DEF 14A of Electromed, Inc.
Filed Oct 1, 2024 · FY20240000897101-24-000487
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS The Board is currently composed of eight directors, all of whom have been nominated for re-election at 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 provide 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, their election will be deemed shareholder approval of setting the number of directors at eight.
Nominees for Election as Directors at the Annual Meeting
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: Mr. Cunniff is a seasoned executive in the healthcare space with a direct knowledge of Electromed’s business and operations as he currently serves as President and Chief Executive Officer of Electromed, Inc. Prior to joining Electromed in July of 2023, he served as President and Chief Executive Officer of Provista, Inc. (2017-2022) and of Denver Solutions, LLC (2015-2017). He has demonstrated success in general management, international, manufacturing, sales and marketing, finance, human resources, operations, compliance, mergers and acquisitions, and change management. His service as our current principal executive officer uniquely qualifies him to serve as a member of our Board. Experience:
Nominees for Election as Directors at the Annual Meeting
| ● | President and CEO, Board Member, Electromed, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | President and CEO, Provista, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | President and CEO, Board Member, Denver Solutions LLC (d/b/a Leiters Health) |
Nominees for Election as Directors at the Annual Meeting
| ● | Senior Vice President, Americas, Acelity L.P. Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | President of Multiple Divisions, Stryker Corporation |
Nominees for Election as Directors at the Annual Meeting
Education: BA, Advertising and Business, University of Illinois Urbana-Champaign; Advanced Management Program, Harvard Business School Mr. Erickson provides a strong perspective on financing, investment, acquisition and operating strategies, public company regulatory compliance issues, and investor relations. Mr. Erickson currently serves as President and Chief Executive Officer of Liberty Capital, Inc., which he co-founded in September 2013 to provide capital and advisory services to both pre- and post-commercialization organizations in various industries, including medical device and technology. Over his 32-year career at Ziegler, he was responsible for developing and executing strategies to achieve growth through market share gains and acquisitions. Mr. Erickson’s significant experience as a board member in both the public and private sector, and in business operations, financial reporting, and M&A activity, qualifies him to serve as a member of our Board and as the Audit Committee Financial Expert.
Nominees for Election as Directors at the Annual Meeting
| ● | President and CEO, Liberty Capital, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | President and COO, Ziegler, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | United States Marine Corps Veteran |
Nominees for Election as Directors at the Annual Meeting
| ● | Auditor and Tax Professional, Baker Tilly US LLP |
Nominees for Election as Directors at the Annual Meeting
Education: BS, Business Administration, University of Minnesota Other Credentials: Certified Public Accountant (Inactive) Mr. Fluet currently serves as Chief Operating Officer for Ferring Microbiome Inc. (fka Rebiotix, Inc.), a Ferring Pharmaceuticals company focused on revolutionizing the treatment of debilitating diseases through microbiome-based research. Since 2016, he has worked at Rebiotix in both contract and permanent roles, including serving as Chief Business Officer from April 2017 until the company’s acquisition by Ferring Pharmaceuticals in April 2018. Prior to this role at Rebiotix, Mr. Fluet served as Chief Executive Officer of Urologix, Inc., then a public company and developer of minimally invasive office-based Benign Prostatic Hyperplasia (BPH) therapies. Mr. Fluet’s background as a healthcare investor and medical device executive, including experience in M&A transactions, public and private financing, investor relations, business development, commercial operations, manufacturing operations and financial reporting, qualify him to serve as a member of our Board. Experience:
Nominees for Election as Directors at the Annual Meeting
| ● | COO, Rebiotix, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | CEO, Urologix, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | Interim CFO, Urologix, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | Executive VP and COO, Urologix, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | Associate, Sapient Capital Management LLC |
Nominees for Election as Directors at the Annual Meeting
Education: BS, Mechanical Engineering, Stanford University Mr. Galatowitsch most recently served as a Partner and Medtech practice leader at Guidehouse Consulting, a leading global provider of consulting services to the public and commercial markets with broad capabilities in management, technology, and risk consulting. He also co-founded and served as President of Dymedex Consulting, LLC from January 2008 through August 2016 when it was acquired by Navigant up until his retirement in September 2020. He pioneered and provided new-to-the-world conceptual frameworks for assessing opportunities and driving clinical adoption of disruptive new medical technologies. At Medtronic, he led and coordinated global market development efforts in Medtronic’s cardiac rhythm management division. Mr. Galatowitsch’s extensive experience in the medical technology management, commercial execution, global market development, marketing and business strategy, management, strategic planning, consulting, and sales, qualify him to serve as a member of our Board.
Nominees for Election as Directors at the Annual Meeting
| ● | Partner, Guidehouse Consulting |
Nominees for Election as Directors at the Annual Meeting
| ● | Co-Founder, President, Dymedex Consulting LLC |
Nominees for Election as Directors at the Annual Meeting
| ● | Senior Director of Strategic Marketing, Medtronic, PLC |
Nominees for Election as Directors at the Annual Meeting
| ● | Marketing and Business Management, 3M Company |
Nominees for Election as Directors at the Annual Meeting
Education: BS, Biomedical Engineering, Marquette University MBA, Marketing, St. Thomas Opus College of Business Ms. Skarvan served as our President and Chief Executive Officer from 2012 until her retirement on June 30, 2023. Prior to Electromed, Ms. Skarvan served as Vice President of Operations at OEM Fabricators, a leading custom metal fabrication company specializing in building components (Sep 2011-Oct 2012). In addition, Ms. Skarvan held several positions of increasing responsibility over her 29-year career at Hutchinson Technology, Inc. and was responsible for a division with annual revenues in excess of $300 million, managing 3,500 employees across R&D, marketing, sales, and technical support in five countries. Ms. Skarvan’s experience as our former principal executive officer and as a leader of high growth companies, extensive operations and marketing experience, and track record of identifying strategic priorities and driving the execution of strategies, uniquely qualify her to serve as member of our Board. Experience:
Nominees for Election as Directors at the Annual Meeting
| ● | President and CEO, Electromed, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | VP of Operations, OEM Fabricators |
Nominees for Election as Directors at the Annual Meeting
| ● | SVP and President of the Disk Drive Components Division, Hutchinson Technology, Inc. |
Nominees for Election as Directors at the Annual Meeting
Education: BA, Mass Communications, St. Cloud State University Mr. Summers currently serves as the Managing Member of Summers Value Partners LLC (“Summers Value Partners”), an alternative investment management firm with a focus on small and micro-cap companies in the global healthcare sector since March 2018. Prior to that, Mr. Summers was an investment professional and equity analyst at Janus Henderson Investors, a leading global active asset manager, from 2008 to February 2018, where he specialized in investing across the global healthcare sector. From 2004 to 2008, Mr. Summers served as the Managing Member of Silvergate Capital Management LLC, a long/ short healthcare hedge fund that he founded. Mr. Summers began his investment career in 1998 at INVESCO Funds Group, Inc. Mr. Summers’ perspective as a significant shareholder of the Company, together with his financial and industry knowledge, leadership experience in capital and growth equity investing, investment capital markets, and investor relations qualify him to serve as a member of our Board.
Nominees for Election as Directors at the Annual Meeting
| ● | Managing Partner, Summers Value Partners LLC |
Nominees for Election as Directors at the Annual Meeting
| ● | Investment and Equity Analyst, Janus Henderson Investors |
Nominees for Election as Directors at the Annual Meeting
| ● | Founder and Portfolio Manager, Silvergate Capital Management LLC |
Nominees for Election as Directors at the Annual Meeting
| ● | Co-Portfolio Manager, INVESCO Funds Group, Inc. |
Nominees for Election as Directors at the Annual Meeting
Education: BS, Business Administration, University of Wisconsin-Whitewater; MS, Finance, University of Wisconsin-Madison Other Credentials: Chartered Financial Analyst Ms. Tune currently serves as Managing Partner with Capita3, an early-stage venture capital fund focused on women-led healthcare startup founders, since January 2019. Ms. Tune was the CFO/COO for Marani Health, Inc., a leading development stage maternal and fetal health company, from 2020 through February 2024 and is a former Partner at Thomas, McNerney & Partners, where she led and managed an investment portfolio with a primary focus in healthcare technologies from 2003 to December 2019. Ms. Tune’s leadership experience in venture and growth equity investing, corporate strategy, business development, investment and capital markets, investor relations and finance, sales, marketing and reimbursement strategies, qualify her to serve as a member of our Board. Experience:
Nominees for Election as Directors at the Annual Meeting
| ● | Managing Partner, Capita3 |
Nominees for Election as Directors at the Annual Meeting
| ● | CFO/COO, Marani Health, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | Partner, Thomas, McNerney & Partners |
Nominees for Election as Directors at the Annual Meeting
| ● | Equity Analyst, Piper Sandler |
Nominees for Election as Directors at the Annual Meeting
| ● | Program Manager, Pfizer |
Nominees for Election as Directors at the Annual Meeting
Education: BS, Biochemistry and Microbiology, Minnesota State University; MS, Veterinary Microbiology, University of Minnesota MBA, Finance, University of Minnesota Carlson School of Management Ms. Walsh currently serves as President and Chief Executive Officer of HealthPartners, an $8.5 billion Minnesota-based non-profit integrated health system that provides care, health support, insurance coverage, research and education programs. She has held this position since 2017. Over her 30-year career with HealthPartners, Ms. Walsh held other positions, including as Executive Vice President and Chief Marketing Officer, from April 2002 to May 2017 and as Senior Vice President and Corporate Counsel from 1994 to 1999. In her role as President and Chief Executive Officer, Ms. Walsh is responsible for developing the organization’s vision and strategy. She leads a team of approximately 28,000 people, including a multi-specialty group practice with over 1,800 physicians and 900 advanced practice clinicians, which collectively serve more than 1.3 million patients in Minnesota and Wisconsin, and 1.7 million members across the country through its health plan, network and services. Ms. Walsh’s experience as the top executive at a large healthcare organization in a highly regulated marketplace, and her extensive knowledge of the healthcare and insurance industry, qualify her to serve as a member of our Board.
Nominees for Election as Directors at the Annual Meeting
| ● | President & CEO, HealthPartners, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | Executive VP & CMO, HealthPartners, Inc. |
Nominees for Election as Directors at the Annual Meeting
| ● | SVP & Corporate Counsel, HealthPartners, Inc. |
Nominees for Election as Directors at the Annual Meeting
Education: BA, Business Administration & English, University of Kansas; JD, University of Minnesota Law School The Board recommends that you vote “FOR” each of the nominees to the Board, thereby setting the number of directors at eight. The election of each nominee requires the affirmative vote of a plurality of the voting power of the shareholders present, whether electronically during the Annual Meeting or by proxy, and entitled to vote at the Annual Meeting, provided that a quorum is present. Except as otherwise directed, the proxies will vote all valid proxies for the eight nominees identified above.
EXECUTIVE COMPENSATION COMPONENTS FOR FISCAL 2024
EXECUTIVE COMPENSATION COMPONENTS FOR FISCAL 2024 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, performance stock units, or stock options.
Cash Incentive Compensation
Cash Incentive Compensation The Personnel and Compensation Committee established a Fiscal Year 2024 Officer Bonus Plan (the “2024 Bonus Plan”) for officers of the Company, including our named executive officers. The 2024 Bonus Plan was effective for fiscal 2024 and provided an opportunity for each participant to earn an annual cash bonus based on Company revenue growth and earnings before taxes (“EBT”) versus the fiscal year ended June 30, 2023. Under the 2024 Bonus Plan, the Personnel and Compensation Committee established minimum revenue growth of 9.0% and target revenue growth of 15% for fiscal 2024. The Personnel and Compensation Committee established minimum EBT growth of 10% and target EBT growth of 35% for fiscal 2024. Target payouts based on percentages of base salaries were set 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 2024 Bonus Plan:
Cash Incentive Compensation
| » | Company revenue or EBT growth below minimum performance would not have resulted in any payouts under the 2024 Bonus Plan. Revenue growth will be weighted at 67% and EBT growth weighted at 33%. |
Cash Incentive Compensation
| » | Company revenue and EBT growth between minimum and target performance would have resulted in a potential bonus payout starting at 43% and increasing up to a total of 100% of the participant’s respective target payout depending on the growth mix between revenue and EBT. |
Cash Incentive Compensation
| » | Company revenue and EBT growth above target performance resulted in a bonus payout equal to 100% or more of the participant’s respective target payout up to 250% of target payout. |
Cash Incentive Compensation
Bonus payout under the 2024 Bonus Plan for fiscal 2024 was 116% as the Board, upon recommendation of its Personnel and Compensation Committee, determined that the revenue growth and EBT targets were exceeded, amounting to payment to Mr. Cunniff of $290,000, and payment to Mr. Nagel of $97,544, under the 2024 Bonus Plan.
Equity Compensation
Equity Compensation Our Board and its Personnel and Compensation Committee believe that stock-based compensation promotes the creation of long-term shareholder value and aligns the interests of our management with the interests of our shareholders by ensuring that a portion of their total compensation is at risk and changes in value with the value of our securities. As employees of our company, each of our applicable named executive officers is eligible to receive equity compensation awards pursuant to our 2023 Equity Incentive Plan (“2023 Plan”). During fiscal 2024, we granted a combination of performance stock units and options to purchase shares of common stock to Mr. Cunniff and a combination of restricted shares of common stock and options to purchase additional shares of common stock to Mr. Nagel, and all awards were granted pursuant to the 2017 Plan or pursuant to inducement awards containing terms substantially similar to the 2017 Plan. On July 1, 2023, Mr. Cunniff received 175,000 performance stock units and an option to purchase up to 175,000 shares of common stock, both of which were granted as inducement awards in reliance on the employment inducement award exemption under the NYSE American LLC Company Guide Section 711(a). The options have an exercise price of $10.71 per share, which represented the “fair market value” of our common stock as of the date of grant, and are scheduled to expire after 10 years. The performance stock units are eligible to vest and settle into shares of our common stock on a 1-for-1 basis with respect to 87,500 shares upon achieving a total shareholder return of 50% and the remaining 87,500 shares upon a total shareholder return of 100%, in each case within four years of the date of grant. Total shareholder return is evaluated from the initial grant date through the end of each subsequent fiscal quarter using the three-month volume-weighted average closing prices in accordance with the underlying award agreement. The options were scheduled to vest 25% on a one-year cliff and 1/16th quarterly thereafter. On July 1, 2023, Mr. Nagel received 6,600 restricted shares of common stock and an option to purchase up to 7,900 shares of common stock. The foregoing options had an exercise price of $10.71 per share, which represents the “fair market value” of our common stock as of the date of grant and were scheduled to expire after 10 years. The options and shares of restricted stock were scheduled to vest in substantially equal increments on June 30 in each of 2024, 2025 and 2026. On November 10, 2023, Mr. Nagel received an option to purchase up to 6,500 shares of common stock with an exercise price of $10.25 per share, which represents the “fair market value” of our common stock as of the date of grant and were scheduled to expire after 10 years. The November 2023 options were scheduled to vest in substantially equal increments on June 30 in each of 2024, 2025, and 2026. The 2017 Plan and the 2023 Plan generally provide for “double trigger” acceleration of awards in connection with a change in control (as defined in the applicable plan), whereupon the vesting of awards will accelerate if such awards are assumed or replaced with an equivalent award by the resulting entity and the participant incurs an involuntary termination other than for cause within 12 months following a change in control. With respect to awards that are not assumed or replaced by the successor entity, all awards will become fully vested and exercisable upon the change in control of the Company, all awards will become fully vested and exercisable; however, under Mr. Cunniff’s performance stock unit agreement, the performance period will end upon the change in control and the number of performance stock units will vest based on actual performance over the shortened performance period.
Employment Agreements
Employment Agreements In fiscal year 2024, we were party to employment agreements with both our named executive officers.
James L. Cunniff
James L. Cunniff On July 1, 2023, the Company entered into an employment agreement with Mr. Cunniff to serve as the Company’s Chief Executive Officer and President, as well as a member of the Board. Mr. Cunniff’s employment agreement is effective for a period of two years ending in July 2025, subject to automatic one-year extensions on the anniversary of the effective date of the agreement unless terminated in advance in accordance with its terms. Notwithstanding the foregoing, the applicable term will automatically expire on the one-year anniversary of a “change of control” (as defined in the employment agreement). Pursuant to his employment agreement, Mr. Cunniff is entitled to an initial annual base salary of $500,000 and is eligible for a merit-based increase on or about each successive July 1, subject to final approval by our Board. The employment agreement also provides that Mr. Cunniff is eligible to earn an annualized cash bonus as determined by our Board, based on a target amount of 50% of his annualized base salary for the fiscal year ending June 30, 2024. Future annual cash bonus opportunities will be determined by the Board in its discretion. Pursuant to a relocation letter agreement dated May 22, 2023, relocation assistance of up to $30,000 was also provided to Mr. Cunniff, which is required to be repaid if his employment is termination by us for cause or by him without good reason within 12 months after his start date. Mr. Cunniff’s employment agreement provides for an initial grant of (a) 175,000 performance-based restricted stock units and (b) options to purchase 175,000 shares of common stock, each pursuant to our then-current stock incentive plan or on substantially similar terms in the form of inducement awards to be granted as soon as practicable on or after his first day of employment. If Mr. Cunniff’s employment is terminated by us for any reason other than for “cause” or death or disability, or is terminated by him for “good reason” (each as defined in Mr. Cunniff’s employment agreement) (a “qualifying termination”), and in either case the termination of employment occurs before a change of control, then he will be eligible to (A) receive an amount equal to one times his annualized base salary as of the termination date, payable in substantially equal installments over a period of 12 months, (B) receive an amount equal to his target annual bonus based on the Company’s performance for the fiscal year in which the termination date occurs, prorated based on the portion of the applicable fiscal year that had elapsed prior to the termination date and payable within 75 days of the termination date, and (C) continue to participate in the Company’s group health plan at the same cost to Mr. Cunniff as if he remained employed for up to 12 months. If a qualifying termination occurs within 12 months after a change of control, then Mr. Cunniff will instead be eligible to (A) receive an amount equal to the sum of (i) one times his annualized base salary as of the termination date, plus (ii) 100% of his target annual bonus for the fiscal year in which the termination date occurs based on Mr. Cunniff’s individual performance, payable in a lump sum within 75 days of the termination date, and (B) continue to participate in the Company’s group health plan at the same cost to Mr. Cunniff as if he remained employed for up to 12 months. All of the severance benefits described above are contingent on Mr. Cunniff signing and not revoking a release of claims and remaining in strict compliance with the terms of his employment agreement and his non-competition, non-solicitation, and confidentiality agreement with the Company and any other written agreement between him and the Company. In addition to the specific terms summarized above, Mr. Cunniff is eligible to participate in the other compensation and benefits programs generally available to Company employees.
Compensation Actions for Fiscal 2025
| 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 ($) | | James L. Cunniff President and Chief Executive Officer(f) | 2024 | 500,000 | 1,151,500(g) | 1,012,645 | 290,000 | 48,462 | 3,002,607 | | Bradley M. Nagel Chief Financial Officer | 2024 | 280,300 | 70,686 | 82,220 | 97,544 | 22,153 | 552,903 | | | 2023 | 144,231 | 50,250 | - | 50,000 | 9,832 | 254,313 |
Compensation Actions for Fiscal 2025
| Fiscal Year | Summary Compensation Table Total for PEOs(a) ($) | | Compensation Actually Paid to PEOs(b) ($) | | Average Summary Compensation Table Total for Other NEOs(a) ($) | Average Compensation Actually Paid to Other NEOs(b) ($) | Value of Initial Fixed $100 Investment Based on TSR(c) ($) | Net Income ($ in thousands) | | | James L. Cunniff (PEO 1) | Kathleen S. Skarvan (PEO 2) | James L. Cunniff (PEO 1) | Kathleen S. Skarvan (PEO 2) | | | | | | 2024 | $3,002,607 | - | $4,396,790 | - | $552,903 | $607,362 | $133.13 | $5,150 | | 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 |
Compensation Actions for Fiscal 2025
| Director Compensation Element | Amount Payable | | Annual Cash Retainer(s)(a) | | | » Board Member | $35,000 | | » Board Chair | $30,000 | | » Lead Independent Director | $22,500 | | » 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 | $2,000 | | Annual Equity Award(b) | 3,000 Shares |
Compensation Actions for Fiscal 2025
| Non-Employee Director | Stock Awards ($)(a) | Fees Earned or Paid in Cash ($) | Total ($) | | Stan K. Erickson | $31,320 | $52,000 | $83,320 | | Gregory J. Fluet | $31,320 | $49,000 | $80,320 | | Joseph L. Galatowitsch | $31,320 | $42,000 | $73,320 | | Kathleen S. Skarvan | $31,320 | $65,000 | $96,320 | | Andrew J. Summers | $31,320 | $42,333 | $73,653 | | Kathleen A. Tune | $31,320 | $65,333 | $96,653 | | Andrea M. Walsh | $31,320 | $47,000 | $78,320 | | Lee A. Jones(b) | - | $31,375 | $31,375 |