DEF 14A of Electromed, Inc.
Filed Sep 26, 2023 · FY20230000897101-23-000410
ELECTION OF DIRECTORS (Proposal 1)
ELECTION OF DIRECTORS (Proposal 1) The Board is currently composed of nine directors, eight of whom have been nominated for election at the Annual Meeting. James L. Cunniff is standing for election to serve as a director of the Company for the first time at this year’s Annual Meeting. The Board appointed Mr. Cunniff to serve as the Company’s Chief Executive Officer and President, beginning July 1, 2023, and he initially joined the Board effective as of the same date. His director candidacy was evaluated and recommended by the Nominating and Governance Committee. Lee A. Jones, a current director of the Company, is not standing for re-election and her term will expire as of the conclusion of the Annual Meeting. If elected, each director will hold office until the next annual meeting of shareholders and until his or her successor is elected and qualified, or until his or her earlier death, resignation, disqualification or removal. Each of the director nominees has consented to be named in this proxy statement and to serve, if elected. The Company has no reason to believe that any of the director nominees named below will be unable or unwilling to serve as director if elected. If for any reason any nominee withdraws or is unable to serve as director (neither of which is expected at this time), the shares represented by all valid proxies will be voted for the election of a substitute nominee recommended by the Board or, alternatively, not voted for any nominee. The Bylaws of the Company, as amended (the “Bylaws”), provide that the number of directors shall be determined by the shareholders annually. The Board has recommended that the number of directors be set at eight. The Board believes that eight directors provides diversity of viewpoints and expertise while allowing each director to influence the strategic direction of the Company. If each of the eight director nominees named in this proxy statement are elected at the Annual Meeting, then their election will be deemed to be shareholder approval of setting the number of directors at eight. Nominees for Election as Directors at the Annual Meeting The Board has nominated each of the following persons for election to serve as directors and recommends that shareholders vote “FOR” the election of each such nominee:
ELECTION OF DIRECTORS (Proposal 1)
| Name | Age | Director Since | | James L. Cunniff | 58 | 2023 | | Stan K. Erickson | 73 | 2014 | | Gregory J. Fluet | 54 | 2019 | | Joseph L. Galatowitsch | 65 | 2021 | | Kathleen S. Skarvan | 67 | 2013 | | Andrew J. Summers | 50 | 2022 | | Kathleen A. Tune | 59 | 2021 | | Andrea M. Walsh | 60 | 2020 |
ELECTION OF DIRECTORS (Proposal 1)
Further information relating to each of the director nominees and their qualifications to serve is set forth below:
Limits on Non-Employee Director Compensation
Limits on Non-Employee Director Compensation The maximum grant date fair value of all equity awards granted during any calendar year to any non-employee director together with the amount of any cash fees or retainers paid to such non-employee director during such calendar year, shall not exceed $500,000.
Finance and Strategy Committee
Finance and Strategy Committee The Finance and Strategy Committee was established by the Board in fiscal 2022 in accordance with the terms of the Cooperation Agreement described under the heading “Certain Relationships and Related-Party Transactions” below. The Board has authorized the Finance and Strategy Committee to, among other things, review the Company’s business and make recommendations to the Board with respect to the Company’s strategy and opportunities to enhance shareholder value, including but not limited to strategic growth plans, long-term business plans, shareholder engagement, research and development, capital allocation, and buy- or sell-side M&A transactions. The Finance and Strategy Committee acts pursuant to a written charter approved by the Board. SECURITY HOLDER COMMUNICATIONS TO THE BOARD OF DIRECTORS Any shareholder wishing to communicate with the Board should send the communication, in written form, to the President and Chief Executive Officer of the Company at the Company’s principal place of business at 500 Sixth Avenue Northwest, New Prague, Minnesota 56071. The President and Chief Executive Officer will promptly send the communication to each member of the Board identified on the communication. DELINQUENT SECTION 16(a) REPORTS Section 16(a) of the Exchange Act requires that our directors and executive officers file initial reports of ownership and reports of changes in ownership with the SEC. Directors and executive officers are required to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us and written representations from our directors and executive officers, all Section 16(a) filing requirements were met for fiscal 2023, except that one report on Form 4 was not filed by Mr. Holland relating to one transaction involving the forfeiture of shares to satisfy taxes in connection with the vesting of shares of restricted stock; two reports on Form 4 filed late by Ms. Skarvan, the first of which related to two transactions involving the exercise of stock option awards and the second of which related to one transaction involving a disposition to satisfy tax withholding requirements in connection with the vesting of shares of restricted stock; and one report on Form 3 filed by Mr. Summers which was delinquent due to a delay in obtaining valid electronic filing credentials. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of September 13, 2023 by (i) each of our named executive officers; (ii) each of our directors; (iii) all of our executive officers, directors and director nominees as a group; and (iv) each beneficial owner of 5% or more of our outstanding common stock. Ownership percentages are based on 8,572,036 shares of common stock outstanding as of the close of business on September 13, 2023. Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge and subject to applicable community property laws, each of the holders of common stock listed below has sole voting and investment power as to the common stock owned unless otherwise noted. The table below includes the number of shares of common stock underlying options that are exercisable within 60 days from September 13, 2023. Except as otherwise noted below, the address for each director or officer listed in the table is c/o Electromed, Inc., 500 Sixth Avenue Northwest, New Prague, Minnesota 56071.
Finance and Strategy Committee
| (a) Includes 6,600 restricted stock units that vest in three annual installments beginning on June 30, 2024. |
EXECUTIVE COMPENSATION
(1) Ms. Skarvan stepped down as President and Chief Executive Officer on July 1, 2023. Executive Compensation Components for Fiscal 2023 We provide a compensation package to our executive officers, including base salary, cash incentive compensation, certain perquisites and participation in benefit arrangements that are generally available to all salaried employees, such as health and retirement plans. We have also periodically awarded our executive officers with long-term equity incentive grants in the form of restricted shares of common stock or stock options. Base Salary Salaries for our executive officers are determined and paid on a fiscal-year basis and, for fiscal 2023, were established by our Personnel and Compensation Committee in accordance with the terms of each executive officer’s employment agreement with the Company. For fiscal 2023, Ms. Skarvan had a base annual salary of $475,000. Mr. Holland had a base annual salary of $290,000 through December 31, 2022 and a base annual salary of $304,500 from January 1, 2023 until his resignation from employment effective June 23, 2023. Upon becoming Chief Financial Officer on November 14, 2022, Mr. Nagel had a base annual salary of $250,000. In order to provide its recommendations regarding base salaries, the Personnel and Compensation Committee reviews individual performance and our operating results and considers compensation data for medical device manufacturing companies located in the Midwest. The Personnel and Compensation Committee also considers the Chief Executive Officer’s recommendations as to compensation for the Company’s other executive officers. The Personnel and Compensation Committee uses a subjective process to set base salaries and does not specifically weight any factors. Based upon the information reviewed, the Personnel and Compensation Committee makes a recommendation with respect to compensation for the Company’s executive officers. The Board sets the compensation for each executive officer based on the recommendation of the committee. The Chief Executive Officer is not present during the committee’s deliberations or voting on her compensation. Cash Incentive Compensation The Personnel and Compensation Committee established a Fiscal Year 2023 Officer Bonus Plan (the “2023 Bonus Plan”) for officers of the Company, including our named executive officers. The 2023 Bonus Plan was effective for fiscal 2023 and provided an opportunity for each participant to earn an annual cash bonus based on Company revenue growth versus the prior fiscal year (subject to achievement of threshold earnings before taxes (“EBT”)). Under the 2023 Bonus Plan, the Personnel and Compensation Committee established minimum revenue growth of 9.0% and target revenue growth of 15.0% for fiscal 2023, and set target payouts based on percentages of base salaries at 50.0% for our Chief Executive Officer and 30.0% for our Chief Financial Officer. The following summarizes the potential payment scenarios that were available under the 2023 Bonus Plan:
EXECUTIVE COMPENSATION
| ● | Company revenue growth below minimum performance would not have resulted in any payouts under the 2023 Bonus Plan. |
EXECUTIVE COMPENSATION
| ● | Company revenue growth between minimum and target performance would have resulted in a potential bonus payout starting at 40.0% and increasing in increments of 15.0% of the participant’s respective target payout for every whole percent of revenue growth in excess of minimum performance. |
EXECUTIVE COMPENSATION
| ● | Company revenue growth equal to target performance would have resulted in a potential bonus payout equal to 100.0% of the participant’s respective target payout. |
EXECUTIVE COMPENSATION
| ● | Company revenue growth above target performance would have resulted in a potential bonus payout equal to 100.0% of the participant’s respective target payout, plus an additional increment of 8.0% of their target payout for every whole percent of revenue growth in excess of target performance up to 268% of target payout. |
Payments Made Upon Termination
| Name and principal position | Fiscal Year | Salary ($)(a) | Stock awards ($)(b) | Option awards ($)(c) | Non-equity incentive plan compensation ($)(d) | All other compensation ($)(e) | Total ($) | | Kathleen S. Skarvan(f) | 2023 | 474,038 | 142,560 | 153,617 | 285,000 | 21,740 | 1,076,956 | | President and Chief Executive Officer | 2022 | 448,461 | 123,715 | 119,677 | 243,000 | 23,292 | 958,145 | | Bradley M. Nagel(g) | 2023 | 144,231 | 50,250 | – | 50,000 | 9,832 | 254,313 | | Chief Financial Officer | | | | | | | | | Christopher G. Holland(h) | 2023 | 284,981 | 73,260 | 46,939 | – | 139,235(i) | 534,375 | | Former Chief Commercial Officer | 2022 | 89,231 | 66,605 | 46,925 | 39,150 | 6,461 | 248,372 |
Pay Versus Performance Table
Pay Versus Performance Table The following table sets forth additional compensation information of our principal executive officer (“PEO”) and averaged compensation information for our other named executive officers (“NEOs”) along with total shareholder return and net income for fiscal 2023 and 2022.
Pay Versus Performance Table
| Fiscal Year | Summary Compensation Table (SCT) Total for PEO(a) | Compensation Actually Paid (CAP) to PEO(b) | Average Summary Compensation Table for Other NEOs(a) | Average CAP to Other NEOs(b) | Value of Initial Fixed $100 Investment Based on: Total Shareholder Return(c) | Net Income (in thousands) | | 2023 | $1,076,956 | $857,968 | $394,344 | $291,508 | $97.43 | $3,166 | | 2022 | $958,145 | $612,997 | $331,071 | $269,064 | $85.39 | $2,305 |
Pay Versus Performance Table
| (a) Kathleen S. Skarvan served as President and Chief Executive Officer of the Company for all periods presented. The other named executive officers consisted of Christopher G. Holland and Bradley M. Nagel for fiscal 2023, and Christopher G. Holland, Michael J. MacCourt, and Michelle C. Wirtz for fiscal 2022. |
Pay Versus Performance Table
| (b) None of our NEOs participate in a pension plan; therefore, no adjustment from the SCT total related to pension value was made. A reconciliation of Total Compensation from the Summary Compensation Table to Compensation Actually Paid to our CEO and our Other NEOs (as an average) is shown below: |
Pay Versus Performance Table
| | 2023 | | 2022 | | | Adjustments | CEO ($) | Average of Other NEOs ($) | CEO ($) | Average of Other NEOs ($) | | Total Compensation from SCT | 1,076,956 | 394,344 | 958,145 | 331,071 | | (Subtraction): SCT amounts of Stock and Option awards | (296,177) | (85,225) | (243,392) | (114,978) | | Addition: Fair value at year-end of awards granted during the covered fiscal year that are outstanding and unvested at year-end | 209,336 | 69,463 | 121,960 | 75,368 | | Addition (Subtraction): Year-over-year change in fair value of awards granted in any prior fiscal year that are outstanding and unvested at year end | 5,695 | - | (23,170) | (3,620) | | Addition: Vesting date fair value of awards granted and vesting during such year | 11,664 | 2,188 | - | - | | Addition (Subtraction): Change as of the vesting date (from the end of the prior fiscal year) in fair value of awards granted in any prior fiscal year for which vesting conditions were satisfied during such year | (149,506) | (33,866) | (200,546) | (18,777) | | (Subtraction): Fair value at end of prior year of awards granted in any prior fiscal year that fail to meet the applicable vesting conditions during such year | - | (55,397) | - | - | | Addition: Dividends or other earnings paid on stock or option awards in the covered year prior to vesting if not otherwise included in the total compensation for the covered year | - | - | - | - | | Compensation Actually Paid (as calculated) | 857,968 | 291,508 | 612,997 | 269,064 |
Pay Versus Performance Table
| (c) Total shareholder return as calculated based on a fixed investment of one hundred dollars measured from the market close on June 30, 2021 (the last trading day of fiscal 2021) through and including the end of the fiscal year for each year reported in the table. |
Relationship between Pay and Performance
| Director Compensation Element | | Amount Payable | | Annual Cash Retainer(s) (a) | | | | ● | Board Member | $35,000 | | ● | Board Chair | $30,000 | | ● | Audit Committee Chair | $15,000 | | ● | Personnel and Compensation Committee Chair | $10,000 | | ● | Nominating and Governance Committee Chair | $7,000 | | ● | Finance and Strategy Committee Chair | $7,000 | | ● | Audit Committee Member | $5,000 | | ● | Personnel and Compensation Committee Member | $5,000 | | ● | Nominating and Governance Committee Member | $2,000 | | ● | Finance and Strategy Committee Member | $2,000 | | Annual Equity Award (b) | | 3,000 shares |
Relationship between Pay and Performance
| Non-Employee Director | Stock Awards ($)(a) | Fees Earned or Paid in Cash ($) | Total ($) | | Stan K. Erickson | $29,580 | $52,000 | $81,580 | | Gregory J. Fluet | $29,580 | $49,000 | $78,580 | | Joseph L. Galatowitsch | $29,580 | $42,000 | $71,580 | | Lee A. Jones | $29,580 | $75,250 | $104,830 | | Andrew J. Summers | $29,580 | $39,000 | $68,580 | | Kathleen A. Tune | $29,580 | $47,000 | $76,580 | | Andrea M. Walsh | $29,580 | $45,750 | $75,330 |