UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐o
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o | Preliminary Proxy Statement |
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
☒ | Definitive Proxy Statement |
o | Definitive Additional Materials |
o | Soliciting Material Under Rule Pursuant to § 240.14a-12 |
SURMODICS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Surmodics, Inc. (the “Company”) will be held on February 14, 2017, at 4:00 p.m. (Minneapolis time), as a virtual meeting at www.virtualshareholdermeeting.com/SRDX. Shareholders will be asked to:
Date: | February 13, 2020 | |
Time: | 4:00 p.m. (Minneapolis time) | |
Webcast: | www.virtualshareholdermeeting.com/SRDX20 | |
Agenda: | 1. | Elect two (2) Class III directors; |
2. | Set the number of directors at |
3. | Ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year |
4. | Approve, in a non-binding advisory vote, the Company’s executive |
The Annual Meeting of Shareholders of Surmodics, Inc. (the “Company”) will be held on February 13, 2020, at 4:00 p.m. (Minneapolis time), as a virtual meeting at www.virtualshareholdermeeting.com/SRDX20 where you will be able to listen to the meeting live, submit questions and vote online. We believe that a virtual shareholder meeting provides greater access to those who may want to attend and therefore have chosen this method for our Annual Meeting over an in-person meeting.
Only shareholders of record at the close of business on December 19, 2016,16, 2019, are entitled to receive notice of and to vote at the meeting or any adjournment of the meeting.
To vote your shares, we ask that you follow the instructions in the notice of internet availability of proxy materials or the proxy card that you received in the mail.
Your vote is very important. Whether or not you plan to attend the meeting, please vote at your earliest convenience. Prompt voting will save the Company the expense of further requests.
December 23, 2019
Very truly yours,
Susan
SUSAN E. Knight
KNIGHT
Chair of the Board
Eden Prairie, Minnesota
December 23, 2016
All shareholders are cordially invited to attend the virtual annual meeting of shareholders at www.virtualshareholdermeeting.com/SRDX.SRDX20. Whether or not you expect to attend, please vote over the Internet at www.proxyvote.com or by telephone at 1-800-690-6903. Alternatively, you may request a paper proxy card, which you may complete, sign and return by mail.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on February 13, 2020: The proxy statement and 2019 Annual Report on Form 10-K are available at www.proxyvote.com.
SURMODICS, INC.
9924 West 74th Street
Eden Prairie, Minnesota 55344
Annual Meeting of Shareholders
February 14, 2017
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 13, 2020
4:00 p.m. Central Standard Time
INTRODUCTION
INTRODUCTION |
This proxy statement is furnished to shareholders of Surmodics, Inc.the Company in connection with the solicitation of proxies by the Board of Directors of the Company to be voted at the virtual annual meeting of shareholders to be held on February 14, 201713, 2020 (the “Annual Meeting”), at 4:00 p.m. Central Standard Time, or any adjournments or postponements thereof. This proxy statement and the form of proxy, along with the Annual Reportannual report on Form 10-K for the fiscal year ended September 30, 2016,2019 (the “Annual Report”), is being first sent or given to shareholders on or about December 23, 2016.
The mailing address of the principal executive office of the Company is 9924 West 74th Street, Eden Prairie, Minnesota 55344.2019. The Company also expects that the Notice Regarding Availability of Proxy Materials (the “Notice”) and proxy materials will first be mailed to shareholders on or about December 23, 2016.2019. The mailing address of the Company’s principal executive offices is 9924 West 74th Street, Eden Prairie, Minnesota 55344.
The Company will pay all solicitation expenses in connection with this proxy statement and related proxy soliciting material of the Board, including the preparation and assembly of the proxies and soliciting material. In addition to the use of the mails, proxies may be solicited personally or by mail, telephone, fax or by our directors, officers and regular employees who will not be additionally compensated for any such services.
If You Hold Your Shares in “Street Name”
If you hold your shares in “street name”, i.e., through a bank, broker or other holder of record (a “custodian”), your custodian is required to vote your shares on your behalf in accordance with your instructions. If you do not give instructions to your custodian, your custodian will not be permitted to vote your shares with respect to “non-routine” items. Please note that if you intend to vote your street name shares in person at the Annual Meeting, you must provide a “legal proxy” from your custodian at the Annual Meeting.
Any shareholder giving a Proxy may revoke it at any time prior to its use at the meeting by giving written notice of the revocation to the Secretary of the Company, or by submitting a subsequent Proxy by internet or mail. Attendance at the virtual meeting is not, by itself, sufficient to revoke a Proxy unless written notice of the revocation or a subsequent Proxy is delivered to the Secretary of the Company before the revoked or superseded Proxy is used at the virtual meeting. Proxies not revoked will be voted in accordance with the choices specified by shareholders by means of the ballot provided on the Proxy for that purpose.
Requesting Paper Copies and Voting
Pursuant to Securities and Exchange Commission (the “SEC”) rules related to the availability of proxy materials, we have chosen to make our proxy statement and related materials, including our annual report to shareholders,Annual Report, available online to our shareholders and, as permitted by the rules, paper copies of these materials will only be provided upon request. We are providing to our shareholders (other than those who previously requested electronic or paper delivery) the Notice containingwhich contains instructions on how to access this proxy statement and related materials online. If your shares are held in “street name”, the Notice will be forwarded to you by your custodian. If you received the Notice by mail, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the Notice instructs you on how to access and review all of the important information contained in the proxy materials. The Notice also instructs you on how you may vote your shares, including via the internet. If you previously requested electronic delivery, you will still receive an e-mail providing you the Notice, and if you previously requested paper delivery, you will still receive a paper copy of the proxy materials by mail.
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OUTSTANDING SHARES AND VOTING RIGHTS
OUTSTANDING SHARES AND VOTING RIGHTS |
The Board of Directors of the Company has fixed December 19, 2016,16, 2019, as the record date for determining shareholders entitled to vote at the Annual Meeting. Persons who were not shareholders on such date will not be allowed to vote at the Annual Meeting. At the close of business on December 19, 2016, 13,265,23416, 2019, 13,588,229 shares of the Company’s common stock were issued and outstanding. Common stock is the only outstanding class of capital stock of the Company entitled to vote at the meeting. Each share of common stock is entitled to one vote on each matter to be voted upon at the meeting. Holders of common stock are not entitled to cumulative voting rights. If a shareholder votes, the shares will be counted as part of the quorum.
The affirmative vote of a plurality of the shares of common stock present, either online or by proxy, at the Annual Meeting (including by proxy) and entitled to vote is required for the election to the Board of each of the nominees for director. Shareholders do not have the right to cumulate their votes in the election of directors. “Plurality” means that the individuals who receive the greatest number of votes cast “For” are elected as directors. Accordingly, the two nominees for director receiving the highest vote totals will be elected as directors of the Company.
The vote to approve our executive compensation and the vote regarding the frequency of the vote on executive compensation areis advisory and not binding on our Board of Directors. However, our Board will consider our shareholders to have approved our executive compensation if the number of votes “For” Proposal 4 exceeds the number of votes “Against” Proposal 4. With respect to Proposal 5, the option receiving the most votes among the choices of the frequency of the advisory non-binding vote on executive compensation will be deemed to have received the advisory approval of the shareholders.
The affirmative vote of the holders of the greater of (1) a majority of the shares of our common stock present (including by proxy) and entitled to vote on the proposal or (2) a majority of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at the meeting is required for approval of the other proposals presented in this Proxy Statement, except for Proposals 41 and 5.4. A shareholder who abstains with respect to the election of directors, the advisory vote on executive compensation, and the vote regarding the frequency of theadvisory vote on executive compensation will not have any effect on the outcome of these proposals. A shareholder who abstains with respect to any proposal other than the election of directors and the advisory vote on executive compensation will have the effect of casting a negative vote on that proposal. A shareholder who does not vote at the Annual Meeting on a proposal (including by proxy) is not deemed to be present for the purpose of determining whether a proposal has been approved.
Custodians cannot vote on their customers’ behalf on “non-routine” proposals such as Proposal 1 related to the election of directors, Proposal 2 related to board size, and ProposalsProposal 4 and 5 related to executive compensation. Because custodians require their customers’ direction to vote on such non-routine matters, it is critical that shareholders provide their custodians with voting instructions. On the other hand, Proposal 3, ratification of the appointment of our independent registered public accounting firm, is a “routine” matter for which custodians do not need voting instruction in order to vote shares.
For vote requirement purposes for Proposals 1, 2, 4, and 5,4, broker non-votes are considered to be shares present by proxy at the Annual Meeting but are not considered to be shares “entitled to vote” or “votes cast” on such items at the Annual Meeting.
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PRINCIPAL SHAREHOLDERSHow You Can Vote
You may vote in one of the following ways:
By Internet before the Annual Meeting: | You may access the website at www.proxyvote.com to cast your vote 24 hours a day, 7 days a week. You will need your control number found in the Notice or proxy card. Follow the instructions provided to obtain your records and create an electronic ballot. | |
By mail: | If you request a paper proxy card, mark, sign and date each proxy card you receive and return it in the postage-paid envelope provided or to the location indicated on the proxy card. | |
At the Annual Meeting: | If you are a shareholder of record, you may attend the Annual Meeting and vote your shares at www.virtualshareholdermeeting.com/SRDX20 during the meeting. You will need your control number found in the Notice of Internet Availability or proxy card. Follow the instructions provided to vote. On the day of our Annual Meeting, we recommend that you log into our virtual meeting at least 15 minutes prior to the scheduled start time to ensure that you can access the meeting. If you wish to submit a question, type your question into the “Ask a Question” field and within the virtual meeting and click “Submit.” Questions related directly to the Annual Meeting will be answered during our virtual meeting, subject to time constraints. Any questions pertinent to meeting matters that cannot be answered during the meeting due to time constraints will posted online and answered on our website at www.surmodics.com under the “Investors” tab. The questions and answers will be available as soon as practical after the meeting and will remain available until one week after the posting. |
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PRINCIPAL SHAREHOLDERS |
The following table provides information concerning persons known to the Company to be the beneficial owners of more than 5% of the Company’s outstanding common stock as of December 19, 2016.16, 2019. Unless otherwise indicated, the shareholders listed in the table have sole voting and investment power with respect to the shares indicated.
Name and Address of Beneficial Owner | Amount and Nature of Shares Beneficially Owned | Percent of | (1) | |||||||
Blackrock, Inc. 55 East 52nd Street New York, NY 10055 | 2,108,214(2 | ) | 15.5% | |||||||
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Renaissance Technologies LLC 800 Third Avenue New York, NY 10022 | 1,101,538(3 | ) | 8.1% | |||||||
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | 849,735(4 | ) | 6.3% | |||||||
Trigran Investments, Inc. 630 Dundee Rd., Suite 230 Northbrook, IL 60062 | 795,202(5 | ) | ||||||||
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| 5.9% |
(1) | In accordance with the requirements of the Securities and Exchange Commission, Percent of Class for a person or entity is calculated based on outstanding shares plus shares deemed beneficially owned by that person or entity by virtue of the right to acquire such shares as of December |
(2) | Based on a Schedule 13G filed on January |
(3) | Based on a Schedule 13G filed on February |
(4) | Based on a Schedule 13G filed on February 13, 2019, which reported sole voting power, shared voting power, sole dispositive power, and shared dispositive power as follows: sole voting power—26,315; shared voting power—1,063; sole dispositive power—823,186 shares; and shared dispositive power—26,459 shares. |
(5) | Based on a Schedule 13G filed on February 14, 2019 by Trigran Investments, Inc., which reported shared voting power, and shared dispositive power, on behalf of itself and its affiliates Douglas Granat, Lawrence A. Oberman, Steven G. Simon, Bradley F. Simon and Steven R. Monieson, as follows: shared voting power—795,202 shares; and shared dispositive power—795,202 shares. |
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MANAGEMENT SHAREHOLDINGS
MANAGEMENT SHAREHOLDINGS |
The following table sets forth the number of shares of common stock beneficially owned as of December 19, 2016,16, 2019, by each executive officer of the Company named in the Summary Compensation Table, by each current director of the Company and by all directors and executive officers (including the named executive officers) as a group. Unless otherwise indicated, the shareholders listed in the table have sole voting and investment power with respect to the shares indicated.
Name of Beneficial Owner or Identity of Group | Current Holdings | Acquirable within 60 days (1) | Aggregate Number of Common Shares Beneficially Owned | Percent of Class (2) | ||||||||||||
Gary R. Maharaj | 144,608 | 99,857 | 244,465 | 1.8% | ||||||||||||
Joseph J. Stich | 42,362 | 56,313 | 98,675 | * | ||||||||||||
Charles W. Olson | 29,387 | 56,313 | 85,700 | * | ||||||||||||
José H. Bedoya | 15,976 | 63,683 | 79,659 | * | ||||||||||||
Bryan K. Phillips | 30,434 | 40,212 | 70,646 | * | ||||||||||||
Timothy J. Arens | 23,953 | 34,844 | 58,797 | * | ||||||||||||
Susan E. Knight | 14,332 | 44,197 | 58,529 | * | ||||||||||||
Andrew D. C. LaFrence | 12,160 | 45,375 | 57,535 | * | ||||||||||||
David R. Dantzker, M.D. | 13,654 | 30,208 | 43,862 | * | ||||||||||||
Ronald B. Kalich | 7,999 | 20,893 | 28,892 | * | ||||||||||||
Shawn T McCormick | 2,965 | 7,331 | 10,296 | * | ||||||||||||
Gregg S. Sutton | 3,477 | 5,272 | 8,749 | * | ||||||||||||
Thomas A. Greaney | 2,713 | 4,981 | 7,694 | |||||||||||||
All executive officers and directors as a group (13 persons) | 344,020 | 509,479 | 853,499 | 6.4% |
Name of Beneficial Owner or Identity of Group | Current Holdings(1) | Acquirable within 60 days(2) | Aggregate Number of Common Shares Beneficially Owned | Percent of Class(3) | ||||||
Gary R. Maharaj | 143,587 | 112,845 | 256,432 | 1.9% | ||||||
Bryan K. Phillips(4) | 35,311 | 73,370 | 108,681 | * | ||||||
Timothy J. Arens(5) | 51,562 | 49,901 | 101,463 | * | ||||||
Thomas A. Greaney | 30,013 | 46,482 | 76,495 | * | ||||||
Susan E. Knight | 25,997 | 24,866 | 50,863 | * | ||||||
David R. Dantzker, M.D. | 23,773 | 25,329 | 49,102 | * | ||||||
José H. Bedoya | 22,119 | 25,329 | 47,448 | * | ||||||
Ronald B. Kalich | 14,638 | 24,706 | 39,344 | * | ||||||
Shawn T. McCormick | 7,758 | 16,178 | 23,936 | * | ||||||
Teryl W. Sides | 14,194 | 4,894 | 19,088 | * | ||||||
Lisa W. Heine | 5,772 | 5,245 | 11,017 | * | ||||||
All executive officers and directors as a group (14 persons) | 494,797 | 544,041 | 1,038,838 | 7.6% |
* | Less than 1% |
(1) | Includes restricted stock units and deferred stock units that are vested on December 16, 2019, or will become vested within 60 days thereafter. |
(2) | Includes shares issuable upon the exercise of stock options that are exercisable on December |
(3) | In accordance with the requirements of the Securities and Exchange Commission, Percent of Class for a person or entity is calculated based on outstanding shares plus shares deemed beneficially owned by that person or entity by virtue of the right to acquire such shares as of December 16, 2019, or within sixty days of such date. |
(4) | Mr. Phillips’ employment with the Company ended on December 20, 2019. |
(5) | Includes 17,831 options transferred during fiscal 2018 pursuant to a qualified domestic relations order. |
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ELECTION OF DIRECTORS (Proposals #1 and #2) |
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ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors, which shall not be less than three, shall be determined annually by the shareholders. The Company’s Corporate Governance and Nominating Committee and Board of Directors have recommended that the number of directors be set at six (6)seven (7) at the Annual Meeting.
The Bylaws also provide for the election of three classes of directors with terms staggered so as to require the election of only one class of directors each year, and further that each class be equal in number, or as nearly as possible. Only directors who are members of Class III will be elected at the Annual Meeting. Each Class III director will be elected to a three-year term and, therefore, will hold office until the Company’s 20202023 annual meeting of shareholders and until his or her successor has been duly elected and qualified, or until his or her resignation or removal from office. The terms of Class I and II directors continue until the 20182021 and 20192022 annual meetings, respectively.
The Corporate Governance and Nominating Committee has recommended, and the Board of Directors selected José H. Bedoya and Susan E. Knight as the Board’s nominees for election as Class III directors. Each of these nominees has indicated a willingness to serve as a director if elected and has consented to be named in the proxy statement. Brief biographical profiles of Mr. Bedoya and Ms. Knight are provided below. The Proxy will be voted for any of such nominees unless the Proxy withholds a vote for one or more nominees. If, prior to the meeting, it should become known that either of the nominees will be unable to serve as a director after the meeting by reason of death, incapacity or other unexpected occurrence, the Proxies will be voted for such substitute nominee as is recommended or selected by the Corporate Governance and Nominating Committee and the Board of Directors or, alternatively, not voted for any nominee. The Board of Directors has no reason to believe that any nominee will be unable to serve.
Under the Company’s Corporate Governance Guidelines, it is a policy of the Board that a director shall offer to retire from the Board effective at the conclusion of the Annual Meeting following his or her seventy-second birthday. In this circumstance, the Corporate Governance and Nominating Committee will review the appropriateness of such director’s continuation on the Board, and recommend to the Board whether, in light of all the circumstances, the Board should accept the director’s proposed retirement. Under this policy, Mr. Kalich, who attained the age of seventy-two following the conclusion of fiscal 2019, offered to retire at the conclusion of the Annual Meeting. The Board, based upon the recommendation of the Corporate Governance and Nominating Committee, determined it appropriate for Mr. Kalich to continue his service on the Board given his substantial experience and familiarity with the Company and the Board, and his executive and board leadership experience. As a member of Class II, Mr. Kalich’s current term will expire at the conclusion of the Company’s 2022 annual meeting.
A plurality of votes cast is required for the election of directors. However, under the Company’s Corporate Governance Guidelines, any nominee for director in an uncontested election (i.e., an election where the only nominees are those recommended by the Board of Directors) who receives a greater number of votes “withheld” from his or her election than votes “for” such election (a “Majority Withheld Vote”) will, within five business days of the certification of the shareholder vote by the inspector of elections, tender a written offer to resign from the Board of Directors.Board. The Corporate Governance and Nominating Committee will promptly consider the resignation offer and recommend to the Board of Directors whether to accept it. The NominatingCorporate Governance and Corporate GovernanceNominating Committee will consider all factors its members deem relevant in considering whether to recommend acceptance or rejection of the resignation offer, including, without limitation:
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Any director who tenders his or her offer to resign from the Board pursuant to this provision shall not participate in the Corporate Governance and Nominating or Board deliberations regarding whether to accept the offer of resignation. The Board will act on the Corporate Governance and Nominating Committee’s recommendation within 90 days following the certification of the shareholder vote by the inspector of elections, which action may include, without limitation:
Thereafter, the Board will disclose its decision whether to accept the director’s resignation offer and the reasons for rejecting the offer, if applicable, in a current reportCurrent Report on Form 8-K to be filed with the Securities and Exchange Commission within four business days of the Board’s determination.
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The following information is provided with respect to each director whose term will continue after the Annual Meeting and each director nominee:
Committee Membership | |||||||
Name and Position(1) | Age | Gender | Director Since | Class | Audit(2) | Organization and Compensation | Corporate Governance and Nominating |
José H. Bedoya Director | 63 | M | 2002 | III | • | ||
David R. Dantzker, M.D. Director | 76 | M | 2011 | I | • | ||
Lisa W. Heine Director | 56 | F | 2017 | I | • | • | |
Ronald B. Kalich Director | 72 | M | 2014 | II | • | ||
Susan E. Knight Chair of the Board | 65 | F | 2008 | III | • | ||
Gary R. Maharaj Director, President and CEO | 56 | M | 2010 | I | |||
Shawn T McCormick Director | 55 | M | 2015 | II | • | • |
Committee Chair | ||||||
(1) |
The Board has determined that, with | |||||
(2) | The Board of Directors has determined that all members of the committee qualify as an “audit committee financial expert” under federal securities laws. |
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José H. Bedoya Age 63 Director since 2002 Class III Committees • Organization and Compensation • Corporate Governance and Nominating (Chair) |
Background | ||||||
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Mr. Bedoya is the | ||||||
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Key Skills and Qualifications: | |||||||
Mr. Bedoya brings to the Board significant business, operational and management experience in the medical device, medical instruments and related industries. Additionally, his experience brings executive decision making, analytical and strategic planning skills gained as a chief executive. Mr. Bedoya serves as the Chair of our Corporate Governance and Nominating Committee. |
David R. Dantzker, M.D. Age 76 Director since 2011 Class I Committees • Organization and Compensation • Corporate Governance and Nominating | Background | ||
Dr. Dantzker has been a Partner at Wheatley MedTech Partners L.P., a venture capital fund, since 2001. He manages Wheatley’s Life Science and Healthcare investments. From 1997 to 2000, Dr. Dantzker was President of | |||
Key Skills and Qualifications: | |||
His extensive management experience in a variety of roles, and board leadership experience, as well as his extensive knowledge of the medical industry, enable Dr. Dantzker to provide the Company with valuable general management and executive insights. |
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Lisa Wipperman Heine Age 56 Director since 2017 Class I Committees • Organization and Compensation • Corporate Governance and Nominating | Background | |
Since January 1, 2019, Ms. Heine has served as the President and Chief Executive Officer of PreCardia, Inc., an early stage medtech company developing an innovative catheter based intervention for the treatment of acute decompensated heart failure. From 2015 to 2019, Ms. Heine served as Chief Operating Officer of Mitralign, Inc., a venture backed medtech company focused on transcatheter heart valve annuloplasty. From 2014 to 2015, Ms. Heine was Founder and Principal at deArca Strategic Solutions, LLC, a consulting firm serving medtech companies. From 2007 to 2014, Ms. Heine served in various executive and management positions with Covidien plc, which was a global health care products company and manufacturer of medical devices and supplies, last serving as Global Vice President of Medical Affairs, Vascular Therapies from 2013 to 2014, and Global Vice President of Clinical Affairs, Vascular Therapies from 2011 to 2012. Since June 2018, she has been a director of Natus Medical Incorporated, a medical device company focused on products used to detect and treat medical disorders in newborns and children, and serves as chair of the compliance and quality committee, and as a member of the nominating and corporate governance committee. | ||
Key Skills and Qualifications: | ||
Ms. Heine is qualified to serve on our Board due to her extensive management experience in a variety of executive roles at medical device companies, and her expertise relating to clinical affairs strategy and operations, healthcare economics, policy and reimbursement. |
Ronald B. Kalich Age 72 Director since 2014 Class II Committees • Audit (Chair) • Organization and Compensation | Background | |
Mr. Kalich has been a private investor since 2007. Since 2018, he has served as chair of Motion Solutions, Inc., a leading supplier of high-tech precision linear motion products for the medical and health sciences industries. Since 2015, he has served on the Advisory Board of Balon Corporation, a leading supplier of precision valves for the global petroleum industry. Additionally, over the years, Mr. Kalich has served as a director and executive officer of numerous companies in across a variety of industries. From 2000 to 2007, he served as a Director and as President and Chief Executive Officer of FastenTech, Inc., a provider of highly engineered aerospace-grade, specialized and application-specific components. From 1999 to 2000, he served as President and Chief Executive Officer of National-Standard Company, a manufacturer and distributor of wire and wire-related products. From 1994 to 1999, he served as President and Chief Executive Officer of Getz Bro’s. & Co., Inc., a provider of healthcare, consumer, chemicals, and food processing products. He is also a past Chairman and Director of Arizant, Inc. (from 2005 to 2010). | ||
Key Skills and Qualifications: | ||
Mr. Kalich is qualified to serve on our Board due to his executive and board leadership experience, and his extensive business, operational and management experience. Mr. Kalich’s experience in multiple industries, together with his management experience in a variety of roles enables him to provide the Board with valuable general management and executive insights. Mr. Kalich qualifies as an “audit committee financial expert” as defined by SEC rules. |
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Susan E. Knight Age 65 Director since 2008 Class III Committees • Audit | Background | |
Ms. Knight is the former Senior Vice President and Chief Financial Officer of MTS Systems Corporation (“MTS”), a leading global supplier of test systems and industrial position sensors, a position that she held from 2011 to 2014. From 2001 until 2011, she served as Vice President and Chief Financial Officer of MTS. Prior to her positions with MTS, Ms. Knight served in various executive and management positions with Honeywell Inc., last serving as the Chief Financial Officer of the global Home and Building Controls division. Since December 2017, she has served on the Children’s Minnesota Hospital Board Finance Committee, and Ms. Knight has been a member of the Mairs & Power Funds Trust Board of Trustees, since January 2018. Ms. Knight served on the board of the Greater Metropolitan Housing Corporation from 2000 to 2016, where she was the Chair of the Board from 2012 to 2015, and Chair of the Audit Committee from 2003 to 2012. Ms. Knight also served on the board of | ||
Key Skills and Qualifications: | ||
As a former Chief Financial Officer of a publicly traded company, Ms. Knight brings significant audit, financial reporting, corporate finance and risk management experience to the Board. She has extensive understanding of the Board’s role and responsibilities based on her prior service on the board of another public company. Ms. Knight qualifies as an “audit committee financial expert” as defined by SEC rules. |
Gary R. Maharaj Age 56 Director since 2010 Class I | Background | |
Mr. Maharaj has served as a director and our President and Chief Executive Officer since December 2010. Prior to joining the Company, Mr. Maharaj served as President and Chief Executive Officer of Arizant Inc., a provider of patient temperature management systems in hospital operating rooms, from 2006 to 2010. Previously, Mr. Maharaj served in several senior level management positions for Augustine Medical, Inc. (predecessor to Arizant Inc.) from 1996 to 2006, including Vice President of Marketing, and Vice President of Research and Development. During his 32 years in the medical device industry, Mr. Maharaj has also served in various management and research positions for the orthopedic implant and rehabilitation divisions of Smith & Nephew, PLC. He has been a director of NVE Corporation, a public technology company since 2014, and serves as a member of the audit committee and as a member of the compensation committee. | ||
Key Skills and Qualifications: | ||
Mr. Maharaj brings to the Board strong experience in the medical technology industry, as well as leadership, strategic planning, and operating experience gained as a chief executive officer of a medical technology company. |
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Shawn T McCormick Age 55 Director since 2015 Class II Committees • Audit • Corporate Governance and Nominating | Background | |
Mr. | ||
Key Skills and Qualifications: | ||
Mr. McCormick is qualified to serve on our Board due to his financial expertise and extensive management experience in a variety of roles at companies in the medical device industry. He also brings to the Board experience as a director and member of the audit committee of other public companies in the medical device industry. Mr. McCormick qualifies as an “audit committee financial expert” as defined by SEC rules. |
The Board of Directors unanimously recommends that the shareholders vote FOR the election of each of the Board’s nominees and to set the number of directors at seven. |
José H. Bedoya (Class III) has been a director of the Company since 2002. Mr. Bedoya served as President and Chief Executive Officer of Otologics, LLC, a Colorado-based technology company he founded in 1996, until 2015. Otologics filed for Chapter
11 bankruptcy protection in July 2012. From 1986 to 1996, Mr. Bedoya held a number of positions at Storz Instrument Company, then a division of American Cyanamid and later a division of American Home Products, including Director of Operations, Director of Research and Director of Commercial Development. Prior to that, he served as Vice President of Research and Development for Bausch & Lomb’s surgical division.
Mr. Bedoya brings to the board significant business, operational and management experience in the medical device, medical instruments and related industries. Additionally, his experience brings executive decision making, analytical and strategic planning skills gained as a chief executive. Mr. Bedoya serves as the Chair of our Corporate Governance and Nominating Committee.TABLE OF CONTENTS
David Dantzker, M.D. (Class I) has been a director of the Company since January 2011. Dr. Dantzker has been a Partner at Wheatley MedTech Partners L.P., a venture capital fund, since 2001. He manages Wheatley’s Life Science and Healthcare investments. From 1997 to 2000, Dr. Dantzker was President of North Shore-LIJ Health System, a large academic health care system. He also co-founded the North Shore-LIJ Research Institute to direct and coordinate basic science research for the North Shore-LIJ Health System. He is a former Chair of the American Board of Internal Medicine, the largest physician-certifying board in the United States. Dr. Dantzker served on the board of directors of Datascope Corp. from January 2008 until its sale in January 2009. Dr. Dantzker holds a B.A. in Biology from New York University, and received his M.D. from the State University of New York at Buffalo School of Medicine. Dr. Dantzker also sits on the boards of Oligomerix, Inc. and Origin, Inc., two privately-held medical technology companies. He served on the board of Comprehensive Clinical Development, an entity that filed for Chapter 11 bankruptcy protection in March 2013. Dr. Dantzker has also served on the faculty and in leadership positions of four major research-oriented medical schools, has authored or co-authored 130 research papers and five textbooks and is an internationally recognized expert in the area of pulmonary medicine and critical care.
His extensive management experience in a variety of roles, and board leadership experience, as well as his extensive knowledge of the medical industry, enable Dr. Dantzker to provide the Company with valuable general management and executive insights.
Ronald B. Kalich (Class II) has been a director of the Company since February 2014. Mr. Kalich has been a private investor since 2007. Mr. Kalich served as a Director and as President and Chief Executive Officer of FastenTech, Inc. from 2000 to 2007. He was President and Chief Executive Officer of National-Standard Company from 1999 to 2000 and President and Chief Executive Officer of Getz Bros. & Co., Inc. from 1994 to 1999. He is also a Director of H-E Parts International and past Chairman and Director of Arizant, Inc.
Mr. Kalich qualifications to serve on our Board include more than 40 years of business, operational and management experience. Mr. Kalich’s extensive experience in multiple industries together with his management experience in a variety of roles enable him to provide the Board with valuable general management and executive insights.
Susan E. Knight (Class III) has been a director of the Company since 2008. From 2001 until 2014, she served in a variety of senior leadership positions at MTS Systems Corporation (“MTS”), a leading global supplier of test systems and industrial position sensors. From 2011 to 2014, she served as Senior Vice President and Chief Financial Officer of MTS. From 2001 to 2011, she served as Vice President and Chief Financial Officer of MTS. Prior to her positions with MTS, from 1977 to 2001, Ms. Knight served in various executive and management positions with Honeywell Inc., last serving as the Chief Financial Officer of the global Home and Building Controls division. Ms. Knight served on the board of the Greater Metropolitan Housing Corporation from 2000 to 2016, where she
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was the Chair of the Board from 2012 to 2015, and Chair of the Audit Committee from 2003 to 2012. Ms. Knight also served on the board of Plato Learning, Inc., from 2006 to 2010, where she served on the Audit Committee, including as Chair from 2009 to 2010, and on the Governance and Nominating and a Special Committee from 2009 to 2010.
As a former Chief Financial Officer of a publicly traded company, Ms. Knight brings significant audit, financial reporting, corporate finance and risk management experience to the board. She has extensive understanding of the board’s role and responsibilities based on her prior service on the board of another public company. Ms. Knight qualifies as an “audit committee financial expert” as defined by SEC rules.
Gary R. Maharaj (Class I) has served as a director and our President and Chief Executive Officer since December 2010. Prior to joining Surmodics, Mr. Maharaj served as President and Chief Executive Officer of Arizant Inc., a provider of patient temperature management systems in hospital operating rooms, from 2006 to 2010. Previously, Mr. Maharaj served in several senior level management positions for Augustine Medical, Inc. (predecessor to Arizant Inc.) from 1996 to 2006, including Vice President of Marketing, and Vice President of Research and Development. During his over 28 years in the medical device industry, Mr. Maharaj has also served in various management and research positions for the orthopedic implant and rehabilitation divisions of Smith & Nephew, PLC. He has been a director of NVE Corporation, a public technology company since 2014, and serves as a member of the audit committee and as a member of the nominating and corporate governance committee. Mr. Maharaj holds an M.B.A. from the University of Minnesota’s Carlson School of Management, an M.S. in biomedical engineering from the University of Texas at Arlington and the University of Texas Southwestern Medical Center at Dallas, and a B.Sc. in Physics from the University of the West Indies.
Mr. Maharaj brings to the board strong experience in the medical technology industry, as well as leadership, strategic planning, and operating experience gained as a chief executive officer of a medical technology company.
Shawn T McCormick (Class II) has been a director of the Company since December 2015. From 2012 to 2015, Mr. McCormick served as Chief Financial Officer of Tornier N.V., a public medical device company acquired by Wright Medical Group, Inc. From 2011 to 2012, Mr. McCormick was Chief Operating Officer of Lutonix, Inc., a medical device company acquired by C. R. Bard, Inc. From 2009 to 2010, Mr. McCormick served as Senior Vice President and Chief Financial Officer of ev3 Inc., a public endovascular device company acquired by Covidien plc in 2010. From 2008 to 2009, Mr. McCormick served as Vice President, Corporate Development at Medtronic, Inc., a public medical device company, where he was responsible for leading Medtronic’s worldwide business development activities. From 2007 to 2008, Mr. McCormick served as Vice President, Corporate Technology and New Ventures of Medtronic. From 2002 to 2007, Mr. McCormick was Vice President, Finance for Medtronic’s Spinal, Biologics and Navigation business. Prior to that, Mr. McCormick held various other positions with Medtronic. Prior to joining Medtronic, he spent four years with the public accounting firm KPMG Peat Marwick. He has been a director of Entellus Medical, Inc., a public medical device company, since 2014, and serves as the chairman of its audit committee and as a member of its nominating and corporate governance committee. He also serves as a director of Nevro Corp., a public medical device company, since 2014, and serves as the chairman of its audit committee. Mr. McCormick earned his M.B.A. from the University of Minnesota’s Carlson School of Management and his B.S. in Accounting from Arizona State University. He is a Certified Public Accountant.
We believe that Mr. McCormick is qualified to serve on our Board due to his financial expertise and extensive management experience in a variety of roles at companies in the medical device industry. He also brings to the Board experience as a director and member of the audit committee of other public companies in the medical device industry. Mr. McCormick qualifies as an “audit committee financial expert” as defined by SEC rules.
The Board of Directors unanimously recommends that the shareholders voteFOR the election of each of the Board’s nominees and to set the Board at six directors.
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DIRECTOR COMPENSATION
DIRECTOR COMPENSATION |
The Company’s Board Compensation Policy (the “Policy”) provides cash and equity compensation to our non-employee directors for their service on the Board and its committees as discussed below. On a periodic basis, the Organization and Compensation Committee reviews the Policy to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform our Board’s duties and to compensate our directors fairly for their services. The review includes the consideration of qualitative and comparative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Organization and Compensation Committee considers: (1) the time and effort involved in preparing for Board and committee meetings and the additional duties assumed by committee chairs and our Chair; (2) the risks associated with fulfilling fiduciary duties; and (3) the compensation paid to directors at the same peer group of companies used to assess the competitiveness of our executive compensation programs (as discussed below). The Policy was last reviewed and amended in April 2016.
Cash Compensation. During fiscal 2016,2019, each of our non-employee directors was paid an annual retainer of $35,000.$40,000. Our non-employee directors arewere also eligible to receive additional annual retainers as follows:
The cash retainers are paid quarterly following the completion of each calendar quarter. Furthermore, the cash retainers are reduced by 25% if a non-employee director does not attend at least 75% of the total meetings of the Board and board committees on which such director served during the year.
Equity Compensation. In addition to the cash compensation described above, each of our non-employee directors also receivereceives stock awards as compensation for their service on the Board. Upon a director’s initial election or appointment to the Board, such director will be awardedreceive an equity grantaward having a grant date value of $60,000,$95,000, one-half of such award will be in the form of a nonqualified stock option to purchase shares of the Company’s common stock (as estimated using the Black-Scholes option pricing model as of the date of the grant) and the other half will be in the form of restricted stock units (“RSUs”). On an annual basis thereafter, each non-employee director will be awardedreceive an equity grantaward having a grant value of $60,000$95,000 (on a pro-rata basis for directors who served on the Board for less than the entire preceding fiscal year), one-half of such award will be in the form of stock options and the other half will be in the form of RSUs. Stock options granted under the Policy (a) have a seven-year term, (b) vest ratably on a monthly basis, and (c) have an exercise price equal to the fair market value of the Company’s common stock on the date of grant. RSUs and deferred stock units (discussed below) were first granted in fiscal 2013.
In April 2016, the Board approved an amendment to the Policy in order to further align it with current corporate governance best practices. In particular, prior to the amendment, equityEquity awards granted to our non-employee directors were granted on the date of the Board’s first regularly scheduled meeting during each fiscal year and would become fully vested on the first anniversary of the date of grant. Under the amended Policy, beginning with fiscal 2017, equity awards granted to our non-employee directors will (a) beare granted on the date of the Company’s annual meeting of shareholders, (b) vest ratably on a monthly basis, and (b)(c) become fully vested on the earlier of the 12-month anniversary of the grant date, or the date of the next year’s annual meeting. Stock options have a seven-year term, and have an exercise price equal to the fair market value of the Company’s common stock on the date of grant. In recognition of the increased time commitment required as the Company executes its whole-products solutions strategy, the value of the equity awards granted to the Company’s non-executive board chair in fiscal 2019 was $132,500.
Market-Based Adjustments to Director Compensation. In May 2019, following a review of the compensation practices for non-employee directors at our peer group, the Board approved market-based increases to the compensation paid to our non-employee directors under the Policy as follows, which increases became effective at the beginning of fiscal 2020: (a) the annual cash retainer paid to the board chair will be $85,000, and all other non-employee directors will be $45,000; (b) the annual cash retainer paid to the chair of the Audit Committee will be $20,000, and the non-chair members of that committee will be $10,000; (c) the annual cash retainer paid to the chair of the Organization and Compensation Committee will be $15,000, and the non-chair members of that committee will be $6,500; (d) the annual cash retainer paid to the chair of the Corporate Governance and Nominating Committee will be $10,000,
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and the non-chair members of that committee will be $5,000; (e) the initial equity award granted to a newly appointed non-employee director will be $95,000; and (f) the annual equity award to be granted to the board chair will be $124,000, and all other non-employee directors will be $115,000, one-half of each such award will be in the form of nonqualified stock options and the other half will be in the form of RSUs. The adjustments made to the compensation of our board chair are intended to maintain total compensation for fiscal 2020 at the same level as fiscal 2019.
Stock in Lieu of Cash Compensation. A director may elect annually to receive all or a portion of their cash retainers in the form of deferred stock units (“DSUs”) that are vested upon issuance (“DSUs”).issuance. Each DSU award will be granted on the date any regular annual cash retainer would have otherwise been paid and the number of units covered by such award will be determined using the fair market value of the Company’s common stock on such date. Each such DSU award would be settled in shares of the Company’s common stock after the non-employee director leaves the Board.
Dividend Equivalents. RSU and DSU awards granted prior to fiscal 2015 include dividend equivalent rights. To the extent the Company pays a dividend, each non-employee directordirectors with RSU or DSU awards granted prior to fiscal 2015 will have the right to receive dividend equivalents for each RSU and DSU held by such director on the record date for the payment of such dividend. The dividend equivalents will be treated as reinvested in an additional number of RSUs and DSUs which will be determined by dividing (a) the cash amount of any such dividend that would have been paid if the RSUs held by the director were outstanding shares of Company stock
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by (b) the fair market value of the Company’s common stock (i.e., the closing price) on the applicable dividend payment date. RSUsRSU and DSUsDSU awards granted after fiscalOctober 1, 2014 do not include a right to dividend equivalents.equivalent rights.
Non-Employee Director Stock Ownership. The Board of Directors has established equity ownership guidelines for all non-employee directors. For a description of the equity ownership guidelines, see “Corporate Governance — Equity Ownership Guidelines.”
Other Compensation. All non-employee directors are reimbursed for their reasonable travel-related expenses incurred in attending board and committee meetings.
Summary of Fiscal 20162019 Director Compensation
The Director Compensation table below reflects all compensation awarded to, earned by or paid to the Company’s non-employee directors during fiscal 2016.2019. Compensation for Gary R. Maharaj, our President and Chief Executive Officer, is set forth below under the heading “Executive Compensation and Other Information.Compensation.”
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2)(4) | Option Awards ($)(3)(4) | Total Compensation ($) | ||||||||||||
Susan E. Knight | 76,500 | 30,000 | 30,000 | 136,500 | ||||||||||||
Ronald B. Kalich | – | 86,000 | 30,000 | 116,000 | ||||||||||||
José H. Bedoya | – | 78,375 | 30,000 | 108,375 | ||||||||||||
David R. Dantzker, M.D | – | 78,327 | 30,000 | 108,327 | ||||||||||||
Shawn T McCormick | 1,731 | 64,125 | 30,000 | 95,856 | ||||||||||||
John W. Benson(5) | 19,475 | 30,000 | 30,000 | 79,475 |
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2)(4) | Option Awards ($)(3)(4) | Total Compensation ($) |
Susan E. Knight | 86,500 | 66,250 | 66,250 | 219,000 |
Ronald B. Kalich | 61,000 | 47,500 | 47,500 | 156,000 |
David R. Dantzker, M.D. | 56,000 | 47,500 | 47,500 | 151,000 |
José H. Bedoya | 53,000 | 47,500 | 47,500 | 148,000 |
Shawn T McCormick | 50,500 | 47,500 | 47,500 | 145,500 |
Lisa W. Heine | 49,000 | 47,500 | 47,500 | 144,000 |
(1) | Represents the amount of cash retainers earned by or paid to directors in fiscal |
(2) | Reflects the aggregate grant date fair value dollar amount of RSUs granted in fiscal 2019 computed in accordance with ASC 718. |
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(3) | Reflects the aggregate grant date fair value dollar amount of stock option awards granted in fiscal |
(4) | The aggregate number of stock options, |
Name | Stock Options | Restricted Stock Units | Deferred Stock Units | ||||||
José H. Bedoya | 27,780 | 9,543 | 8,430 | ||||||
David R. Dantzker, M.D. | 27,780 | 9,543 | 11,910 | ||||||
Lisa W. Heine | 5,245 | 3,874 | — | ||||||
Ronald B. Kalich | 24,706 | 6,967 | 7,671 | ||||||
Susan E. Knight | 24,866 | 10,570 | — | ||||||
Shawn T McCormick | 16,178 | 5,336 | 2,422 |
Name | Stock Options | Restricted Stock Units | Deferred Stock Units | |||
José H. Bedoya | 55,032 | 5,693 | 7,958 | |||
David R. Dantzker, M.D | 17,054 | 5,693 | 7,461 | |||
Ronald B. Kalich | 12,894 | 3,821 | 4,178 | |||
Susan E. Knight | 38,504 | 5,693 | – | |||
Shawn T McCormick | 4,366 | 1,486 | 1,479 |
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CORPORATE GOVERNANCE |
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CORPORATE GOVERNANCE
The Company’s business affairs are conducted under the direction of the Board of Directors in accordance with the Minnesota Business Corporation Act and the Company’s Articles of Incorporation and Bylaws. Certain corporate governance practices that the Company follows are summarized below.
Code of Ethics and Business Conduct
We have adopted the Surmodics Code of Ethics and Business Conduct (the “Code of Conduct”), which applies to our directors, officers and employees. The Code of Conduct is publicly available on our website at www.surmodics.com under the caption Investors/Corporate Governance. If we make any substantive amendments to the Code of Conduct or grant any waiver, including any implicit waiver from a provision of the Code of Conduct, to our directors or executive officers, we will disclose the nature of such amendment or waiver on a Current Report on Form 8-K.
Corporate Governance Guidelines
The Board has adopted a set of Corporate Governance Guidelines (the “Guidelines”). The Corporate Governance and Nominating Committee is responsible for overseeing the Guidelines and annually reviews them and makes recommendations to the Board concerning corporate governance matters. The Board may amend, waive, suspend, or repeal any of the Guidelines at any time, with or without public notice, as it determines necessary or appropriate in the exercise of the Board’s judgment or fiduciary duties. We have posted the Guidelines on our web site at www.surmodics.com under the caption Investors/Corporate Governance.
The Board and each of its committees follow a process, overseen by the Corporate Governance and Nominating Committee, to determine their effectiveness and opportunities for improvement. Our Guidelines provide that the Board will annually evaluate its performance to determine whether the Board, its committees and its individual members are functioning effectively. Typically, the evaluation process involves each director completing an assessment questionnaire soliciting feedback regarding the effectiveness of the Board and any committee on which the director serves, and opportunities for improvement. Alternatively, the Board or any of its committees may, without the use of questionnaires, engage in discussions concerning their effectiveness. In any event, for both the Board and the relevant committee, the evaluation process is intended to solicit feedback from directors across several areas, including:
The Board and each committee, as the case may be, review the results of the assessments and identify areas of focus for future years and any necessary follow-up actions.
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Our Board of Directors, in exercising its overall responsibility to oversee the management of our business, has an active and ongoing role in the management of the risks of our business and considers risks when reviewing the Company’s strategic plan, financial results, corporate development activities, legal and regulatory matters. The Board satisfies this responsibility through regular reports directly from officers responsible for oversight of particular risks within the Company. The Board’s risk management oversight also includes full and open communications with management to review the adequacy and functionality of the risk management processes used by management. In addition, the Board of Directors uses its committees to assist in its risk oversight responsibility as follows:
The Audit Committee assists the Board of Directors in its oversight of the integrity of the financial reporting of the Company and its compliance with applicable legal and regulatory requirements. It also oversees our internal controls and compliance activities. The Audit Committee discusses risk assessment and management topics, as
well as the Company’s major financial and business risk exposures and the steps management has undertaken to monitor and control such exposures. It also meets privately with representatives from the Company’s internal auditors and independent registered public accounting firm.10
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Periodically, the Organization and Compensation Committee reviews the Company’s compensation policies, programs and procedures, including the incentives they create and mitigating factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. Management assessed risk factors associated with specific compensation programs, as well as enterprise-level compensation risk factors. The program-specific risk factors assessed included payout potential, payout as a percentage of total compensation, risk of manipulation, overall plan design and market appropriateness. Enterprise-level risk factors evaluated included the overall compensation mix, consistency between annual and long-term objectives as well as metrics, achievability of performance goals without undue risk-taking, the relationship of long-term awards to the Company’s pay philosophy, stock ownership requirements, the weighting and duration of performance metrics, and the interaction of compensation plans with the Company’s financial performance and strategy. Based on this review, the Organization and Compensation Committee concluded that the Company’s compensation policies, programs and procedures are not reasonably likely to have a material adverse effect on the Company.
Our Board currently separates the offices of Chair of our Board and CEO by appointing an independent, non-executive chair. While we do not have a written policy with respect to separation of these roles, our Board believes that an independent Board chair permits our CEO to focus on managing his day-to-day responsibilities toof our company and facilitates our Board’s independent oversight of our executive officers’ management of strategic direction, operational execution, and business risk, thereby better protecting shareholder value. Ms. Knight serves as our non-executive Board chair. Ms. Knight (a) manages and provides leadership to the Board of Directors, (b) through the Chief Executive Officer, acts as a direct liaison between the Board and the management of the Company, and (c) presides at all meetings of the shareholders and of the Board, including executive sessions of our independent directors.
Related Person Transaction Approval Policy
Our Board of Directors has adopted a written policy for transactions with related persons, as defined in Item 404 of SEC Regulation S-K, which sets forth our policies and procedures for the review, approval or ratification of transactions with related persons which are subject to the policy. Our policy applies to any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we are a participant and a related person has a direct or indirect interest. Our policy, however, exempts the following:
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We consider the following persons to be related persons under the policy:
The Audit Committee of our Board of Directors must approve any related person transaction subject to this policy before commencement of the related person transaction. The Audit Committee will analyze the following factors, in addition to any other factors the Audit Committee deems appropriate, in determining whether to approve a related person transaction:
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The Audit Committee may, in its sole discretion, approve or deny any related person transaction. Approval of a related person transaction may be conditioned upon the Company and the related person taking any actions that the Audit Committee deems appropriate.
If one of our executive officers becomes aware of a related person transaction that has not previously been approved under the policy:
Transactions with Related Persons. There were no related person transactions during fiscal 2016 requiredOn November 20, 2015, we entered into various agreements (the “Creagh transaction documents”) with the shareholders of Creagh Medical Limited (“Creagh Medical”) to acquire all of the shares of Creagh Medical. The consideration for the transaction was up to €30.0 million, including an upfront payment of €18.0 million (approximately $19.3 million as of the acquisition date), and up to €12.0 million (approximately $12.8 million as of the acquisition date) based on the achievement of revenue and strategic milestones through September 30, 2018. Thomas A. Greaney, our Chief Operating Officer, Medical Devices, served as the Chief Executive Officer of Creagh Medical and owned approximately 65% of the shares of Creagh Medical at the time of our acquisition. Prior to our acquisition of Creagh Medical, Mr. Greaney was not a “related person” as defined in Item 404 of Regulation S-K. In February 2018, we entered into a letter agreement with the sellers agent (acting on behalf of the shareholders of Creagh Medical), which agreement clarified certain terms and provisions relating to the contingent consideration obligations in the Creagh transaction documents. As a result of this agreement, in the quarter ended March 31, 2018, we recorded an increase of $0.9 million to the contingent consideration liabilities associated with the Creagh transaction documents. In September 2018, in connection with determining the final achievement of the revenue and strategic milestones, we committed to paying 20% of the original contingent consideration associated with one of the strategic milestones that was not expected to be disclosedfully achieved by September 30, 2018. This decision was made in recognition of the innovative nature of the product underlying the milestone and its potential for significant value creation. In the first fiscal quarter of fiscal year 2019, we paid a total of €9.3 million (approximately $11.0 million) associated with the achievement of these contingent consideration obligations. As a former shareholder of Creagh Medical, Mr. Greaney was entitled to a proportionate amount (based on his
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ownership percentage of shares of Creagh Medical) of the contingent consideration that we paid to the former shareholders of Creagh Medical, or approximately €6.1 million (approximately $6.9 million).
On January 8, 2016, we entered into an agreement (the “NorMedix Agreement”) with the shareholders of NorMedix, Inc. (“NorMedix”) to acquire all of the shares of NorMedix. The consideration for the transaction was up to $14.0 million, including an upfront payment of $7.0 million, and up to $7.0 million to be paid based on the achievement of revenue and strategic milestones through September 30, 2019. Gregg S. Sutton, our Vice-President, Research and Development, served as the Chief Executive Officer of NorMedix and owned approximately 45% of the shares of NorMedix at the time of our acquisition. Prior to our acquisition of NorMedix, Mr. Sutton was not a “related person” as defined in Item 404 of Regulation S-K. In November 2018, we entered into a letter agreement with the sellers agent (acting on behalf of the former shareholders of NorMedix), which agreement clarified certain terms and provisions relating to the contingent consideration obligations in the NorMedix Agreement. As a result of this proxy statement.agreement, in the quarter ended September 30, 2018, we recorded an increase of $1.4 million to the contingent consideration liabilities associated with the NorMedix Agreement. As of September 30, 2019, we have recorded a liability of $3.2 million associated with these contingent consideration obligations. As a former shareholder of NorMedix, Mr. Sutton is entitled to a proportionate amount of any contingent consideration that we may pay to the former shareholders of NorMedix (based on his ownership percentage of shares of NorMedix), or approximately $1.4 million (based on current estimates regarding the completion of the revenue and strategic milestones).
Each of the transactions with the related persons described above entered into since the beginning of our last fiscal year, or any currently proposed transactions, were approved by the Audit Committee of the Board in accordance with the Related Person Transaction Approval Policy.
Our Board believes that ownership of significant amounts of our stock by our executive officers and directors will help align their interests with those of our shareholders. To that end, our Board has adopted equity ownership guidelines for our directors and executive officers. Under the guidelines, the value of our common stock held by an executive officer or non-employee director is required to be at least:
Until the applicable ownership requirement set forth above is attained, (a) our executive officers (other than the CEO) shall be required to retain ownership of 50% of the “net shares” (as defined below) received, and (b) our CEO and each non-employee director shall be required to retain ownership of 75% of the net shares received. Following attainment of the applicable ownership requirement (and so long as it remains so), (i) our executive officers (other than the CEO) shall be required to hold 50% of the net shares received, and (ii) our CEO and each non-employee director shall be required to hold 75% of the net shares received, in each case, for a period of one year from the date of receipt of such shares. “Net shares” is defined as the number of shares of the Company’s common stock that remain after the exercise of stock options or the vesting of restricted or performance shares less the number of shares that are sold or netted against the award to pay any applicable exercise price or withholding taxes. Shares that count toward meeting the ownership requirements include shares owned outright (directly or indirectly), vested RSUs or DSUs. Shares that do not count toward meeting the stock ownership requirements include unexercised stock options. As of September 30, 2016,2019, all of our non-employee directors with the exceptionand all of Mr. McCormick who joined our Board in December 2015,executive officers have attained the minimum level of ownership set forth in the guidelines. With respect toguidelines, with the exception of Mr. Greaney (who joined our executive officers, only Mr. Maharaj (whose holdings as of September 30, 2016, were approximately 8.6 times his base salary)company in November 2016), Ms. Sides (who joined our company in November 2018), and Mr. Stich have attained the minimum level of ownership set forthSutton (who joined our company in the guidelines. However, weJanuary 2016). We believe that our executives are continuing to make satisfactory progress towards the minimum level of ownership set forth in the guidelines.
The Company does not have a hedging policy at this time.
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Majority of Independent Directors; Committees of Independent Directors
Our Board of Directors has determined that Ms.Mss. Heine and Knight, and Messrs. Bedoya, Kalich, and McCormick, and Dr. Dantzker, constitutingwho constitute all of our current directors other than Mr. Maharaj, are independent directors in accordance with rules of The NASDAQNasdaq Stock Market since none of them is believed to have any relationships that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Mr. Benson, who served on the Board of Directors for part of fiscal 2016, was also considered an independent director in accordance with the rules of the NASDAQ Stock Market. Mr. Maharaj is not considered independent under the applicable rules of The NASDAQNasdaq Stock Market since he serves as an executive officer of the Company.
Each member of the Company’s Audit Committee, Organization and Compensation Committee and Corporate Governance and Nominating Committee has been determined, in the opinion of the Board of Directors, to be independent in accordance with the applicable rules of The NASDAQNasdaq Stock Market.
The Company’s Board of Directors has three standing committees: the Audit Committee, the Organization and Compensation Committee, and the Corporate Governance and Nominating Committee. Each committee is comprised entirely of independent directors, as currently required under the SEC’s rules and regulations and the NASDAQNasdaq listing standards, and each committee is governed by a written charter approved by the Board. These charters form an integral part of our corporate governance policies, and a copy of each charter is available on our website at www.surmodics.com. Ms. Knight is a member of our Audit Committee and an ex-officio member of the Organization and Compensation Committee, and Corporate Governance and Nominating Committee, attending and participating at the meetings of those committees. The table below provides the composition of each committee of the Board (an asterisk indicates the committee chair):
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During fiscal 2016,2019, the Board of Directors held sixfive meetings and the standing committees had the number of meetings noted below. Each director attended (in person or by telephone) 75% or more100% of the total number of meetings of the Board and of the committee(s) on which he or she served in fiscal year 2016.2019. The principal functions of our standing committees are described below.
Audit Committee
The Audit Committee is responsible for reviewing the quality and integrity of the Company’s financial reports, the Company’s compliance with legal and regulatory requirements, the independence, qualifications and performance of the Company’s independent auditor, oversight of the Company’s related person transaction policy, and the performance of the Company’s internal audit function and its accounting and reporting processes. The Audit Committee held sevenfive meetings during fiscal 2016.2019. The Board of Directors and the Audit Committee believe that the Audit Committee’s composition satisfies the rules of The NASDAQNasdaq Stock Market that governs audit committee composition, including the requirement that audit committee members all be “independent directors” as that term is defined by the rules of The NASDAQNasdaq Stock Market. Additionally, the Board of Directors has determined that Ronald B. Kalich, Susan E. Knight, and Shawn T McCormick each qualify as an “audit committee financial expert” under federal securities laws.
Pursuant to its written charter, the Audit Committee is required to pre-approve the audit and non-audit services performed by the Company’s independent auditors in order to ensure that the provision of such services does not impair the auditor’s independence. The Audit Committee also has a pre-approval policy which requires that unless a particular service to be performed by the Company’s independent auditors has received general pre-approval by the Audit Committee, each service provided must be specifically pre-approved. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee. In addition, the Audit Committee may delegate pre-approval authority to the Chair of the Audit Committee, who will then report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Organization and Compensation Committee
The Organization and Compensation Committee is responsible for matters relating to executive compensation, organizational planning, succession planning at the executive level, key employee compensation programs, director compensation, and corporate culture programs.board-level oversight of programs intended to improve the Company’s culture. The Organization and Compensation Committee held fivefour meetings during fiscal 2016.2019.
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Under the terms of its charter, the Organization and Compensation Committee has the authority to engage the services of outside advisors and experts to assist the Committee. Prior to and during part of fiscal 2016, theThe Committee engaged Mr. David A. Ness, an independent compensation consultant, to advise it on matters related to executive and director compensation. In May 2016, the Committee retained Pay Governance LLC, an independent compensation consulting firm, to advise it on similar matters.matters related to executive and director compensation. A description of the Committee’s use of the independent compensation consultant is set forth in “Compensation Discussion and Analysis — Establishing Executive Compensation; Independent Compensation Consultant.” In connection with their engagement, the Committee determined that both Mr. Ness and Pay Governance werewas independent taking into consideration the factors required by the Nasdaq listing standards and applicable SEC rules.
Corporate Governance and Nominating Committee; Procedures and Policy
The Corporate Governance and Nominating Committee is responsible for identifying individuals qualified to become Board members, recommending to the Board the director nominees for election to the Board, recommending to the Board corporate governance guidelines applicable to the Company, and leading the Board and its committees in their annual performance review process. The Corporate Governance and Nominating Committee held threefour meetings during fiscal 2016.2019.
The Corporate Governance and Nominating Committee will consider candidates recommended from a variety of sources, including nominees recommended by the Board, management, shareholders, and others. Moreover, while we do not have a formal diversity policy, to ensure that the Board benefits from diverse perspectives, the Committee seeks qualified nominees from a variety of backgrounds, including candidates of gender and ethnic diversity. ThreeFour of the Board’s seven directors are diverse — one womantwo women and two individuals with diverse ethnic backgrounds. Moreover, our directors have diverse business and professional backgrounds, including experience in academic administration, public company, and private company settings.organizations. In general, the Corporate Governance and Nominating Committee considers the following factors and qualifications:
The Corporate Governance and Nominating Committee will consider the attributes of the candidates and the needs of the Board and will review all candidates in the same manner, regardless of the source of the recommendation. A shareholder wishing to recommend a candidate for our Board of Directors should send their recommendation in writing to the address specified under “Procedures for Shareholder Communications to Directors” below.
A shareholder who wishes to nominate one or more directors must provide a written nomination to the Corporate Secretary at the address set forth below. Notice of a nomination must include:
with respect to the shareholder:
with respect to the nominee:
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The nomination must be accompanied by a written consent of the nominee to stand for election and to serve if elected by the shareholders. The Company may require any nominee to furnish additional information that may be needed to determine the qualifications of the nominee. Such nomination must be submitted to the Corporate Secretary no later than ninety (90) days prior to the first anniversary of the date of the preceding years’ annual meeting of shareholders.
The Corporate Governance and Nominating Committee believes that candidates for directors should have certain minimum qualifications, including being able to read and understand basic financial statements, having familiarity with the Company’s business and industry, having high moral character and mature judgment, being able to work collegially with others, and not currently serving on more than three boards of directors of public companies. The Corporate Governance and Nominating Committee may modify these minimum qualifications from time to time.
It is alsoThe Guidelines state that a policy of the Board as described in our Corporate Governance Guidelines that each director be requiredshall offer to retire from the Board effective at the conclusion of the annual meetingAnnual Meeting following his or her seventy-second birthday, unless specialbirthday. The Corporate Governance and Nominating Committee reviews the appropriateness of such director’s continuation on the Board, and recommends to the Board whether, in light of all the circumstances, exist as determined by the Board. The Board believes, however, that anyshould accept such exceptions should be rare.proposed retirement. Under this policy, Dr. Dantzker, who attained the age of seventy-two during fiscal 2015, would normally have retiredoffered to retire at the conclusion of the Company’s 2016 annual meeting. Given Dr. Dantzker’s substantial experience and familiarity with the Company andcurrent term on the Board and his experience as a physician and extensive knowledgewill expire at the conclusion of the healthcare industry,Company’s 2021 annual meeting. Similarly, under this policy, Mr. Kalich, who attained the age of seventy-two following the conclusion of fiscal 2019, offered to retire at the conclusion of the Annual Meeting. The Board, based upon the recommendation of the Corporate Governance and Nominating Committee, determined it to be appropriate for Dr. DantzkerMr. Kalich to continue his service on the Board asgiven his substantial experience and familiarity with the Company and the Board, and his executive and board leadership experience. As a member of Class I director whoseII, Mr. Kalich’s current term will expire at the conclusion of the Company’s 20182022 annual meeting.
It is also the policy of the Board that every director should notify the Chair of his or her retirement, of any change in employer, and of any other significant change in the director’s principal professional occupation, and in connection with any such change, offer to submit his or her resignation from the Board for consideration by the Corporate Governance and Nominating Committee. The Board, upon recommendation from the Corporate Governance and Nominating Committee, then may consider the continued appropriateness of board membership of such director under the new circumstances and the action, if any, to be taken with respect to the offer to submit his or her resignation.
Procedures for Shareholder Communications to Directors
Shareholders may communicate directly with the Board of Directors. All communications should be directed to our Corporate Secretary at the address below and should prominently indicate on the outside of the envelope that it is intended for the Board of Directors or for non-management directors. If no director is specified, the communication will be forwarded to the entire Board. Shareholder communications to the Board should be sent to:
Corporate Secretary
Attention: Board of Directors
Surmodics, Inc.
9924 West 74th74th Street
Eden Prairie, MN 55344-3523
Directors’ attendance at our annual meetings of shareholders can provide our shareholders with an opportunity to communicate with directors about issues affecting the Company. Accordingly, all directors are expected to attend annual meetings of shareholders. All of the Company’s then serving directors attendedparticipated in the last annual meeting of shareholders, which was held on February 17, 2016.13, 2019. The Board has nodoes not have a formal policy regarding attendance at the company’sCompany’s annual meetings of shareholders.
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COMPENSATION DISCUSSION AND ANALYSIS |
COMPENSATION DISCUSSION AND ANALYSIS
Our Organization and Compensation Committee, or the Committee, reviews and approves our executive compensation programs. The following discussion and analysis describes the material elements of compensation awarded to, earned by, or paid to our executive officers, including our named executive officers (our “NEOs”), during fiscal 2016.2019. Our named executive officersNEOs are determined in accordance with SEC rules. For fiscal 2016,2019, our named executive officersNEOs were:
Name | Title | |
Gary R. Maharaj | President and Chief Executive Officer | |
Timothy J. Arens | Vice President, Finance and | |
Thomas A. Greaney | Chief Operating Officer, Medical Devices | |
Bryan K. Phillips | Former Sr. Vice President, Legal, | |
Teryl W. Sides | Senior Vice President and |
Executive Transitions. Teryl M. Sides joined our organization on November 1, 2018 as the Company’s Senior Vice President and Chief Marketing Officer. Mr. Arens served as our interim Vice President, Finance and Chief Financial Officer from May 2018 until his appointment as our permanent Vice President, Finance and Chief Financial Officer in February 2019. Mr. Phillips’ employment with the Company ended on December 20, 2019. Effective upon the end of Mr. Phillips’ employment with the Company, Mr. Arens assumed responsibility for the Company’s legal and information technology functions on an interim basis, and Joseph J. Stich, Vice President and General Manager, In Vitro Diagnostics assumed responsibility for the Company’s human resources function on an interim basis.
The Compensation Committee believes our executive compensation program reflects a strong pay-for-performance philosophy and is well-aligned with the short- and long-term interests of shareholders.
Fiscal 20162019 Performance Highlights. We believe that our executive compensation programs are aligned with our performance and the objectives of our compensation philosophy (discussed below), as highlighted by the following factors:
• | Over the last several years, we have |
– | we completed enrollment in a first-in-human clinical trial of the Avess™ arteriovenous fistula DCB; |
– | we filed for regulatory approval to initiate a first-in-human clinical trial for our sirolimus-coated Sundance™ DCB, which device is intended to enhance endovascular revascularization for below-the-knee arterial lesions in patients suffering from critical limb ischemia and infrapopliteal arterial disease; |
– | we entered into an agreement with a leading multinational medical device |
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For a more detailed discussion of our fiscal 20162019 results, please refer to the financial statements for the fiscal year ended September 30, 20162019 included in our Annual Report on Form 10-K.
Fiscal 20162019 Executive Compensation Highlights.Highlights of our fiscal 20162019 executive compensation program include the following:
• | Pay-for-Performance. A substantial portion of the compensation for each of our |
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• | Fiscal |
• | Equity Incentive Awards: |
• | Market-based Approach to Establishing Compensation. As a helpful reference point in making executive compensation decisions, the Committee utilizes market data from an appropriate and relevant group of peer companies. For fiscal |
• | Shareholder Advisory Vote on Executive Compensation. At our annual meeting of shareholders held in February |
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Executive Compensation Governance Highlights.We believe that the following executive compensation-related practices, which were in effect during fiscal 2016,2019, serve our shareholders’ long-term interests:
What We Do | What We Don’t Do | |||
✔ | ||||
Maintain an executive compensation program designed to align pay with performance. | ✘ | No tax gross-ups or single-trigger equity acceleration upon a change of control. | ||
✔ | ||||
Structure a substantial portion of pay opportunities in the form of | ✘ | No excessive perquisites. | ||
✔ | ||||
Conduct an annual say-on-pay vote. | ✘ | No guaranteed bonuses. | ||
✔ | Maintain an incentive compensation clawback policy. | ✘ | No backdating or repricing of stock options. | |
✔ | ||||
Utilize robust stock ownership guidelines for executive officers and directors. | ✘ | No supplemental executive retirement plans. | ||
✔ | ||||
Have double-trigger change of control severance arrangements. | ||||
✔ | ||||
Retain an independent compensation consultant and periodically conduct a compensation risk review. | ||||
Compensation Philosophy and Objectives
Our compensation philosophy is performance-based, and focuses on aligning the financial interests of our executive officers with those of our shareholders. Generally, this is accomplished by placing a substantial portion of our executive officers’ total compensation “at risk,” while providing overall compensation opportunities that are comparable to market levels. We provide our executive officers with a total compensation opportunity, including cash and equity elements, at levels competitive with those
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provided by comparable companies and within the middle range of comparative pay at peer companies when the Company achieves the targeted performance levels. Together, these elements provide a balanced focus on both short- and long-term goals while reinforcing ourpay-for-performance philosophy. Specifically, our executive compensation programs are designed to:
Significant At-Risk Compensation. The charts below illustrate the fiscal 20162019 target total compensation pay mix, comprised of base salary, target bonusincentive opportunity under the fiscal 20162019 cash incentive plan and actual fiscal 20162019 long-term incentive awards (presented using their grant date fair values) for the Chief Executive Officer and other named executive officers.NEOs. As illustrated below, approximately 69%76% of our Chief Executive Officer’s and 58%57% of our other named executive officers’NEOs’ compensation was variable and at-risk.
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A key aspect of the design of our incentive plans is the requirement that, in order for incentive compensation to be paid, our actual performance must achieve at least the threshold level of performance established for the applicable objectives. In years where our actual performance does not achieve the threshold level for the applicable objectives, no incentive compensation is paid. We believe this design reinforces ourpay-for-performance philosophy. The table below provides the payouts under our incentive plans for each of our past five fiscal years and under our performance share programs for each of the last five three-year performance periods (reflecting corporate financial and strategic objectives).
Annual Incentive Plans | Annual Incentive Plans | Performance Share Programs | Annual Incentive Plans | Performance Share Programs | ||||||||
Fiscal Year | Payout | Performance Period | Payout | Payout | Performance Period | Payout | ||||||
2019 | 92.2% | 2017 - 2019 | 144.7% | |||||||||
2018 | 114.2% | 2016 - 2018 | 128.3% | |||||||||
2017 | 108.6% | 2015 - 2017 | 122.0% | |||||||||
2016 | 150.0% | 2014 - 2016 | 98.0% | 150.0% | 2014 - 2016 | 98.0% | ||||||
2015 | 135.1% | 2013 - 2015 | 99.3% | 135.1% | 2013 - 2015 | 99.3% | ||||||
2014 | 96.8% | 2012 - 2014 | 157.0% | |||||||||
2013 | 118.6% | 2011 - 2013 | 178.1% | |||||||||
2012 | 134.4% | 2010 - 2012 | 0% |
A description of our fiscal 20162019 annual incentive plan is provided below under the heading “Cash Incentive Compensation.” A description of the performance share program that ended in fiscal 20162019 is provided below under the heading “Long-term Incentive Compensation.”
Establishing Executive Compensation
The Committee evaluates our executive compensation programs annually and considers a number of factors when determining the compensation for the Company’s executive officers. In particular, the Committee considers the executive’s experience and qualifications, the scope of the executive’s responsibilities and ability to influence our performance, the competitiveness of the Company’s executive compensation programs, individual performance, and the executive’s current and historical compensation levels. The Committee receives input from our Chief Executive Officer concerning each officer’s individual performance. Additionally, to assist it in its review of executive compensation, the Committee has retained an independent compensation consultant.
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Independent Compensation Consultant. Prior to fiscal 2016 and through February Since May 2016, the Committee has engaged Mr. David A. Ness,Pay Governance LLC (the “Independent Consultant”), an independent compensation consultant with over 35 years of experience designing and administering executive and director compensation programs. Mr. Ness providedconsulting firm, to provide consulting services on matters related to executive and director compensation, including consultation regarding (i) the competitiveness of our executive compensation programs relative to market practices and peer group data, (ii) the design and structure of our short- and long-term incentive programs, (iii) management prepared total compensation analyses, including the recommended levels of compensation for NEOs other than the CEO, and (iv) consultation regarding proxy statement preparation and other executive compensation services as requested by the Committee. During hisits engagement, Mr. Nessthe Independent Consultant attended all of the regularly scheduled meetings of the Committee, reported directly to the Committee, and, as necessary, communicated directly with the Committee without management present.
In May 2016, the Committee engaged Pay Governance LLC (“Pay Governance”), an independent compensation consulting firm, to provide consulting services on matters related to executive compensation, including consultation regarding (i) the design and structure of the company’s executive compensation programs relative to market practices, and (ii) refinements to the peer group of companies. During its engagement, Pay Governance attended all of the regularly-scheduled meetings of the Committee, reported directly to the Committee, and, as necessary, communicated directly with the Committee without management present.25
Executive Compensation Peer Companies and Competitive Market. The Committee assesses the competitiveness of our executive compensation programs relative to market practices and peer group data. It does not, however, base its decisions solely on such data. For fiscal 2016,2019, the Committee established aselected the companies that constitute the peer group of companies by reviewing (i)(the “Peer Group”) after discussing various recommendations from the list of peerIndependent Consultant. The Peer Group was selected using criteria designed to identify companies that were identifiedreflect our size (measured by Institutional Shareholder Services in its review of our fiscal 2015 executive compensation programs,revenue, market capitalization, and (ii) a list of potential peer companies that were identified by Equilar, Inc. (“Equilar”), a leading independent provider of executive compensation data and analysis, which list included companies that had identified us as a peer in their proxy statement. Based on this review, the Committee approved the following 22 peer companies based on public company status and comparativeother size (revenue, number of employees, and market capitalization),measures) and business profile (generally medical device and equipment manufacturers and suppliers):
. During fiscal 2019, the Independent Consultant recommended the following changes to the Peer Group: (a) removal of Cogentix Medical, Inc. and Entellus Medical, Inc. because each of these companies were recently acquired, and (b) addition of IntriCon Corporation because it generally met the criteria for inclusion within the Peer Group. Based on this review, the Committee approved the following Peer Group:
Anika Therapeutics Inc. | ConforMIS, Inc. | Iridex Corporation | ||||
AtriCure, Inc. | CryoLife Inc. | LeMaitre Vascular, Inc. | ||||
Atrion Corp. | Cutera, Inc. | OraSure Technologies, Inc. | ||||
AxoGen, Inc. | Endologix Inc. | Rockwell Medical, Inc. | ||||
Cardiovascular Systems Inc. | GenMark Diagnostics, Inc. | Staar Surgical Company | ||||
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Cerus Corporation | IntriCon Corporation | Tactile Systems Technology, Inc. | ||||
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With Mr. Ness’the assistance compensationof the Independent Consultant, the Committee uses data from our peer groupthe Peer Group to establish a competitive market range (+/- 15% of companies (from the most recent proxy filings as reflected inmarket 50th percentile) within which individual pay can be positioned. The Independent Consultant presents to the Equilar database) was reviewed and supplemented (as discussed below) to determine a composite “market” reference point (i.e.,Committee an analysis that identifies the median)competitive market median range for base salary and total cash compensation. There were sufficient positional matcheseach NEO based on their respective, or substantially similar, positions at companies within the peer group for our Chief Executive Officer and our Chief Financial Officer. AsPeer Group. In cases where the data from the Peer Group was unavailable or insufficient, a result, therecompetitive market median range was no need to supplement the peer groupderived from survey data for these positions. However, there were limited positional matches within the peer group for our other executive positions. As a result, the peer group data was supplemented with additional data (from the most recent proxy filings as reflected in the Equilar database) fromreflecting companies of comparative size and business profile withinprofile. Additionally, for certain of our NEOs, the Company’s global industry classification standard. Messrs. Olson and Stich were compared against the samecompetitive market position (i.e., head of division / sales). The data for Mr. Stich, however, was adjusted to account for the smaller sizeindividual factors, such as, scope of our IVD business relative to our Medical Device business. The data for Mr. Phillips was adjusted to account for his additional responsibilities as the executive leader of human resources. As used throughout this discussion, the peer group data, as supplemented, is referred to as the “Market Data.”responsibility.
Role of Executive Officers. Our executive officers have no role in recommending or setting their own compensation. Our Chief Executive Officer makes recommendations for compensation for his direct reports (including base salary and target incentive levels), and provides input on their performance. He also provides input regarding financial and operating goals and metrics. Our Chief Financial Officer certifies the financial results used to determine the payouts for our annual incentive plan and performance-based equity grants. The Committee considers, discusses, modifies as appropriate, and takes action on the management recommendations that are presented for review.
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Overview of Executive Compensation Components
The principal components of our executive compensation programs for fiscal 20162019 consisted of annual cash compensation and long-term incentive compensation, and are generally shown in the diagram below. We also provide our executive officers with change of control benefits, and offer them participation in our 401(k) plan, health and welfare insurance programs, flexible spending accounts and certain other benefits available generally to all full-time employee.employees.
Annual cash compensation includes base salary and compensation available under our annual incentive plan. All of our cash compensation represents short-term compensation that is earned within a single fiscal year and paid in that fiscal year or shortly thereafter.
Base Salary. Base salaries provide a level of cash compensation to each executive intended to provide stability and reduce the incentive for excessive risk-taking. The Committee reviews base salaries at the beginning of each fiscal year. In establishing base salaries, the Committee considers the following factors:
Consistent with our compensation philosophy and objectives, the Committee generally sets base salaries within a competitive range (i.e., +/- 15% of the median salary rangemarket 50th percentile) of base salary levels for executives in comparable positions includedwithin the Peer Group. The range allows for pay decisions to take into account individual factors such as performance, potential, expertise, and experience. At the beginning of fiscal 2019, the Independent Consultant presented to the Committee an analysis that identifies the median base salary ranges for each of our NEOs compared to their respective, or substantially similar, positions in the Market Data.Peer Group. Using this approach, the Committee approved base pay increases for each of our NEOs. The following table shows the annualized base salaries for each of our executive officers for each of the past two fiscal years:
Name | 2015 Base Salary ($) | 2016 Base Salary ($)(1) | Percent Increase | |||||||||
Gary Maharaj | 457,000 | 489,000 | 7.0 | % | ||||||||
Andrew LaFrence | 270,000 | 275,400 | 2.0 | % | ||||||||
Charles Olson | 288,500 | 291,300 | 1.0 | % | ||||||||
Bryan Phillips | 294,200 | 305,900 | 4.0 | % | ||||||||
Joseph Stich | 248,900 | 261,300 | 5.0 | % |
Executive | 2018 Base Salary ($) | 2019 Base Salary ($)(1) | Percent Increase |
Gary R. Maharaj | 555,000 | 571,700 | 3.0% |
Timothy J. Arens(2) | 261,500 | 305,000 | 16.6% |
Thomas A. Greaney(3) | 312,197 | 321,530 | 3.0% |
Bryan K. Phillips | 350,100 | 369,400 | 5.5% |
Teryl W. Sides(4) | n/a | 300,000 | n/a |
(1) | Reflects the base salary approved by the Committee at its first regularly scheduled meeting in fiscal |
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(2) | The Committee approved a base salary of $282,400 for Mr. Arens at its November 2018 meeting. His base salary was further increased in February 2019 in connection with his appointment as the Company’s permanent Vice President, Finance and Chief Financial Officer. |
(3) | Amounts for Mr. Greaney have been converted to U.S. dollars using an exchange rate of €1.00 to $1.14 published by the Wall Street Journal on November 12, 2019. |
(4) | Ms. Sides’ employment began with the Company on November 1, 2018. |
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Cash Incentive Compensation. Cash incentive compensation for all of our employees, including our named executive officers,NEOs, was provided through a cash-based annual incentive plan. The annual incentive plan is designed to motivate our employees, including our executive officers, to achieve both short- and long-term goals that if achieved, would have the potential to significantly enhance shareholder value.
Target Incentive Opportunity. Consistent with our compensation philosophy and objectives, the committeeCommittee generally sets the target incentive opportunity within the median range for annual cash incentive target pay at our peer group. For fiscal 2016,2019, based on its review of the Market Data,market data, the Committee established a target incentive opportunity of 60%75% of base salary for our Chief Executive Officer, and 40%45% of base salary for our executive officers that report directly to the CEO, and 40% for all other executive officers. The following table shows the fiscal 2019 target incentive opportunity for each of our executive officers:NEOs:
Incentive Opportunity | ||
Executive | Percent (%) | Amount ($)(1) |
Gary R. Maharaj | 75.0 | 428,775 |
Timothy J. Arens(2) | 45.0 | 137,250 |
Thomas A. Greaney | 45.0 | 149,950 |
Bryan K. Phillips | 45.0 | 166,230 |
Teryl W. Sides(3) | 45.0 | 135,000 |
(1) | Amounts shown as calculated as a percentage of the base salary approved by the Committee for fiscal 2019. The incentive actually earned by each NEO (as shown in the Summary Compensation Table) is based on the base salary actually earned in fiscal 2019. |
(2) | In connection with his appointment as the Company’s Vice President, Finance, and Chief Financial Officer, the target incentive opportunity for Mr. Arens was increased from 40% to 45%. |
(3) | Ms. Sides’ employment with the Company began on November 1, 2018. |
Incentive Opportunity (as % of base salary) | ||||
Target ($) | Target ($) | |||
Gary Maharaj | 60% | 293,400 | ||
Andrew LaFrence | 40% | 110,160 | ||
Charles Olson | 40% | 116,520 | ||
Bryan Phillips | 40% | 122,360 | ||
Joseph Stich | 40% | 104,520 |
Fiscal Year 20162019 Performance Objectives. Performance under the annual incentive plan was based upon the achievement of financial objectives (weighted 60%) and strategic objectives.objectives (weighted 40%). The financial objectives for Messrs. LaFrence,Arens, Maharaj, and Phillips, (our “corporate executives”)and Ms. Sides were based entirely on corporate financial objectives (as described below). The financial objectives for Messrs. Olson and Stich (our “business unit executives”)Mr. Greaney were a combination of the same corporate financial objectives and business unit revenue, each weighted as provided below. The strategic objectives (as described below) reflected our fiscal 20162019 corporate priorities. The Committee approved the targets for the financial objectives and the strategic objectives based on the board-approved annual operating plan for fiscal 2016, including the planned financial impact of the Creagh acquisition and the NorMedix acquisition.2019.
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The corporate financial objectives were specified levels of revenue (weighted approximately 66.7% of the financial objectives) and adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) (disclosed in(weighted approximately 33.3% of the table below under the column titled “Actual Performance”), each weighted equally. The business unit financial objective for Mr. Olson was a specified level of revenue for our Medical Device business unit. The business unit financial objective for Mr. Stich was a specified level of revenue for our In Vitro Diagnostic (“IVD”) business unit.objectives). The Committee determined that these objectives were appropriate because they are financial metrics that are widely used by management, our Board, investors, and analysts to evaluate our performance. In addition, each executive officer can contribute (directly or indirectly) to the achievement of these objectives. The business unit financial objective for Mr. Greaney was a specified level of revenue for our Medical Device business unit. The following table shows the weighting of the financial objectives and strategic objectives as a percentage of the total incentive opportunity for each of our named executive officers:NEOs:
Financial Objectives | ||||||||||||||||
Executive | Corporate Revenue | Corporate EBITDA | Business Unit Revenue | Strategic Objectives | ||||||||||||
Gary Maharaj | 33.3 | % | 33.3 | % | n/a | 33.3 | % | |||||||||
Andrew LaFrence | 35.0 | % | 35.0 | % | n/a | 30.0 | % | |||||||||
Charles Olson | 20.0 | % | 20.0 | % | 30.0 | 30.0 | % | |||||||||
Bryan Phillips | 35.0 | % | 35.0 | % | n/a | 30.0 | % | |||||||||
Joseph Stich | 20.0 | % | 20.0 | % | 30.0 | 30.0 | % |
Financial Objectives | ||||
Strategic Objectives | Corporate Revenue | Corporate EBITDA | Business Unit Revenue | Strategic Objectives |
Gary R. Maharaj | 40% | 20% | n/a | 40% |
Timothy J. Arens | 40% | 20% | n/a | 40% |
Thomas A. Greaney | 20% | 10% | 30% | 40% |
Bryan K. Phillips | 40% | 20% | n/a | 40% |
Teryl W. Sides | 40% | 20% | n/a | 40% |
For all of our executive officers, including our Chief Executive Officer, payouts associated with the corporate financial objectives (if any) could range between 50% (at threshold) and 150% (at maximum) of the target opportunity based upon the actual performance against each measure. No payout would be available under the plan unless at least the threshold level of corporate EBITDA was achieved.
The strategic objectives (described below) were associated with the SurVeil DCB and our strategic acquisitionswhole-product solutions strategy reflecting separate milestones generally within the followsfollowing areas: (1) milestones associated with the SurVeil™ DCBour drug-coated balloon programs and related clinical trialtrials (constituting approximately 33.3% of the incentive opportunity associated with the strategic objectives); (2) milestones associated with our acquisition and integration of Creagh (constituting approximately 33.3%80% of the incentive opportunity associated with the strategic objectives); and (3)(2) milestones associated with the development of our acquisition and integration of NorMedixother proprietary products (constituting approximately 33.3%20% of the incentive opportunity associated with the strategic objectives). The Committee determined that these objectives were appropriate because their achievement would have the potential to advance our whole-product solutions strategy and significantly enhance shareholder value. For all of our executive officers, including our Chief Executive Officer, payouts associated with the strategic objectives could range between 0% (if none of the objectives were achieved) and 150% (if all of the objectives were achieved) of the target incentive opportunity based upon which of the objectives were achieved, and their respective value.
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Actual Performance. At the Committee’s November 20162019 meeting, the Committee confirmed the Company’s performance against the financial objectives and the strategic objectives. The achievement percentage associated with each financial objective was determined by interpolating actual performance within the applicable performance range. The achievement percentage associated with the strategic objectives was determined by multiplying a target value for each milestone by a performance factor based on exceeded, full, partial or no achievement of the milestone relative to a specified target completion date. In determining the level of achievement of each milestone, the Committee also considers factors outside of the Company’s control that impact the timing of completion of the milestones. In this regard, the Committee gave full credit for completion of a milestone tied to the enrollment the first patient in theSurVeil early feasibility study because this milestone was achieved within days of the specified target completion date, and because of the uncontrollable nature of the regulatory review process and the significant effort on the part of our employees required to achieve the milestone. Based on the Company’s performance, the Committee determined the payouts associated with the corporate financial objectives, business unit financial objectives, and strategic objectives as follows (all dollar values are in millions):
Corporate Financial Objectives | Weight (%) | Threshold ($) | Target ($) | Maximum ($) | Actual Performance ($)(1) | Achievement (%) |
Corporate EBITDA | 33.3 | 4.00 | 10.1 | 20.3 | 14.6 | 122.0 |
Corporate Revenue | 67.7 | 95.0 | 104.4 | 117.4 | 100.1 | 77.0 |
Combined Achievement: | 92.0 |
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Corporate Financial Objectives | Threshold | Target | Maximum | Actual Performance (1) | Achievement | |||||||||||||||
Corporate EBITDA | $ | 16.5 | $ | 17.5 | $ | 20.8 | $ | 24.5 | 150.0 | % | ||||||||||
Corporate Revenue | $ | 61.9 | $ | 64.2 | $ | 69.0 | $ | 69.4 | 150.0 | % | ||||||||||
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| Combined Achievement: |
| 150.0 | % | ||||||||||||||||
Business Unit Financial Objectives | Threshold | Target | Maximum | Actual Performance (1) | Achievement | |||||||||||||||
Medical Device Revenue | $ | 45.6 | $ | 47.3 | $ | 50.8 | $ | 51.3 | 150.0 | % | ||||||||||
IVD Revenue | $ | 16.3 | $ | 16.9 | $ | 18.2 | $ | 18.2 | 148.6 | % |
Business Unit Financial Objectives | Threshold ($) | Target ($) | Maximum ($) | Actual Performance ($)(1) | Achievement (%) |
Medical Device Revenue | 74.2 | 82.4 | 92.7 | 78.4 | 75.4 |
(1) | Amounts reflect the adjustments noted below under the heading “Adjustments for Significant Events”, which also includes information disclosing how the corporate financial objectives |
Strategic objectives | Maximum | Actual Performance | Achievement | |||||||||
SurVeil early feasibility study | 50.0 | % | Full Achievement (100%) | 50.0 | % | |||||||
Creagh acquisition and integration | 50.0 | % | Full Achievement (100%) | 50.0 | % | |||||||
NorMedix acquisition and integration | 50.0 | % | Full Achievement (100%) | 50.0 | % | |||||||
|
| |||||||||||
Combined Achievement: | 150.0 | % |
Strategic Objectives | Value (% of Target) | Actual Performance | Achievement (% of Target) |
Advancement of our DCB programs | 80.0 | Partial Achievement (84.4%) | 67.5 |
Proprietary product development | 20.0 | Exceeded Achievement (125.0%) | 25.0 |
Combined Achievement: | 92.5 |
The overall achievement percentage for each executive was determined by adding the products of the assigned weighting and achievement percentage for each component. Using this methodology, the Committee approved the following overall achievement percentages:
Corporate Financial Objectives | Business Unit Financial Objectives | Strategic objectives | Overall Achievement | |||||||||||||||||||||||||
Executive | Weight | Achievement | Weight | Achievement | Weight | Achievement | ||||||||||||||||||||||
Gary Maharaj | 66.6 | % | 150.0 | % | n/a | n/a | 33.3 | % | 150.0 | % | 150.0 | % | ||||||||||||||||
Andrew LaFrence | 70.0 | % | 150.0 | % | n/a | n/a | 30.0 | % | 150.0 | % | 150.0 | % | ||||||||||||||||
Charles Olson | 40.0 | % | 150.0 | % | 30.0 | % | 150.0 | % | 30.0 | % | 150.0 | % | 150.0 | % | ||||||||||||||
Bryan Phillips | 70.0 | % | 150.0 | % | n/a | n/a | 30.0 | % | 150.0 | % | 150.0 | % | ||||||||||||||||
Joseph Stich | 40.0 | % | 150.0 | % | 30.0 | % | 148.6 | % | 30.0 | % | 150.0 | % | 149.6 | % |
Corporate Financial Objectives | Business Unit Financial Objectives | Strategic Objectives | Overall Achievement | ||||
Weight | Achievement | Weight | Achievement | Weight | Achievement | ||
Gary R. Maharaj | 60.0% | 92.0% | n/a | n/a | 40.0% | 92.5% | 92.2% |
Timothy J. Arens | 60.0% | 92.0% | n/a | n/a | 40.0% | 92.5% | 92.2% |
Thomas A. Greaney | 30.0% | 92.0% | 30.0% | 75.4% | 40.0% | 92.5% | 87.2% |
Bryan K. Phillips | 60.0% | 92.0% | n/a | n/a | 40.0% | 92.5% | 92.2% |
Teryl W. Sides | 60.0% | 92.0% | n/a | n/a | 40.0% | 92.5% | 92.2% |
The actual incentive payouts were determined by multiplying the named executive officer’s eligible earnings by his target incentive opportunity, and then by the applicable overall achievement percentage. The following table summarizes the compensation earned by our named executive officersNEOs under the plan:
Executive | Target Payout (%) | Overall Achievement (%) | Actual Payout (%) | Actual Payout ($) |
Gary R. Maharaj | 75.0 | 92.2 | 69.2 | 392,448 |
Timothy J. Arens | 45.0 | 92.2 | 41.5 | 120,932 |
Thomas A. Greaney | 45.0 | 87.2 | 39.3 | 124,185 |
Bryan K. Phillips | 45.0 | 92.2 | 41.5 | 151,262 |
Teryl W. Sides | 45.0 | 92.2 | 41.5 | 114,179 |
Executive | Target Payout | Overall Achievement | Actual Payout | Actual Payout ($) | ||||||||||||
Gary Maharaj | 60 | % | 150.0 | % | 90.0 | % | 432,900 | |||||||||
Andrew LaFrence | 40 | % | 150.0 | % | 60.0 | % | 164,430 | |||||||||
Charles Olson | 40 | % | 150.0 | % | 60.0 | % | 174,360 | |||||||||
Bryan Phillips | 40 | % | 150.0 | % | 60.0 | % | 181,785 | |||||||||
Joseph Stich | 40 | % | 149.6 | % | 59.8 | % | 154,492 |
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Long-Term Incentive Compensation
Long-term incentive (“LTI”) compensation provides our executive officers with financial rewards based on the long-term performance of the Company. The Committee believes that this form of compensation promotes long-term retention and aligns the interests of our executive officers with those of our shareholders through stock ownership. Historically, our long-term incentiveLTI compensation has consisted of the following types of equity awards, including stock options, restricted stock, and performance shares. Special, one-time awards are used in limited circumstances, including, as may be necessaryawards:
• | Stock Options. Stock options provide value only when the price of our Company’s stock appreciates over the grant price. The number of shares subject to the stock option is determined by dividing the target value of the award by the grant date fair value of the award estimated using the Black-Scholes valuation model. Unless otherwise indicated, stock option grants have an exercise price that is equal to the closing market price of our common stock on the date of grant, a seven-year term, and vest in equal increments of 25% per year beginning on the first anniversary of the date of grant. |
• | Restricted Shares. Restricted shares are shares that are subject to forfeiture if certain time-based restrictions are not met. Unless otherwise indicated, restricted shares granted to our |
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NEOs vest ratably over a three-year period beginning on the first anniversary of the date of grant. The number of shares subject to attract, retain and motivate experienced and well-qualified executive officers. No special, one-time grants were made in fiscal 2016 to anythe award is determined by dividing the target value by the closing market price of our named executive officers.common stock on the date of grant.
• | Performance Shares. Performance shares are shares whose vesting is contingent upon the achievement of specified performance objectives over a three-year period. The target number of shares is determined by dividing the target value by the closing market price of our common stock on the date of grant. The number of shares that will actually vest, if any, ranges between 20% (at threshold) and 200% (at maximum) of the target number of shares based on the Company’s actual performance against the performance objectives. |
The Committee selects the type and mix of equity awards to be provided to our executive officers based on its assessment of the advantages provided by each award. The Committee also considers the forms and amounts of outstanding equity awards held by our named executive officers,NEOs, the financial accounting and tax treatment on our company, and the tax treatment to our named executive officers,NEOs, in determining the form and amount of equity compensation to award.
Consistent with our philosophy of tying a significant portion of each executive’s total compensationSpecial equity awards are used in limited circumstances, including, as may be necessary to performance,attract, retain and motivate experienced and well-qualified executive officers. In November 2018, the Committee setapproved special equity awards to Ms. Sides in connection with her hiring as our Senior Vice President and Chief Marketing Officer, including (1) a non-qualified stock option to purchase shares of the targetCompany’s common stock having a fair value of $100,000 (one-third of such award will vest on the first anniversary of the date of grant, and the remaining two-thirds will vest on the second anniversary); and (2) a restricted stock award having a value equal to $400,000 (one-third of such award will vest on the first anniversary of the date of grant, and the remaining two-thirds will vest on the second anniversary). These special awards were granted in addition to the long-term incentive opportunityawards discussed below which were provided to her as a significant percentagecomponent of each executive’sher fiscal 2019 compensation. In February 2019, the Committee approved special equity awards to Mr. Arens in connection with his appointment as our permanent Vice President of Finance, and Chief Financial Officer. The awards granted to Mr. Arens had a grant fair value of $70,000 split equally between stock options (that vest in four equal increments beginning on first anniversary of the date of grant) and restricted shares (that vest in three equal increments beginning on first anniversary of the date of grant). No other special equity grants were made in fiscal 2019 to our NEOs.
Using the same analytical approach described for annual base salary.salary and short-term incentives, the Independent Consultant identifies a competitive market range for long-term incentive target pay for the CEO and each NEO. Target LTI is expressed as a dollar value from which the underlying shares subject to the LTI award are determined based on the grant date fair value (i.e., Black-Scholes, in the case of stock options, and market price at the close of business on the grant date, in the case of restricted shares). While the Committee considered the Market Datadata from the Peer Group as a market check when setting the target long-term incentive opportunity, it diddoes not base its decision solely on such data. The target long-term incentive opportunity for our executives (other than the CEO) was the same for all executives reflecting our desire to encourage collaboration among our executive team and our view that each executive can contribute (directly or indirectly) to the achievement of our long-term objectives.
Fiscal 2016 Long-Term Incentive Plan2019 LTI Compensation. For In fiscal 2016,2019, the long-term incentive compensation for our executive officers was provided in the form of stock options (constituting 60% of the target value) and restricted shares (constituting 40% of the target value). The Committee determined that this mix of long-term incentives were appropriate because the full implementation of our whole-product solutions strategy is expected to occur over a number of years, and because of the challenges associated with setting appropriate multi-year objectives required to employ performance shares with each component constituting one-halfduring the early-stages of the total target value.execution of that strategy. The Committee also believes that these awards align management’s interests with the long-term nature of the strategic decisions that are being made in connection with our whole-product solutions strategy, and will, as a result, enhance our ability to retain our executive management team as we execute our business strategy. In the future, the Committee will continue to evaluate and select the form and mix of long-term incentive compensation (which may include stock options, restricted shares, performance shares, or other long-term incentives) provided to our executive officers that it believes best accomplishes the goals discussed above.
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The table below shows the target values of each LTI component of the equity awards provided forto our named executive officers were as follows:NEOs:
Name | Performance Shares (2) | Total Target LTI ($) | ||||||||||||||||||
Stock Options ($)(1) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||
Gary Maharaj | 375,000 | 75,000 | 375,000 | 750,000 | 750,000 | |||||||||||||||
Andrew LaFrence | 137,500 | 27,500 | 137,500 | 275,000 | 275,000 | |||||||||||||||
Charles Olson | 137,500 | 27,500 | 137,500 | 275,000 | 275,000 | |||||||||||||||
Bryan Phillips | 137,500 | 27,500 | 137,500 | 275,000 | 275,000 | |||||||||||||||
Joseph Stich | 137,500 | 27,500 | 137,500 | 275,000 | 275,000 |
Executive | Stock Options ($)(1) | Restricted Shares ($)(2) | Total Target LTI ($) |
Gary R. Maharaj | 825,000 | 550,000 | 1,375,000 |
Timothy J. Arens(3) | 195,000 | 130,000 | 325,000 |
Thomas A. Greaney | 225,000 | 150,000 | 375,000 |
Bryan K. Phillips | 225,000 | 150,000 | 375,000 |
Teryl W. Sides(4) | 225,000 | 150,000 | 375,000 |
(1) | Represents the grant date fair value of stock options (as estimated using the Black-Scholes option pricing model) awarded to each executive officer. |
(2) | Represents the grant date fair value of the |
(3) | The value shown for Mr. Arens does not include the value of the special equity awards discussed above, which awards were granted to him in connection with his appointment as our permanent Vice President of Finance and |
(4) | The value shown for Ms. Sides does not include the |
Stock OptionsFiscal Year 2017 – 2019 Performance Share Program Results. Stock options provide value only when the price of our Company’s stock appreciates over the grant price. The number of shares subject to the stock option is determined by dividing the target value of the award by the grant date fair value estimated using the Black-Scholes valuation model. All stock option grants have an exercise price that is equal to the closing market price of our common stock on the date of grant, a seven-year term, and vest in equal increments of 25% per year beginning on the first anniversary of the date of grant.
Performance Shares. Performance shares were granted under the fiscal 2016 performance share program that began at the beginning of fiscal 2017 (the “2016“2017-19 PSP”) was completed at the end of fiscal 2019. The performance objectives for the 2017-19 PSP” included both financial objectives (weighted at 70%). The target number of shares is determined by dividing the target value by the closing market price of our common stock on the date of grant. The actual number of shares and strategic objectives (weighted at 30%) that may vest will bewere based on the Company’s achievementstrategic plan approved by our Board immediately prior to the start of specified performancefiscal 2017. The financial objectives over a three-year performance period ending September 30, 2018.
The performance objectives under the 2016 PSP are specified aswere cumulative revenue and EBITDA over the three-year performance period. The Committee establishedstrategic objectives were tied to the three-year performance objectives based on the financial projections includedexecution of our whole-product solutions strategy, including completing patient enrollment in the Company’s long-range plan approved by the Board of Directors immediately prior to the start of fiscal 2016. The Committee determined that the use of these measures was appropriate because they are financial metrics that are widely used by management, our Board, investors, and analysts to evaluate our performance. The Committee considers the targets associated with these objectives to be difficult to achieve, but attainable. Furthermore, the Committee determined that, if achieved, these performance objectives would have the potential to significantly enhance shareholder value. As discussed above, there has beenTRANSCEND clinical trial within a payout under our performance share programs for four of the last five performance periods demonstrating that our target levels are aggressive but within reach for our executives.
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Thespecified number of shares that will actually vest, if any, undermonths after the 2016 PSP can range between 20% (at threshold)trial’s initiation, and 200% (at maximum) of the target number of shares based on the Company’s actual performance against the performance objectives. None of the performance shares will vest under the 2016 PSP unless at least the threshold level of cumulative EBITDA is achieved. Following the end of the performance period, the achievement percentage associated with each of the performance objectives will be determined by interpolating actual performance within the performance range for each objective. These achievement percentages will then be weighted equally, and summed to arrive at an overall achievement percentage. The actual number of shares that will vest will be determined by multiplying each executive’s target number of shares by the overall achievement percentage for the plan.developing new proprietary products.
Fiscal Year 2014 — 2016 Performance Share Program Results.At its November 20162019 meeting, the Committee reviewed and approved the results for the 2017-19 PSP. The achievement percentage associated with the financial objectives was determined by interpolating actual performance share program that began in fiscal 2014 andwithin the applicable performance range. The achievement percentage associated with the strategic objectives was completed atdetermined by multiplying a target value for each milestone by a performance factor based on exceeded, full, partial or no achievement of the end of fiscal 2016 (the “2014 PSP”). The performance objectives for this performance share program were specified as cumulative revenue and earnings per share over the three-year performance period. Our stock price increased 27.1% from a price of $23.67 at the beginning of fiscal 2014milestone relative to a price of $30.09 at the end of fiscal 2016. specified target completion date or other goal.
The table below shows the 2014 PSP performancefinancial objectives, actual results and the calculated payout.achievement percentages for those objectives under the 2017-19 PSP.
Performance Objective | Weight | Threshold (20% Payout) | Target (100% Payout) | Maximum (200% Payout) | Actual Performance(1) | Weighted Achievement (% of Target) | ||||||||||
Earnings per share | 50 | % | $2.80 | $2.99 | $3.40 | $3.20 | 151.2% | |||||||||
Revenue | 50 | % | $184.1 M | $196.9 M | $216.5 M | $188.0 M | 44.7% | |||||||||
| ||||||||||||||||
Overall Achievement Percentage: | 98.0% |
Performance Objectives | Weight (%) | Threshold ($) (20% Payout) | Target ($) (100% Payout) | Maximum ($) (200% Payout) | Actual Performance ($)(1) | Weighted Achievement (% of Target) |
Revenue | 50.0% | 208.4 | 227.8 | 260.3 | 254.5 | 182.3% |
EBITDA | 50.0% | 31.5 | 40.3 | 68.0 | 60.8 | 174.0% |
Combined Achievement: | 178.1% |
(1) | Reflects our cumulative financial results for the three-year period ended September 30, |
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The table below shows the strategic objectives, results and calculated achievement percentages for those objectives under the 2017-19 PSP.
Strategic Objectives | Weight (%) | Actual Performance | Achievement (% of Target) |
Patient Enrollment in TRANSCEND Clinical Trial | 50.0 | Not Achieved (0.0%) | 0.0 |
Development of Proprietary Products | 50.0 | Exceeded Achievement (133.3%) | 66.7 |
Combined Achievement: | 66.7 |
The overall achievement percentage for the 2017-19 PSP was determined by adding the products of the assigned weighting and achievement percentage for each component. Using this methodology, the Committee approved the overall achievement of 144.7% for the 2017-19 PSP. The following table shows the actual number of shares that vested for each NEO under the 2017-19 PSP, which number of shares was determined by multiplying the target number of shares that were granted to each NEO by the overall achievement percentage.
Executive | Target No. Shares | Overall Achievement | Actual No. Shares |
Gary R. Maharaj | 14,196 | 144.7% | 20,542 |
Timothy J. Arens | 5,427 | 144.7% | 7,853 |
Thomas A. Greaney | 5,427 | 144.7% | 7,853 |
Bryan K. Phillips | 5,427 | 144.7% | 7,853 |
Teryl W. Sides(1) | n/a | n/a | n/a |
(1) | Ms. Sides’ employment with the Company began on November 1, 2018, and she, therefore, did not receive an award of performance shares under the 2017-19 PSP. |
Adjustments for Significant Events
The Company’s performance-based compensation plans require that when special events (such as, significant one-time revenue events, charges for expenses, acquisitions, divestitures, capital gains, or other adjustments) significantly impact operating results, this impact will be reviewed and evaluated by the Committee when determining the level of achievement of the corporate performance objectives. Committee review is required if the impact represents an amount that is five percent or greater of the Company’s prior year results for the corporate performance objectives. This provision benefits shareholders by allowing management to make decisions of material strategic importance without undue concern forregarding their impact on compensation. These adjustments can have both a positive and negative impact.impact on award payouts.
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In accordance with these principles, for fiscal year 2016,2019, the Committee approved several adjustments to the Company’s results for purposes of determining performance under short- and long-term incentive programs. The following table reconciles theprovides detail on how to calculate certain non-GAAP amounts used in our incentive plans, and provides information on certain adjustments made in fiscal year 20162019 and provides a brief description of each adjustment:
Fiscal Year 20162019 Adjustments to Financial Results
Performance
under Incentive Programs
Financial Results, as reported | Revenue | |||||||
GAAP Revenue (in millions) | $ 71.4 | |||||||
Adjustments: | ||||||||
Net impact of $1.9 million of customer royalty over/under payments. | (1.9)(1) | |||||||
|
| |||||||
Revenue used for Incentive Plans | $ 69.4 | |||||||
EBITDA | EPS | |||||||
EBITDA (in millions) / GAAP EPS | $ 19.3(2) | $ 0.76 | ||||||
Adjustments: | ||||||||
Net after tax impact of $1.9 million of customer royalty over/under payments. | (1.9) | (0.10) | ||||||
Acquisition transaction, integration and other costs of $3.2 million. | 3.2 | 0.22 | ||||||
Amortization of acquisition-related intangible assets and associated tax impact of $2.4 million. | 2.4 | 0.15 | ||||||
Accretion expense of $1.5 million related to contingent consideration liabilities. | 1.5 | 0.11 | ||||||
Foreign currency exchange gain/loss of $0.4 million. | — | 0.03 | ||||||
Net impact of $0.5 million gain associated with one of the Company’s strategic investments. | — | (0.04) | ||||||
|
|
|
| |||||
EBITDA (in millions) /EPS used for Incentive Plans | $ 24.5 | $ 1.15 |
Revenue | |||
GAAP Revenue(1) | $ | 100.1 | |
Adjustments: | |||
None | — | ||
Adjusted Revenue: | $ | 100.1 |
EBITDA | |||
EBITDA(2) | $ | 11.4 | |
Adjustments: | |||
Amortization of acquisition-related intangible assets and associated tax impact. | 2.4 | ||
Accretion expense (gain) related to | 0.2 | ||
Asset Impairment of indefinite lived intangible assets. | 0.3 | ||
Acquisition transaction and other costs of $0.9 million. | 0.9 | ||
Net impact of | (0.7 | ) | |
Adjusted EBITDA | $ | 14.6 | |
(all amounts are in millions) |
(1) | GAAP revenue, |
(2) |
(3) | The data in the above chart has been intentionally rounded and, therefore, may not sum. |
The fiscal 2019 EBITDA result used for the 2017-19 PSP was $27.2 million, which includes the adjustments noted above as well as a $12.6 million adjustment associated with SurVeil DCB clinical trial expense. The Committee determined that these adjustments were appropriate in light of the significant increase in investments that were necessary to support the Company’s whole-product solutions strategy, including the TRANSCEND clinical trial, which increases were not contemplated prior to the adoption of the 2017-19 PSP.
Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) directs the SEC to issue rules to require national securities exchanges and national securities associations to list only those companies that implement a policy requiring the mandatory recoupment of incentive compensation paid to current and former executive officers for the three-year period preceding a restatement of a listed company’s financial statements that would not have been paid under the restated financial statements. The SEC has not yet issued final rules to implement this aspect of the Act. Notwithstanding this fact, in December 2015, based upon the recommendation of the Committee, the Board approved a clawback policy regarding the recovery of incentive compensation from our executive officers (including our named executive officers)NEOs) in certain circumstances. Under the policy, the Company will require reimbursement or forfeiture of all or a portion of any incentive-based compensation (including cash- or equity-based compensation) awarded to an executive officer of the Company where the Committee has determined that all of the following factors are present: (a) the Company is required to prepare an accounting restatement to correct an error that is material to previously issued financial statements, (b) the incentive-based compensation was granted, vested or earned based wholly or in part on the achievement of certain financial reporting measures that were affected by the restatement and such grant, vesting or earning occurred during the three completed fiscal years immediately preceding the date on which the Company is required to prepare the restatement, (c) the amount of incentive-based compensation granted to, vested in or earned by the executive officer was greater than the amount that otherwise would have been granted to, vested in or earned by the executive officer if determined based
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upon the restated financial results, and (d) fraud or intentional misconduct on the part of one or more
25
current or former executive officers was a significant contributing factor to the restatement. In determining whether, in its discretion, there are appropriate circumstances to require such reimbursement, cancellation or recovery, the Committee can consider relevant facts and circumstances, including without limitation, the degree to which any particular executive officer was involved in the fraud or misconduct that contributed to the financial restatement, the extent to which any particular executive officer acted in the normal course of the executive officer’s duties and in good faith. Once final regulations are adopted by the SEC, the Committee intends to revise the clawback policy as necessary to comply with the regulations.
Compensation in a change of control situation is designed: (1) to protect the compensation already earned by executives and to ensure that they will be treated fairly in the event of a change of control; and (2) to help ensure the retention and dedicated attention of key executives critical to the ongoing operation of the Company. We believe shareholders will be best served if the interests of our executive officers are aligned with those of our shareholders. Consistent with these principles, we have provided each of our executive officers with change-of-control benefits so that our executive officers can focus on our business without the distraction of searching for new employment. None of the agreements providing these benefits require the Company to make excise tax gross-up payments upon a change of control. Moreover, the Committee has determined that it does not intend to enter into any agreements or arrangements that will require the Company to make excise tax gross-up payments to any person.
The Company has entered agreements with our named executive officersNEOs providing each of them with certain benefits payable if the Company undergoes a change of control (as defined in the agreements). The term of these agreements extends until the twelve-month anniversary of the date on which a change of control occurs. Each agreement will automatically terminate and the executive will not be entitled to any of the compensation and benefits described in the agreement if, prior to a change of control occurring, the executive’s employment with the Company terminates for any reason or no reason, or if the executive no longer serves as an executive officer of the Company. No benefits are payable to an executive officer under the agreement unless both a change of control occurs, and the executive’s employment is terminated by the Company within 12 months after a change of control without cause, or by the executive for good reason. Absent a “change of control,” the agreements do not require the Company to retain the executives or to pay them any specified level of compensation or benefits. Our change of control agreements are discussed in more detail in the “Potential Payments Upon Termination or Change of Control” section of “Executive Compensation.”
We provide our executive officers with the same benefits as our other full-time employees, including medical and insurance benefits and a 401(k) retirement plan.
Committee Consideration of the Company’s 20162019 Shareholder Vote on Executive Compensation
When setting compensation, and in determining compensation policies, the Committee took into account the results of the shareholder advisory vote on executive compensation that took place in February 2016.2019. In those votes, which were advisory and not binding, approximately 97%84% of our shareholders voting on this matter approved the compensation of our named executive officersNEOs as disclosed in the proxy statement for the 20162019 Annual Meeting of Shareholders. The Committee believes that our executive compensation program has been tailored to our company’s business strategies, aligns pay with performance and reflects many of the best practices regarding executive compensation. The Committee will continue to consider shareholder sentiments about our core principles and objectives when determining executive compensation.
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ORGANIZATION AND COMPENSATION COMMITTEE REPORT
The Organization and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K for the year ended September 30, 20162019 with management. Based on the foregoing reviews and discussions, the Committee recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in the proxy statement for the 20172020 Annual Meeting of Shareholders to be held on February 14, 2017.13, 2020.
Members of the Organization and
Compensation Committee:
David R. Dantzker, M.D., Chair
(chair)
José H. Bedoya
Lisa W. Heine
Ronald B. Kalich
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EXECUTIVE COMPENSATION |
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLESummary Compensation Table
The following table shows the compensation awarded to, earned by or paid to our named executive officersNEOs during the last three fiscal years. You should refer to Compensation Discussion and Analysis above to understand the elements used in setting the compensation for our named executive officers.NEOs.
Name and Principal Position | Fiscal Year | Salary ($)(1) | Stock Awards ($)(2)(3) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) | |||||||||||||||||||||
Gary R. Maharaj, | 2016 | 481,000 | 375,000 | 375,000 | 432,900 | 4,879 | 1,668,779 | |||||||||||||||||||||
President and Chief Executive Officer | 2015 | 457,000 | 325,000 | 325,000 | 370,542 | 7,950 | 1,485,492 | |||||||||||||||||||||
2014 | 443,700 | 325,000 | 325,000 | 257,701 | 5,974 | 1,357,375 | ||||||||||||||||||||||
Andrew D. C. LaFrence, | 2016 | 274,050 | 137,500 | 137,500 | 164,430 | 6,065 | 719,545 | |||||||||||||||||||||
Vice President, Finance and Information Systems, and Chief Financial Officer | | 2015 2014 | | | 270,000 252,200 | | | 112,500 112,500 | | | 112,500 112,500 | | | 145,947 97,652 | | | 6,103 6,302 | | | 647,050 581,154 | | |||||||
Charles W. Olson, | 2016 | 290,600 | 137,500 | 137,500 | 174,360 | 3,898 | 743,858 | |||||||||||||||||||||
Senior Vice President of Commercial and Business Development, Medical Devices | | 2015 2014 | | | 288,500 285,600 | | | 112,500 112,500 | | | 112,500 112,500 | | | 153,541 110,584 | | | 6,147 4,459 | | | 673,187 625,643 | | |||||||
Bryan K. Phillips | 2016 | 302,975 | 137,500 | 137,500 | 181,785 | 8,768 | 768,528 | |||||||||||||||||||||
Senior Vice President, Legal and Human Resources, General Counsel & Secretary | | 2015 2014 | | | 294,200 285,600 | | | 112,500 112,500 | | | 112,500 112,500 | | | 159,028 110,584 | | | 7,753 7,776 | | | 685,981 628,960 | | |||||||
Joseph J. Stich | 2016 | 258,200 | 137,500 | 137,500 | 154,492 | 8,435 | 696,127 | |||||||||||||||||||||
Vice President and General Manager, In Vitro Diagnostics | | 2015 2014 | | | 248,900 241,638 | | | 112,500 112,500 | | | 112,500 112,500 | | | 135,326 93,562 | | | 7,969 7,264 | | | 617,195 567,464 | |
Name and Principal Position | Fiscal Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(5) | All Other Compensation ($)(6) | Total Compensation ($) | ||||||||||||||
Gary R. Maharaj President and Chief Executive Officer | 2019 | 567,531 | — | 550,000 | 825,000 | 392,448 | 8,650 | 2,343,629 | ||||||||||||||
2018 | 550,725 | 148,696 | 430,000 | 645,000 | 470,870 | 8,250 | 2,253,541 | |||||||||||||||
2017 | 525,675 | — | 510,000 | 340,000 | 342,530 | 4,363 | 1,722,568 | |||||||||||||||
Timothy J. Arens(7) Vice President, Finance and Chief Financial Officer | 2019 | 291,474 | — | 165,000 | 230,000 | 120,932 | 9,149 | 816,555 | ||||||||||||||
2018 | 259,600 | 37,382 | 155,000 | 220,000 | 118,378 | 8,271 | 798,631 | |||||||||||||||
Thomas A. Greaney(8) Chief Operating Officer, Medical Devices | 2019 | 316,315 | — | 150,000 | 225,000 | 124,185 | 31,632 | 847,132 | ||||||||||||||
2018 | 333,686 | 52,556 | 150,000 | 225,000 | 172,683 | 37,978 | 971,903 | |||||||||||||||
2017 | 289,108 | — | 195,000 | 130,000 | 130,198 | 28,911 | 773,218 | |||||||||||||||
Bryan K. Phillips Former Senior Vice President, Legal and Human Resources, General Counsel & Secretary | 2019 | 364,575 | — | 150,000 | 225,000 | 151,262 | 8,684 | 899,521 | ||||||||||||||
2018 | 345,950 | 56,044 | 150,000 | 225,000 | 177,472 | 8,474 | 962,940 | |||||||||||||||
2017 | 326,600 | — | 195,000 | 130,000 | 141,875 | 8,461 | 801,936 | |||||||||||||||
Teryl W. Sides(9) Senior Vice President and Chief Marketing Officer | 2019 | 275,196 | — | 550,000 | 325,000 | 114,179 | 6,742 | 1,271,116 |
(1) | Reflects base salary earned in each applicable period. |
(2) | Reflects discretionary amounts paid under the fiscal 2018 annual cash incentive plan. |
(3) | Reflects the aggregate grant date fair value of options and restricted stock |
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(4) | Reflects the aggregate grant date fair value of restricted stock and performance shares awarded to each |
Name | Fiscal Year | Value of Restricted Shares ($) | Value of Performance Shares at Target ($) | Value of Performance Shares at Maximum ($) | ||||||
Gary R. Maharaj | 2019 | 550,000 | n/a | n/a | ||||||
2018 | 430,000 | n/a | n/a | |||||||
2017 | 170,000 | 340,000 | 680,000 | |||||||
Timothy J. Arens | 2019 | 165,000 | n/a | n/a | ||||||
2018 | 150,000 | n/a | n/a | |||||||
Thomas A. Greaney | 2019 | 150,000 | n/a | n/a | ||||||
2018 | 150,000 | n/a | n/a | |||||||
2017 | 65,000 | 130,000 | 260,000 | |||||||
Bryan K. Phillips | 2019 | 150,000 | n/a | n/a | ||||||
2018 | 150,000 | n/a | n/a | |||||||
2017 | 65,000 | 130,000 | 260,000 | |||||||
Teryl W. Sides | 2019 | 550,000 | n/a | n/a |
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Represents amounts earned under the annual cash incentive plan for each applicable fiscal year, which is discussed in detail in Compensation Discussion and Analysis above. |
(6) | Represents matching contributions made by the Company under our 401(k) Plan and amounts received under other benefit plans generally available to all employees. In the case of Mr. Greaney, the amounts represent pension contributions under a pension plan available to the Company’s employees based in Ireland. |
(7) | The equity awards for Mr. Arens reflect the special awards granted in July 2018 in connection with his appointment as our interim Vice President of Finance, and Chief Financial Officer, and in February 2019 in connection with his appointment as our permanent Vice President of Finance, and Chief Financial Officer. |
(8) | Unless otherwise indicated, amounts for Mr. Greaney in this table, and other executive compensation disclosure in this proxy statement, that were denominated, accrued, earned or paid in Euros have been converted to U.S. dollars using the average daily exchange rate of €1.00 to $1.106 for the period from October 1, 2016 to September 30, 2017, €1.00 to $1.19 for the period from October 1, 2017 to September 30, 2018, and €1.00 to $1.13 for the period from October 1, 2018 to September 30, 2019. |
(9) | Ms. Sides’ employment with the Company began on November 1, 2018. The equity awards for Ms. Sides reflect the special awards granted to her in November 2018 in connection with her hiring as our Senior Vice President and Chief Marketing Officer. |
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GRANTS OF PLAN-BASED AWARDS IN FISCAL 20162019
The following table sets forth certain information concerning plan-based awards earned by or granted to each of our named executive officersNEOs during fiscal 2016.2019. You should refer to the sections of Compensation Discussion and Analysis above relating to the annual incentive plan and the long-term incentive program to understand how plan-based awards are determined.
Grant Date |
Estimated Possible Payouts Under |
Estimated Future Payouts Under | All Other Option Awards: Number of Securities Underlying Options (#)(3) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(4) | |||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||
Gary R. Maharaj | 144,300 | 288,600 | 432,900 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
12/17/15 | — | — | — | 3,566 | 17,831 | 35,662 | — | — | 375,000 | |||||||||||||||||||||||||||||||
12/17/15 | — | — | — | — | — | — | 54,347 | 21.03 | 375,000 | |||||||||||||||||||||||||||||||
Andrew D. C. | 54,810 | 109,620 | 164,430 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
LaFrence | 12/02/14 | — | — | — | 1,307 | 6,538 | 13,076 | — | — | 137,500 | ||||||||||||||||||||||||||||||
12/02/14 | — | — | — | — | — | — | 19,927 | 21.03 | 137,500 | |||||||||||||||||||||||||||||||
Charles W. Olson | 58,120 | 116,240 | 174,360 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
12/02/14 | — | — | — | 1,307 | 6,538 | 13,076 | — | — | 137,500 | |||||||||||||||||||||||||||||||
12/02/14 | — | — | — | — | — | — | 19,927 | 21.03 | 137,500 | |||||||||||||||||||||||||||||||
Bryan K. Phillips | 60,595 | 121,190 | 181,785 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
12/02/14 | — | — | — | 1,307 | 6,538 | 13,076 | — | — | 137,500 | |||||||||||||||||||||||||||||||
12/02/14 | — | — | — | — | — | — | 19,927 | 21.03 | 137,500 | |||||||||||||||||||||||||||||||
Joseph J. Stich | 51,640 | 103,280 | 154,920 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
12/02/14 | — | — | — | 1,307 | 6,538 | 13,076 | — | — | 137,500 | |||||||||||||||||||||||||||||||
12/02/14 | — | — | — | — | — | — | 19,927 | 21.03 | 137,500 |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares or Units (#)(2) | All Other Option Awards: Number of Securities Underlying Options (#)(3) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(4) | ||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | ||||||||||||||||||||
Gary R. Maharaj | 214,388 | 428,775 | 643,163 | — | — | — | — | |||||||||||||||||
11/27/18 | — | — | — | 9,712 | — | — | 550,000 | |||||||||||||||||
11/27/18 | — | — | — | — | 45,073 | 56.63 | 825,000 | |||||||||||||||||
Timothy J. Arens(5) | 68,625 | 137,250 | $ | 205,875 | — | — | — | — | ||||||||||||||||
11/27/18 | — | — | — | 2,295 | — | — | 130,000 | |||||||||||||||||
11/27/18 | — | — | — | — | 10,653 | 56.63 | 195,000 | |||||||||||||||||
05/13/19 | — | — | — | 874 | — | — | 35,000 | |||||||||||||||||
05/13/19 | — | — | — | — | 2,615 | 40.01 | 35,000 | |||||||||||||||||
Thomas A. Greaney | 74,975 | $ | 149,950 | 224,925 | — | — | — | — | ||||||||||||||||
11/27/18 | — | — | — | 2,648 | — | — | 150,000 | |||||||||||||||||
11/27/18 | — | — | — | — | 12,292 | 56.63 | 225,000 | |||||||||||||||||
Bryan K. Phillips | 83,115 | 166,230 | 249,345 | — | — | — | — | |||||||||||||||||
11/27/18 | — | — | — | 2,648 | — | — | 150,000 | |||||||||||||||||
11/27/18 | — | — | — | — | 12,292 | 56.63 | 225,000 | |||||||||||||||||
Teryl W. Sides(6) | 67,500 | 135,000 | 202,500 | — | — | — | — | |||||||||||||||||
11/27/18 | — | — | — | 9,711 | — | — | 550,000 | |||||||||||||||||
11/27/18 | — | — | — | — | 17,755 | 56.63 | 325,000 |
(1) | Represents the potential cash payments under the Company’s annual incentive plan at threshold, target and maximum |
(2) | Represents the number of |
(3) | Represents the number of stock options granted to each |
(4) | Represents the aggregate grant date fair value of |
(5) | The equity awards granted to Mr. Arens in May 2019 include the special equity awards granted in connection with his appointment as our permanent Vice President of Finance, and Chief Financial Officer. |
(6) | The equity awards granted to Ms. Sides in November 2018 include the special equity awards granted in connection with her hiring. |
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OUTSTANDING EQUITY AWARDS AT 20162019 FISCAL YEAR-END
The table below reflects all outstanding equity awards made to each of the named executive officersNEOs that were outstanding on September 30, 2016.2019. The market or payout value of unearned shares, units or other rights that have not vested equals $30.09$45.74 per share, which was the closing price of the Company’s common stock as listed on The NASDAQNasdaq Global Select Market on September 30, 2016,2019, the last day of our last fiscal year.
Stock Awards | ||||||||||||||||||||||||||||||||
Option Awards(1) | Equity Incentive Plan Awards: Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||||
Name | Option Grant Date | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date | Award Grant Date | Number (#) | Market or Payout Value ($) | |||||||||||||||||||||||||
Exercisable | Unexercisable | |||||||||||||||||||||||||||||||
Gary R. Maharaj | 12/12/12 | 28,743 | 9,582 | 20.37 | 12/12/19 | 11/18/13 | 14,099(2) | 424,239 | ||||||||||||||||||||||||
11/18/13 | 18,217 | 18,217 | 22.58 | 11/18/20 | 12/02/14 | 3,090(3) | 92,978 | |||||||||||||||||||||||||
12/02/14 | 10,310 | 30,933 | 21.03 | 12/02/21 | 12/17/15 | 3,703(4) | 111,423 | |||||||||||||||||||||||||
12/17/15 | — | 54,347 | 20.25 | 12/17/22 | — | — | �� | — | ||||||||||||||||||||||||
Andrew D. C. LaFrence | 02/11/13 | 17,847 | 5,950 | 23.88 | 02/11/20 | 12/12/12 | 4,880(2) | 146,839 | ||||||||||||||||||||||||
11/18/13 | 6,306 | 6,306 | 22.58 | 11/18/20 | 11/18/13 | 1,069(3) | 32,166 | |||||||||||||||||||||||||
12/02/14 | 3,569 | 10,707 | 21.03 | 12/02/21 | 12/02/14 | 1,358(4) | 40,862 | |||||||||||||||||||||||||
12/17/15 | — | 19,927 | 20.25 | 12/17/22 | — | — | — | |||||||||||||||||||||||||
Charles W. Olson | 11/30/11 | 21,469 | — | 12.40 | 11/30/18 | 12/12/12 | 4,880(2) | 146,839 | ||||||||||||||||||||||||
12/12/12 | 9,949 | 3,317 | 20.37 | 12/12/19 | 11/18/13 | 1,069(3) | 32,166 | |||||||||||||||||||||||||
11/18/13 | 6,306 | 6,306 | 22.58 | 11/18/20 | 12/02/14 | 1,358(4) | 40,862 | |||||||||||||||||||||||||
12/02/14 | 3,569 | 10,707 | 21.03 | 12/02/21 | — | — | — | |||||||||||||||||||||||||
12/17/15 | — | 19,927 | 20.25 | 12/17/22 | — | — | — | |||||||||||||||||||||||||
Bryan K. Phillips | 11/30/11 | 5,368 | — | 12.40 | 11/30/18 | 12/12/12 | 4,880(2) | 146,839 | ||||||||||||||||||||||||
12/12/12 | 9,949 | 3,317 | 20.37 | 12/12/19 | 11/18/13 | 1,069(3) | 32,166 | |||||||||||||||||||||||||
11/18/13 | 6,306 | 6,306 | 22.58 | 11/18/20 | 12/02/14 | 1,358(4) | 40,862 | |||||||||||||||||||||||||
12/02/14 | 3,569 | 10,707 | 21.03 | 12/02/21 | — | — | — | |||||||||||||||||||||||||
12/17/15 | — | 19,927 | 20.25 | 12/17/22 | — | — | — | |||||||||||||||||||||||||
Joseph J. Stich. | 03/15/10 | 20,000 | — | 22.11 | 03/15/17 | 12/12/12 | 4,880(2) | 146,839 | ||||||||||||||||||||||||
11/30/10 | 27,548 | — | 9.25 | 11/30/17 | 11/18/13 | 1,069(3) | 32,166 | |||||||||||||||||||||||||
11/30/11 | 21,469 | — | 12.40 | 11/30/18 | 12/02/14 | 1,358(4) | 40,862 | |||||||||||||||||||||||||
12/12/12 | 9,949 | 3,317 | 20.37 | 12/12/19 | — | — | — | |||||||||||||||||||||||||
11/18/13 | 6,306 | 6,306 | 22.58 | 11/18/20 | — | — | — | |||||||||||||||||||||||||
12/02/14 | 3,569 | 10,707 | 21.03 | 12/02/21 | — | — | — | |||||||||||||||||||||||||
12/17/15 | — | 19,927 | 20.25 | 12/17/22 | — | — | — |
Option Awards(1) | Stock Awards | |||||||||||||||||||||||
Option Grant Date | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date | Award Grant Date | Shares or Units of Stock That Have Not Vested | |||||||||||||||||||
Name | Exercisable | Unexercisable | Number (#) | Market ($) | ||||||||||||||||||||
Gary R. Maharaj | 12/02/14 | 10,311 | — | 21.03 | 12/02/21 | 11/30/16 | 2,366 | 108,221 | ||||||||||||||||
12/17/15 | 13,587 | 13,587 | 20.25 | 12/17/22 | 11/28/17 | 8,634 | 394,919 | |||||||||||||||||
11/30/16 | 22,389 | 22,390 | 23.95 | 11/30/23 | 11/27/18 | 9,712 | 444,227 | |||||||||||||||||
11/28/17 | 15,254 | 45,767 | 33.20 | 11/28/24 | — | — | — | |||||||||||||||||
11/27/18 | — | 45,073 | 56.63 | 11/27/25 | — | — | — | |||||||||||||||||
Timothy J. Arens(2) | 12/02/14 | 2,614 | — | 21.03 | 12/02/21 | 11/30/16 | 904 | 41,395 | ||||||||||||||||
12/17/15 | 8,359 | — | 20.25 | 12/17/22 | 09/26/17 | — | — | |||||||||||||||||
11/30/16 | 4,596 | 7,902 | 23.95 | 11/30/23 | 11/28/17 | 2,610 | 119,381 | |||||||||||||||||
11/28/17 | 4,611 | 13,836 | 33.20 | 11/28/24 | 07/17/18 | 212 | 9,697 | |||||||||||||||||
07/17/18 | 335 | 1,006 | 59.10 | 07/17/25 | 11/27/18 | 2,295 | 104,973 | |||||||||||||||||
11/27/18 | — | 10,653 | 56.63 | 11/27/25 | 05/13/19 | 874 | 39,977 | |||||||||||||||||
05/13/19 | — | 2,615 | 40.01 | 05/13/26 | — | — | — | |||||||||||||||||
Thomas A. Greaney | 12/17/15 | 14,945 | 4,982 | 21.03 | 12/17/22 | 11/30/16 | 904 | 41,395 | ||||||||||||||||
11/30/16 | 8,560 | 8,561 | 23.95 | 11/30/23 | 11/28/17 | 3,012 | 137,769 | |||||||||||||||||
11/28/17 | 5,321 | 15,965 | 33.20 | 11/28/24 | 11/27/18 | 2,648 | 121,120 | |||||||||||||||||
11/27/18 | — | 12,292 | 56.63 | 11/27/25 | — | — | — | |||||||||||||||||
Bryan K. Phillips | 11/18/13 | 12,612 | — | 22.58 | 11/18/20 | 11/30/16 | 904 | 41,395 | ||||||||||||||||
12/02/14 | 14,276 | — | 21.03 | 12/02/21 | 11/28/17 | 3,012 | 137,769 | |||||||||||||||||
12/17/15 | 14,945 | 4,982 | 20.25 | 12/17/22 | 11/27/18 | 2,648 | 121,120 | |||||||||||||||||
11/30/16 | 8,560 | 8,561 | 23.95 | 11/30/23 | — | — | — | |||||||||||||||||
11/28/17 | 5,321 | 15,965 | 33.20 | 11/28/24 | — | — | — | |||||||||||||||||
11/27/18 | — | 12,292 | 56.63 | 11/27/25 | — | — | — | |||||||||||||||||
Teryl W. Sides | 11/27/18 | — | 17,755 | 56.63 | 11/27/25 | 11/27/18 | 9,711 | 444,181 |
(1) | Stock option awards granted generally become exercisable in four equal increments beginning on the first anniversary of the date of grant. |
(2) |
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20162019 OPTION EXERCISES AND STOCK VESTED
The table below includes information related to options exercised by each of the named executive officers during fiscal 2016NEOs and restricted stock awards that vested during fiscal 2016. The value realized for such option and restricted stock awards is also provided.2019.
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | ||||||||||||
Gary R. Maharaj | 130,587 | 2,297,651 | — | — | ||||||||||||
Andrew D. C. LaFrence | — | — | 1,746 | 32,091 | ||||||||||||
Charles W. Olson | 49,274 | 649,873 | — | — | ||||||||||||
Bryan K. Phillips | 16,251 | 44,853 | — | — | ||||||||||||
Joseph J. Stich | 47,548 | 667,070 | — | — |
Option Awards | Stock Awards | |||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | ||||||||
Gary R. Maharaj | — | — | 30,441 | 1,748,051 | ||||||||
Timothy J. Arens | — | — | 13,159 | 726,060 | ||||||||
Thomas A. Greaney | — | — | 11,122 | 638,588 | ||||||||
Bryan K. Phillips | — | — | 11,122 | 638,588 | ||||||||
Terly W. Sides | — | — | — | — |
(1) | Value realized |
Potential PayoutsPayments Upon Termination or Change of Control
Arrangements with Mr. Maharaj.Maharaj. In connection with his hiring in December 2010, the Company entered into a Severance Agreement with Gary R. Maharaj, our President and Chief Executive Officer. Pursuant to the Severance Agreement, Mr. Maharaj will be eligible for certain severance benefits in the event that his employment is terminated by the Company without cause, or by him for good reason. In particular, in the event his employment is terminated without cause, Mr. Maharaj will receive (1) a severance payment equal to twelve months of his then-current annual base salary, and (2) continuation coverage of life, health orand dental benefits for up to 18 months. Further, in the event that Mr. Maharaj’s employment is terminated by the Company without cause and he is unable to secure subsequent employment primarily because of his obligations under the Non-Competition, Invention, Non-Disclosure Agreement, the Company will extend his base salary severance payments (not to exceed 12 additional months) so long as he is able to demonstrate that he is diligently seeking alternate employment.
Additionally, pursuant to the Severance Agreement, Mr. Maharaj will be provided with severance benefits in the event his employment with the Company is terminated following a change inof control of the Company. If, within twelve months following the occurrence of a change of control, Mr. Maharaj’s employment with the Company is terminated either by the Company without cause, or by him for good reason, then Mr. Maharaj will receive: (1) a severance payment equal to two and one-half times the average cash compensation paid to him during the three most recent taxable years, and (2) continuation coverage of life, health or dental benefits for up to 18 months. In addition, any unvested portions of Mr. Maharaj’s outstanding options will immediately vest and become exercisable, any remaining forfeiture provisions on his outstanding restricted stock awards will immediately lapse, and the target number of shares subject to his outstanding performance awards will immediately vest and become payable.
Arrangements with other Executives. In addition to the arrangements discussed above with respect to Mr. Maharaj, each of our other named executivesNEOs has entered into Change of Control Agreements with the Company. The term of these agreements extends until the twelve-month anniversary of the date on which a change of control occurs. Each agreement will automatically terminate and the executive will not be entitled to any of the compensation and benefits described in the agreement if, prior to a change of control occurring, the executive’s employment with the Company terminates for any reason or no reason, or if the executive no longer serves as an executive officer of the Company. Each executive will be provided with severance benefits in the event histhe executive’s employment with the Company is terminated following a “change of control” (as defined in the agreements) of the Company. If, within twelve months following the occurrence of a change of control, the executive’s employment with the Company is terminated either by the Company without cause, or by him or her for “good reason” (as defined in the agreements), then the executive will receive: (1) a severance payment equal to two times the sum of the executive’s (i) base salary in effect as of the date of the change of control termination, and
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(ii) an amount equal to the target short-term incentive opportunity for the year in which the change of control termination occurs; and (2) continuation coverage of life, health orand dental benefits for up to 18 months. In addition, any unvested portions of the executive’s outstanding options or stock appreciation rights will immediately vest and become exercisable; any remaining forfeiture provisions associated with histhe executive’s outstanding restricted stock awards will immediately lapse; and all shares or units subject to all outstanding performance share awards shall become immediately vested and payable at the applicable target performance objectives.number of shares. None of the Change of Control Agreements includes provisions requiring the Company
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to make an excise tax gross up payment. If the severance benefits payable to an executive would constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code, such payment shall either be reduced so that it will not constitute an excess parachute payment, or paid in full, depending on which payment would result in the executive receiving the greatest after tax payment. In the case of the latter, the executive would be liable for any excise tax owed.
Other than with respect to the arrangements described above, and as contained in the tabletables below, no executive officer has any contractual right to severance or other termination benefits.
The table below reflects estimated payments and benefits for Mr. Maharajour NEOs under the Severance Agreement,arrangements described above that would be due upon an involuntary termination, assuming a termination date of September 30, 2019.
Name | Severance Amounts ($)(1) | Welfare Benefits ($)(2) | Accelerated Vesting | Total ($) | ||||||||
Gary R. Maharaj | 1,143,400 | 36,9780 | — | 1,180,378 | ||||||||
Timothy J. Arens | n/a | n/a | n/a | n/a | ||||||||
Thomas A. Greaney | n/a | n/a | n/a | n/a | ||||||||
Bryan K. Phillips | n/a | n/a | n/a | n/a | ||||||||
Terly W. Sides | n/a | n/a | n/a | n/a |
(1) | Represents estimated severance benefits that would be paid following an involuntary termination. For Mr. Maharaj, this amount is equal to two times his base salary at the time of the assumed termination. |
(2) | Represents the estimated value of the continuation of coverage under life, health, and dental benefit plans to be provided following an involuntary termination. |
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The table below reflects estimated payments and benefits for Messrs. LaFrence, Olson, Phillips and Stichour NEOs under the terms of their Change of Control agreementsarrangements described above in each casethat would be due following a change of control termination, assuming that the triggering event occurred ona termination date of September 30, 2016.2019.
Name | Severance Amounts ($)(1) | Accelerated Vesting | Other Benefits ($)(5) | Estimated Tax Gross-Up ($) | Total ($) | |||||||||||||||||||||||
Performance Shares ($)(2) | Stock Options ($)(3) | Stock Awards ($)(4) | ||||||||||||||||||||||||||
Gary R. Maharaj | 1,899,157 | 1,446,456 | 1,319,917 | 213,579 | 33,280 | — | 4,912,389 | |||||||||||||||||||||
Andrew D. C. LaFrence | 771,120 | 512,102 | 482,518 | 81,634 | 32,808 | — | 1,880,181 | |||||||||||||||||||||
Charles W. Olson | 815,640 | 512,102 | 477,809 | 81,634 | 27,047 | — | 1,914,232 | |||||||||||||||||||||
Bryan K. Phillips | 856,520 | 512,102 | 477,809 | 81,634 | 932 | — | 1,928,997 | |||||||||||||||||||||
Joseph J. Stich | 731,640 | 512,102 | 477,809 | 81,634 | 26,875 | — | 1,830,060 |
Accelerated Vesting | Other Benefits ($)(5) | Estimated Tax Gross-Up ($) | Total ($) | ||||||||||||||||||
Name | Severance Amounts ($)(1) | Performance Shares ($)(2) | Stock Options ($)(3) | Restricted Shares ($)(4) | |||||||||||||||||
Gary R. Maharaj | 2,249,883 | 939,391 | 1,406,116 | 947,367 | 36,979 | — | 5,581,936 | ||||||||||||||
Timothy J. Arens | 854,000 | 359,196 | 484.486 | 315,423 | 43,296 | — | 2,056,401 | ||||||||||||||
Thomas A. Greaney | 932,437 | 359,196 | 509,851 | 300,283 | 5,315 | — | 2,107,081 | ||||||||||||||
Bryan K. Phillips(6) | 1,071,260 | 359,196 | 513,736 | 285,749 | — | — | 2,209,942 | ||||||||||||||
Terly W. Sides | 870,000 | — | — | 444,181 | 41,612 | — | 1,355,793 |
(1) | Represents estimated severance benefits that would be paid following an eligible termination occurring after a change of control. For Mr. Maharaj, this amount is equal to two and one-half times the average cash compensation (i.e., annual salary and cash incentive payments) paid to him during the three most recent taxable years prior to such termination. For all other executives, this amount is equal to two times the sum of the executive’s annual salary and the target annual cash incentive opportunity. |
(2) | Represents the target value of outstanding and unvested performance share awards, except for the performance shares granted for the three-year performance period ended September 30, |
(3) | Represents the market gain (intrinsic value) of unvested options as of September 30, |
(4) | Represents the value of unvested restricted |
(5) | Represents the estimated value of the continuation of coverage under life, health, and dental benefit plans for up to eighteen months. |
(6) | Mr. Phillips’ employment with the Company ended on December 20, 2019. |
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We are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Gary R. Maharaj, our CEO:
32For the fiscal year ended September 30, 2019:
Based on this information for fiscal year 2019, we reasonably estimate that the ratio of our CEO’s annual total compensation to the annual total compensation of our median employee was 38:1. Our pay ratio estimate has been calculated in a manner consistent with Item 402(u) of Regulation S-K.
Once we identified our median employee, we then determined that employee’s total compensation, including any perquisites and other benefits, in the same manner that we determine the total compensation of our named executive officers for purposes of the Summary Compensation Table disclosed above. This total compensation amount for our median employee was then compared to the total compensation of our CEO disclosed above. The elements included in the CEO’s total compensation are fully discussed above in the footnotes to the Summary Compensation Table.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who own more than 10% of the Company’s common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To our knowledge and based on written representations from our officers and directors, we believe that all reports required to be filed pursuant to Section 16(a) during the fiscal year ended September 30, 2016,2019, were filed in a timely manner, except for (a) a Form 4 filing in February 20162019 for Mr. LaFrenceGary R. Maharaj reporting the withholdingsale of shares pursuant to satisfy taxes incident to vesting of a restricted stock award, (b) a Form 3 filing for Thomas Greaney in November 2015 upon his becoming subject to Section 16(a), and (c) a Form 3 filing for Gregg Sutton in January 2016 upon his becoming subject to Section 16(a).duly adopted 10b5-1 trading plan.
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The Board of Directors maintains an Audit Committee comprised of three of the Company’s outside directors, including the directors listed below who were the members of the committee at the end of the fiscal year ended September 30, 2016.2019. In accordance with the written charter adopted by the Board of Directors, the Audit Committee assists the Board of Directors with fulfilling its oversight responsibility regarding the quality and integrity of the accounting, auditing and financial reporting practices of the Company. In discharging its oversight responsibilities regarding the audit process, the Audit Committee:
(1) reviewed and discussed the audited financial statements with management;
(2) discussed with the Company’s independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 16, Communications with Audit Committees, as amended or supplemented; and
(3) received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the registered public accounting firm’s communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the firm’s independence.
(1) | reviewed and discussed the audited consolidated financial statements with management; |
(2) | discussed with the Company’s independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as amended or supplemented; and |
(3) | received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the registered public accounting firm’s communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the firm’s independence. |
Based upon the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016,2019, as filed with the SEC.
Members of the Audit Committee:
Ronald B. Kalich Chair
(chair)
Susan E. Knight
Shawn T McCormick
Set forth below are the aggregate fees billed by Deloitte & Touche LLP, our independent registered public accounting firm, for each of our last two fiscal years:years (all amounts in USD):
Fiscal year ended September 30 | ||||||||
2016 | 2015 | |||||||
Audit Fees(1) | $ | 780,621 | $ | 404,955 | ||||
Audit-Related Fees | – | – | ||||||
Tax Fees | – | – | ||||||
All Other Fees(2) | 2,600 | 2,600 | ||||||
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Total | $ | 783,221 | $ | 407,555 | ||||
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Fiscal year ended September 30 | ||||||
2019 | 2018 | |||||
Audit Fees(1) | $ | 655,502 | $ | 883,341 | ||
Audit-Related Fees | — | — | ||||
Tax Fees | — | — | ||||
All Other Fees(2) | 121,895 | 1,895 | ||||
Total | $ | 777,397 | $ | 885,236 |
(1) | Audit services consisted principally of services related to the audit of our consolidated financial statements included in our Annual Reports on Form 10-K and review of financial statements included in our Quarterly Reports on Form 10-Q. |
(2) | All other fees (a) for fiscal |
The Company’s Audit Committee pre-approved all of the services described in each of the items above. In addition, the Audit Committee considered whether provision of the above non-audit services was compatible with maintaining Deloitte & Touche LLP’s independence and determined that such services did not adversely affect Deloitte & Touche LLP’s independence.
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RATIFICATIONTABLE OF APPOINTMENT OF INDEPENDENTCONTENTS
REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal #3)
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Proposal #3) |
The Audit Committee of the Board of Directors of the Company has appointed the firm of Deloitte & Touche LLP to serve as the independent registered public accounting firm of the Company for the fiscal year ending September 30, 2017,2020, subject to ratification of this appointment by the shareholders of the Company. Deloitte & Touche LLP has acted as the Company’s independent registered public accounting firm since fiscal 2002. In the event that shareholders do not ratify the selection of Deloitte & Touche LLP, the Audit Committee will re-evaluate their selection as the Company’s independent registered public accounting firm for fiscal 2017.2020.
Representatives of Deloitte & Touche LLP are expected to be present atparticipate in the virtual Annual Meeting, will be given an opportunity to make a statement regarding financial and accounting matters of the Company if they so desire, and will be available to respond to appropriate questions from the Company’s shareholders.
The Board of Directors recommends that you vote FOR the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for the fiscal year ending September 30, 2020. |
The Board of Directors recommends that you voteFOR the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for the fiscal year ending September 30, 2017.
ADVISORY VOTE ON EXECUTIVE COMPENSATION47
(Proposal #4)TABLE OF CONTENTS
ADVISORY VOTE ON EXECUTIVE COMPENSATION (Proposal #4) |
The Company is presenting the following proposal, which gives you as a shareholder the opportunity to endorse or not endorse the compensation of our named executive officersNEOs as described in this proxy statement by voting for or against the following resolution. This resolution is required pursuant to Section 14A of the Securities Exchange Act. While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature.
“RESOLVED, that the shareholders approve the compensation of the Company’s named executive officers,NEOs, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption ‘Executive Compensation and Other Information’Compensation’ of this proxy statement.”
The Board believes that our fiscal 20172019 executive compensation programs were tailored to our company’s business strategies, aligned pay with performance and reflect many of the best practices regarding executive compensation. Accordingly, the Board of Directors recommends that you voteFOR approval of the compensation of our named executive officersNEOs as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive Compensation and Other Information”Compensation” of this proxy statement. Proxies will be votedFOR approval of the proposal unless otherwise specified.
The Board has decided that the Company will hold an advisory vote on the compensation of the Company’s named executive officersNEOs (the “Say-on-Pay Vote”) annually until determining the outcome of thesuch time as our shareholders recommend a different frequency of the Say-on-Pay Vote as set forthwhen a frequency proposal is considered by our shareholders in Proposal #5 at our annual meetingan advisory vote, or until the Board determines that it is in the best interest of the Company to hold such vote with a different frequency.
The Board of Directors recommends that you vote FOR approval of the compensation of our NEOs. |
ADVISORY VOTE ON FREQUENCY
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TABLE OF SHAREHOLDER ADVISORY VOTES ON EXECUTIVE COMPENSATIONCONTENTS
(Proposal #5)
The Company is presenting the following proposal, which gives you as a shareholder the opportunity to inform the Company as to how often you wish the Company to include a proposal, similar to Proposal #4, in our proxy statement. Companies are required to provide a separate shareholder advisory vote once every six years to determine whether the Say-on-Pay Vote should occur every year, every two years or every three years and our shareholders last voted on this matter at our 2011 annual meeting of shareholders. We believe that approval of executive compensation should continue to occur every year because the Company believes that an annual advisory vote would allow our shareholders to provide us with their direct input on our compensation philosophy, policies and practices as disclosed in our proxy statement every year.
The Company is asking shareholders to vote on whether the say-on-pay vote should occur every year, every two years or every three years. As an advisory vote, this proposal is non-binding on the Company. If none of the options (e.g. year, two years or three years) receives a majority vote, the Board will consider the option receiving the most votes to have received the advisory approval of the shareholders.
The Board of Directors unanimously recommends that you vote to hold an advisory vote on executive compensation everyYEARShareholder Proposals.
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SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and intended to be presented at the 20182020 annual meeting of shareholders must be received by the Company by August 25, 2017,22, 2020, to be considered for inclusion in the Company’s proxy statement and related materials for the 20182021 annual meeting. Any other shareholder proposal intended to be presented at the 20182021 annual meeting, but not included in the Company’s proxy statement and related materials, must be received by the Company on or before November 16, 2017.15, 2020.
ANNUAL REPORTAnnual Report and Exhibits to Form 10-K
The notice regarding the availability of proxy materials will contain instructions as to how you can access our Annual Report to Shareholders, including our Annual Report on Form 10-K containing financial statements for the fiscal year ended September 30, 2016,2019, over the internet. It will also tell you how to request, free of charge, a paper or e-mail copy of our Annual Report onForm 10-K.
EXHIBITS TO FORM 10-K
The Company will furnish to each person whose Proxy is being solicited, upon written request of any such person, a copy of any exhibit described in the exhibit list accompanying the Form 10-K, upon the payment, in advance, of reasonable fees related to the Company’s furnishing such exhibit(s). Requests for copies of such exhibit(s) should be directed to Mr. Bryan K. Phillips, Corporate Secretary, at the Company’s principal address.
Neither management nor the Board knows of any matters to be presented at the Annual Meeting other than the matters described above. If any other matter properly comes before the Annual Meeting, the appointees named in the Proxies will vote the Proxies in accordance with their best judgment.
Your vote is very important no matter how many shares you own. You are urged to read this proxy statement carefully and, whether or not you plan to attend the Annual Meeting, to promptly submit a proxy by following the instructions for voting provided in the proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Susan E. Knight
Chair of the Board
Dated: December 23, 20162019
Eden Prairie, Minnesota
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement/10K is available atwww.proxyvote.com.
E16040-P84333
SURMODICS, INC.
Annual Meeting of ShareholdersTABLE OF CONTENTS
February 14, 2017 4:00 PM
This proxy is solicited by the Board of Directors
The shareholder(s) hereby appoint(s) Gary R. Maharaj and Andrew D.C. LaFrence, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy, all of the shares of common stock of SURMODICS, INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 4:00 PM, CST on February 14, 2017 as a virtual meeting at www.virtualshareholdermeeting.com/SRDX17, and any adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
Continued and to be signed on reverse side
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