DEF 14A 1 tech20170908_def14a.htm FORM DEF 14A tech20170908_def14a.htm

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


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BIO-TECHNE CORPORATION

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September 12, 2017

 

Dear Shareholder:

 

You are cordially invited to join Bio-Techne Corporation’s 2017 Annual Shareholder Meeting on October 26, 2017, at 12:00 p.m. Central Time. Like last year, this year’s meeting will again be conducted solely as a live webcast. You will be able to join the annual meeting online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/TECH17. You will also be able to vote your shares electronically at the annual meeting. A Notice of the Annual Meeting and a Proxy Statement covering the formal business of the meeting appear on the following pages.

 

We are pleased to offer this virtual meeting to provide ready access for our shareholders and cost savings for the company. Hosting a virtual meeting can facilitate shareholder attendance and participation from any location in the world.

 

We hope that you will be able to join us online. However, even if you are planning to join the webcast, please promptly submit your proxy vote by telephone or Internet or, if you received a copy of the printed proxy materials, by completing and signing the enclosed proxy card and returning it in the postage-paid envelope provided. This will ensure that your shares are represented at the meeting. Even if you submit a proxy, you may revoke it any time before it is voted. If you attend and wish to vote at the meeting, you will be able to do so even if you have previously returned your proxy card.

 

Thank you for your continued support of and interest in Bio-Techne.

 

Sincerely,

 

 

 

Charles (“Chuck”) R. Kummeth

 

President and Chief Executive Officer

 

 
 

 

 


 

 

 

Thursday, October 26, 2017

 

12:00 p.m. Central Time

 

The 2017 Annual Meeting of Shareholders of Bio-Techne Corporation will be held as a virtual meeting only. You will be able to attend by joining the live webcast, where you will be able to vote your shares, and submit questions. The live webcast is available at www.virtualshareholdermeeting.com/TECH17. The following will be considered and acted upon at the 2017 Annual Meeting, each of which is explained more fully in our Proxy Statement.

 

Items of Business:

 

 

1.

Set the number of members of the Board of Directors at ten (10), as recommended by our Board of Directors;

     

  

2.

Elect directors of the Company, each of which is recommended by our Board of Directors;

     

  

3.

Approve, on an advisory basis, the compensation of our executive officers as disclosed in the Proxy Statement;

     
  4. Approve, on an advisory basis, the frequency of advisory votes on executive compensation;
     

  

5.

Approve an amendment and restatement of the Company’s Amended and Restated 2010 Equity Incentive Plan, which includes the allocation of 2,648,000 additional shares to the Plan reserve;

     
 

6.

Ratify the appointment of KPMG as the Company’s independent registered public accounting firm for the 2018 fiscal year, as recommended by our Audit Committee; and

     

 

7.

Conduct such other business as may properly be brought before the meeting.

 

Shareholders of record at the close of business on September 1, 2017 will be entitled to vote at the Annual Meeting or any adjournment or postponement of the meeting.

 

 

By order of the Board of Directors

 

 

Brenda S. Furlow
General Counsel and Corporate Secretary
September 12, 2017

   
YOUR VOTE IS IMPORTANT.
We encourage you to read the Proxy Statement and vote your shares as soon as possible. You may vote via the Internet at www.proxyvote.com or by telephone at 1-800-690-6903. If you received paper copies of your proxy materials in the mail, you may vote by mail, and a return envelope for your proxy card is enclosed for your convenience. The Proxy Statement and 2017 Annual Report to Shareholders are available at www.proxyvote.com.

 

 
 

 

 

Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

5

     

BUSINESS AND GOVERNANCE HIGHLIGHTS

5

     

Item 1. ESTABLISHING THE NUMBER OF DIRECTORS AT TEN

7

     

Item 2. ELECTION OF DIRECTORS

7

     
 

Nominees for Director

8

     
 

Corporate Governance – The Role and Governance of the Board

12

     
 

Corporate Governance -- Board Committees

13

     
 

Corporate Governance – Meetings and Attendance

14

     
 

Director Qualifications, Diversity and Refreshment

15

     
 

Director Compensation

16

     

EXECUTIVE COMPENSATION

18

     
 

Compensation Discussion and Analysis

18

     
 

Executive Compensation Highlights

19

     
 

Procedures for Setting Executive Compensation

27

     
 

Additional Compensation Practices

30

     
 

Executive Compensation Committee Report on Executive Compensation

30

     
 

2017 Summary Compensation Table

31

     
 

2017 Grants of Plan-Based Awards

34

     
 

2017 Outstanding Equity Awards at Fiscal Year-End

36

     
 

2017 Option Exercises and Stock Vested

38

     
 

Executive Employment Agreements and Change in Control Arrangements

39

     

Item 3. ADVISORY VOTE ON EXECUTIVE COMPENSATION

41

     

PRINCIPAL SHAREHOLDERS

42

     

MANAGEMENT SHAREHOLDINGS

43

     

Item 4. APPROVE, ON AN ADVISORY BASIS, THE FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION

44

     

Item 5. APPROVE AN AMENDMENT AND RESTATEMENT OF THE COMPANY’S AMENDED AND RESTATED 2010 EQUITY INCENTIVE PLAN.

45

     

Item 6. RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2018

48

     
 

Audit Committee Report

48

     
 

Audit Fees

49

     

ADDITIONAL CORPORATE GOVERNANCE MATTERS

49

     

ADDITIONAL VOTING INFORMATION

50

     

BIO-TECHNE CORPORATION SECOND AMENDED AND RESTATED 2010 EQUITY INCENTIVE PLAN

Appendix A

 

 
 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 


 

This Proxy Statement contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “may,” “estimate,” “intend” and other similar words. Forward-looking statements in this proxy statement include, but are not limited to, statements regarding individual and Company performance objectives and targets and statements relating to the benefits of the Company’s acquisitions, product launches and business strategies. These and other forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. Factors that may cause actual results to differ materially from those contemplated by the statements in this proxy statement can be found in the Company’s periodic reports on file with the Securities and Exchange Commission (the “SEC”). The forward-looking statements speak only as of the date of this Proxy Statement and undue reliance should not be placed on these statements. We do not undertake to publicly update or revise any forward-looking statements. This cautionary statement is applicable to all forward-looking statements contained in this document.

 

BUSINESS AND GOVERNANCE HIGHLIGHTS 


 

To assist you in reviewing the proposals to be acted upon, we call your attention to the following information about business and governance highlights for fiscal year 2017. The following description is only a summary. For more complete information about these topics, please review the Company’s Annual Report on Form 10-K and the complete Proxy Statement.

 

BUSINESS HIGHLIGHTS

 

We continued to execute on our long-term strategy in fiscal year 2017, leading to another year of strong financial results. Our revenue increased by 13% in FY 2017 to $563.0 million, with $121.8 million in operating income and $158.0 million in operating cash flow. We returned $48 million to our shareholders in the form of dividends. Organic revenue grew 6% in FY 2017 over FY 2016, with the remainder attributable to our acquisitions made during the fiscal year. We had particularly strong performance from our Protein Platforms division, from Advanced Cell Diagnostics (our most recent acquisition), and geographically from China and Europe.

 

We continued to drive these positive business results by maintaining our focus on the strategic pillars of growth we crafted four years ago.

 

 

We continued to expand selectively through smaller “tuck-in” acquisitions. We continued to execute on the strategy of growth through acquisition this fiscal year, with a primary focus on smaller but fast-growing private companies with strong intellectual property and synergies to our current portfolio or geographic complementarity. We acquired our Italian distributor, Space Import-Export, in July and Advanced Cell Diagnostics (ACD) in August. The acquisition of ACD marked Bio-Techne's entry into the genomics market with their transformative RNA-ISH technology that facilitates and improves the monitoring of gene expression patterns at the single cell level while retaining the morphological context of the tissue being analyzed. ACD's technology serves both the research and diagnostic markets, expanding the Company’s presence in the clinical lab setting.

 

 

We continued our transformation as an innovation company, with new products that brought a higher value proposition to our customers and corresponding expansion of our IP portfolio. In fiscal 2017 we again focused on quality over quantity, launching fewer products that resulted in more revenue. And our patent portfolio continued to expand as we focused on driving scientific innovation throughout all of our divisions. Our IP portfolio has increased ten-fold in the last four years.

 

 

We continued to strengthen our commercial and geographic operations. Our acquisition of our long-time Italian distributor, Space Import-Export, in July 2016 laid the foundation for further expansion through a direct sales model in Europe. We have since embarked on creating a more unified European business, with attention to cross selling and regional collaboration. The strategy is working, as evidenced by our double digit organic growth in Europe this fiscal year. We are developing similar strategies in Asia. China continues to experience strong growth, and we are now investing more resources in India.

 

 
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Governance Highlights

     
      Each committee is made up solely of independent directors.
  Voting and Shareholder Rights      
        Each committee operates under a written charter that has been 
  Annual election of directors.     approved by the Board and is available to shareholders.
           
  Majority vote standard, not a plurality, in uncontested elections.   Each committee has the authority to retain independent advisors.
           
  Incumbent directors not re-elected by a majority vote must    Annual Board and committee evaluation process, as well as
    offer to resign.     periodic individual director assessments.
   

 

     
  No shareholder rights plan.   Director tenure policy led to refreshment of two positions in the 
          Board, with additional refreshment in coming years.
  No supermajority voting provisions.      
        Stock ownership guidelines for directors and executive officers.
  Shareholders holding 10% or more of our outstanding stock have      
    the right to call certain special meetings.   Other Governance Matters
   

 

     
  Board Leadership Structure and Practices   Code of Ethics and Business Conduct, and related hotline.
           
  9 out of 10 independent Board members.   Continual engagement with shareholders on strategy,
          financial results and governance. 
  Balance of industry, scientific and functional expertise among directors.      
           
  The roles of chair and CEO are currently split, with the chair being an       
    independent director.       
           

 

 

 

You can learn more about our corporate governance elsewhere in this proxy or by visiting www.bio-techne.com/investor-relations where you will find our Principles of Corporate Governance, each standing committee charter and our Code of Ethics and Business Conduct. Each of these documents is also available in print upon request made to the Corporate Secretary, Bio-Techne Corporation, 614 McKinley Place NE, Minneapolis, MN 55413.

 

 
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ITEMS 1 AND 2: ELECTION OF DIRECTORS 

 

Item 1. ESTABLISHING THE NUMBER OF DIRECTORS AT TEN


 

Your Board unanimously recommends a vote “FOR” setting the number of directors at ten.  

 

Our bylaws provide that the number of directors shall be determined by the shareholders at each Annual Meeting. Your Board unanimously recommends that the number of directors be set at ten. We expect the number of directors will return to nine after one of the directors retires at the end of calendar 2017.

 

Under applicable Minnesota law and the Company’s bylaws, approval of the proposal to set the number of directors at ten requires the affirmative vote of the holders of the greater of: (1) a majority of the voting power of the shares represented in person or by proxy at the Annual Meeting with authority to vote on such matter; or (2) a majority of the voting power of the minimum number of shares that would constitute a quorum for the transaction of business at the Annual Meeting.

 

Item 2. ELECTION OF DIRECTORS


 

Your Board unanimously recommends a vote “FOR” each of the ten director nominees presented in this proposal.

 

Three of our directors are reaching the retirement age of 75 as described in the director tenure provisions of our Principles of Corporate Governance. The Nominations and Governance Committee recommended, and the Board unanimously approved, a transition plan that staggers these individuals’ retirement to provide for continuity and a smooth transition. Dr. Roger Lucas will retire from the Board effective as of the Annual Meeting, so he will not stand for re-election. Dr. Karen Holbrook is being re-nominated and, if re-elected, will serve through December 31, 2017, after which she will retire. As permitted by the Principles of Corporate Governance, the Board has approved a one-year waiver of the retirement limitation for Dr. Charles Dinarello. It is anticipated that Dr. Dinarello will retire effective as of the 2018 Annual Meeting. Two new director nominees, Dr. Alpna Seth and Dr. Joseph Keegan, are being nominated for the first time this year.

 

With the exception of Dr. Holbrook, who plans to retire at December 31, 2017, the directors elected at the Annual Meeting will hold office until the 2018 Annual Meeting of Shareholders and until their successors have been elected and qualified, or until their earlier death, resignation or removal. Each nominee has informed the Board that he or she is willing to serve as a director. If any nominee should decline or become unable or unavailable to serve as a director for any reason, your proxy (the “Proxy”) authorizes the persons named in the Proxy to vote for a replacement nominee, if the Board names one, as such persons determine in their best judgment. As an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.

 

Under the Company’s Amended and Restated Articles of Incorporation, directors will be elected as follows: (i) if the number of director nominees is equal to (or less than) the number of directors to be elected, directors will be elected by a majority vote, meaning that directors who receive a greater number of “FOR” votes than “AGAINST” votes will be elected; (ii) if the number of director nominees exceeds the number of directors to be elected, directors will be elected by a plurality of votes cast. Under the Board’s director resignation policy, an incumbent director who does not receive a majority of the votes cast “FOR” his or her election, in an election where the majority vote standard applies, must offer to tender his or her resignation to the Company’s Nominations and Governance Committee. The policy further provides that the Board, taking into account the recommendation of the Nominations and Governance Committee, will act on a tendered resignation and publicly disclose its decision within 90 days of receiving certification of the election results. If the Board does not accept such director’s resignation, the director will continue to serve until the next annual meeting and until his or her successor is duly elected.

 

 
7

 

 

Nominees for Director

 

The following is a brief description of each nominee, including age, years of service on this Board, other public company directorships, as well as principal occupation, position and business experience for at least the past five years. Each director’s biographical information includes a description of the director’s experience, qualifications, attributes or skills that qualify the director to serve on the Company’s Board at this time.

 

 

 

Mr. Bob Baumgartner has served as Executive Chairman, Director of the Center for Diagnostic Imaging, Inc., an operator of diagnostic imaging centers, since 2001. Until August 2015, Mr. Baumgartner also served as Chief Executive Officer of that company. Prior to 2001, he held numerous executive positions, including as Chief Executive Officer and Director of American Coating International, President and Chief Executive Officer of First Solar and President of the Apogee Glass Group. He began his professional career at KPMG LLC, an international accounting firm. He received a bachelor’s degree in business administration from the University of Notre Dame. Mr. Baumgartner currently serves on the boards of Carestream Health, Inc. and Invenshure LLC. Among other attributes, skills and qualifications, the Board believes Mr. Baumgartner is qualified to serve as a Director of the Company because his extensive finance, accounting and general business background provides valuable strategic management and financial oversight skills.

 

 

 

Dr. Charles Dinarello received his medical degree from Yale University and his clinical training at the Massachusetts General Hospital, and, among other positions, has been employed by the National Institutes of Health. Since 1996, Dr. Dinarello has been Professor of Medicine and Immunology at the University of Colorado School of Medicine in Aurora, Colorado, and he is currently also Professor of Experimental Medicine at Radboud University in the Netherlands. Previously, he was Professor of Medicine and Pediatrics at Tufts University School of Medicine and a staff physician at the New England Medical Center Hospital in Boston. From March 2009 to February 2011, Dr. Dinarello served as acting CEO of Omni Bio Pharmaceutical, Inc. In 1998, Dr. Dinarello was elected to the United States National Academy of Sciences, and in 2010, he was made a foreign member of the Royal Netherlands Academy of Sciences. Dr. Dinarello is considered one of the founding fathers of cytokine biology, and regularly speaks at symposia around the world. Among other attributes, skills and qualifications, the Board believes Dr. Dinarello is qualified to serve as a Director of the Company because his distinguished scientific background and his extensive experience with research organizations allow him to provide strategic guidance with regard to product development, potential acquisitions and the markets and customers we serve.

 

 
8

 

 

 

Mr. John Higgins has been President and Chief Executive Officer of Ligand Pharmaceuticals, Inc. since January 2007 and has been a member of Ligand’s Board of Directors since March 2007. From 1997 until joining Ligand, Mr. Higgins was with Connetics Corporation, a specialty pharmaceutical company, as its Chief Financial Officer, and also served as Executive Vice President, Finance and Administration and Corporate Development at Connetics from January 2002 until its acquisition by Stiefel Laboratories, Inc. in December 2006. Mr. Higgins was previously a member of the executive management team and a director at BioCryst Pharmaceuticals, Inc., a biopharmaceutical company. Before joining BioCryst in 1994, Mr. Higgins was a member of the healthcare banking team of Dillon, Read & Co. Inc., an investment banking firm. Mr. Higgins has served as a director of numerous public and private companies. He graduated Magna Cum Laude with a bachelor’s degree from Colgate University. Among other attributes, skills and qualifications, the Board believes Mr. Higgins is qualified to serve as a Director of the Company due to his combination of biopharmaceutical business, accounting and finance experience as well as his executive management experience, particularly with public companies.

 

 

 

Dr. Karen Holbrook currently serves as Vice President and senior advisor to the President of the University of South Florida. From 2016 to 2017, Dr. Holbrook was the interim president of Embry-Riddle Aeronautical University. Prior to that time, Dr. Holbrook held several leadership positions at academic institutions, including several senior vice president positions at University of South Florida from 2007-2013, President of The Ohio State University from 2002 to 2007, and as Senior Vice President for Academic Affairs and Provost at The University of Georgia. Her academic career included teaching positions posts at the Medical College of Georgia and the University of Florida at Gainesville. Her earlier academic career was spent as a Professor of Biological Structure and Medicine at the University of Washington School of Medicine where she gained a national reputation for her expertise in human fetal skin development and genetic skin disease and was a National Institutes of Health MERIT awardee. Dr. Holbrook earned her bachelor’s and master’s degrees in zoology from the University of Wisconsin-Madison, and a Ph.D. in biological structure from the University of Washington School of Medicine. Among other attributes, skills and qualifications, the Board believes Dr. Holbrook is qualified to serve as a Director of the Company because her scientific background, academic leadership, and significant personal, professional, and international experience, especially in Asia and the Middle East, provide valuable executive management and strategic insight.  

 

 
9

 

 

 

Dr. Joseph Keegan currently serves as a director and advisor for Interspace Diagnostics (Nasdaq: IDXG) as well as a number of privately held life science companies, including as Chair of Labcyte, Inc., and also as director at Carterra, Inc., and Nanomedical Diagnostics. From 2007 until its sale to Pall Corporation in 2012, Dr. Keegan served as President and Chief Executive Officer of ForteBio, Inc. Dr. Keegan joined ForteBio from Molecular Devices Corporation, where he served as President and Chief Executive Officer from 1998 to 2007. Prior to Molecular Devices, Dr. Keegan held leadership positions at Becton Dickinson, Leica, Inc. and GE Medical Systems. He has also served on numerous public and private company boards of life science tools companies. Dr. Keegan holds a Ph.D. in Physical Chemistry from Stanford University. Among other attributes, skills and qualifications, the Board believes Dr. Keegan is qualified to serve as a Director of the Company because of his deep knowledge of our industry and customers, as well as his extensive executive management experience and prior service on other private and public company boards.

 

 

 

Charles R. Kummeth has been President, Chief Executive Officer, and member of the Board of the Company since April 1, 2013. Prior to joining the Company, he served as President of Mass Spectrometry and Chromatography at Thermo Fisher Scientific Inc. from September 2011. He was President of that company’s Laboratory Consumables Division from 2009 to September 2011. Prior to joining Thermo Fisher, Mr. Kummeth served in various roles at 3M Corporation, most recently as the Vice President of the company’s Medical Division from 2006 to 2008. Mr. Kummeth also serves on the board of Sparton Corp, an electromechanical device company and Avantor, Inc. Among other attributes, skills and qualifications, the Board believes that Mr. Kummeth is qualified to serve as a Director of the Company because of his experience leading the growth of biotechnology companies. In addition, the Board believes that having the Chief Executive Officer serve as a member of the Board promotes strategy development and implementation and facilitates the flow of information between the Board and management.

 

 

 

Dr. Nusse has been a professor or associate professor in the Department of Developmental Biology at Stanford University and an investigator at the Howard Hughes Medical Institute since 1990. He has also been the chair of the Department of Developmental Biology at Stanford since 2007. Dr. Nusse was previously at the Netherlands Cancer Institute (Amsterdam, The Netherlands) as a staff scientist and ultimately head of the Department of Molecular Biology. Dr. Nusse was elected to the United States National Academy of Sciences in April 2010, the European Molecular Biology Organization in 1988, the Royal Dutch Academy of Sciences in 1997, and the American Academy of Arts and Sciences in 2001. Dr. Nusse was awarded the Breakthrough Prize in Life Sciences in 2016. Dr. Nusse earned a bachelor’s degree in biology from the University of Amsterdam and a doctorate in molecular biology from the Netherlands Cancer Institute in 1980. Among other attributes, skills and qualifications, the Board believes Dr. Nusse is qualified to serve as a Director of the Company because his scientific research and academic background provide valuable strategic insight, including insight into the Company’s customers and markets.

 

 
10

 

 

 

Dr. Alpna Seth currently serves as the Chief Operating Officer of Vir Biotechnology, Inc.  Prior to joining Vir in July 2017, Dr. Seth was Senior Vice President and Global head of the Biosimilars business for Biogen, Inc. headquartered in Zug, Switzerland since 2014.  For the period from 1998 through 2014, Dr. Seth held a range of executive roles at Biogen in business development, drug development and marketing programs, including founding Managing Director of Biogen Idec India and Program Executive for several of Biogen’s major cross-functional drug development programs and product launches.  She holds a Ph.D. in Biochemistry and Molecular Biology from University of Massachusetts Medical School and conducted her post-doctoral research at Harvard University in Immunology and Structural Biology, both as a Howard Hughes Medical Institute Fellow. She is also a 2002 graduate of the Advanced Management Program at Harvard Business School. Dr. Seth brings a breadth of experience in drug discovery, marketing, international operations and business development.  Among other attributes, skills and qualifications, the Board believes Dr. Seth’s extensive background in the pharmaceutical industry and her deep knowledge of critical areas of science provide a valuable strategic perspective for our business generally and for a key customer group for the Company.

 

 

 

Dr. Randolph Steer is currently an independent biotechnology consultant and board director. He served as President and Chief Operating Officer of Capstone Therapeutics Corp. from April 2006 to October 2011. Dr. Steer was elected to the Mayo Clinic Board of Trustees in November 2011, and also serves as a director of publicly-traded Vital Therapies, Inc. From 1989 to 2006 Dr. Steer was a consultant to the pharmaceutical and biotechnology industries, where he advised companies in business development, medical marketing and regulatory and clinical affairs. His prior experience includes service as Associate Director of Medical Affairs at Marion Laboratories and as Medical Director at Ciba Consumer Pharmaceuticals. Dr. Steer received his undergraduate degree in physiology and Ph.D. in pathobiology from the University of Minnesota and his medical degree from the Mayo Medical School. Among other attributes, skills and qualifications, the Board believes Dr. Steer is qualified to serve as a Director of the Company because his medical and scientific backgrounds, and his knowledge of the pharmaceutical and biotechnology industries, provide valuable strategic insight.

 

 
11

 

 

 

Mr. Harold Wiens is a retired executive from the 3M Companies. He began his 3M career in 1968 and held multiple domestic and international engineering and production management roles, including Memory Technologies Group Manufacturing Manager for the Europe location, Managing Director and Executive Vice President of Sumitomo 3M, and, most recently, Executive Vice President of 3M’s Industrial Sector. Prior to retiring from 3M in 2006, Mr. Wiens restructured the business and led a global implementation of Six Sigma, which together resulted in faster business processes and a focus on customers that drove international growth. Since retirement, he remains active in the community by serving on the boards of local non-profit entities. He holds a Bachelor’s degree in mechanical engineering from Michigan Technological University. Among other attributes, skills and qualifications, the Board believes Mr. Wiens is qualified to serve as a Director of the Company because of his deep knowledge in international business practices and his ability to guide balance between operations and accelerated growth of the Company.

 

Corporate Governance – The Role and Governance of the Board

 

The Board of Directors is the Company’s governing body, with responsibility for oversight, counseling and direction of the Company’s management to serve the short- and long-term interests of the Company and its shareholders. The Board’s goal is to build long-term value for the Company’s shareholders and to ensure the vitality of the Company for its customers, employees and other individuals and organizations that depend on the Company. To achieve its goal, the Board monitors both the performance of the Company and the performance of the CEO. It is also integrally involved in strategic planning, in partnership with the management team. It regularly undertakes an in-depth review of management’s long term and short term strategic plan, and periodically provides input as the strategic plan is implemented and evolves.

 

The Board has adopted Principles of Corporate Governance applicable to all directors, which can be found at www.bio-techne.com on the Investor Relations page of our website. The Principles describe the Company’s corporate governance practices and policies and provide a framework for the governance of the Company. Among other things, they require a majority of the members of the Board to be independent directors and require candidates for director to meet minimum qualifications including high moral character and mature judgment. The Principles also specify that the Company shall maintain Audit, Executive Compensation and Nominations and Governance Committees which consist entirely of independent directors.

 

Board Independence

 

The Board annually reviews the independence of each director. The Board has affirmatively determined that all of the Company’s non-employee directors are “independent” as such term is defined in the applicable requirements of the SEC and NASDAQ (collectively, the “Applicable Rules”). Mr. Kummeth is not independent based on his service as the Company’s CEO and President. In making its independence determinations, the Board reviewed transactions and relationships between the director, or any member of his or her immediate family, and the Company and its subsidiaries based on information provided by the director, Company records and publicly available information. The Company provided products valued at less than $100,000 to a laboratory at the University of Colorado School of Medicine directed by Dr. Dinarello for promotional and research purposes in a manner similar to the Company’s relationship with other research laboratories for comparable value.

 

Board Leadership Structure

 

Mr. Baumgartner, an independent director, serves as Chair of the Board. The Board has determined that dividing the roles of Chairman and CEO is currently the most effective leadership structure for the Company because of the differences between the two roles. The Board is responsible for setting the strategic direction for the Company. The Chairman of the Board sets the agenda for Board meetings and presides over meetings of the full Board and executive sessions of the independent directors. The CEO executes the Board’s direction and is responsible for the day-to-day leadership and performance of the Company. In addition, the independent directors of the Board meet in executive session without members of management present on a regularly scheduled basis.

 

 
12

 

 

The Board has determined that maintaining an independent Chairman, along with the independence of a majority of directors, helps maintain the Board’s independent oversight of management and ensures that the appropriate level of independence is applied to all Board decisions. In addition, the Audit, Executive Compensation, and Nominations and Governance Committees each consist entirely of independent directors.

 

Risk Oversight

 

Risk assessment and oversight is an integral part of Board and Committee deliberations throughout the year. The Company’s Board administers its risk oversight function through its Committees, as described below, and directly with respect to all other risks, including strategic, technology, cybersecurity and operational risks. In performing their oversight responsibilities, the Board and Committees review policies and guidelines that senior management use to manage the Company’s exposure to material categories of risk. In addition, the Board and Committees review the performance and functioning of the Company’s overall risk management function and management’s establishment of appropriate systems for managing risk.

 

Each of the Board’s committees has risk oversight duties corresponding to their areas of responsibility, as described in their charters. The Audit Committee has oversight responsibility with respect to the Company’s financial risk assessment and financial risk management. The Audit Committee meets regularly with management and the Company’s independent auditors to review the Company’s risk exposures, the potential financial impact those risks may have on the Company, the steps management takes to address those risks, and how management monitors emerging risks. With respect to the Company’s compensation plans and programs, the Executive Compensation Committee structures such plans and programs to balance risk and reward, while mitigating the incentive for excessive risk taking by the Company’s executive officers and employees. The Nominations and Governance Committee oversees the management of risks associated with the composition and independence of the Company’s Board, as well as general corporate governance risks and policies and maintenance of the Code of Ethics and Business Conduct.

 

Corporate Governance -- Board Committees 

 

The Board currently has three standing Committees: the Audit Committee, the Executive Compensation Committee and the Nominations and Governance Committee. Each of these committees is governed by a written charter approved by the Board in compliance with the Applicable Rules. The charter of each committee requires an annual review by such committee. The charters are available on our website at http://www.bio-techne.com in the “Investor Relations” section under “Corporate Governance.”

 

Each member of our standing committees is independent, as determined by the Board, under the Applicable Rules. In addition, each member of the Audit Committee and the Executive Compensation Committee meets the additional independence standards for committee members under the Applicable Rules. The members of each standing committee are appointed by the Board each year for a term of one year and until their successors are elected, or until the earlier death or resignation or removal from the committee or the Board. In addition to the three standing committees, the Company also has a Scientific Advisory Board which includes certain directors with expertise in science. The Scientific Advisory Board assists the Company in identifying scientific areas of interest for collaboration and product development. In addition, the Board has, on occasion, established committees to deal with particular matters the Board believes appropriate to be addressed in that manner.

 

Audit Committee

 

The Audit Committee is responsible for the appointment, supervision and evaluation of the Company’s independent registered public accounting firm and for reviewing the Company’s internal audit procedures, the quarterly and annual financial statements of the Company and the results of the annual audit. The Audit Committee’s other responsibilities include approval of related party transactions, oversight of the Company’s cash investment policy and monitoring the Company’s financial fraud hotline and other compliance matters having financial impact. The Board has determined that, for FY 2017, Messrs. Baumgartner and Higgins are “audit committee financial experts” as such term is defined in the Applicable Rules.  

 

 
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Executive Compensation Committee

 

The Executive Compensation Committee determines base and incentive compensation for executive officers of the Company, establishes overall policies for executive compensation and reviews the performance of the executive officers. The Executive Compensation Committee works with Mr. Kummeth to establish compensation and performance goals for the other executive officers and, acting independently, establishes the compensation and performance goals for Mr. Kummeth. The Executive Compensation Committee also recommends to the Board and administers director compensation policies and practices.

 

Nominations and Governance Committee

 

The Nominations and Governance Committee recruits well-qualified candidates for the Board, selects persons to be proposed in the Company’s Proxy Statement for election as directors at annual meetings of shareholders, determines whether each member of the Board is independent under Applicable Rules, establishes governance standards and procedures to support and enhance the performance and accountability of management and the Board, considers the composition of the Board’s standing committees and recommends any changes, evaluates overall Board performance, assists committees with self-evaluations, and monitors emerging corporate governance trends. In fulfilling its responsibilities, the Nominations and Governance Committee assesses the appropriate size of the Board of Directors, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominations and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominations and Governance Committee through current members of the Board of Directors, professional search firms, shareholders or other persons and may be considered at any point during the year.

 

Corporate Governance – Meetings and Attendance

 

The Board met six times during FY 2017, including four in-person meetings and two teleconferences. Each director attended at least 75% of the aggregate of in-person Board meetings and meetings of the committees on which he or she served. Dr. Dinarello had excused absences for the two teleconferences and one of the in-person meetings. Directors meet their responsibilities not only by attending Board and committee meetings but also by conducting business via written actions in lieu of meetings and otherwise communicating informally throughout the year on various Board and committee matters with executive management, advisors and others on matters affecting the Company. All directors attended the Annual Meeting of Shareholders held in October 2016.

 

 
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The membership of each standing committee during FY 2017 and the number of committee meetings held during FY 2017 are identified in the table below.

 

Director

Audit

Executive

Compensation

Nominations &

Governance

 

Robert V. Baumgartner

X

 

X

 

Charles A. Dinarello, M.D.

       

John L. Higgins

Chair

X

   

Karen A. Holbrook, Ph.D.

 

X

Chair

 

Charles R. Kummeth

       

Roger C. Lucas, Ph.D.

       

Roeland Nusse, Ph.D.

   

X

 

Randolph C. Steer, M.D., Ph.D.

 

Chair

   

Harold J. Wiens

X

X

   

Number of meetings held during FY 2017

5

6

4

 

 

 

Shareholder Engagement and Communications

 

The Company values the perspectives of its shareholders. Management meets frequently with key shareholders to discuss the Company’s financial performance and strategies. In addition, over the last several years the Company has carried out and expanded a shareholder engagement program to discuss governance matters with key shareholders, both proactively and in response to requests from shareholders.

 

Communications from shareholders are always welcome. Shareholders may communicate directly with the Board of Directors. All communications should be directed to the Corporate Secretary of the Company at 614 McKinley Place N.E., Minneapolis, MN 55413, and should prominently indicate on the outside of the envelope that such communication is intended for the Board of Directors, for non-management directors, or for a particular director. Unless other distribution is specified, the communication will be forwarded to the entire Board.

 

Director Qualifications, Diversity and Refreshment

 

The Nominations and Governance Committee periodically assesses the skills and experience needed of directors to properly oversee the short- and long-term interests of the Company. The Committee utilizes a variety of methods for identifying and evaluating candidates for director, with the ultimate goal of maintaining a well-rounded Board that functions collegially and independently. Candidates for the Board are considered and selected on the basis of the criteria set forth in our Principles of Corporate Governance, including outstanding achievement in their professional careers, experience, wisdom, personal and professional integrity, their ability to make independent, analytical inquiries, and their understanding of the business environment. Candidates must have the experience and skills necessary to understand the principal operational and functional objectives and plans of the Company, the results of operations and financial condition of the Company, and the position of the Company in its industry. Candidates must have a perspective that will enhance the Board’s strategic discussions and be capable of and committed to devoting adequate time to Board duties. With respect to incumbent directors, the Nominations and Governance Committee also considers past performance on the Board and contributions to the Company.

 

 
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While the Company does not have a formal diversity policy for board membership, the Company seeks directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. The Nominations and Governance Committee considers, among other factors, diversity with respect to perspectives, backgrounds, skills and experience in its evaluation of candidates for board membership. Such diversity considerations are discussed by the Nominations and Governance Committee in connection with the general qualifications of each potential nominee.  

 

The Nominations and Governance Committee will apply the same criteria in evaluating candidates recommended by shareholders as is used for candidates recommended by other sources, which criteria is described above under “Director Qualifications, Diversity and Refreshment.” Recommendations may be sent to the attention of the Nominations and Governance Committee at the Company’s address: 614 McKinley Place N.E., Minneapolis, MN 55413. Any such recommendations should provide whatever supporting material the shareholder considers appropriate, but should at a minimum include such background and biographical material as will enable the Nominations and Governance Committee to make an initial determination as to whether the nominee satisfies the criteria for directors set forth in our Principles of Corporate Governance. Shareholders who intend to nominate a candidate for election by the shareholders at the Annual Meeting (in cases where the Board does not intend to nominate the candidate or where the Nominations and Governance Committee was not requested to consider his or her candidacy) must comply with the procedures described under the section of this Proxy Statement entitled “Additional Corporate Governance Matters—Shareholder Proposals.”

 

In FY 2017, with three directors approaching the tenure limit set out in our Principles of Corporate Governance, the Nominations and Governance Committee engaged a search firm to assist in finding qualified candidates to replace retiring members. The Committee provided the search firm with a number of candidates recommended by officers and directors. The search firm identified other candidates as well. The Committee reviewed all candidates identified through this search process. Ultimately, it selected the two new nominees identified above, both of which had been recommended by executive officers. The Committee believes that each nominee brings unique perspectives and experience that complement existing board expertise and backgrounds.

 

Director Compensation

 

The Company believes that compensation for non-employee directors should be competitive and should encourage ownership of the Company’s stock. The Executive Compensation Committee periodically reviews the level and form of the Company’s director compensation and, if it deems appropriate, recommends to the Board changes in director compensation. Since there had been no adjustments to director compensation levels for several years, in FY 2016 the Executive Compensation Committee evaluated compensation for non-employee directors against those of directors in the same peer companies used for executive compensation. Based on that analysis, it recommended and the Board adopted changes to both the cash and equity portions of director compensation effective after the 2015 Annual Shareholder Meeting to bring non-employee director compensation more in line with the peer group of companies. No changes were made to director compensation in FY 2017.

 

Director Compensation for FY 2017

 

Each non-employee member of the Board receives an annual retainer fee of $62,500. Additional cash compensation is paid for the following roles:

 

Board Chair – $50,000

Chair of Audit – $25,000

Chair of Executive Compensation – $17,500

Chair of Nominations and Governance – $15,000

 

 
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In addition, on an annual basis, each non-employee director is eligible to receive annual equity grants valued at $185,000 that vest upon the sooner of the one-year anniversary of the date of grant or the next annual shareholder meeting. Equity grants are provided 50% in stock options, with an exercise price equal to the fair market value of Bio-Techne’s Common Stock on the grant date, and 50% in restricted stock.

 

Non-employee directors who join the Board other than by election at an annual meeting of shareholders receive a pro-rated equity grant based on the portion of the year served. Non-employee directors are also paid their reasonable expenses for attending Board and Committee meetings. Directors who are employees of the Company or its subsidiaries do not receive any compensation for service on the Board.

 

Director Stock Ownership Guidelines

 

Effective in the last fiscal year, the Board adopted stock ownership guidelines for all directors and executive officers to better align the interests of directors with other shareholders. Non-employee directors are required to own stock at least equivalent in value to three times their annual retainer fee within five years. Although they have five years from July 1, 2016 (or their appointment or election to the Board), all directors met the requirements as of July 1, 2017.

 

Directors who are not employees of the Company were compensated for FY 2017 as follows:

 

Name

 

Fees Earned
or Paid
in Cash
(1)

   

Stock

Awards (2)

   

Option

Awards (3)

   

All Other

Compensation (4)

   

Total

 

Robert V. Baumgartner

  $ 112,500     $ 92,488     $ 92,498     $ 1,081     $ 297,486  

Charles A. Dinarello, M.D.

    62,500       92,488       92,498       1,081       247,486  

John L. Higgins

    87,500       92,488       92,498       1,081       272,486  

Karen A. Holbrook, Ph.D.

    77,500       92,488       92,498       1,081       262,486  

Roger C. Lucas, Ph.D.

    62,500       92,488       92,498       1,081       247,486  

Roeland Nusse, Ph.D.

    62,500       92,488       92,498       1,081       247,486  

Randolph C Steer, M.D., Ph.D.

    80,000       92,488       92,498       1,081       267,986  

Harold J. Wiens

    62,500       92,488       92,498       1,081       247,486  

 

(1)

Amounts consist of annual director fees and chair fees for services as members of the Company's Board and its Committees. For further information concerning such fees, see the discussion above this table.

(2)

Amounts represent the total grant date fair value of equity-based compensation for 914 shares of restricted stock granted pursuant to the Company's Amended and Restated 2010 Equity Incentive Plan in FY 2017 at the grant date market value of $101.19 per share, in accordance with Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. As of June 30, 2017, each non-employee director held 914 unvested shares of restricted stock.

(3)

Amounts represent the total grant date fair value of equity-based compensation for 3,985 stock option awards granted pursuant to the Company's Amended and Restated 2010 Equity Incentive Plan in FY 2017, as calculated in accordance with the Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. Assumptions used in the calculation of these amounts are described in Note 9 to the Company's audited financial statements for FY 2017, included in the Company's Annual Report on Form 10-K. As of June 30, 2017, the following non-employee directors held options to purchase the following number of shares of the Company's Common Stock: Mr. Baumgartner-36,245; Dr. Dinarello-41,245; Mr. Higgins-46,245; Dr. Holbrook-41,245; Dr. Lucas-16,245; Dr. Nusse-41,245; Dr. Steer-26,245; and Mr. Wiens-14,245.

(4)

Amounts represent the total dollar value of dividends paid on restricted stock awards, as those amounts were not factored into the grant date fair value.

 

 
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EXECUTIVE COMPENSATION


 

Shareholders Outreach Following 2016 Say on Pay Vote

 

At our 2016 Annual Meeting of Shareholders, our advisory vote on executive compensation (the “say on pay vote”) received 74.0% approval from shares present and entitled to vote, which was notably lower than the prior year’s 98.8% approval. In the weeks just prior to the 2016 Annual Meeting, we received inquiries from some shareholders, and consequently expanded our engagement efforts, reaching out to shareholders representing over 50% of our shares outstanding. In these discussions, we provided important context for the factors regarding executive compensation that may have been confusing or anomalous, and sought input on our compensation practices from these shareholders.

 

As part of this outreach, we noted to shareholders that the increase in CEO compensation from FY 2015 to FY 2016 was primarily the result of a change in timing of CEO equity grants from April 1 (the anniversary date of the CEO’s hire) to July 1 (the first day of the new fiscal year) to align with the timing of other NEO equity grants and consider the Company’s performance in the prior fiscal year. This change in timing reduced the CEO’s compensation for FY 2015 and increased compensation for FY 2016. This topic is further discussed below under the caption “Annual Compensation.” We also explained to shareholders the rationale for the compensation peer group that has been selected at the direction of the Committee by Aon Hewitt, its independent compensation consultant. The Executive Compensation Committee’s peer group was selected based on comparisons of EBITDA, market capitalization, and revenue. This differs from other methodologies that may focus only on revenue or some other single criterion. The Executive Compensation Committee believes that using only revenue as a metric, for example, underestimates the relative size and value of the Company. This topic is further discussed below under the caption “Executive Compensation Consultants and Use of Peer Groups.” We believe that these discussions addressed the concerns of the shareholders with whom we were able to engage, and that the shareholders supported our peer group selection. No issues with our compensation structure or payment amounts were identified by shareholders during these discussions.

 

We appreciate our shareholders’ support of our compensation and governance practices, we will continue to structure executive compensation in a manner that aligns the interests of executives with those of the shareholders and to take shareholder feedback into account when structuring our executive compensation packages. We will continue to engage with shareholders and institutional investors throughout the year to understand their views on our executive compensation program.

 

Compensation Discussion and Analysis

 

In this section, we provide an overview of our executive compensation philosophy and describe the material components of our executive compensation program for our CEO, CFO and three other most highly compensated executive officers as of June 30, 2017 (collectively, our “NEOs”). For FY 2017, our NEOs and their respective titles were as follows:

 

 

Charles R. Kummeth, President and CEO;

 

James Hippel, Senior Vice President – Finance and Chief Financial Officer;

 

David Eansor, Senior Vice President – Biotechnology;

 

Robert Gavin, Senior Vice President – Protein Platforms; and

 

Kevin Gould, Senior Vice President – Diagnostics.

 

 
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Best Practices in Compensation Governance

 

The table below summarizes what we do and what we don’t do with respect to our compensation governance practices. We maintain these best practices to encourage actions that are in the long-term interests of our shareholders and the Company.

 

 

 

             
  Pay for performance. Under the FY 2017 Management Incentive Plan,   No repricing of stock options or stock appreciation rights. No re-pricing  
    approximately 90% of CEO target total direct compensation was     or exchange of stock options or stock appreciation rights without  
    directly or indirectly tied to Company performance and approximately     shareholder approval.  
    72% of other NEOs’ target total direct compensation was directly        
    or indirectly tied to Company performance.     Mitigate undue risk. Annually review all incentive programs for material  
          risk.  
    Emphasize long-term performance. Approximately 71% of NEOs’      
    target direct compensation is equity-based with multi-year vesting.    Independent Board Chair. Effective independent Board leadership and oversight of management.  
             
    Minimum required vesting. We do not allow vesting of options or stock    Engage independent consultants. The Committee engages independent  
    appreciation rights to occur in a period of less than one year, and we     

compensation and legal consultants.

 
    propose to include the same restrictions for full-value awards, both        
    subject to certain exceptions.     Review tally sheets. Review of executive compensation program  
          components includes potential severance and change in control  
    Develop sound financial goals. Financial goals for incentive plans are     payouts.  
    based on targets that are challenging but achievable.        
          No golden parachute tax gross-ups. We do not enter into new  

 

  Use double-trigger vesting provisions. Vesting connected with a change

 

 

agreements with executive officers providing for golden parachute tax  
    in control requires qualifying termination of employment (“double-     gross-ups.  
    trigger” provision).        
             
    Impose stock ownership requirements. Align executives with        
    shareholders by requiring the CEO to own stock valued at 3x his base        
    salary and other executive officers to hold stock valued at 1x their base        
    salaries, adopted recently.        
             
    No hedging or pledging. Directors and executive officers may not hedge        
    Company securities and, subject to limited exceptions, may not pledge        
    Company securities as collateral for any loan.        
             

 

Executive Compensation Highlights

 

The Executive Compensation Committee (the “Committee”) has designed the compensation packages of our executive officers with key business and performance objectives in mind. In particular, we strive to align executive compensation with our key strategic objectives: building core products and innovation, geographic expansion, commercial execution, operational excellence and talent retention and recruitment.

 

 
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Executive Compensation Initiatives to Align with Shareholders

 

We have made the following progressive changes to our executive compensation programs in order to accomplish the objectives of attracting and retaining highly qualified executives, tying pay to performance and Company strategy, aligning executives’ incentives with long-term shareholder interests, and encouraging internal pay equity:

 

 

In FY 2014, we engaged executive officers in the Company’s Short Term Incentive Plan: cash incentives are earned if annual performance goals are achieved. We also granted Long-Term Equity Awards to executive officers: stock options vest over a four-year period in order to align the financial interest of executives with the financial interests of Company shareholders.

 

 

In FY 2015, we granted performance based equity awards to the Company’s CEO and CFO: equity incentives were earned if certain objectives were met. We also initiated Long-Term Performance Awards for the Company’s CEO: equity incentives are earned if performance goals are achieved over a three-year period.

 

 

In FY 2016, we expanded Long-Term Performance Awards to all executive officers: equity incentives will be earned if performance goals in critical measures of the business are achieved over a three-year period.

 

 

In FY 2017, we maintained a compensation structure for our executive officers that tied the majority of their compensation to a mix of long and short-term performance-based measures and, for the first time, measured adherence to recently adopted stock ownership guidelines for executives. We are also providing additional disclosure of our compensation performance metrics and NEO achievement of such metrics to allow our shareholders to more fully understand our compensation practices.

 

FY 2017 Incentive Payouts Reflect Continued Positive Performance

 

As described in more detail in the Business and Governance Highlights section above and in our previously-filed Annual Report on Form 10K, we continued to execute on our long-term growth strategy in FY 2017. Our CEO has led a strategy of growth through investments in the core business as well as through acquisitions that has led to another year of positive financial performance. The Company ended the year with 13% overall revenue growth and 6% in organic revenue growth, with total revenues at $563 million for FY 2017. The Company is diversifying in many adjacent life science areas that will provide accelerated growth and safety for investors. Our acquisitions, while fundamental to our growth plans, are now an enabler to meet or exceed our five year targets. At the same time, we continue to focus on operational productivity, managing costs and investing prudently. As a result, we were able to maintain margins in our core business and return $48 million to our shareholders in the form of dividends this year. Our NEO compensation for FY 2017 reflects this continued strong performance.

 

The Committee aligns pay with performance and strategic initiatives by tying a significant portion of awards to rigorous revenue- and earnings-based financial goals and by using both short- and long-term incentives. For FY 2017, given the results described above, the Committee approved annual cash incentive payouts that were above target for the CEO and CFO because our Company-wide adjusted EBITDA results exceeded target goals. Cash incentive payouts for the SVP-Biotechnology, SVP-Protein Platforms and SVP-Diagnostics ranged from 79% to 134% of target based on Company-wide and division performance, with the strong performance of our Protein Platforms division driving the highest percentage result.

 

NEOs also received time-based long-term equity awards during FY 2017 and achieved pro-rata vesting of time-based long-term equity awards granted in prior years. These awards generally have vesting periods of at least three years. All NEOs also received performance-based equity awards in FY 2017 that vest based on three-year performance goals.

 

 
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For FY 2017, significant components of target pay were as follows:

 

Incentive Pay Element

Metric

Target Pay

Annual Goal-Based Cash Award

●  All NEOs: Consolidated Organic Revenue

●  All NEOs: Consolidated Adjusted EBITDA

●  Division SVPs: Division Organic Revenue

●  Division SVPs: Division Adjusted EBITDA

45% – 100% of NEO base salary

Long-Term Equity Awards

(time-based and performance-based stock options, restricted stock and RSUs)

●  50% Time-based Awards

●  50% Performance-based awards based on 3-Year Consolidated Organic Revenue Growth and Consolidated Adjusted Operating Income Growth

50% – 80% of NEO total target compensation

 

Incentive payouts were paid out at 79% to 134% of base salary based on the following FY 2017 performance:

 

 

$529.6 million of Consolidated Organic Revenue;

 

$210.4 million of Consolidated Adjusted EBITDA;

 

$330.1 million of Biotechnology Organic Revenue, $107.1 million of Diagnostics Organic Revenue and $92.4 million of Protein Platforms Organic Revenue; and

 

$175.0 million of Biotechnology Adjusted EBITDA, $27.6 million of Diagnostics Adjusted EBITDA and $10.9 million of Protein Platforms Adjusted EBITDA.

 

The financial highlights above reflect as-reported GAAP numbers. Performance payouts are made based on growth of organic revenue, adjusted operating income and adjusted EBITDA, in the amounts reflected in the 2017 Summary Compensation Table. Organic revenue, adjusted operating income, and adjusted EBITDA numbers exclude the impact of foreign currency translation, certain acquisitions and acquisition-related amortization, depreciation, costs and expenses, non-recurring litigation expenses, stock-based compensation expense and other unusual items. For a comprehensive discussion of our financial results, please refer to our Annual Report on Form 10-K for FY 2017.

 

Compensation Objectives

 

The Committee reviews and approves each executive’s base pay, bonus, and equity incentives annually and is responsible for assuring that compensation for the executive officers is consistent with the objectives of attracting and retaining highly qualified executives, tying pay to performance and Company strategy, aligning executives’ incentives with long-term shareholder interests, and encouraging internal pay equity. The Committee determines the appropriate level for each compensation component based on these overall compensation objectives. We strive to provide market competitive compensation and emphasize at-risk cash bonus opportunities and equity compensation that reflect the Company’s performance goals and are commensurate with each executive’s scope of responsibility within the organization. The graphics below illustrate the amount of CEO and the average of other NEO target compensation tied to annual and long-term Company performance pursuant to the FY 2017 base salaries and the FY 2017 Management Incentive Plan.

 

 
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Performance Targets Reward Stretch Performance

 

The target-setting process for our incentive plans is intended to align pay with performance and long-term shareholder interests. The Company’s business planning process and strategic direction is foundational to this effort. Bio-Techne’s business planning process is determined by the overall business environment, industry and competitive factors and our goals and strategies. The business planning process drives our annual operating plan as well as establishes our long-term financial, operational and strategic objectives.

 

Key Considerations in Development of Annual and Long-Term Goals

Business Environment

 

Competitive Factors

 

Company-Specific Factors

Market Outlook

International Trends
Analyst Expectations
Tax Policy

 

Industry Trends  

Competitive Landscape 

Market Growth

 

Historical Trends  

Historical Performance 

Five-Pillar Strategy 

Capital Deployment Opportunities 

Recent Capital Deployment Decisions

 

The Committee reviews and oversees the development and implementation of compensation programs that are aligned with Bio-Techne’s business strategy. The financial performance goals approved by the Committee for the annual and long-term incentive plans are informed by the annual operating plan and Bio-Techne’s five-pillar long-term strategy.

 

The annual incentive plan is aligned with the annual operating plan and is designed so that a target level payout requires achievement of reasonable but challenging goals. Rolling three-year incentive awards, which were implemented for the CEO in FY 2015 and extended to all NEOs in FY 2016 and FY 2017, motivate ongoing achievement of targets at the end of a three-year period, thereby encouraging sustained growth.

 

Elements of the 2017 Compensation Program

 

The Company’s executive compensation program consists of base salaries, annual cash performance bonuses, long-term equity awards and various benefits, including the Company’s Profit Sharing and Savings Plan, in which all qualified employees of the Company participate. The Committee typically also awards equity in the form of stock options, restricted stock and/or stock units upon hiring a new executive officer.

 

The Committee uses our compensation peer group to align the payout range for each NEO’s cash and long-term incentive compensation with market practice. The Committee uses 50th and 75th percentile compensation as reference points in setting NEO compensation. Specific positioning for each NEO is influenced by individual and company performance, internal equity, experience, strategic needs, the portion of long-term incentive compensation allocated to performance-based versus time-based awards, and other factors. Year over year increases in compensation of our CEO reflect the Committee’s intention to reward strong performance and ensure retention and for other NEOs also incorporates increases necessary to bring compensation to the peer group median in addition to the considerations applicable to the CEO.

 

 
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Pay Element

 

Alignment with Shareholder Value Creation

Base Salary

Attracts and retains high-performing executives by providing market-competitive fixed pay

     

Annual Cash Incentive

Drives Company-wide and division performance

 

Focuses efforts on growing revenue and earnings and achieving strategic business goals

     

Long-Term Equity Awards

Aligns executives’ interests with those of shareholders

 

Motivates executives to deliver sustained long-term growth to the business and to the Company’s share price

 

Retains high-performing executives by providing a meaningful incentive to stay with the Company

     

Other Compensation and Benefits

Attracts and retains high-performing executives by offering competitive benefits

 

Annual Compensation

 

Annual compensation is delivered in cash with a significant variable portion at risk and contingent on the achievement of pre-established performance objectives. In FY 2015, the Committee delayed the implementation of merit and other compensation adjustments for the CEO and CFO from April 1, 2015 to July 1, 2015 (FY 2016) so that all executive officers’ performance and compensation could be reviewed at the same time, and at the end of the Company’s fiscal year so that full year results would generally be available. This same change in timing was also applicable to CEO and CFO equity awards, which were granted in the first quarter of FY 2016. As a result of the timing differences in compensation adjustments for the CEO and CFO, the change in their compensation from FY 2014 to FY 2015 appears artificially lower and the change from FY 2015 to FY 2016 appears higher in comparison. In FY 2017, the Committee again granted equity awards in the first quarter of the fiscal year in order to consider annual Company and individual performance in establishing the value of equity award grants. In addition to the changed timing, the Committee continued the trend of granting more performance-vesting equity compensation and less time-vesting equity compensation, which the Committee believes better aligns the interest of our NEOs and our shareholders.

 

In FY 2017, components of annual compensation were:

 

  

Base salary. Base salary is the only fixed component of our executive officers’ total cash compensation. Base salaries provide competitive pay in order to attract and retain executives. Annual salary decisions are made in recognition of competitive data as well as the skills and experience each individual brings to the Company, the length of time with the Company and the performance contributions each makes. FY 2017 base salaries for our NEOs appear in the 2017 Summary Compensation Table.

     

  

Annual Cash Incentive. Executives are eligible to receive cash performance bonuses under the Company’s Short-Term Incentive Plan if predetermined goals are achieved. FY 2017 payouts appear in the 2017 Summary Compensation Table. Threshold, target and maximum opportunities for FY 2017 appear in the 2017 Grants of Plan-Based Awards Table.

 

FY 2017 Performance Metrics. The Short-Term Incentive Plan for FY 2017 provided that awards would be based upon the Company’s consolidated adjusted EBITDA results, consolidated organic revenue results, and, with respect to the SVPs who lead our three divisions, FY 2017 adjusted EBITDA and organic revenue results for their respective divisions. These targets align with the Company’s strategic objectives of strengthening core products, expanding geographically, and committing to commercial execution and operational excellence. In addition, setting clear goals and rewarding achievement promotes the Company’s strategic objective of talent retention and recruitment. Overall achievement is calculated for each executive by determining the weighted average of performance based on EBITDA results and consolidated organic revenue results within each applicable category.

 

 
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Metric*

Weighting**

Why Metric Was Selected

Company-Wide Adjusted EBITDA

●  Determines 50% of the award for our CEO and CFO

 

●  Determines 25% of the award for our Divisional SVPs

 

EBITDA is an important driver of share price valuation and shareholder expectations.

Company-Wide Organic Revenue

●  Determines 50% of the award for our CEO and CFO

 

●  Determines 25% of the award for our Divisional SVPs

 

Revenue growth is the best long-term driver of consistent cash generation; organic revenue growth was selected as a better measure of operational execution since it excludes revenue added through acquisition.

Division Adjusted EBITDA

●  Determines 25% of the award for our Divisional SVPs

 

For executive officers in charge of principal business units, division results are key measures of success.

Division Organic Revenue

●  Determines 25% of the award for our Divisional SVPs

For executive officers in charge of principal business units, division results are key measures of success; organic revenue growth was selected as a better measure of operational execution since it excludes revenue added through acquisition.

 

 

*

Adjusted EBITDA and organic revenue exclude the impact of foreign currency translation, certain acquisitions and acquisition-related amortization, depreciation, costs and expenses, stock-based compensation expense, non-recurring litigation expenses and other unusual items in the discretion of the Committee.

 

 

**

In order to calculate the payout for each executive, the percentage of the bonus for each metric is calculated and the resulting percentages are averaged to determine the applicable blended percentage rate. The Committee determined that for FY 2017 David Eansor, our SVP – Biotechnology, should be compensated in relation to company-wide EBITDA and organic revenue due to his extraordinary effort on a project that affected the entire Company’s results for the year.

 

The range of eligible payouts for FY 2017 was based on a percentage of each NEO’s salary, as follows:

 

Performance Level

Payout Range

Threshold performance (95% of applicable organic revenue and adjusted EBITDA targets)

50% of target award opportunity

Target performance (100% of applicable organic revenue and adjusted EBITDA targets)

100% of target award opportunity

Maximum performance (105% of applicable organic revenue targets and adjusted EBITDA targets)

200% of target award opportunity

 

The Committee retains the power to determine the bonus amounts and criteria for any new participants and to adjust the bonus amounts and criteria from time to time. A participant must be employed on the last day of the fiscal year to receive any portion of the annual cash incentive payment she or he earns. If the person resigns for any reason before the end of the fiscal year, he or she will forfeit the entire bonus.

 

 
24

 

 

Short-Term Incentive Compensation.

 

In July 2017, the Committee evaluated FY 2017 performance against the performance metrics under the Short-Term Incentive Plan for FY 2017. The Committee determined that the performance objectives were met as follows (in millions):

 

Metric

Threshold

Target

Maximum

Achievement

Company-Wide Adjusted EBITDA

$195.2

$205.4

$215.7

$210.4
(102.4%)

Company-Wide Organic Revenue

$508.4

$535.2

$561.9

$529.6
(99.0 %)

Biotech Division Adjusted EBITDA

$166.4

$175.1

$183.9

$175.0
(99.9%)

Biotech Division Organic Revenue

$316.2

$332.9

$349.5

$330.1
(99.2%)

Diagnostics Division Adjusted EBITDA

$29.2

$30.7

$32.2

$28.6
(93.1%)

Diagnostics Division Organic Revenue

$104.2

$109.7

$115.2

$107.1
(97.7%)

Protein Platforms Division Adjusted EBITDA

$6.1

$6.4

$6.7

$10.9
(171.2%)

Protein Platforms Division Organic Revenue

$87.9

$92.6

$97.2

$92.4
(99.8%)

 

Based on the Committee’s evaluation of FY 2017 performance against the applicable performance metrics, payouts under the Short-Term Incentive Plan for FY 2017 were 119% of base salary to Mr. Kummeth, Mr. Hippel, and Mr. Eansor, 134% to Mr. Gavin, and 79% to Mr. Gould. As described above, these payouts are based on a performance curve that pays a minimum of 50% of the target incentive at 95% performance objective achievement and 200% of target incentive at 105% performance objective achievement, with each metric evaluated individually and then averaged with the other applicable metrics.

 

Long-Term Incentive Compensation.

 

Long-term incentive compensation is a critical component of our executive compensation program. This element of compensation serves to align our executives’ financial interests with sustained shareholder value creation and long-term Company financial results. It also functions as an important retention tool and facilitates the positioning of our NEOs’ total pay within the range of the competitive median of our compensation peer group.

 

In FY 2016, for the first time our long-term incentive compensation program included both time-vested equity and performance-vested equity for all NEOs, not just the CEO. Also beginning in FY 2016, the Committee adjusted the timing of all NEO annual long-term incentive compensation grants to occur near the beginning of each fiscal year. Previously, annual grants were made to Mr. Kummeth on the anniversary of his hire date of April 1. One effect of this change was to move compensation that would have been granted to Mr. Kummeth in FY 2015 into FY 2016 as a result of the changed timing, which caused his FY 2015 compensation to be lower and FY 2016 compensation to be higher than if the grants had been made on April 1, 2015.

 

 
25

 

 

In FY 2017, long-term incentive awards were granted to all NEOs, including our CEO, in the first quarter of the fiscal year. Additional detail with respect to each award granted is provided below.

 

The following table sets forth the grant date fair value of the long-term incentive awards granted to our NEOs in FY 2017. Additional detail with respect to each award granted is provided below.

 

Named Executive

Officer

 

Time-Vested Options*

   

Performance-Vested

Options*

   

Performance-Based

Restricted Stock Units*

   

Time-Vested
Restricted Stock*

 

Charles R. Kummeth

  $ 1,774,632     $ 1,774,727     $ 1,775,096     $ 1,775,043  

James Hippel

  $ 699,863     $ 349,952     $ 349,988        

David Eansor

  $ 324,938     $ 162,474     $ 162,522        

Robert Gavin

  $ 299,936     $ 149,973     $ 150,015        

Kevin Gould

  $ 299,936     $ 149,973     $ 150,015        

 

 

*

Amounts shown above represent the total grant date fair value of equity-based compensation based on the estimated probable outcome of the performance based-objectives applicable to such awards on the grant date and excluding the effect of estimated forfeitures. The fair value of equity awards is determined pursuant to the Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. Assumptions used in the calculation of the fair value are described in Note 9 to the Company's audited financial statements for FY 2017, included in the Company's Annual Report on Form 10-K.

 

Time-Vested Equity

 

Stock Options. The Company makes annual stock option grants to executives in order to align the interests of executives with those of shareholders. Executives recognize value only if the market value of the Company’s stock appreciates over time. The Company’s time-vesting stock option grants generally vest 25% on each of the first four anniversaries of the grant date and have a seven-year term. The Committee determines the appropriate stock option award value by considering how the value of equity awards will impact each NEO’s total direct compensation as well as the balance between annual and long-term compensation, fixed and at-risk compensation, the Company’s strategic and operational objectives, the responsibilities and performance of the NEOs, internal equity, the grants made by companies in our compensation peer group and other factors the Committee deems relevant.

 

Restricted Stock. Bio-Techne’s CEO also receives time-vested restricted stock awards that generally vest over a three-year period. These awards are intended to further align the CEO’s interests with those of shareholders and to provide competitive total compensation to the CEO. The Committee determines the appropriate number of restricted stock awards by considering the CEO’s total direct compensation as well as the balance between annual and long-term compensation, fixed and at-risk compensation, the Company’s strategic and operational objectives, the CEO’s performance, the grants made by companies in our compensation peer group and other factors the Committee deems relevant.

 

Performance-Vested Equity and Cash

 

FY 2017 Performance Metrics for LTIP Awards. Under the Long-Term Incentive Plan for FY 2017, the Committee approved grants of stock options, restricted stock units and cash performance units to all executives. These grants have a three year cliff vesting schedule and therefore vest following the Company’s 2019 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted operating income and consolidated organic revenue goals for FY 2019. These targets promote long-term achievement of the Company’s strategic objectives.

 

 

Company-Wide Adjusted Operating Income. Operating Income is an important driver of share price valuation and shareholder expectations. It determines 50% of the awards for our NEOs.

 

 

Company-Wide Organic Revenue. Revenue growth is the best long-term driver of consistent cash generation. It determines 50% of the awards for our NEOs.

 

 
26

 

 

The Committee views consolidated adjusted operating income and consolidated organic revenue as most appropriate for the long-term incentive plan because they are measureable performance metrics that reflect the Company’s business performance and stress the balance between top-line growth and bottom-line performance, thereby incenting long-term profitable growth.  The Committee believes that over the long-term, these performance metrics, working in tandem, are most appropriate for driving long-term shareholder value creation. The Committee also believes that using LTIP metrics based on 2019 performance differentiates the performance criteria from the 2017 metrics used to evaluate STIP performance.

 

The following table sets forth the threshold, target, and maximum potential payouts to our NEOs under the performance-vested equity and cash awards for FY 2017:

 

Named Executive

Officer

 

Stock Options

   

Restricted Stock Units

   

Performance Cash Units

 
 

Threshold:

   

Target:

   

Maximum:

   

Threshold:

   

Target:

   

Maximum:

   

Threshold:

   

Target:

   

Maximum:

 

Charles R. Kummeth

  $ 1,183,157     $ 1,774,727     $ 2,661,957     $ 1,183,456     $ 1,775,096     $ 2,662,511     $ 34,971     $ 69,941     $ 104,912  

James Hippel

  $ 233,302     $ 349,952     $ 524,901     $ 233,337     $ 349,988     $ 524,955     $ 6,895     $ 13,790     $ 20,685  

David Eansor

  $ 108,317     $ 162,474     $ 243,699     $ 108,353     $ 162,522     $ 243,771     $ 3,202     $ 6,403     $ 9,605  

Robert Gavin

  $ 99,982     $ 149,973     $ 224,948     $ 100,015     $ 150,015     $ 225,011     $ 2,955     $ 5,911     $ 8,866  

Kevin Gould

  $ 99,982     $ 149,973     $ 224,948     $ 100,015     $ 150,015     $ 225,011     $ 2,955     $ 5,911     $ 8,866  

 

In order to encourage long-term income and revenue growth, vesting of the FY 2017 LTIP awards vest based solely on the Company’s achievement of EBITDA and organic revenue goals in FY 2019; no portion of the awards will vest in FY 2017 or FY 2018. Awards will vest on a linear scale depending on the level of performance between threshold and maximum levels. Adjusted operating income and organic revenue exclude the impact of foreign currency translation, acquisitions and acquisition-related amortization, depreciation, costs and expenses, non-recurring litigation expenses and other unusual items.

 

Procedures for Setting Executive Compensation

 

Responsibility of the Executive Compensation Committee

 

The Committee of the Board of Directors is responsible for establishing the compensation programs of the Company’s CEO and other executive officers, including but not limited to the other NEOs. The Committee participates in the consideration of employment of prospective executive officers of the Company. The Committee also administers the Company’s equity-based and performance-based compensation plans, including plans under which restricted stock and options are awarded. Accordingly, it is responsible for reviewing cash and equity incentives payable to executives and has the authority to grant restricted shares of Company Common Stock and options to purchase shares of the Company’s Common Stock to all participants under the Company’s equity award plans, and to determine all terms and conditions of such awards. For additional information on the Company’s corporate governance policies, see “Corporate Governance” above.

 

 
27

 

 

Role of the Chief Executive Officer in Compensation Decisions

 

The Committee annually assesses the base compensation and the potential compensation that the named executive officers will be eligible to earn by achieving the Company’s financial targets. As part of this assessment, the CEO makes recommendations to the Committee regarding the base compensation and target incentive amounts for the executive officers that report to him. Such recommendations take into account internal pay equity, position within an internal compensation range, changes in responsibilities, compensation levels for similar positions that considers industry and location and other factors the CEO considers important in establishing competitive compensation for the executives that report to him. Among these other factors is a philosophy that there should be a reasonable relationship between executive salaries and the average employee or mid-level manager salaries within an organization; executive bonuses should be based on performance; and long-term incentives should primarily be equity-based arrangements that are tied to long-term improvements in financial results and other factors that lead to appreciation in the Company’s stock price.

 

The Committee discusses the CEO’s recommendations and accepts or adjusts them, in whole or in part, based on its own assessment of company strategic goals, executive responsibilities, internal pay equity and its independent review of local comparative data for all industries. The executive officers are not present during the Committee’s final discussion and determination of the type and amount of compensation to be paid.

 

Executive Compensation Committee Interlocks and Insider Participation

 

During FY 2017, the members of the Committee were Dr. Steer (Chair), Mr. Higgins, Mr. Wiens and Dr. Holbrook. None of the current members of the Committee was an officer or employee of the Company during FY 2017, or was formerly an officer of the Company. None of the current members of the Committee had any relationship requiring disclosure under Item 404 of Regulation S-K. No executive officer of the Company during FY 2017 served on the compensation committee or the board of any company that employed any member of the Company’s Committee or Board.

 

Executive Compensation Consultants and Use of Peer Groups

 

From time to time, the Committee retains consultants to assist with setting executive compensation. The Committee has sole authority to retain or replace such independent compensation consultants. The Committee annually evaluates the independent compensation consultant’s independence and performance under the applicable NASDAQ listing standards. The Committee believes that working with an independent compensation consultant furthers the Company’s objectives to recruit and retain qualified executives, align their interests with those of shareholders and ensure that their compensation packages will appropriately motivate and reward ongoing achievement of business goals.

 

In FY 2017, the Committee determined that Aon Hewitt, an outside compensation consulting firm, continued to be independent under applicable NASDAQ listing standards and retained them to advise the Committee with respect to compensation of the CEO and other executive officers. In that capacity, Aon Hewitt provided the Committee with a peer group analysis and assisted the Committee in structuring the compensation program for the CEO and other executive officers. Aon Hewitt did not provide any additional services to the Company during FY 2017.

 

The Committee refers to a comparative group of life sciences companies when evaluating executive compensation. Although it is not possible to compile a peer group of companies that directly compete with the Company, the companies in the comparative group presented below operate in the same general industry as the Company, and the Committee believes that such companies compete for a similar pool of executive talent. The companies in the peer group are strategically aligned with the goals of the Company and are similar to the Company with regard to EBITDA, market capitalization, and revenue. The Compensation Committee believes that using EBITDA and market cap in addition to revenue is beneficial because these metrics directly relate to the creation of shareholder value and provide a more appropriate measure of the Company’s place in the market than revenue alone.

 

 
28

 

 

In advance of setting FY 2017 compensation opportunities for the NEOs, the peer group that was used in FY 2016 was reviewed to ensure the companies comprising the peer group remained reasonable for pay and performance comparisons. Based on that review, it was determined that the peer group companies remained appropriate, and as a result, the peer group that was used to set FY 2017 compensation opportunities for the NEOs was unchanged from FY 2016. At the time the peer group was confirmed, the peer group had the following medians:

 

 

Revenues of $587 million, based on the trailing four quarters; Bio-Techne’s revenues were positioned at the 36th percentile of the peer group;

 

 

Net Income of $73 million, based on the trailing four quarters; Bio-Techne’s Net Income was positioned at the 54th percentile of the peer group; and

 

 

Market capitalization of $3,386 million; Bio-Techne’s market capitalization was positioned at the 54th percentile of the peer group.

 

Peer Group Companies

 

Affymetrix Inc.

Alere Inc.

Align Technology, Inc.

Alkermes plc

Bio-Rad Laboratories, Inc.

Cepheid

Globus Medical, Inc.

HeartWare International, Inc.

Insulet Corporation

Luminex Corporation

Medivation, Inc.

Myriad Genetics, Inc.

PerkinElmer, Inc.

QIAGEN

Seattle Genetics, Inc.

The Medicines Company

 

The Committee uses our compensation peer group to align the payout range for each NEO’s cash and long-term incentive compensation with market practice. Target cash and long-term incentive compensation is positioned between the 50th and 75th percentiles and total compensation is positioned near the median. Specific positioning for each NEO is influenced by individual and company performance, internal equity, experience, strategic needs, the portion of long-term incentive compensation allocated to performance-based versus time-based awards, and other factors.

 

Accounting and Tax Treatment

 

The Company accounts for equity-based compensation paid to employees under FASB ASC Topic 718, which requires the Company to estimate and record an expense over the service period of an option award. Thus, the Company may record an expense in one year for awards granted in earlier years. Accounting rules also require the recording of cash compensation as an expense at the time the obligation is accrued.

 

Section 162(m) of the Internal Revenue Code of 1986 generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to a company’s chief executive officer and three other most highly-paid executive officers (other than its chief financial officer). Qualifying performance-based compensation is not subject to the deduction limitation if certain requirements are met. The Committee considers the tax deductibility of payments when setting compensation and may provide compensation that is not tax deductible if it determines that such action is appropriate.

 

 
29

 

 

Additional Compensation Practices

 

Stock Retention Requirement

 

Effective July 2016, we implemented stock ownership guidelines applicable to all NEOs. The guidelines are determined in comparison to base salary as follows:

 

Named Executive 

Officer

Applicable Multiple

 

Ownership

Requirement
(as of 6/30/2017)

 

Charles R. Kummeth

3x base salary

  $ 2,640,000  

James Hippel

1x base salary

  $ 460,000  

David Eansor

1x base salary

  $ 430,000  

Robert Gavin

1x base salary

  $ 375,000  

Kevin Gould

1x base salary

  $ 365,000  

 

 

The guidelines are met based on the value of an NEO’s directly owned or beneficially owned stock plus the value of restricted stock or restricted stock units that are issued and outstanding, whether or not vested. NEOs must meet the guideline within five years of becoming subject to the guidelines and must meet the guidelines at all times following such date. Although they have until July 1, 2021 to meet the guidelines, the CEO and one other NEO already meet the guidelines.

 

Succession Planning

 

The Committee maintains a succession plan for the Company’s executive officers that is reviewed on a periodic basis. As part of its role in succession planning, the Board periodically reviews with the CEO the performance of the CEO’s direct reports. The Board also receives formal reports from such individuals and is given the opportunity to interact with such individuals in social settings.

 

Clawback Provisions

 

Our employment agreements with our NEOs provide that we will recoup incentive compensation paid to our NEOs to the extent required by any law, government regulation, stock exchange listing requirement, or Company policy promulgated under such standards.

 

Executive Compensation Committee Report on Executive Compensation

 

The Executive Compensation Committee of the Board of Directors (the “Committee”) is responsible for reviewing and approving total compensation programs and levels for the Company’s executive officers, including the NEOs. The Committee’s responsibilities are specified in the Executive Compensation Committee Charter.

 

The Committee reviewed and discussed the Compensation Discussion and Analysis above with management. Based on the Committee’s review and its discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the 2017 Annual Meeting.

 

 

 

Randolph C. Steer, M.D., Ph.D. (Chair)

Karen Holbrook, Ph.D.

John L. Higgins

Harold Wiens

   Members of the Executive

   Compensation Committee

 

 
30

 

 

2017 Summary Compensation Table

 

The NEOs received compensation for the fiscal years ended June 30, 2017, 2016 and 2015 as set forth in the chart below. As stated above, in FY 2015, the Committee delayed the implementation of merit, equity grants and other compensation adjustments for the CEO and CFO from April 1, 2015 to July 1, 2015 (FY 2016) so that all executive officers’ performance and compensation could be reviewed at the same time, and at the end of the Company’s fiscal year. As a result of the timing differences in compensation adjustments for the CEO and CFO, the change from FY 2015 to FY 2016 appears higher in comparison to changes in other years.

 

Name and Principal Position

Fiscal

Year

 

Salary (1)

   

Bonus

   

Stock

Awards (2)

   

Option

Awards (2)

   

Non-Equity

Incentive Plan

Compensation (3)

   

All Other

Compensation

   

Total

 

Charles R. Kummeth,

2017

  $ 880,000           $ 3,550,140 (4)   $ 3,549,359 (5)   $ 1,053,594     $ 43,798 (6)   $ 9,076,890  

President and CEO

2016

    800,000             2,500,044 (4)     2,908,732 (5)     1,221,097       38,241       7,468,114  
 

2015

    625,000             699,983 (4)     700,002 (5)     671,203       40,517       2,736,705  

James Hippel,

2017

    460,000             349,988 (7)     1,049,814 (8)     356,310       10,660 (9)     2,226,773  

Senior Vice President of Finance

2016

    425,000             216,980 (7)     685,875 (8)     421,660       9,042       1,758,557  
and CFO

2015

    350,000                   456,750 (8)     244,318       7,800       1,058,868  

David Eansor,(10)

2017

    430,000             162,522 (11)     487,412 (12)     256,210       11,061 (13)     1,347,206  

Senior Vice President-

2016

    400,000             108,490 (11)     342,938 (12)     282,110       7,950       1,141,488  
Biotechnology

2015

    325,000             468,250 (11)     195,750 (12)     85,598       18,000       1,092,598  

Robert Gavin,(14)

2017

    375,000             150,015 (15)     449,909 (16)     226,426       13,889 (18)     1,215,239  

Senior Vice President-Protein

2016

    350,000             108,490 (15)     342,938 (16)     136,278       5,250       942,956  
Platforms

2015

    325,000                   228,050 (16)     124,029 (17)           677,079  

Kevin Gould,(19)

2017

    365,000             150,015 (20)     449,909 (21)     129,313       7,875 (23)     1,102,112  

Senior Vice President -

2016

    275,000             243,075 (20)     969,015 (21)     145,463 (22)     4,800       1,492,353  
Diagnostics

2015

                                         

 

(1)

Includes amounts deferred under the Company's Profit Sharing and Savings Plan, a qualified deferred compensation plan under Section 401(k) of the Internal Revenue Code.

(2)

Amounts shown above represent the total grant date fair value of equity-based compensation based on the estimated probable outcome of the performance based-objectives applicable to such awards on the grant date and excluding the effect of estimated forfeitures. The fair value of equity awards is determined pursuant to the Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. Assumptions used in the calculation of the fair value are described in Note 9 to the Company's audited financial statements for FY 2017, included in the Company's Annual Report on Form 10-K.

(3)

Represents cash bonuses earned under the Company's cash incentive plans in effect for the applicable year, which are determined and paid in the subsequent fiscal year.

(4)

For 2017, represents 16,653 shares of time-vested restricted stock granted on August 18, 2016 plus performance based restricted stock units also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,662,500. For 2016, represents 11,522 shares of time-vested restricted stock granted on August 7, 2015, plus shares of performance based restricted stock units also granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $1,875,033. For 2015, represents shares of performance-based restricted stock units granted on August 12, 2014. The value of the 2015 performance based awards at the grant date assuming that the highest level of performance conditions will be achieved is $1,050,021.

 

 
31

 

 

(5)

For 2017, includes a time-vested option to purchase 102,779 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,662,500. For 2016, includes a time-vested option to purchase 79,517 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,181,540. For 2015, includes performance-vested option issued on August 12, 2014. The value of the 2015 performance based award at the grant date assuming the highest level of performance conditions will be achieved is $1,050,003.

(6)

Includes $7,178 for 401k match, $3,002 for a supplemental life and disability insurance policy ($2,007 to cover the cost of the premium and $1,015 as a tax reimbursement related to payment for the premium), and $33,598 in dividends paid on unvested restricted stock, which amount was not factored into the grant date fair value of such awards.

(7)

For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $525,000. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $325,470.

(8)

For 2017, includes a time-vested option to purchase 40,533 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $525,000. For 2016, includes a time-vested option to purchase 25,000 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $342,938. For 2015, includes a time-vested option to purchase 35,000 shares of Common Stock issued to Mr. Hippel on August 12, 2014.

(9)

Includes $9,568 for 401k match and $1,092 for a supplemental life and disability insurance policy ($725 to cover the cost of the premium and $367 as a tax reimbursement related to payment for the premium).

(10)

Mr. Eansor joined the Company on July 2, 2014 through the acquisition of Novus Biologicals, LLC. Mr. Eansor was SVP - Novus Biologicals for the first three quarters of the year and was promoted to SVP – Biotechnology as of April 1, 2015.

(11)

For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $243,750. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $162,735. For 2015, represents a grant of 5,000 restricted stock units issued to Mr. Eansor on July 2, 2014 upon the Company hiring him as Senior Vice President, Novus Biologicals.

(12)

For 2017, includes a time-vested option to purchase 18,819 shares of Common Stock issued on August 18, 2016, plus a performance bested option also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance condition will be achieved is $243,750. For 2016, includes a time-vested option to purchase 12,500 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $171,469. For 2015, represents grants of a time-vested option to purchase 15,000 shares of Common Stock issued to Mr. Eansor on August 12, 2014.

(13)

Represents $11,061 for 401k match.

(14)

Robert Gavin joined the Company in connection with the Company’s acquisition of ProteinSimple on July 31, 2014 and became an executive officer on November 25, 2014.

(15)

For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $225,000. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $162,735. For 2015, represents a grant of performance-based restricted stock units issued to Mr. Gavin on July 31, 2014 in connection with the Company’s acquisition of ProteinSimple. The value of the 2015 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $466,600.

 

 
32

 

 

(16)

For 2017, includes a time-vested option to purchase 17,371 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $225,000. For 2016, includes a time-vested option to purchase 12,500 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $171,469. For 2015, represents grants of a time-vested option to purchase 10,000 shares of Common Stock and a performance-vested option to purchase shares of Common Stock issued to Mr. Gavin on July 31, 2014 in connection with the Company’s acquisition of ProteinSimple, and a grant of a time-vested option to purchase 5,000 shares of Common Stock on December 1, 2014 upon Mr. Gavin’s promotion to SVP – Protein Platforms. The value of the 2015 performance based award at the grant date assuming that the highest level of performance conditions will be achieved was $782,500. One-third of the 2015 performance based award vested in FY 2017 pursuant to discretionary authority of the Board.

(17)

For 2015, represents a cash bonus of $43,628 paid out to Mr. Gavin under the Company’s Management Incentive Plan for FY 2015, and $80,401 that was paid out as incentive for performance at ProteinSimple in FY 2015 in connection with an incentive arrangement that Mr. Gavin had with ProteinSimple prior to the Company’s acquisition of ProteinSimple.

(18)

Represents $13,889 for 401k match.

(19)

Kevin Gould joined the Company in connection with the Company’s acquisition of Cliniqa on July 9, 2015, and became an executive officer on January 1, 2016.

(20)

For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $225,000. For 2016, Represents a grant of 2,500 time-vested restricted stock units issued to Mr. Gould on July 9, 2015 in connection with the Company’s acquisition of Cliniqa.

(21)

For 2017, includes a time-vested option to purchase 17,371 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $225,000. For 2016, includes a time-vested option to purchase 15,000 shares of Common Stock July 9, 2015 in connection with the Company’s acquisition of Cliniqa, a performance vested option also granted on July 9, 2015, and a grant of a time-vested option to purchase 10,000 shares of Common Stock on January 4, 2016, upon Mr. Gould’s promotion to SVP – Diagnostics (formerly Clinical Controls). The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $849,500.

(22)

Represents a cash bonus of $133,486 paid out to Mr. Gould under the Company’s Management Incentive Plan for FY 2016. Since Mr. Gould became an executive officer and was given responsibility for the Diagnostics division on January 1, his divisional goals were based solely on the performance of Cliniqa, for which he had responsibility for the entire year.

(24)

Represents a $7,875 for 401k match.

 

 
33

 

 

2017 Grants of Plan-Based Awards

 

The following table sets forth certain information with respect to grants of plan-based awards for the named executive officers granted in FY 2017.

 

     

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
(1)

   

Estimated Future Payouts
Under Equity Incentive
Plan Awards
(2)

   

All Other Stock Awards: Number of Shares (3)

(#)

   

All Other Options Awards: Number of Securities Underlying Options (4)

(#)

   

Exercise or Base Price of Option Awards (per share)

($)

   

Grant Date Fair Value of Stock and Option Awards (5)

($)

 

Name

Grant Date

 

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

                                 

Charles R. Kummeth

    $ 440,000     $ 880,000     $ 1,760,000                                            
        34,971       69,941       104,912                                           ---  
 

8/18/2016

    ---       ---       ---       8,326       16,653       24,979       ---       ---       ---     $ 1,775,096  
 

8/18/2016

    ---       ---       ---       51,390       102,779       154,169       ---       ---     $ 106.59       1,774,727  
 

8/18/2016

                      ---       ---       ---       ---       102,779       106.59       1,774,632  
 

8/18/2016

                      ---       ---       ---       16,653       ---       ---       1,775,043  

James Hippel

      149,500       299,000       598,000                                           ---  
        6,895       13,790       20,685                                           ---  
 

8/18/2016

    ---       ---       ---       1,642       3,283       4,925       ---       ---       ---       349,988  
 

8/18/2016

    ---       ---       ---       10,133       20,267       30,400       ---       ---       106.59       349,952  
 

8/18/2016

                                              40,533       106.59       699,862  

David Eansor

 

    107,500       215,000       430,000                                            
        3,202       6,403       9,605                                           ---  
 

8/18/2016

    ---       ---       ---       762       1,525       2,287                         162,522  
 

8/18/2016

    ---       ---       ---       4,705       9,409       14,114       ---       ---       106.59       162,474  
 

8/18/2016

                                              18,819       106.59       324,938  

Robert Gavin

      84,375       168,750       337,500                                            
        2,955       5,911       8,866                                           ---  
 

8/18/2016

                      704       1,407       2,111       ---       ---       ---       150,015  
 

8/18/2016

                      4,343       8,685       13,028       ---       ---       106.59       149,973  
 

8/18/2016

                                              17,371       106.59       299,936  

Kevin Gould

 

    82,125       164,250       328,500                                            
        2,955       5,911       8,866                                           ---  
 

8/18/2016

                      704       1,407       2,111       ---       ---       ---       150,015  
 

8/18/2016

    ---       ---       ---       4,343       8,685       13,028       ---       ---       106.59       149,973  
 

8/18/2016

    ---       ---       ---                               17,371       106.59       299,936  

 

(1)

Row 1 for each NEO represents cash bonuses that could have been earned under the Company’s Management Incentive Plan for FY 2017 and would have been paid in FY 2018. The payout under the Company’s Management Incentive Plan for FY 2017 for each participant depended on an individualized ratio of consolidated EBITDA results, consolidated revenue results, and with respect to Messrs. Gavin and Gould, division EBITDA results and division revenue results. On July 28, 2017, the Committee approved the following bonuses: Mr. Kummeth in the amount of $1,053,594, Mr. Hippel in the amount of $356,310, Mr. Eansor in the amount of $256,210, Mr. Gavin in the amount of $226,426, and Mr. Gould in the amount of $129,313. Row 2 for each NEO represents performance-based cash units granted during the fiscal year under the Company’s 2010 Equity Incentive Plan. Such awards vest following the Company’s 2019 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted earnings per share and organic revenue growth goals in FY 2019.

 

 
34

 

 

(2)

Represents the number of performance-based equity awards granted to the participant NEOs during the fiscal year under the Company’s 2010 Equity Incentive Plan. For each NEO, Row 3 represents performance-based restricted stock units and Row 4 represents performance-based options, which awards vest following the Company’s 2019 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted earnings per share and organic revenue growth goals in FY 2019.

(3)

For Mr. Kummeth, represents a restricted stock award granted for the fiscal year under the Company’s 2010 Equity Incentive Plan. The risk of forfeiture for the award lapses annually in pro-rata increments over a period of three years, beginning on the first anniversary of the grant date.

(4)

Represents the number of time-based stock options granted to the participant during the fiscal year under the Company’s 2010 Equity Incentive Plan. Such awards vest annually in pro-rata increments over a period of four years, beginning on the first anniversary of the grant date, which is August 18, 2017.

(5)

The fair value of the equity awards is determined pursuant to ASC Topic 718, based on the probable outcome of the performance conditions and excluding the effect of estimated forfeitures. Assumptions used in the calculation of the fair value of the equity awards are described in Note 9 to the Company’s audited financial statements for FY 2017, included in the Company’s Annual Report on Form 10-K.

 

 
35

 

 

2017 Outstanding Equity Awards at Fiscal Year-End

 

The following table shows all outstanding stock options and restricted stock held by the named executive officers on June 30, 2017.

 

    Option Awards   Stock Awards  
           
Name  

Number of

Securities

Underlying

Unexercised

Options

Exercisable
(#)

   

Number of

Securities

Underlying

Unexercised

Options

Unexercisable
(#)

   

Number of

Securities

Underlying

Unexercised

Unearned

Options
(#)

   

Option

Exercise

Price
($)

 

Option

Expiration

Date

 

Number

of Shares

of Stock

that have

not

Vested
(#)

   

Market

Value

of Shares

of Stock

that have

not

Vested
($)

   

Number of Unearned

Shares,

Units or

Other

Rights

that have

not Vested
(#)

   

Market

Value of

Unearned

Shares

that have

not

Vested
($)

 

Charles R. Kummeth

    65,000 (1)               $ 67.46  

4/1/2020

                               
      50,000 (2)                 67.46  

4/1/2020

                       
      66,849 (3)                 94.35  

8/12/2021

                       
      36,670 (4)     9,646 (4)           86.25  

4/1/2021

                       
      19,879 (5)     59,638 (5)           108.49  

8/7/2022

    7,682 (6)   $ 902,635              
                  119,275 (7)     108.49  

8/7/2022

    16,653 (8)     1,956,728             ---  
            102,779 (9)           106.59  

8/18/2023

                17,283 (10)   $ 2,030,753  
                  154,169 (11)     106.59  

8/18/2023

                24,979 (12)     2,935,033  

James Hippel

    17,500 (13)     17,500 (13)           94.35  

8/12/2021

                       
      18,750 (14)     6,250 (14)           86.25  

4/1/2021

                       
      10,000 (15)                 86.25  

4/1/2021

                       
      6,250 (16)     18,750 (16)           108.49  

8/7/2022

                3,000 (17)     352,500  
                  18,750 (18)     108.49  

8/7/2022

                       
            40,533 (19)           106.59  

8/18/23

                4,925 (20)     578,688  
                  30,400 (21)     106.59  

8/18/23

                       

David Eansor

    7,500 (22)     7,500 (22)           94.35  

8/12/2021

    1,667 (23)     195,873              
      3,125 (24)     9,375 (24)           108.49  

8/7/2022

                1,500 (25)     176,250  
                  3,125 (26)     108.49  

8/7/2022

                       
            18,819 (27)           106.59  

8/18/2023

                2,287 (28)     268,723  
                  14,114 (29)     106.59  

8/18/2023

                       

Robert Gavin

    5,000 (30)     5,000 (30)           93.32  

7/31/2021

                       
      16,667 (31)                 93.32  

7/31/2021

                       
      2,500 (32)     2,500 (32)           90.25  

11/30/2021

                       
      3,125 (33)     9,375 (33)           108.49  

8/7/2022

                1,500 (34)     176,250  
                  9,375 (35)     108.49  

8/7/2022

                       
            17,371 (36)           106.59  

8/18/2023

                2,111 (37)     248,043  
                  13,028 (38)     106.59  

8/18/2023

                       

Kevin Gould

    3,750 (39)     11,250 (39)           97.23  

7/9/2022

                           
                  50,000 (40)     97.23  

7/9/2022

    1,667 (41)     195,873              
      2,500 (42)     7,500 (42)           88.23  

1/4/2023

                       
            17,371 (43)           106.59  

8/18/2023

                2,111 (44)     248,043