the collection, processing, storage
and transmission of personally identifiable information and other sensitive and confidential information. This data is wide
ranging and relates to our employees, customers and other third parties, including the subjects of law enforcement. Our
compliance obligations include those prescribed under laws and regulations that dictate whether, how and under what
circumstances we can receive, process, hold and/or transfer certain data that is critical to our operations, including data
shared between countries or regions in which we operate and data shared among our products and services. If one or more
of the legal mechanisms for transferring data from other countries to the United States is invalidated, if we are unable to
transfer data between and among countries and regions in which we operate, or if we are prohibited from sharing data
among our products and services, it could affect the manner in which we provide our products and services or adversely
affect our financial results. Countries may also pass legislation implementing data protection requirements or requiring
local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our
products and services and expose us to significant penalties for non-compliance. The European Parliament adopted the
GDPR, effective May 2018, that extended the scope of European privacy laws to any entity that controls or processes
personal data of E.U. residents in connection with the offer of goods or services or the monitoring of behavior and imposes
compliance obligations concerning the handling of personal data. Further, Vietnam's PDPD, which entered into force
July 1, 2023, applies to organizations (wherever based) so long as they participate in personal data processing in Vietnam.
We are also subject to U.S. laws and regulations, including the CPRA, which provides for enhanced consumer protections
for California residents, a private right of action for data breaches and statutory (cid:191)nes and damages for data breaches or
other CCPA violations, as well as a requirement of “reasonable” cybersecurity, which could subject us to additional
compliance costs as well as potential fines, individual claims, class actions and commercial liabilities.
Any inability, or perceived inability, by us to adequately address privacy concerns, or comply with applicable laws,
regulations, policies, industry standards and guidance, contractual obligations or other legal obligations, even if unfounded,
could result in signi(cid:191)cant regulatory and third-party liability, increased costs, disruption of our business and operations,
and a loss of con(cid:191)dence and other reputational damage. Furthermore, as new privacy- related laws and regulations are
implemented, the time and resources needed for us to comply with such laws and regulations continues to increase and
become a signi(cid:191)cant compliance workstream.
Environmental Regulations
We are subject to various U.S. federal, state, local and international laws and regulations governing the environment,
including restricting the presence of certain substances in our products and making us financially responsible for the
collection, treatment, recycling and disposal of such products. In addition, further environmental or climate change
disclosure legislation may be enacted in other jurisdictions, including the United States (under federal and state laws) and
other countries, the cumulative impact of which could be significant. For example, in September 2023, California passed
the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, requiring increased climate-
related reporting. See “Item 1. Business – Governmental Regulation – Environmental Regulations.” New, or changes in,
environmental safety laws, regulations or rules could also lead to increased costs of compliance, including remediations
of any discovered issues, and changes to our operations, which may be significant. Any failures to comply could result in
significant expenses, delays or fines and could adversely affect our financial results.
Our business is subject to evolving corporate governance and public disclosure regulations and expectations,
including with respect to environmental, social and governance (“ESG”) matters, that could expose us to numerous
risks.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory
organizations, including the SEC, the Nasdaq Stock Market and the Financial Accounting Standards Board. These
rules and regulations continue to evolve in scope and complexity and many new requirements have been created in
36
response to laws enacted by Congress, making compliance more difficult and uncertain. In addition, increasingly
regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures.
These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in,
increased general and administrative expenses and increased management time and attention spent complying with or
meeting such regulations and expectations. For example, developing and acting on initiatives within the scope of ESG,
and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time-consuming
and is subject to evolving reporting standards, including the SEC’s recently proposed climate-related reporting
requirements, and similar proposals by other domestic or international regulatory bodies. Foreign governments have also
enacted legislation to address ESG issues, such as the UK Modern Slavery Act.
Additionally, unfavorable perception regarding our social initiatives, governance practices, diversity initiatives, the
perceived or actual impacts of our products and services, environmental policies or other growing concerns of our
stakeholders, could adversely affect our reputation. Any negative effect on our reputation could have an adverse effect on
the size of our customer base, which could adversely affect our business and financial results. We have been, and may be
in the future, subject to informal private or public inquiries and formal proxy proposals by activists urging us to take certain
corporate actions related to ESG matters, which may not be aligned with our best interests. These activities may adversely
affect our business in a number of ways, since responding to inquiries or proposals can be costly, time-consuming, and
disruptive to our operations and could meaningfully divert our resources, including the attention of our management team
and our employees.
We may also communicate certain initiatives and goals, regarding environmental matters, diversity, responsible
sourcing and social investments and other ESG-related matters, in our SEC filings or in other public disclosures. These
initiatives and goals within the scope of ESG could be difficult and expensive to implement, the technologies needed to
implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the
accuracy, adequacy or completeness of the disclosure. Further, statements about our ESG-related initiatives and goals, and
progress against those goals, may be based on standards for measuring progress that are still developing, internal controls
and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be
criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. Given the dynamic nature
of ESG expectations, standards and regulations, which may change over time, we may from time to time need to update
or otherwise revise our current practices, initiatives and goals, including in response to legislative or legal developments.
If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect
to our goals within the scope of ESG on a timely basis, or at all, we may be exposed to potential liability or litigation, and
our reputation, business, financial performance and growth could be adversely affected.
Our amended and restated bylaws include exclusive forum provisions that could increase costs to bring a claim,
discourage claims or limit the ability of the our shareholders to bring a claim in a judicial forum viewed by
shareholders as more favorable for disputes.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum,
the Chancery Court of the State of Delaware will be, to the fullest extent permitted by law, the sole and exclusive forum
for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary
duty owed by any of our directors, officers or shareholders; (iii) any action asserting a claim arising pursuant to any
provision of the Delaware General Corporation Law or of our amended and restated certificate of incorporation or our
amended and restated bylaws; or (iv) any action asserting a claim against us or any of our directors or officers governed
by the internal affairs doctrine. In addition, our amended and restated bylaws also provide that, unless we consent in writing
to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the
resolution of any claim arising under the Securities Act. The exclusive forum provision in our amended and restated bylaws
does not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which
the federal courts have exclusive jurisdiction.
The choice of forum provision may increase costs to bring a claim, discourage claims or limit a shareholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with Axon or Axon’s directors, officers
or other employees, which may discourage such lawsuits against Axon or Axon’s directors, officers and other
37
employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated
bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such
action in other jurisdictions.
Risks Related to our Convertible Notes
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow to pay our
substantial debt.
As of December 31, 2023, we had outstanding an aggregate principal amount of $690.0 million of our 0.50%
convertible senior notes due 2027 (the “Notes” or “2027 Notes”). Our ability to make scheduled payments of the principal
of, to pay interest on or to refinance our indebtedness, including the Notes, depends on our future performance, which is
subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to
generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If
we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets,
restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to
refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be
able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on
our debt obligations, including the Notes.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert
their Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, we
would be required to settle any converted principal amount of such Notes through the payment of cash, which could
adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current, rather than
long-term, liability, which would result in a material reduction of our net working capital.
Conversion of the Notes may dilute the ownership interest of our shareholders or may otherwise depress the price
of our common stock.
The conversion of some or all of the Notes may dilute the ownership interests of our shareholders. Upon conversion
of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination
of cash and shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the
aggregate principal amount of the Notes being converted. If we elect to settle the remainder, if any, of our conversion
obligation in excess of the aggregate principal amount of the Notes being converted in shares of our common stock or a
combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon
such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the
Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy
short positions, or anticipated conversion of the Notes into shares of our common stock could depress the market price of
our common stock.
Changes in the accounting treatment for the Notes could have a material effect on our reported financial results.
We have adopted Accounting Standards Update 2020-06 (“ASU 2020-06”) as of January 1, 2022. Accordingly,
we do not bifurcate the liability and equity components of the Notes on our balance sheet and we use the if-converted
method of calculating diluted earnings per share. Under the if-converted method, diluted earnings per share will
generally be calculated assuming that all the Notes were converted solely into shares of common stock at the beginning
of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per
share. Because the principal amount of the Notes upon conversion is required to be paid in cash, and only the excess is
permitted to be settled in shares, the application of the if-converted method will produce a similar result as the treasury
stock method prior to the adoption of ASU 2020-06. The effect of the treasury stock method is that the
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shares issuable upon conversion of such Notes are not included in the calculation of diluted earnings per share except to
the extent that the conversion value of such Notes exceeds their principal amount.
In accordance with ASU 2020-06, the Notes are reflected as a liability on our consolidated balance sheets, with the
initial carrying amount equal to the principal amount of the Notes, net of issuance costs. The issuance costs have been
treated as a debt discount for accounting purposes, which is and will be amortized into interest expense over the term of
the Notes. As a result of this amortization, the interest expense that we recognize for the Notes for accounting purposes is
greater than the cash interest payments payable on the Notes, resulting in lower reported income.
We cannot be sure whether future changes made to the current accounting standards related to the Notes will not
have a material effect on our reported financial results.
The convertible note hedge and warrant transactions may affect the value of the Notes and our common stock.
In connection with the pricing of the Notes, we have entered into convertible note hedge transactions with the option
counterparties. We have also entered into warrant transactions with the option counterparties. The convertible note hedge
transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of Notes
and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case
may be. However, the warrant transactions could have a dilutive effect on our common stock to the extent that the market
price per share of our common stock exceeds the strike price of the warrants.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into
or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or
other securities of ours in secondary market transactions following the pricing of the Notes and prior to the maturity of the
Notes (and are likely to do so in connection with any conversion of the Notes or redemption or repurchase of the Notes).
This activity could cause or avert an increase or a decrease in the market price of our common stock.
In addition, if any such convertible note hedge and warrant hedging transactions fail to become effective, the option
counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which
could adversely affect the value of our common stock.
The potential effect, if any, of these transactions and activities on the market price of our common stock will depend
in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value
of our common stock.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might
default under the convertible note hedge transactions. Our exposure to the credit risk of the option counterparties will not
be secured by any collateral.
If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those
proceedings with a claim equal to our exposure at that time under the convertible note hedge transactions with such option
counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to
an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option
counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our
common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
Item 1B. Unresolved Staff Comments
None.
39
Item 1C. Cybersecurity
Our business is highly dependent on our information systems, including our ability to operate them effectively and
to successfully implement new technologies, methods and processes, as well as adequate controls and cybersecurity
incident recovery plans. We rely on our information systems to manage our business, data, communications, supply chain,
ordering, pricing, billing, inventory replenishment, accounting functions and other processes. In addition, we must protect
the confidentiality and integrity of the data of our business, employees, customers and other third parties. Our business
involves the collection, processing, storage and transmission of personally identifiable information and other sensitive and
confidential information. This data is wide ranging and relates to our employees, customers and third parties, including
the subjects of law enforcement. Our compliance obligations include those prescribed under the laws and regulations that
dictate whether, how and under what circumstances we can receive, process, hold and/or transfer certain data that is critical
to our operations, including data shared between countries or regions in which we operate and data shared among our
products and services.
As part of our company-wide culture of security, we maintain a formal cybersecurity and information security
program that is aligned with the standards set forth by the International Organization for Standardization (“ISO”), the
American Institute of Certified Public Accountants in Systems and Organization Controls 2, the Criminal Justice
Information Services, the Federal Risk and Authorization Management Program and the National Institute of Standards
and Technology. The Company’s Information Security Team maintains the program, which is designed to ensure proper
monitoring, prevention, detection, mitigation and remediation of cybersecurity vulnerabilities, including the prompt
investigation and management of all reported or discovered security events, including cybersecurity threats and incidents,
in the ordinary course of the business of the Company.
Our cybersecurity and information security program is designed to comply with key global financial regulations and
cybersecurity laws in the jurisdictions in which we operate. The program includes taking several proactive steps to prepare
for attempts to compromise our information systems. To provide for the availability of critical data and systems, maintain
regulatory compliance, manage our material cybersecurity risks, and protect against, detect and respond to cybersecurity
threats and incidents, we undertake the below listed activities:
•
•
•
•
•
•
•
•
•
•
closely monitor emerging data protection laws and implement changes to our processes designed to comply;
undertake regular reviews (at least annually) of our consumer facing and internal policies and statements related
to cybersecurity;
proactively inform our customers of substantive changes related to customer data handling;
conduct annual information security training for all our employees;
recruit and retain highly skilled cybersecurity professionals, and provide regular training and development
opportunities for our cybersecurity and information security employees;
conduct regular phishing email simulations for all employees and all contractors with access to corporate email
systems to enhance awareness and responsiveness to such possible threats;
through policy, practice and contract (as applicable), require employees, as well as third parties who provide
services on our behalf, to treat customer information and data with care;
perform due diligence on third-party vendors and, based on our risk assessment, put in place contractual
undertakings and oversight to manage and reduce the risks associated with third-party vendors;
run tabletop exercises to simulate a response to a cybersecurity incident and use the findings to improve our
technologies, methods and processes;
conduct regular risk assessments of our information systems to identify weaknesses, and develop and implement
mitigations to improve our cybersecurity and information security program;
40
•
conduct regular security assessments, vulnerability scans, and penetration tests (including by third-party
assessment firms) of products systems and internal systems to discover vulnerabilities and apply appropriate
mitigations within standardized timelines;
• maintain, implement, evaluate and update our cybersecurity technologies to address threats and vulnerabilities;
and
•
carry information security risk insurance that provides protection against the potential losses arising from a
cybersecurity incident.
Third Party Monitoring and External Reviews
Axon utilizes the assistance of third-party technology and providers to support our objective of protecting our
information, information systems and network. Services provided by third parties to assess the performance of our
cybersecurity risk management systems and procedures and to identify cybersecurity risks to the Company include
assessing products and internal systems for vulnerabilities, incident response services such as computer forensics, internal
and external audits for security certifications globally and overall security program maturity evaluations. Axon and our
service providers have also developed systems and processes that are designed to protect our and our customers’ data, to
prevent data loss, and to prevent or detect cybersecurity threats and incidents.
Material findings, notable weaknesses and suggestions are presented to the Enterprise Risk and Compliance
Committee of the Company’s Board of Directors (the “ERC Committee”) as discussed below.
Cybersecurity Management Team
Our cybersecurity and information security program, which includes data privacy, is the responsibility of our Chief
Information Security Officer (“CISO”), who oversees our global information security program. Our current CISO has
served in various information technology and information security roles over the past 20 years, having built the Company’s
information security program over the last 10 years, and serving as CISO since December 2017. We expect our current
CISO to transition his responsibilities to our new CISO over the coming quarter. Our new CISO brings diverse
perspectives and significant skills and experience leading security organizations across a number of technology companies.
Our CISO attends quarterly meetings of the Company’s Disclosure Committee and provides input on the Company’s
disclosures in its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, including the relevant risk factors
set forth therein. The Company’s CISO, along with the Information Security Team, also leads our Security Incident
Response Team, which is responsible for investigating suspected cybersecurity threats and incidents. In the event of a
possibly material cybersecurity incident, the Information Security Team also includes the following executive team
members: Corporate General Counsel, Chief Legal Officer, Chief Accounting Officer, Chief Financial Officer and, to the
extent practicable or relevant, other senior executives.
41
Board of Directors Oversight
As a part of its oversight of the key risks facing the Company, our Board of Directors devotes significant time and
attention to data and systems protection, including cybersecurity and information security risk. While the Audit Committee
of the Company’s Board of Directors (the “Audit Committee”) reviews any significant legal, compliance or regulatory
matters that may have a material impact on the Company’s business, financial statements or compliance policies generally,
it does so in consultation with our ERC Committee with respect to any such matters that involve cybersecurity, data privacy
or information technology. The Chair of our ERC Committee is also a member of our Audit Committee, which facilitates
close coordination between the two committees on cybersecurity, data privacy and information technology matters.
Our ERC Committee oversees our overall approach to enterprise risk management, of which cybersecurity is an
important component. The ERC Committee and its Chair, in coordination with the Information Security Team and CISO,
regularly review the categories of risk the Company faces, including any cybersecurity risk exposures, as well as the
likelihood of occurrence, the potential impact of those risks, and the steps management has taken to monitor, mitigate and
control such exposures. To facilitate these reviews, the Information Security Team and CISO report at least quarterly to
the ERC Committee with respect to cybersecurity risks, including those identified through review of our business, of rising
threats in the industry, and of the current state of the Company’s cybersecurity and information security program. The
ERC Committee makes regular reports to the full Board of Directors regarding updates on cybersecurity and other risks.
Incident Response and Assessment Policies and Procedures
Axon has implemented our cybersecurity and information security program and cybersecurity incident response plan
to protect our and our customers’ data from, and mitigate the effects of, unintentional disclosure as well as cybersecurity
threats and incidents of all severity levels. Our program and response plan outline actions to be taken after identifying a
suspected cybersecurity threat or incident and the people responsible for managing those actions. We have also
implemented disclosure controls and procedures for determining the materiality of a cybersecurity incident to outline
disclosure and communications responsibilities during cybersecurity incidents of all severity levels.
In the event of a possibly material cyber incident, the Security Incident Response Team, under the direction of the
Corporate General Counsel and/or the Chief Legal Officer, would collect and document information relevant to materiality
and make a threshold determination as to whether such cybersecurity incident (including those occurring on the
information systems of third parties) is potentially material. The Security Incident Response Team would meet with the
Chair of the ERC Committee to review the preliminary findings of the Security Incident Response Team, including the
possible factors in determining materiality. If the Security Incident Response Team and the Chair of the ERC Committee
determine that the cybersecurity incident warrants further review after consideration of such findings and factors, the Audit
Committee would be convened for a meeting (to which all members of the ERC Committee would be invited) to review
the cybersecurity incident and the findings of the Security Incident Response Team and the Chair of the ERC Committee.
The Audit Committee would then make a materiality determination consistent with SEC guidance and by considering
relevant quantitative and qualitative factors, informed by any recommendations of the ERC Committee and/or its Chair.
Any materiality assessment that results in a determination that a cybersecurity incident is not material would be
reported by the Information Security Team, or appropriate members of management, to the ERC Committee at its next
scheduled meeting.
At this time, we have not identified any risks from known cybersecurity threats, including as a result of prior
cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations
or financial conditions. However, we face certain ongoing risks from cybersecurity threats that, if realized, are reasonably
likely to materially affect us, including our operations, business strategy, results of operations or financial condition. See
“Risk Factors—If our security measures or those of our third-party cloud storage providers are breached and
unauthorized access is obtained to customers’ data or our data, our network, data centers and products and services may
be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and
financial exposure and liabilities” and “Risk Factors—Catastrophic events could materially adversely affect our business,
results of operations and/or financial condition.”
42
Item 2. Properties
Our corporate headquarters and manufacturing facilities are based in an approximately 100,000 square foot facility
in Scottsdale, Arizona, which we own. As of December 31, 2023, we had more than 15 leased locations including Phoenix
and Scottsdale, Arizona; East Point, Georgia; Seattle, Washington; Melbourne and Sydney, Australia; Brussels, Belgium;
Daventry and London, England; Tampere, Finland; Frankfurt, Germany; Delhi, India; Amsterdam, Netherlands; and Ho
Chi Minh City, Vietnam. We also own a parcel of land located in Scottsdale, Arizona on which we intend to develop a
new campus.
We believe our existing facilities are well maintained and in good operating condition. We also believe we have
adequate manufacturing capacity for our existing product lines. To the extent that we introduce new products in the future,
we will likely need to acquire additional facilities to locate the associated production lines. However, we believe we can
acquire or lease such facilities on reasonable terms. We continue to make investments in capital equipment as needed to
meet anticipated demand for our products.
The majority of our locations support both of our reportable segments, except for our Vietnam and Seattle,
Washington locations, which primarily support our Software & Sensors segment.
Item 3. Legal Proceedings
See discussion of litigation in Note 12 to the consolidated financial statements included in Part II, Item 8 of this
Annual Report on Form 10-K, which discussion is incorporated by reference herein.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is quoted under the symbol “AXON” on The NASDAQ Global Select Market.
Holders
As of December 31, 2023, there were 209 holders of record of our common stock.
Dividends
To date, we have not declared or paid cash dividends on our common stock. We do not intend to pay cash dividends
in the foreseeable future.
Issuer Purchases of Equity Securities
In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of
our outstanding common stock subject to stock market conditions and corporate considerations. The stock
repurchase program does not have a stated expiration date. During the year ended December 31, 2023, no common
43
shares were purchased under the program. As of December 31, 2023, $16.3 million remained available under the plan for
future purchases.
Stock Performance Graph
The following stock performance graph compares the performance of our common stock to the NASDAQ Composite
Index, Russell 2000 Index, Russell Midcap Index, and S&P 500 Index.
The graph covers the period from December 31, 2018 to December 31, 2023. The graph assumes that the value of
the investment in our stock and in each index was $100 at December 31, 2018, and that all dividends were reinvested. We
do not pay dividends on our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Axon Enterprise, Inc., the NASDAQ Composite Index, the Russell 2000 Index, the Russell Midcap Index and the S&P 500
Index
$700
$600
$500
$400
$300
$200
$100
$0
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
Axon Enterprise, Inc.
NASDAQ Composite
Russell 2000
Russell Midcap index
S&P 500
$
Axon Enterprise, Inc.
NASDAQ Composite
Russell 2000
Russell Midcap Index
S&P 500
$
$
2018
100.00
100.00
100.00
100.00
100.00
2019
167.50
136.69
125.52
130.54
131.49
$
2020
280.07
198.10
150.58
152.87
155.68
2021
358.86
242.03
172.90
187.39
200.37
$
2022
379.22
163.28
137.56
154.94
164.08
$
2023
590.32
236.17
160.85
181.63
207.21
We have historically included the Russell 2000 and Russell Midcap as a point of reference in our Comparative
Stock Performance chart; however, we have made the decision to remove the Russell 2000 and Russell Midcap from this
chart beginning with our Annual Report on Form 10-K for the year ended December 31, 2024.
Index data copyright NASDAQ; Russell Investments; and Standard and Poor’s, Inc. Used with permission. All
rights reserved.
Item 6. [Reserved]
44
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to
provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our
financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A
should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Part I, Item 1A.
Risk Factors” and “Part II, Item 8. Financial Statements and Supplementary Data.” The various sections of our MD&A
contain a number of forward-looking statements, all of which are based on our current expectations and could be affected
by the uncertainties and risk factors described throughout this filing. The tables in the MD&A sections below are derived
from exact numbers and may have immaterial rounding differences.
Our MD&A discusses our results of operations for the year ended December 31, 2023 as compared to the year ended
December 31, 2022. For a discussion and analysis of the year ended December 31, 2022 as compared to the year ended
December 31, 2021, please refer to Management’s Discussion and Analysis of Financial Condition and Results of
Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed
with the SEC on February 28, 2023.
Overview
Axon’s product suite includes cloud-hosted digital evidence management, productivity and real-time operations
software, body-worn cameras, in-car cameras, TASER energy devices, robotic security and training solutions. Our
financial strategy is to build highly recurring, highly profitable businesses. Axon products are generally cloud-connected,
designed to drive better outcomes and customer experiences, and sold via mutually reinforcing integrated bundles.
Axon’s operations comprise two reportable segments:
1. TASER: Axon is the market leader in the development, manufacture and sale of CEDs, which we sell under our
brand name, TASER.
2. Software and Sensors: We develop, manufacture and sell fully integrated hardware and cloud-based software
solutions that enable law enforcement to capture, securely store, manage, share and analyze video and other
digital evidence. Our software offerings also support productivity and real-time operations.
We derive revenue from two primary sources: (i) the sale of physical products, including Axon cameras, Axon
Signal-enabled devices, CEDs, corresponding hardware extended warranties, and related accessories such as Axon docks,
cartridges and batteries, among others, and (ii) subscriptions to our Axon Evidence digital evidence management SaaS
offering (including data storage fees and other ancillary services), which includes varying levels of support. To a lesser
extent, we also recognize revenue from training, professional services and other software and SaaS services.
Some of our products and services are sold on a standalone basis. We also bundle our hardware products and services
together and sell them to our customers in single transactions, where the customer can make payments over a multi-year
period. These sales may include payments for upfront hardware and services, as well as payments for hardware and services
to be provided by us at a future date.
Our revenues for the year ended December 31, 2023 were $1.6 billion, an increase of $373.5 million, or 31.4%, from
the prior year. We had income from operations of $154.8 million in 2023 compared to income from operations of $93.3
million in the prior year. Gross margin dollars increased by $226.7 million in 2023 but remained relatively flat as a
percentage of revenue compared to 2022. Operating expenses for the year ended December 31, 2023 increased $165.2
million, reflecting an increase of $97.2 million in salaries, benefits and bonus expense and an increase in stock
compensation of $23.2 million primarily related to an increase in headcount. For the year ended December 31, 2023,
we recorded net income of $174.2 million, which reflected net unrealized losses of $80.5 million related to impairment
and observable price changes for our existing investments and related warrants, interest income, net of $42.1 million, and
an unrealized gain of $38.7 million on marketable securities related to our investment in Cellebrite DI Ltd.
45
(“CLBT”). This represented an increase of $27.1 million over net income of $147.1 million for the year ended
December 31, 2022, which included an unrealized gain of $131.9 million related to observable price changes for our
existing investments and related warrants and an unrealized loss of $32.9 million related to CLBT for the prior year.
Results of Operations
The following table presents data from our consolidated statements of operations as well as the percentage
relationship to total net sales of items included in our statements of operations (dollars in thousands):
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Operating expenses:
Sales, general and administrative
Research and development
Total operating expenses
Income from operations
Interest income, net
Other income (loss), net
Income before provision for income taxes
Provision for (benefit from) income taxes
Net income
Year Ended December 31,
2023
2022
$ 967,711 61.9 % $ 801,388 67.3 %
595,680
38.1
1,563,391 100.0
28.8
10.1
38.9
61.1
450,718
157,291
608,009
955,382
388,547 32.7
1,189,935 100.0
363,219 30.5
8.3
98,078
461,297
38.8
728,638 61.2
496,874
303,719
800,593
154,789
42,112
(41,901)
155,000
(19,227)
$ 174,227
31.8
19.4
51.2
9.9
2.7
(2.7)
9.9
(1.2)
11.1 % $ 147,139 12.4 %
401,575 33.7
233,810 19.7
635,385 53.4
7.8
0.4
8.3
196,518 16.5
4.1
93,253
4,294
98,971
49,379
Net sales to the United States and other countries are summarized as follows (dollars in thousands):
United States
Other Countries
Total
Year Ended December 31,
2023
2022
$ 1,338,208
225,183
$ 1,563,391
86 % $
14
987,975
201,960
100 % $ 1,189,935
83 %
17
100 %
International revenue increased in 2023, driven by strength in our Americas region, but decreased as a percentage of
total revenue compared to 2022.
Our operations comprise two reportable segments. In both segments, we report sales of products and services.
• The TASER segment includes the manufacture and sale of CEDs, batteries, accessories and extended warranties,
digital subscription training content, VR training content, TASER Evidence.com license revenue, and other
professional services tied to TASER and VR deployments.
• The Software and Sensors segment includes the sales of sensors, including body-worn cameras, in-car cameras,
other hardware sensors, warranties on sensors, and other products, as well as recurring cloud-hosted software
revenue, related non-recurring professional services revenue, and revenue from certain software, including on-
premise licenses.
46
For the Years Ended December 31, 2023 and 2022
Net Sales
Net sales by product line were as follows for the years ended December 31, 2023 and 2022 (dollars in thousands):
Year Ended December 31,
2023
2022
Dollar
Change
Percent
Change
TASER segment:
TASER Devices (Professional)
Cartridges
Axon Evidence and Cloud Services
Extended Warranties
Other (1)
TASER segment
Software and Sensors segment:
Axon Body Cameras and Accessories
Axon Fleet Systems
Axon Evidence and Cloud Services
Extended Warranties
Other (2)
Software and Sensors segment
Total net sales
$ 333,923
193,285
34,775
31,689
18,933
612,605
21.4 % $ 282,698
181,686
12.4
18,752
2.2
29,008
2.0
19,422
1.2
531,566
39.2
23.8 % $ 51,225
11,599
15.3
16,023
1.6
2,681
2.4
(489)
1.6
81,039
44.7
183,023
118,129
566,183
62,577
20,874
950,786
25,742
55,112
194,294
12,812
4,457
292,417
$ 1,563,391 100.0 % $ 1,189,935 100.0 % $ 373,456
157,281
63,017
371,889
49,765
16,417
658,369
11.7
7.6
36.2
4.0
1.3
60.8
13.2
5.3
31.2
4.2
1.4
55.3
18.1 %
6.4
85.4
9.2
(2.5)
15.2
16.4
87.5
52.2
25.7
27.1
44.4
31.4 %
(1) TASER segment “Other” includes smaller categories, such as VR hardware, CED training revenue such as revenue
associated with our Master Instructor School, and TASER consumer device sales.
(2) Software and Sensors segment “Other” includes revenue from items including Signal Sidearm, Interview Room
and Axon Air.
Net sales for the TASER segment for the year ended December 31, 2023 increased $81.0 million, or 15.2%, primarily
due to an increase of $51.2 million in TASER devices (professional) and an $11.6 million increase in cartridge revenue.
The increase in TASER devices (professional) revenue was the result of increased unit sales and premium product mix.
We continue to see strong adoption of our next generation product, TASER 10, which began shipping in the first quarter
of 2023. The increase in cartridge revenue was primarily attributable to growing sales of next generation TASER products.
Net sales for Axon Evidence and cloud services increased $16.0 million due to an increase in the number of cloud-
connected TASER devices in the field, as well as an increase in VR revenue.
Net sales for the Software and Sensors segment for the year ended December 31, 2023 increased $292.4 million, or
44.4%, as we continue to add users and associated devices to our network. The increase in the aggregate number of users
and average revenue per user, driven primarily by software add-ons, drove the majority of the increase in Axon Evidence
and cloud services revenue of $194.3 million in addition to increased professional services revenue associated with new
product installations, including Axon Fleet cameras. The $55.1 million increase in Axon Fleet systems revenue was
primarily driven by higher unit sales. Net sales of Axon Body cameras and accessories increased $25.7 million on higher
volume driven by demand for our next generation product, Axon Body 4, which began shipping at the end of the second
quarter of 2023. An increase in cameras and docks in the field drove the $12.8 million increase in extended warranties, as
most of those devices are sold with extended warranties.
Future Contracted Revenue - As of December 31, 2023 compared to December 31, 2022
Total company future contracted revenue represents remaining performance obligation and includes both recognized
contract liabilities as well as amounts that will be invoiced and recognized in future periods. The remaining
performance obligations are limited only to arrangements that meet the definition of a contract under Accounting Standards
Codification Topic 606 as of December 31, 2023. We currently expect to recognize between 15% to 25%
47
of this balance over the next 12 months, and generally expect the remainder to be recognized over the following ten years,
subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses. As of
December 31, 2023, we had approximately $7.1 billion of future contracted revenue, an increase from $4.6 billion as of
December 31, 2022.
Gross Margin
Gross margin (dollars in thousands):
TASER gross margin
TASER gross margin as % of TASER net sales
Software and Sensors gross margin
Software and Sensors gross margin as % of Software and Sensors net
sales
Total gross margin
Year Ended December 31,
2023
370,628
60.5%
584,754
2022
336,609
63.3%
392,029
Dollar
Change
Percent
Change
34,019 10.1 %
192,725 49.2
61.5%
$ 955,382
59.5%
$ 728,638
$ 226,744
31.1 %
Gross margin as % of net sales
61.1 %
61.2 %
Gross margin increased $226.7 million to $955.4 million for the year ended December 31, 2023 compared to $728.6
million for the year ended December 31, 2022. As a percentage of net sales, gross margin decreased slightly to 61.1% for
2023 from 61.2% for 2022. The decrease was due to lower gross margin in our TASER segment and was partially offset
by higher gross margin in our Software and Sensors segment.
As a percentage of total segment net sales, gross margin for the TASER segment decreased to 60.5% for the year
ended December 31, 2023, from 63.3% for the year ended December 31, 2022. The decrease was primarily due to
inventory reserve charges realized in the first quarter of 2023 and warranty reserve charges recognized in the fourth quarter
of 2023 related to a TASER 7 production issue that largely occurred in March 2023, combined with the launch of TASER
10, which is still ramping up toward full-scale manufacturing.
Within the Software and Sensors segment, gross margin as a percentage of total segment net sales increased to 61.5%
for the year ended December 31, 2023 from 59.5% for the year ended December 31, 2022. Within the Software and Sensors
segment, hardware gross margin was 45.6% for the year ended December 31, 2023, compared to 42.1% for the same
period in 2022, while service margin decreased to 72.6% from 73.3%, respectively, during each of those same time periods.
The increase in gross margin was driven by a premium product mix and scale efficiencies, partially offset by a higher mix
of lower-margin professional services revenue.
We anticipate an increase in stock-based compensation expense reflected within cost of goods sold as a result of
RSUs granted in January 2024 that generally vest in five annual installments from March 2024 through March 2028. These
RSUs were granted to employees whose compensation was under a specified threshold, including production-line
employees. As further discussed in Note 15 to our consolidated financial statements included within this Annual Report
on Form 10-K, Patrick W. Smith, our Chief Executive Officer, agreed to compensation in a lesser amount than the
Compensation Committee of our Board of Directors was otherwise willing to provide so that the Company could instead
provide enhanced compensation opportunities to other employees of the Company. If instead he had accepted higher
compensation, it would have been reflected in SG&A expenses over a similar period.
48
Sales, General and Administrative Expenses
SG&A expenses (dollars in thousands):
Salaries, benefits and bonus
Sales and marketing
Stock-based compensation
Other
Total sales, general and administrative expenses
SG&A expenses as a percentage of net sales
Year Ended December 31,
2023
$ 215,100
91,716
58,533
131,525
$ 496,874
2022
$ 160,936
72,451
51,301
116,887
$ 401,575
Dollar
Percent
Change Change
$ 54,164 33.7 %
19,265 26.6
7,232 14.1
14,638 12.5
$ 95,299 23.7 %
31.8 %
33.7 %
SG&A expenses for the year ended December 31, 2023 increased $95.3 million, or 23.7%, as compared to the prior
year. Salaries, benefits and bonus expense for the year ended December 31, 2023 increased $54.2 million as compared to
the prior year. Of the total increase, $32.1 million is attributable to an increase in salaries and related primarily to increased
headcount, and $9.0 million is attributable to payroll taxes related to the vesting of the final three tranches of our 2019
eXponential Stock Performance Plan (“2019 XSPP”) and the exercise of options under the 2018 grant of stock options to
Mr. Smith (the “2018 CEO Performance Award”). The remaining increase is primarily attributable to increased payroll
taxes and 401(k) matching related to the increase in salaries in addition to higher self-insured medical expense related to
increased medical plan enrollment and higher claims during the current year.
Sales and marketing expenses for the year ended December 31, 2023 increased $19.3 million as compared to the
prior year, driven by a $16.3 million increase in commissions expense tied to higher revenues. Sales and marketing
expenses were also impacted by an increase of $3.6 million related to in-person events in 2023, including our annual user
conference, Axon Accelerate.
Stock-based compensation expense for the year ended December 31, 2023 increased $7.2 million as compared to the
prior year, which is primarily attributable to increased headcount combined with a $4.9 million increase in expenses related
to the vesting of the final three tranches of the 2019 XSPP. Partially offsetting the increases was a decrease of $11.5 million
related to the 2018 CEO Performance Award as the award became fully amortized with the vesting of the final two
tranches.
Other SG&A expenses for the year ended December 31, 2023 increased by $14.6 million as compared to the prior
year, reflecting higher headcount and the following:
• Travel expenses increased $4.8 million, reflecting increased in-person customer and vendor meetings. Increased
travel costs per trip also impacted travel expenses.
• Professional, consulting and lobbying expenses increased $4.2 million, driven primarily by transaction costs
related to business acquisitions and strategic investments.
49
Research and Development Expenses
R&D expenses (dollars in thousands):
Salaries, benefits and bonus
Stock-based compensation
Indirect manufacturing costs and supplies
Other
Total research and development expenses
R&D expenses as a percentage of net sales
Dollar
Percent
Change Change
Year Ended December 31,
2023
2022
$ 178,658 $ 135,596 $ 43,062
15,962
6,388
4,497
$ 303,719 $ 233,810 $ 69,909
66,230
25,343
33,488
50,268
18,955
28,991
19.4 %
19.7 %
31.8 %
31.8
33.7
15.5
29.9 %
Within the TASER segment, R&D expenses increased $10.8 million, or 20.9%, for the year ended December 31,
2023. An increase of $8.0 million in salaries, benefits and bonus expense and an increase of $2.4 million in stock-based
compensation expense reflected higher headcount.
R&D expense for the Software and Sensors segment increased $59.1 million, or 32.4%, for the year ended
December 31, 2023, and decreased as a percentage of sales to 25.4% compared to 27.7% in the prior year. An increase of
$35.0 million related to salaries, benefits and bonus expense reflected increased headcount. Additionally, there was an
increase of $13.6 million in stock-based compensation expense related to increased headcount. Internal cloud costs
increased $5.8 million related to software product development, and professional and consulting expenses increased $4.7
million primarily related to the launch of new products.
Interest Income, Net
Interest income, net, was as follows (dollars in thousands):
Interest income
Interest expense
Total interest income, net
Year Ended December 31,
2023
49,107 $
(6,995)
42,112 $
2022
4,782
(488)
4,294
$
$
The increase in interest income for the year ended December 31, 2023 is primarily related to higher balances of
available-for-sale securities during the year. Interest expense increased from $0.5 million from the prior year to $7.0
million primarily related to our 2027 Notes, which were issued in December 2022. For additional information regarding
our Notes, refer to Note 11 to the consolidated financial statements included within this Annual Report on Form 10-K.
Other Income (Loss), Net
Other income (loss), net, was as follows (dollars in thousands):
Unrealized gain (loss) on fair value adjustments of strategic investments, net
Unrealized gain (loss) on marketable securities, net
Gain (loss) on foreign currency transactions, net
Other, net
Other income (loss), net
Year Ended December 31,
2023
(80,485)
38,700
(504)
388
(41,901) $
2022
131,883
(32,900)
(929)
917
98,971
$
50
In 2023, we recorded a net unrealized impairment loss of $71.9 million for an existing strategic investment and
related warrants and an unrealized loss of $8.6 million related to observable price changes for our existing investments
and related warrants.
In 2022, we recorded an unrealized gain of $131.9 million related to observable price changes for our investments in
certain strategic investments and related warrants and the exercise of warrants in one of our strategic investees.
Provision for Income Taxes
The provision for income taxes was a benefit of $19.2 million for the year ended December 31, 2023. The effective
income tax rate for 2023 was (12.4)%. The benefits related to excess stock-based compensation of $106.5 million and
R&D credits of $26.2 million were partially offset by the tax effects of permanently non-deductible expenses for executive
compensation of $77.4 million.
The provision for income taxes was an expense of $49.4 million for the year ended December 31, 2022. The effective
income tax rate for 2022 was 25.1%. The benefits related to excess stock-based compensation of $4.6 million and R&D
credits of $13.3 million, and a deduction for foreign-derived intangible income of $2.6 million were partially offset by the
tax effects of permanently non-deductible expenses for executive compensation of $5.8 million, an increase in uncertain
tax benefits of $3.2 million, and other permanently non-deductible expenses of $1.8 million. Additionally, we recorded a
$10.2 million increase to our valuation allowance as of December 31, 2022 related to state R&D tax credits that may not
be utilized prior to expiration and an unrealized investment loss.
Net Income
We recorded net income of $174.2 million for the year ended December 31, 2023 compared to a net income of $147.1
million in 2022. Net income per basic share was $2.35 and diluted net income per share was $2.31 for 2023, compared to
net income per basic share of $2.07 and diluted net income per share of $2.03 for 2022.
Three Months Ended December 31, 2023 Compared to September 30, 2023
Net sales by product line were as follows (dollars in thousands):
Three Months Ended Three Months Ended
December 31, 2023
September 30, 2023
Dollar
Change
Percent
Change
TASER segment:
TASER Devices (Professional)
Cartridges
Axon Evidence and Cloud Services
Extended Warranties
Other (1)
TASER segment
Software and Sensors segment:
Axon Body Cameras and Accessories
Axon Fleet Systems
Axon Evidence and Cloud Services
Extended Warranties
Other (2)
Software and Sensors segment
Total net sales
$ 94,758
43,781
10,105
8,226
4,473
161,343
21.9 % $ 86,718
54,279
10.1
8,975
2.4
8,078
1.9
4,520
1.0
162,570
37.3
9.3 %
21.0 % $ 8,040
13.1
2.2
1.9
1.1
39.3
(10,498) (19.3)
12.6
1.8
(1.0)
(0.8)
1,130
148
(47)
(1,227)
6,469
58,957
22,481
165,204
17,272
6,885
270,799
12.3
52,488
(4,235) (15.9)
26,716
9.7
14,641
150,563
7.6
1,218
16,054
32.1
1,675
5,210
7.9
19,768
251,031
4.5 %
$ 432,142 100.0 % $ 413,601 100.0 % $ 18,541
13.7
5.2
38.2
4.0
1.6
62.7
12.7
6.4
36.4
3.9
1.3
60.7
(1) TASER segment “Other” includes smaller categories, such as VR hardware, CED training revenue such as revenue
associated with our Master Instructor School, and TASER consumer device sales.
51
(2) Software and Sensors segment “Other” includes revenue from items including Signal Sidearm, Interview Room
and Axon Air.
Net sales within the TASER segment for the three months ended December 31, 2023 decreased by $1.2 million, or
0.8%, as compared to the prior quarter, primarily driven by lower TASER cartridge revenue, partially offset by growth in
TASER devices (professional). The $10.5 million decrease in cartridge revenue was due to lower international volume.
Fluctuations in cartridge revenue are generally attributable to customers who are not on cartridge subscriptions plans and
periodically purchase in bulk. TASER devices (professional) increased by $8.0 million due to higher volume and premium
product mix.
Net sales for the Software and Sensors segment for the three months ended December 31, 2023 increased $19.8
million, or 7.9%, as compared to the prior quarter, as we continue to add users and associated devices to our network. The
increase in the aggregate number of users and average revenue per user, driven primarily by software add-ons, drove the
majority of the increase in Axon Evidence and cloud services revenue of $14.6 million. Net sales of Axon Body cameras
and accessories increased $6.5 million due to higher volume. Partially offsetting the increases in the Software and Sensors
segment was a decrease of $4.2 million in Axon Fleet revenue primarily reflecting lower unit volume due to timing of
shipments related to customer-driven deployment schedules.
International sales were $48.9 million for the three months ended December 31, 2023 as compared to $71.5 million
for the three months ended September 30, 2023, a decrease of $22.6 million, primarily driven by large hardware orders in
the prior quarter.
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with accounting principles generally accepted in the
United States (“GAAP”), we present the non-GAAP financial measures of EBITDA and Adjusted EBITDA as defined
below. We have included EBITDA and Adjusted EBITDA in this Annual Report on Form 10-K because they are key
measures used by our management team in making operating decisions, allocating financial resources and evaluating our
operational performance in comparison to prior periods. We believe that both management and investors benefit from
referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our
future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.
• EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment
interest income, income taxes, depreciation and amortization.
• Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense,
investment interest income, income taxes, depreciation, amortization, non-cash stock-based compensation
expense, fair value adjustments to strategic investments and marketable securities, transaction costs related to
acquisitions and investments, and other unusual, non-recurring pre-tax items that are not considered
representative of our underlying operating performance.
Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will
benefit by referring to these non-GAAP financial measures when assessing our operating results, as well as when
forecasting and analyzing future periods. However, management recognizes that:
•
•
•
these non-GAAP financial measures are limited in their usefulness and should be considered only as a
supplement to our GAAP financial measures;
these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, our GAAP
financial measures;
these non-GAAP financial measures should not be considered to be superior to our GAAP financial measures;
and
52
•
these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not
assume that the non-GAAP financial measures presented in this Annual Report on Form 10-K were prepared
under a comprehensive set of rules or principles propounded by a third party.
EBITDA and Adjusted EBITDA reconcile to net income as follows (dollars in thousands):
Net income
Depreciation and amortization
Interest expense
Investment interest income
Provision for (benefit from) income taxes
EBITDA
$
$
$
Year Ended December 31,
2022
2023
147,139
174,227
24,381
32,638
488
6,995
(4,782)
(49,107)
49,379
(19,227)
216,605
145,526
$
Non-GAAP adjustments:
Stock-based compensation expense
Unrealized loss (gain) on strategic investments and marketable securities, net
Transaction costs related to strategic investments and acquisitions
Loss on disposal, abandonment, and impairment of property, equipment and
intangible assets, net
Insurance recoveries
Costs related to FTC litigation and antitrust litigation
Payroll taxes related to 2019 XSPP vesting and 2018 CEO Performance Award
option exercises
Adjusted EBITDA
131,358
41,785
4,501
317
(3,404)
241
106,176
(98,943)
2,368
5,562
—
545
9,011
329,335
$
—
232,313
$
Liquidity and Capital Resources
Summary
As of December 31, 2023, we had $598.5 million of cash and cash equivalents, an increase of $244.9 million from
December 31, 2022. Cash and cash equivalents and available-for-sale investments totaled $1.2 billion, an increase of
$151.0 million from December 31, 2022.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities (in thousands):
Year Ended December 31,
2023
2022
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
Operating activities
$ 189,263 $ 235,361
(830,967)
598,100
(3,380)
(886)
12,476
41,314
2,065
$ 245,118 $
Net cash provided by operating activities in 2023 of $189.3 million consisted of $174.2 million in net income, a net
add-back of non-cash income statement items totaling $133.4 million and a $118.4 million net change in operating
assets and liabilities. Included in the non-cash items were $131.4 million in stock-based compensation expense, a
53
$41.8 million net loss from impairment and changes in fair values of strategic investments and marketable securities, $32.6
million in depreciation and amortization expense and a $73.0 million increase in deferred income tax assets. Cash provided
by operations was impacted by an increase of $172.5 million in accounts and notes receivable and contract assets, an
increase of $102.4 million in prepaid expenses and other assets and an increase of $71.9 million in inventory. The increase
in accounts and notes receivable and contract assets was largely attributable to increased sales in 2023, particularly for
sales made under subscription plans. The increase in prepaid expenses and other assets was attributable to an increase in
deferred commissions related to increased bookings, higher deferred cost of goods sold related to increased sales of Axon
Air and Axon Fleet and timing of certain prepayments for supplier contracts and license agreements. Inventory increases
were a result of advance purchases to support future sales.
Partially offsetting this activity was an increase in deferred revenue of $164.0 million and an increase in accounts
payable, accrued and other liabilities of $64.4 million. The increase in deferred revenue was primarily attributable to
increased subscription invoicing for Software and Sensors hardware and services in advance of fulfillment and a smaller
increase in hardware deferred revenue from TASER subscription sales. The increase in accounts payable, accrued and
other liabilities included a higher bonus accrual reflecting higher attainment on the 2023 cash incentive program, an
increase in warranty reserves and the timing of purchases and payments.
Investing activities
Net cash provided by investing activities was $12.5 million for the year ended December 31, 2023. This included
$111.4 million of proceeds from calls and maturities, net of purchases of available-for-sale investments. We invested $59.5
million in the purchase of property and equipment and intangibles, net of proceeds on disposals and $37.3 million for
business acquisitions and strategic investments.
Financing activities
Net cash provided by financing activities was $41.3 million for the year ended December 31, 2023. This was
primarily attributable to net proceeds of $94.7 million received from our “at the market” equity offering program and $54.5
million from the exercise of stock options where shares were sold to cover the exercise price. Partially offsetting the cash
inflows was a payment of $107.9 million for income and payroll taxes on behalf of employees who net-settled stock awards
during the period, primarily related to the vesting of three tranches of the 2019 XSPP.
Liquidity and Capital Resources
Our most significant source of liquidity continues to be funds generated by operating activities and available cash
and cash equivalents and short-term investments. In addition, our $200.0 million revolving credit facility is available for
additional working capital needs or investment opportunities. Under the terms of the line of credit, available borrowings
are reduced by outstanding letters of credit. Advances under the line of credit bear interest at Term SOFR plus 1.25 to
1.75% per year determined in accordance with a pricing grid based on our net debt to EBITDA ratio, which for purposes
of the credit agreement excludes investment interest income. “SOFR” is defined as a rate equal to the secured overnight
financing rate as administered by the Federal Reserve Bank of New York or a successor administrator of the secured
overnight financing rate.
As of December 31, 2023, we had letters of credit outstanding of $7.5 million, leaving the net amount available for
borrowing of $192.5 million. The credit agreement will mature on the earlier of December 15, 2027 or the date that is six
months prior to the stated maturity date of the Notes unless the Notes have been redeemed, repurchased, converted or
defeased in full. Additionally, the credit agreement has an accordion feature that allows for an increase in the total line of
credit up to $300.0 million, in each lender’s sole discretion. At December 31, 2023 and 2022, there were no borrowings
outstanding under the line.
There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be
able to maintain our ability to borrow under our revolving credit facility.
54
Our agreement with the bank requires us to comply with a net leverage ratio, defined as consolidated total
indebtedness to EBITDA, of no greater than 3.50 to 1.00 based upon a trailing four fiscal quarter period. At December 31,
2023, our net leverage ratio was 0.10 to 1.00. Additionally, we must comply with a consolidated interest coverage ratio,
defined as EBITDA to consolidated interest expense, of no less than 3.50 to 1.00 based upon a trailing four fiscal quarter
end. At December 31, 2023, our consolidated interest coverage ratio was 45.61 to 1.00.
TASER subscription and installment purchase arrangements typically involve amounts invoiced in five equal
installments at the beginning of each year of the five-year term. This is in contrast to a traditional CED sale in which the
entire amount being charged for the hardware is invoiced upon shipment. This impacts liquidity in a commensurate fashion,
with the cash for the subscription or installment purchase received in five annual installments rather than up front. Our
strategy includes continuing to shift an increasing amount of our business to a subscription model, to better match the
municipal budgeting process of our customers as well as to allow for multiple product offerings to be bundled into existing
subscriptions. We carefully considered the cash flow impacts of this strategic shift and regularly revisit our cash flow
forecast with the goal of maintaining a comfortable level of liquidity as we continue to offer products and services in which
we incur upfront cash costs to produce and fulfill hardware sales ahead of the cash inflows from our customers.
Our primary sources of liquidity are cash flows from operations, existing cash and cash equivalents and investments
and credit capacity under our existing credit facility. Additionally, we believe we have access to additional financing.
However, there is no assurance that such funding will be available on terms acceptable to us, or at all.
We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements,
including capital expenditures, working capital requirements, potential acquisitions or investments, income and payroll
tax payments for net-settled stock awards, and other liquidity requirements through at least the next 12 months. We and
our Board of Directors may consider repurchases of our common stock. Further repurchases of our common stock would
take place on the open market, would be financed with available cash and are subject to authorization as well as market
and business conditions.
Contractual Obligations
The following table outlines our future contractual financial obligations by period in which payment is expected, as
of December 31, 2023 (dollars in thousands):
Operating lease obligations (1)
Purchase obligations
Principal and interest payable on our convertible senior notes
Total contractual obligations
$
Short
Total
Term
74,672 $ 10,594 $
780,726 500,542
3,450
703,445
Long
Term
64,078
280,184
699,995
$ 1,558,843 $ 514,586 $ 1,044,257
(1)
Includes obligations of two leases that were executed as of December 31, 2023 but had not yet commenced.
Purchase obligations in the table above represent $429.5 million of open purchase orders and $351.2 million of other
purchase obligations. The open purchase orders represent both cancelable and non-cancelable purchase orders with key
vendors, which are included in this table due to our strategic relationships with these vendors.
For additional information regarding the Notes, refer to Note 11 to our consolidated financial statements included
within this Annual Report on Form 10-K.
We are subject to U.S. federal income tax as well as income taxes imposed by state and foreign jurisdictions. As of
December 31, 2023, we had $25.8 million of gross unrecognized tax benefits related to uncertain tax positions. The
settlement period for these long-term income tax liabilities cannot be determined; however, the liabilities are expected to
increase by approximately $6.1 million within the next 12 months. The obligations related to our uncertain tax
55
positions have been excluded from the table above because of the uncertainty surrounding the timing and final amounts of
any settlement.
Critical Accounting Estimates
We have identified the following accounting estimates as critical to our business operations and the understanding
of our results of operations. The preparation of this Annual Report on Form 10-K requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the
date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting
period. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our
actual results will not differ from these estimates. The effect of these estimates on our business operations is discussed
below.
Warranty Reserves
We warranty our CEDs, Axon cameras and certain related accessories from manufacturing defects on a limited basis
for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. The company estimates
and records a liability for standard warranty at the time products are sold. The estimates are based on historical experience
and reflect management’s best estimates of costs to be incurred over the warranty period. Adjustments may be required
when actual or projected costs differ. Variations in component failure rates, repair costs and the point of failure within the
product life cycle are key drivers that impact our periodic re-assessment of the warranty liability.
As of December 31, 2023 and 2022, our warranty reserve was approximately $7.4 million and $0.8 million,
respectively. Warranty expense for the years ended December 31, 2023, 2022 and 2021 was $8.1 million, $0.2 million and
$2.9 million, respectively. Warranty expense for the year ended December 31, 2023 was impacted by warranty claims on
TASER 7. Warranty expense for the year ended December 31, 2022 was impacted by lower than expected warranty claims
for the Axon Body cameras and TASER 7 devices. Warranty expense for the year ended December 31, 2021 was impacted
by higher battery degradation resulting in shorter battery lives for the Axon Body 3 camera and warranty claims for TASER
7 devices.
Revenue related to separately priced extended warranties is initially recorded as deferred revenue at its allocated
amount and subsequently recognized as net sales on a straight-line basis over the warranty service period. Costs related to
extended warranties are charged to cost of product and service sales when the costs become probable and can be reasonably
estimated.
Inventory
Inventories are stated at lower of cost or realizable values. Cost of inventories are determined on the first-in, first-out
basis utilizing a standard cost methodology. Additional provisions are made to reduce excess, obsolete or slow-moving
inventories to their net realizable value. These provisions are based on management’s best estimate after considering
historical demand, projected future demand, inventory purchase commitments, industry and market trends and conditions
among other factors. We evaluate inventory costs for abnormal costs due to excess production capacity and treat such costs
as period costs.
During the year ended December 31, 2023, we recorded provisions to reduce inventories to their lower of cost and
net realizable value of approximately $5.4 million compared to $1.5 million during the year ended December 31, 2022.
Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable and Contract Assets
We derive revenue from two primary sources: (1) the sale of physical products, including CEDs, Axon cameras,
Axon Signal-enabled devices, corresponding hardware extended warranties, and related accessories such as Axon
56
docks, cartridges and batteries, among others, and (2) subscriptions to our Axon Evidence digital evidence management
SaaS offering (including data storage fees and other ancillary services), which includes varying levels of support. To a
lesser extent, we also recognize revenue from training, professional services and other software and SaaS services. We
apply the five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from
Customers (“Topic 606”). For additional discussion of Topic 606, see Note 2 to our consolidated financial statements
included within this Annual Report on Form 10-K.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the
unit of account in Topic 606. For contracts with multiple performance obligations, we allocate the contract transaction
price to each performance obligation using our estimate of the standalone selling price of each distinct good or service in
the contract.
Revenues are recognized upon transfer of control of promised products or services to customers in an amount that
reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can
include various combinations of products and services, each of which is generally distinct and accounted for as a separate
performance obligation. Revenue is recognized net of allowances for returns.
Performance obligations to deliver products, including CEDs, Axon cameras and related accessories, such as docks,
cartridges and batteries, are generally satisfied at the point in time we ship the product, as this is when the customer obtains
control of the asset under our standard terms and conditions. In certain contracts with non-standard terms and conditions,
these performance obligations may not be satisfied until formal customer acceptance occurs. Performance obligations to
fulfill service-type extended warranties and provide our SaaS offerings, including Axon Evidence and other cloud services,
are generally satisfied over time as the customer receives and consumes the benefits of these services over the stated
service period.
Many of our products and services are sold on a standalone basis. We also bundle our hardware products and services
together and sell them to our customers in single transactions where the customer can make payments over a multi-year
period. These sales may include payments for upfront hardware and services, as well as payments for hardware and services
to be provided by us at a future date.
Additionally, we offer customers the ability to purchase CED cartridges and certain services on an unlimited basis
over the contractual term. Due to the unlimited nature of these arrangements whereby we are obligated to deliver unlimited
products at the customer’s request, we account for these arrangements as stand-ready obligations and recognize revenue
ratably over the contract period. Cost of product sales is recognized when control of hardware products or accessories have
transferred to the customer.
We have elected to recognize shipping costs as an expense in cost of product sales when the control of hardware
products or accessories have transferred to the customer.
Sales tax collected on sales is netted against government remittances and, thus, recorded on a net basis.
The timing of revenue recognition may differ from the timing of invoicing to customers. We generally have an
unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset
when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized
subsequent to invoicing. Contract asset amounts that will be invoiced during the subsequent 12-month period from the
balance sheet date are classified as current assets and the remaining portion is recorded within other assets on our
consolidated balance sheets. Deferred revenue that will be recognized during the subsequent 12-month period from the
balance sheet date is recorded as current deferred revenue and the remaining portion is recorded as long-term deferred
revenue. Generally, customers are billed in annual installments. See Note 2 to our consolidated financial statements withn
this Annual Report on Form 10-K for further disclosures about our contract assets.
Sales are typically made on credit, and we generally do not require collateral. We are exposed to credit losses
primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable,
57
notes receivable, and contract assets is developed using historical collection experience, published or estimated credit
default rates for entities that represent our customer base, current and future economic and market conditions, and a review
of the current status of customers’ trade accounts receivables. We review receivables for U.S. and international customers
separately to better reflect different published credit default rates and economic and market conditions. Additionally,
specific reserve amounts are established to record the appropriate provision for customers that have a higher probability
of default. Our monitoring activities include account reconciliation, dispute resolution, payment confirmation,
consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined
to be uncollectible.
Valuation of Goodwill, Intangible and Long-lived Assets
We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives,
may warrant revision or that the remaining balance of these assets may not be recoverable. Such circumstances could
include a change in the product mix, a change in the way products are created, produced or delivered, or a significant
change in the way products are branded and marketed. In performing the review for recoverability, we estimate the future
undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of the
impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their
estimated fair values computed using discounted cash flows.
Finite-lived intangible assets and other long-lived assets are amortized over their estimated useful lives. We do not
amortize goodwill and intangible assets with indefinite useful lives; rather such assets are required to be tested for
impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be
impaired. We perform our annual goodwill and intangible asset impairment tests in the fourth quarter of each year.
During the year ended December 31, 2023, we recorded $0.3 million of impairment charges primarily related to
construction in process. During the year ended December 31, 2022, we recorded $5.3 million of impairment charges. Of
this total, $3.3 million related to the cease-use of a portion of our Seattle office. An additional $1.4 million related to the
decision to slow pacing on construction of our new Scottsdale, Arizona campus. During the year ended December 31,
2021, we recorded an immaterial amount of impairment charges.
Income Taxes
We recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or
refundable in the current fiscal year by tax jurisdiction. We also recognize federal, state and foreign deferred tax assets or
liabilities, as appropriate, for our estimate of future tax effects attributable to temporary differences and carry forwards.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained based on the technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate resolution. We must also assess whether uncertain tax positions as filed could result in the
recognition of a liability for possible interest and penalties if any. We have completed R&D tax credit studies for each year
a tax credit was claimed for federal and state income tax purposes. We determined that it was more likely than not that the
full benefit of the R&D tax credit would not be sustained on examination and accordingly, have established a liability for
unrecognized tax benefits of $25.8 million as of December 31, 2023. We expect the amount of the unrecognized tax benefit
to increase by approximately $6.1 million within the next 12 months. Should the unrecognized tax benefit of $25.8 million
be recognized, our effective tax rate would be favorably impacted. Our estimates are based on information available to us
at the time we prepare the income tax provision. Our income tax returns are subject to audit by U.S. federal, state, local
and foreign governments, generally years after the returns are filed. These returns could be subject to material adjustments
or differing interpretations of the tax laws.
58
Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and
involves dealing with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax assets
and liabilities may change based, in part, on added certainty or finality to an anticipated outcome, changes in accounting
or tax laws domestically and internationally, or changes in other facts or circumstances. In addition, we recognize liabilities
for potential tax contingencies based on our estimate of whether, and the extent to which, additional taxes may be due. If
we determine that payment of these amounts is unnecessary, or if the actual tax liability is greater than our current
assessment, we may be required to recognize an income tax benefit, or additional income tax expense, respectively, in our
consolidated financial statements.
In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be
realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, we consider all
available positive and negative evidence, including operating results, ongoing tax planning and forecasts of future taxable
income on a jurisdiction-by-jurisdiction basis. A valuation allowance is established if we determine that it is more likely
than not that some portion or all of the net deferred tax assets will not be realized. Although we believe that our tax
estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit
by tax authorities in the ordinary course of business.
We have state net operating losses of $17.5 million, which do not expire until 2041. We anticipate sufficient future
pre-tax book income to realize a large portion of our deferred tax assets. However, based on expected income for years in
which Arizona R&D tax credits are set to expire, unrealized investment losses for which realization is uncertain, and
specific identified intangibles with an indefinite life, a reserve of $21.6 million has been recorded as a valuation allowance
against deferred tax assets as of December 31, 2023.
In December 2021, the OECD published a framework for Pillar Two of the Global Anti-Base Erosion Rules
(“GloBE”). The GloBE rules were designed to coordinate participating jurisdictions in updating the international tax
system to ensure that large multinational companies pay a minimum level of income tax. Recommendations from the
OECD regarding a global minimum income tax and other changes are being considered and/or implemented in
jurisdictions where we operate. We believe enactment of the recommended framework in jurisdictions where we operate
will result in minimal impacts to our financial results in the near term.
Stock-Based Compensation
We have historically granted stock-based compensation to key employees and non-employee directors as a means of
attracting and retaining highly qualified personnel. Stock-based compensation awards primarily consist of service-based
RSUs, performance-based RSUs, and performance-based stock options. Our stock-based compensation awards are
classified as equity and measured at the fair market value of the underlying stock at the grant date. When determining the
grant date fair value of stock-based awards, we consider whether an adjustment is required to the observable market price
or volatility of our common stock used in the valuation as a result of material non-public information. For service-based
awards, we recognize RSU expense using the straight-line attribution method over the requisite service period. Vesting of
performance-based RSUs is contingent upon the achievement of certain performance criteria related to our operating
performance, as well as successful and timely development and market acceptance of future product introductions. For
performance-based RSUs containing only performance conditions, compensation cost is recognized using the graded
attribution model over the explicit or implicit service period. For awards containing multiple service, performance or
market conditions, where all conditions must be satisfied prior to vesting, compensation expense is recognized over the
requisite service period, which is defined as the longest explicit, implicit or derived service period, based on management’s
estimate of the probability and timing of the performance criteria being satisfied, adjusted at each balance sheet date. For
both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based
compensation expense and additional paid-in-capital.
For performance-based options, stock-based compensation expense is recognized over the expected performance
achievement period of individual performance goals when the achievement of each individual performance goal
becomes probable. For performance-based awards with a vesting schedule based entirely on the attainment of both
59
performance and market conditions, stock-based compensation expense is recognized over the longer of the expected
achievement period of the performance and market conditions, beginning at the point in time that the relevant performance
condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte
Carlo simulations. Refer to Note 15 of the notes to our consolidated financial statements within this Annual Report on
Form 10-K.
We have granted a total of approximately 15.6 million performance-based awards (options and RSUs) of which
approximately 0.9 million are outstanding as of December 31, 2023, the vesting of which is contingent upon the
achievement of certain performance criteria including the successful development and market acceptance of future product
introductions as well as our future sales targets and operating performance and market capitalization. Of the 0.9 million
performance-based awards that are outstanding, 0.5 million are options that are exercisable. Compensation expense for
performance awards will be recognized based on management’s best estimate of the probability of the performance criteria
being satisfied using the most currently available projections of future product adoption and operating performance,
adjusted at each balance sheet date. Changes in the subjective and probability-based assumptions can materially affect the
estimates of the fair value of the awards and timing of recognition of stock-based compensation and consequently, the
related amount recognized in our statements of operations and comprehensive income.
Contingencies and Accrued Litigation Expense
We are subject to the possibility of various loss contingencies arising in the ordinary course of business, including
product-related and other litigation. We consider the likelihood of loss or impairment of an asset or the incurrence of a
liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated
loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the
amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether
such accruals should be adjusted and whether new accruals are required. Refer to Note 12 to our consolidated financial
statements within this Annual Report on Form 10-K.
Reserve for Expected Credit Losses
We are exposed to credit losses primarily through sales of products and services. Our expected loss allowance
methodology for accounts receivable, contract assets, notes receivable and off-balance-sheet exposures is developed using
historical collection experience, published or estimated credit default rates for entities that represent our customer base,
current and future economic and market conditions and a review of the current status of customers’ trade accounts
receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers
that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution,
payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are
written off when determined to be uncollectible.
We review receivables for U.S. and international customers separately to better reflect different published credit
default rates and economic and market conditions.
A majority of our customers are government agencies. Due to municipal government funding rules, certain of our
contracts are subject to appropriation, termination for convenience, or similar cancellation clauses, which could allow our
customers to cancel or not exercise options to renew contracts in the future. Economic slowdowns that negatively affect
municipal tax collections and put pressure on law enforcement may increase this risk and negatively impact the realizability
of our accounts and notes receivable and contract assets.
Based on the balances of our financial instruments as of December 31, 2023, a hypothetical 25% increase in expected
credit loss rates across all pools would result in a $0.8 million increase in the allowance for expected credit losses.
60
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We typically invest in a limited number of financial instruments, consisting principally of investments in money
market accounts, certificates of deposit, corporate and municipal bonds with a typical long-term debt rating of “A” or
better by any nationally recognized statistical rating organization, denominated in U.S. dollars. All of our cash equivalents
and investments are treated as “available-for-sale.” We report available-for-sale investments at fair value as of each balance
sheet date and record any unrealized gains or losses as a component of stockholders’ equity. The cost of securities sold is
determined on a specific identification basis, and realized gains and losses are included in interest and other income, net
within the consolidated statements of operations. When the fair value is below the amortized cost of a marketable security,
an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the consolidated
statements of operations. Credit losses are recognized through the use of an allowance for credit losses account in the
consolidated balance sheets and subsequent improvements in expected credit losses are recognized as a reversal of an
amount in the allowance account. If we have the intent to sell the security or it is more likely than not that we will be
required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-
off and the excess of the amortized cost basis of the asset over its fair value is recorded in the consolidated statements of
operations. Based on investment positions as of December 31, 2023, a hypothetical 100 basis point increase in interest
rates across all maturities would result in a $1.8 million decline in the fair market value of the portfolio. Such losses would
only be realized if we sold the investments prior to maturity.
Additionally, we have access to a $200.0 million line of credit borrowing facility which bears interest at SOFR 1.25
to 1.75% per year determined in accordance with a pricing grid based on our net leverage ratio and consolidated interest
coverage ratio. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit,
which totaled $7.5 million at December 31, 2023. At December 31, 2023, there was no amount outstanding under the line
of credit, and the available borrowing under the line of credit was $192.5 million. We have not borrowed any funds under
the line of credit since its inception; however; should we need to do so in the future, such borrowings could be subject to
adverse or favorable changes in the underlying interest rate.
Exchange Rate Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates,
in each case compared to the U.S. dollar, related to transactions by our foreign subsidiaries. The majority of our sales to
international customers are transacted in foreign currencies and therefore are subject to exchange rate fluctuations on these
transactions. The cost of our products to our customers increases when the U.S. dollar strengthens against their local
currency, and we may have more sales and expenses denominated in foreign currencies in future years which could
increase our foreign exchange rate risk. Additionally, intercompany sales to our non-U.S. dollar functional currency
international subsidiaries are transacted in U.S. dollars which could increase our foreign exchange rate risk caused by
foreign currency transaction gains and losses.
To date, we have not engaged in any currency hedging activities. However, we may enter into foreign currency
forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain
existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in
foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons,
including the prohibitive economic cost of hedging particular exposures. As such, fluctuations in currency exchange rates
could harm our business in the future.
61
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2023,
2022, and 2021
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm (PCAOB ID No. 248)
Page
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65
66
67
102
62
AXON ENTERPRISE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Short-term investments
Accounts and notes receivable, net of allowance of $2,392 and $2,176 as of
December 31, 2023 and December 31, 2022, respectively
Contract assets, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred tax assets, net
Intangible assets, net
Goodwill
Long-term investments
Long-term notes receivable, net
Long-term contract assets, net
Strategic investments
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of deferred revenue
Customer deposits
Other current liabilities
Total current liabilities
Deferred revenue, net of current portion
Liability for unrecognized tax benefits
Long-term deferred compensation
Deferred tax liability, net
Long-term lease liabilities
Convertible notes, net
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders’ equity:
December 31,
2023
December 31,
2022
$
598,545 $
77,940
644,054
417,690
275,779
269,855
112,786
2,396,649
200,533
229,513
19,539
57,945
—
2,588
77,710
231,730
220,638
3,436,845 $
88,326 $
188,230
491,691
21,935
9,787
799,969
281,852
18,049
11,342
—
33,550
677,113
2,936
1,824,811
$
$
353,684
39,240
581,769
358,190
196,902
202,471
73,022
1,805,278
169,843
156,866
12,158
44,983
156,207
5,210
45,170
296,563
159,616
2,851,894
59,918
155,934
360,037
20,399
6,358
602,646
248,003
10,745
6,285
1
37,143
673,967
4,613
1,583,403
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and
outstanding as of December 31, 2023 and December 31, 2022, respectively
Common stock, $0.00001 par value; 200,000,000 shares authorized; 75,301,424 and
71,474,581 shares issued and outstanding as of December 31, 2023 and December 31, 2022,
respectively
Additional paid-in capital
Treasury stock at cost, 20,220,227 shares as of December 31, 2023 and December 31, 2022
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
1
1,347,410
(155,947)
431,249
(10,679)
1,612,034
3,436,845 $
1
1,174,594
(155,947)
257,022
(7,179)
1,268,491
2,851,894
$
The accompanying notes are an integral part of these consolidated financial statements.
63
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Sales, general and administrative
Research and development
Total operating expenses
Income (loss) from operations
Interest income, net
Other income (loss), net
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
2021
For the Years Ended December 31,
2022
2023
967,711 $ 801,388 $ 608,525
254,856
388,547
595,680
863,381
1,189,935
1,563,391
260,098
363,219
450,718
157,291
62,373
98,078
322,471
461,297
608,009
540,910
728,638
955,382
515,007
401,575
496,874
194,026
233,810
303,719
709,033
635,385
800,593
(168,123)
93,253
154,789
1,483
4,294
42,112
(41,901)
25,265
98,971
(141,375)
196,518
155,000
(19,227)
(81,357)
49,379
174,227 $ 147,139 $ (60,018)
$
$
$
2.35 $
2.31 $
2.07 $
2.03 $
(0.91)
(0.91)
74,195
75,456
71,093
72,534
66,191
66,191
Net income (loss)
Foreign currency translation adjustments
Unrealized gain (loss) on available-for-sale investments
Comprehensive income (loss)
$
$
174,227 $ 147,139 $ (60,018)
(1,251)
(207)
170,727 $ 141,277 $ (61,476)
(4,352)
852
(4,818)
(1,044)
The accompanying notes are an integral part of these consolidated financial statements.
64
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N
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
For the Years Ended December 31,
2023
2022
2021
$
174,227
$
147,139
$
(60,018)
Stock-based compensation
Deferred income taxes
Realized and unrealized loss (gain) on strategic investments and
marketable securities, net
Depreciation and amortization
Bond amortization
Noncash lease expense
Unrecognized tax benefits
Amortization of issuance costs
Other noncash items
Change in assets and liabilities:
Accounts and notes receivable and contract assets
Inventory
Prepaid expenses and other assets
Accounts payable, accrued and other liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investments
Proceeds from call / maturity of investments
Proceeds from sale of strategic investments
Purchases of property, plant and equipment
Proceeds from disposal of property and equipment
Purchase of intangible assets
Strategic investments
Business acquisition, net of cash acquired
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net proceeds from equity offering
Proceeds from options exercised
Income and payroll tax payments for net-settled stock awards
Net proceeds from issuance of convertible senior notes
Proceeds from issuance of warrants
Purchase of convertible note hedge
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
Supplemental disclosures:
Cash and cash equivalents
Restricted cash (Note 1)
Total cash, cash equivalents and restricted cash shown in the statements
of cash flows
Cash paid for interest
Cash paid for income taxes, net of refunds
Non-cash transactions
Property and equipment purchases in accounts payable and accrued
liabilities
Non-cash purchase consideration related to business combinations
$
$
$
$
$
$
131,358
(73,002)
41,785
32,638
(16,449)
6,846
4,775
3,126
2,322
(172,524)
(71,896)
(102,370)
64,384
164,043
189,263
(545,988)
657,418
—
(59,635)
98
(635)
(17,692)
(21,090)
12,476
94,705
54,503
(107,894)
—
—
—
41,314
2,065
245,118
355,552
600,670
598,545
2,125
600,670
3,508
64,492
$
$
$
$
106,176
22,090
(98,943)
24,381
(1,463)
6,725
3,475
198
6,530
(73,228)
(95,987)
(52,207)
80,757
159,718
235,361
(764,374)
72,138
—
(55,802)
287
(307)
(80,805)
(2,104)
(830,967)
(74)
—
(4,870)
673,769
124,269
(194,994)
598,100
(3,380)
(886)
356,438
355,552
353,684
1,868
355,552
—
10,508
238
—
$
$
1,056
—
303,331
(81,303)
(23,035)
18,694
5,217
5,573
(706)
—
24
(205,769)
(18,272)
(40,158)
45,301
175,615
124,494
(362,479)
718,617
14,546
(49,886)
43
(392)
(45,500)
(22,393)
252,556
105,514
51,614
(331,309)
—
—
—
(174,181)
(1,982)
200,887
155,551
356,438
356,332
106
356,438
—
5,108
1,994
3,920
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
66
Note 1 - Organization and Summary of Significant Accounting Policies
Axon Enterprise, Inc. (“Axon,” the “Company,” “we” or “us”) is a market-leading provider of law enforcement
technology solutions. Our mission is to protect life in service of promoting peace, justice and strong institutions.
The accompanying consolidated financial statements include the accounts of Axon Enterprise, Inc. and our wholly
owned subsidiaries. All material intercompany accounts, transactions and profits have been eliminated.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates and assumptions in these consolidated financial
statements include:
•
•
•
•
•
•
•
•
•
product warranty reserves,
inventory valuation,
revenue recognition,
reserve for expected credit losses,
valuation of goodwill, intangible and long-lived assets,
valuation of strategic investments,
recognition, measurement and valuation of current and deferred income taxes,
stock-based compensation, and
recognition and measurement of contingencies and accrued litigation expense.
Actual results could differ materially from those estimates.
Cash, Cash Equivalents and Investments
Cash, cash equivalents and investments include cash, money market funds, commercial paper, corporate bonds, term
deposits, U.S. Government bonds, agency bonds, U.S. Treasury bills and U.S. Treasury Inflation-Protected Securities. We
place our cash and cash equivalents with high quality financial institutions. Although we deposit our cash with multiple
financial institutions, our deposits regularly exceed federally insured limits. Cash and cash equivalents include funds on
hand and highly liquid investments purchased with initial maturity of three months or less. Short-term investments include
securities with an expected maturity date within one year of the balance sheet date that do not meet the definition of a cash
equivalent, and long-term investments are securities with an expected maturity date greater than one year and less than
two years in accordance with our investment policy.
We report available-for-sale investments at fair value as of each balance sheet date and record any unrealized gains
or losses as a component of stockholders’ equity. The cost of securities sold is determined on a specific identification
basis, and realized gains and losses are included in interest and other income, net within the consolidated statements of
operations. When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses
is made. The credit-related impairment amount is recognized in the consolidated statements of operations. Credit losses
are recognized through the use of an allowance for expected credit losses account in the consolidated balance sheets and
subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If
we have the intent to sell the security or it is more likely than not that we will be required to sell the security prior to
recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized
cost basis of the asset over its fair value is recorded in the consolidated statements of operations. We do not intend to sell
the investments and it is not more likely than not that we will be required to sell the investments before recovery of their
67
amortized cost bases. There were no credit losses recorded on our investment portfolio during the years ended
December 31, 2023 and 2022.
Restricted Cash
Restricted cash balances of $2.1 million and $1.9 million as of December 31, 2023 and 2022, respectively, primarily
relate to funds held in an international bank account for a country in which we are required to maintain a minimum balance
to operate. As of December 31, 2023, approximately $2.0 million was included in prepaid expenses and other assets on
our consolidated balance sheet, with the remainder in other long-term assets.
Inventory
Inventories are stated at lower of cost or realizable values. Cost of inventories are determined on the first-in, first-out
basis utilizing a standard cost methodology. Additional provisions are made to reduce excess, obsolete or slow-moving
inventories to their net realizable value. These provisions are based on management’s best estimate after considering
historical demand, projected future demand, inventory purchase commitments, industry and market trends and conditions
among other factors. We evaluate inventory costs for abnormal costs due to excess production capacity and treat such costs
as period costs.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Additions and
improvements are capitalized, while ordinary maintenance and repair expenditures are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated economic life.
Software Development Costs
We expense software development costs, including costs to develop software products or the software component of
products and services to be marketed to external users, before technological feasibility of such products is reached.
Software development costs also include costs to develop software programs to be used solely to meet our internal
needs and applications. We capitalize development costs related to these software applications once the preliminary project
stage is complete and it is probable that the project will be completed and the software will be used to perform the intended
function. Additionally, we capitalize qualifying costs incurred for upgrades and enhancements to existing software that
result in additional functionality. Costs related to preliminary project planning activities, post-implementation activities,
maintenance and minor modifications are expensed as incurred. Internal-use software development costs are amortized on
a straight-line basis over the estimated useful life of the software.
We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes
in circumstances occur that could impact the recoverability of these assets.
Valuation of Goodwill, Intangible and Long-lived Assets
We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives,
may warrant revision or that the remaining balance of these assets may not be recoverable. Such events and circumstances
could include a change in the product mix, a change in the way products are created, produced or delivered, or a significant
change in the way products are branded and marketed. In performing the review for recoverability, we estimate the future
undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of the
impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their
estimated fair values computed using discounted cash flows.
Finite-lived intangible assets and other long-lived assets are amortized over their estimated useful lives. We do not
amortize goodwill and intangible assets with indefinite useful lives; rather such assets are required to be tested for
68
impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be
impaired. We test goodwill and intangible assets for impairment on an annual basis on December 31, 2023 and on an
interim basis when certain events and circumstances exist.
During the year ended December 31, 2023, we recorded $0.3 million of impairment charges primarily related to
construction in process. During the year ended December 31, 2022, we recorded $5.3 million of impairment charges. Of
this total, $3.3 million related to the cease-use of a portion of our Seattle office. An additional $1.4 million related to the
decision to slow pacing on construction of our new Scottsdale, Arizona campus. During the year ended December 31,
2021, we recorded an immaterial amount of impairment charges.
Customer Deposits
We require deposits in advance of shipment for certain customer sales orders. Additionally, customers may elect to
make deposits with us related to contracts for our products and services that were not executed as of the end of a reporting
period. Customer deposits are included in other current liabilities in the consolidated balance sheets.
Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable and Contract Assets
We derive revenue from two primary sources: (1) the sale of physical products, including conducted energy devices
(“CEDs”), Axon cameras, Axon Signal-enabled devices, corresponding hardware extended warranties, and related
accessories such as Axon docks, cartridges and batteries, among others, and (2) subscriptions to our Axon Evidence digital
evidence management software-as-a-service (“SaaS”) offering (including data storage fees and other ancillary services),
which includes varying levels of support. To a lesser extent, we also recognize revenue from training, professional services
and other software and SaaS services. We apply the five-step model outlined in Accounting Standards Codification
(“ASC”) Topic 606, Revenue from Contracts from Customers (“Topic 606”). For additional discussion of the adoption of
Topic 606, see Note 2.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the
unit of account in Topic 606. For contracts with multiple performance obligations, we allocate the contract transaction
price to each performance obligation using our estimate of the standalone selling price (“SSP”) of each distinct good or
service in the contract.
Revenues are recognized upon transfer of control of promised products or services to customers in an amount that
reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can
include various combinations of products and services, each of which is generally distinct and accounted for as a separate
performance obligation. Revenue is recognized net of allowances for returns.
Performance obligations to deliver products, including CEDs, Axon cameras and related accessories, such as docks,
cartridges and batteries, are generally satisfied at the point in time we ship the product, as this is when the customer obtains
control of the asset under our standard terms and conditions. In certain contracts with non-standard terms and conditions,
these performance obligations may not be satisfied until formal customer acceptance occurs. Performance obligations to
fulfill service-type extended warranties and provide our SaaS offerings, including Axon Evidence and other cloud services,
are generally satisfied over time as the customer receives and consumes the benefits of these services over the stated
service period.
Many of our products and services are sold on a standalone basis. We also bundle our hardware products and services
together and sell them to our customers in single transactions where the customer can make payments over a multi-year
period. These sales may include payments for upfront hardware and services, as well as payments for hardware and services
to be provided by us at a future date. Additionally, we offer customers the ability to purchase CED cartridges and certain
services on an unlimited basis over the contractual term. Due to the unlimited nature of these arrangements whereby we
are obligated to deliver unlimited products at the customer’s request, we account for these arrangements as stand-ready
obligations, and recognize revenue ratably over the contract period. Cost of product sales is recognized when control of
hardware products or accessories has transferred to the customer.
69
We have elected to recognize shipping costs as an expense in cost of product sales when the control of hardware
products or accessories has transferred to the customer.
Sales tax collected on sales is netted against government remittances and, thus, recorded on a net basis.
The timing of revenue recognition may differ from the timing of invoicing to customers. We generally have an
unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset
when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized
subsequent to invoicing. Contract asset amounts that will be invoiced during the subsequent 12-month period from the
balance sheet date are classified as current assets and the remaining portion is recorded within other assets on our
consolidated balance sheets. Deferred revenue that will be recognized during the subsequent 12-month period from the
balance sheet date is recorded as current deferred revenue and the remaining portion is recorded as long-term deferred
revenue. Generally, customers are billed in annual installments. See Note 2 for further disclosures about our contract assets.
Sales are typically made on credit, and we generally do not require collateral. We are exposed to credit losses
primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable,
contract assets, notes receivable and off-balance-sheet exposures is developed using historical collection experience,
published or estimated credit default rates for entities that represent our customer base, current and future economic and
market conditions and a review of the current status of customers’ trade accounts receivables. We review receivables for
U.S. and international customers separately to better reflect different published credit default rates and economic and
market conditions. Additionally, specific reserve amounts are established to record the appropriate provision for customers
that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution,
payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are
written off when determined to be uncollectible. Accounts and notes receivable, contract assets and off-balance-sheet
exposures are presented net of a reserve for expected credit losses, which totaled $4.0 million and $3.6 million as of
December 31, 2023 and 2022, respectively. This reserve represents management’s best estimate and application of
judgment considering a number of factors, including those listed above. In the event that actual uncollectible amounts
differ from our estimates, additional expense could be necessary.
Cost of Product and Service Sales
Cost of product sales represents manufacturing costs, consisting of materials, labor and overhead related to finished
goods and components. Shipping costs incurred related to product delivery are also included in cost of products sold. Cost
of service sales includes third-party cloud services, and software maintenance and support costs, including personnel costs,
associated with supporting Evidence.com and other software related services.
Advertising Costs
We expense advertising costs in the period in which they are incurred. We incurred advertising costs of $1.9 million,
$2.3 million and $2.6 million in the years ended December 31, 2023, 2022 and 2021, respectively. Advertising costs are
included in sales, general and administrative (“SG&A”) expenses in the consolidated statements of operations.
Warranty Reserves
We warranty our CEDs, Axon cameras and certain related accessories from manufacturing defects on a limited basis
for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. The company estimates
and records a liability for standard warranty at the time products are sold. The estimates are based on historical experience
and reflect management’s best estimates of costs to be incurred over the warranty period. Adjustments may be required
when actual or projected costs differ. Variations in component failure rates, repair costs and the point of failure within the
product life cycle are key drivers that impact our periodic re-assessment of the warranty liability.
Revenue related to separately priced extended warranties is initially recorded as deferred revenue at its allocated
amount and subsequently recognized as net sales on a straight-line basis over the warranty service period. Costs related to
70
extended warranties are charged to cost of product and service sales when the costs become probable and can be reasonably
estimated
Changes in our estimated warranty reserve were as follows (in thousands):
Balance, beginning of period
Utilization of reserve
Warranty expense
Balance, end of period
Research and Development Expenses
$
$
2023
811 $
Year Ended December 31,
2022
2,822 $
(2,209)
198
811 $
(1,499)
8,062
7,374 $
2021
769
(873)
2,926
2,822
We expense as incurred research and development (“R&D”) costs that do not meet the qualifications to be capitalized.
We incurred R&D expense of $303.7 million, $233.8 million and $194.0 million in 2023, 2022 and 2021, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized
in income in the period that includes the enactment date. Deferred tax assets are reduced through the establishment of a
valuation allowance if, based upon available evidence, it is determined that it is more likely than not that the deferred tax
assets will not be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has
a greater than 50% likelihood of being realized upon ultimate resolution. We also assess whether uncertain tax positions,
as filed, could result in the recognition of a liability for possible interest and penalties. Our policy is to include interest and
penalties related to unrecognized tax benefits as a component of income tax expense. Refer to Note 13 for additional
information regarding the change in unrecognized tax benefits.
Concentration of Credit Risk and Major Customers / Suppliers
Financial instruments that potentially subject us to concentrations of credit risk consist of accounts and notes
receivable, contract assets and cash. Historically, we have experienced an immaterial level of write-offs related to
uncollectible accounts.
We maintain the majority of our cash at two depository institutions. As of December 31, 2023, the aggregate balances
in such accounts were $560.4 million. Our balances with these two institutions regularly exceed Federal Deposit Insurance
Corporation insured limits for domestic deposits and various deposit insurance programs covering our deposits in
Australia, Belgium, Canada, Finland, France, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United
Kingdom and Vietnam. To manage the related credit exposure, management continually monitors the creditworthiness of
the financial institutions where we have deposits.
No customer represented more than 10% of total net sales for the years ended December 31, 2023, 2022 or 2021. At
December 31, 2023 and 2022, no customer represented more than 10% of the aggregate balance of accounts and notes
receivable and contract assets.
71
We currently purchase both off-the-shelf and custom components, including finished circuit boards, injection-molded
plastic components, small machined parts, custom cartridge components, electronic components and off-the-shelf sub-
assemblies from suppliers located in the United States, China, Mexico, Republic of Korea, Taiwan and Vietnam. We may
source from other countries as well. Although we currently obtain many of these components from single source suppliers,
we own substantially all of the injection molded component tooling, designs and test fixtures used in their production for
all custom components. As a result, we believe we could obtain alternative suppliers in most cases. Although we have
experienced supply chain disruptions relating to materials and port constraints, we have remained focused on closely
managing our supply chain. We continue to bolster our strategic relationships in our supply chain, identifying
secondary/alternate sourcing, adjusting build plans accordingly, and building in logistic modes in support of our increasing
demand while working to minimize disruption to customers. We acquire most of our components on a purchase order basis
and do not currently have significant long-term purchase contracts with most component suppliers.
Fair Value Measurements and Financial Instruments
We use the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and
liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair
value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or
transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which
inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in
one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
• Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets
for assets or liabilities that are identical to the assets or liabilities being measured.
• Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets
or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities
that are identical or similar to the assets or liabilities being measured from markets that are not active. Also,
model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets are Level 2 valuation techniques.
• Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are
unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs
that market participants would use in pricing an asset or liability.
We have cash equivalents and investments, which at December 31, 2023 were composed of money market funds,
commercial paper, corporate bonds, term deposits, U.S. Government bonds, agency bonds, U.S. Treasury bills and U.S.
Treasury Inflation-Protected Securities. Cash equivalents and investments at December 31, 2022 were composed of money
market funds, certificates of deposit, commercial paper, corporate bonds, term deposits, U.S. Government bonds,
municipal bonds, agency bonds, U.S. Treasury bills and U.S. Treasury Inflation-Protected Securities. See additional
disclosure regarding the fair values of our cash equivalents and investments in Note 3. Included in the balance of other
assets as of December 31, 2023 and 2022 was $7.6 million and $4.3 million, respectively, related to corporate-owned life
insurance policies that are used to fund our deferred compensation plan. We determine the fair values of our insurance
contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.
We have investments in marketable securities, for which changes in fair value are recorded in interest and other
income, net in the consolidated statement of operations.
We have strategic investments in various unconsolidated affiliates as of December 31, 2023. The estimated fair
values of the investments was determined based on Level 3 inputs. In determining the estimated fair values of our strategic
investments in privately held companies, we utilize observable data available to us as discussed further in Note 8.
We have outstanding our 0.50% convertible senior notes due 2027 (the “Notes” or “2027 Notes”), for which the fair
value is determined based on the closing trading price per $1,000 of the Notes as of the last day of trading for the period.
72
We consider the fair value of the Notes at December 31, 2023 to be a Level 2 measurement as they are not publicly traded.
The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates.
Our financial instruments also include accounts and notes receivable, accounts payable and accrued liabilities. Due
to the short-term nature of these instruments, their fair values approximate their carrying values on the consolidated balance
sheets.
Segment and Geographic Information
Our operations comprise two reportable segments: the development, manufacture and sale of fully integrated
hardware and cloud-based software solutions that enable law enforcement to capture, securely store, manage, share and
analyze video and other digital evidence (collectively, the ‘Software and Sensors” segment); and the manufacture and sale
of CEDs, batteries, accessories, extended warranties and other products and services (collectively, the “TASER” segment).
In both segments, we report sales of products and services. Service revenue in both segments includes sales related to
Axon Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software
revenue and related professional services. Collectively, this revenue is sometimes referred to as “Axon Cloud revenue.”
Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer
who is our chief operating decision maker (“CODM”). We organize and review operations based on products and services,
and currently there are no operating segments that are aggregated. We perform an analysis of our reportable segments at
least annually. Additional information related to our business segments is summarized in Note 19.
For a summary of net sales by geographic area, see Note 2. The majority of our sales to international customers are
transacted in foreign currencies and are attributed to each country based on the shipping address of the distributor or
customer. For the years ended December 31, 2023, 2022 and 2021, no individual country outside the United States
represented more than 10% of net sales. Substantially all of our assets are located in the United States.
Stock-Based Compensation
We recognize expense related to stock-based compensation transactions in which we receive services in exchange
for equity instruments of the Company. Stock-based compensation expense for restricted stock units (“RSUs”) is measured
based on the closing fair market value of our common stock on the date of grant. When determining the grant date fair
value of stock-based awards, we consider whether an adjustment is required to the observable market price or volatility of
our common stock used in the valuation as a result of material non-public information. We recognize stock-based
compensation expense over the award’s requisite service period on a straight-line basis for time-based RSUs. For
performance-based RSUs, stock-based compensation expense is recognized over the requisite service period, which is
defined as the longest explicit, implicit or derived service period based on management’s estimate of the probability of the
performance criteria being satisfied, adjusted at each balance sheet date. For performance-based options with a vesting
schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense
is recognized over the longer of the expected achievement period of the performance and market conditions, beginning at
the point in time that the relevant performance condition is considered probable of achievement. For both time-based and
performance-based RSUs, we recognize forfeitures as they occur as a reduction to stock-based compensation expense and
to additional paid-in-capital.
eXponential Stock Performance Plan
On February 12, 2019, our shareholders approved the Axon Enterprise, Inc. 2019 Stock Incentive Plan (the “2019
Plan”), which was adopted by the Board of Directors to reserve a sufficient number of shares to facilitate our eXponential
Stock Performance Plan (“2019 XSPP”) and grants of eXponential Stock Units (“2019 XSUs”) under the plan. The XSUs
are grants of performance-based RSUs, each with a term of approximately nine years, that vest in 12 substantially equal
tranches. Each of the 12 tranches vest upon certification by the Compensation Committee of the Board of Directors (the
“Compensation Committee”) that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for
the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of eight operational goals focused
on revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal
73
quarters. As of December 31, 2023, all 12 market capitalization and operational goals have been achieved and certified by
the Compensation Committee. We recorded stock-based compensation expense of $199.9 million related to the 2019 XSU
awards from their respective grant dates through December 31, 2023. As of December 31, 2023, no unrecognized stock-
based compensation expense remained under the 2019 XSPP.
Stock-based compensation expense associated with 2019 XSU awards is recognized over the longest explicit, implicit
or derived service period for each pair of market capitalization and operational goals, beginning at the point in time when
the relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation
of each tranche are determined using a Monte Carlo simulation, which is also used as the basis for determining the expected
achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected
achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-
looking financial projections, taking into consideration statistical analysis. Even though no tranches of the 2019 XSU
awards vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation
expense is recognized when an operational goal is considered probable of achievement regardless of whether a market
capitalization goal is actually achieved.
Given the complexity of the awards, we utilized Monte Carlo simulations to simulate a range of possible future
market capitalizations for the Company over the term of the awards at each of the respective grant dates. The average of
all iterations of the simulation was used as the basis for the valuation and market capitalization goal derived service period
for each tranche. Additionally, we applied an illiquidity discount of between 10.3% and 17.6% to the valuation of 2019
XSUs because the awards specify a post-vest holding period of 2.5 years for the acquired shares that vest. Certain of the
2019 XSU awards specify a post-vest holding period of the longer of 2.5 years or until the next tranche vests. The illiquidity
discounts were estimated using the Finnerty model and reduced by the impact of expected payroll and income taxes due
upon vesting of the awards, as the related proportion of shares are expected to be sold to satisfy such obligations. We
measured the grant date fair value of the 2019 XSU awards with the following assumptions: risk-free interest rate of
between 0.5% and 4.1%, expected term of between 5.2 and 8.0 years, expected volatility of between 46.4%
and 55.8%, and dividend yield of 0.00%.
Stock Options
On May 24, 2018, our shareholders approved the Board of Directors’ grant of 6,365,856 performance-based stock
options to Patrick W. Smith, our Chief Executive Officer (the “2018 CEO Performance Award”). The 2018 CEO
Performance Award consists of 12 substantially equal tranches with a vesting schedule based entirely on the attainment of
both operational goals (performance conditions) and market capitalization goals (market conditions), assuming continued
employment either as the Chief Executive Officer or as both Executive Chairman and Chief Product Officer and service
through each vesting date. Stock-based compensation expense associated with the 2018 CEO Performance Award is
recognized over the requisite service period, which is defined as the longer of the expected achievement period for each
pair of market capitalization and operational goals, beginning at the point in time when the relevant operational goal is
considered probable of being met. As of December 31, 2023, all 12 market capitalization and operational goals have been
achieved and certified by the Compensation Committee. As a result, 6.4 million stock options have vested. As all 12
operational goals have been achieved, we recorded stock-based compensation expense of $246.0 million related to the
2018 CEO Performance Award. As of December 31, 2023, no unrecognized stock-based compensation expense remained
under the 2018 CEO Performance Award.
No stock options were awarded during the years ended December 31, 2023, 2022 or 2021.
74
Income (Loss) per Common Share
Basic income or loss per common share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the periods presented. Diluted income (loss) per share reflects the potential dilution
from outstanding stock options and unvested RSUs. The effects of outstanding stock options, unvested RSUs, our 2027
Notes and warrants to acquire the number of shares of our common stock (the “Warrants” or “2027 Warrants”) are
excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive. The
calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands
except per share data):
For the Year Ended December 31,
2022
2023
2021
Numerator for basic and diluted earnings per share:
Net income (loss)
Denominator:
Weighted average shares outstanding-basic
Dilutive effect of stock-based awards
Diluted weighted average shares outstanding
Net income (loss) per common share:
Basic
Diluted
$ 174,227 $ 147,139 $ (60,018)
74,195
1,261
75,456
71,093
1,441
72,534
66,191
—
66,191
$
$
2.35 $
2.31 $
2.07 $
2.03 $
(0.91)
(0.91)
Potentially dilutive securities that are not included in the calculation of diluted net income per share because doing
so would be antidilutive are as follows (in thousands):
Stock-based awards
2027 Notes
2027 Warrants
Total potentially dilutive securities
For additional information regarding our 2027 Notes, refer to Note 11.
Recently Issued Accounting Guidance
For the Year Ended December 31,
2022
3,264
3,017
3,017
9,298
2023
1,014
3,017
3,017
7,048
2021
7,690
—
—
7,690
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosures. ASU 2023-07 requires annual and interim disclosures that are expected to improve reportable
segment disclosures, primarily through enhanced disclosures about significant segment expenses. The new standard is
effective for our Annual Report on Form 10-K for the year ending December 31, 2024, and subsequent interim periods,
with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial
statements.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued(cid:3031)Accounting Standards Update
(“ASU”)(cid:3031)2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 is intended to
enhance the transparency and decision usefulness of income tax. The provisions of ASU 2023-09 are effective for our
Annual Report on Form 10-K for the year ending December 31, 2025, with early adoption permitted. We are currently
evaluating the impact of this update on our consolidated financial statements.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These
reclassifications are not material and had no effect on the reported results of operations.
75
Note 2 - Revenues
Nature of Products and Services
The following table presents our revenues by primary product and service offering (in thousands):
Year Ended December 31, 2023
Software and
Sensors
Total
TASER
Year Ended December 31, 2022
Software and
Sensors
Total
TASER
TASER Devices
(Professional)
Cartridges
Axon Evidence and Cloud
Services
Extended Warranties
Axon Body Cameras and
Accessories
Axon Fleet Systems
Other (1) (2)
Total
$ 333,923
193,285
—
—
333,923 $ 282,698 $
193,285
181,686
— $
—
282,698
181,686
34,775
31,689
566,183
62,577
600,958
94,266
18,752
29,008
371,889
49,765
390,641
78,773
—
—
18,933
157,281
63,017
35,839
$ 612,605 $ 950,786 $ 1,563,391 $ 531,566 $ 658,369 $ 1,189,935
183,023
118,129
39,807
157,281
63,017
16,417
183,023
118,129
20,874
—
—
19,422
TASER Devices (Professional)
Cartridges
Axon Evidence and Cloud Services
Extended Warranties
Axon Body Cameras and Accessories
Axon Fleet Systems
Other (1) (2)
Total
Year Ended December 31, 2021
Software and
Sensors
Total
TASER
$ 234,616 $
152,842
9,159
24,125
—
—
16,185
— $ 234,616
152,842
—
255,164
246,005
57,811
33,686
104,080
104,080
24,319
24,319
34,549
18,364
$ 436,927 $ 426,454 $ 863,381
(1) TASER segment “Other” includes smaller categories, such as Virtual Reality hardware, CED training revenue
such as revenue associated with our Master Instructor School, and TASER consumer device sales.
(2) Software and Sensors segment “Other” includes revenue from items including Signal Sidearm, Interview Room
and Axon Air.
The following table presents our revenues disaggregated by geography (in thousands):
United States
Other Countries
Total
Contract Balances
2023
Year Ended December 31,
2022
2021
$ 1,338,208
225,183
$ 1,563,391
86 % $ 987,975
14
201,960
100 % $ 1,189,935
83 % $ 686,914
176,467
17
100 % $ 863,381
80 %
20
100 %
The timing of revenue recognition may differ from the timing of invoicing to customers. We generally have an
unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset
when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized
subsequent to invoicing.
76
Contract assets generally result from our subscription programs where we satisfy a hardware performance obligation
upon shipment to the customer, and the right to the portion of the transaction price allocated to that hardware performance
obligation is conditional on our future performance of a SaaS service obligation under the contract. We recognize a portion
of the amount allocated to hardware products shipped to the customer as accounts receivable when invoiced to the
customer, and record the remaining allocated value as a contract asset as we have generally fulfilled our hardware
performance obligation upon shipment. Unbilled accounts receivable expected to be invoiced and collected within
12 months were $4.8 million as of December 31, 2023, and were included in accounts and notes receivable, net on our
consolidated balance sheet.
Contract liabilities generally consist of deferred revenue on our subscription programs where we generally invoice
customers at the beginning of each annual contract period and record a receivable at the time of invoicing when there is
an unconditional right to consideration.
Deferred revenue is composed mainly of unearned revenue related to our Axon Evidence SaaS platform, secure
cloud-based storage, service-type extended warranties, stand-ready obligations in our cartridge programs, and rights to
future CED, Axon camera and related accessories hardware in our subscription programs. Revenue for Axon Evidence
and cloud-based storage, our service-type extended warranties and stand-ready cartridge programs is generally recognized
on a straight-line basis over the subscription term. Revenue for the rights to future hardware is generally recognized at the
point in time the hardware products are shipped to the customer.
Payment terms and conditions vary by contract type and geography, but our standard terms are that payments are due
within 30 days from the date of invoice.
The following table presents our contract assets, contract liabilities and certain information related to these balances
as of and for the year ended December 31, 2023 (in thousands):
Contract assets, net
Contract liabilities (deferred revenue)
Revenue recognized in the period from:
Year Ended December 31,
2022
242,072 $
608,040
2023
353,489 $
773,543
2021
210,174
451,312
$
Amounts included in contract liabilities at the beginning of the period
363,341
261,271
177,812
During the year ended December 31, 2023, our contract assets balance increased by $111.4 million, or 46.0%, due
to increased sales under subscription plans. Contract liabilities increased $165.5 million, or 27.2%, for the year ended
December 31, 2023 due to increased subscription invoicing for Software and Sensors hardware and services in advance of
fulfilling performance obligations to customers.
77
Contract liabilities (deferred revenue) consisted of the following (in thousands):
Current
December 31, 2023
Long-Term
Total
Current
December 31, 2022
Long-Term
Total
Warranty:
TASER
Software and Sensors
Hardware:
TASER
Software and Sensors
Services:
TASER
Software and Sensors
Total
TASER
Software and Sensors
Total
$ 14,773 $ 18,828 $ 33,601 $ 14,207 $ 17,618 $ 31,825
41,567
73,392
16,036
34,864
15,338
32,956
33,940
48,713
26,229
40,436
49,976
83,577
42,464
62,635
105,099
29,689
117,024
146,713
72,153
179,659
251,812
49,361
50,426
99,787
12,640
109,227
121,867
62,001
159,653
221,654
7,939
329,940
337,879
17,138
295,856
312,994
$ 491,691 $ 281,852 $ 773,543 $ 360,037 $ 248,003 $ 608,040
9,501
83,679
93,180
3,983
96,292
100,275
7,637
212,177
219,814
11,922
426,232
438,154
December 31, 2023
Long-Term
December 31, 2022
Long-Term
Current
$ 65,176 $ 52,500 $ 117,676 $ 71,205 $ 39,759 $ 110,964
497,076
$ 491,691 $ 281,852 $ 773,543 $ 360,037 $ 248,003 $ 608,040
426,515
229,352
208,244
288,832
655,867
Current
Total
Total
Remaining Performance Obligations
As of December 31, 2023, we had approximately $7.1 billion of remaining performance obligations, which included
both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. The remaining
performance obligations are limited only to arrangements that meet the definition of a contract under Topic 606 as of
December 31, 2023. We currently expect to recognize between approximately 15% - 25% of this balance over the next 12
months, and expect the remainder to be recognized over the following ten years, subject to risks related to delayed
deployments, budget appropriation or other contract cancellation clauses.
Costs to Obtain a Contract
We recognize an asset for the incremental costs of obtaining a contract with a customer, which consist primarily of
sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract and
amortized consistent with the recognition timing of the revenue for the underlying performance obligations.
For contract costs related to performance obligations with an amortization period of one year or less, we apply the
practical expedient to expense these sales commissions when incurred. These costs are recognized as incurred within
SG&A expenses on the consolidated statements of operations and comprehensive income.
As of December 31, 2023, our assets for costs to obtain contracts were as follows (in thousands):
Current deferred commissions (1)
Deferred commissions, net of current portion (2)
December 31, 2023 December 31, 2022
29,405
$
93,213
122,618
46,335 $
119,401
165,736 $
$
(1) Current deferred commissions are included within prepaid expenses and other current assets on the consolidated
balance sheets.
(2) Deferred commissions, net of current portion, are included in other assets on the consolidated balance sheets.
78
During the years ended December 31, 2023, 2022 and 2021, we recognized $34.0 million, $24.2 million, and $16.6
million, respectively, of amortization related to deferred commissions. These costs are recorded within SG&A expenses
on the consolidated statements of operations and comprehensive income (loss).
Significant Judgments
Our contracts with certain municipal government customers may be subject to budget appropriation, other contract
cancellation clauses or future periods that are optional. In contracts where the customer’s performance is subject to budget
appropriation clauses, we generally consider the likelihood of non-appropriation to be remote when determining the
contract term and transaction price. Contracts with other cancellation provisions or optional periods may require judgment
in determining the contract term, including the existence of material rights, determining transaction price and identifying
the performance obligations.
At times, customers may request changes that either amend, replace or cancel existing contracts. Judgment is required
to determine whether the specific facts and circumstances within the contracts require the changes to be accounted for as
a separate contract or as a modification. Generally, contract modifications containing additional goods and services that
are determined to be distinct and sold at their SSP are accounted for as a separate contract. For contract modifications
where both criteria are not met, the original contract is updated and the required adjustments to revenue and contract assets,
liabilities and other accounts are made accordingly.
Our contracts with customers often include promises to transfer multiple products and services to a customer.
Determining whether products and services are considered distinct performance obligations that should be accounted for
separately rather than together may require significant judgment. We consider CED devices and related accessories, as
well as Axon cameras and related accessories, to be separately identifiable from each other as well as from extended
warranties on these products and the SaaS subscriptions to Axon Evidence and other cloud services.
In contracts where there are timing differences between when we transfer a promised good or service to the customer
and when the customer pays for that good or service, we have determined that, with the exception of our TASER 60
installment purchase arrangements, our contracts generally do not include a significant financing component. For the years
ended December 31, 2023, 2022, and 2021, we recorded interest income of $0.3 million, $0.6 million and $1.0 million,
respectively.
Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of
our products and services as a basis for estimating the SSP of our products and services and then use that SSP as the basis
for allocating the transaction price when our products and services are sold together in a contract with multiple performance
obligations. In instances where the SSP is not directly observable, such as when we do not sell the product or service
separately, we determine the SSP using information that may include market conditions, time value of money and other
observable inputs. We typically have more than one SSP for individual products and services due to the stratification of
those products and services by customers and circumstances. In these instances, we may use information such as
geographic region and distribution channel in determining the SSP.
79
Note 3 - Cash, Cash Equivalents and Investments
The following table summarizes our cash, cash equivalents, marketable securities and available-for-sale investments
at December 31, 2023 (in thousands):
As of December 31, 2023
Amortized
Cost
$ 406,743 $
Gross
Gross
Unrealized Unrealized
Gains
Losses
Fair Value
Cash and
Cash
Marketable Short-Term Long-Term
Equivalents Securities Investments Investments
— $
—
— $
— $
— $
406,743 $ 406,743 $
Cash
Level 1:
Money market funds
Agency bonds
U.S. Government
Treasury bills
Marketable securities
Subtotal
Level 2:
Term deposits
Corporate bonds
Treasury Inflation-
Protected Securities
Commercial paper
Subtotal
Total
1,470
222,057
238,747
148,063
90,000
700,337
128,205
80,646
2,635
14,456
225,942
$ 1,333,022 $
—
—
(174)
2
(237)
120
28
—
— (12,060)
150 (12,471)
1,470
—
—
1,470
221,885 101,635
— 120,250
238,630
— 238,630
—
148,091
59,394
—
88,697
77,940
—
— 77,940
688,016 191,802 77,940 418,274
—
8
—
—
8
—
(165)
128,205
80,489
(5)
—
(170)
2,630
14,456
225,780
—
—
—
—
—
— 128,205
80,489
—
2,630
—
—
14,456
— 225,780
158 $ (12,641) $ 1,320,539 $ 598,545 $ 77,940 $ 644,054 $
—
—
—
—
—
—
—
—
—
—
—
—
As of December 31, 2023, we had $420.4 million of available-for-sale investments with unrealized losses. Of this
amount, $138.8 million has been in a continuous unrealized loss position for 12 months or longer, with total gross
unrealized losses of $0.3 million. We do not intend to sell the investments and it is not more likely than not that we will
be required to sell the investments before recovery of their amortized cost bases.
During the year ended December 31, 2021, we acquired 9,000,000 shares of common stock of Cellebrite DI Ltd.
(“CLBT”) with a fair value of $90.0 million. The CLBT common stock is recorded as marketable securities in the
consolidated balance sheets and its fair value is adjusted every reporting period. Changes in fair value are recorded in the
consolidated statement of operations as unrealized gain or (loss) on marketable securities, which is included in interest and
other income, net. During the year ended December 31, 2023, we recorded a $38.7 million unrealized gain on marketable
securities from our investment in CLBT.
80
The following table summarizes our cash, cash equivalents and available-for-sale investments at December 31, 2022
(in thousands):
Cash
Level 1:
As of December 31, 2022
Gross
Gross
Unrealized Unrealized
Gains
Losses
Fair Value
Amortized
Cost
$ 143,744 $
Cash and
Cash
Marketable Short-Term Long-Term
Equivalents Securities Investments Investments
— $
—
— $
— $
— $ 143,744 $ 143,744 $
Money market funds
Agency bonds
Treasury bills
Marketable securities
Subtotal
Level 2:
2,669
164,486
121,650
90,000
378,805
—
—
(263)
6
18
(3)
— (50,760)
24 (51,026)
—
—
2,669
2,669
164,229
— 69,862
—
121,665 113,100
8,565
—
39,240
—
— 39,240
78,427
327,803 115,769 39,240
—
94,367
—
—
94,367
State and municipal
obligations
Certificate of
deposits
Term deposits
Corporate bonds
U.S. Government
Treasury Inflation-
Protected Securities
Commercial paper
Subtotal
Total
4,980
—
(33)
4,947
—
—
4,947
—
5,002
200,000
257,422
30,525
—
—
33
—
—
—
(1,159)
(159)
5,002
200,000
256,296
30,366
—
25,000
28,883
—
—
5,002
— 175,000
— 168,074
30,366
—
—
—
59,339
—
2,503
160,241
660,673
$ 1,183,222 $
(2)
—
(1,353)
—
—
2,501
—
40,288
—
94,171
33
61,840
57 $ (52,379) $ 1,130,900 $ 353,684 $ 39,240 $ 581,769 $ 156,207
—
—
— 119,953
— 503,342
2,501
160,241
659,353
As of December 31, 2022, we had $349.6 million of available-for-sale investments with unrealized losses. Of this
amount, $29.7 million was in a continuous unrealized loss position for 12 months or longer, with total gross unrealized
losses of $0.9 million.
Note 4 - Expected Credit Losses
We are exposed to credit losses primarily through sales of products and services. Our expected loss allowance
methodology for accounts receivable, contract assets, notes receivable and off-balance-sheet exposures is developed using
historical collection experience, published or estimated credit default rates for entities that represent our customer base,
current and future economic and market conditions, and a review of the current status of customers’ trade accounts
receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers
that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution,
payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are
written off when determined to be uncollectible. We review receivables for U.S. and international customers separately to
better reflect different published credit default rates and economic and market conditions.
81
The following table provides a roll-forward of the allowance for expected credit losses for finance receivables and
off-balance-sheet exposures. The expected credit losses for receivables is deducted from the amortized cost basis of
accounts receivable, contract assets and notes receivable to present the net amount expected to be collected (in thousands):
Year Ended December 31, 2023
Year Ended December 31, 2022
Balance, beginning of period
Provision for expected credit losses
Amounts written off charged against the
allowance
Other, including foreign currency
translation
Balance, end of period (1)
United States Other countries Total
$
3,064 $
815
566 $ 3,630 $
269
1,084
3,171 $
309
178 $ 3,349
700
391
United States Other countries Total
(510)
(244)
(754)
(416)
—
(416)
—
3,369 $
$
6
6
597 $ 3,966 $
—
3,064 $
(3)
(3)
566 $ 3,630
(1)
Ending balance includes allowance for credit losses recorded in other current liabilities on the consolidated balance
sheets, which is related to off-balance-sheet credit exposure.
As of December 31, 2023 and December 31, 2022, the allowance for expected credit losses for each type of customer
receivable and off-balance-sheet exposures were as follows (in thousands):
Accounts receivable and notes receivable, current
Contract assets, net
Long-term notes receivable, net of current portion
Other current liabilities
Total allowance for expected credit losses on customer receivables
Note 5 - Inventory
December 31, 2023 December 31, 2022
2,176
$
1,360
94
—
3,630
2,392 $
1,516
44
14
3,966 $
$
Inventory consisted of the following at December 31, 2023 and December 31, 2022 (in thousands):
December 31, 2023 December 31, 2022
72,740
$
129,731
202,471
104,112 $
165,743
269,855 $
$
Raw materials
Finished goods
Total inventory
82
Note 6 - Property and Equipment
Property and equipment consisted of the following at December 31, 2023 and December 31, 2022 (in thousands):
Estimated
Land
Building and leasehold improvements
Production equipment
Computers, equipment and software
Furniture and office equipment
Vehicles
Capitalized internal software development costs
Construction-in-process
Total cost
Less: Accumulated depreciation
Property and equipment, net
$
$
N/A
3-39 years
3-5 years
3-5 years
3-5 years
5 years
3-5 years
N/A
Useful Life December 31, 2023 December 31, 2022
51,612
25,874
57,170
25,154
7,420
4,027
14,198
62,283
247,738
(77,895)
169,843
51,612
32,092
105,245
30,778
8,383
7,451
14,799
55,397
305,757
(105,224)
200,533 $
$
Construction-in-process included $31.0 million and $28.3 million related to the development of our new campus at
December 31, 2023 and December 31, 2022, respectively.
Depreciation and amortization expense related to property and equipment was $28.1 million, $20.4 million and $15.8
million for the years ended December 31, 2023, 2022 and 2021, respectively, of which $13.6 million, $8.5 million and
$6.3 million was included in cost of sales for the respective years.
Note 7 - Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the year ended December 31, 2023 were as follows (in
thousands):
TASER
Total
Software and
Sensors
42,026 $ 44,983
12,751
12,751
(19)
(19)
230
203
54,961 $ 57,945
2,957 $
—
—
27
2,984 $
Balance, beginning of period
Goodwill acquired
Purchase accounting adjustments
Foreign currency translation adjustments
Balance, end of period
$
$
83
Intangible assets (other than goodwill) consisted of the following at December 31, 2023 and December 31, 2022 (in
thousands):
December 31, 2023
December 31, 2022
Useful
Life
Gross
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
Gross
Net
Net
Amortizable (definite-lived) intangible assets:
Domain names
Issued patents
Issued trademarks
Customer relationships
Non-compete agreements
Developed technology
Total amortizable
915 $ 3,043 $
5 (cid:4137) 10 years $ 3,043 $
5 (cid:4137) 25 years
3 (cid:4137) 15 years
4 (cid:4137) 8 years
3 (cid:4137) 4 years
3 (cid:4137) 5 years
3,222
1,333
5,530
448
29,402
42,978
(2,128) $
(1,707)
(817)
(3,620)
(448)
(16,562)
(25,282)
1,515
516
1,910
—
12,840
17,696
2,981
1,119
4,892
447
18,586
31,068
(1,823) $ 1,220
1,474
(1,507)
406
(713)
1,897
(2,995)
—
(447)
5,342
(13,244)
10,339
(20,729)
Non-amortizable (indefinite-lived) intangible assets:
Trademarks
Patents and trademarks
pending
Total non-amortizable
Total intangible assets
1,068
—
1,068
1,068
—
1,068
775
1,843
751
1,819
$ 44,821 $ (25,282) $ 19,539 $ 32,887 $ (20,729) $ 12,158
751
1,819
775
1,843
—
—
—
—
Amortization expense of intangible assets was $4.5 million, $4.0 million and $2.9 million for the years ended
December 31, 2023, 2022 and 2021, respectively. Estimated amortization for intangible assets with definitive lives for the
next five years ended December 31, and thereafter, is as follows (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
Note 8 – Strategic Investments
$
$
5,210
2,375
2,176
1,814
1,755
4,366
17,696
Strategic investments include investments in a number of non-public technology driven companies. We account for
strategic investments under ASC 321 measurement alternative for equity securities without readily determinable fair
values, as there are no quoted market prices for the investments. The investments are measured at cost less impairment,
adjusted for observable price changes and are assessed for impairment whenever events or changes in circumstances
indicate that the fair value may be less than its carrying value.
In conjunction with certain of our strategic investments, we have the ability to commit additional capital over time
through warrants and call options; for some investments, the exercisability and exercise prices are conditional on the
achievement of certain performance metrics.
84
The following tables provide a roll-forward of the balance of strategic investments (in thousands):
Year Ended December 31, 2023
Year Ended December 31, 2022
Strategic
Strategic
Call
options
investments Warrants
Balance, beginning of period $ 277,676 $ 1,654 $ 17,233 $ 296,563 $ 80,775 $ 2,745 $
Investments
1,176
Fair value adjustments
investments Warrants
56,914
16,192
15,016
—
459
Total
Call
Options Total
— $ 83,520
74,606
17,233
Unrealized gains
Unrealized losses and
impairments
Exercises
Balance, end of period
—
—
—
—
44,376
28,539
—
72,915
(81,196) (1,329)
—
1,500
— (82,525)
1,500
—
(1,108)
—
96,719 (30,089)
—
—
(1,108)
66,630
$ 212,996 $ 1,501 $ 17,233 $ 231,730 $ 277,676 $ 1,654 $ 17,233 $
Inception to date
Investments
Fair value adjustments
Realized gains
Unrealized gains
Unrealized losses and impairments
Exercises
Sales
Balance, end of period
Strategic
investments Warrants
$ 124,498 $
4,222
Call options
$
17,233 $ 145,953
Total
12,312
74,817
(82,304)
98,219
(14,546)
$ 212,996 $
—
29,073
(1,705)
(30,089)
—
1,501
$
—
—
—
—
—
12,312
103,890
(84,009)
68,130
(14,546)
17,233 $ 231,730
In accordance with ASC 321-10-35-3, we determined an impairment indicator existed for one of our strategic
investments as of June 30, 2023. Thus, we performed a quantitative analysis and concluded the fair value was less than
the carrying value. An unrealized impairment loss of $73.8 million related to our strategic investment and related warrants
was recorded in interest and other income, net on our consolidated statement of operations for the year ended December 31,
2023.
Note 9 - Other Long-Term Assets
Other long-term assets consisted of the following at December 31, 2023 and December 31, 2022 (in thousands):
December 31, 2023 December 31, 2022
93,213
$
11,475
38,370
4,274
3,045
9,239
159,616
119,401 $
43,678
36,155
7,558
2,175
11,671
220,638 $
$
Deferred commissions
Deferred cost of goods sold
Operating lease assets
Cash surrender value of corporate-owned life insurance policies
Deferred implementation costs
Prepaid expenses, deposits and other
Total other long-term assets
85
Note 10 - Accrued Liabilities
Accrued liabilities consisted of the following at December 31, 2023 and December 31, 2022 (in thousands):
Accrued salaries, commissions, benefits and bonus
Accrued professional, consulting and lobbying fees
Accrued warranty expense
Accrued income and other taxes
Accrued inventory in transit
Other accrued expenses
Accrued liabilities
Note 11 – Convertible Senior Notes
2027 Notes
December 31, 2023 December 31, 2022
97,882
$
3,861
811
13,559
10,548
29,273
155,934
125,636 $
7,377
7,374
5,784
12,197
29,862
188,230 $
$
In December 2022, we issued $690.0 million aggregate principal amount of our 2027 Notes in a private offering,
which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an
additional $90.0 million principal amount of the Notes. The Notes mature on December 15, 2027 and bear interest at a
fixed rate of 0.50% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on
June 15, 2023. The total net proceeds from the issuance of the Notes, after deducting initial purchasers’ discounts and
commissions and estimated debt issuance costs of $16.2 million, were approximately $673.8 million. The effective interest
rate for the Notes was 0.99% and included interest payable and amortization of debt issuance cost.
If we undergo a fundamental change (as defined in the indenture governing the Notes), holders may require us to
repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the
principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, up to but excluding the
fundamental change repurchase date. In addition, following certain corporate events or if we issue a notice of redemption,
it will increase the conversion rate for holders who elect to convert their Notes in connection with such corporate event or
during the relevant redemption period.
The following table summarizes the carrying value of the Notes (in thousands):
Principal
Unamortized debt issuance costs
Convertible notes carrying amount, net
$
$
December 31, 2023
690,000
(12,887)
677,113
$
December 31, 2022
690,000
(16,033)
673,967
$
We consider the fair value of the Notes to be a Level 2 measurement. The estimated fair value of the Notes at
December 31, 2023 and December 31, 2022 is based on the closing trading price per $1,000 of the Notes as of the last day
of trading for each period as follows (in millions):
2027 Notes
December 31, 2023
873.3
December 31, 2022
687.3
$
$
Interest expense related to the Notes was as follows (in thousands):
Contractual interest expense
Amortization of debt issuance costs
Total interest expense
December 31, 2023
$
$
3,450
3,126
6,576
86
$
December 31, 2022
211
198
409
$
Note Hedge
To reduce the impact of potential economic dilution upon conversion of the Notes, we entered into a convertible note
hedge transaction (the “Note Hedge” or “2027 Note Hedge”) with certain investment banks, with respect to our common
stock, concurrently with the issuance of the 2027 Notes.
2027 Note Hedge
Purchase Price
$
194,994
Shares Purchased
3,016,680
The Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial
conversion price of the respective Notes, subject to adjustment, and is exercisable upon conversion of the Notes. If
exercised, we may elect to receive cash, shares of our common stock, or a combination of cash and shares. We have
accounted for the aggregate amount of purchase price for the Note Hedge as a reduction to additional paid-in capital. The
Note Hedge will expire upon the maturity of the Notes. The Note Hedge is intended to reduce the potential economic
dilution upon conversion of the Notes in the event that the market value per share of our common stock at the time of
exercise is greater than the conversion price of the Notes. The Note Hedge is a separate transaction and is not part of the
terms of the Notes. Holders of the Notes do not have any rights with respect to the Note Hedge. The Note Hedge does not
impact earnings per share, as it was entered into to offset any dilution from the Notes. As of December 31, 2023, 3,016,680
shares remain subject to the Note Hedge.
Note Warrants
2027 Warrants
$
124,269
Proceeds
Shares
3,016,680
Strike Price
$
338.86
First Expiration
March 15, 2028
Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire,
subject to adjustment, the number of shares of our common stock shown in the table above. If the average market value
per share of our common stock on each expiration date exceeds the strike price of the Warrants expiring on that day, such
Warrants would have a dilutive effect on our earnings per share to the extent we report net income. According to the terms
of the Warrants, the Warrants will be automatically exercised over a 60-trading day period beginning on the first expiration
date as set forth above.
Note 12 - Commitments and Contingencies
Data Storage Commitment
In June 2022, we entered into a purchase agreement for cloud hosting with a six year term beginning July 1, 2022.
The purchase agreement includes a total commitment of $425.0 million. Storage fees under this agreement were $62.4
million for the year ended December 31, 2023. The remaining purchase commitment at December 31, 2023 was $338.8
million.
Purchase Commitments
We routinely enter into cancelable and non-cancelable purchase orders with many of our key vendors. Based on
the strategic relationships with many of these vendors, our ability to cancel these purchase orders and maintain a favorable
relationship would be limited. As of December 31, 2023, we had approximately $429.5 million of open purchase orders
and $351.2 million of other purchase obligations, inclusive of the data storage commitment noted above.
Product Litigation
As a manufacturer of weapons and other law enforcement tools used in high-risk field environments, we are often
the subject of products liability litigation concerning the use of our products. We are currently named as a defendant
in five lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CED
87
was used by law enforcement officers in connection with arrests or training. While the facts vary from case to case, these
product liability claims typically allege defective product design, manufacturing, and/or failure to warn. They seek
compensatory and sometimes punitive damages, often in unspecified amounts.
We continue to aggressively defend all product litigation. As a general rule, it is our policy not to settle suspect injury
or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to us. Due to the confidential
nature of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, we do not
identify or comment on specific settlements by case or amount. Based on current information, we do not believe that the
outcome of any such legal proceeding will have a material effect on our financial position, results of operations or cash
flows. We are self-insured for the first $5.0 million of any product claim made after 2014. No judgment or settlement has
ever exceeded this amount in any products case. We continue to maintain product liability insurance coverage, including
an insurance policy fronting arrangement, above our self-insured retention with various limits depending on the policy
period.
Antitrust Litigation
In January 2020, the U.S. Federal Trade Commission (“FTC”) filed an administrative enforcement action regarding
our May 2018 acquisition of an insolvent body-worn camera competitor, Vievu LLC (“Vievu”). The FTC alleged the
merger was anticompetitive and adversely affected the body-worn camera and digital evidence management market for
“large metropolitan police departments,” which we deny and aggressively defended. On October 6, 2023, the FTC
unilaterally dismissed its administrative complaint against Axon without consent decree or other condition.
Now pending in the District of New Jersey (Case No. 3:23-cv-7182) is a purported class action based primarily on
the same dismissed FTC allegations that the Vievu acquisition substantially lessened competition in the body-worn camera
systems market for U.S. law enforcement agencies. The Township of Howell (NJ), the City of Augusta (ME) and the City
of Baltimore (MD) filed their consolidated amended complaint on November 27, 2023, alleging Sherman and Clayton Act
violations against both Axon and Safariland LLC, which sold Vievu to Axon. The complaint further alleges that an
ancillary holster supply agreement between Axon and Safariland LLC constituted an illegal restraint of trade in the long-
range conducted energy weapon market. Axon denies the allegations and will vigorously defend the case. The parties have
agreed on a briefing schedule concerning anticipated motion practice through mid-May, with rulings unlikely in 2024.
General
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is
our policy not to disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually
served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with
the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are
deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine
whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material
for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our
historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our
prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters
progress over time.
Based on our assessment of outstanding litigation and claims as of December 31, 2023, we have determined that it is
not reasonably possible that these losses, if any, from these lawsuits will individually, or in the aggregate, materially affect
our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain
and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these
matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage
and will not have a material adverse effect on our operating results, financial condition or cash flows.
88
Off-Balance Sheet Arrangements
Under certain circumstances, we use letters of credit and surety bonds to guarantee our performance under various
contracts, principally in connection with the installation and integration of Axon cameras and related technologies. Certain
of our letters of credit and surety bonds have stated expiration dates with others being released as the contractual
performance terms are completed. At December 31, 2023, we had outstanding letters of credit issued under our credit
facility of $7.5 million that are expected to expire throughout 2024 and 2025. Additionally, we had $10.5 million of
outstanding surety bonds as of December 31, 2023 expiring in 2024.
Note 13 - Income Taxes
Income (loss) before provision (benefit) for income taxes included the following components for the years ended
December 31 (in thousands):
United States
Foreign
Total
2023
2022
$ 132,448 $ 191,631 $ (146,995)
5,620
$ 155,000 $ 196,518 $ (141,375)
22,552
4,887
2021
Significant components of the provision (benefit) for income taxes were as follows for the years ended December 31
2023
2022
2021
$
$ 33,084
10,371
2,804
46,259
$ 10,804
10,118
2,892
23,814
(331)
85
(60)
(306)
(61,106)
(9,244)
89
(70,261)
4,775
(65,557)
(15,266)
478
(80,345)
(706)
$ (19,227) $ 49,379 $ (81,357)
26,238
(2,002)
(2,146)
22,090
3,475
(in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Tax impact of unrecorded tax benefits liability
Provision for income taxes (Income tax benefit)
89
A reconciliation of our effective income tax rate to the federal statutory rate follows for the years ended December 31
(in thousands):
Federal income tax at the statutory rate
Excess stock-based compensation benefit
Executive compensation limitation
R&D credits
Change in valuation allowance
Change in liability for unrecognized tax benefits
State income taxes, net of federal benefit
Tax effects of intercompany transactions
Foreign tax credit
Global intangible low-taxed income
Other permanent differences (1)
Difference between statutory and foreign tax rates
Foreign derived intangible income deduction
Return to provision adjustment
Other
Provision for income taxes (Income tax benefit)
Effective tax rate
2023
32,550 $ 41,283 $
2022
$
(106,522)
77,350
(26,204)
(4,695)
4,351
3,658
(2,033)
(1,922)
1,890
1,201
1,013
(961)
346
751
(4,616)
5,784
(13,340)
10,216
3,215
7,928
(417)
—
653
1,118
(428)
(2,597)
(757)
1,337
$ (19,227) $ 49,379 $
25.1 %
(12.4)%
2021
(29,691)
(205,483)
180,509
(34,376)
8,961
10,188
(12,717)
96
—
1,250
592
(155)
—
204
(735)
(81,357)
57.5 %
(1) Other permanent differences include certain expenses that are not deductible for tax purposes including meals and
entertainment, lobbying fees, and nondeductible transaction-related costs.
90
Significant components of our deferred income tax assets and liabilities are as follows at December 31, 2023 and
December 31, 2022 (in thousands):
Deferred income tax assets:
R&D capitalization, net
Deferred revenue
Convertible debt, net
R&D tax credit carryforward
Reserves, accruals, and other
Accrued bonus
Stock based compensation
Lease liability
Strategic investments
Amortization
Deferred compensation
Net operating loss carryforward
Inventory reserve
Total deferred income tax assets
Deferred income tax liabilities:
Depreciation
Right of use asset
Prepaid expenses
Customer contract asset
Goodwill amortization
Strategic investments
Total deferred income tax liabilities
Net deferred income tax assets before valuation allowance
Valuation allowance
Net deferred income tax assets
2023
2022
$
99,746
60,206
39,649
16,554
12,264
11,253
10,544
9,664
6,109
4,425
2,803
2,115
1,986
277,318
$
46,122
47,586
48,378
12,826
9,080
8,652
15,374
9,973
—
2,820
1,575
4,874
1,279
208,539
(14,575)
(8,404)
(2,223)
(690)
(313)
—
(26,205)
251,113
(21,600)
(10,272)
(8,748)
(1,119)
(552)
—
(4,615)
(25,306)
183,233
(26,368)
$ 229,513 $ 156,865
We have $17.5 million of state net operating losses (“NOLs”) which do not expire until 2041. We have $29.0 million
of state R&D credits carrying forward, which expire at various dates between 2024 and 2037 or carry forward indefinitely.
In the United Kingdom, we have $4.8 million of NOLs, which may be carried forward indefinitely.
In preparing our consolidated financial statements, management assesses the likelihood that its deferred income tax
assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets,
management considers all available positive and negative evidence, including our operating results, ongoing tax planning
and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is
determined that it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.
Management exercises significant judgment in determining our provision for income taxes, our deferred income tax assets
and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our
deferred income tax assets. The net change in total valuation allowance for the years ended December 31, 2023, and 2022
was a decrease of $4.8 million and increase of $10.2 million, respectively. The valuation allowance changes are driven
primarily by certain state R&D tax credits that are expected to expire unutilized and movement in deferred tax assets
associated with unrealized investment losses and transaction costs incurred in connection with certain investments that are
not more likely than not to be realized. The net change in the valuation allowance in 2023 and 2022 was recorded to tax
expense.
We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the
United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash
needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be
utilized offshore for working capital and future foreign growth and we have not made a provision for U.S. or additional
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foreign withholding taxes of the excess of the amount for financial reporting over the tax basis of investments in foreign
subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance
of dividends and under certain other circumstances. We have determined the amount of deferred tax liability related to
investments in these foreign subsidiaries is immaterial. If we decide to repatriate the undistributed foreign earnings, we
will recognize the income tax effects in the period we change our assertion on indefinite reinvestment.
We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state income tax
purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit
will not be sustained on examination and recorded a liability for unrecognized tax benefits of $25.8 million as of
December 31, 2023. Should the unrecognized benefit of $25.8 million be recognized, our effective tax rate would be
favorably impacted.
The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest,
as of December 31 (in thousands):
Balance, beginning of period
Increase (decrease) in previous year tax positions
Increase in current year tax positions
Decrease due to lapse of statutes of limitations
Balance, end of period
$
2023
$ 21,492
2021
7,657
22
11,416
(846)
$ 25,754 $ 21,492 $ 18,249
2022
$ 18,249
232
3,343
(332)
(215)
6,963
(2,486)
Federal income tax returns for 2020 through 2022 remain open to examination by the U.S. Internal Revenue Service,
while state and local income tax returns for 2019 through 2022 also generally remain open to examination by state taxing
authorities. The 2009 through 2018 state and local income tax returns are only open to the extent that net operating loss or
other tax attributes carrying forward from those years were utilized in 2019 through 2022. The foreign tax returns for 2019
through 2022 also generally remain open to examination, although some foreign statutes can audit returns up to ten years.
We recognize interest and penalties related to unrecognized tax benefits within the provision (benefit) for income tax
expense line in the consolidated statements of operations and comprehensive income (loss). As of December 31, 2023,
and 2022, we had accrued interest of $0.6 million and $0.3 million, respectively.
The Tax Cuts and Jobs Act of 2017 contains a provision that subjects a U.S. parent of a foreign subsidiary to current
U.S. tax on its global intangible low-taxed income (“GILTI”). GILTI is eligible for a deduction that lowers the effective
tax rate on GILTI to 10.5% for calendar years 2018 through 2025 and 13.125% after 2025. We report the tax impact of
GILTI as a period cost when incurred. Accordingly, we do not provide deferred taxes for basis differences expected to
reverse as GILTI.
Note 14 - Line of Credit
In December 2022, we entered into a credit agreement that provides for a senior unsecured multi-currency revolving
credit facility in an aggregate principal amount of up to $200.0 million, $30.0 million of which is available for the issuance
of letters of credit. The credit agreement will mature on the earlier of December 15, 2027 or the date that is six months
prior to the stated maturity date of the 2027 Notes unless the Notes have been redeemed, repurchased, converted or
defeased in full. Additionally, the credit agreement has an accordion feature that allows for an increase in the total line of
credit up to $300.0 million, in each lender’s sole discretion.
As of December 31, 2023, and 2022, respectively, there were no borrowings under the line. Under the terms of the
line of credit, available borrowings are reduced by outstanding letters of credit. As of December 31, 2023, we had letters
of credit outstanding of approximately $7.5 million under the facility and available borrowing of $192.5 million, excluding
amounts available under the accordion feature. Advances under the line of credit bear interest at Term SOFR plus 1.25 to
1.75% per year determined in accordance with a pricing grid based on our net debt to earnings before interest expense,
taxes, depreciation and amortization (“EBITDA”) ratio, which for the purposes of the credit agreement excludes
92
investment interest income. “SOFR” is defined as a rate equal to the secured overnight financing rate as administered by
the Federal Reserve Bank of New York or a successor administrator of the secured overnight financing rate.
We are required to comply with a net leverage ratio, defined as consolidated total indebtedness to EBITDA, of no
greater than 3.50 to 1.00 based upon a trailing four fiscal quarter period. At December 31, 2023, our net leverage ratio was
0.10 to 1.00. Additionally, we must comply with a consolidated interest coverage ratio, defined as EBITDA to consolidated
interest expense, of no less than 3.50 to 1.00 based upon a trailing four fiscal quarter end. At December 31, 2023, our
consolidated interest coverage ratio was 45.61 to 1.00.
Note 15 - Stockholders’ Equity
Common Stock and Preferred Stock
We have authorized the issuance of two classes of stock designated as “common stock” and “preferred stock,” each
having a par value of $0.00001 per share. We are authorized to issue 200 million shares of common stock and 25 million
shares of preferred stock.
Stock-based Compensation Plans
We have historically utilized stock-based compensation, consisting of RSUs and stock options, for key employees
and non-employee directors as a means of attracting and retaining talented personnel. Service-based grants generally have
a vesting period of 1 to 5 years and a contractual maturity of ten years. Performance-based grants generally have vesting
periods ranging from 1 to 10 years and a contractual maturity of ten years.
In May 2022, our shareholders approved the Axon Enterprise, Inc. 2022 Stock Incentive Plan (the “2022 Plan”)
authorizing an additional 2.5 million shares, plus remaining available shares under prior plans, for issuance under the new
plan. Combined with the 2019 Plan and other legacy stock incentive plans, there are 1.7 million shares available for grant
as of December 31, 2023.
Performance-based Stock Awards
We have issued performance-based stock options and performance-based RSUs, the vesting of which is generally
contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful
and timely development and market acceptance of future product introductions. In addition, certain of the performance-
based RSUs have additional service requirements subsequent to the achievement of the performance criteria.
Compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or
derived service period based on management’s estimate of the probability of the performance criteria being satisfied,
adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as
they occur as a reduction to stock-based compensation expense and additional paid-in-capital
For performance-based stock options with a vesting schedule based entirely on the attainment of both performance
and market conditions, stock-based compensation expense is recognized for each pair of performance and market
conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the
point in time that the relevant performance condition is considered probable of achievement. The fair value of such awards
is estimated on the grant date using Monte Carlo simulations.
2018 CEO Performance Award
On May 24, 2018, our shareholders approved the Board of Directors’ grant of the 2018 CEO Performance Award to
Patrick W. Smith, our Chief Executive Officer. The 2018 CEO Performance Award consists of 12 substantially equal
tranches with a vesting schedule based entirely on the attainment of both operational goals (performance conditions) and
market capitalization goals (market conditions), assuming continued employment either as the Chief Executive Officer or
as both Executive Chairman and Chief Product Officer and service through each attainment date.
93
As of December 31, 2023, all 12 market capitalization and operational goals have been achieved and certified by the
Compensation Committee. As a result, 6.4 million stock options have vested. As all 12 operational goals have been
achieved, we recorded stock-based compensation expense of $246.0 million related to the 2018 CEO Performance Award.
As of December 31, 2023, no unrecognized stock-based compensation expense remained.
eXponential Stock Performance Plan
On February 12, 2019, our shareholders approved the 2019 Plan, which was adopted by the Board of Directors to
reserve a sufficient number of shares to facilitate our 2019 XSPP and grants of 2019 XSUs under the 2019 Plan.
As of December 31, 2023, all 12 market capitalization and operational goals have been achieved and certified by the
Compensation Committee. We recorded stock-based compensation expense of $199.9 million related to the 2019 XSU
awards from their respective grant dates through December 31, 2023. As of December 31, 2023, there was no
unrecognized stock-based compensation expense.
2024 CEO Performance Award and 2024 eXponential Stock Plan
On October 14, 2023, our Board of Directors approved the 2024 eXponential Stock Plan (“XSP 2.0”) and, on
December 20, 2023, the Board approved a pool of 4,516,370 shares of the Company’s common stock to be reserved for
grants of awards of eXponential Stock Units (“2024 XSUs”) to employees under the plan, including those who elected to
have compensation withheld in order to participate in the plan. The 2024 XSUs are grants of performance-based RSUs,
each with a term of approximately seven years, that vest in seven substantially equal tranches. Additionally, on
December 18, 2023, the Compensation Committee granted to our Chief Executive Officer an award of 2024 XSUs
covering 679,102 shares of Company common stock (the “2024 CEO Performance Award”). Both XSP 2.0 and the 2024
CEO Performance Award are subject to shareholder approval at our upcoming Annual Meeting of Shareholders. Dollar-
denominated awards granted under XSP 2.0 and the 2024 CEO Performance Award were converted to 2024 XSUs using
a price per share of common stock of $220.88, which reflects the 90-day volume weighted average price per share as of
the trading day preceding the grant date. Neither XSP 2.0 nor the 2024 CEO Performance Award will have a financial
statement impact unless and until either or both are approved by shareholders at our Annual Meeting of Shareholders in
May 2024.
Restricted Stock Units
The following table summarizes RSU activity for the years ended December 31 (number of units and aggregate
intrinsic value in thousands):
Units outstanding, beginning of year
Granted
Released
Forfeited
Units outstanding, end of year
Aggregate intrinsic value at year end
Fair Value Units
Fair Value Units
2023
Weighted
Average
Grant-Date
Number
of
Units
1,565 $ 145.48
227.62
140.81
157.95
193.09
915
(740)
(125)
1,615
$ 417,240
2022
Weighted
Average
Grant-Date
Number
of
Number
of
2021
Weighted
Average
1,115 $ 133.40
143.03
1,142
117.49
(541)
138.99
(151)
145.48
1,565
Grant-Date
Fair Value
76.10
165.67
66.23
100.64
133.40
1,107 $
686
(554)
(124)
1,115
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $258.33
per share, multiplied by the number of RSUs outstanding. The fair value as of the respective vesting dates of RSUs that
vested during the year was $161.7 million, $84.9 million and $96.4 million for the years ended December 31, 2023, 2022
and 2021, respectively.
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As of December 31, 2023, we had $273.5 million of total unrecognized stock-based compensation expense related
to RSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the RSUs
over a weighted average period of 2.29 years. Shares underlying RSUs are released when vesting requirements are met.
Certain RSUs that vested in the year ended December 31, 2023 were net-share settled, such that we withheld shares
to cover the employees’ tax obligations for the applicable income and other employment taxes, and remitted the cash to
the appropriate taxing authorities. Total shares withheld related to RSUs during 2023 were approximately 26,000 and had
a value of approximately $5.4 million on their respective vesting dates as determined by the closing stock price on such
dates. Payments for the employees’ tax obligations are reflected as a financing activity within the consolidated statements
of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.
Performance Stock Units
The following table summarizes performance stock unit (“PSU”) activity, inclusive of 2019 XSUs, for the years
ended December 31 (number of units and aggregate intrinsic value in thousands):
2023
Weighted
Average
2022
Weighted
Average
Number
2021
Weighted
Average
Number
Number
of
Units
1,369 $
Units outstanding, beginning of year
319
Granted
(1,238)
Released
Forfeited
(56)
Units outstanding, end of year
394
Aggregate intrinsic value at year end $ 101,751
Grant-Date
Fair Value
43.43
218.04
37.98
48.40
201.61
of
Units
1,499 $
158
(78)
(210)
1,369
Grant-Date
Fair Value
39.86
106.57
107.58
41.62
43.43
of
Units
5,618 $
309
(4,345)
(83)
1,499
Grant-Date
Fair Value
35.71
77.53
37.16
40.91
39.86
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $258.33
per share, multiplied by the number of PSUs outstanding. As of December 31, 2023, there was $57.8 million in total
unrecognized stock-based compensation expense related to PSUs under our stock plans for shares that are expected to vest.
We expect to recognize the cost related to the PSUs over a weighted average period of 2.73 years. Shares underlying PSUs
are released when vesting requirements are met.
Certain PSUs that vested in the year ended December 31, 2023 were net-share settled such that we withheld shares
to cover the employees’ tax obligations for the applicable income and other employment taxes, and remitted the cash to
the appropriate taxing authorities. Total shares withheld related to PSUs were approximately 0.5 million and had a value
of $102.5 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for
the employees’ tax obligations are reflected as a financing activity within the consolidated statements of cash flows. We
record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital. Payments for the
employees’ tax obligations are reflected as a financing activity within the consolidated statements of cash flows. We record
a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.
95
Stock Option Activity
The following table summarizes stock option activity for the years ended December 31 (number of options in
thousands):
2023
2022
2021
Options outstanding, beginning of year
Granted
Exercised
Expired / terminated
Options outstanding, end of year
Options exercisable, end of year
2,438 $
—
(1,907)
—
531
531
28.58
28.58
28.58
Number
of
Options
Weighted
Average
Exercise
Price
28.58
Number
of
Options
Weighted
Average
Exercise
Price
28.58
—
—
—
28.58
28.58
2,438 $
—
—
—
2,438
1,377
Number
of
Options
Weighted
Average
Exercise
Price
28.58
—
28.58
—
28.58
28.58
6,366 $
—
(3,928)
—
2,438
1,377
We did not grant any stock options in 2023, 2022 or 2021. The total intrinsic value of options exercised was
$323.0 million and $571.4 million for the years ended December 31, 2023 and 2021, respectively; no options were
exercised in the year ending December 31, 2022. The intrinsic value for options exercised was calculated as the difference
between the exercise price of the underlying stock option awards and the market price of our common stock on the date of
exercise.
The following table summarizes information about stock options that were fully vested or expected to vest as of
December 31, 2023 (number of options in thousands):
Options Outstanding
Options Exercisable
Range of
Exercise Price
$28.58
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
28.58
531 $
Weighted
Average
Remaining
Contractual
Life (Years) Exercisable
Weighted
Number of
Options
Average
Exercise
Price
4.16
531 $
28.58
Weighted
Average
Remaining
Contractual
Life (Years)
4.16
The aggregate intrinsic value of options exercisable at December 31, 2023 was $122.0 million. Aggregate intrinsic
value represents the difference between the exercise price of the underlying stock option awards and the closing market
price of our common stock of $258.33 on the last trading day for the period ending December 31, 2023.
Stock-based Compensation Expense
We account for stock-based compensation using the fair-value method. Reported stock-based compensation expense
was classified as follows for the years ended December 31 (in thousands):
Cost of product and service sales
Sales, general and administrative expenses
Research and development expenses
Total stock-based compensation expense
Income tax benefit
Stock Inducement Plan
$
2023
6,595 $
58,533
66,230
2021
5,844
238,813
58,674
$ 131,358 $ 106,176 $ 303,331
13,509 $ 25,154 $ 30,586
$
2022
4,607 $
51,301
50,268
In September 2022, our Board of Directors adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022
Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the 2022
Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under
96
the 2022 Inducement Plan may only be made to individuals not previously employed by us (or following such individuals’
bona fide periods of non-employment by us), as an inducement material to the individuals’ entry into employment with
us. The terms and conditions of the 2022 Inducement Plan are substantially similar to the Axon Enterprise, Inc. 2019 Stock
Inducement Plan. There are approximately 0.1 million shares available for grant as of December 31, 2023.
At-the-Market Equity Offering
During the year ended December 31, 2023, we sold 467,594 shares of our common stock under our “at-the-market”
equity offering program (the “ATM”). We generated approximately $96.4 million in aggregate gross proceeds from sales
under the ATM. Aggregate net proceeds from the ATM were $94.7 million after deducting related expenses, including
commissions to the sales agent and issuance costs of $1.7 million. During the year ending December 31, 2022, no shares
were sold under the ATM. During the year ended December 31, 2021, we sold 577,956 shares of our common stock under
the ATM and generated approximately $107.6 million in aggregate gross proceeds from sales under the ATM. Aggregate
net proceeds from the ATM were $105.4 million after deducting related expenses, including commissions to the sales
agent of $1.6 million and issuance costs of $0.5 million.
We may sell up to a total of 3.0 million shares of our common stock under the ATM, of which approximately 2.0 are
remaining. The ATM expires on April 20, 2024. We intend to use the net proceeds from the ATM for general corporate
purposes, which may include, among other things, providing capital to satisfy a portion of the tax obligations related to
the vesting and settlement of stock compensation awards granted to our executive officers and other employees under our
stock plans, to support our growth, and to acquire or invest in product lines, products, services, technologies or facilities.
Stock Repurchase Plan
In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of
our outstanding common stock subject to stock market conditions and corporate considerations. As of December 31, 2023
and 2022, $16.3 million remained available under the plan for future purchases.
Subsequent Event
On December 8, 2023, the Compensation Committee approved a compensation package for our Chief Executive
Officer. This compensation package provides for compensation opportunities to Mr. Smith in a lesser amount than the
Committee was otherwise willing to provide so that the Company could instead provide enhanced compensation
opportunities to other employees of the Company.
On January 2, 2024, we granted an aggregate of 0.4 million RSUs to employees whose compensation was under a
specified threshold. The RSUs generally vest in five annual installments from March 2024 through March 2028.
Note 16 – Accumulated Other Comprehensive Income (loss)
The following table reflects the changes in accumulated other comprehensive income (loss), net of tax (in thousands):
Unrealized Gains (Losses)
on Available-for-Sale
Investments
Foreign Currency
Translation
Total
Balance, December 31, 2020
Other comprehensive loss
Balance, December 31, 2021
Other comprehensive loss
Balance, December 31, 2022
Other comprehensive loss
Balance, December 31, 2023
$
$
$
$
— $
(207)
(207) $
(1,044)
(1,251) $
852
(399) $
141 $
(1,251)
(1,110) $
(4,818)
(5,928) $
(4,352)
(10,280) $
141
(1,458)
(1,317)
(5,862)
(7,179)
(3,500)
(10,679)
97
Note 17 - Leases
Lease Obligations
We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities
are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the
information available at the commencement date in determining the present value of future payments. Additionally, we
use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration
to our 2027 Notes, line of credit, macroeconomic factors as well as publicly available data for instruments with similar
characteristics when estimating our incremental borrowing rates. The ROU asset also includes any lease payments made
and initial direct costs incurred and excludes lease incentives.
We have operating leases for office space and logistical functions. Leases with an initial term of 12 months or less
are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease
term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease
components for all asset classes.
Our leases have remaining terms of less than one to approximately 10 years, some of which include one or more
options to renew for up to five years, and some of which include options to terminate the leases within one year. The
exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for
renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment
escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We had no finance leases as of December 31, 2023.
Leases (in thousands)
Assets
Operating lease assets
Liabilities
Current
Operating
Noncurrent
Operating
Total lease liabilities
Classification
Other assets
December 31, 2023 December 31, 2022
$
36,155 $
38,370
Other current liabilities
$
7,938 $
6,357
Other long-term liabilities
$
33,550
41,488 $
37,143
43,500
The components of operating lease expense were as follows for the years ended December 31 (in thousands):
Classification
2023
2022
2021
Operating lease expense
Sales, general and administrative
expenses (1)
$
Research and development expense
Total operating lease expense (2)
$
6,659 $
3,366
10,025 $
4,388 $
4,315
8,703 $
3,820
3,675
7,495
(1) An immaterial portion of operating lease expense is included within cost of sales.
(2)
Includes short-term leases, which are immaterial.
98
Other information related to leases was as follows (in thousands, except lease term and discount rate):
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows for operating leases
$
8,846
$
9,216
Right-of-use assets obtained in exchange for lease liabilities:
Twelve Months Ended
December 31, 2023
Twelve Months Ended
December 31, 2022
Operating leases
Weighted average remaining lease term:
Operating leases
Weighted average discount rate:
Operating leases
5,927
21,815
7.1 years
7.2 years
6.05 %
5.44 %
Future minimum lease payments under non-cancellable leases as of December 31, 2023 were as follows (in
thousands):
2024
2025
2026
2027
2028
Thereafter
Total minimum lease payments
Less: Amount representing interest
Present value of lease payments
Operating
10,234
9,864
6,218
3,915
3,855
19,166
53,252
(11,764)
41,488
$
As of December 31, 2023, we have entered into an additional lease that has not yet commenced, with estimated
future minimum lease payments totaling $20.8 million over 12 years.
Note 18 - Employee Benefit Plans
We have a defined contribution profit sharing 401(k) plan for eligible employees, which is qualified under Sections
401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred
contributions of up to the maximum allowed by law of their eligible compensation.
We also sponsor defined contribution plans in Australia, Canada, Finland and the United Kingdom.
Our matching contributions for all defined contribution plans for the years ended December 31, 2023, 2022 and 2021,
were approximately $14.5 million, $10.9 million and $7.4 million, respectively.
Note 19 - Segment Data
Our operations comprise two reportable segments: the TASER segment and the Software and Sensors segment. In
both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon
Evidence. In the TASER segment, service revenue also includes digital subscription training content. In the Software and
Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional
services. Collectively, this revenue is sometimes referred to as “Axon Cloud revenue.” Our Chief Executive Officer, who
is the CODM, is not provided asset information or SG&A expenses by segment.
99
Information relative to our reportable segments was as follows (in thousands):
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Research and development
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Research and development
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Research and development
For the year ended December 31, 2023
Software and
Sensors
TASER
$
$
$
577,610 $
34,995
612,605
238,364
3,613
241,977
370,628 $
390,101
560,685
950,786
212,354
153,678
366,032
584,754
62,393 $
241,326
$
$
$
For the year ended December 31, 2022
Software and
Sensors
TASER
511,010
20,556
531,566
194,957
—
194,957
336,609
51,607
$
$
$
290,378
367,991
658,369
168,262
98,078
266,340
392,029
182,203
$
$
$
For the year ended December 31, 2021
Software and
Sensors
TASER
426,916
10,011
436,927
149,739
145
149,884
287,043
46,136
$
$
$
181,609
244,845
426,454
110,359
62,228
172,587
253,867
147,890
$
$
$
Total
967,711
595,680
1,563,391
450,718
157,291
608,009
955,382
303,719
Total
801,388
388,547
1,189,935
363,219
98,078
461,297
728,638
233,810
Total
608,525
254,856
863,381
260,098
62,373
322,471
540,910
194,026
$
$
$
$
$
$
Note 20 – Business Acquisition
During the year ended December 31, 2023, we completed an acquisition for total purchase consideration
of $23.9 million. The purchase price included $2.2 million of contingent cash consideration, which is expected to be
earned by the sellers upon meeting specified targets by July 1, 2027. Total transaction costs related to the acquisition
were $2.3 million for the year ended December 31, 2023. These transaction costs were expensed as incurred in SG&A
expenses in our consolidated statements of operations.
The purchase price allocation is subject to revision during the measurement period pending final asset valuation
procedures and related calculations. Based on the purchase price allocation, we recorded $12.9 million of
goodwill, $11.5 million of identifiable intangible assets, and $2.2 million in net tangible assets, excluding deferred taxes.
We recorded a net deferred tax liability of $2.8 million.
100
The goodwill generated from the acquisition is primarily attributable to synergies that are expected to be achieved
from the integration of the business and is not deductible for tax purposes. We have assigned the goodwill to the Software
and Sensors segment.
Note 21 – Subsequent Event
In January 2024, we acquired the remaining outstanding stock of Fusus, Inc. (“Fusus”), a global leader in real-time
crime center technology, for $240.0 million, subject to customary purchase price adjustments. The acquisition expands
our ability to aggregate live video, data, and sensor feeds, which enhances situational awareness and investigative
capabilities for our customers in public safety, education and enterprise. Prior to this transaction, we had an approximately
20% ownership interest in Fusus. This transaction is considered a “step acquisition” under GAAP whereby our ownership
interest in Fusus held before the acquisition is required to be remeasured to fair value at the date of the acquisition.
Due to the timing of the transaction, the initial accounting for the acquisition is not yet complete. Transaction costs
related to the acquisition were approximately $2.6 million for the year ended December 31, 2023. These transaction costs
were expensed as incurred in SG&A in our consolidated statements of operations.
101
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Axon Enterprise, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Axon Enterprise, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and
comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023
and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”), and our report dated February 27, 2024 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition – bundled arrangements with multiple performance obligations
As described further in Notes 1 and 2 to the financial statements, the Company derives revenue from two primary sources:
the sale of physical products (including conducted energy devices (CEDs), cameras, corresponding hardware extended
warranties, and related accessories), and subscriptions to the Axon Evidence digital evidence management software-as-a-
service. To a lesser extent, the Company also recognizes revenue related to training, professional services and other
software services. Many of the Company’s products are sold on a standalone basis; however, the Company also bundles
its hardware product and service performance obligations and sells them to customers as part of a single transaction.
102
We consider the identification of performance obligations, treatment of contract term assessments, the determination of
the standalone selling price and allocation of the transaction price to multiple performance obligations, including the
determination as to whether any amendments to an existing contract result in a modification, to be a critical audit matter.
The principal consideration for our determination that these revenue recognition matters are a critical audit matter is that
significant judgment is exercised by the Company in determining revenue recognition for contracts with multiple
performance obligations, and includes the following:
•
•
•
Judgment in modification assessment and conclusions resulting from amendments to existing contracts.
Identification and treatment of contract terms that may impact the timing and amount of revenue recognized
(e.g., substantive termination penalties).
Identification of all promises in the contract and whether such promises are limited to distinct explicit goods or
services or whether they may be implied.
• Determination of stand-alone selling prices for each distinct performance obligation and for products and
services that are not sold separately, which may include a market assessment of what the customer would be
willing to pay for each performance obligation or an estimate of the expected cost plus an appropriate estimated
margin of the performance obligation.
These judgments require significant auditor subjectivity in evaluating the reasonableness of those judgments. Our audit
procedures related to the revenue recognition for contracts with multiple performance obligations included the following,
among others:
• We tested the design and operating effectiveness of controls over the Company’s contract review process,
including those over the assessment of amendments to existing contracts, treatment of contract term assessments,
the identification of distinct performance obligations included in the initial or amended contract, and the
establishment and monitoring of standalone selling prices.
• We evaluated management’s judgment in significant accounting polices related to these arrangements for
reasonableness.
• For a sample of contracts, we performed the following procedures:
o Obtained and analyzed the contract source documents for each selection, and other documents deemed
a component of the arrangement, in order to test the appropriateness of management’s identification and
determination of contract terms.
o Assessed contractual terms and the appropriateness of material right determinations.
o Obtained management’s contract review assessment and corroborate the judgments applied in
accounting for the arrangements.
o Assessed the terms in the arrangement and evaluated the appropriateness of management’s application
of their accounting policies, along with their use of estimates, in the determination of revenue recognition
conclusions.
o Traced the term of the revenue recognition period to the contract and recalculated the expected revenue
recognized during the period.
• We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and
services by comparing the stand-alone prices to historic stand-alone transactions and other data.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Phoenix, Arizona
February 27, 2024
103
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Attached as exhibits to this Form 10-K are certifications of the Chief Executive Officer (as the principal executive
officer) and Chief Financial Officer (as the principal financial and accounting officer), which are required in accordance
with Rule 13a-14 of the Exchange Act. This section includes information concerning the controls and controls evaluation
referred to in the certifications. This section should be read in conjunction with the certifications and the Grant Thornton
LLP attestation report for a more complete understanding of the topics presented. Grant Thornton LLP has independently
assessed the effectiveness of our internal control over financial reporting and its report is included below.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer are responsible for the evaluation of the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of the end of the period
covered by this Annual Report on Form 10-K. Our disclosure controls and procedures are designed to ensure that
information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that as of December 31, 2023 our disclosure controls and procedures were effective to
ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Management has assessed the effectiveness of our internal
control over financial reporting as of December 31, 2023 based on criteria established in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this
assessment, management concluded that, as of December 31, 2023, our internal control over financial reporting was
effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP. Grant Thornton LLP has independently assessed the
effectiveness of our internal control over financial reporting and its report is included below.
Remediation Plan of Prior Period Material Weakness
Management previously identified and disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2022, as well as in our Quarterly Reports on Form 10-Q for each interim period in fiscal 2023, a material
weakness in our internal control over financial reporting. Specifically, during the fourth quarter of 2022, management
identified a material weakness in our internal controls stemming from control deficiencies with respect to the risks of
understatement of software and services revenue and overstatement of deferred revenue. This material weakness in internal
control over financial reporting resulted from a failure to effectively manage the migration of triggering events for certain
software and services performance obligations during the quote-to-cash phase of the implementation of our Enterprise
Resource Planning (“ERP”) and related systems in 2021.
We have completed our plan of remediation for the material weakness described above, which primarily consisted
of the design and implementation of new business processes and automation of integrations between our systems as well
as enhanced our reconciliation controls and monitoring procedures to properly ensure transactions are identified and
recorded timely and accurately. During the quarter ended December 31, 2023, management completed its evaluation and
104
testing of the operating effectiveness of the improved controls and deemed them to be designed and operating effectively.
As a result, management concluded that the previously disclosed material weakness has been remediated as of
December 31, 2023.
Changes in Internal Control over Financial Reporting
Except for the changes noted above, there have been no other changes in our internal control over financial reporting
during the fiscal quarter ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Axon Enterprise, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Axon Enterprise, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31,
2023, and our report dated February 27, 2024 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ GRANT THORNTON LLP
Phoenix, Arizona
February 27, 2024
106
Item 9B. Other Information
During the fiscal quarter ended December 31, 2023, certain of our officers or directors have made, and may from
time to time make, elections to have shares withheld or sold to cover withholding taxes or pay the exercise price of options,
which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may
constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
No other Rule 10b5-1 trading arrangements or “non-Rule 10b5-1 trading arrangements” (as defined by Item 408(c) of
Regulation S-K) were entered into, modified or terminated by our directors or officers during such period.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required to be disclosed by this item is incorporated herein by reference to our definitive proxy
statement for the 2024 Annual Meeting of Shareholders (the “2024 Proxy Statement”), which we expect to file with the
SEC within 120 days after the end of our fiscal year ended December 31, 2023.
Item 11. Executive Compensation
The information required to be disclosed by this item is incorporated herein by reference to our 2024 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
A description of our equity compensation plans approved by our shareholders is included in Note 15 to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following table
provides details of our equity compensation plans at December 31, 2023:
Number of
Securities to be
Issued upon
Exercise of Outstanding
Weighted
Average
Exercise Price
of Outstanding Options,
Options, Warrants and Rights Warrants and Rights
(a)
(b) (1)
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans (Excluding Securities
Reflected
in Column (a)) (c)
2,469,260 $
28.58
70,694
2,539,954
—
1,708,146
112,505
1,820,651
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders(2)
Total
(1) The weighted average exercise price is calculated based solely on the exercise prices of the outstanding stock options
and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs that have no exercise
price.
(2)
In September 2022, our Board of Directors adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022
Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the 2022
Inducement Plan. In September 2019, our Board of Directors adopted the Axon Enterprise, Inc. 2019 Stock
Inducement Plan (the “2019 Inducement Plan” and, together with the 2022 Inducement Plan, the “Inducement Plans”)
pursuant to which we reserved 500,000 shares of common stock for issuance under the 2019 Inducement Plan. The
Inducement Plans were adopted without shareholder approval pursuant to Rule 5635(c)(4) and Rule 5635(c)(3) of the
Nasdaq Listing Rules. Each Inducement Plan provides for the grant of equity-based awards, including restricted stock,
107
RSUs, performance shares and PSUs, and its terms are substantially similar to our shareholder-approved 2022 Plan
and 2019 Plan, respectively. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules,
awards under each Inducement Plan may only be made to individuals not previously employees or non-employee
directors of the Company (or following such individuals’ bona fide period of non-employment with the Company),
as an inducement material to the individuals’ entry into employment with the Company.
All other information required to be disclosed by this item is incorporated herein by reference to our 2024 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be disclosed by this item is incorporated herein by reference to our 2024 Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required to be disclosed by this item is incorporated herein by reference to our 2024 Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Consolidated financial statements: All consolidated financial statements as set forth under Part II, Item 8 of this
report.
2. Supplementary Financial Statement Schedules: Supplementary schedules have not been included because they
are not applicable or because the information is included elsewhere in this report.
3. Exhibits:
Exhibit
Number
3.1
3.2
4.1
4.2*
4.3
4.4
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
Description
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Quarterly Report on Form 10-Q, filed August 9, 2022)
Bylaws, as amended and restated (incorporated by reference to Exhibit 3.2 to the Current Report on
Form 8-K, filed December 21, 2023)
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Registration Statement on
Form SB-2, effective May 11, 2001 (Registration No. 333-55658))
Description of Securities of Axon Enterprise, Inc. registered under Section 12 of the Exchange Act
Indenture, dated as of December 9, 2022, between Axon Enterprise, Inc. and U.S. Bank Trust Company,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, filed December 9, 2022)
Form of 0.50% Convertible Senior Note due 2027 (incorporated by reference to Exhibit A in Exhibit 4.1 to
the Current Report on Form 8-K, filed December 9, 2022)
Form of Indemnification Agreement between the Company and its directors (incorporated by reference to
Exhibit 10.4
to Registration Statement on Form SB-2, effective May 11, 2001 (Registration
No. 333-55658))
Form of Indemnification Agreement between the Company and its officers (incorporated by reference to
Exhibit 10.5
to Registration Statement on Form SB-2, effective May 11, 2001 (Registration
No. 333-55658))
TASER International, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to
Form 8-K, filed on July 12, 2013)
Axon Enterprise, Inc. 2018 Stock Incentive Plan (incorporated by reference to Annex B of the Company’s
Proxy Statement, filed on April 13, 2018)
CEO Performance Award (incorporated by reference to Annex A of the Company’s Proxy Statement, filed
on April 13, 2018)
Axon Enterprise, Inc. 2019 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s
Proxy Statement, filed on December 31, 2018)
108
Exhibit
Number
10.7+
10.8+
10.9+
10.10+
10.11+
10.12±
10.13+
10.14+
10.15+
10.16
10.17
10.18
10.19+
10.20+
21.1*
23.1*
24.1*
31.1*
31.2*
32**
97*
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
104
Description
Axon Enterprise, Inc. 2019 Stock Incentive Plan Exponential Stock Unit Grant Notice (incorporated by
reference to Annex B of the Company’s Proxy Statement, filed on December 31, 2018)
Executive Employment Agreement by and between Axon Enterprise, Inc. and Joshua M. Isner (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed June 4, 2019)
Executive Employment Agreement by and between Axon Enterprise, Inc. and Jeffrey C. Kunins, dated
September 23, 2019 (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K, filed
February 28, 2020)
Axon Enterprise, Inc. 2019 Stock Inducement Plan (incorporated by reference to Exhibit 99.1 to the
registration statement on Form S-8, filed September 23, 2019)
Auction Statement from the Company to the Arizona State Land Department (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed November 6, 2020)
Construction Management Agreement, dated February 23, 2022, by and between Axon Enterprise, Inc. and
Okland Construction Company, Inc. (incorporated by reference to Exhibit 10.19 to the Annual Report on
Form 10-K, filed February 24, 2022)
Axon Enterprise, Inc. 2022 Stock Incentive Plan (incorporated by reference to Annex B of the Company’s
Proxy Statement, filed April 8, 2022)
Axon Enterprise, Inc. 2022 Stock Inducement Plan (incorporated by reference to Exhibit 99.1 to the
registration statement on Form S-8, filed September 23, 2022)
Executive Employment Agreement by and between Axon Enterprise, Inc. and Brittany Bagley (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed November 9, 2022)
Form of Convertible Note Hedge Confirmation (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K, filed December 9, 2022)
Form of Warrant Confirmation (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, filed December 9, 2022)
Credit Agreement, dated December 15, 2022, by and between Axon Enterprise, Inc. and JPMorgan Chase
Bank, N.A. (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K, filed
February 28, 2023)
Employment Agreement, dated December 8, 2023, by and between Axon Enterprise, Inc. and Patrick W.
Smith (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed December 14,
2023)
Letter Agreement, dated December 8, 2023, by and between Axon Enterprise, Inc. and Patrick W. Smith
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed December 14, 2023)
List of Subsidiaries
Consent of Grant Thornton, LLP, independent registered public accounting firm
Powers of attorney (see signature page)
Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Axon Enterprise, Inc. Incentive Compensation Recovery Policy
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Calculation Linkbase Document
Inline XBRL Taxonomy Label Linkbase Document
Inline XBRL Taxonomy Presentation Linkbase Document
The cover page from the Company’s Annual Report for the year ended December 31, 2023, formatted in
Inline XBRL
+ Management contract or compensatory plan or arrangement
* Filed herewith
109
** Furnished herewith
± Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”)
because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly
disclosed.
Item 16. Form 10-K Summary
Not applicable.
110
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AXON ENTERPRISE, INC.
Date: February 27, 2024
Date: February 27, 2024
By:
By:
/s/ PATRICK W. SMITH
Chief Executive Officer, Director
(Principal Executive Officer)
/s/ BRITTANY BAGLEY
Chief Operating Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)
111
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Patrick W. Smith his or her true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PATRICK W. SMITH
Patrick W. Smith
/s/ BRITTANY BAGLEY
Brittany Bagley
/s/ ERIKA AYERS BADAN
Erika Ayers Badan
/s/ ADRIANE M. BROWN
Adriane M. Brown
/s/ JULIE A. CULLIVAN
Julie A. Cullivan
/s/ MICHAEL GARNREITER
Michael Garnreiter
/s/ CAITLIN E. KALINOWSKI
Caitlin E. Kalinowski
/s/ MARK W. KROLL
Mark W. Kroll
/s/ MATTHEW R. MCBRADY
Matthew R. McBrady
/s/ HADI PARTOVI
Hadi Partovi
/s/ GRAHAM SMITH
Graham Smith
/s/ JERI WILLIAMS
Jeri Williams
Chief Executive Officer, Director
(Principal Executive Officer)
February 27, 2024
Chief Operating Officer and Chief Financial
Officer
(Principal Financial and Accounting Officer) February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
112
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AXON.COM
2023–2024