UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

ICU MEDICAL, INC.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 


 


 

ICU MEDICAL, INC.

 

951 Calle Amanecer

San Clemente, California 92673-6213

 


 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held May 14, 2010

 


 

This Annual Meeting of Stockholders of ICU Medical, Inc. (the “Company) will be held by means of remote communication on the Internet at the Company’s web site, www.icumed.com, and by conference telephone at (866) 270-6057 and (617) 213-8891 for international, passcode 71399749, on Friday, May 14, 2010 at 9:00 a.m., Pacific Daylight Time, for the following purposes:

 

1.               To elect two directors of the Company to serve for a term of three years and until their successors have been elected and qualified;

 

2.               To ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2010;

 

3.               To consider a proposal to approve the amendment and restatement of the ICU Medical, Inc. 2003 Stock Option Plan, which upon approval, shall be known as the ICU Medical, Inc. 2003 Stock Incentive Plan, to among other things, (i) increase the number of shares of the Company’s common stock available for issuance thereunder by 600,000 shares; (ii) permit the award of additional types of securities and (iii) include performance conditions to be used for performance-based compensation; and

 

4.               To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

 

The Board of Directors has determined that only holders of common stock of record at the close of business on March 22, 2010 will be entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment thereof.

 

You may attend the Annual Meeting by either clicking on “Investors” and then clicking on “Annual Meeting” on our web site, www.icumed.com, or calling (866) 270-6057 or (617) 213-8891 for international, passcode 71399749, from a touch-tone telephone.  If you hold stock certificates registered in your own name, you will need the control number printed on the attachment to the enclosed proxy card to verify that you are a stockholder of record.  If your stock is held in “street name” by your broker or other nominee, you will need to provide the name of your broker or nominee to gain access to the Annual Meeting.

 

 

By Order of the Board of Directors

 

GRAPHIC

 

Scott E. Lamb, Secretary

 

 

San Clemente, CA

 

April 12, 2010

 

 



 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON MAY 14, 2010

 

The proxy statement and annual report to stockholders are available at http://ir.icumed.com.

 

YOUR VOTE IS IMPORTANT

 

Even if you plan to attend the Annual Meeting in person by means of remote communication, please complete, sign, date and return the enclosed proxy promptly or submit your proxy over the Internet or by telephone.  If you are a stockholder of record and attend the Annual Meeting electronically, you may withdraw your proxy and vote in person via facsimile. You will find information on submitting your proxy over the Internet and by telephone and information about voting in person at the Annual Meeting on the reverse side of this notice.

 

THANK YOU FOR ACTING PROMPTLY

 

How do I submit my proxy?

 

You will have the opportunity to attend the Annual Meeting by means of remote communication and vote during the Annual Meeting if you choose.  Whether or not you vote during the Annual Meeting, it is important that your shares be represented and voted. If you are a stockholder of record, you can give a proxy to have your shares voted at the Annual Meeting either:

 

· by mailing the enclosed proxy card in the enclosed envelope;

 

· electronically, using the Internet; or

 

· over the telephone by calling a toll-free number.

 

The Internet and telephone proxy submission procedures are set up for your convenience and are designed to verify your identity, to allow you to give voting instructions, and to confirm that those instructions have been properly recorded.  If you are a stockholder of record and you would like to submit your proxy by telephone or by using the Internet, please refer to the specific instructions on the attachment to the enclosed proxy card.  Alternatively, you may submit your proxy by mail by returning your signed proxy card in the enclosed envelope.  If we receive your proxy by mail, electronically or by telephone before the Annual Meeting, we will vote your shares as you direct.

 

If you hold your shares in “street name,” you must give voting instructions in the manner prescribed by your broker or nominee.  Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

 

How can I vote my shares in person at the meeting?

 

If you are a stockholder of record, as opposed to voting by proxy you may vote your shares during the Annual Meeting by facsimile.  The procedures for voting during the Annual Meeting are designed to verify your identity and allow you to vote.  You should retain the attachment to the proxy card enclosed with this Proxy Statement on which your unique control number appears.  You will need to write this control number on your ballot to verify your identity.

 

To vote during the meeting, access the Company’s website at www.icumed.com, then click on the Investors tab, and click on the icon that says “Voting Ballot.”  You may download and print the ballot.  Alternatively, you may request that a ballot be faxed to you by calling Investor Relations at (800) 824-7890 any time before 4:00 PM PDT on May 13, 2010.  After you have marked your votes and recorded your control number on your ballot, you may fax the ballot to the Company at (949) 366-8368.  Ballots must be received before the polls are closed during the Annual Meeting to be counted.  We anticipate that the polls will be open from approximately 9:05 to 9:20 AM PDT on May 14, 2010.

 

1



 

Even if you currently plan to attend the Annual Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.  If you vote by proxy and then decide to attend the Annual Meeting, you will be able to vote during the Annual Meeting, even if you have previously submitted your proxy.

 

How can I request proxy materials?

 

To request a print or electronic copy of our Proxy Statement, Annual Report to Stockholders and form of proxy, you may call our toll-free telephone number (800) 824-7890; e-mail us at ir@icumed.com  or visit our Web site at www.icumed.com.  You may also request that we send you proxy materials relating to future stockholders meetings in print or electronic form.

 

Your vote is important.  Thank you for voting.

 

2



 

ICU MEDICAL, INC.

 

951 Calle Amanecer

San Clemente, California 92673

 

PROXY STATEMENT

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of ICU Medical, Inc. (the “Company”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”).  The Annual Meeting is to be held by means of remote communication on the Internet at the Company’s web site, www.icumed.com, and by conference telephone at (866) 270-6057 or (617) 213-8891 for international, passcode 71399749, on Friday, May 14, 2010 at 9:00 a.m., Pacific Daylight Time, and at any adjournments thereof, for the purposes set forth herein and in the accompanying Notice.

 

The approximate date of mailing of this Proxy Statement, the Annual Report to Stockholders and the proxy card is April 12, 2010. The principal executive offices of the Company are located at 951 Calle Amanecer, San Clemente, California 92673.

 

Attendance by Remote Communication

 

The Annual Meeting will be held entirely by remote communication on the Internet, as permitted by Delaware law. There will be no physical location at which stockholders may attend the Annual Meeting, but stockholders may attend and participate in the meeting electronically. Stockholders who participate in the Annual Meeting by means of remote communication will be deemed to be present in person and will be able to vote during the Annual Meeting at the times that the polls are open. Stockholders who wish to attend the meeting should go to www.icumed.com, click on the Investors tab and click on the icon that says “Annual Meeting” or telephone (866) 700-6979, pass code 24721323 at least 10 minutes before the beginning of the meeting to register their attendance and complete the verification procedures to confirm that they were stockholders of record as of March 22, 2010, the record date. Stockholders of record will need to provide the control number on the attachment to the enclosed proxy card to verify their identity.

 

Beneficial owners whose stock is held for them in street name by their brokers or other nominees may also attend the meeting by going to www.icumed.com, clicking on the Investors tab and clicking on the icon that says “Annual Meeting” or telephoning (866) 270-6057 or (617) 213-8891 for international, passcode 71399749, at least 10 minutes before the beginning of the meeting to register their attendance and complete the verification procedures to confirm that they were stockholders of record as the record date. Such beneficial owners may not vote at the meeting, and may only cause their shares to be voted by providing voting instructions to the persons who hold the beneficial owners’ shares for them. Beneficial owners will need to provide the name of the broker or other nominee that holds their shares to gain access to the meeting.

 

There is additional information about voting at the Annual Meeting on the opposite page. Stockholders may also obtain additional information about accessing and voting during the Annual Meeting by calling Investor Relations at (800) 824-7890.

 

Proxy Information

 

A stockholder giving a proxy may revoke it at any time before it is exercised by filing with the Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if the person executing the proxy is present at the Annual Meeting electronically and elects to vote in person. Subject to such revocation or suspension, all shares represented by each properly executed proxy received by the Company will be voted in accordance with the instructions indicated thereon, and if instructions are not indicated, will be voted in favor of (i) the election of the nominees for director named in, or otherwise nominated as set forth in this Proxy Statement, (ii) the proposal to ratify the selection of the independent registered public accounting firm, (iii) the proposal to approve the amendment and restatement of the ICU Medical, Inc. 2003 Stock Option Plan (the “2003 Stock Option Plan”) and (iv) in the discretion of the proxy holders, on any other business that comes before the meeting.

 

3



 

Record Date and Voting

 

As of March 22, 2010 the outstanding voting securities of the Company consisted of 13,579,564 shares of $.10 par value common stock. Each stockholder of record at the close of business on March 22, 2010 is entitled to one vote for each share held as of that date on each matter submitted to a vote of stockholders. The presence in person electronically or by proxy of holders of a majority of the issued and outstanding common stock will constitute a quorum for the transaction of such business as shall properly come before the meeting.

 

Assuming that a quorum is present, the votes required to approve the matters before the Annual Meeting are as follows:

 

·                  Election of Directors: Directors are elected by a plurality of the votes of the shares present in person electronically or by proxy and entitled to vote on the election of directors.  As a result, abstentions and broker non-votes have no effect on the election of directors.

 

·                  All other Matters (ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm and the approval of the amendment and restatement of the 2003 Stock Option Plan): Stockholder approval of all other matters requires the affirmative vote of a majority of the shares present in person, electronically or represented by proxy and entitled to vote on the respective matters. Shares voted to abstain on such matters will be treated as entitled to vote on such matters and will have the same effect as “no” votes.  Broker non-votes will have no effect on the vote for these matters.

 

The term “broker non-votes” refers to shares held by a broker in street name that are present by proxy but are not voted pursuant to rules prohibiting brokers from voting on non-routine matters without instructions from the beneficial owner of the shares.  Broker non-votes on non-routine matters are not counted as entitled to vote on a matter in determining the number of affirmative votes required for approval of the matter but are counted as present for quorum purposes. Of the proposals to be considered at the Annual Meeting, only the ratification of the selection of independent registered public accountants is considered to be a routine matter on which brokers may vote without instructions from beneficial owners.  The election of directions is considered a non-routine matter on which your brokers may not vote without instructions from beneficial owners. For more information on this topic, see the SEC Investor Alert issued in February 2010 entitled “New Shareholder Voting Rules for the 2010 Proxy Season” at http://www.sec.gov/investor/alerts/votingrules2010.htm.

 

Board Recommendations

 

The Board of Directors recommends that you vote:

 

·                  FOR the election of the two nominees for election to the Board of Directors to serve for a term of three years and until their successors have been elected and qualified;

 

·                  FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the year ended December 31, 2010; and

 

·                  FOR the proposal to approve the amendment and restatement of the 2003 Stock Option Plan, which upon approval, shall be known as the ICU Medical, Inc. 2003 Stock Incentive Plan, to among other things, (i) increase the number of shares of the Company’s common stock available for issuance thereunder by 600,000 shares; (ii) permit the award of additional types of securities and (iii) include performance conditions to be used for performance-based compensation..

 

4



 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information as to shares of common stock owned as of March 22, 2010, by (i) each person who, insofar as the Company has been able to ascertain, beneficially owned more than five percent of the outstanding common stock, (ii) each director, (iii) each nominee for election as a director, (iv) each named executive officer, and (v) all directors and executive officers as a group. Unless otherwise indicated in the footnotes following the table, and subject to community property laws where applicable, the Company believes that the persons as to whom the information is given have sole voting and investment power over the shares listed as beneficially owned. The business address of the George A. Lopez, M.D. Second Family Limited Partnership, the Lopez Family Trust and of George A. Lopez, M.D. is 951 Calle Amanecer, San Clemente, California 92673.

 

 

 

Shares Owned
Beneficially (1)

 

Percent of
Class (1)

 

George A. Lopez, M.D.

 

3,182,744

(2)

20.75

%

George A. Lopez, M.D. Second Family Limited Partnership

 

1,186,843

(3)

8.56

%

Wellington Management Company, LLP
75 State Street, Boston, MA 02109

 

1,178,080

(12)(13)

8.50

%

BlackRock, Inc.
40 East 52
nd Street, New York, NY 10022

 

1,117,197

(12)(14)

8.06

%

Columbia Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000, Chicago, IL 60606

 

858,000

(12)(15)

6.19

%

Jack W. Brown

 

57,875

(4)

*

 

John J. Connors

 

32,125

(5)

*

 

Michael T. Kovalchik III, M.D.

 

49,387

(4)

*

 

Joseph R. Saucedo

 

46,740

(4)

*

 

Richard H. Sherman, M.D.

 

119,426

(4)

*

 

Robert S. Swinney, M.D.

 

53,625

(4)(6)

*

 

Alison D. Burcar

 

19,000

(7)

*

 

Richard A. Costello

 

56,013

(8)

*

 

Scott E. Lamb

 

6,252

(9)

*

 

Steven C. Riggs

 

49,986

(10)

*

 

All directors and named executive officers as a group (11 persons)

 

3,673,173

(11)

23.35

%

 


*                      Represents less than 1% of our outstanding common stock.

 

(1)               Based on total shares of common stock outstanding plus outstanding options to acquire common stock currently exercisable or exercisable within 60 days held by the beneficial owner whose percent of outstanding stock is calculated.

 

(2)               Includes options to acquire 1,475,000 shares. Also includes the 1,186,843 shares owned by the George A. Lopez, M.D. Second Family Limited Partnership (the “Partnership”), as to which shares Dr. Lopez disclaims any beneficial ownership except to the extent described in Note (3).  Includes 186,982 shares owned by the Lopez Family Trust.  Dr. Lopez is a trustee and beneficiary of the Lopez Family Trust.  Includes 173,950 shares held by Dr. Lopez as Trustee of the Lopez Charitable Remainder Trust #1 for the benefit of Dr. Lopez.

 

(3)               Dr. Lopez is the general partner of the Partnership and holds a one percent general partnership interest in the Partnership.  As general partner, he has the power to vote and power to dispose of the 1,186,843 shares owned by the Partnership and may be deemed to be a beneficial owner of such shares.  Trusts for the benefit of Dr. Lopez’s children, the Christopher George Lopez Children’s Trust and the Nicholas George Lopez Children’s Trust, own a 99% limited partnership interest in the Partnership. Dr. Lopez is not a trustee of and has no interest in his children’s Trusts.  Except to the extent of the undivided one percent general partnership interest in the assets of the Partnership, Dr. Lopez disclaims any beneficial ownership of the shares owned by the Partnership

 

(4)               Includes options to acquire 46,625 shares.

 

(5)               Includes options to acquire 31,625 shares.

 

5



 

(6)               Does not include 750 shares owned by Dr. Swinney’s wife as to which he has no voting or investment power and disclaims any beneficial ownership.

 

(7)               Includes options to acquire 19,000 shares

 

(8)               Includes options to acquire 56,013 shares.

 

(9)               Includes options to acquire 5,000 shares.

 

(10)         Includes options to acquire 48,750 shares.

 

(11)         Includes options to acquire 1,868,513 shares.

 

(12)         Information included solely in reliance on information included in statements filed with the Securities and Exchange Commission (“SEC”) pursuant Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended, by the indicated holder.

 

(13)         Wellington Management Company, LLP stated in its Schedule 13G/A filing with the SEC on February 12, 2010 that, of the 1,178,080 shares beneficially owned, it has shared voting power with respect to 764,280 shares and shared dispositive power with respect to all 1,178,080 shares.

 

(14)         BlackRock, Inc. stated in its Schedule 13G filing with the SEC on January 29, 2010 that, of the 1,117,197 shares beneficially owned, it has sole voting and sole dispositive power with respect to all 1,117,197 shares.

 

(15)         Columbia Wanger Asset Management, L.P. stated in its Schedule 13G/A filing with the SEC on February 10, 2010 that, of the 858,000 shares beneficially owned, it had sole voting power and sole dispositive power with respect to all 858,000 shares.

 

None of the Company’s shares owned by its directors or officers has been pledged as security, and Company policy prohibits pledging or hypothecating any of the Company’s securities owned by its directors and officers.

 

6


 


 

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

 

Compensation Discussion and Analysis

 

The Company’s policy in compensating executive officers is to establish methods and levels of compensation that  provide strong incentives to promote the profitability and growth of the Company and reward superior performance and that are sufficiently competitive to attract, retain and motivate highly competent management personnel. Compensation of executive officers includes base salary, performance-based and merit bonuses, stock options, and discretionary long-term compensation.

 

The Compensation Committee believes that a critical factor in ensuring the Company’s ability to attract, retain and motivate its executive officers is ensuring that their compensation is competitive with companies that it considers to be competitors.  In determining the appropriate level and form of compensation, the Compensation Committee reviews market data relating to the cash and equity compensation of similarly-sized medical device and life sciences companies that is provided by Compensia, a compensation consultant engaged by the Compensation Committee.  The market data also includes a specific set of peer companies comprised of publicly-held medical device manufacturing companies with comparable annual revenue and comparable aggregate market value.  The peer companies used in our 2009 compensation assessment was Align Technology, AngioDynamics, ArthroCare, Aspect Medical Systems, Bio-Reference Laboratories, Cantel Medical, Cardionet, eResearch Technology, Home Diagnostics, Integra Lifesciences Holdings, Masimo, Medical Action Industries, Merit Medical Systems, Quidel, SonoSite, Symmetry Medical, Thoratec, VNUS Medical Technologies, Wright Medical Group and Zoll Medical.  All market data used for the comparative analyses comprises of our ‘peer group’.

 

The Company has a program of paying semi-annual merit bonuses under which officers, including our named executive officers, are eligible to receive bonuses based on a percentage of their base salaries. The bonus amounts are determined by our Compensation Committee based upon the Company’s achievement of financial targets selected at the beginning of the fiscal year.  The Compensation Committee may exercise its discretion to award additional amounts under certain circumstances for unusual achievements. Merit bonuses are intended to further align the interests of the executive officers with the objectives of the Company, which are based on what the Company believes will produce the best return for the Company’s stockholders.

 

In setting compensation levels for executive officers, the Compensation Committee considers each element of compensation separately as well as the aggregate value of all elements of compensation for each individual.  Amounts realized or realizable from awards under prior bonus or incentive plans, including stock options, are not considered in setting current compensation levels.  The significant compensation components are base salary, bonus pay and stock options.

 

The Company does not provide pension or other post-retirement benefits, other than matching contributions under the Company’s 401(k) retirement plan.  The Company does not provide, except to the limited extent described in this discussion, any significant perquisites or other personal benefits to its officers.

 

The Company has not set any guidelines for ownership of its securities by directors or officers.  It does prohibit pledging or hypothecating any securities owned by any of its employees or directors or “short selling” of its securities by any of its employees or directors.

 

The CEO recommends to the Compensation Committee compensation for all the named executive officers except himself.  The Compensation Committee reviews and determines the compensation of all executive officers, including the CEO.  See “Compensation Committee” elsewhere in this Proxy Statement.

 

The Company has entered into employment agreements with each of the named executive officers.  For named executive officers other than Dr. Lopez, the term of the agreement is for semi-annual periods ending on June 30 and December 31, which are automatically renewed for successive six-month periods upon expiration, unless terminated by the Company.  The term of the agreement with Dr. Lopez is for an annual period ending December 31 and is automatically renewed for an annual period upon expiration, unless terminated by the Company.  The agreements may be terminated by the Company with or without cause on sixty days notice. The terms of the agreements generally provide for a base salary and performance-based bonus target for each named executive; however, the agreements do not provide for a guaranteed term of employment.  Upon termination of employment with the Company due to disability, the employment agreements also provide for a lump sum payment equal to 50% of the executive officer’s base salary for the term of the agreement.  Other than these provisions requiring 60 days of notice for termination and the lump sum payment upon termination due to disability, we do not have severance agreements with any of our executive officers.

 

7



 

Base Executive Salaries

 

The Compensation Committee generally intends to set the base salaries of the executive officers at the 75th percentile base salary for similar positions in our peer group but may adjust them upwards or downwards based on factors such as business experience, longevity with the Company, tenure in the position and unique requirements of the position, as compared to similar positions in other companies in our peer group.

 

In 2007, the Company made no, or only minor adjustments, in the base salaries of Dr. Lopez, Mr. Costello and Mr. Riggs.  Mr. Lamb and Ms. Burcar’s base salaries were increased to $180,000 and $145,000, respectively, because of general market conditions and in recognition of increased job responsibilities.

 

In 2008, base annual salaries were increased as follows: Mr. Costello to $260,000; Mr. Lamb to $190,000 as of January 1, 2008 and $210,000 as of April 1, 2008; and Mr. Riggs to $260,000.  These increases were due to general market conditions, and in Mr. Lamb’s case, in recognition of increased job responsibilities.

 

In 2009, the Compensation Committee increased certain executive salaries based on data provided by Compensia, our external compensation consultants.  These increases were to make the officer’s total pay competitive with the total pay of officers in comparable positions in the Company’s peer group and to keep compensation internally equitable for Messrs. Lamb, Costello and Riggs.  Salaries were increased effective July 1, 2009 for Dr. Lopez, Mr. Costello and Mr. Riggs to $588,000, $300,000 and $300,000, respectively.  Mr. Lamb’s salary initially increased to $250,000 effective January 1, 2009 and to $300,000 effective July 1, 2009.

 

For 2010, base annual salaries were increased on January 1, 2010 to $670,000 for Dr. Lopez, $341,000 for Mr. Lamb, $336,000 for Mr. Costello and $330,000 for Mr. Riggs.  These increases were to make the total pay competitive with the total pay of comparable positions of companies in the Company’s peer group and to keep the compensation internally equitable for Messrs. Lamb, Costello and Riggs.  Ms. Burcar’s salary remained at $195,000 because of her position change from Vice President of Marketing to Vice President of Product Development, which was not included in the peer group analysis performed in 2009.  The Company will evaluate her compensation level in 2010 and will make adjustments, as deemed appropriate.

 

Dr. Lopez’s 2009 earned salary was $544,000, which was approximately in the 50th percentile of our peer group.  Dr. Lopez’s 2010 salary is at the 75th percentile of our peer group.  Mr. Lamb’s 2009 earned salary was $275,000, which was between the 25th and 50th percentile of our peer group.  Mr. Lamb’s 2010 salary is at the 75th percentile of our peer group.  Mr. Costello’s 2009 earned salary was $280,000, which was between the 50th and 75th percentile of our peer group.  Mr. Costello’s 2010 salary is above the 75th percentile of our peer group.  Mr. Riggs’ 2009 earned salary was $280,000 which was above the 75th percentile of our peer group.  Mr. Riggs’ 2010 salary is above the 75th percentile of our peer group.  Ms. Burcar’s salary remained at $195,000 because her responsibilities changed to oversee product development from marketing.  As discussed above, we did not have a salary analysis done on her new position, however, we will evaluate her compensation level in 2010 and will make adjustments, as deemed appropriate.

 

Performance-Based Bonuses

 

Merit Bonuses

 

In addition to base salaries, during each fiscal year our named executive officers can earn semi-annual merit bonuses that are based on annual financial goals.  From 2007 through 2009, Dr. Lopez’s bonus was based on 100% of his salary.  From 2007 through the first half of 2009, Mr. Lamb, Mr. Costello and Mr. Riggs’ bonuses were based on 35% of their salary.  For the second half of 2009, Mr. Lamb, Mr. Costello and Mr. Riggs’ bonuses were based on 50% of their salary.  From 2007 through 2009, Ms. Burcar’s bonus was based on 30% of her salary.  The 2009 bonus target increases for Messrs. Lamb, Costello and Riggs were to make the officer’s compensation more competitive with the Company’s peer group.  The Company sets Dr. Lopez’s bonus percentage at a higher percentage of his base salary than those of other officers because it believes that in view of his overall responsibility for the success of the Company, it is appropriate that a larger portion of his compensation be contingent on performance.

 

8



 

For 2007, no specific goals for payment of the merit bonus were established; however, the Compensation Committee used financial performance in its decision of bonus amounts to be paid.  Bonuses were paid at 50% of the targeted amount for the first semi-annual period in 2007 and at the full targeted amount for the second half of 2007.  The key elements of financial performance that were considered were sales, sales growth, operating profit and growth in operating profit, net income and growth in net income, cash flow from operations and level of accounts receivable and inventories. Although overall results for the first half and second half of 2007 were below the desired financial performance, significant consideration was given to the fact that a major reason for the weaker than desired financial performance was the decline in the Company’s revenue from critical care products, which is outside the direct control of the officers of the Company, and the results of the Company’s other operations were satisfactory.

 

For 2008, payment of semi-annual merit bonuses was based on achievement of financial goals for revenue, gross profit and operating income for all named executive officers.  Bonuses were paid at 50% of the targeted amount for the first half of 2008 since only part of the financial goals were achieved for this period.  Bonuses were paid at the full targeted amount for the second half of 2008 plus the remaining 50% from the first half of 2008 since the revenue, gross profit and operating income targets  were met for the full year of 2008.  The Company approved a specific performance bonus, in lieu of the merit bonus, of up to $375,000 payable to Mr. Costello based upon achievement of a number of specific sales, sales growth and operating targets in 2008.  In October 2008, the cap on this bonus was eliminated.  Mr. Costello earned $75,000 from this bonus arrangement for 2008, which was also based on the achievement of revenue, gross profit and operating income goals.

 

For 2009, payment of semi-annual merit bonuses was based on achievement of the following financial goals: (i) $215.4 million in total revenue, (ii) $93.0 million in gross profit and (iii) $33.0 million in operating income.  Each of the 2009 performance targets were met, and the bonuses were paid at 100% of the targeted amount, resulting in payments of $544,000 for Dr. Lopez, $118,750 for Mr. Lamb, $120,500 for Mr. Costello, $120,500 for Mr. Riggs and $58,500 for Ms. Burcar.

 

For 2010, payment of semi-annual merit bonuses will be based on achievement of financials goals for total revenue, operating income and diluted earnings per share.  The Compensation Committee has the discretion to award some or all of the bonus if the financial goals are not achieved but performance is otherwise satisfactory, and may award amounts in excess of the targeted amount if the results exceed the financial goals.  While we do not disclose the actual performance targets because doing so would cause us competitive harm, we believe that the bonuses have been established at an achievable level.  We note that in 2009, our named executive officers earned the full amount of their respective potential bonuses and met the performance targets established for the year.

 

In an effort to ensure that Mr. Lamb’s compensation remains competitive, the Compensation Committee approved an increase to Mr. Lamb’s bonus target for 2010 from 50% of his base salary to 60% of his base salary.  Additionally, the Compensation Committee determined that Dr. Lopez will not be eligible for a merit bonus in 2010 and will instead participate only in the 2008 Performance-Based Incentive Plan (the “2008 Plan”) discussed below.  The bonus targets for the remaining named executive officers were not changed.

 

2008 Performance-Based Incentive Plan

 

The Company’s 2008 Plan was approved by stockholders in 2008 and is intended to qualify under the performance-based compensation exception set forth Section 162(m) of the Internal Revenue Code (the “Code”).  As Dr. Lopez is the only executive officer whose compensation level implicates the deductibility limits under Section 162(m), he is currently the only participant in the 2008 Plan. Pursuant to the terms of the plan, the Compensation Committee sets potential bonus amounts and performance targets, and actual earnings are determined based on the Company’s achievement of the performance targets.

 

The performance targets for Dr. Lopez in 2009 were as follows: (i) $223.6 million to $236.0 million in total revenue, (ii) $21.5 million to $26.0 million revenues from certain new products and (iii) $35.0 million to $36.9 million in operating income.  Dr. Lopez earned $160,000 in 2009 based on the Company’s achievement of 100% of the operating income goal and 60% of the total revenue goal.  The Company did not achieve the revenue goal with respect to the new products. Dr. Lopez was eligible to receive the maximum payout of $500,000 if all performance targets had been achieved.  In 2008, Dr. Lopez earned $90,000 out of a maximum payout of $500,000.

 

9



 

The performance targets established for Dr. Lopez for 2010 are based on specific financial metrics tied to total revenue, operating income and diluted earnings per share.  The Compensation Committee revised the performance metrics so that Dr Lopez’s goals would be consistent with the goals of the other named executive officers under the semi-annual merit bonus plan.  In 2010, Dr. Lopez will participate solely in the 2008 Plan, and his target was set at 125% of his base salary if all performance targets are achieved. Dr. Lopez may earn up to a maximum of 170% of his base salary.   While we do not disclose the actual performance targets because to do so would cause us competitive harm, we believe that the portion of bonus set at 125% of Dr. Lopez’s salary is at an achievable level.  His potential bonus above 125% of his salary have  performance targets that are  greater than the applicable amounts in the Company’s 2010 operating plan, and we believe that meeting such targets would require exceptional achievement.

 

Stock Options

 

The Company awards stock options to its officers and certain of its employees to make compensation practices consistent with practices of companies in our peer group and because we believe stock-based compensation is generally preferred by our officers. The use of stock options further promotes our efforts to the profitability and growth of the Company through the establishment of strong incentives.

 

In 2008 and 2007, the Company granted options to purchase 20,000 shares of its common stock to each of its named executive officers, except Dr. Lopez who received 60,000 shares. In 2009, the Company granted options to purchase shares of common stock to Ms. Burcar of 13,000, Messrs. Lamb, Costello and Riggs of 30,000 each and Dr. Lopez of 90,000. In February 2010, the Company granted options to purchase shares of its common stock to Ms. Burcar of 1,000, Messrs. Lamb, Costello and Riggs of 15,000 each and Dr. Lopez of 40,000.  Messrs. Lamb, Costello and Riggs are awarded the same number of options in recognition of the Compensation Committee’s assessment of their relatively similar scope of responsibility. Dr. Lopez and Ms. Burcar have relatively larger and smaller roles, respectively, in the management of the Company than the other named executive officers, which is reflected in the size of their respective grants. The Compensation Committee generally awards options twice year, once in the first quarter and once in the third quarter.

 

In determining the number of options to award, the Compensation Committee reviews data compiled by Compensia that includes comparisons to the officer’s peer group as well as the Company’s operating performance and individual performance to determine the number of options to be granted to each officer. In 2009, the fair value of options awarded to Dr. Lopez and Mr. Lamb were between the 50th and 75th percentile of their respective positions within the Company’s peer group.  In setting the number of options awarded at 90,000 and 30,000 for Dr. Lopez and Mr. Lamb, respectively, the Compensation Committee did not target any specific percentile; however, the Compensation Committee believes that the fair value of option awards is consistent with the Company’s practice of awarding total compensation near the range of the 65th to 75th percentile.

 

Additionally, in determining the number of options to award, the Compensation Committee considered the Company’s operating performance.  In 2009, the Company specifically considered the three factors set forth for the 2009 merit bonus discussed above (revenue, gross profit and operating income).  Based on part on the Company’s success in meeting these goals, the Compensation Committee decided to increase the relative number options granted in 2009 as compared to 2008.

 

Long-Term Retention Plan

 

The Long-Term Retention Plan (“LTRP”) was established in 2005 as a discretionary deferred compensation plan under which discretionary cash payments may be made to officers six years after an award is made.  Under the LTRP, the Compensation Committee periodically determines, after advice from and consultation with, the CEO, the award to each participant, except that the Compensation Committee shall determine the award to the CEO, without advice from or consultation with, the CEO.  The amounts of the annual awards are discretionary, and do not bear a relationship to the officers’ other compensation or performance.

 

Awards, other than awards to the CEO, may be paid or not paid at the sole discretion of the CEO on the sixth anniversary of the award; provided, however that awards will be paid sooner if Dr. Lopez ceases to be CEO. Awards to Dr. Lopez may be paid or not paid at the sole discretion of the Compensation Committee on the sixth anniversary of the award or sooner if Dr. Lopez is terminated or replaced as CEO without cause (as defined in the LTRP). To receive payment of an award, a participant must have been continually employed by the Company from the time that the award was made until the time that payment is due.  The maximum amounts of the awards may be increased by up to 200% of the award amounts based upon increases in the price of the Company’s common stock or market capitalization.

 

10



 

Awards made to named executive officers in 2007 were as follows: Dr. Lopez $1,000,000; Mr. Lamb $250,000; Mr. Costello $400,000; Mr. Riggs $400,000. There were no grants in 2008, 2009 or 2010.  The Company has curtailed future awards to officers under the LTRP because it has re-established the use of stock options.

 

Payments upon Termination in Connection with a Change in Control

 

In February 2010, the Company entered into a retention agreement with Dr. Lopez which provides that, if within 24 months after a change in control of the Company, as defined in the agreement, his employment is terminated for other than cause, disability or death or for “good reason” he will be entitled to any unpaid salary or unpaid prorated bonus for the year of termination, 360% of his annual salary and target bonus, continuation of benefits for two years and any stock options he holds will vest in full.  The Company and Dr. Lopez had entered into an earlier retention agreement that expired by its terms in 2009. In addition, as in his original retention agreement, if any payments are subject to excise tax under Section 4999 of the Code, he will be entitled to a “gross up” of payments to offset the effect of the excise tax.  The Company will not be entitled to a tax deduction for any payments made under the agreement that are subject to excise tax.  Given Dr. Lopez’s compensation, which is used to determine whether an excise tax is owed, the Compensation Committee determined that it was unlikely that the tax gross up would ever be triggered. Given its assessment and the importance of the tax gross up provision to Dr. Lopez, the Compensation concluded that inclusion of the provision would be acceptable.  The tax gross up provision is not included in the retention agreements of any of the Company’s other executive officers. In addition, the Company will pay the commercially reasonable fees for an outplacement firm.

 

In February 2010, the Company entered into retention agreements with Mr. Lamb, Mr. Costello, Mr. Riggs and Ms. Burcar which provide that, if within 12 months after a change in control of the Company, as defined in the agreements, their employment is terminated for other than cause, disability or death or for “good reason” within 12 months after a “change in control” the officer will be entitled to any unpaid salary or unpaid prorated bonus for the year of termination, 120% of their annual salary and target bonus and continuation of benefits for one year and any stock options held by the officer will vest in full.  In addition, the Company will pay up to $10,000 for services for an outplacement firm for the officer. Unlike the retention agreement with Dr. Lopez, the retention agreements with the other named executives do not contain a tax gross up provision.

 

For the purposes of these agreements, a change in control generally means the following:

 

·                  the acquisition by an individual, entity or group of beneficial ownership of 50% or more of either the outstanding common stock or voting securities of the Company; or

·                  a change in the composition of the majority of the Board of Directors, which is not supported by a majority of the current Board of Directors; or

·                  a major corporate transaction, such as a reorganization, merger or consolidation or sale or disposition of all or substantially all of the Company’s assets (unless certain conditions are met); or

·                  approval of the stockholders of the Company of a complete liquidation or dissolution of the Company.

 

11



 

Summary Compensation Table

 

The following table shows all compensation awarded to, earned by or paid to each of the Company’s principal executive officer, principal financial officer and the next three most highly compensated executive officers whose 2009 total compensation exceeded $100,000 (collectively, the “named executive officers”).  All amounts except for those set forth in the “Equity Awards” column are included in the year earned rather than the year actually paid; a portion of certain amounts, other than salary, may be paid in the following year.

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

 

 

 

 

Non-Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

Incentive Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards ($)

 

Compensation

 

All Other

 

 

 

Name and Principal Position

 

Year

 

Salary ($)

 

Bonus ($)

 

(1)

 

($) (2)

 

Compensation ($)

 

Total ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

George A. Lopez, M.D., Chairman of the Board, President and Chief Executive Officer

 

2009

 

$

544,000

 

$

 

$

1,202,850

 

$

704,000

 

$

8,137

 

$

2,458,987

 

 

2008

 

$

500,000

 

$

 

$

844,580

 

$

590,000

 

$

2,333

 

$

1,936,913

 

 

2007

 

$

500,000

 

$

387,500

 

$

1,086,498

 

$

 

$

11,350

 

$

1,985,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott E. Lamb, Secretary, Treasurer and Chief Financial Officer

 

2009

 

$

275,000

 

$

 

$

400,950

 

$

118,750

 

$

8,575

 

$

803,275

 

 

2008

 

$

204,591

 

$

 

$

271,252

 

$

73,500

 

$

8,050

 

$

557,393

 

 

2007

 

$

180,000

 

$

27,000

 

$

362,166

 

$

 

$

5,370

 

$

574,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard A. Costello, Vice President of Sales

 

2009

 

$

280,000

 

$

 

$

400,950

 

$

120,500

 

$

 

$

801,450

 

 

 

2008

 

$

260,000

 

$

20,000

 

$

271,252

 

$

75,000

 

$

 

$

626,252

 

 

 

2007

 

$

250,000

 

$

56,250

 

$

362,166

 

$

 

$

4,326

 

$

672,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven C. Riggs, Vice President of Operations

 

2009

 

$

280,000

 

$

 

$

400,950

 

$

120,500

 

$

7,318

 

$

808,768

 

 

 

2008

 

$

260,000

 

$

 

$

271,252

 

$

91,000

 

$

8,050

 

$

630,302

 

 

 

2007

 

$

231,000

 

$

51,975

 

$

362,166

 

$

 

$

6,104

 

$

651,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alison D. Burcar, Vice President of Marketing

 

2009

 

$

195,000

 

$

 

$

199,608

 

$

58,500

 

$

 

$

453,108

 

 

 

2008

 

$

195,000

 

$

 

$

271,252

 

$

58,500

 

$

 

$

524,752

 

 

 

2007

 

$

143,353

 

$

32,625

 

$

362,166

 

$

 

$

3,130

 

$

541,274

 

 


(1)          Represent the grant date fair value of stock options granted in the period.  See Note 4 in the Company’s Consolidated Financial Statements included in its 2009 Annual Report on Form 10-K for assumptions made in valuation of stock options.

 

(2)          The 2009 amount for Dr. Lopez includes $544,000 from the achievement of goals associated with his merit bonus and $160,000 for achievement of his fiscal year 2009 performance goals, consistent with the terms of the 2008 Plan.  The 2008 amount for Dr. Lopez includes $500,000 from the achievement of goals associated with the merit bonus and $90,000 for an achievement his fiscal year 2008 performance goals, consistent with the terms of the 2008 Plan.  The 2009 and 2008 amounts for Mr. Lamb, Mr. Costello, Mr. Riggs and Ms. Burcar are from the achievement of goals associated with their respective merit bonuses.

 

12


 


 

Grants of Plan-Based Awards

 

The following table presents awards in 2009 under the Company’s various incentive award plans.

 

GRANTS OF PLAN-BASED AWARDS FOR 2009

 

 

 

 

 

 

 

 

 

 

 

All Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option

 

Exercise

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards:

 

or Base

 

Grant Date

 

 

 

 

 

 

 

Number of

 

Price of

 

Fair Value

 

 

 

 

 

Estimated Possible Payouts Under Non-

 

Securities

 

Option

 

of Stock and

 

 

 

Grant

 

Equity Incentive Plan Awards

 

Underlying

 

Awards

 

Option

 

Name

 

Date

 

Threshold ($)

 

Target ($)

 

Maximum ($)

 

Options (#)

 

($/sh)

 

Awards

 

George A. Lopez, M.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Bonus (1)

 

 

 

$

 

$

500,000

 

$

500,000

 

 

 

 

 

 

 

Merit Bonus (2)

 

 

 

$

 

$

544,000

 

$

544,000

 

 

 

 

 

 

 

Stock Option (3)

 

02/04/09

 

 

 

 

 

 

 

45,000

 

$

32.07

 

$

719,955

 

Stock Option (3)

 

07/22/09

 

 

 

 

 

 

 

45,000

 

$

38.85

 

$

482,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott E. Lamb

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merit Bonus (2)

 

 

 

$

 

$

118,750

 

$

118,750

 

 

 

 

 

 

 

Stock Option (3)

 

02/04/09

 

 

 

 

 

 

 

15,000

 

$

32.07

 

$

239,985

 

Stock Option (3)

 

07/22/09

 

 

 

 

 

 

 

15,000

 

$

38.85

 

$

160,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard A. Costello

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merit Bonus (2)

 

 

 

$

 

$

120,500

 

$

120,500

 

 

 

 

 

 

 

Stock Option (3)

 

02/04/09

 

 

 

 

 

 

 

15,000

 

$

32.07

 

$

239,985

 

Stock Option (3)

 

07/22/09

 

 

 

 

 

 

 

15,000

 

$

38.85

 

$

160,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven C. Riggs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merit Bonus (2)

 

 

 

$

 

$

120,500

 

$

120,500

 

 

 

 

 

 

 

Stock Option (3)

 

02/04/09

 

 

 

 

 

 

 

15,000

 

$

32.07

 

$

239,985

 

Stock Option (3)

 

07/22/09

 

 

 

 

 

 

 

15,000

 

$

38.85

 

$

160,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alison D. Burcar

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merit Bonus (2)

 

 

 

$

 

$

58,500

 

$

58,500

 

 

 

 

 

 

 

Stock Option (3)

 

02/04/09

 

 

 

 

 

 

 

10,000

 

$

32.07

 

$

159,990

 

Stock Option (3)

 

07/22/09

 

 

 

 

 

 

 

3,000

 

$

38.85

 

$

39,618

 

 


(1)          Performance bonus is payable under the 2008 Plan if certain financial achievements by the Company in 2009 are met, as determined by the Compensation Committee.  Dr. Lopez earned $160,000 from this bonus arrangement in 2009, which is reflected in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.  The material terms of the 2008 Plan are above discussed above under the caption “Performance-Based Bonuses.”

 

(2)          Merit bonus is payable if certain financial achievements by the Company in 2009 are met, as determined by the Compensation Committee.  Earnings from this bonus are reflected for each named executive officer in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. The material terms of the merit bonuses are discussed above under the caption “Performance-Based Bonuses.”

 

(3)          Options to purchase common stock of the Company were granted in 2009 to employees under the 2003 Stock Option Plan. The exercise price of options granted under the 2003 Plan is the fair market value of a share of common stock on the date of grant. All options granted under the 2003 Stock Option Plan in 2009 expire ten years from issuance.  The February option grants vest on the fifth anniversary of issuance.  The July option grants vest over four years, 25% on the first anniversary of issuance and the balance vests ratably on a monthly basis over the remaining 36 months.

 

13



 

Outstanding Equity Awards at December 31, 2009

 

The following table contains information about stock options of the Company held at December 31, 2009, by the named executive officers of the Company.

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009

 

 

 

Number of

 

Number of

 

 

 

 

 

 

 

 

 

Securities

 

Securities

 

 

 

 

 

 

 

 

 

Underlying

 

Underlying

 

 

 

 

 

 

 

 

 

Unexercised

 

Unexercised

 

Option

 

 

 

Option

 

 

 

Options (#)

 

Options (#)

 

Exercise

 

 

 

Expiration

 

Name

 

Exercisable

 

Unexercisable

 

Price ($)

 

Option Vesting Date

 

Date

 

George A. Lopez, M.D.

 

16,512

 

 

$

10.67

 

01/01/03

 

09/02/10

 

 

 

133,488

 

 

$

10.33

 

01/01/03

 

12/20/10

 

 

 

300,000

 

 

$

14.63

 

09/09/01-09/09/03

(2)

09/09/11

 

 

 

75,000

 

 

$

18.63

 

12/09/01-12/09/03

(2)

12/09/11

 

 

 

75,000

 

 

$

19.46

 

03/09/02-03/09/04

(2)

03/09/12

 

 

 

75,000

 

 

$

25.62

 

06/08/02-06/08/04

(2)

06/08/12

 

 

 

75,000

 

 

$

23.77

 

09/10/02-09/10/04

(2)

09/10/12

 

 

 

75,000

 

 

$

28.62

 

12/09/02-12/09/04

(2)

12/09/12

 

 

 

75,000

 

 

$

33.55

 

03/08/03-12/31/04

(3)

03/08/13

 

 

 

75,000

 

 

$

30.18

 

06/09/03-12/31/04

(3)

06/09/13

 

 

 

50,000

 

 

$

36.03

 

09/09/03-12/31/04

(3)

09/09/13

 

 

 

50,000

 

 

$

36.87

 

12/09/04-12/31/04

(3)

12/09/13

 

 

 

50,000

 

 

$

26.15

 

03/09/04-03/09/06

(2)

03/09/14

 

 

 

50,000

 

 

$

32.68

 

06/09/04-12/31/04

(3)

06/09/14

 

 

 

50,000

 

 

$

29.27

 

09/09/04-12/31/04

(3)

09/09/14

 

 

 

50,000

 

 

$

34.18

 

12/09/04-12/31/04

 

12/09/14

 

 

 

100,000

 

 

$

31.20

 

10/16/04

 

04/16/14

 

 

 

100,000

 

 

$

32.92

 

10/16/05

 

04/16/15

 

 

 

 

60,000

 

$

35.00

 

08/14/12

(1)

08/14/17

 

 

 

 

20,000

 

$

25.51

 

03/11/13

(1)

03/11/18

 

 

 

 

40,000

 

$

28.39

 

07/22/13

(1)

07/22/18

 

 

 

 

45,000

 

$

32.07

 

02/04/14

(1)

02/04/19

 

 

 

 

45,000

 

$

38.85

 

7/22/10-7/22/13

(5)

07/22/19

 

 

 

1,475,000

 

210,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott E. Lamb

 

1,500

 

 

$

37.83

 

12/31/04

 

01/31/15

 

 

 

3,500

 

 

$

32.92

 

10/16/05

 

04/16/15

 

 

 

 

20,000

 

$

40.96

 

08/08/11

(1)

08/08/16

 

 

 

 

20,000

 

$

35.00

 

08/14/12

(1)

08/14/17

 

 

 

 

10,000

 

$

25.51

 

03/11/13

(1)

03/11/18

 

 

 

 

10,000

 

$

28.39

 

07/22/13

(1)

07/22/18

 

 

 

 

15,000

 

$

32.07

 

02/04/14

(1)

02/04/19

 

 

 

 

15,000

 

$

38.85

 

7/22/10-7/22/13

(5)

07/22/19

 

 

 

5,000

 

90,000

 

 

 

 

 

 

 

 

14



 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

Securities

 

Number of

 

 

 

 

 

 

 

 

 

Underlying

 

Securities

 

 

 

 

 

 

 

 

 

Unexercised

 

Underlying

 

Option

 

 

 

Option

 

 

 

Options (#)

 

Unexercised Options

 

Exercise

 

 

 

Expiration

 

Name

 

Exercisable

 

(#) Unexercisable

 

Price ($)

 

Option Vesting Date

 

Date

 

Richard A. Costello

 

15,000

 

 

$

23.90

 

09/13/11

(4)

09/13/12

 

 

 

10,000

 

 

$

36.04

 

01/02/04

 

09/20/13

 

 

 

1,000

 

 

$

36.17

 

09/02/03-12/31/04

(3)

09/28/13

 

 

 

13

 

 

$

30.35

 

01/01/03

 

02/05/14

 

 

 

10,000

 

 

$

32.61

 

01/01/07

 

04/08/15

 

 

 

10,000

 

 

$

31.20

 

10/16/04

 

04/16/15

 

 

 

10,000

 

 

$

32.92

 

10/16/05

 

04/16/15

 

 

 

 

20,000

 

$

35.00

 

08/14/12

(1)

08/14/17

 

 

 

 

10,000

 

$

25.51

 

03/11/13

(1)

03/11/18

 

 

 

 

10,000

 

$

28.39

 

07/22/13

(1)

07/22/18

 

 

 

 

15,000

 

$

32.07

 

02/04/14

(1)

02/04/19

 

 

 

 

15,000

 

$

38.85

 

7/22/10-7/22-13

(5)

07/22/19

 

 

 

56,013

 

70,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven C. Riggs

 

500

 

 

$

15.27

 

05/22/01-05/22/03

 

05/22/11

 

 

 

3,750

 

 

$

16.13

 

11/06/01-11/06/03

(2)

11/06/11

 

 

 

3,750

 

 

$

25.80

 

06/12/02-06/12/04

(2)

06/12/12

 

 

 

7,500

 

 

$

30.32

 

01/02/03-12/31/04

(3)

01/02/13

 

 

 

8,000

 

 

$

30.09

 

06/04/03-12/31/04

(3)

06/04/13

 

 

 

3,750

 

 

$

29.86

 

07/01/03-12/31/04

(3)

07/01/13

 

 

 

3,500

 

 

$

36.04

 

09/20/03-12/31/04

(3)

09/20/13

 

 

 

1,000

 

 

$

35.75

 

10/05/03-12/31/04

(3)

10/05/13

 

 

 

3,500

 

 

$

29.57

 

09/02/04-12/31/04

(3)

09/02/14

 

 

 

3,500

 

 

$

33.77

 

12/31/04

 

02/13/15

 

 

 

3,500

 

 

$

31.20

 

10/16/04

 

04/16/15

 

 

 

7,000

 

 

$

32.92

 

10/16/05

 

04/16/15

 

 

 

 

20,000

 

$

35.00

 

08/14/12

(1)

08/14/17

 

 

 

 

10,000

 

$

25.51

 

03/11/13

(1)

03/11/18

 

 

 

 

10,000

 

$

28.39

 

07/22/13

(1)

07/22/18

 

 

 

 

15,000

 

$

32.07

 

02/04/14

(1)

02/04/19

 

 

 

 

15,000

 

$

38.85

 

7/22/10-7/22-13

(5)

07/22/19

 

 

 

49,250

 

70,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alison D. Burcar

 

1,000

 

 

 

$

30.02

 

 

 

06/10/13

 

 

 

2,500

 

 

 

$

36.04

 

09/20/03-12/31/04

(3)

09/20/13

 

 

 

3,000

 

 

 

$

30.35

 

01/01/03

 

02/05/14

 

 

 

2,500

 

 

 

$

29.57

 

09/02/04-12/31/04

(3)

09/02/14

 

 

 

2,500

 

 

 

$

33.77

 

12/31/04

 

02/13/15

 

 

 

2,500

 

 

 

$

31.20

 

10/16/04

 

04/16/15

 

 

 

5,000

 

 

 

$

32.92

 

10/16/05

 

04/16/15

 

 

 

 

20,000

 

$

41.96

 

07/15/11

 

07/15/16

 

 

 

 

 

20,000

 

$

35.00

 

08/14/12

(1)

08/14/17

 

 

 

 

10,000

 

$

25.51

 

03/11/13

(1)

03/11/18

 

 

 

 

10,000

 

$

28.39

 

07/22/13

(1)

07/22/18

 

 

 

 

10,000

 

$

32.07

 

02/04/14

(1)

02/04/19

 

 

 

 

3,000

 

$

38.85

 

7/22/10-7/22-13

(5)

07/22/19

 

 

 

19,000

 

73,000

 

 

 

 

 

 

 

 


(1)          Vests five years from date of grant.

(2)          Vested one-third annually.

(3)   Scheduled to vest one-third annually. Vesting of unvested shares was accelerated on 12/31/04.

(4)   Vests September 13, 2011.  May become exercisable sooner upon achievement of certain performance goals, as specified in the option agreement.

(5)          Vests one quarter after one year, monthly for 36 months thereafter.

 

15



 

Option Exercises

 

The following table contains information about stock options of the Company exercised during 2009, by the named executive officers of the Company.

 

 

 

Option Awards

 

Name

 

Number of
Shares
Acquired

On Exercise (#)

 

Value Realized
On Exercise ($)

 

George A. Lopez, M.D.

 

 

$

 

Scott E. Lamb

 

 

$

 

Richard A. Costello

 

 

$

 

Steven C. Riggs

 

3,500

 

$

79,250

 

Alison D. Burcar

 

 

$

 

 

Potential Payments upon Termination or Change in Control

 

As described in Compensation Discussion and Analysis, the Company has arrangements with all named executive officers to make certain payments in the event of a termination of their employment in connection with a change in control of the Company.

 

Payments to Dr. Lopez would have included the following if the change in control and termination of employment had occurred at December 31, 2009.  Dr. Lopez would have received a lump sum payment based on 360 percent of his annual salary and total potential merit bonus for 2009 payable within 30 days after the date of termination, and payments under the LTRP, payable immediately, or, at the election of Dr. Lopez, in bi-monthly installments over a six year period.  Annual benefits would continue for dental insurance, life insurance and disability insurance to December 31, 2011.  Unvested stock options would vest.  If any of these payments are subject to excise tax under Section 4999 of the Code of 1986 as amended, Dr. Lopez would be entitled to sufficient payments to offset the entire affect of the excise tax.  The Company does not believe that any of these payments would be subject to excise tax under Section 4999 of the Code of 1986, as amended, because Dr. Lopez’s taxable income is sufficient to qualify for the “safe harbor” provisions of Section 4999.  Under Section 162(m) of the Internal Revenue Code of 1986, as amended, the Company would not be entitled to a tax deduction for any amounts paid to Dr. Lopez to the extent that such payments plus other compensation in the year of termination of employment exceed $1 million.

 

Payments to Mr. Lamb, Mr. Costello, Mr. Riggs and Ms. Burcar would have included the following if the change in control and termination of employment had occurred at December 31, 2009.  Each officer would have received 120 percent of their annual salary and total potential merit bonus for 2009, payable within 60 days of the date of termination.  Annual benefits for medical insurance, dental insurance, vision insurance, life insurance and disability insurance would continue through to December 31, 2010.  Unvested stock options would vest. The Company will pay up to $10,000 to an executive outplacement firm for each officer

 

The following table summarizes the option data and payments that would have been made if a named executive officer were terminated in connection with a change in control of the Company on December 31, 2009.

 

 

 

Number of

 

Intrinsic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

options

 

value of

 

 

 

 

 

 

 

Executive

 

 

 

 

 

 

 

that would

 

accelerated

 

 

 

 

 

 

 

placement

 

 

 

 

 

Name

 

accelerate

 

options

 

Salary

 

Bonus

 

Benefits

 

costs

 

LTRP

 

Total

 

George A. Lopez, M.D.

 

210,000

 

$

823,650

 

$

2,116,800

 

$

3,916,800

 

$

1,806

 

$

 

$

2,301,000

 

$

9,160,056

 

Scott E. Lamb

 

90,000

 

$

284,150

 

$

360,000

 

$

180,000

 

$

14,078

 

$

10,000

 

$

 

$

848,228

 

Richard A. Costello

 

70,000

 

$

284,150

 

$

360,000

 

$

180,000

 

$

14,078

 

$

10,000

 

$

 

$

848,228

 

Steven C. Riggs

 

70,000

 

$

284,150

 

$

360,000

 

$

180,000

 

$

13,778

 

$

10,000

 

$

 

$

847,928

 

Alison D. Burcar

 

73,000

 

$

262,300

 

$

234,000

 

$

70,200

 

$

14,078

 

$

10,000

 

$

 

$

590,578

 

 

As described in Compensation Discussion and Analysis, upon termination of employment with the Company due to disability, the named executive officers would receive a lump sum payment equal to 50% of the executive officer’s respective base salary.  Payments if a termination due to disability had occurred at December 31, 2009 would have been to Dr. Lopez of $294,000, Mr. Lamb of $150,000, Mr. Costello of $150,000, Mr. Riggs of $150,000 and Ms. Burcar of $97,500.

 

16



 

Compensation of Directors

 

During 2009, the Company paid directors who were not employees of the Company an annual retainer of $29,500, plus $1,000 per day for attendance at meetings of the Board and $500 if the meeting is conducted telephonically. Pay for attendance at meetings of Committees of the Board is $750 per day and $375 if the meeting is conducted telephonically. Each Chairperson of a Committee of the Board also received the following annual retainers: $13,000 for the Audit Committee, $7,500 for the Compensation Committee and $5,000 for the Nominating/Corporate Governance Committee.

 

The Company adopted a program effective January 1, 2008 to grant each director who is not an employee of the Company an option to purchase 1,500 shares of common stock quarterly on the date that is two days after the public announcement of the Company’s earnings for the immediately preceding quarter.  Options granted in 2008 and the first half of 2009 become exercisable in four equal annual installments commencing one year after the grant date.  Options granted in the second half of 2009 and thereafter become exercisable after one year.  All the option grants expire ten years after the grant date.

 

The following table shows all compensation awarded to, earned by or paid to each of the Company’s directors in 2009 who were not employees of the Company.

 

DIRECTOR COMPENSATION (2009)

 

Name

 

Fees Earned or
Paid in Cash ($)

 

Option
Awards ($)

(1)(2)

 

Total ($)

 

Jack W. Brown

 

$

45,250

 

$

62,841

 

$

108,091

 

John J. Connors

 

$

44,875

 

$

62,841

 

$

107,716

 

Michael T. Kovalchik, III, M.D.

 

$

52,750

 

$

62,841

 

$

115,591

 

Joseph R. Saucedo

 

$

64,250

 

$

62,841

 

$

127,091

 

Richard H. Sherman, M.D.

 

$

47,625

 

$

62,841

 

$

110,466

 

Robert S. Swinney, M.D.

 

$

41,125

 

$

62,841

 

$

103,966

 

 


(1)          In 2009, each director listed above was granted options to purchase common stock of the Company as follows: February 4, 2009, 1,500 options with a grant date fair value of $16,166; April 20, 2009, 1,500 options with a grant date fair value of $17,671; July 22, 2009, 1,500 options with a grant date fair value of $14,845; October 21, 2009, 1,500 options with a grant date fair value of $14,159..See Note 4 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for assumptions used in valuation of these options.

 

(2)          At December 31, 2009, directors held options to purchase shares of common stock of the Company as follows: Mr. Brown 59,875; Mr. Connors 44,875; Dr. Kovalchik 59,875; Mr. Saucedo 59,875; Dr. Sherman 59,875; and, Dr. Swinney 59,875.

 

Transactions with Related Persons

 

Since the beginning of 2009, the Company has not entered into or participated in any transaction required to be disclosed by Item 404(a) of Regulation of S-K.

 

Policies and Procedures Regarding Transaction with Related Persons

 

The Company attempts to review all related person transactions to ensure fairness to the Company and proper disclosure under SEC rules.  Pursuant to the Audit Committee charter, the Audit Committee is responsible for reviewing and approving all related person transactions.  Additionally, the Board of Directors conducts annual reviews of each director to determine such director’s independence.  We also require each of our executive officers and directors to complete a questionnaire that is intended to identify transactions or potential transactions that require disclosure under SEC rules or create a potential conflict of interest.

 

17



 

Pursuant to our written Code of Business Conduct and Ethics, each executive officer or director must receive approval of the Nominating/Governance Committee or the Board of Directors prior to engaging in certain transactions that are likely to involve a conflict of interest.

 

Director Independence

 

The Board of Directors has determined that Messrs. Brown, Connors and Saucedo and Drs. Kovalchik, Sherman and Swinney are independent directors as defined by the Nasdaq Listing Rules.  During the course of its review, the Board of Directors considers transactions and relationships between each director (and such director’s immediate family) and the Company and its affiliates against the independence requirements of Nasdaq, and in the case of the Audit Committee, the SEC rules.

 

Board Meetings and Committees and Attendance at Meetings

 

During 2009, the Board met eight times, the Compensation Committee met nine times, the Audit Committee met eight times and the Nominating Committee met two times. Each director attended more than 75% of the total of all meetings of the Board and any committees on which he serves.

 

It is the policy of the Company to invite and encourage all members of the Board of Directors to attend the annual meeting of stockholders, which was held by remote communication. In 2009, three directors attended the annual meeting.

 

Director Legal Proceedings

 

During the past ten years, no director, executive officer or nominee for our Board of Directors has been involved in any legal proceedings that are material to an evaluation of their ability or integrity to become our director or executive officer.  During the past ten years, no director, executive officer or nominee for our Board of Directors has had judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity; judicial or administrative proceedings based on violations of federal or state securities, commodities, banking, or insurance laws and regulations, or any settlement of such actions; or any disciplinary sanctions or orders imposed by stock, commodities, or derivatives exchanges or other self-regulatory organizations.

 

Board Leadership Structure

 

Dr. Lopez has served as the President, CEO and Chairman of the Board since 1989 and founded the Company in 1984. The Board of Directors believes that Dr. Lopez is best situated to serve as Chairman of Board based upon his significant leadership position with the Company and his extensive knowledge about the Company’s business and industry. In addition, the Board of Directors believes that Dr. Lopez’s combined roles as Chairman and President and CEO position him to effectively identify strategic priorities for the Company and to lead Board discussions on the execution of Company strategy. While each of the Company’s non-employee directors brings unique contributions to our Board of Directors, Dr. Lopez’s company-specific experience and expertise allow him to effectively direct Board discussions and focus Board decision-making on those items most important to the Company’s overall success. The Board of Directors believes that the combined role of Chairman and President and CEO helps promote the Company’s overall strategic development and facilitates the efficient flow of information between management and the Board. While the Board does not have an independent lead director, the independent directors regularly meet in executive sessions in connection with regular meetings of the Board.

 

Board Oversight of Risk

 

The Board of Directors is responsible for oversight of the various risks facing the Company. In this regard, the Board seeks to understand and oversee the most critical risks relating to our business, allocate responsibilities for the oversight of risks among the full Board and its committees, including its Audit, Nominating Corporate Governance, and Compensation Committees, and see that management has in place effective systems and processes for managing risks facing us. Overseeing risk is an ongoing process and risk is inherently tied to our strategy and to

 

18



 

strategic decisions. Accordingly, the Board considers risk throughout the year and with respect to specific proposed actions. While the Board is responsible for oversight and direction, management is charged with identifying risk and establishing appropriate internal processes and an effective internal control environment to identify and manage risks and to communicate information about risk to the Board.  Committees of the Board also play an important role in risk oversight, including the Audit Committee, which oversees our processes for assessing risks and the effectiveness of our internal controls.  In fulfilling its duties, the Audit Committee considers information from our independent registered public accounting firm, Deloitte and Touche, LLC, and our internal auditors.  Additionally, the Compensation Committee periodically reviews the Company’s compensation policies and profile with management to ensure that compensation supports the Company’s goals and strategic objectives without creating risks that may have a material adverse effect on the Company.

 

Code of Ethics

 

The Company has adopted a Code of Business Conduct and Ethics for Directors and Officers.  A copy is available on the Company’s website, www.icumed.com.  The Company will disclose any future amendments to, or waivers from, the Code of Business Conduct and Ethics for Directors and Officers on our website within four business days following the date of the amendment or waiver.

 

Nominating / Corporate Governance Committee

 

The Nominating/Corporate Governance Committee (the “Nominating Committee”) consists of Drs. Kovalchik, Sherman (Chairman) and Swinney, each of whom the Board of Directors has determined is independent as defined by the Nasdaq Listing Rules. The Nominating Committee operates pursuant to a written charter adopted by the Board of Directors on July 25, 2003, a copy of which can be found on the Company’s website, www.icumed.com. The Nominating Committee’s role is to recommend to the Board of Directors policies on Board composition and criteria for Board membership, to identify individuals qualified to serve as directors and approve candidates for director and to recommend directors for appointment to committees of the Board of Directors. The Nominating Committee also makes recommendations to the Board of Directors concerning the Company’s corporate governance guidelines and codes of ethics and business conduct, oversees internal investigations of conduct of senior executives, if necessary, and conducts evaluations of the performance of the Board of Directors.

 

In evaluating and determining whether to recommend a person as a candidate for election as a director, the Nominating Committee considers, among other things, relevant management and/or industry experience; values such as integrity, accountability, judgment and adherence to high performance standards; independence pursuant to the guidelines set forth in the Nasdaq Listing Rules; diversity; ability and willingness to undertake the requisite time commitment to Board service; and an absence of conflicts of interest with the Company.

 

While the Nominating Committee does not have a specific policy in place, it believes that diversity brings different perspectives to a board of directors which leads to a more varied approach to board issues. The Company has a general non-discrimination policy, which the Nominating Committee observes when considering candidates for the board of directors.  While not giving specific weight to any aspect of diversity, the Board of Directors believes that its current composition has an appropriate level of diversity with respect to ethnicity and professional experience.

 

The Nominating Committee may employ a variety of methods for identifying and evaluating nominees for director. The Nominating Committee will assess the need for particular expertise on the Board of Directors, the upcoming election cycle of the Board and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating Committee will consider various potential candidates for director that may come to the Nominating Committee’s attention through current directors, the Company’s professional advisors, stockholders or others.

 

The Nominating Committee will consider candidates recommended by stockholders. The deadlines and procedures for stockholder recommendations of director candidates are discussed below under “Nomination of Directors and Stockholder Proposals.” Following verification of the stockholder status of persons proposing candidates, the Nominating Committee will make an initial analysis of the qualifications of any candidate recommended by stockholders or others pursuant to the criteria summarized above to determine whether the candidate is qualified for service on the Company’s Board before deciding to undertake a complete evaluation of the candidate. Other than the verification of compliance with procedures and stockholder status, and the initial analysis performed by the Nominating Committee, a potential candidate nominated by a stockholder will be treated like any other potential candidate during the review process by the Nominating Committee.

 

19



 

The Nominating Committee has approved the nominations of George A. Lopez, M.D. and Robert S. Swinney, M.D. for reelection as directors at the Annual Meeting. The Nominating Committee considered the candidates’ past contributions to the Board of Directors, their willingness to continue to serve and the benefits of continuity in the membership of the Board of Directors and determined that the reelection of the two candidates was appropriate.

 

Audit Committee

 

The Board of Directors has an Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act, which consists of three directors, Messrs. Brown, Connors and Saucedo (Chairman) all of whom are independent directors as defined by the Nasdaq Listing Rules and Rule 10A(3)(b)(1) of the Exchange Act.  As more fully described in the Audit Committee Charter, the Audit Committee oversees the accounting and financial reporting processes of the Company and audits of its financial statements.

 

The Company’s Board of Directors adopted a revised Audit Committee charter on July 25, 2003, a copy of which can be found on the Company’s web site, www.icumed.com.

 

The Board of Directors has determined that Joseph R. Saucedo is an “audit committee financial expert” and is “independent,” as both those terms are defined by SEC regulations.

 

Audit Committee Report

 

The Company’s audited consolidated financial statements are included in the Company’s Annual Report on Form 10-K. The Audit Committee has reviewed and discussed those financial statements with management of the Company and has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.  Further, the Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Board regarding the independent auditor’s communications with the audit committee concerning independence, and has discussed the independent auditor’s independence with them. Based on these reviews and discussions, the Audit Committee has recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual on Form 10-K.

 

April 6, 2010

 

AUDIT COMMITTEE

Joseph R. Saucedo, Chairman

John J. Connors

Jack W. Brown

 

Compensation Committee

 

The Board of Directors has a Compensation Committee, consisting of Messrs. Brown, Connors and Saucedo, Drs. Kovalchik (Chairman), Sherman and Swinney. The Board has determined that all members of the Compensation Committee, none of who are employees, former employees of, or consultants to, the Company are independent directors as defined by the Nasdaq Listing Rules. The Compensation Committee operates pursuant to a revised charter adopted by the Board of Directors on January 25, 2008, a copy of which can be found on the Company’s website, www.icumed.com. The Compensation Committee discharges the responsibilities of the Board of Directors relating to executive and director compensation.  It reviews the performance of the Company and the CEO, sets performance objectives, establishes the compensation of the CEO, recommends to the Board of Directors the compensation of the other executive officers and authorizes the grant of options to employees, awards under the Company’s 2005 Long-Term Retention Plan and other bonus and incentive plans.  The Compensation Committee engaged Compensia to consult on the performance-based compensation structure and awards, including the 2008 Plan, for the CEO, and to provide market data and other analysis for compensation of executive officers and Board members. Prior to making its decisions for executive officers other than the CEO, the Compensation Committee receives recommendations from the CEO as to the amounts and types of compensation and other awards for those executive officers.

 

20



 

Compensation Committee Report

 

The Company’s Compensation Discussion and Analysis (CD&A) is included elsewhere in this Proxy Statement. The Compensation Committee has reviewed and discussed the CD&A with management of the Company.  Based on these reviews and discussions, the Compensation Committee has recommended to the Board of Directors that the CD&A be included in this Proxy Statement.

 

April 6, 2010

 

COMPENSATION COMMITTEE

Michael T. Kovalchik III, M.D., Chairman

Jack W. Brown

John J. Connors

Joseph R. Saucedo

Richard H. Sherman, M.D.

Robert S. Swinney, M.D.

 

Shareholder Communications

 

The Company’s Board of Directors has an established process for stockholder communications and it can be found on the Company’s website, www.icumed.com.

 

In the past year, the Board of Directors did not receive any stockholder communications that it considered material and therefore took no action.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

During 2009, no member of the Compensation Committee was a current or former employee or officer of the Company, and no interlocking relationship existed, between any member of our compensation committee and any member of any other company’s board of directors or compensation committee.

 

COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires the Company’s officers and directors and persons who own more than 10% of the Company’s common stock to file reports on prescribed forms regarding ownership of and transactions in the common stock with the SEC and to furnish copies of such forms to the Company. Based solely on a review of the forms received by it and written representations that no Form 5 were required to be filed, the Company believes that with respect to 2009 all Section 16(a) filings were filed on a timely basis.

 

PROPOSALS REQUIRING YOUR VOTE

 

ELECTION OF DIRECTORS

 

Nominees and Directors

 

Two directors, of the seven directors currently constituting the Board of Directors, are to be elected at the Annual Meeting to hold office until the 2013 Annual Meeting and until their successors are elected and qualified. The Company’s Board of Directors is divided into three classes. Each year a different class of directors is elected at the Annual Meeting to a three-year term.

 

In the election of directors, the Board recommends that you vote FOR George A. Lopez, M.D. and Robert S. Swinney, M.D., who are now members of the Board and whose current terms of office are expiring.

 

21



 

It is not anticipated that the nominees will decline or be unable to serve as directors. If, however, that should occur, the proxy holders will vote the proxies in their discretion for any nominee designated to fill the vacancy by the Company’s Nominating/Corporate Governance Committee.

 

The following are summaries of the background, business experience and descriptions of the principal occupations of the directors.

 

George A. Lopez, M.D.

 

Dr. Lopez, 62, has been a director since 1984.  He is the founder of the Company and has served as Chairman of the Board, President and CEO since 1989.  The Board has nominated Dr. Lopez for election as a director due to his knowledge of the day-to-day operations of the Company, particularly in the areas of research, product development and manufacturing processes.  His extensive experience with the Company and industry knowledge provides an invaluable insight to the Board on issues involving the Company and its goals. Furthermore, the Board believes that including the CEO as a director is an efficient way of ensuring continuity between the development and execution of the Company’s business strategies. Dr. Lopez’s current term expires in 2010.

 

Robert S. Swinney, M.D.

 

Dr. Swinney, 64, has been a director since 1998 and previously served as a director from 1989 to October 1995.  Dr. Swinney has more than 30 years experience as a critical care physician in a large, public teaching hospital, where he has formerly served as the critical care unit director and Chair of the ICU Committee.  Dr. Swinney also has as experience in private primary care practice and emergency medicine.  He holds two patents for medical products and, in his daily work, is frequently called upon to examine and evaluate new medical products.  The Board has nominated Dr. Swinney for election as a director because it believes that the Board will benefit from his vast medical and leadership experience. Dr. Swinney’s work with patents provides him with a high level of technical expertise and his ongoing work ensures that he is at the forefront of new developments in medical technology. Dr. Swinney’s current term expires in 2010.

 

Jack W. Brown

 

Mr. Brown, 70, is former Chairman of the Board and President of Gish Biomedical, Inc., a manufacturer of disposable medical devices for cardiovascular surgery and vascular access devices.  His experience includes management positions at Bentley Laboratories and Baxter Laboratories.  Mr. Brown has a background in manufacturing, marketing and product development.  The Board believes that Mr. Brown’s leadership experience at a medical device company gives him a breadth of knowledge and a unique perspective on the competitive nature of the industry.  Mr. Brown’s current term expires in 2012.

 

John J. Connors, Esq.

 

Mr. Connors, 70, has been a director since 1992 and previously served as a director from December 1988 to July 1989.  He is a patent attorney and the founder of Connors & Associates PC, a professional law corporation specializing in intellectual property law.  Mr. Connors is a member of the Orange County Bar Association, the Orange County Patent Law Association, the Los Angeles Intellectual Property Law Association, and the Association of Corporate Patent Counsel.  Mr. Connors’ technical knowledge, particularly his experience in the areas of patent acquisition, patent infringement, and negotiating the sale and licensing of intellectual property brings a unique and valued perspective to the Board.  Mr. Connors’ current term expires in 2011.

 

Michael T. Kovalchik, III, M.D.

 

Dr. Kovalchik, 64, has been a director since 1989 and serves as Chair of the Compensation Committee.  Dr. Kovalchik is a physician and the Director of DaVita Healthcare Kidney Center, Torrington, Connecticut.  He serves as Chairman of the Ethics Committee, Charlotte Hungerford Hospital, Torrington, Connecticut and also serves on the Compensation Committee of Aplicate, a privately held company.  The Board is well served by Dr. Kovalchik’s extensive medical knowledge and his compensation committee leadership experience.  Dr. Kovalchik’s current term expires in 2011.

 

22



 

Joseph R. Saucedo

 

Mr. Saucedo, 67, has been a director since 2001 and serves as Chair of the Audit Committee.  He is Chairman and President of Bolsa Resources, Inc., a business management consulting firm that provides both management consulting and financial accounting function support to manufacturing companies.  He has a Masters in Business Administration.  Mr. Saucedo’s 30 years of financial and accounting experience include serving as President and CEO of a financial institution where he was responsible for overseeing the performance of the company, as an auditor for a major auditing firm, and currently, the review, analysis and evaluation of clients’ financial statements and financial consulting to manufacturing concerns.  Mr. Saucedo’s financial knowledge and experience is valuable to the Board, particularly with respect to his service on the Audit Committee. His wide range of experiences from the CEO of a financial institution to an auditor at a major auditing firm provide him with insight into all financial aspects of a company. The Board has determined that Mr. Saucedo is an “audit committee financial expert” and is “independent,” as both those terms are defined by Securities and Exchange Commission (“SEC”) regulations. Mr. Saucedo’s current term expires in 2011.

 

Richard H. Sherman, M.D.

 

Dr. Sherman, 63, has been a director since 1990, and serves as chair of the Governance Committee.  He is a physician in private practice with privileges in Internal Medicine and Cardiology at Bayhealth Medical Center, Milford, Delaware.  He established and directed the Noninvasive Cardiology Laboratory, and the Cardiac Rehabilitation Program for Milford Memorial Hospital.  He has been elected to local, county and state medical leadership positions and has served on non-profit and private boards and their committees.  Currently he serves on the Credentials Committee of Bayhealth Medical Center and the Budget and Finance Committee of the Medical Society of Delaware.  He is an active participant in the National Association of Corporate Directors programs.  The Board is well served by Dr. Sherman’s broad medical and leadership experience.  Dr. Sherman’s term expires in 2012.

 

SELECTION OF AUDITORS

 

On March 19, 2008, the Audit Committee selected Deloitte & Touche, LLP (“Deloitte”), as the independent registered public accounting firm of the Company for the year ending December 31, 2008.  Deloitte was ratified by the stockholders at the 2009 Annual Meeting as the independent registered public accounting firm of the Company for the year ending December 31, 2009.

 

The Audit Committee has appointed Deloitte to continue as the independent registered accounting firm of the Company for the year ended December 31, 2010.  Representatives of Deloitte are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and respond to appropriate questions.  The Board of Directors recommends that you vote FOR the ratification of the appointment of Deloitte.

 

During the Company’s past two years and the subsequent interim period up to its engagement, the Company has not (and no one on its behalf has) consulted with Deloitte on the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or any matter that was either the subject of a disagreement as defined in paragraph 304(a)(1)(iv) of Regulation S-K or reportable event as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K.

 

McGladrey & Pullen LLP (McGladrey) was the independent registered public accounting firm of the Company for fiscal year ended December 31, 2007.  The Audit Committee approved the dismissal of McGladrey on March 13, 2008.  McGladrey’s report on the Company’s financial statements for 2007 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.

 

During the Company’s past two years and the subsequent interim period up to the date of McGladrey’s dismissal, there have not been any disagreements with McGladrey on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to McGladrey’s satisfaction, would have caused McGladrey to make reference to the subject matter in connection with its report and there have not been any “reportable events” as defined in paragraph (a)(1)(v) of Item 304 of Regulation S-K.

 

23



 

Fees Paid to Auditors

 

It is the policy of our Audit Committee to have the engagement of our independent registered public accounting firm to perform any audit or non-audit services approved in advance by the Audit Committee.  Such approval authority is delegated to the Chairman of the Audit Committee on behalf of the Audit Committee as permitted by the Audit Committee Charter.   All fees to our auditors were pre-approved by the Audit Committee.

 

Deloitte was our independent registered public accounting firm in 2009 and 2008.  Fees billed by Deloitte for 2009 and 2008 were as follows:

 

 

 

2009

 

2008

 

Audit fees

 

$

1,035,356

 

$

869,922

 

Audit related fees

 

 

 

Tax fees

 

 

 

All other fees

 

 

 

 

AMENDMENT AND RESTATEMENT OF 2003 STOCK OPTION PLAN

 

General

 

We are asking our stockholders to approve the amendment and restatement of our 2003 Stock Option Plan (the “Original Plan”), to be known upon approval as the ICU Medical, Inc. 2003 Stock Incentive Plan (the “Amended Plan”), so that we can continue to use this plan to attract and retain key talent, encourage stock ownership by our employees, non-employee directors and consultants, to better align with governance best practices, and to receive a federal income tax deduction for certain compensation paid under this plan. The Board unanimously approved the Amended Plan, subject to approval of our stockholders at the Annual Meeting. Approval of the Amended Plan requires the affirmative vote of a majority of the shares of our common stock (“Shares”) that are present in person or by proxy at the Annual Meeting and entitled to vote on this matter. If the stockholders approve the Amended Plan, it will replace the Original Plan. If the stockholders do not approve the Amended Plan, the Original Plan will remain in effect.

 

Primary Changes

 

In requesting your approval of the Amended Plan, we propose to:

 

·                  Increase the number of Shares authorized for issuance under the Amended Plan by 600,000 Shares.

·                  Provide that the number of Shares that remain available for issuance will be reduced by 1.82 Shares for each Share issued pursuant to an award other than an option or stock appreciation right.

·                  Permit the grant awards of stock appreciation rights, dividend equivalent rights, restricted stock and restricted stock units.

·                  Expand the list of goals that may be used to grant “performance-based” awards under the Amended Plan.

·                  Impose annual per person limits on the number of Shares covered by awards of stock appreciation rights, restricted stock and restricted stock units.

·                  Provide that the Amended Plan will terminate on the date that is ten (10) years following stockholder approval of the Amended Plan.

·                  Simplify the treatment of outstanding awards in connection with certain changes of control of the Company.

·                  Provide flexibility in determining the terms and conditions of each award, in particular with respect to vesting.

 

We believe strongly that the approval of the Amended Plan is essential to our success. Our employees are our most valuable assets. Stock options and the other awards permitted under the Amended Plan are vital to our ability to attract and retain outstanding and highly skilled employees, especially in the competitive labor markets in which we compete. These awards also are crucial to our ability to motivate employees to achieve our goals.  The proposed terms of the Amended Plan are designed to allow the Company to continue to attract, retain and motivate people whose skills and performance are critical to the Company’s success.  The Amended Plan, if approved by our stockholders, would introduce a fungible share pool design (also known as flexible share counting) which would require that the number of Shares that remain available for issuance under the Amended Plan will be reduced by two Shares for each Share issued pursuant to an award other than an option or stock appreciation right to reflect the relative value of full value awards.  We will continue to monitor the environment in which we operate and make changes to our equity compensation program to help us meet our goals, including achieving long-term stockholder value.

 

24



 

The Board of Directors recommends a vote FOR the approval of the Company’s 2003 Stock Incentive Plan.

 

A general description of the principal terms of the Amended Plan is set forth below. This description is qualified in its entirety by the terms of the Amended Plan, a copy of which is attached hereto as Annex A.

 

Burn Rate and Overhang

 

In administering our equity compensation program, we consider both our “burn rate” and our “overhang”.  We define “burn rate” in a given year as the total number of Shares that underlie the equity compensation awards granted in that year, divided by the undiluted weighted average Shares outstanding during the year.  Our burn rate in 2009 was 1.7% and our three year average burn rate from 2007-2009 was 1.8%.

 

We define “overhang” as of a given date as: the sum of the total number of Shares that underlie outstanding equity awards plus the total number of Shares available for issuance under our equity compensation plans as of such date (in aggregate these are referred to as “total plan Shares”); divided by the sum of total plan Shares and Shares outstanding as of such date.  Our overhang as of December 31, 2009 was 23.4%, and on a pro forma basis (assuming that the additional 600,000 Shares for which we are seeking shareholder approval were authorized as of December 31, 2009) our overhang as of December 31, 2009 would have been 26.0%.

 

The following table sets forth additional information regarding stock options outstanding as of March 22, 2010.  As of March 22, 2010, 2,972,874 stock options were outstanding with a weighted average exercise price of $28.45 and a weighted average remaining years of contractual life of 4.7 years; no other equity awards are outstanding.  As of March 22, 2010, we had 873,450 shares available for issurance in our stock option plans (491,700 are attributable to the 2003 Stock Option Plan and 381,750 are attributable to the Director’s Stock Option Plan, the latter of which can only be granted in options.

 

 

 

Outstanding
Options

 

Weighted Average
Exercise Price

 

Weighted
Average
Remaining Years
of Contractual
Life

 

In-the-money options outstanding in excess of six years

 

640,571

 

$

14.83

 

1.4 years

 

Underwater options outstanding in excess of six years

 

478,463

 

$

29.73

 

3.0 years

 

All options outstanding less than six years

 

1,853,840

 

$

32.82

 

4.7 years

 

 

25



 

In the money options outstandings in excess of six years is defined as options with an exercise price of less than $19.98.  Additional information regarding these options is as follows:

 

 

 

 

 

Remaining

 

 

 

 

 

 

 

Years of

 

 

 

 

 

 

 

Contractual

 

Outstanding

 

Grant Date

 

Exercise Price

 

Life

 

Options

 

7/1/1999

 

$

11.58

 

0.28

 

1,500

 

9/2/1999

 

$

10.67

 

0.45

 

16,512

 

9/26/1999

 

$

10.21

 

0.52

 

500

 

10/13/1999

 

$

8.50

 

0.56

 

1,500

 

12/20/1999

 

$

10.33

 

0.75

 

133,488

 

1/1/2000

 

$

10.19

 

0.78

 

1,500

 

4/10/2000

 

$

13.15

 

1.05

 

1,500

 

8/8/2000

 

$

17.67

 

1.38

 

3,000

 

9/9/2000

 

$

14.63

 

1.47

 

300,000

 

11/6/2000

 

$

16.13

 

1.63

 

3,750

 

12/9/2000

 

$

18.63

 

1.72

 

75,000

 

1/2/2001

 

$

19.49

 

1.78

 

9,321

 

1/26/2001

 

$

17.00

 

1.85

 

3,000

 

2/13/2001

 

$

18.88

 

1.90

 

15,000

 

3/9/2001

 

$

19.46

 

1.96

 

75,000

 

In the money options outstanding in excess of six years

 

640,571

 

 

We believe that our overhang (both on an actual basis and on a pro forma basis) and our burn rate are reasonable in relation to our peer group and reflect a judicious use of equity for compensation purposes.  Our overhang also reflects the fact that we encourage optionholders to hold their awards for extended periods of time after vesting.  We believe these both have the effect of extending the period during which the average equity award is reflected in the overhang calculation.

 

General Description

 

Purpose. The purposes of the Amended Plan are to attract and retain the best available personnel, to provide additional incentives to our employees, consultants and directors through ownership of our Shares, and to promote the success of the Company’s business.

 

Shares Reserved for Issuance under the Amended Plan. The Company currently has 1,500,000 Shares reserved for issuance under the Original Plan.  If approved by our stockholders, the total number of Shares reserved for issuance under the Amended Plan will be increased by 600,000 Shares for a total of 2,100,000 Shares. The number of Shares available under the Amended Plan will be subject to adjustment in the event of a stock split, reverse stock split, stock dividend, combination or reclassification of Shares or other similar change in our Shares or our capital structure.

 

The maximum number of Shares with respect to which options and stock appreciation rights may be granted to a participant during a calendar year is five hundred thousand (500,000) Shares.  For awards of restricted stock and restricted stock units that are intended to be performance-based compensation under Section 162(m) of the Code, the maximum number of Shares subject to such awards that may be granted to a participant during a calendar year is two hundred fifty thousand (250,000) Shares. The foregoing limitations shall be adjusted proportionately by the plan administrator in the event of a stock split, reverse stock split, stock dividend, combination or reclassification of Shares or other similar change in our Shares or our capital structure, and its determination shall be final, binding and conclusive.

 

Share Counting. Shares issued in connection with options and SARs will be charged against the Amended Plan’s share reserve on the basis of one (1) Share for each Share issued in connection with such awards (and shall be counted as one (1) Share for each Share that is returned or deemed not to have been issued from the Amended Plan). Each Share subject to awards other than options and stock appreciation rights will be charged against the Amended Plan’s share reserve on the basis of 1.82 Shares for each Share issued in connection with such awards (and shall be

 

26



 

counted as 1.82 Shares for each Share that is returned or deemed not to have been issued from the Amended Plan).  Any Shares covered by an award which is forfeited, canceled, expires or is settled in cash, shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued under the Amended Plan. Shares that have been issued under the Amended Plan pursuant to an award shall not be returned to the Amended Plan and shall not become available for future grant under the Amended Plan, except where unvested Shares are forfeited or repurchased by the Company at the lower of their original purchase price or their fair market value. Shares tendered or withheld in payment of an option exercise price, Shares withheld by the Company to pay any tax withholding obligation, and all Shares covered by the portion of a stock appreciation right that is exercised  shall not be returned to the Amended Plan and shall not become available for future issuance under the Amended Plan.

 

Administration. The Amended Plan is administered, with respect to grants to officers, employees, directors, and consultants, by the Amended Plan administrator (the “Administrator”), defined as the Board or one (1) or more committees designated by the Board. The Compensation Committee currently acts as the Administrator. With respect to grants to Officers and Directors, the Compensation Committee shall be constituted in such a manner as to satisfy applicable laws, including Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code.

 

No Repricings without Stockholder Approval. The Company shall obtain stockholder approval prior to (a) the reduction of the exercise price of any option or the base appreciation amount of any stock appreciation right awarded under the Amended Plan or (b) the cancellation of an option or stock appreciation right at a time when its exercise price or base appreciation amount exceeds the fair market value of the underlying Shares, in exchange for another option, restricted stock or other award or for cash (unless the cancellation and exchange occurs in connection with a Corporate Transaction).  Notwithstanding the foregoing, cancelling an option or stock appreciation right in exchange for another option, stock appreciation right, restricted stock, or other award with an exercise price, purchase price or base appreciation amount that is equal to or greater than the exercise price or base appreciation amount of the original option or stock appreciation right will not be subject to stockholder approval.

 

Terms and Conditions of Awards. The Amended Plan provides for the grant of stock options, restricted stock, restricted stock units, dividend equivalent rights and stock appreciation rights (collectively referred to as “awards”). Stock options granted under the Amended Plan may be either incentive stock options under the provisions of Section 422 of the Code, or nonqualified stock options. Incentive stock options may be granted only to employees. Awards other than incentive stock options may be granted to our employees, consultants and directors or to employees, consultants and directors of our related entities. To the extent that the aggregate fair market value of the Shares subject to options designated as incentive stock options which become exercisable for the first time by a participant during any calendar year exceeds $100,000, such excess options shall be treated as nonqualified stock options. Under the Amended Plan, awards may be granted to such employees, consultants or directors who are residing in non-U.S. jurisdictions as the Administrator may determine from time to time. Each award granted under the Amended Plan shall be designated in an award agreement.

 

Subject to applicable laws, the Administrator has the authority, in its discretion, to select employees, consultants and directors to whom awards may be granted from time to time, to determine whether and to what extent awards are granted, to determine the number of Shares or the amount of other consideration to be covered by each award (subject to the limitations set forth under the above, to approve award agreements for use under the Amended Plan, to determine the terms and conditions of any award (including the vesting schedule applicable to the award), to amend the terms of any outstanding award granted under the Amended Plan, to construe and interpret the terms of the Amended Plan and awards granted, to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable non-U.S. jurisdictions and to take such other action not inconsistent with the terms of the Amended Plan, as the Administrator deems appropriate.

 

The term of any award granted under the Amended Plan will be stated in the applicable award agreement but may not exceed a term of more than ten years (or five years in the case of an incentive stock option granted to any participant who owns stock representing more than 10% of our combined voting power or any parent or subsidiary of us), excluding any period for which the participant has elected to defer the receipt of the Shares or cash issuable pursuant to the award pursuant to a deferral program the Administrator may establish in its discretion.

 

The Amended Plan authorizes the Administrator to grant incentive stock options at an exercise price not less than 100% of the fair market value of our common stock on the date the option is granted (or 110%, in the case of an incentive stock option granted to any employee who owns stock representing more than 10% of our combined voting power or any parent or subsidiary of us). In the case of nonqualified stock options, stock appreciation rights, and awards intended to qualify as performance-based compensation, the exercise price, base appreciation amount or

 

27



 

purchase price, if any, shall be not less than 100% of the fair market value per Share on the date of grant. In the case of all other awards granted under the Amended Plan, the exercise or purchase price shall be determined by the Administrator. The exercise or purchase price is generally payable in cash, check, Shares or with respect to options, payment through a broker-dealer sale and remittance procedure or a “net exercise” procedure.

 

Under the Amended Plan, the Administrator may establish one or more programs under the Amended Plan to permit selected participants the opportunity to elect to defer receipt of consideration payable under an award. The Administrator also may establish under the Amended Plan separate programs for the grant of particular forms of awards to one or more classes of participants.

 

Section 162(m) of the Code.  The maximum number of Shares with respect to which options and stock appreciation rights may be granted to a participant during a calendar year is five hundred thousand (500,000) Shares.  The foregoing limitation shall be adjusted proportionately by the plan administrator in the event of a stock split, reverse stock split, stock dividend, combination or reclassification of Shares or other similar change in our Shares or our capital structure.  Under Code Section 162(m) no deduction is allowed in any taxable year of the Company for compensation in excess of $1 million paid to the Company’s “covered employees.” An exception to this rule applies to compensation that is paid to a covered employee pursuant to a stock incentive plan approved by stockholders and that specifies, among other things, the maximum number of Shares with respect to which options and stock appreciation rights may be granted to eligible participants under such plan during a specified period. Compensation paid pursuant to options granted under such a plan and with an exercise price equal to the fair market value of common stock on the date of grant is deemed to be inherently performance-based, since such awards provide value to participants only if the stock price appreciates. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation, if any option or stock appreciation right is canceled, the canceled award shall continue to count against the maximum number of Shares with respect to which an award may be granted to a participant.

 

For awards of restricted stock and restricted stock units that are intended to be performance-based compensation under Section 162(m) of the Code, the maximum number of Shares subject to such awards that may be granted to a participant during a calendar year is two hundred fifty thousand (250,000) Shares. The foregoing limitation shall be adjusted proportionately by the plan administrator in the event of a stock split, reverse stock split, stock dividend, combination or reclassification of Shares or other similar change in our Shares or our capital structure.  In order for restricted stock and restricted stock units to qualify as performance-based compensation, the Administrator must establish a performance goal with respect to such award in writing not later than 90 days after the commencement of the services to which it relates (or, if earlier, the date after which 25% of the period of service to which the performance goal relates has elapsed) and while the outcome is substantially uncertain. In addition, the performance goal must be stated in terms of an objective formula or standard.

 

Under Code Section 162(m), a “covered employee” is the Company’s chief executive officer and the three other most highly compensated officers of the Company other than the chief financial officer.

 

The Amended Plan includes the following performance criteria that may be considered by the Administrator when granting performance-based awards: (i) change in Share price, (ii) operating earnings, operating profit margins, earnings before interest, taxes, depreciation, or amortization, net earnings, earnings per Share (basic or diluted) or other measure of earnings; (iii) total stockholder return; (iv) operating margin; (v) gross margin; (vi) balance sheet performance, including debt, long or short term, inventory, accounts payable or receivable, working capital, or stockholders’ equity; (vii) return measures, including return on invested capital, sales, assets, or equity; (viii) days’ sales outstanding; (ix) operating income; (x) net operating income; (xi) pre-tax profit; (xii) cash flow, including cash flow from operations, investing, or financing activities, before or after dividends, investments, or capital expenditures; (xiii) revenue; (xiv) expenses, including cost of goods sold, operating expenses, marketing and administrative expense, research and development, restructuring or other special or unusual items, interest, tax expense, or other measures of savings; (xv) earnings before interest, taxes and depreciation; (xvi) economic value created or added; (xvii) market share; (xviii) sales or net sales; (xix) sales or net sales of particular products; (xx) gross profits; (xxi) net income; (xxii) inventory turns; (xxiii) revenue per employee; and (xxiv) implementation or completion of critical projects involving acquisitions, divestitures, process improvements, product or production quality, attainment of other strategic objectives relating to market penetration, geographic expansion, product development, regulatory or quality performance, innovation or research goals.  The performance criteria may be applicable to the Company, any parent or subsidiary of the Company, and/or any individual business units of the Company or any parent or subsidiary of the Company.

 

28



 

Change in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by outstanding awards, the number of Shares that have been authorized for issuance under the Amended Plan, the exercise or purchase price of each outstanding award, the maximum number of Shares that may be granted subject to awards to any participant in a calendar year, and the like, shall be proportionally adjusted by the Administrator in the event of (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification or similar event affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company or (iii) any other transaction with respect to our Shares including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete), distribution of cash or other assets to stockholders other than a normal cash dividend, or any similar transaction; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive.

 

Corporate Transaction. Effective upon the consummation of a Corporate transaction, all outstanding awards under the Amended Plan will terminate unless the awards are assumed in connection with the Corporate Transaction.  In addition, except as provided otherwise in an individual award agreement, for the portion of each award that is neither assumed nor replaced, such portion of the award shall automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value) for all of the Shares (or other consideration) at the time represented by such portion of the award, immediately prior to the specified effective date of such Corporate Transaction, provided that the Grantee’s Continuous Service has not terminated prior to such date.

 

Change in Control.  Except as provided otherwise in an individual award agreement, in the event of a Change in Control (other than a Change in Control which also is a Corporate Transaction), each award which is at the time outstanding under the Amended Plan automatically shall become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value), immediately prior to the specified effective date of such Change in Control, for all of the Shares (or other consideration) at the time represented by such award, provided that the Grantee’s Continuous Service has not terminated prior to such date.

 

Amendment, Suspension or Termination of the Amended Plan. The Board may at any time amend, suspend or terminate the Amended Plan. The Amended Plan will terminate on May 14, 2020, unless earlier terminated by the Board. To the extent necessary to comply with applicable provisions of federal securities laws, state corporate and securities laws, the Code, applicable rules of any stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents of the jurisdiction, the Company shall obtain stockholder approval of any such amendment to the Amended Plan in such a manner and to such a degree as required.

 

Certain Federal Tax Consequences

 

The following summary of the federal income tax consequences of the Amended Plan transactions is based upon federal income tax laws in effect on the date of this Proxy Statement. This summary does not purport to be complete, and does not discuss state, local or non-U.S. tax consequences.

 

Nonqualified Stock Options. The grant of a nonqualified stock option under the Amended Plan will not result in any federal income tax consequences to the participant or to the Company. Upon exercise of a nonqualified stock option, the participant is subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option exercise price and the fair market value of the Shares at the time of exercise. This income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the participant, subject to possible limitations imposed by Section 162(m) of the Code and so long as the Company withholds the appropriate taxes with respect to such income (if required) and the participant’s total compensation is deemed reasonable in amount. Any gain or loss on the participant’s subsequent disposition of the Shares will receive long or short-term capital gain or loss treatment, depending on whether the Shares are held for more than one year following exercise. The Company does not receive a tax deduction for any such gain.

 

A nonqualified stock option can be considered deferred compensation and subject to Section 409A of the Code. A nonqualified stock option that does not meet the requirements of Code Section 409A can result in the acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest.

 

29



 

Incentive Stock Options. The grant of an incentive stock option under the Amended Plan will not result in any federal income tax consequences to the participant or to the Company. A participant recognizes no federal taxable income upon exercising an incentive stock option (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an incentive stock option, the tax consequences depend upon how long the participant has held the Shares. If the participant does not dispose of the Shares within two years after the incentive stock option was granted, nor within one year after the incentive stock option was exercised, the participant will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the Shares and the exercise price. The Company is not entitled to any deduction under these circumstances.

 

If the participant fails to satisfy either of the foregoing holding periods (referred to as a “disqualifying disposition”), he or she must recognize ordinary income in the year of the disposition. The amount of ordinary income generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the difference between the fair market value of the stock at the time of exercise and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the stock was held for more than one year. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary income recognized by the participant, subject to possible limitations imposed by Section 162(m) of the Code and so long as the participant’s total compensation is deemed reasonable in amount.

 

The “spread” under an incentive stock option—i.e., the difference between the fair market value of the Shares at exercise and the exercise price—is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax. If a participant’s alternative minimum tax liability exceeds such participant’s regular income tax liability, the participant will owe the larger amount of taxes. In order to avoid the application of alternative minimum tax with respect to incentive stock options, the participant must sell the Shares within the calendar year in which the incentive stock options are exercised. However, such a sale of Shares within the year of exercise will constitute a disqualifying disposition, as described above.

 

Stock Appreciation Rights. Recipients of stock appreciation rights (“SARs”) generally should not recognize income until the SAR is exercised (assuming there is no ceiling on the value of the right). Upon exercise, the recipient will normally recognize taxable ordinary income for federal income tax purposes equal to the amount of cash and fair market value of the shares, if any, received upon such exercise. Recipients who are employees will be subject to withholding for federal income and employment tax purposes with respect to income recognized upon exercise of a SAR. Recipients will recognize gain upon the disposition of any shares received on exercise of a SAR equal to the excess of (i) the amount realized on such disposition over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long or short-term capital gain depending on whether the shares were held for more than one year. We will be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the recipient, subject to possible limitations imposed by Section 162(m) of the Code and so long as we withhold the appropriate taxes with respect to such income (if required) and the recipient’s total compensation is deemed reasonable in amount.

 

A SAR can be considered non-qualified deferred compensation and subject to Section 409A of the Code. A SAR that does not meet the requirements of Code Section 409A can result in the acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest.

 

Restricted Stock. The grant of restricted stock will subject the recipient to ordinary compensation income on the difference between the amount paid for such stock and the fair market value of the Shares on the date that the restrictions lapse. This income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by the recipient, subject to possible limitations imposed by Section 162(m) of the Code and so long as the Company withholds the appropriate taxes with respect to such income (if required) and the participant’s total compensation is deemed reasonable in amount. Any gain or loss on the recipient’s subsequent disposition of the Shares will receive long or short-term capital gain or loss treatment depending on how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction for any such gain.

 

Recipients of restricted stock may make an election under Section 83(b) of the Code (“Section 83(b) Election”) to recognize as ordinary compensation income in the year that such restricted stock is granted, the amount equal to the spread between the amount paid for such stock and the fair market value on the date of the issuance of the stock. If such an election is made, the recipient recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long or short-term capital gain to the recipient. The Section 83(b) Election must be made within thirty days from the time the restricted stock is issued.

 

30