Strong Governance
and Executive Compensation Practices
We are committed to strong governance and
executive compensation practices, which we believe support long-term stockholder
value. Some highlights include robust stock ownership guidelines for our
Directors and executives, risk oversight by the Board and a commitment to
nominating and retaining independent Directors who have the right mix of skills,
experience, knowledge and diverse backgrounds that best enables the Board to
fulfill its responsibilities to our stockholders.
This commitment to robust Board
composition is demonstrated by the addition of five new independent Directors to
our Board over the last five years, each of whom brings new skills and
perspectives to our Board. A more comprehensive discussion of our governance and
executive compensation practices can be found beginning on pages 27 and 49,
respectively.
Table of Contents
We believe that the strong foundation and
innovative approach to the veterinary diagnostic, software and data market that
we have built through 2016 will support sustained revenue growth and continued
profitability in 2017 and for years to come.
All of us at IDEXX remain committed to our
Purpose: to be a great company that creates exceptional long-term value for our
customers, employees and stockholders by enhancing the health and well-being of
pets, people and livestock.
Sincerely,
____________________
1
|
Information regarding organic
revenue growth and its calculation is provided in Appendix
A.
|
2
|
This increase in our diluted
earnings per share reflects the effect of the two-for-one split of our
common stock effected in the form of a common stock dividend paid on June
15, 2015 (the Stock Split).
|
3
|
Information regarding adjusted
constant currency EPS growth and its calculation is provided in Appendix
A.
|
4
|
Information regarding adjusted
of constant currency operating margin improvement and its calculation is
provided in Appendix A.
|
5
|
The projections in our
long-term financial potential model assume that foreign currency exchange
rates will remain the same.
|
6
|
The average purchase price per
share of our stock has been adjusted for the effect of the Stock Split on
stock price.
|
7
|
Information regarding
after-tax return on invested capital and its calculation is provided in
Appendix A.
|
|
|
6
|
|
Table of Contents
Table of
Contents
* * * *
BASIS OF PRESENTATION
IDEXX Laboratories, Inc. is a Delaware
corporation incorporated in 1983 with principal executive offices located at One
IDEXX Drive, Westbrook, Maine 04092. Unless the context indicates otherwise,
references in this Proxy Statement to we, us, our, the Company or
IDEXX refer to IDEXX Laboratories, Inc. and its consolidated subsidiaries. Our
website is located at
www.idexx.com
. References to our website in this Proxy
Statement are inactive textual references only and the contents of our website
are not incorporated by reference into this Proxy Statement for any
purpose.
Table of Contents
Proxy
Summary
This summary highlights selected
information that is contained elsewhere in this Proxy Statement. This summary
does not contain all of the information that you should consider prior to voting
your shares. You should carefully read both this entire Proxy Statement and our
2016 Annual Report on Form 10-K filed with the SEC on February 17, 2017 before
voting.
2017 Annual Meeting Information
Date and Time
:
Wednesday, May 3, 2017, 1:00 p.m., Eastern Time
Location
:
Virtual meeting only
online via
webcast at
www.virtualshareholdermeeting.com/IDXX2017
Stockholder Voting
Matters Summary
Proposal
|
Board
Vote
Recommendation
|
Page Number for
More
Information
|
Proposal One
Election of Directors
|
FOR each
nominee
|
19
|
Proposal Two
Ratification of Appointment of Independent Registered
Public
|
FOR
|
43
|
Accounting Firm
|
|
|
Proposal Three
Advisory Vote to Approve Executive
Compensation
|
FOR
|
46
|
Proposal Four
Advisory Vote on the Frequency of Advisory Vote to
|
FOR the option of
|
47
|
Approve Executive Compensation
|
ONCE EVERY
YEAR
|
|
How to
Vote
It is important that your shares be
represented and voted at the 2017 Annual Meeting. You can submit a proxy by
telephone or Internet. Alternatively, you may request a paper proxy card by
calling the appropriate number set forth below, which you may complete, sign and
return by mail. Registered holders and beneficial owners of our stock will be
able to vote their shares electronically at the annual meeting,
which will be a completely virtual meeting of stockholders
online
.
For beneficial owners:
(You hold your
shares in a brokerage account or by a bank or other holder of record (that
is, in street name))
|
|
|
|
|
|
BY TELEPHONE
|
|
You
can vote your shares toll-free by calling
1-800-454-8683.*
|
|
|
|
|
|
BY INTERNET
|
|
You
can vote your shares online before the meeting at
www.proxyvote.com
.
During the meeting you can vote your shares at
www.virtualshareholdermeeting.com/IDXX2017
.*
|
|
|
|
|
|
BY MAIL
|
|
You
can vote by mail by using the paper proxy card or voting instruction form.
Mark, sign and date your proxy card and return it in the postage-paid
envelope provided or return it to
Vote Processing, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
|
* You will need your 16-digit
control number available from the Notice sent to you from
Broadridge.
Whether you are a registered holder or a
beneficial owner, you may vote online at the 2017 Annual Meeting. You will need
to enter your control number (included in your Notice of Internet Availability,
your proxy card or the voting instructions that accompanied your proxy
materials) to vote your shares at the 2017 Annual Meeting. Even if you plan to
attend the 2017 Annual Meeting over the Internet, we encourage you to vote in
advance by telephone, over the Internet or by mail as described above. This will
ensure that your vote will be counted if you are unable to, or later decide not
to, participate in the virtual meeting.
Table of Contents
PROXY
SUMMARY
|
Proposal One
|
|
|
|
|
|
|
|
|
|
|
|
Election of Directors
|
|
|
The Board has nominated Dr. Rebecca M. Henderson, Mr. Lawrence D.
Kingsley and Dr. Sophie V. Vandebroek to serve as Class II Directors with
a term expiring at the 2020 Annual Meeting.
|
|
Name
|
|
Age
|
|
Director Since
|
|
Independent
|
|
Committees
|
|
Other Current Public
Company Board
Service
|
Rebecca M. Henderson, PhD
John and Natty
McArthur
University Professor at Harvard
University
|
|
56
|
|
July 2003
|
|
✓
|
|
Finance
(Chair)
Nominating and Governance
|
|
Amgen, Inc.
|
Lawrence D. Kingsley
Advisory Director to
Berkshire
Partners LLC
|
|
54
|
|
October 2016
|
|
✓
|
|
Compensation
Finance
|
|
Polaris Industries Inc.
Rockwell Automation, Inc.
|
Sophie
V. Vandebroek, PhD
Chief Operating Officer,
IBM
Research
|
|
55
|
|
July 2013
|
|
✓
|
|
Finance
Nominating and
Governance
|
|
-
|
The Board of Directors
recommends a vote FOR the three director nominees up for
election
>>
See
page 21 for further information about our director nominees
Notable Corporate
Governance Highlights
We believe that a commitment to high
ethical standards and good governance practices contributes to increasing
stockholder value by:
●
|
Strengthening
Board and
management accountability;
|
●
|
Promoting
alignment
with the long-term interests of our stockholders; and
|
●
|
Helping to
maintain
our stockholders trust
in our company.
|
Our engaged, diverse and independent Board
has implemented and maintained strong corporate governance policies, including
prohibitions on pledging, hedging and short sales and a majority-voting standard
in uncontested elections. In addition, the Board actively oversees the
development and execution by management of long-term strategies for durable
growth and stockholder value creation, as well as playing a key oversight role
in risk management. We believe that the Boards stewardship in these areas have
enabled the Company to achieve its strong financial performance relative to its
peers and the S&P 500 Index.
For more information about our corporate
governance policies and practices, please see the Corporate Governance section
of this Proxy Statement beginning on page 27.
10
|
|
Table of Contents
PROXY SUMMARY
Board Composition and
Skills
The following summarizes key information
regarding the composition and qualifications of our Board, assuming the
re-election of our Class II Directors at the 2017 Annual Meeting and the
previously announced retirement of two of our Directors at the 2017 Annual
Meeting, as described below on page 21 under the heading Director Nominees and
Board Biographies.
|
Proposal Two
|
|
|
|
|
|
|
|
|
|
|
|
Ratification of Appointment of Independent
Registered Public Accounting Firm
|
|
|
PricewaterhouseCoopers LLP (PwC) has been appointed to serve as
our independent registered public accounting firm for 2017, and while not
required by law, the Board believes that it is advisable to give
stockholders an opportunity to ratify this selection. The following table
summarizes the fees for services provided by PwC during 2016 and
2015.
|
|
|
|
Fiscal Years
Ended December 31,
|
|
|
2016
|
|
2015
|
Audit fees
|
|
$
|
1,861,133
|
|
$
|
1,914,115
|
Audit-related fees
|
|
|
|
|
|
|
Tax
fees
|
|
|
369,691
|
|
|
454,052
|
All
other fees
|
|
|
|
|
|
|
|
|
$
|
2,230,824
|
|
$
|
2,368,167
|
The Board of Directors
recommends a vote FOR this item
>>
See page 43 for further information about our
independent auditors
Table of Contents
PROXY
SUMMARY
|
Proposal Three
|
|
|
|
|
|
|
|
|
|
|
|
Advisory Vote to Approve Executive Compensation
(say-on-pay)
|
|
|
We are asking our stockholders to approve, on
an advisory (non-binding) basis, the compensation of our named executive
officers as disclosed herein. At our 2016 Annual Meeting, our stockholders
voted 99.1% in favor of approving the compensation of our named executive
officers, which approval percentage ranks among the highest of the peer
group of companies utilized by the Compensation Committee for competitive
benchmarking purposes.
The Board of
Directors recommends a vote FOR this item
>>
See below and page
49 for further information about our executive compensation
program
|
|
|
Proposal Four
|
|
|
|
|
|
|
|
|
|
|
|
Advisory Vote on the Frequency of an Advisory
Vote to Approve Executive Compensation
(say-on-frequency)
|
|
|
We are asking our stockholders to approve, on
an advisory (non-binding) basis, how frequently we should seek an advisory
vote on the compensation of our named executive officers, as disclosed
pursuant to the SECs compensation disclosure rules, such as Proposal
Three of this Proxy Statement.
The Board of
Directors recommends a vote FOR the option of ONCE EVERY YEAR as the
frequency with which stockholders are provided an advisory vote on
executive compensation
>>
See below and page 47 for further information about this
proposal
|
|
12
|
|
Table
of Contents
PROXY SUMMARY
2016 Financial
Performance Highlights
The following is an overview of our 2016
financial performance highlights and our Total Stockholder Return since 2011.
For more complete information, please review our Annual Report on Form 10-K for
the year ended December 31, 2016 filed with the SEC on February 17, 2017. The
Total Stockholder Return graph compares our total stockholder returns, the Total
Return for the Standard & Poors (S&P) 500 Index, the Total Return for
the S&P 500 Health Care Index and the Total Return for the NASDAQ Stock
Market Index (U.S. Companies) prepared by the Center for Research in Security
Prices (the NASDAQ Index). This graph assumes the investment of $100 on
December 31, 2011, in IDEXXs common stock, the S&P 500 Index, the S&P
500 Health Care Index and the NASDAQ Index and assumes dividends, if any, are
reinvested. Measurement points are the last trading days of the years ended
December 2011 to 2016.
*
|
Total Stockholder Return is
defined as: (adjusted close share price end of period adjusted close
share price start of period) / share price start of
period.
|
Table
of Contents
PROXY SUMMARY
Executive Compensation
Highlights
These executive compensation highlights
should be read in connection with the Executive Compensation section of this
Proxy Statement, including the Compensation Discussion and Analysis section, for
additional information about our executive compensation philosophy and program
and the compensation awarded to each of our named executive officers, beginning
on page 49.
Our Executive Compensation Philosophy and
Program
Our executive compensation philosophy is
simple we want to attract, motivate and retain talented executives who are
aligned with and passionate about our purpose: to be a great company that
creates exceptional long-term value for our customers, employees and
stockholders by enhancing the health and well-being of pets, people and
livestock.
We believe that executing this philosophy
through our executive compensation program and practices, including a strong
focus on pay-for-performance based compensation elements, will support long-term
stockholder value creation through driving our strategy of innovation, continued
revenue growth, margin improvement and efficient capital allocation.
Key Elements of Our Executive Compensation
Program
Our executive compensation program
consists of three key elements, which in total are targeted at the median of our
competitive market. Because it relates most directly to the creation of
stockholder value over time, variable compensation is a higher percentage of
total compensation for our named executive officers than for our other
employees.
Executive Compensation Mix
The total 2016 direct compensation mix for
our Chief Executive Officer and our other named executive officers
is:
14
|
|
Table
of Contents
PROXY SUMMARY
Performance-Based Cash
Bonus
The target amount of the performance-based
cash bonus award for each named executive officer is a percentage of his or her
annual base salary, and the award amount is capped at 200% of this
target.
Performance-based cash bonuses are
calculated based on the achievement of both financial and non-financial
performance goals.
●
|
Our financial performance goals
measure our executives performance against measurements of stockholder
value drivers, including organic revenue growth, operating profit and
earnings per share, and collectively constitute 50% of the bonus award
factor determination.
|
●
|
Our non-financial performance goals
are designed to support near-term performance of our long-term business
objectives, including implementation of commercial strategies, advancement
of key talent and engagement initiatives and hiring and development of key
leadership talent, including gender and ethnically diverse talent, and
collectively constitute 50% of the bonus award factor
determination.
|
In 2016, the overall performance-based
award factor was calculated as 154.5% for our Chief Executive Officer and in the
range of 144% to 177.8% for our other named executive officers based on
achievement of the financial and non-financial performance metrics. These
percentages were then applied to each named executive officers target bonus
amounts to calculate the payment of the performance-based cash bonus payment to
each such named executive officer.
Equity Based Long-Term
Incentives
|
Our equity-based long-term incentives
consist of stock options and restricted stock units. These equity incentives
have a five-year vesting schedule, which is longer than typical market practice,
and are more heavily weighted in the form of stock options for our senior
executives. We believe that these types of equity incentives drive closer
alignment with our stockholders long-term interests.
Since 2016, all restricted stock units
granted to our named executive officers as part of our long-term equity
incentive program have been performance-based. These performance-based
restricted stock units are intended to be eligible to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986 (the Code). The vesting of these restricted stock units is subject to
the achievement of a specified financial performance target for the fiscal year
in which the restricted stock units were granted. If this target is not met,
then these awards will be forfeited.
Table
of Contents
PROXY SUMMARY
CEO Compensation
CEO Equity Ownership
16
|
|
Table
of Contents
PROXY SUMMARY
Executive Compensation Program at a
Glance
We highlight below some of the key
objectives, practices and policies of our executive compensation program, as
well as some compensation practices that we have not implemented because we
believe that they would not serve the long-term interests of our
stockholders:
Pay-for-Performance Executive
Compensation Program
Design
|
Approximately 80%
of 2016 target total direct compensation for our Chief
Executive Officer and other named executive officers is in the form of
annual performance-based cash bonuses and long-term equity
incentives,
the value of which is
variable and directly tied to our performance.
In 2016,
performance-based restricted stock units
, instead of solely time-based restricted stock units, were granted
to each of our named executive officers other than our Chief Executive
Officer, who received only stock options.
|
Capped Incentive
Awards
|
Our performance-based cash bonuses
are capped at 200% of target.
|
Rigorous, Annual
Benchmarking of
Executive Compensation
|
We review our designated proxy peer
group on an annual basis to ensure that our compensation program is
properly benchmarked against our market peers. We annually assess our
total executive compensation against peer group and other market data to
determine whether it is competitive and appropriate.
|
Stock Ownership
Guidelines
|
We maintain strict stock ownership
guidelines that require our named executive officers to own meaningful
values of our stock.
|
Clawback
Policy
|
Our compensation recoupment policy
allows us to recover both incentive and equity compensation from our
executive officers under certain circumstances if we are required to
restate our financial results, other than a restatement due to changes in
accounting principles or applicable law.
|
Anti-Hedging and Short
Sale Policy
|
Our executives and other employees
are prohibited from engaging in any short sale of common stock, any
transaction that results in profits from short-term speculative swings in
the value of our securities or purchases of financial instruments that are
designed to hedge or offset any decrease in the market value of our
securities.
|
Anti-Pledging
Policy
|
We have a policy prohibiting our
senior executives from pledging or otherwise encumbering equity securities
they own in the Company as collateral for indebtedness, including holding
shares in a margin or similar account.
|
Independent Consulting
Firm
|
Frederic W. Cook & Co. (FW
Cook) provides independent compensation consultation to our Compensation
Committee, and does not provide other services to the Company.
|
Annual Compensation
Program
Risk Assessment
|
FW Cook conducts an annual
assessment of our compensation programs to identify risk or potential for
unintended consequences in the design of our compensation programs. Our
Compensation Committee annually reviews and discusses this risk assessment
with FW Cook and, based on that review, has consistently determined that
the risks associated with our compensation policies and practices are not
reasonably likely to have a material adverse effect on the
Company.
|
Modest
Perquisites
|
We offer only limited benefits and
perquisites to our named executive officers that are not otherwise made
available to our other salaried employees.
|
No Tax Gross
Ups
|
We do not administer tax gross ups
with respect to perquisites or benefits provided to our named executive
officers or with respect to excise taxes related to parachute payments
under Section 280G of the Code.
|
Favorable Annual
Say-On-Pay
Votes Since 2011
|
We have had favorable say-on-pay
votes each year since 2011, and our stockholders voted more than 99% in
favor of executive compensation in 2016, which was among the highest
favorable approval percentage of our 2016 peer group. Our lowest favorable
vote was 97% in 2011.
|
No Employment
Contracts
(Other than CEO)
|
Other than an employment agreement
with our Chief Executive Officer and change in control agreements with our
executives, we do not have employment contracts with our executives.
|
No
SERP
|
Consistent with our philosophy of
providing only modest perquisites to our executives, we do not have a
Supplemental Executive Retirement Plan (SERP) in place for any of our
executives.
|
Table
of Contents
One IDEXX Drive
Westbrook, Maine
04092
Notice of 2017
Annual Meeting of Stockholders
NOTICE IS HEREBY GIVEN
of the 2017 annual meeting of stockholders (2017 Annual
Meeting) of IDEXX Laboratories, Inc. As described below, the 2017 Annual
Meeting will be a completely virtual meeting of stockholders held over the
Internet, and stockholders will be able to attend the 2017 Annual Meeting, vote
their shares electronically and submit their questions during the live webcast
of the 2017 Annual Meeting by visiting
www.virtualshareholdermeeting.com/IDXX2017
and entering
their control number. The 2017 Annual Meeting will be held:
DATE AND
TIME
Wednesday, May 3, 2017, 1:00 p.m.,
Eastern Time
LOCATION
Virtual meeting
online via webcast at
www.virtualshareholdermeeting.com/IDXX2017
PURPOSE OF 2017 ANNUAL
MEETING
1.
|
Election of
Directors.
To elect the three
Class II Directors listed in the attached proxy statement for three-year
terms (Proposal One);
|
2.
|
Ratification
of Appointment of Independent Registered Public Accounting
Firm.
To ratify the selection of
PricewaterhouseCoopers LLP as the Companys independent registered public
accounting firm for the current fiscal year (Proposal
Two);
|
3.
|
Advisory Vote
to Approve Executive Compensation.
To approve a non-binding advisory resolution on the Companys
executive compensation (Proposal Three);
|
4.
|
Advisory Vote
on the Frequency of Advisory Vote to Approve Executive
Compensation.
To hold a
non-binding advisory vote on the frequency of future advisory votes on the
companys executive compensation programs (Proposal Four);
and
|
5.
|
Other
Business.
To conduct such other
business as may properly come before the 2017 Annual Meeting or any
adjournments thereof, including approving any such adjournment, if
necessary.
|
RECORD
DATE
The Companys Board of Directors
has fixed the close of business on March 10, 2017 as the record date for the
determination of stockholders entitled to notice of and to vote at the 2017
Annual Meeting.
VIRTUAL MEETING
ADMISSION
Stockholders of record as of
March 10, 2017, will be able to participate in the 2017 Annual Meeting by
visiting
www.virtualshareholdermeeting.com/IDXX2017
.
To participate in the 2017 Annual Meeting, stockholders of record will need the
control number included on their Notice of Internet Availability of the proxy
materials, on their proxy card or on the instructions that accompanied their
proxy materials. The annual meeting will begin promptly at 1:00 p.m., Eastern
Time. Online check-in will begin at 12:45 p.m., Eastern Time, and you should
allow ample time for the online check-in procedures.
By order of the Board of
Directors,
Jacqueline L. Studer
Corporate Vice President,
General Counsel and Corporate Secretary
Westbrook, Maine
March 23, 2017
|
|
18
|
|
Table of Contents
Corporate
Governance
Proposal One
Election of Directors
Our Board of Directors is divided into
three classes, and members of each class hold office for three-year
terms:
●
|
Class I Directors currently three
Directors whose terms expire at the 2018 Annual Meeting;
|
●
|
Class II Directors currently four
Directors whose terms expire at the 2017 Annual Meeting;
and
|
●
|
Class III Directors currently
three Directors whose terms expire at the 2019 Annual
Meeting.
|
Upon recommendation of the Nominating and
Governance Committee, the Board has nominated Dr. Rebecca M. Henderson, Mr.
Lawrence D. Kingsley and Dr. Sophie V. Vandebroek, our current Class II Directors, for re-election as Class II
Directors, and stockholders are being asked to elect them for three-year terms
expiring at the 2020 Annual Meeting. Mr. Thomas Craig, who is also a Class II
Director, notified the Board of his intention to retire from the Board at the
end of his current term, which expires at the 2017 Annual Meeting.
This section
includes additional information about the Director nomination process, including
requisite criteria, experiences, qualification and skills, as well as the Class
II Director nominees and the Board.
|
Recommendation of the Board of
Directors
|
|
|
The Board of Directors recommends
that you vote FOR the election of Dr. Henderson, Mr. Kingsley and Dr.
Vandebroek.
|
|
Director Nomination
Process
The Nominating and Governance Committee
identifies, evaluates, recruits and makes recommendations to the Board regarding
candidates to fill vacancies on the Board using the criteria described below.
The process followed by the Nominating and Governance Committee
includes:
●
|
Receiving recommendations from the
Board, management and stockholders;
|
●
|
Holding meetings to evaluate
biographical information and background material relating to potential
candidates; and
|
●
|
Interviewing selected
candidates.
|
In addition, the Nominating and Governance
Committee, in some instances, will engage an executive search firm to assist in
recruiting candidates. In such cases, the executive search firm assists the
Nominating and Governance Committee in:
●
|
Identifying a diverse slate of
potential candidates that fit the Boards search
criteria;
|
●
|
Obtaining candidate resumes and
other biographical information;
|
●
|
Conducting initial interviews to
assess candidates qualifications, fit and interest in serving on the
Board;
|
●
|
Scheduling interviews with the
Nominating and Governance Committee, other members of the Board, and
management;
|
●
|
Performing reference checks;
and
|
●
|
Assisting in finalizing arrangements
with candidates who receive an offer to join the
Board.
|
Criteria and
Experiences, Qualifications and Skills
To be considered for nomination to the
Board, a candidate must meet the following minimum criteria:
●
|
Reputation for integrity, honesty
and adherence to high ethical standards;
|
●
|
Demonstrated business acumen,
experience and ability to exercise sound judgment in matters that relate
to our current and long-term objectives;
|
●
|
Willingness and ability to
contribute positively to our decision-making process;
|
●
|
Skills in one or
more areas that are relevant to us and
our
operations, including familiarity with science and
technology, finance and accounting, marketing and
product development, strategy, government
regulation
and affairs and/or corporate
governance;
|
●
|
Commitment to
understanding us and our industry
and
regularly attending and participating in Board and
Committee meetings;
|
Table of Contents
●
|
Interest and understanding of the
sometimes conflicting interests of our various constituencies, which
include stockholders, employees, customers, government entities, creditors
and the general public, and to act in the interests of all stockholders;
and
|
●
|
Absence of any conflict of interest,
or appearance of a conflict of interest, that would impair the Directors
ability to represent the interests of all of our stockholders and to
fulfill the responsibilities of a Director.
|
The Nominating and Governance Committee
and the Board are also focused on ensuring that a wide range of backgrounds and
experiences are represented on our Board and consider the value of diversity of
all types in the Director nomination process. For more information, please see
the discussion under Diversity on page 31.
In addition, in evaluating potential
candidates, the Nominating and Governance Committee considers other applicable
requirements under the Corporate Governance Guidelines,
including the Director independence requirements described under
Director Independence beginning on page 28 and the maximum number of
directorships generally permitted for our Directors. The Corporate Governance
Guidelines provide that, unless an exception has been granted by the
Board:
●
|
Directors cannot serve on more than
four other public company boards;
|
●
|
Audit Committee members cannot serve
on more than two other public company audit committees or, if an Audit
Committee member is a retired CPA, CFO or controller or is a retired
executive with similar experience, then he or she cannot serve on more
than three other public company audit committees; and
|
●
|
Directors who are Chief Executive
Officers of other public companies cannot serve on more than two other
public company boards (including the board of their
employer).
|
Stockholder
Recommendation and Nomination of Directors
Stockholders who want to recommend a
nominee for Director should submit the name of the nominee to our Corporate Vice
President, General Counsel and Corporate Secretary at our principal executive
offices, together with biographical information and background material
sufficient for the Nominating and Governance Committee to evaluate the
recommended candidate based on its selection criteria, and a statement as to
whether the stockholder or group of stockholders making the recommendation has
beneficially owned more than 5% of our common stock for at least a year as of
the date the recommendation is made.
Assuming that appropriate biographical and
background material has been provided on a timely basis, the Nominating and
Governance Committee will apply the same criteria, and follow substantially the
same process, in considering each qualifying stockholder recommendation as it
does
in considering other candidates.
Stockholders also have the right under our Amended and Restated By-Laws to
nominate Director candidates directly, without any action or recommendation on
the part of the Nominating and Governance Committee or the Board, by following
the procedures described under Requirements for Submission of Proxy Proposals,
Nomination of Directors and Other Business of Stockholders beginning on page
79.
If the Board determines to nominate a
stockholder-recommended candidate and recommends his or her election, then his
or her name will be included on the proxy card for our next Annual Meeting.
Candidates nominated by stockholders in accordance with the procedures set forth
in our Amended and Restated By-Laws will not be included on our proxy card for
the next Annual Meeting, but may be included on proxies the nominating
stockholders seek independently.
Majority Voting and
Director Resignation
Our Amended and Restated By-Laws provide
that, in an election of Directors where the number of nominees does not exceed
the number of Directors to be elected, a nominee who does not receive a majority
of votes cast with respect to his or her election will not be
elected.
Pursuant to our Director Resignation
Policy included in our Corporate Governance Guidelines, a Director who is not
re-elected is required to promptly tender his or her resignation, and the
Nominating and Governance Committee
would make a
recommendation to the Board as to whether to accept the resignation. Following
the Nominating and Governance Committees recommendation, the Board would
determine whether or not to accept that Directors resignation, considering any
factors it deems relevant. Under this policy, the Board is required to act on
the recommendation of the Nominating and Governance Committee within 90 days of
the certification of the stockholder vote.
|
|
20
|
|
Table of Contents
Director Nominees and
Board Biographies
Upon recommendation of the Nominating and
Governance Committee, the Board has nominated Dr. Rebecca M. Henderson, Mr.
Lawrence D. Kingsley and Dr. Sophie V. Vandebroek, our current Class II
Directors, for re-election as Class II Directors, and stockholders are being
asked to re-elect them for a three-year term expiring at the 2020 Annual
Meeting.
Each nominee meets NASDAQ independence
requirements, and has consented to serve, if elected. If any of the nominees
becomes unable to serve, proxies can be voted for a substitute nominee, or the
Board may choose to reduce the size of the Board.
Mr. Thomas Craig, who is also a Class II
Director, intends to retire from the Board at the end of his current term, which
expires at the 2017 Annual Meeting.
In addition, Dr. Barry C. Johnson, who is
a Class III Director, has reached the age of 73 and is expected to retire
effective as of the 2017 Annual Meeting in accordance with our Corporate
Governance Guidelines.
In light of the retirements of Mr. Craig
and Dr. Johnson, the Board has determined to reduce its size from ten to eight
effective as of the 2017 Annual Meeting. As a result, in accordance with our
Amended and Restated By-Laws, the number of Class II Directors will be reduced
from four to three and the number of Class III Directors will be reduced from
three to two.
In February 2017, the Nominating and
Governance Committee reviewed the experience, qualifications, attributes and
skills of each of the current Directors and the Class II Director nominees and
concluded that each Class II Director nominee has the requisite background,
qualifications and personal characteristics to serve as a Director in light of
the Companys business and structure.
In support of this conclusion, the
Nominating and Governance Committee believes that:
●
|
All of the Class II Director
nominees hold, or have held, senior leadership positions in significant
organizations, including U.S. public companies, multinational corporations
or educational institutions. These experiences have honed their analytical
skills, developed their expertise in core disciplines and provided them
with insight into the challenges and issues that we may face, which will
enable effective execution of their oversight
responsibilities;
|
●
|
All of the Class II Director
nominees have served on other public company boards, which gives them
experience with and perspective into board operations and dynamics, the
role of public company boards and corporate governance and other relevant
matters; and
|
●
|
Each Class II Director nominee
contributes unique and highly-valued skills to a diverse and
well-functioning Board, which has an appropriate mix of short-, medium-
and longer-tenured Directors who balance fresh perspectives with
institutional knowledge.
|
Biographical information for all of our
Directors, including the Class II Director nominees, is provided below, along
with information regarding some key experiences, qualifications, attributes and
skills that our Directors bring to the Board. There are no family relationships
among the executive officers or Directors of IDEXX.
For a summary of key information regarding
the composition and qualifications of our Board, please see the information
above on page 11 under the heading Board Composition and Skills.
Table of Contents
Class II Director Nominees Whose Terms
Would Expire in 2020
|
|
Rebecca M. Henderson,
PhD
Independent Director
Age:
56
Director since:
July
2003
|
|
Committees:
Finance
(Chair)
Nominating and Governance
Other current public company director
service:
●
Amgen, Inc. (since 2009)
|
Dr. Henderson
has been the John and Natty McArthur University Professor at
Harvard University since 2011 and is the Co-Director of the Business and
Environment Initiative at Harvard Business School. From 2009 to 2011, Dr.
Henderson served as the Senator John Heinz Professor of Environmental Management
at Harvard Business School. Before joining Harvards faculty, Dr. Henderson
served as the Eastman Kodak Professor of Management, Sloan School of the Massachusetts Institute of Technology from
1998 to 2009. Since 1995, Dr. Henderson has also been a research fellow at the
National Bureau of Economic Research. Dr. Henderson holds an undergraduate
degree from the Massachusetts Institute of Technology and a Ph.D. in business
economics from Harvard University. We value Dr. Hendersons substantial
expertise in corporate strategy, sustainability and governance issues (with a
focus on high-technology businesses) that she brings to the Board as a Harvard
Business School professor of general management and strategy. This expertise,
combined with her knowledge of and insight into our businesses, operations and
organization from her fourteen years of service on the Board, uniquely positions
Dr. Henderson to offer valuable insights into the organizational and strategic
issues faced by IDEXX.
|
|
Lawrence D.
Kingsley
Independent Director
Age:
54
Director since:
October
2016
|
|
Committees:
Compensation
Finance
Other current public company director
service:
●
Polaris Industries Inc. (since 2016)
●
Rockwell Automation, Inc. (since 2013)
Former public company director
service:
●
Cooper Industries plc (formerly Cooper
Industries Ltd.) (2007
to 2012)
●
Pall Corporation (2011 to 2015)
●
IDEX Corporation (2005 to
2011)
|
Mr. Kingsley
served as Chairman of Pall Corporation from 2013 to 2015 and as Chief
Executive Officer of Pall Corporation from 2011 to 2015, and he has served as an
Advisory Director to Berkshire Partners LLC, a Boston-based investment firm,
since spring of 2016. Before his experience at Pall, Mr. Kingsley was the Chief
Executive Officer of IDEX Corporation, a company specializing in fluid and
metering technologies, health and science technologies and fire, safety and
other diversified products, from 2005 to 2011, and the Chief Operating Officer
of IDEX from August 2004 to March 2005. From 1995 to 2004, he held various
positions at Danaher Corporation of increasing responsibility, including
Corporate Vice President and Group Executive of Danaher Corporation from March
2004 to August 2004, President of Industrial Controls Group of Danaher
Corporation from April 2002 to July 2004, and President of Motion Group, Special
Purpose Systems from January 2001 to March 2002. Mr. Kingsley holds an
undergraduate degree in Industrial Engineering and Management from Clarkson
University and an M.B.A. from the College of William and Mary. We value Mr.
Kingsleys extensive executive management and operational experience leading
high-technology, high-growth, multinational public companies and his substantial
and diverse public company board experience.
|
|
22
|
|
Table of Contents
|
|
Sophie V. Vandebroek,
PhD
Independent Director
Age:
55
Director since:
July
2013
|
|
Committees:
Finance
Nominating and Governance
Former public company director
service:
●
Analogic Corporation (2008 to
2016)
|
Dr. Vandebroek
has been Chief Operating Officer - IBM Research for International Business
Machines, Inc. since January 2017. She was most recently an executive with Xerox
Corporation from 2002 until December 2016, and served as Chief Technology
Officer and Corporate Vice President of Xerox Corporation, and President of the
Xerox Innovation Group, from 2006 until December 2016. Dr.
Vandebroek was also responsible for overseeing Xeroxs
research centers in Europe, Asia, Canada and
the
U.S., including the Palo Alto Research Center and was Chief Engineer and Vice
President of the Xerox Engineering Center from 2002 to 2005. Dr. Vandebroek has
been a Fellow of the Institute of Electrical & Electronics Engineers since
2005 and a Fulbright Fellow and a Fellow of the Belgian-American Educational
Foundation since 1986. Dr. Vandebroek holds an undergraduate degree in
engineering and a masters degree in electro-mechanical engineering from
Katholieke Universiteit Leuven, Leuven, Belgium, and a Ph.D. in electrical
engineering from Cornell University. We value Dr. Vandebroeks depth of
knowledge and experience in technology, business processes and cybersecurity, as
well as her track record of innovation and managing balanced research and
development portfolios for large global enterprises.
Class I Directors Whose Terms Expire in
2018
|
|
Bruce L. Claflin
Independent Director
Age:
65
Director since:
July 2015
|
|
Committees:
Audit
Nominating and Governance (Chair)
Other current public company director
service:
●
Advanced Micro Devices, Inc. (since 2003)
Chairman of the Board
(2009 to 2016)
●
Ciena Corporation (since 2006)
Former public company director
service:
●
3Com Corporation (2001 to 2006)
●
Time Warner Telecom (2000 to
2003)
|
Mr. Claflin
served as President, Chief Executive Officer and a member of the board of
directors of 3Com
Corporation from January 2001
until his retirement in 2006, and he served as President and Chief Operating
Officer of 3Com from August 1998 to January 2001. Before joining 3Com, Mr.
Claflin worked at Digital Equipment Corporation as Senior Vice President, Sales
and Marketing from 1997 to 1998, and as Vice President and General Manager of
the PC Business Unit from 1995 to 1997. Before joining Digital Equipment
Corporation, Mr. Claflin worked at International Business Machines Corporation
(IBM) for 22 years, where he held senior management positions in sales,
marketing, research and development and manufacturing. Mr. Claflin has served as
a member of the board of directors of Advanced Micro Devices, Inc. since 2003,
and was the Chairman of the Board from 2009 to 2016. He has also served as a
director of Ciena Corporation since 2006. Mr. Claflin holds an undergraduate
degree in Political Science from Pennsylvania State University. We value Mr.
Claflins extensive management and oversight experience especially relating to
manufacturing, operations and international business transactions and his
extensive public company board experience.
Table of Contents
|
|
William T. End
Independent
Lead Director
Age:
69
Director since:
July
2000
|
|
Committees:
Compensation
Nominating and Governance
Former public company director
service:
●
Eddie Bauer Holdings, Inc. (2005 to 2009)
Chairman of the Board
(2005 to 2009)
●
Hannaford Bros. Co. (1980 to 1990; 1995 to 2000)
●
Lands End, Inc. (1991 to 1995)
●
New England Business Service, Inc. (2000 to
2003)
|
Mr. End
was
Chairman and Chief Executive Officer of Cornerstone Brands, Inc., a
privately-held catalog retailer, from 1995 to 2001, and Executive Chairman of
that company from 2001 until his retirement in 2002. Before joining Cornerstone,
Mr. End held various positions at Lands End, Inc., including President
and Chief Executive Officer from 1993 to 1995,
President and Chief Operating Officer from 1992 to 1993, and Executive Vice
President of Marketing and Corporate Planning from 1991 to 1992. From 1975 to
1991, Mr. End held various positions at L.L. Bean, Inc., including Executive
Vice President and Chief Marketing Officer. He also has been a director of
several non-public companies. Mr. End holds an undergraduate degree from Boston
College and an M.B.A. from Harvard Business School. We value Mr. Ends extensive
sales and marketing, general management and public company board
experience.
|
|
Daniel M.
Junius
Independent Director
Age:
64
Director since:
March
2014
|
|
Committees:
Audit
(Chair)
Finance
Other current public company director
service:
●
GlycoMimetics, Inc. (since 2016)
●
ImmunoGen, Inc. (since 2008)
Former public company director
service:
●
Vitae Pharmaceuticals, Inc. (July 2016 to October
2016)
|
Mr. Junius
has been a director of ImmunoGen, Inc. since July 2008 and
GlycoMimetics, Inc. since March 2016. He was previously President and Chief
Executive Officer of ImmunoGen from 2009 until
his retirement in May 2016, President and Chief Operating Officer and
Acting Chief Financial Officer from July 2008 to December 2008, Executive Vice
President and Chief Financial Officer from 2006 to July 2008, and Senior Vice
President and Chief Financial Officer from 2005 to 2006. Before joining
ImmunoGen, Mr. Junius was Executive Vice President and Chief Financial Officer
of New England Business Service, Inc. from 2002 until its acquisition by Deluxe
Corporation in 2004, and Senior Vice President and Chief Financial Officer of
New England Business Services from 1998 to 2002. Before joining New England
Business Services, Mr. Junius was Vice President and Chief Financial Officer of
Nashua Corporation from 1996 to 1998. Mr. Junius joined Nashua Corporation in
1984 and held various financial management positions of increasing
responsibility before becoming Chief Financial Officer of Nashua Corporation in
1996. Mr. Junius was previously a director of Vitae Pharmaceuticals, Inc. from
July 2016 until its acquisition by Allergan plc in October 2016. Mr. Junius
holds an undergraduate degree in Political Science from Boston College and a
Masters in Management from Northwestern Universitys Kellogg School of
Management. We value Mr. Juniuss depth of executive leadership, strategic
thinking and financial expertise, as well as his extensive experience in the
biotechnology field.
|
|
24
|
|
Table of Contents
CORPORATE
GOVERNANCE
|
|
Class III Directors Whose Terms Expire in
2019
|
|
|
Jonathan W. Ayers
Chairman
of the Board, President
and Chief Executive Officer
Age:
60
Director since:
January
2002
|
|
Committees:
None
|
Mr. Ayers
has been the Chairman of the Board, President and Chief Executive Officer
of IDEXX since January 2002. Before joining IDEXX, Mr. Ayers held various
leadership positions at United Technologies Corporation and its business unit
Carrier Corporation, including serving as President of Carrier Corporation from
1999 to 2001, President of Carriers Asia Pacific Operations from 1997 to 1999,
and
Vice President, Strategic Planning at United
Technologies from 1995 to 1997. Prior to joining United Technologies, from 1986
to 1995, Mr. Ayers held various positions at Morgan Stanley & Co. in mergers
and acquisitions and corporate finance. Mr. Ayers holds an undergraduate degree
in molecular biophysics and biochemistry from Yale University and graduated from
Harvard Business School in 1983 with high distinction. We value Mr. Ayerss
successful leadership since arriving at IDEXX in 2002, consistently generating
exceptional, above-market returns for our stockholders during this extended
period. We also value Mr. Ayerss significant and diverse experience in many
relevant areas including global business management, finance and strategic
planning, business development, marketing, product development, software
technology and managing international operations.
|
|
M. Anne Szostak
Independent
Director
Age:
66
Director since:
July
2012
|
|
Committees:
Audit
Compensation (Chair)
Other current public company director
service:
●
Dr. Pepper Snapple Group, Inc. (since 2008)
●
Tupperware Brands Corporation (since 2000)
Former public company director
service:
●
Belo Corp. (2004 to 2013)
●
ChoicePoint Corporation (2005 to 2008)
●
SFN Group (2005 to 2011)
|
Ms. Szostak
had a 31-year career with Fleet/Boston Financial Group (now Bank of
America), a
diversified financial services
company until her retirement in 2004, including serving as Chairman and Chief
Executive Officer of Fleet Bank-Rhode Island from 2001 to 2003, Chairman,
President and Chief Executive Officer of Fleet-Maine from 1991 to 1994, and
Corporate Executive Vice President and Chief Human Resources Officer of
FleetBoston Financial Group from 1998 to 2004. After her retirement, Ms. Szostak
founded Szostak Partners, an executive coaching and human resources consulting
firm, and as President of Szostak Partners, she provides strategic advice and
counsel to clients. Ms. Szostak has been a director of Tupperware Brands
Corporation since 2000 and a director of Dr. Pepper Snapple Group, Inc. since
2008. Ms. Szostak previously served on the boards of directors of Spherion
Corporation from 2005 to 2011, and Belo Corp. from 2004 to 2013. Ms. Szostak
holds an undergraduate degree from Colby College, and she has completed several
executive education programs at Harvard Business School. We value Ms. Szostaks
extensive background in management, finance and human resources, as well as her
substantial public company board experience.
Table of Contents
CORPORATE
GOVERNANCE
|
|
Class II Director Who Will Be Retiring in May
2017
|
|
|
Thomas Craig
Independent
Director
Age:
62
Director since:
December
1999
|
|
Committees:
Audit
Compensation
Former public company director
service:
●
GraceKennedy Group (1998 to
2004)
|
Mr. Craig
has been Chairman and Chief Executive Officer of Shockwave
International, a firm whose mission is to work with principal investors and
startup companies to help create competitive advantage by combining ideas, human
assets, capital, networks and asymmetric intelligence, since 2012. Before
joining Shockwave International, Mr. Craig co-founded Monitor Group (formerly
Monitor Company), a global management consulting firm, in 1983, and he was a
Director/Partner at Monitor Group from 1983
to
2012. Mr. Craig received his undergraduate degree from Princeton University and
an M.B.A., with high distinction, from Harvard Business School. We value Mr.
Craigs extensive experience in impartial counseling, leadership and human asset
development, global enterprise, growth strategies and entrepreneurial
endeavors.
Class III Director Who Will Be Retiring
in May 2017
|
|
Barry C. Johnson,
PhD
Independent Director
Age:
73
Director since:
March
2006
|
|
Committees:
Finance
Former public company director service:
●
Cytec Industries, Inc. (2003 to 2015)
●
Rockwell Automation, Inc. (2005 to
2016)
|
Dr. Johnson
served as Dean, College of Engineering, Villanova University from August
2002 until his retirement in May 2006. Before joining Villanova University, Dr.
Johnson served as Senior Vice President and Chief Technology Officer of
Honeywell International, Inc. from July 2000 to April 2002. Before joining
Honeywell, from 1976 to 2000, Dr. Johnson served in several roles at Motorola,
Inc., including Corporate Vice President and Chief Technology Officer for that
companys Semiconductor Product Sector. Dr.
Johnson holds an undergraduate degree in Mechanical Engineering from
Villanova University and a Ph.D. and M.S. in metallurgical engineering and
materials science from Carnegie-Mellon University. We value Dr. Johnsons
substantial experience as a senior executive for, and director of, various
technology companies and for his expertise in scientific research and product
development.
|
|
26
|
|
Table of Contents
Our Corporate
Governance Framework
We are proud of our commitment to sound
corporate governance and high ethical standards, and we believe that this
commitment has contributed to our success in building long-term value for our
stockholders.
Our corporate governance framework
includes our corporate governance policies and practices and provides the
structure that enables our Board to provide effective oversight and counsel for
the Company.
Please visit the Corporate Governance
section of our website
www.idexx.com
to learn more about, and access copies of,
our corporate documents and corporate governance policies, including:
●
|
Corporate Governance
Guidelines
|
●
|
Code of Ethics
|
●
|
Certificate of
Incorporation
|
●
|
Amended and Restated
By-Laws
|
●
|
Charter for each of our Board
Committees
|
Hard copies of these documents may be
obtained upon request by contacting our Corporate Vice President, General
Counsel and Corporate Secretary at IDEXX Laboratories, Inc., One IDEXX Drive,
Westbrook, Maine 04092.
Information on our website does not
constitute part of this Proxy Statement.
Corporate Governance
at a Glance
Independence
|
All of our Directors are independent, other
than our Chief Executive Officer.
Our Board Committees are composed
exclusively of independent Directors.
|
Executive Sessions
|
Our independent Directors held executive
sessions at every Board and Committee meeting in 2016.
|
Board Accountability
|
Majority voting for Directors in uncontested
elections.
Rigorous annual self-assessment of the Board, its Committees
and the Directors.
Robust Director nominee selection
process.
Director retirement at the next Annual Meeting following
attainment of age 73, absent certain circumstances approved by the
Board.
|
Diversity
|
Actively seek highly-qualified diverse
candidates (including gender and ethnically diverse candidates) to include
in the pool of potential Board nominees.
|
Independent Lead Director
|
A lead independent Director selected
annually by the other independent Directors.
|
Risk Management, Strategy and
Succession
Planning
|
Risk oversight by the Board and its
Committees.
Annual corporate strategy review by the Board.
Active
Board participation in succession planning for our Chief Executive Officer
and other members of senior management, including each of our other named
executive officers.
|
Stock Ownership Guidelines
|
The target ownership level for
our:
●
Independent Directors 6
times the annual cash retainer payable to each Director (currently
$390,000);
●
Chief Executive Officer 6
times annual base salary;
●
Executive Vice Presidents
3 times annual base salary; and
●
Corporate Vice Presidents
1 times annual base salary.
|
Additional Policies that Promote
Alignment with Interests of
Stockholders
|
Anti-Hedging and Short Sale policy for Directors and employees.
Anti-Pledging policy for Directors and executive officers.
Clawback
policy applicable to both incentive and equity compensation.
|
Board of
Directors
Our Board currently has ten members. The
Board meets throughout the year on a set schedule, and also holds special
meetings and acts by written consent from time to time as appropriate. The Board
has delegated various responsibilities and authority to its four standing
Committees: the Audit Committee; the Compensation Committee; the Nominating and
Governance Committee; and the Finance Committee. For more information regarding
the Board Committees, see the discussion under Board Committees beginning on
page 32.
Table of Contents
The Board is responsible for monitoring
the overall performance of IDEXX. Among other things, the Board, directly and
through its Committees:
●
|
Oversees our long-term
strategy for creating enduring growth and stockholder value
creation;
|
●
|
Reviews and approves our key
financial and other objectives, the annual budget and other significant
actions and transactions;
|
●
|
Oversees our processes for
maintaining the integrity of our financial statements and other public
disclosures and our compliance with law and high ethical
standards;
|
●
|
Oversees the prudent
management of risk;
|
●
|
Reviews plans for Chief
Executive Officer succession and managements succession planning for
other key executive officers; and
|
●
|
Reviews the performance of the
Chief Executive Officer and determines the compensation of our executive
officers.
|
In accordance with general corporate legal
principles applicable to corporations organized under the laws of Delaware, the
Board does not manage the day-to-day operations of IDEXX.
Board Meetings and
Attendance
Directors are responsible for attending
Board and Committee meetings and for devoting the time needed to discharge their
responsibilities properly. The Board held five meetings in 2016, and the
Committees held a total of twenty meetings in 2016.
Each of our Directors attended 100 percent
of the meetings of the Board and Committees on which he or she served in 2016.
It is our policy to schedule Board and Committee meetings to coincide with the
Annual Meeting, and Directors are expected to attend the 2017 Annual Meeting.
Last year, all of the individuals then serving as Directors attended our 2016
Annual Meeting.
Director
Independence
Under our Corporate Governance Guidelines,
a majority of our Directors must be independent as defined by the rules of the
NASDAQ Stock Market (NASDAQ). Each Committees charter requires its members to
be independent as defined by NASDAQ rules. Additional independence criteria are
also required to be satisfied by Directors serving on the Audit Committee and
the Compensation Committee, as follows:
●
|
Under the Audit Committee
charter, each Audit Committee member is also required to satisfy the
independence criteria set forth in Rule 10A-3(b)(1) under the Securities
Exchange Act of 1934; and
|
●
|
Under the Compensation
Committee charter, each Compensation Committee member is also required to
satisfy the heightened independence standard described in NASDAQ Rule
5605(d)(2)(A).
|
The Board, in consultation with the
Nominating and Governance Committee, determines the independence of each
Director. In February 2017, the Board determined that:
●
|
Each of the Directors other
than Mr. Ayers, who is our President and Chief Executive Officer, is
independent under NASDAQ rules;
|
●
|
Each Audit Committee member
satisfies the independence criteria of Rule 10A-3(b)(1) under the
Securities Exchange Act of 1934; and
|
●
|
After taking into
consideration the applicable factors, each Compensation Committee member
satisfies the independence criteria of NASDAQ
rules.
|
In determining Dr. Vandebroeks
independence, the Nominating and Governance Committee considered two
relationships involving Dr. Vandebroek. Specifically, the Nominating and
Governance Committee considered the fact that Dr. Vandebroek served, until
December 2016, as Chief Technology Officer and Corporate Vice President of Xerox
Corporation (Xerox), a provider of office technology equipment and other
related services for the Company, as well as the fact that Dr. Vandebroek has,
since January 2017, served as Chief Operating Officer of IBM Research, the
corporate research lab of International Business Machines Corporation (IBM), a
provider of office technology equipment and other related services for the
Company. In reviewing these relationships, the Nominating and Governance
Committee considered several factors including, among other things:
●
|
The fact that the Companys
relationship with Xerox predated Dr. Vandebroek joining
Xerox;
|
●
|
The fact that the Companys
relationship with IBM predated Dr. Vandebroek joining IBM;
|
●
|
That Dr. Vandebroek did not
participate in the negotiation by the Company of any transactions with
Xerox or IBM for their respective services to the
Company;
|
|
|
28
|
|
Table of Contents
●
|
That such services were
provided on arms length
terms and
conditions and in the ordinary course of
business; and
|
●
|
That the services provided by
both Xerox and IBM are
routine and limited
in scope (the Company paid Xerox
(including
certain of its subsidiaries) approximately
$236,000 in 2014, approximately $124,000 in 2015 and
approximately $799,000 in 2016 for office
technology
equipment and other related
services, and the Company paid IBM approximately $247,000 in 2014 for
software licenses, software consulting and related services and
approximately $4,000 in 2015 and approximately $8,000 in 2016 for software
licenses and related services).
|
Based on the factors considered by the
Nominating and Governance Committee, it concluded that these transactions would
not affect Dr. Vandebroeks independence.
Related Person
Transactions
Our Board has adopted a written Related
Person Transaction Policy under which the Audit Committee is required to review
and approve any transaction involving more than $120,000 in which the Company is
a participant and in which any related person has or will have a direct or
indirect material interest. The Audit Committee may approve any such transaction
only if it determines that, under all of the applicable circumstances, the
transaction is not inconsistent with the best interests of the
Company.
A related person under this policy
is:
●
|
Any executive
officer;
|
●
|
A Director, or nominee for
Director;
|
●
|
A holder of 5% or more of our
common stock; or
|
●
|
An immediate family member of
any of those persons.
|
The policy provides that a direct or
indirect material interest does not arise solely from the related persons
position as an executive officer of another entity involved in a transaction
with the Company, where:
●
|
The related person owns less
than a 10% equity interest
in such entity;
|
●
|
The related person and his or
her immediate family
members are not involved in the negotiation of the
terms
of the transaction and do not receive any special
benefits
as a result of the transaction;
|
●
|
The amount involved in the
transaction equals less
than the greater of $200,000 or 5% of the annual
gross
revenue of the other entity involved in the transaction;
and
|
●
|
The amount involved in the
transaction equals less than
2% of the consolidated gross revenues of the
Company
for its most recent fiscal year.
|
Since January 1, 2016, there have been no
related person transactions requiring review and approval by the Audit Committee
under the Related Person Transaction Policy.
Compensation Committee
Interlocks and Insider Participation
Ms. Szostak (Chair), Mr. Craig, Mr. End
and Mr. Kingsley served on the Compensation Committee during 2016. There were no
Compensation Committee interlocks or insider (employee) participation during
2016.
Board Leadership
Structure
The Board is led by Mr. Ayers, who serves
as the Chairman of the Board, and by Mr. End, who serves as our independent Lead
Director. Mr. Ayers has been the Chairman of the Board since joining the Company
as Chief Executive Officer in 2002. Under our Corporate Governance Guidelines,
when the Chairman of the Board is not an independent Director, the independent
Directors annually elect a Lead Director from among the independent
Directors.
The Chairman of the Board has no greater
nor lesser vote on matters considered by the Board than any other Director. All
Directors, including the Chairman, are bound by fiduciary obligations imposed by
law. As discussed above under Director Independence, each Director other than
Mr. Ayers is an independent director under NASDAQ rules, and every member of
each standing Committee is also independent under those rules.
Table of Contents
The Board is free to select the Chairman
of the Board and the Chief Executive Officer in any way it deems best for our
stockholders at any point in time, and the Board does not have a predetermined
policy as to whether or not the roles of Chairman of the Board and Chief
Executive Officer should be combined or separate. Pursuant to our Corporate
Governance Guidelines, the Nominating and Governance Committee annually assesses
the Boards leadership structure, including whether the roles of Chairman of the
Board and Chief Executive Officer should be combined or separate and why the
Boards leadership structure is appropriate given the specific characteristics
or circumstances of the Company.
In February 2017, the Nominating and Governance
Committee conducted that annual assessment and determined that a combined
full-time Chairman of the Board and Chief Executive Officer, subject to
oversight by the Companys independent Directors, including an independent Lead
Director, is appropriate for the following reasons:
●
|
First, the Chief Executive
Officer is responsible for
the day-to-day management of the Company and
the
development and implementation of the Companys
strategy, and has access to the people, information and
resources necessary to facilitate Board functions. As such, the Board
believes that the Chief Executive Officer is best positioned to develop
the agenda for the Board supported by regular consultation and input from
the Lead Director, and to lead discussions at Board meetings regarding the
Companys strategy, operations and results;
|
●
|
Second, it is the Boards
opinion that Mr. Ayerss
interests, including through a meaningful and
growing
ownership of our common stock, are aligned with the
interests of our
stockholders;
|
●
|
Third, during Mr. Ayerss
15-year tenure as Chairman
and Chief Executive Officer, the Company has
generated
a compound average annual return to stockholders of
22%;
and
|
●
|
Fourth, as described above,
oversight of the Company
is the responsibility of the Board as a whole, which
is
composed entirely of independent Directors, other than
Mr. Ayers,
including an independent Lead Director, whose
responsibilities
include those described below.
|
Lead
Director
The position of Lead Director has
significant authority and responsibilities under the Corporate Governance
Guidelines, including:
Board
Meetings and Executive Sessions
|
Chairing the executive sessions of the
independent Directors, which occur at each regularly scheduled Board
meeting to discuss, among other things, the performance of the Chief
Executive Officer.
Scheduling, as and when needed, executive sessions
of the independent Directors in addition to those occurring at each
regularly scheduled Board meeting.
|
Communications with Chairman and
Chief
Executive Officer
|
Facilitating communications between Board
members and the Chairman of the Board and/or Chief Executive Officer
(although any Director is free to communicate directly with the Chairman
of the Board and Chief Executive Officer).
|
Agendas
|
Working with the Chairman of the Board and
the Chief Executive Officer in preparing the agenda for each Board
meeting.
|
Corporate Governance
|
Consulting with and advising the Chairman of
the Board and/or the Chief Executive Officer on matters relating to
corporate governance and Board functions.
|
Annual Board
Self-Assessment
The Nominating and Governance Committee is
responsible for evaluating the performance of the Board, its Committees and each
of the Directors. The purpose of this evaluation is to identify ways to enhance
the effectiveness of the Board, its Committees and the Directors.
The evaluation process includes completion
of questionnaires and interviews with each Director to solicit candid feedback
and gather additional suggestions for improvement. The responses and comments of
the Directors are then compiled and presented by the Lead Director to the
Nominating and Governance Committee and the Board for discussion and
action.
|
|
30
|
|
Table of Contents
CORPORATE
GOVERNANCE
|
|
Talent Management and Succession
Planning
|
Succession planning and talent development
are an integral part of our long-term strategy for sustained stockholder value
creation. The Compensation Committee is responsible for annually reviewing
succession plans for the Chief Executive Officer and our other executive
officers, and the Board is responsible for ensuring the existence of appropriate
succession plans for these executive officers.
The Chief Executive Officer is responsible
for preparing an annual report to the Board regarding succession planning for
himself, and as part of this annual report, our Chief Executive
Officer provides his evaluations and recommendation of
potential future candidates for the position of Chief Executive Officer,
including possible timing. In addition, the Board, both directly and through the
Compensation Committee, also reviews plans for identifying and developing
potential future candidates for other senior leadership roles, and the Board
members interact with many of these candidates in formal and informal settings
during the year.
Diversity
We believe that diversity among our
employees and senior management including, but not limited to, gender and
ethnic diversity, helps drive both innovation and a better understanding
of our increasingly global customer base. Throughout our Company, we seek
to employ a broad representation of gender, ethnic, and racial backgrounds
in all levels of management and on the Board. We believe that senior
management and Directors with a variety of backgrounds, experiences,
education, skills and business knowledge will contribute to the Companys
effectiveness and, thus, we are focused on ensuring that a wide range of
backgrounds and experiences are represented in the Company and on our
Board. We actively seek out highly qualified diverse candidates (including
gender and ethnically diverse candidates) to include in each pool of
potential senior management and Board nominees, and we consider the value
of diversity of all types when evaluating nominees and assessing our Board
members and senior-level management.
|
Boards Role in Risk
Oversight
Management is responsible for risk
management on a day-today basis. The Board oversees the risk management
activities of management directly and through its Committees by discussing with
management the policies and practices they utilize in assessing and managing
risks and providing input on those policies and practices.
In general, the Board oversees risk
management activities relating to business strategy, acquisitions, capital
allocation and structure, legal, compliance and regulatory risk, and operational
risks. The Committees oversee certain areas of risk management too,
including:
●
|
the Audit Committee oversees risk
management activities related to accounting, auditing, internal control,
information system controls and security, compliance and insurance
matters;
|
●
|
the Finance Committee oversees risk
management activities relating to investment policy, foreign currency
hedging activities and financial instruments;
|
●
|
the Compensation Committee oversees
risk management activities relating to the Companys compensation policies
and practices and organizational risk; and
|
●
|
the Nominating and Governance
Committee oversees risk management activities relating to Board
composition and function.
|
Each Committee reports to the full Board
on a regular basis, including with respect to its risk oversight activities as
appropriate.
We conduct an annual enterprise risk
assessment as part of our annual strategic planning process. The risk assessment
process involves an identification and assessment by senior line of business and
functional leaders of the particular risks relevant to their lines of business
and functional areas, the materiality of those risks and plans to mitigate them
to the extent prudent and feasible. The identified risks are ranked based on
probability of occurrence and severity of impact. Management shares the result
of this annual risk assessment with the full Board in conjunction with the
Boards discussion of the Companys annual strategic plan. Certain risks and
related mitigation plans are also reviewed throughout the year either by the
Board or its Committees.
We also conduct a compliance risk
assessment, the results of which are shared by management with the Audit
Committee. This risk assessment involves an identification and assessment by
functional leaders of the particular legal and regulatory compliance risks
relevant to their areas of responsibility. The risks are ranked based on
materiality and maturity of controls by functional leaders. Plans to
Table of Contents
mitigate the top risks are also shared and
discussed with the full Board at various times of the year as part of normal
business discussions.
The Audit Committee reviews linkages
between the critical risk findings, management preparedness or plans to address
those risks, and internal audits tests of those plans. The Audit Committee
seeks to ensure that the internal audit department can perform its function by
reviewing the charter, plans, activities, staffing and organizational structure
of the
internal audit department, and approving
the appointment, replacement, reassignment or dismissal of the Director of
Internal Audit.
The Audit Committee also provides an open
channel of communication between internal audit and the Board; meets
independently with the Companys internal auditors, independent auditors and
management; and discusses with management the Companys major policies with
respect to risk assessment and risk management, including an annual review of
the Companys insurance coverage.
Board
Committees
The Board has established four standing
committees an Audit Committee, a Compensation Committee, a Nominating and
Governance Committee and a Finance Committee, each of which is described briefly
below. Each Committee acts pursuant to a written charter that is approved by the
Board and reviewed annually by the applicable Committee,
the Nominating and Governance Committee and the Board. Current copies of
each Committees charter can be accessed on the Corporate Governance section of
our website
www.idexx.com
or by contacting our
Corporate Vice President, General Counsel and Corporate Secretary at the
Companys principal executive offices.
Members of the Committees, as of March 1,
2017, are named below:
Board
Member
|
|
Audit
|
|
Compensation
|
|
Nominating
&
Governance
|
|
Finance
|
Jonathan W. Ayers
|
|
|
|
|
|
|
|
|
Bruce L. Claflin (1)
|
|
✓
|
|
|
|
(Chair)
|
|
|
Thomas Craig
|
|
✓
|
|
✓
|
|
|
|
|
William T. End (2)
|
|
|
|
✓
|
|
✓
|
|
|
Rebecca M. Henderson, PhD
|
|
|
|
|
|
✓
|
|
(Chair)
|
Barry C. Johnson, PhD
|
|
|
|
|
|
|
|
✓
|
Daniel M. Junius (1)
|
|
(Chair)
|
|
|
|
|
|
✓
|
Lawrence D. Kingsley
|
|
|
|
✓
|
|
|
|
✓
|
M. Anne Szostak (1)
|
|
✓
|
|
(Chair)
|
|
|
|
|
Sophie V. Vandebroek, PhD
|
|
|
|
|
|
✓
|
|
✓
|
Number of meetings in 2016
|
|
9
|
|
4
|
|
5
|
|
2
|
(1)
|
Audit Committee Financial
Expert as defined under SEC rules.
|
(2)
|
Lead
Director
|
|
|
32
|
|
Table of Contents
CORPORATE
GOVERNANCE
|
|
Audit
Committee
|
Members
Mr. Junius (chair)
Mr. Claflin
Mr.
Craig
Ms. Szostak
Meetings held in 2016
9
|
Committee
Responsibilities
The Audit Committee is responsible
for overseeing the accounting, internal control, financial reporting,
information system controls and security, compliance and audit processes
of the Company, including the selection, retention and oversight of the
Companys independent auditors. The Audit Committee also oversees elements
of the Companys risk management activities and reviews and approves all
related person transactions. The Audit Committee meets from time to time
with the Companys financial personnel, other members of management,
internal audit staff and independent auditors regarding these
matters.
The Nominating and Governance
Committee has determined that each Audit Committee member is financially
literate and that Mr. Junius, Mr. Claflin and Ms. Szostak are each an
Audit Committee Financial Expert as defined under the SEC rules. Each of
the Audit Committee members is independent as defined by NASDAQ
rules.
The Audit Committee has established
policies and procedures for the pre-approval of all services provided by
the independent auditors, which are described on page 45. The Audit
Committee has also adopted procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters, and the confidential,
anonymous submission of any concerns regarding questionable accounting or
auditing matters. The Audit Committee may retain independent counsel,
accountants, or others to assist it in the conduct of any investigation,
and the Company will provide appropriate funding for payment of such
services, as determined by the Audit
Committee.
|
The Audit Committee Report is included
on page 44.
Table of Contents
CORPORATE
GOVERNANCE
|
|
Compensation
Committee
|
Members
Ms. Szostak (chair)
Mr. Craig
Mr. End
Mr. Kingsley
Meetings held in 2016
4
|
Committee
Responsibilities
The Compensation Committee oversees
the management compensation philosophy and practices of IDEXX, evaluates
the performance of the Chief Executive Officer, determines the
compensation of the Chief Executive Officer and approves the compensation
of other senior executives, reviews managements overall leadership
development plan and annually reviews succession plans for the Chief
Executive Officer and other executive officers of the Company.
The Compensation Committee also has
primary responsibility to oversee the Companys equity compensation and
benefit plans, determines any stock ownership and retention guidelines
applicable to the Companys executives and Directors and reviews
compliance with those guidelines, and reviews the compensation of
non-employee Directors.
In addition, the Compensation
Committee oversees the Companys policies on structuring compensation
programs to preserve tax deductibility, analyzes the risks associated with
the Companys compensation practices, reviews the Compensation Discussion
and Analysis and prepares the Compensation Committee Report required to be
included in the Companys annual proxy statement, and reviews the results
of the stockholder votes on the say-on-pay and say-on-frequency
proposals set forth in the Companys annual proxy statement.
The Compensation Committee charter
does not provide for any delegation of these duties except to a
sub-committee or individual members of the Committee as the Compensation
Committee may determine.
Each of the Compensation Committee
members is independent as defined by NASDAQ rules.
The Compensation Committee reviews
Director compensation periodically and makes a recommendation to the
Board.
|
For more information on the
responsibilities and activities of the Compensation Committee, including the
Compensation Committees process for determining executive compensation and the
role of the independent compensation consultant to the Compensation Committee,
see the Compensation Discussion and Analysis section of this Proxy Statement
beginning on page 49. The
Compensation
Committee Report
is included on page
62.
|
|
34
|
|
Table of Contents
CORPORATE
GOVERNANCE
|
|
Nominating and Governance
Committee
|
Members
Mr. Claflin (chair)
Mr. End
Dr.
Henderson
Dr. Vandebroek
Meetings held in 2016
5
|
Committee
Responsibilities
The Nominating and Governance
Committee advises and makes recommendations to the Board with respect to
corporate governance practices, including Board composition, organization, function,
membership and performance, and succession planning for the Chairman of
the Board. The Nominating and Governance Committee may retain, at the
Companys expense, independent counsel or other advisors as it deems
necessary. Each of the Nominating and Governance Committee members is
independent as defined by NASDAQ rules.
The Nominating and Governance
Committee identifies, evaluates, recruits and makes recommendations to the
Board regarding candidates to fill vacancies on the Board as described on
pages 19 and 20.
The Nominating and Governance
Committee annually reviews the performance of the Board, its Committees
and each of the Directors, as described under Annual Board
Self-Assessment on page 30. The Nominating and Governance Committee is
also responsible for annually reviewing with the Board the requisite
skills and criteria for all Board members, as well as the composition of
the Board as a whole, and annually assessing, for each Director or person
nominated to become a Director, the specific experience, qualifications,
attributes and skills, including those described on pages 11 and 19, that
lead the Nominating and Governance Committee to conclude that such
Director or nominee should serve as a Director in light of our business
and structure.
|
Finance
Committee
Members
Dr. Henderson (chair)
Dr. Johnson
Mr.
Junius
Mr. Kingsley
Dr. Vandebroek
Meetings held in 2016
2
|
Committee
Responsibilities
The Finance Committee advises the
Board with respect to financial matters and capital allocation, including
capital structure, debt financing strategies, investment practices, major
financial commitments, financial risk management, acquisitions and
divestitures, stock repurchase strategy and dividend policy. Each of the
Finance Committee members is independent as defined by NASDAQ
rules.
In addition, the Finance Committee
monitors our liquidity and financial condition, oversees our financial
risk management activities (including foreign currency hedging and
transactions involving derivatives), reviews and approves proposed
acquisitions and divestitures requiring Board approval and having values
up to $40 million and reviews and approves non-budgeted capital
expenditures in excess of $5 million.
|
Corporate Governance
Guidelines and Code of Ethics
The Board has adopted Corporate Governance
Guidelines and a Code of Ethics, both which can be accessed on the Corporate
Governance section of our website
www.idexx.com
. Hard copies may be obtained by
contacting our Corporate Vice President, General Counsel and Corporate Secretary
at the Companys principal executive offices.
The Code of Ethics applies to all of our
employees, officers and Directors. In addition, we intend to post on our website
all disclosures that are required by law or NASDAQ listing standards concerning
any amendments to, or waivers from, any provision of the Code of
Ethics.
Table of Contents
CORPORATE
GOVERNANCE
|
|
Anti-Hedging and Short Sale and
Anti-Pledging Policies
|
The Board has adopted a Policy on Short
Sales, Derivative Transactions and Hedging. This anti-hedging and short sale
policy generally prohibits any Director, officer or employee, or any family
member or affiliate of any of the foregoing, from engaging in (i) any short
sales of the Companys securities, (ii) purchases or sales of puts, calls or
other derivative securities based upon the Companys securities, or (iii)
purchases of financial instruments that are designed to hedge or offset any
decrease in the market value of the Companys securities.
The Board has also adopted a Policy on
Pledging of Company Stock that prohibits our Directors and executive officers
from pledging or otherwise encumbering the equity securities they own in the
Company as collateral for indebtedness, including holding shares in a margin or
similar account that would subject our equity securities to margin
calls.
Communications from
Stockholders
Written communications to any individual
Director, the Lead Director or the full Board may be submitted by electronic
mail to
contactdirectors@idexx.com
or by writing to the Office of the Corporate
Secretary at One IDEXX Drive, Westbrook, Maine 04092. The Chair of the
Nominating and Governance Committee will review all such
communications.
Director Compensation
Non-Employee Director
Compensation
Our non-employee Directors are annually
compensated for their Board service as described in the chart below:
Compensation
Element
|
Non-Employee
Director Compensation Program
|
Cash compensation
(1)
|
|
Annual
Retainer
|
$65,000
|
Committee Chair
Retainer
|
$15,000 for the Audit Committee
|
|
$15,000 for the Compensation Committee
|
|
$10,000 for the Finance Committee
|
|
$10,000 for the Nominating and Governance
Committee
|
Audit Committee Member
Retainer
|
$5,000
|
Lead Director
Retainer
|
$25,000
|
Meeting Fees
|
Not applicable; no fees are paid for meeting
attendance
|
Equity
compensation (2)
|
|
Deferred stock
units
|
$43,750 in target value (3)
|
Non-qualified stock
options
|
$131,250 in value (4)
|
Total
|
$175,000
|
Director stock
ownership guidelines (5)
|
Target ownership of our common stock (including vested
deferred stock units credited to a Directors investment account) equal to
six times the Annual Retainer
|
(1) All retainers are paid in quarterly
installments, and each non-employee Director may, at his or her option, defer
all or any portion of any retainer in the form of fully vested deferred stock
units under our Director Deferred Compensation Plan (the Director
Plan).
(2) We annually grant deferred stock
units and non-qualified stock options to each non-employee Director on the date
of the Annual Meeting. A non-employee Director who joins the Board after the
date of an Annual Meeting receives a pro rata grant based on the number of
months remaining until the next years grant.
(3) The number of deferred stock units
granted equals the target value, divided by the price of our common stock on the
grant date, rounded to the nearest whole share. Any non-employee Director who
meets the target ownership under the stock ownership guidelines at the time of
the annual grant may elect to receive restricted stock units (RSUs), in lieu
of deferred stock units. The number of RSUs granted is calculated in the same
manner as deferred stock units granted.
(4) The value of the granted
non-qualified stock options is calculated using the Black-Scholes-Merton option
pricing model. This model is consistent with the valuation approach used to
value executive awards.
(5) All non-employee Directors complied
with the stock ownership guidelines as of December 31, 2016.
|
|
36
|
|
Table
of Contents
CORPORATE
GOVERNANCE
|
|
Equity
Compensation
|
Deferred stock units and non-qualified
stock options are granted to non-employee Directors annually on the date of the
Annual Meeting. The most recent grant date was May 4, 2016, and the next grant
date is scheduled to be on May 3, 2017, the date of the 2017 Annual
Meeting.
Deferred Stock
Units.
Deferred stock units granted on the date of the Annual Meeting are
issued under the Director Plan and fully vest on the earlier of one year from
the date of grant or the date of the next Annual Meeting. These vested deferred
stock units are credited to a hypothetical investment account established in the
non-employee Directors name and will be distributed as an equal number of
shares of our common stock one year following the termination of the
non-employee Directors Board service. For more information regarding the
deferred stock units and the Director Plan, please see the discussion below
under Director Plan.
If a non-employee Director is eligible to elect to
receive RSUs in lieu of deferred stock units and makes this election, then he or
she will receive RSUs that fully vest on the earlier of one year from the date
of grant or the date of the next Annual Meeting.
Non-Qualified Stock
Options.
Non-qualified stock options are granted under our 2009 Stock
Incentive Plan (the 2009 Plan) and have the following terms:
●
|
Exercise price equal to the
last reported sales price for a share of our common stock on the grant
date;
|
●
|
Fully vests and is exercisable
on the earlier of one year from the date of grant or the date of the next
Annual Meeting;
|
●
|
Expires on the day immediately
prior to the tenth anniversary of the grant date, except for options
granted between 2006 and the day before the date of the 2013 Annual
Meeting, which expire on the day immediately prior to the seventh
anniversary of the grant date; and
|
●
|
Accelerated vesting upon a change in
control of the Company as described in the discussion under Stock
Incentive Plans beginning on page 70.
|
Each non-employee Director may defer all
or any portion of any cash compensation in the form of fully vested deferred
stock units, which are issued under the Director Plan and are subject to the
terms of the 2009 Plan. The payment of cash compensation in the form of deferred
stock units is considered deferred compensation for federal income tax
purposes.
A hypothetical investment account is
established in the name of each non-employee Director, and vested deferred stock
units are credited as follows:
●
|
Any cash compensation deferred by
him or her is credited to the account as the number of vested deferred
stock units equal to the aggregate value of the deferred compensation
divided by the price of a share of common stock on the date of the
applicable deferral; and
|
●
|
When the grant of deferred stock
units made on the date of an Annual Meeting (or any prorated grant of
deferred stock units made when he or she joins the Board) vests, those
vested deferred stock units also are credited to this
account.
|
Director Plan account balances are not
subject to any interest or other investment returns, other than returns produced
by fluctuations in the price of a share of common stock affecting the value of
the deferred stock units in the account.
Deferred stock units are distributed in
the form of an equal number of shares of our common stock as follows:
●
|
Deferred Stock
Units from Deferred Cash Compensation.
A non-employee Director may
elect to receive his or her distribution in either:
|
|
●
|
A single lump sum one year after his
or her last day of Board service; or
|
|
●
|
For deferrals made on or after
January 1, 2011, in:
|
|
|
●
|
A single
sum on a nondiscretionary and objectively determinable fixed date;
or
|
|
|
●
|
Equal annual installments over four
years on or after such fixed date.
|
Table
of Contents
●
|
Annual Grant of
Deferred Stock Units.
Shares are distributed one year following the
termination of his or her Board service.
|
●
|
Emergency
Distribution.
If the administrator of the Director Plan determines
that a non-employee Director has suffered an unforeseeable emergency, the
administrator may authorize the distribution of all or a portion of his or
her deferred stock units.
|
Unvested deferred stock units will vest
immediately under the following circumstances:
●
|
Death or
Disability.
Unvested deferred stock units will vest immediately
upon the non-employee Directors death or disability.
|
●
|
Change in
Control.
Unvested deferred stock units will vest immediately upon a
change in control of the Company. The shares of common stock in a
Directors account will be distributed in a single lump sum as soon as
practicable after a change in control.
|
A change in control under the
Director Plan occurs when:
●
Any person or group
acquires direct or indirect beneficial ownership of stock possessing 35%
or more of the total voting power of the Companys stock;
or
●
A majority of the
Board members is replaced during any 12-month period by new Directors
whose appointment or election is not approved by a majority of the Board
members serving immediately before the appointment or election of any of
these new directors; or
●
A change in the
ownership of a substantial portion of our assets occurs on the date that
any person or group acquires assets from the Company that have a total
gross fair market value equal to or more than 40% of the total gross fair
market value of all of our assets immediately prior to such
acquisition.
|
All Directors are reimbursed for
reasonable travel expenses incurred in connection with Board and committee
meetings. Directors are also reimbursed for reasonable expenses (including
travel expenses) incurred in connection with continuing education regarding
their duties and responsibilities as Directors. We also extend coverage to them
under our directors and officers indemnity insurance policies. We do not
provide any other benefits, including retirement benefits or perquisites, to our
non-employee Directors.
Director Stock Ownership
Guidelines
|
Our stock ownership guidelines set a
target level of ownership of our common stock for each non-employee Director
equal to six times the annual retainer, which is $390,000 in stock value, at the
end of each calendar year.
Shares that are owned by, or held in trust
for the benefit of, a non-employee Director or immediate family members residing
in the same household and vested deferred stock units credited to his or her
investment account are included in calculating stock ownership.
Until the value of a non-employee
Directors common stock exceeds this target level at the end of a calendar year,
he or she must retain:
●
|
At least 75% of our common stock
received upon the exercise of options or the vesting and release of RSUs or
deferred stock units during the following year, after payment or withholding of
any applicable exercise price and taxes; and
|
●
|
All other shares of our common stock
held by him or her.
|
A non-employee Director complies with
these stock ownership guidelines if his or her stock ownership equals or exceeds
the target level at the end of the year or if he or she has complied with the
applicable retention requirements under the stock ownership
guidelines.
|
|
38
|
|
Table
of Contents
CORPORATE
GOVERNANCE
|
|
2016 Non-Employee Director Compensation
Table
|
The table below shows compensation for
each of our non-employee Directors. Mr. Ayers, who is an employee, receives no
additional compensation for his Board service. For information regarding Mr.
Ayerss compensation, please see the discussion under Executive Compensation
Tables beginning on page 63.
Name
|
|
Fees Earned
Or
Paid In Cash
|
|
Stock
Awards $ (1)
|
|
Option
Awards $ (2)
|
|
Total
Compensation
|
Bruce L. Claflin
|
|
|
$
|
75,000
|
|
|
|
|
$
|
43,775
|
|
|
|
|
$
|
131,767
|
|
|
|
|
$
|
249,942
|
|
Thomas Craig
|
|
|
|
70,000
|
(3)
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
244,942
|
|
William T. End
|
|
|
|
90,000
|
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
264,942
|
|
Rebecca M. Henderson, PhD
|
|
|
|
75,000
|
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
249,942
|
|
Barry C. Johnson, PhD
|
|
|
|
70,000
|
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
244,942
|
|
Daniel M. Junius
|
|
|
|
80,000
|
(4)
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
254,942
|
|
Lawrence D. Kinglsey (5)
|
|
|
|
13,071
|
|
|
|
|
|
23,663
|
(6)
|
|
|
|
|
70,661
|
(6)
|
|
|
|
|
107,395
|
|
M. Anne Szostak
|
|
|
|
85,000
|
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
259,942
|
|
Sophie V. Vandebroek, PhD
|
|
|
|
65,000
|
|
|
|
|
|
43,775
|
|
|
|
|
|
131,167
|
|
|
|
|
|
239,942
|
|
(1) Stock awards to non-employee
Directors are issued as deferred stock units (DSUs) pursuant to the Companys
Director Plan. The amount shown excludes DSUs received in lieu of deferred
compensation as described in footnotes 5 and 6 and reflects the aggregate grant
date fair value computed in accordance with FASB ASC Topic 718 (calculated by
rounding $43,750 to the nearest share on the date of deferral). See Note 4 in
the notes to the consolidated financial statements included in our 2016 Annual
Report on Form 10-K for the relevant assumptions used to determine the valuation
of our stock awards. As discussed under Equity Compensation above on page 37,
non-employee Directors receive only one DSU and option grant during the fiscal
year. As of December 31, 2016, the following are the aggregate number of DSUs
accumulated in each non-employee Directors deferral account for all years of
service as a Director, including DSUs issued for deferred fees as well as DSUs
issued as annual grants to non-employee Directors: Mr. Claflin, 1,018, Mr.
Craig, 37,524; Mr. End, 19,991; Dr. Henderson, 31,501; Dr. Johnson, 19,761; Mr.
Junius, 2,307; Mr. Kingsley, 207, Ms. Szostak, 3,205, and Dr. Vandebroek,
2,431.
(2) Reflects the aggregate grant
date fair value computed in accordance with FASB ASC Topic 718. See Note 4 in
the notes to consolidated financial statements included in our 2016 Annual
Report on Form 10-K for the relevant assumptions used to determine the valuation
of our option awards. As of December 31, 2016, each non-employee Director had
the following number of stock options outstanding: Mr. Claflin, 11,531; Mr.
Craig, 42,494; Mr. End, 42,494; Dr. Henderson, 42,494; Dr. Johnson, 42,494; Mr.
Junius, 20,496; Mr. Kingsley, 2,203; Ms. Szostak 34,294 and Dr. Vandebroek,
22,550.
(3) Reflects compensation in
the amount of $70,000 deferred and issued as 811 DSUs pursuant to the Director
Plan.
(4) Includes compensation in the amount of $20,000 deferred and issued
as 231 DSUs pursuant to the Director Plan.
(5) Mr. Kingsley was appointed to
the Board effective October 19, 2016.
(6) Consists of a prorated equity grant made to Mr. Kingsley with respect
to the period from his election to the Board on October 19, 2016 to May 3, 2017,
the scheduled date of the next annual equity grant to be made to all
non-employee Directors, consisting of DSUs having a grant date fair value of
$23,663 and nonqualified stock options having a grant date fair value of
$70,661.
Table
of Contents
Stock
Ownership Information
Stock
Ownership of Directors and Officers
The table below shows the number of shares
of our common stock beneficially owned as of March 1, 2017 by each of our
Directors, each of our named executive officers named in the Summary
Compensation Table and all of our Directors and executive officers as a group.
The table below also includes information about stock options and vesting
restricted stock units granted to our Directors and executive officers. Unless
otherwise indicated, each person listed below has sole voting and investment
power with respect to the shares and other securities listed.
Beneficial Owner
|
|
Shares
Owned
|
|
Options
Exercisable
and
RSUs
Vesting (1)
|
|
Total Number of
Shares
Beneficially
Owned (2)
|
|
Percentage of
Common
Stock
Outstanding (3)
|
Jonathan W. Ayers
|
|
1,049,783
|
(4)
|
|
|
803,166
|
|
|
|
1,852,949
|
|
|
|
2.11
|
%
|
|
Bruce
L. Claflin
|
|
|
|
|
|
5,629
|
|
|
|
5,629
|
|
|
|
*
|
|
|
Thomas
Craig
|
|
3,564
|
|
|
|
36,592
|
|
|
|
40,156
|
|
|
|
*
|
|
|
William T. End
|
|
47,070
|
|
|
|
29,990
|
|
|
|
77,060
|
|
|
|
*
|
|
|
Rebecca M. Henderson, PhD
|
|
254
|
|
|
|
36,592
|
|
|
|
36,846
|
|
|
|
*
|
|
|
Barry
C. Johnson, PhD
|
|
|
|
|
|
36,592
|
|
|
|
36,592
|
|
|
|
*
|
|
|
Daniel
M. Junius
|
|
2,000
|
|
|
|
11,594
|
|
|
|
13,594
|
|
|
|
*
|
|
|
Lawrence D. Kingsley (5)
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
*
|
|
|
M.
Anne Szostak
|
|
16,000
|
(6)
|
|
|
28,392
|
|
|
|
44,392
|
|
|
|
*
|
|
|
Sophie
V. Vandebroek, PhD
|
|
6,000
|
|
|
|
16,648
|
|
|
|
22,648
|
|
|
|
*
|
|
|
Brian
P. McKeon
|
|
18,866
|
|
|
|
92,250
|
|
|
|
111,116
|
|
|
|
*
|
|
|
Jay
Mazelsky
|
|
17,083
|
|
|
|
90,616
|
|
|
|
107,699
|
|
|
|
*
|
|
|
Jacqueline L. Studer
|
|
3,496
|
|
|
|
12,145
|
|
|
|
15,641
|
|
|
|
*
|
|
|
Giovani Twigge
|
|
18,857
|
|
|
|
48,805
|
|
|
|
67,662
|
|
|
|
*
|
|
|
All
Directors and executive officers as of March 1, 2017 as a
group (14
persons)
|
|
1,183,973
|
|
|
|
1,249,011
|
|
|
|
2,432,984
|
|
|
|
2.77
|
%
|
|
*
Less than
1%
We also grant deferred stock units to our
non-employee Directors as annual equity grants or voluntary deferrals of annual
fees. Deferred stock units are not included in the table above because they do
not represent a right to acquire shares of our common stock within 60 days after
March 1, 2017. Although deferred stock units carry no voting rights and
individuals holding fully vested deferred stock units are at risk as to the
price of our common stock in their investment accounts, vested deferred stock units are
included for purposes of determining satisfaction of target stock ownership
levels under our stock ownership guidelines. Accordingly, the table below shows
the total numbers of shares and fully vested deferred stock units owned as of
March 1, 2017 by each of our Directors, each of our named executive officers and
all our Directors and executive officers as a group.
|
|
40
|
|
Table
of Contents
STOCK OWNERSHIP
INFORMATION
|
Beneficial
Owner
|
|
Shares
Owned
|
|
DSUs (7)
|
|
Total Number
of Shares and
DSUs
Owned
|
Jonathan W. Ayers
|
|
1,049,783
|
(4)
|
|
59,164
|
|
|
1,108,947
|
|
Bruce L. Claflin
|
|
|
|
|
503
|
|
|
503
|
|
Thomas Craig
|
|
3,564
|
|
|
37,154
|
|
|
40,718
|
|
William T. End
|
|
47,070
|
|
|
19,476
|
|
|
66,546
|
|
Rebecca M. Henderson, PhD
|
|
254
|
|
|
30,986
|
|
|
31,240
|
|
Barry C. Johnson, PhD
|
|
|
|
|
19,246
|
|
|
19,246
|
|
Daniel M. Junius
|
|
2,000
|
|
|
1,833
|
|
|
3,833
|
|
Lawrence D. Kingsley (5)
|
|
1,000
|
|
|
135
|
|
|
1,135
|
|
M. Anne Szostak
|
|
16,000
|
(6)
|
|
2,690
|
|
|
18,690
|
|
Sophie V. Vandebroek, PhD
|
|
6,000
|
|
|
1,916
|
|
|
7,916
|
|
Brian P. McKeon
|
|
18,866
|
|
|
34,708
|
|
|
53,574
|
|
Jay Mazelsky
|
|
17,083
|
|
|
|
|
|
17,083
|
|
Jacqueline L. Studer
|
|
3,496
|
|
|
|
|
|
3,496
|
|
Giovani Twigge
|
|
18,857
|
|
|
|
|
|
17,729
|
|
All Directors and executive officers as of March 1, 2017
as a group (14 persons)
|
|
1,183,973
|
|
|
207,811
|
|
|
1,391,784
|
|
(1) Consists of options to purchase
shares of common stock exercisable, and RSUs vesting, on or within 60 days after
March 1, 2017.
(2) The number of shares
beneficially owned by each person or group as of March 1, 2017 includes shares
of common stock that such person or group had the right to acquire on or within
60 days after March 1, 2017, including, but not limited to, upon the exercise of
stock options or vesting of RSUs, but excluding DSUs.
(3) For each individual and group included in the table,
percentage of ownership is calculated by dividing the number of shares
beneficially owned by such person or group as described above by the sum of
87,969,278 shares of common stock outstanding on March 1, 2017 and the number of
shares of common stock that such person or group had the right to acquire on or
within 60 days after March 1, 2017, including, but not limited to, upon the
exercise of stock options or vesting of RSUs, but excluding
DSUs.
(4) Includes 98,000 shares held
by the Ayers Family Trust.
(5) Mr.
Kingsley was appointed to the Board effective October 19, 2016.
(6) Includes
15,416 shares held by the M. Anne Szostak Trust.
(7) Consists of DSUs that are vested as of March 1,
2017.
Director and Officer Stock Ownership
Guidelines
We maintain stock ownership guidelines for
our Directors and executives, including our executive officers. For more
information regarding our Director stock ownership guidelines, please see the
discussion under Director Stock Ownership
Guidelines on page 36, and for more information regarding our executive
stock ownership guidelines, please see the discussion under Compensation
Policies and Practices beginning on page 52.
Table
of Contents
STOCK OWNERSHIP
INFORMATION
|
|
Stock Ownership of Certain Beneficial
Owners
|
Based solely on our review of filings made
under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, the only
persons or entities known to us to beneficially own more than 5% of our common
stock as of December 31, 2016 were:
Beneficial
Owner
|
|
Number of
Shares
Beneficially Owned
|
|
Percentage of
Common Stock
Outstanding (1)
|
The
Vanguard Group (2)
|
|
8,828,778
|
|
|
10.04
|
%
|
|
100 Vanguard Blvd.
|
|
|
|
|
|
|
|
Malvern, Pennsylvania 19355
|
|
|
|
|
|
|
|
BlackRock, Inc. (3)
|
|
8,361,533
|
|
|
9.51
|
%
|
|
55 East 52nd Street
|
|
|
|
|
|
|
|
New
York, New York 10055
|
|
|
|
|
|
|
|
Baron
Capital Group, Inc. (4)
|
|
5,690,887
|
|
|
6.47
|
%
|
|
767 Fifth Avenue, 49th Floor
|
|
|
|
|
|
|
|
New
York, New York 10153
|
|
|
|
|
|
|
|
T.
Rowe Price Associates, Inc. (5)
|
|
4,428,320
|
|
|
5.03
|
%
|
|
100 East Pratt Street
|
|
|
|
|
|
|
|
Baltimore, Maryland 21202
|
|
|
|
|
|
|
|
(1) For each group included in the
table, percentage ownership is calculated by dividing the number of shares
beneficially owned by such group on December 31, 2016, as reflected in the most
recent filing by such group of statements of beneficial ownership with the SEC,
by the 87,969,278 shares of common stock outstanding on March 1, 2017.
Therefore, the percentage ownership may differ from the percentage ownership
reported in such statements of beneficial ownership, which reflect ownership as
of an earlier date.
(2) Based solely
upon information derived from a Schedule 13G/A filed by The Vanguard Group with
the SEC on March 10, 2017, it has the sole power to vote 141,795 shares, sole
power to dispose of 8,672,620 shares, shared power to vote 16,912 shares, and
shared power to dispose of 156,158 shares.
(3) Based solely upon information derived from a Schedule 13G/A filed by
BlackRock, Inc. with the SEC on January 25, 2017, it has sole power to vote
7,597,476 shares and sole power to dispose of 8,361,533
shares.
(4) Based solely upon
information derived from a Schedule 13G/A filed with the SEC on February 14,
2017 by Baron Capital Group, Inc., BAMCO, Inc., a subsidiary of Baron Capital
Group, Inc., Baron Capital Management, Inc., a subsidiary of Baron Capital
Group, Inc., and Ronald Baron, who owns a controlling interest in Baron Capital
Group, Inc., (i) Baron Capital Group, Inc. reported that it has shared voting
power of 5,401,887 shares and shared dispositive power of 5,690,887 shares; (ii)
BAMCO, Inc. reported that it had shared voting power of 5,253,862 shares and
shared dispositive power of 5,542,862 shares; (iii) Baron Capital Management,
Inc. reported that it has shared voting power and shared dispositive power of
148,025 shares; and (iv) Mr. Baron reported that he has shared voting power of
5,401,887 shares and shared dispositive power of 5,690,887
shares.
(5) Based upon information
derived from a Schedule 13G/A filed with the SEC on February 7, 2017 by T. Rowe
Price Associates, Inc. (T. Rowe Price), it has the sole power to vote
1,227,296 shares and sole power to dispose of 4,428,320 shares. These shares are
owned by various individual and institutional investors for which T. Rowe Price
serves as investment adviser with power to direct investments and/or sole power
to vote the shares. For purposes of reporting requirements of the Securities
Exchange Act of 1934, T. Rowe Price is deemed to be a beneficial owner of such
securities; however T. Rowe Price expressly denies that it is, in fact, the
beneficial owner of such securities.
Section
16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities
Exchange Act of 1934, our Directors, executive officers and any person holding
more than 10% of our outstanding common stock are required to report their
initial ownership of common stock and any subsequent changes in their ownership
to the SEC. We are not aware of any person holding more than 10% of our
outstanding common stock.
Based solely on our review of copies of
Section 16(a) reporting forms that we received from reporting persons for
transactions occurring during our 2015 fiscal year and written representations
from our Directors and executive officers, we believe that no reporting person
failed to timely file any report required by Section 16(a) during the 2016
fiscal year, except that one Form 4 was inadvertently filed late by Ms. M. Anne
Szostak, one of our Directors, to report the acquisition of our common stock by
the M. Anne Szostak Trust.
|
|
42
|
|
Table of
Contents
Audit Committee Matters
Proposal
Two -
|
Ratification of Appointment of Independent Registered Public
Accounting Firm
|
The Audit Committee is directly
responsible for the appointment, compensation, retention and oversight of the
Companys independent registered public accounting firm. The Audit Committee has
appointed PricewaterhouseCoopers LLP (PwC) to serve as our independent
registered public accounting firm for 2017, subject to ratification by
stockholders.
In taking this action, the Audit Committee
considered carefully PwCs performance as the Companys independent registered
public accounting firm, its independence with respect to the services to be
performed and its general reputation for adherence to professional auditing
standards.
The Audit Committee and the Board believe
that the continued retention of PwC as our independent registered public
accounting firm is in the best interests of the Company and our
stockholders.
Because the members of the Audit Committee
value the views of our stockholders on our independent auditors, even though
ratification is not required by law, stockholders will have an opportunity to
ratify this selection at the 2017 Annual Meeting. Representatives of PwC will be
present at the 2017 Annual Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions. If this proposal is not approved at the 2017 Annual
Meeting, the Audit Committee may reconsider its selection of PwC. Even if the
appointment is ratified, the Audit Committee, in its discretion, can direct the
appointment of a different firm at any time during the year if the Audit
Committee determines that such a change would be in the Companys and our
stockholders best interests.
|
Recommendation of the Board of Directors
|
|
|
The Board of Directors recommends that you vote FOR the
ratification of PwC as our independent registered public accounting firm
for 2017.
|
|
Table of
Contents
Audit
Committee Report
The Audit Committee is responsible for
overseeing the accounting, internal control and financial reporting processes
and the audit processes of the Company. As set forth in the Audit Committees
charter, which is available at the Companys website at
https://www.idexx.com/corporate/corporate-governance.html
,
the Companys management is responsible for the preparation, presentation and
integrity of the Companys financial statements, the Companys accounting and
financial reporting principles, and internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
The Company has a full-time internal audit department that reports to the Audit
Committee and management and is responsible for, among other things, objectively
reviewing and assessing the adequacy and effectiveness of the Companys internal
controls and procedures.
Each member of the Audit Committee is an
independent Director as determined by the Board of Directors, based on NASDAQ
listing standards and the Corporate Governance Guidelines. Each member of the
Audit Committee also satisfies the SECs additional independence requirement for
members of audit committees. The Board of Directors has determined that Mr.
Junius, Mr. Claflin and Ms. Szostak each meet the criteria for Audit Committee
Financial Expert as defined by SEC rules.
At each of its nine regularly scheduled
meetings in 2016, the Audit Committee met as a group with the Companys
management, the Companys independent registered public accounting firm PwC and
internal audit. In addition, in performing its oversight function, the Audit
Committee held separate private sessions with
senior management, the independent auditors and internal audit to assure that
all were carrying out their respective responsibilities. Both PwC and the
Director of Internal Audit had full access to the Audit Committee, including
regular meetings during which members of management were not present.
In addition, the Audit
Committee:
●
|
Reviewed the Companys
audited financial statements for the fiscal year ended December 31, 2016
and discussed them with management and PwC;
|
●
|
Discussed with PwC various
communications that PwC is required to provide to the Audit Committee,
including matters required to be discussed by Auditing Standard No.
16,
Communications with Audit
Committees
; and
|
●
|
Received the written
disclosures and the letter from PwC required by applicable requirements of
the Public Company Accounting Oversight Board regarding the registered
public accounting firms communications with the Audit Committee
concerning independence and discussed with PwC their
independence.
|
Based on the review and discussion
referred to above, the Audit Committee recommended to the Board of Directors
that the audited financial statements referred to above be included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2016 for
filing with the Securities and Exchange Commission.
Audit Committee
Daniel M. Junius, Chair
Bruce L. Claflin
Thomas
Craig
M. Anne Szostak
Independent Auditors Fees
The following table summarizes the fees of
PwC billed to us for each of the last two fiscal years for audit services, and
billed to us in each of the last two fiscal years for other services. For fiscal
year 2016, audit fees also include an estimate of amounts not yet
billed.
|
Fiscal Years Ended
December
31,
|
|
2016
|
|
2015
|
Audit fees
|
|
$
|
1,861,133
|
|
|
$
|
1,914,115
|
Audit-related fees
|
|
|
|
|
|
|
|
Tax fees
|
|
|
369,691
|
|
|
|
454,052
|
All other fees
|
|
|
|
|
|
|
|
|
|
$
|
2,230,824
|
|
|
$
|
2,368,167
|
|
|
44
|
|
Table
of Contents
Audit Fees.
Consists of fees billed for professional services rendered for the audit of our
annual financial statements and review of the interim financial statements
included in quarterly reports; the audit of the effectiveness of our internal
controls over financial reporting; statutory audits or financial audits for our
subsidiaries or affiliates; services associated with periodic reports and other
documents filed with the SEC; consultation concerning accounting or disclosure
treatment of transactions or events and actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, the Financial
Accounting Standards Board or other regulatory or standard setting bodies; and
assistance with and review of documents provided to the SEC in responding to SEC
comments.
Audit-Related
Fees.
Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements and are not reported under Audit Fees. These services include due
diligence services pertaining to potential acquisitions.
Tax Fees.
Consists of tax compliance fees ($232,038 and $75,031 in 2016 and 2015,
respectively), and tax advice and tax planning fees ($137,653 and $379,021 in
2016 and 2015, respectively). These services included U.S. federal, state and
local tax planning and compliance advice; international tax planning, structure
and compliance advice; and review of federal, state, local and international
income, franchise and other tax returns.
Out-of-Pocket Expenses
and Value-Added Taxes.
Included in the fee schedule above as components
of each of Audit Fees, Tax Fees and All Other Fees are amounts billed by the
independent auditors for out-of-pocket expenses ($110,146 and $91,014 in 2016
and 2015, respectively) and value-added taxes ($54,994 and $62,846 in 2016 and
2015, respectively).
Audit Committee
Pre-Approval Policy
The Audit Committee has adopted a policy
for the pre-approval of audit and non-audit services performed by our
independent auditor, and the fees paid by us for such services, in order to
assure that the provision of such services does not impair the auditors
independence. Under the policy, at the beginning of the fiscal year, the Audit
Committee pre-approves the engagement terms and fees for the annual audit.
Certain types of other audit services, audit-related services and tax services
have been pre-approved by the Audit Committee under the policy. Any services
that have not been pre-approved by the Audit Committee as previously described
must be separately approved by the Audit Committee prior to the performance of
such services.
Pre-approved fee levels for all
pre-approved services are established periodically by the Audit Committee. The
Audit Committee then periodically reviews actual and anticipated fees for the
pre-approved services against the pre-approved fee levels. Any anticipated fees
exceeding the pre-approved
fee levels require
further pre-approval by the Audit Committee. With respect to each service for
which separate pre-approval is proposed, the independent auditor will provide a
detailed description of the services to permit the Audit Committee to assess the
impact of the services on the independence of the independent
auditor.
The Audit Committee may delegate
pre-approval authority to one or more of its members and has delegated such
authority to its chair. The Audit Committee member to whom such authority is
delegated must report any pre-approval decisions to the Audit Committee at the
next scheduled meeting. The Audit Committee does not delegate its pre-approval
responsibilities to management.
During the last two fiscal years, no
services were provided by PwC that were approved by the Audit Committee pursuant
to the
de minimis
exception to pre-approval contained in the SECs rules.
Table of
Contents
Executive Compensation
Proposal Three - Advisory Vote to Approve Executive
Compensation
We are asking our stockholders to approve,
on an advisory, non-binding basis, the compensation of our named executive
officers as described in this Proxy Statement at the 2017 Annual Meeting. This
vote is not intended to address any specific item of compensation, but rather
the overall compensation of our named executive officers and the philosophy,
policies and practices described in this Proxy Statement. This proposal is
commonly referred to as say-on-pay.
At the 2011 Annual Meeting, more than 93%
of the votes cast by our stockholders were in favor of an annual advisory
say-on-pay vote. Accordingly, since the 2011 Annual Meeting, we have annually
submitted a say-on-pay proposal to our stockholders and received overwhelming
stockholder support each year. At the 2016 Annual Meeting, our say-on-pay
proposal was approved by our stockholders with 99% of the votes cast in favor of
approving the compensation of our named executive officers, which is the highest
among our peer group. The Board believes that this vote affirmed our
stockholders support of our executive compensation program.
In deciding how to vote on this proposal,
our stockholders are encouraged to read the Executive Compensation section of
this Proxy Statement, including the Compensation
Discussion and Analysis section, which discusses in detail our executive
compensation program and how it implements our executive compensation
philosophy, how our executive compensation program helps drive our business and
other corporate strategies, the compensation decisions the Compensation
Committee has made under our executive compensation program and some recent
changes made to our compensation program.
Our Board recommends that our stockholders
approve the following resolution:
RESOLVED, that
the compensation paid to the Companys named executive officers, as disclosed in
this Proxy Statement for the 2017 Annual Meeting pursuant to Item 402 of
Regulation S-K, including the Compensation Discussion and Analysis, compensation
tables and narrative discussion, is hereby approved on an advisory
basis.
As an advisory vote, it will not be
binding. However, our Compensation Committee and Board of Directors value the
opinions expressed by our stockholders in their vote on this proposal and will
consider the outcome of this vote when making future compensation decisions for
our named executive officers.
|
Recommendation of the Board of Directors
|
|
|
The Board of Directors recommends that you vote FOR the
approval of the advisory resolution on executive
compensation.
|
|
|
|
46
|
|
Table of
Contents
Proposal Four -
|
Advisory
Vote on the Frequency of Advisory Vote to Approve Executive
Compensation
|
As required by Section 14A of the
Securities Exchange Act of 1934, we are asking our stockholders to approve, on
an advisory, non-binding basis, how frequently we should seek an advisory vote
on the compensation of our named executive officers, as disclosed pursuant to
the SECs compensation disclosure rules, such as Proposal Three of this Proxy
Statement on page 46, commonly referred to as a say-on-pay vote. By voting on
this Proposal Four, stockholders may indicate whether they would prefer a
say-on-pay vote once every one, two, or three years. You may also abstain from
making a choice.
Our Board of Directors has determined that
a say-on-pay vote that occurs every year is the most appropriate alternative
for us, and therefore recommends that you vote for a one-year interval for the
say-on-pay vote. In recommending a one-year interval, the Board considered the
fact that executive compensation is evaluated, adjusted and approved annually by
the Compensation Committee, and concluded that
stockholder views should be considered in making these compensation
decisions. In addition, we believe that an annual say-on-pay vote is
consistent with our policy of seeking input and engaging in dialogue with our
stockholders on our executive compensation philosophy, policies and
practices.
You may vote on your preferred voting
frequency by choosing the option of one year, two years, three years, or abstain
from voting. The option that receives the highest number of votes cast by
stockholders will be the frequency for the advisory vote on executive
compensation that has been selected by stockholders. The Board and the
Compensation Committee will carefully review the voting results of this
proposal.
However, because this vote is advisory
and not binding on the Board or the Company, the Board may decide that it is in
the best interests of our stockholders and the Company to hold an advisory vote
on executive compensation more or less frequently than the option approved by
our stockholders.
|
Recommendation of the Board of Directors
|
|
|
The Board of Directors recommends
that you vote FOR the option of ONCE EVERY YEAR as the frequency with
which stockholders are provided an advisory (say-on-pay) vote to approve
executive compensation.
|
|
Table of
Contents
Executive
Officers
Set forth below are the names, ages, and
current positions of our executive officers as of March 23, 2017 other than Mr.
Ayers, our Chairman of the Board, President and Chief Executive Officer, whose
biographical information is located under Proposal One Election of Directors
on page 19:
Name
|
|
Age
|
|
Title
|
Brian P. McKeon
|
|
54
|
|
Executive Vice President, Chief Financial Officer and
Treasurer
|
Jay Mazelsky
|
|
56
|
|
Executive Vice President
|
Jacqueline L. Studer
|
|
58
|
|
Corporate Vice President, General Counsel and Corporate
Secretary
|
Giovani Twigge
|
|
53
|
|
Corporate Vice President and Chief Human Resources
Officer
|
Brian P.
McKeon.
Mr. McKeon has been Executive Vice President, Chief Financial
Officer and Treasurer since January 2014. He leads our finance, business
development and worldwide operations functions. Mr. McKeon served as a Director
of IDEXX from July 2003 through December 2013, including serving as Chair of the
Audit Committee and as a member of the Compensation Committee. Mr. McKeon served
as Executive Vice President of Iron Mountain Incorporated from April 2007 to
December 2013 and Chief Financial Officer of Iron Mountain from April 2007 to
October 2013. Mr. McKeon was also Executive Vice President and Chief Financial
Officer of The Timberland Company from March 2000 to April 2007. From 1991 to
2000, Mr. McKeon held several finance and strategic planning positions with
PepsiCo Inc., serving most recently as Vice President, Finance at Pepsi-Cola,
North America. Mr. McKeon holds a bachelors degree in accounting from the
University of Connecticut and an M.B.A. with high distinction from Harvard
University.
Jay Mazelsky.
Mr. Mazelsky has been an Executive Vice President since joining us in August
2012. He oversees our North American Companion Animal Group Commercial
Organization, and our IDEXX VetLab
®
in-house diagnostics, Diagnostic
Imaging, Veterinary Systems and Service, Rapid Assay and Telemedicine lines of
business. Previously, Mr. Mazelsky was a Senior Vice President and General
Manager from 2010 to 2012 of Computed Tomography, Nuclear Medicine and Radiation
Therapy Planning at Philips Healthcare, a subsidiary of Royal Philips
Electronics. Previously he held a series of other leadership roles with
increasing responsibilities during his tenure at Philips beginning in 2001.
Prior to joining Philips, Mr. Mazelsky was at Agilent Technologies, where he was
an Executive in Charge from 2000 to 2002, leading the integration of Agilents
Healthcare Group into Philips. He also served as a General Manager of the
Medical Consumables Business Unit from 1997 to 2000 at Agilent Technologies.
From 1988 to 1996, he was in a number of roles at Hewlett Packard in
finance, marketing and business planning. Mr.
Mazelsky holds a bachelors degree in mathematics from the University of
Rochester and an M.B.A. from the University of Chicago.
Jacqueline L.
Studer.
Ms. Studer has been Corporate Vice President, General Counsel and
Corporate Secretary since September 2014. She leads the Companys legal,
compliance, regulatory affairs and quality assurance groups. Before joining the
Company, Ms. Studer was Vice President, General Counsel and Secretary of Blue
Health Intelligence, a healthcare data and analytics company. Prior to that,
from June 2011 to October 2012, Ms. Studer served as Executive Vice President
and General Counsel of Allscripts Healthcare Solutions. From December 2002 to
June 2011, Ms. Studer held various leadership positions at GE Healthcare, a
medical technology company, including General Counsel of the GE Healthcare IT
& Performance Solutions division. Ms. Studer has also held leadership roles
in entrepreneurial organizations and with The Dow Chemical Company earlier in
her career. Ms. Studer holds a bachelors degree in management from Purdue
University and a J.D. from Columbia University School of Law.
Giovani Twigge.
Mr. Twigge has been our Chief Human Resources Officer since August 2010, and
leads worldwide human resources. Prior to joining us, from 1999 to 2010, Mr.
Twigge held various human resources leadership positions at Abbott Laboratories,
Inc., a broad-based healthcare company that manufactures and markets
pharmaceuticals, medical products, and diagnostics, and was Divisional Vice
President, HR, for Abbott Diagnostics. Prior to that, he served as Divisional
Vice President, HR, for Abbott Nutrition International and as Regional HR
Director for a number of international operations including those in Europe,
Latin America/Canada and the Middle East. Mr. Twigge earned his B. Commerce
(Honors) degree in personnel management from the University of Pretoria, South
Africa.
|
|
48
|
|
Table of
Contents
EXECUTIVE
COMPENSATION
|
|
Compensation Discussion and
Analysis
|
This section describes our executive
compensation program with respect to fiscal year 2016 for our named executive
officers. To understand our executive compensation program and the 2016
compensation of our named executive officers, you should carefully read this
section and the other relevant information in this Proxy Statement,
including:
●
|
The 2016 Financial Performance
Highlights in the Proxy Summary on page 13;
|
●
|
The Executive Compensation
Highlights portion of the Proxy Summary beginning on page
14;
|
●
|
The information regarding the
Compensation Committee beginning on page 34; and
|
●
|
The Executive Compensation Tables
beginning on page 63.
|
Our named executive officers
are:
Name
|
Position
|
Jonathan W. Ayers
|
Chairman, President and Chief Executive
Officer
|
Brian P. McKeon
|
Executive Vice President, Chief Financial Officer and
Treasurer
|
Jay Mazelsky
|
Executive Vice President
|
Jacqueline L. Studer
|
Corporate Vice President, General Counsel and Corporate
Secretary
|
Giovani Twigge
|
Corporate Vice President and Chief Human Resources
Officer
|
Executive
Summary and Overview
Executive Compensation
Philosophy
|
Our executive compensation
philosophy is to attract, motivate and retain talented executives who are
aligned and passionate about the Companys purpose:
to be a great company that creates
exceptional long-term value for our customers, employees and stockholders
by enhancing the health and well-being of pets, people and
livestock.
|
In furtherance of this philosophy, our
executive compensation program is based on a pay-for-performance framework
designed to achieve three key objectives:
|
Attract, motivate and retain highly
skilled executives;
|
|
Create alignment between management
and stockholder interests by establishing a strong connection between
compensation, stock ownership and creation of stockholder value;
and
|
|
Reward executives for building a
highly engaged, high-performance culture that corresponds with our guiding
principles of:
|
●
|
Sustaining market
leadership;
|
●
|
Exceeding the expectations of our
customers;
|
●
|
Empowering and rewarding our
employees;
|
●
|
Innovating with
intelligence;
|
●
|
Cultivating entrepreneurial spirit;
and
|
●
|
Contributing to our
communities.
|
Table of
Contents
EXECUTIVE
COMPENSATION
|
|
Elements of Executive Compensation
Program
|
In support of our executive compensation
philosophy and objectives, our executive compensation program consists of the
following three key elements, which in total are targeted at the median of our
competitive market:
|
|
|
|
|
|
|
|
|
|
Base Salary
|
+
|
Performance-Based
Cash Bonus
|
+
|
Equity-Based
Long-Term
Incentives
|
=
|
Total
Executive
Compensation
|
|
|
|
|
|
|
|
|
|
|
Compensation Key
Elements
|
Objective
|
Base salary
|
To provide a fixed amount of
compensation which is positioned generally at the median of the
competitive market for similar positions, but that takes into account the
individual skills, abilities and performance of each of our executives,
which supports our compensation philosophy of attracting and retaining
talented individuals.
|
Performance-Based Cash Bonus
(at
risk)
|
To motivate executives to achieve
the Companys annual goals for financial performance, as well as achieve
key annual goals that strengthen the business and position the Company for
longer term performance. Target bonus percentages are positioned at the
median of the competitive market for similar positions.
|
Equity-Based Long-Term
Incentives
(at
risk)
|
To motivate long-term performance
and align the interests of management and stockholders, which supports our
compensation philosophy of rewarding long-term performance and sustained
stockholder value creation in a way that attracts and retains talented
executives. In general, long-term incentive opportunities vest pro rata
over five years and are structured so that, when combined with salary and
target bonus opportunity, total target direct compensation is
approximately at the median of the
market.
|
For our executives, including our named
executive officers, we believe that variable compensation, such as
performance-based cash bonuses and equity-based compensation with five-year
vesting, should be a higher percentage of total compensation than for our other
employees. We also believe that variable compensation relates most directly to
the creation
of long-term stockholder value by
providing strong incentives to achieve strategic and financial objectives over
time, as well as serving as a form of compensation that will motivate and retain
executives. In general, the total direct compensation mix for our Chief
Executive Officer and our other named executive officers for 2016 is as
follows:
Components of CEO 2016
Pay
|
Components of Other NEOs
2016 Pay (Average)
|
|
|
|
|
50
|
|
Table of
Contents
The percentage of total direct
compensation that is represented by variable, at-risk compensation elements has
increased year-over-year in each of the last three fiscal years, which is
consistent with our overall pay-for-performance executive compensation
philosophy and serves to further alignment between management and stockholder
interests.
In making decisions with respect to each
element of an executives compensation, the Compensation Committee also
considers the total compensation that may be awarded to the executive. Overall,
the Compensation Committees goal is to award compensation that corresponds with
the Companys compensation philosophy and objectives when all the elements of
the compensation program are considered individually and in total.
Results of
the 2016 Say-on-Pay Advisory Vote on Executive Compensation were 99% in
Favor
At our 2016 Annual Meeting, our
stockholders voted 99.1% (represented by 70,918,311 votes) in favor of approving
the compensation of our named executive officers and 0.9% (represented by
643,978 votes) against. This approval percentage is among the highest of the
peer group of companies utilized by the Compensation Committee for competitive
benchmarking purposes when it made executive
compensation determinations for 2016. The Compensation Committee
considered these results in determining compensation policies and decisions and
concluded that the compensation paid to our named executive officers and the
Companys overall pay practices are strongly supported by our
stockholders.
Competitive
Benchmarking of Compensation
The Compensation Committee believes that
market data is essential to determining compensation targets and the actual
awards for executives in an effort to attract and retain highly talented senior
executives. Market data is used to assess the competitiveness of our
compensation packages relative to similar companies and to ensure that our
compensation program is consistent with our compensation philosophy. The
Compensation Committees objective is to provide executives with target total
direct compensation that generally corresponds with the market
median.
On an annual basis, the Compensation
Committee engages Frederic W. Cook & Co., Inc. (FW Cook), an independent
executive compensation consulting firm, to conduct a market benchmarking study
for our senior executives, including our Chief Executive Officer and our other
named executive officers. FW Cook does not provide any services to management
and has received no compensation from the Company, other than for the services
to the Compensation Committee. For more information regarding the Compensation
Committees engagement of FW Cook, see the discussion under Use of Compensation
Consultants on page 54.
Our executive compensation program is benchmarked
against a group of medical device, technology and healthcare services companies
that are similar to the Company in size as measured by revenues, net income,
market capitalization,
price to earnings multiple
and number of employees. In February 2016, when the Compensation Committee set
2016 base salaries and made 2016 equity awards, the companies in the market
competitive analysis included the following firms.
IDEXX Proxy
Peer Group
|
|
Alere, Inc.
|
ResMed Inc.
|
Align Technology
Inc.
|
Sirona Dental Systems,
Inc.
|
Bio-Rad Laboratories,
Inc.
|
Stericycle,
Inc.
|
Charles River
Labs International, Inc.
|
STERIS
Corporation
|
The Cooper Companies
Inc.
|
Teleflex
Incorporated
|
DENTSPLY International
Inc.
|
Varian Medical Systems,
Inc.
|
Edwards Lifesciences Corporation
|
VCA Inc.
|
Haemonetics
Corporation
|
Waters
Corporation
|
Hill-Rom Holdings,
Inc.
|
West
Pharmaceutical Services, Inc.
|
Hologic Inc.
|
|
Other than the removal of C.R. Bard, which
no longer fell within our applicable comparison range with respect to revenue,
operating income and market capitalization, this peer group did not change from
the peer group that the Compensation Committee referenced when it determined
2015 compensation.
Table of
Contents
The following table sets forth certain
information regarding the size and value of the peer group companies relative to
the Company as of October 2015, which is when this peer group was selected by
the Compensation Committee.
Peer Group Comparisons*
|
($ in
Millions)
|
|
|
Revenue
|
|
Market
Capitalization
|
|
Net
Income
|
|
P/E
Ratio
|
|
Employees
|
Peer Group 75th Percentile
|
|
$
|
2,488
|
(1)
|
|
|
$
|
8,595
|
(2)
|
|
|
$
|
285
|
(1)(3)
|
|
38.0
|
(4)
|
|
|
9,630
|
(5)
|
|
Peer Group Median
|
|
$
|
1,894
|
(1)
|
|
|
$
|
5,574
|
(2)
|
|
|
$
|
148
|
(1)(3)
|
|
34.2
|
(4)
|
|
|
7,600
|
(5)
|
|
Peer Group 25th Percentile
|
|
$
|
1,540
|
(1)
|
|
|
$
|
4,229
|
(2)
|
|
|
$
|
129
|
(1)(3)
|
|
27.6
|
(4)
|
|
|
5,776
|
(5)
|
|
IDEXX Laboratories,
Inc.
|
|
$
|
1,531
|
(1)
|
|
|
$
|
6,692
|
(2)
|
|
|
$
|
182
|
(1)(3)
|
|
36.8
|
(4)
|
|
|
6,400
|
(5)
|
|
IDEXX Laboratories, Inc. 2016
(6)
|
|
$
|
1,775
|
|
|
|
$
|
10,334
|
|
|
|
$
|
222
|
|
|
46.6
|
|
|
|
7,365
|
|
|
* All data in this table, except for
the IDEXX Laboratories, Inc. 2016 data, was compiled by FW Cook from Standard
& Poors Capital IQ database.
(1) Most recently reported four
quarters publicly available as of July 31, 2015.
(2) As of July 31, 2015. Calculated
using the most recently reported shares outstanding and stock price publicly
available as of July 31, 2015.
(3) Excludes extraordinary items and discontinued
operations.
(4) Calculated by dividing the market
capitalization as of July 31, 2015 by net income for the most recently reported
four quarters publicly available as of July 31, 2015, excluding extraordinary
items and discontinued operations.
(5) Fiscal year employee number based
upon the most recently filed Annual Report on Form 10-K as of July 31,
2015.
(6) For comparative purposes only. 2016
data is as of or for the year ended December 31, 2016, except for Employees,
which is as of February 6, 2017 as set forth in our Annual Report on Form 10-K
for the year ended December 31, 2016. P/E Ratio calculated using a methodology
described in footnote (4) above, except as of December 31, 2016.
The composition of the peer group is based
on recommendations by FW Cook and is reassessed annually, and the Compensation
Committee approves all changes to the group. We supplement the peer group data
with national survey life sciences and general
industry data. The survey data is blended to recognize the manufacturing aspects
of our business and the different business models of some companies reflected
therein.
Compensation Policies and Practices
The following table summarizes certain
policies and practices utilized by us in connection with our executive
compensation program.
|
Summary
|
Executive Stock
Ownership
and Retention
|
We maintain stock ownership
guidelines intended to ensure that the interests of our executives are
economically aligned with those of our stockholders. These guidelines
establish the following target levels of ownership of our common
stock:
●
Chief Executive
Officer 6 times annual base salary;
●
Executive Vice
Presidents 3 times annual base salary; and
●
Corporate Vice
Presidents 1 times annual base salary.
The Compensation Committee believes
that the higher target multiples applicable to the Chief Executive Officer
and our Executive Vice Presidents are appropriate given the greater
relative scope of responsibilities relating to long-term stockholder value
creation associated with those positions.
These target levels determine
whether the executive must retain additional stock acquired upon the
vesting and release of RSUs, deferred stock units (DSUs) or the exercise
of options. Specifically, unless and until the value of our common stock
held by an executive equals or exceeds his or her target level at the end
of a calendar year, this executive must retain:
●
At least 75% of our
common stock received upon the exercise of options or the vesting and
release of RSUs or DSUs during the following year, after payment or
withholding of any applicable exercise price and taxes;
and
●
All other shares of
our common stock held by the executive.
We do not apply the value of stock
options or unvested RSUs towards satisfying these guidelines, as the
Compensation Committee believes that these guidelines are meant to
encourage outright ownership of our common stock. Each executives
compliance with the guidelines is measured annually as of December 31 and
reviewed by the Compensation Committee. All named executive officers were
in compliance with the guidelines as of December 31,
2016.
|
|
|
52
|
|
Table of
Contents
|
Summary
|
Recovery of Incentive
Compensation
(Clawback
Policy)
|
Under our Policy of Recovery of
Incentive Compensation, or clawback policy, we may seek to recover
certain annual performance-based incentive compensation (including
incentive-based equity compensation) granted to our executives in the
event we are required to restate our financial results for any of the
three most recent fiscal years completed after March 3, 2010, other than a
restatement due to changes in accounting principles or applicable
law.
|
Policy
on Short Sales,
Derivatives and Hedging
|
Pursuant to our Policy on Short
Sales, Derivative Transactions and Hedging, no employee of the Company may
engage in short sales of our securities, purchases or sales of puts, calls
or other derivative securities based on our securities, or purchases of
financial instruments that are designed to hedge or offset any decrease in
the market value of our securities.
|
Anti-Pledging
Policy
|
We maintain a Policy on Pledging of
Company Stock that prohibits our Directors and senior executives from
pledging or otherwise encumbering our equity securities as collateral for
indebtedness, including holding shares in a margin or similar account that
would subject our equity securities to margin calls.
|
CEO
Employment
Agreement
|
Our Chief Executive Officer has an
employment agreement that stipulates severance terms if he were to be
terminated by the Company other than for cause. Cause is defined in the
employment agreement as willful, material misconduct, gross negligence in
the performance of his duties on behalf of the Company, or a breach of his
invention and non-disclosure agreement or non-compete agreement with the
Company.
|
Change
in Control
Agreements
|
Each of the named executive officers
and certain other executives has a change in control agreement with the
Company. The purpose of these agreements is to provide strong incentives
for these executives to act in the best interest of our stockholders
before, during and after any change in control transaction by providing
them with security in the event their employment is terminated or
materially changed following a change in control. The agreements generally
provide for a lump sum payment of a prorated portion of the executives
target bonus for the year of termination, an amount equal to two times (or
three times in the case of the Chief Executive Officer) the sum of the
executives annual base salary, and the average bonus received by the
executive for the three full fiscal years preceding the change in control,
as well as the continuation of benefits for two years (or three years in
the case of the Chief Executive Officer) following a qualifying
termination. The agreements also provide for immediate vesting of equity
awards in the event of a change in control followed by a qualifying
termination but do not provide for any 280G excise tax gross-ups. The
change in control agreements renew annually unless we provide notice of
our intent not to renew. The Compensation Committee believes these terms
are reasonable and consistent with market practice.
The Compensation Committee
periodically reviews the change in control agreements and obtains updated
industry benchmarking advice from FW Cook to assist in determining whether
any modifications to the agreements are necessary or whether we should
permit renewal.
|
Compensation Committee
Procedures
Compensation Committee meetings are
scheduled and agendas determined through consultation among the Compensation
Committee Chair; our Chief Executive Officer; our Corporate Vice President,
General Counsel and Corporate Secretary; and our Corporate Vice President and
Chief Human Resources Officer.
In February of each year, the Compensation
Committee meets to:
●
|
Approve the prior year actual bonus
amount for the Chief Executive Officer;
|
●
|
Review and approve the Chief
Executive Officers recommendations for bonuses paid to other executive
officers for the prior year (with consideration of the
targets that had been set), and making changes when
deemed appropriate;
|
●
|
Determine the current year base
salary, target bonus percentage and annual equity award for the Chief
Executive Officer; and
|
●
|
Review and approve the Chief
Executive Officers recommendations for the current year base salary,
target bonus percentage and equity awards for the other executive
officers, making such changes as it deems
appropriate.
|
The Compensation Committee meets at other
times during the year as needed to review executive compensation and otherwise
to perform the duties described in its charter.
Table of
Contents
Use of
Compensation Consultants
The Compensation Committee has the
authority to engage advisers to support its work at the Companys expense,
taking into consideration the applicable factors affecting the independence of
such advisers that are required by SEC and NASDAQ rules. The Compensation
Committee has engaged FW Cook to serve as a consultant, with the following
duties generally and during 2016:
●
|
Providing the Compensation Committee
with analysis pertaining to chief executive officer, executive and
director compensation program design, including industry survey analysis,
explanation of trends, best practices and regulatory
changes;
|
●
|
Analyzing peer companies annual
chief executive officer, executive and director compensation to assist the
Compensation Committee in determining the appropriateness and
competitiveness of our Chief Executive Officer, executive and Director
compensation and recommending a relevant group of peer companies against
which to benchmark the competitiveness and appropriateness of our Chief
Executive Officer, executive and Director compensation;
|
●
|
Reviewing any proposed changes to
chief executive officer, executive and director compensation program
design;
|
●
|
Reviewing compensation disclosure
materials;
|
●
|
Analyzing our compensation practices
to assist the Compensation Committee in determining whether risks arising
from such practices are reasonably likely to have a material adverse
effect on the Company; and
|
●
|
Providing specific analysis
periodically as requested by the Compensation
Committee.
|
FW Cook provides no services to us other
than those provided to the Compensation Committee. The Chair of the Compensation
Committee reviews and approves all invoices pertaining to services provided by
FW Cook. Members of management work with FW Cook to the extent necessary to
provide FW Cook with information necessary for its consulting work and to
prepare materials for review by the Board and the Compensation
Committee.
In accordance with SEC and NASDAQ rules,
our Compensation Committee annually assesses the independence of the
compensation consultant engaged by the Committee. Accordingly, in December 2016 the
Compensation Committee considered whether its work with FW Cook raised any
conflicts of interest in light of specific independence factors described in the
applicable SEC and NASDAQ rules. Based on these factors, the Compensation
Committee determined that the work of FW Cook and the individual compensation
advisors employed by FW Cook who provided services to the Compensation Committee
have not created any conflict of interest.
Analysis of Risk Associated with Compensation
Practices
|
The Compensation Committee engaged FW Cook
to conduct an analysis of our compensation practices in order to assist the
Compensation Committee in determining whether those practices created risks that
were reasonably likely to have a material adverse effect on the Company. The
results of this analysis were presented by FW Cook to the Compensation Committee
in December 2016. Based on this analysis, the Compensation Committee determined
that our compensation
practices were not
reasonably likely to have a material adverse effect on the Company. This
conclusion was based on the use of a reasonably balanced pay mix, multiple
performance metrics used for the cash bonus plan, including non-financial goals,
capped cash bonus payouts, multi-year equity compensation vesting periods, stock
ownership guidelines, a clawback policy, and a prohibition against pledging and
hedging activity.
Role
of Company Executives
|
As provided by the Compensation Committee
charter, the Chief Executive Officer is responsible for recommending to the
Compensation Committee annual compensation for the rest of the executive
officers. The Compensation Committee approves compensation for these executive
officers and may make such changes as it deems appropriate. The Compensation
Committee charter also provides that the Compensation Committee determines the
Chief Executive Officers annual compensation and meets without the presence of
any executive officers of the Company when approving or deliberating on Chief
Executive Officer compensation.
In addition to the Chief Executive
Officer, our Corporate Vice President, General Counsel and Corporate Secretary
and our Corporate Vice President and Chief Human Resources
Officer also work with the Compensation Committee Chair to set
agendas, prepare materials for Compensation Committee meetings, and generally
attend meetings and prepare meeting minutes, and our Executive Vice President
and Chief Financial Officer also works with the Corporate Vice President and
Chief Human Resources Officer in the preparation of some materials for
Compensation Committee meetings. However, no member of management is present in
Compensation Committee meetings when matters related to his or her individual
compensation is under discussion. No other executive officer is involved in
supporting Compensation Committee activities or executive compensation
recommendations.
|
|
54
|
|
Table of Contents
EXECUTIVE
COMPENSATION
|
|
Determination of Executive
Compensation
|
The Compensation Committee determines the
compensation of the Chief Executive Officer and, in consultation with the Chief
Executive Officer, approves the compensation for each of our other named
executive officers. The Chief Executive Officer does not participate in the
Compensation Committees deliberations or decisions regarding his compensation.
All four Compensation Committee members are independent directors of the
Company. The Compensation Committee reviews, at least annually, the base salary,
annual cash performance-based bonus, long-term equity awards and other material
benefits, direct and indirect, of the named executive officers. These
responsibilities are identified in the Compensation Committee
charter.
In making compensation determinations with
respect to our named executive officers, the Compensation Committee gives
primary consideration to impact on the Companys results and scope of
responsibility, in addition to past accomplishments, prior experience and other
factors, including data on prevailing compensation levels. Considerable weight
is also given to the Chief Executive Officers evaluation of the other named
executive officers because of his unique knowledge of their responsibilities,
performance and contributions. For each of our named executive officers, the
Compensation Committee determines each component of compensation based on
overall achievement of our financial and non-financial performance
goals.
Base salary levels are reviewed and
approved by the Compensation Committee annually, typically in the first fiscal
quarter, as part of our compensation planning process. The Compensation
Committee targets base salary toward the median for the peer group proxy data
and survey compensation data. Individual executive base salary levels may vary
on either side of the median when factoring in our
overall financial performance and an individuals strengths, level and
scope of responsibilities, skills, experience, past performance and
potential.
For detail regarding the base salary paid
to each of our named executive officers for fiscal year 2016, see the discussion
under 2016 Base Salary on page 59.
Annual Performance-Based Cash
Bonus
|
In 2016, annual performance-based cash
bonuses for our Chief Executive Officer and our other named executive officers,
as well as certain other senior executives, were paid pursuant to our Senior
Executive Team Incentive Plan (the SET Incentive Plan) from a bonus pool
determined based on the Incentive Plan Measures as described below. Each of the
named executive officers and other senior executives has a target annual
performance-based cash bonus opportunity, which is determined annually by the
Compensation Committee and based on a percentage of the executives base salary,
with a maximum payout of 200% of the target. These target percentages are
intended to provide an appropriate mix of fixed and variable compensation and to
maintain an appropriate weighting of annual versus longer-term incentives consistent with our compensation philosophy. For
participating members of the senior executive team other than the Chief
Executive Officer, the aggregate of these target annual bonus opportunities
creates a bonus pool used to award actual annual incentive cash bonuses to these
senior executives.
As depicted in the following table, the
annual performance-based cash bonus pool paid out to senior executive team
members pursuant to the SET Incentive Plan is calculated using two equally
weighted factors: (i) our financial performance measured against specific
metrics selected by the Compensation Committee, and (ii) achievement of
non-financial performance goals focused on strengthening and positioning the
Company for sustained future growth and profitability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary
|
X
|
Target
Incentive
%
|
|
Target
$
|
X
|
|
Financial
Performance
Factor
|
+
|
Non-
Financial
Performance
Factor
|
|
=
|
Performance-
Based Cash
Bonus
|
|
|
|
|
|
|
|
|
|
50%
Weighting
|
|
50%
Weighting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
The financial goals used to calculate the
financial performance factor are established annually by the Compensation
Committee. The non-financial performance factor is determined by the
Compensation Committee by measuring achievement of annual goals approved by the
Board and intended to strengthen the business to support long-term
performance.
The mechanics of the SET Incentive Plan
informed the Compensation Committees exercise of its negative discretion in
reducing the maximum cash performance bonus amount payable to our named
executive officers under our 2014 Incentive Compensation Plan (the 2014 Plan)
for 2016. For detail regarding the calculation of performance-based cash bonuses
paid to each of our named executive officers for fiscal year 2016 under the SET
Incentive Plan, see the discussion under 2016 Annual Performance-Based Cash
Bonus on page 59.
Long-Term Equity Incentive
Compensation
|
We believe that the practice of granting
equity-based awards is important in recruiting and retaining the key talent
necessary to ensure our continued success. We also believe that granting
equity-based awards, with a high percentage of those awards made in the form of
stock options, provides our executives a strong financial incentive to maximize
stockholder returns over the long term. In fact, our compound average annual
total stockholder return substantially outperformed the median of our proxy peer
group and the S&P 500 over the last one-, three-, and five-year
periods.
1-, 3- and 5-Year Compound
Average Annual Total Stockholder Return %*
|
* Based on total return to stockholders,
assuming dividend reinvestment for those companies issuing dividends. All
three periods ending December 31, 2016.
** Proxy Peer Group identified on
page 51 (excluding Sirona Dental Systems, Inc., which merged with DENTSPLY
International Inc. in 2016) and excludes
IDEXX.
|
|
|
56
|
|
Table of Contents
The following table summarizes the key
aspects of our equity compensation awards:
Aspect of Equity
Awards
|
Description
|
Types of Equity Awards
Granted
|
Our equity awards may
include:
●
Annual equity awards to qualifying employees;
and
●
Equity hiring awards granted to attract highly talented
individuals.
|
Mix of Equity
Incentive
Compensation
|
Annual equity awards may consist
of stock options, RSUs, or a combination of both. Because stock options
have value only to the extent our stock price increases in comparison to
the stock price on the date of the grant, and generally vest ratably over
five years with seven- or ten-year terms, they directly reward creation of
long-term stockholder value after the grant date. For these reasons, we
view options as an effective means of implementing our compensation
philosophy that emphasizes pay-for-performance and seeks to align the
interests of our executives and stockholders. RSUs vary in value depending
on the stock price of our common stock prior to vesting, but generally
will have some value in the long term, which encourages retention and
rewards the creation of stockholder value over time. Given the different
risk/reward characteristics of these two types of awards and alignment
with our executive compensation philosophy, the Compensation Committee
believes that the equity awards granted to executives should have a
greater proportion of stock options relative to RSUs.
Executives have the most direct
impact on our performance and should bear the highest risk, and realize
the highest potential reward, associated with that performance.
Accordingly, executives (other than the Chief Executive Officer) generally
receive 75% of their equity award value in the form of stock options and
25% of their award value in the form of RSUs.
Based on our Chief Executive
Officers substantial impact on company performance and ability to create
stockholder value over the long term, since 2015 our Chief Executive
Officer has received 100% of his annual equity award in the form of stock
options that vest over five years. We believe that these higher
percentages of options, combined with the five-year vesting period, serve
as effective incentives to create long-term stockholder value for our
Chief Executive Officer and the other named executive officers, which is
evidenced by our strong stock price performance over the last several
years.
|
Vesting and
Expiration
|
All equity awards generally have a
five-year vesting schedule.
The Compensation Committee
believes that a five-year vesting schedule for both options and RSUs,
which is longer than typical market practice, further aligns the interests
of our executives with the long-term interest of stockholders while also
providing a retention benefit for the Company.
Since 2016, RSUs granted to our
named executive officers also contain a performance-based vesting
component. Annual stock option awards granted prior to the date of our
2013 Annual Meeting generally expire on the day immediately prior to the
seventh anniversary of their grant date, and annual stock option awards
granted on or after the date of our 2013 Annual Meeting generally expire
on the day immediately prior to the tenth anniversary of their grant
date.
|
Equity Hiring
Awards
|
Hiring awards are granted in certain
cases in order to attract highly talented individuals to the Company.
Hiring awards typically consist of RSUs, but may also include a
combination of RSUs and stock options. Generally, hiring awards for
newly-hired executive officers are granted on one of four established
grant dates annually, and vest proportionally in annual increments over a
five-year period.
|
Equity Grant
Procedures
|
The Board has adopted an equity
award granting policy that determines when and how equity awards are
granted by the Company. This policy provides for fixed award dates that
occur outside the quarterly quiet periods during which our executives and
Directors are precluded from trading in our securities. Most equity
awards, including all annual awards to the named executive officers, are
made on or about February 14 of each year, which shortly follows both our
earnings announcement for the fourth quarter of the prior year and the
Compensation Committee meeting at which annual compensation determinations
are made. All annual equity awards to our named executive officers require
the approval of the Compensation Committee. All other equity grants are
typically authorized by the Compensation Committee. Pursuant to the equity
award granting policy, the Compensation Committee has delegated to the
Compensation Committee Chair the power and authority to grant certain new
hire equity awards for executive officers, subject to certain limitations
set forth in the equity award granting policy.
In determining the size of equity
awards to each named executive officer, the Compensation Committee begins
with a competitive assessment based upon the proxy peer group and survey
data. The determination of the equity award is based on the
responsibilities of each named executive officers position and, relative
to cash compensation, is intended to support the Companys philosophy that
variable pay should constitute a significant portion of total
compensation. The size of annual award value is determined based on the
executives job scope, long-term leadership potential, the size of prior
awards, total compensation relative to median total compensation for
market comparable positions, and the impact of the equity award values in
total on stockholder dilution and stockholder value transfer in relation
to the average of such totals for the proxy peer group.
The exercise price of all stock
options granted by the Compensation Committee equals the closing sale
price of the common stock on the date of grant and in any case will not be
less than such price. The number of stock options granted is determined
based on the Black-Scholes value of an option with respect to our common
stock on the applicable grant date. The number of RSUs granted is
determined based on the closing price of our common stock on the
applicable grant date. In addition, all RSUs granted to our named
executive officers since 2016 have included a performance component
selected by the Compensation Committee as part of its approval of annual
equity awards to these officers, with the intent to make these RSUs
eligible to qualify as performance based compensation under Section
162(m) of the Code.
|
For detail regarding the long-term equity
incentive compensation granted to each of our named executive officers for
fiscal year 2016, see the discussion under 2016 Long-Term Equity Incentive
Awards on page 61.
Table of Contents
Benefits and
Perquisites
We provide health and welfare benefits to
our salaried employees, including our named executive officers. This includes
health insurance, affordable access to physical fitness facilities, life
insurance and disability insurance. In addition, all full-time employees of the
Company and its domestic subsidiaries that have been employed for at least one
month have an opportunity to purchase shares of our common stock through payroll
deductions pursuant to our 1997 Employee Stock Purchase Plan.
In 2016, the only benefits available
exclusively to our executives were Company-funded, elective supplemental
disability coverage and annual executive physical exams and wellness coaching,
which have a combined value of under $10,000 per
executive. The supplemental disability coverage is provided for
additional financial security in the case of disability. Annual physical exams
and wellness coaching are provided because the health of our executives is
critical to their performance. In addition, in 2016 we reimbursed our Chief
Executive Officer and each of our other named executive officers for tax return
preparation and planning services in an amount that did not exceed $6,000. The
tax preparation and planning service is provided to these senior executives to
maximize the amount of time that they are able to spend on Company business
rather than personal financial matters. We do not gross up executives
perquisites and benefits to compensate for any taxes due on the value of these
perquisites and benefits, with the exception of executives on expatriate
assignments.
Deductibility of Annual,
Performance-Based Compensation Under Section 162(m)
|
Section 162(m) of the Code disallows a tax
deduction for certain compensation in excess of $1 million paid to our Chief
Executive Officer and three other officers (other than the Chief Financial
Officer) whose compensation is required to be reported to our stockholders
pursuant to the Securities Exchange Act of 1934. Pursuant to Section 162(m),
certain qualified performance-based compensation that is approved in
accordance with the requirements of Section 162(m) is not subject to this
deduction limit. The Compensation Committee believes it is in the best interest
of the Company and its stockholders for us to provide annual, performance-based
compensation to executives that preserves the flexibility to grant awards
intended to be deductible by the Company for federal income tax
purposes.
Accordingly, annual cash bonuses for our
named executive officers are typically awarded pursuant to our 2014 Plan, with
the intent that these bonuses will qualify as performance-based compensation
under Section 162(m). As a consequence, our named executive officers become
eligible to receive such annual cash bonuses only if the Company achieves a
specified financial metric for the fiscal year to which the bonuses relate. In
addition, in February 2016 the Compensation Committee added a performance
component to the RSUs awarded to our senior executives as part of their annual
equity incentive award, starting with the RSUs granted for fiscal year 2016.
This new feature is intended to allow
the awards
to be eligible to qualify as performance-based compensation pursuant to Section
162(m), as contemplated under our 2009 Stock Incentive Plan. Specifically, these
performance-based RSUs will vest and become payable only if the Company achieves
a pre-determined financial metric for the fiscal year in which the RSUs are
granted and the executive remains employed with the Company through the
service-based vesting requirements. If the applicable performance goal is not
met for such fiscal year, these RSUs will be forfeited, and the recipients will
not be eligible for replacement awards in connection with such forfeiture.
For detail regarding the performance
components of the cash bonus awards and RSU grants made to our named executive
officers for fiscal year 2016, see the discussion below under 2016 Executive
Compensation Determinations.
The rules and regulations relating to
Section 162(m) are complicated and may change from time to time, sometimes
impacting prior awards. There can therefore be no guarantee that any award
intended to qualify as qualified performance-based compensation within the
meaning of Section 162(m) will in fact qualify. In addition, the Compensation
Committee reserves the flexibility to grant cash bonuses, RSUs and other awards
that would not qualify as performance-based compensation if the Compensation
Committee determines it is appropriate to do so.
|
|
58
|
|
Table of Contents
EXECUTIVE COMPENSATION
|
|
2016 Executive Compensation
Determinations
|
The following is a discussion of the
determinations of base salary, annual performance-based cash bonus and long-term
equity awards for the named executive officers for fiscal year 2016 and the
specific factors considered in making such determinations.
Compensation for Fiscal 2016
Performance Table
|
The table below provides an overview of
total direct compensation paid to our named executive officers for fiscal year
2016, including a breakdown of each of the three key elements of total direct
compensation and the 2016 target performance-based cash bonus compared to the
actual amount of the 2016 performance-based cash bonus.
|
|
|
|
Performance-Based
Cash Bonus
|
|
Long
Term
Incentives
|
|
Total
Direct
Compensation
|
|
|
Base Pay
|
|
Target
Bonus
(% of Base Pay)
|
|
Target
Bonus
($)
|
|
Actual
Bonus
|
|
Actual (1)
|
|
Actual
|
Jonathan W. Ayers
|
|
$800,000
|
|
|
125
|
%
|
|
|
$
|
1,000,000
|
|
$
|
1,545,000
|
|
$
|
3,497,863
|
|
$
|
5,842,863
|
Brian P. McKeon
|
|
$536,000
|
|
|
75
|
%
|
|
|
$
|
402,000
|
|
$
|
621,000
|
|
$
|
1,099,501
|
|
$
|
2,256,501
|
Jay Mazelsky
|
|
$450,000
|
|
|
75
|
%
|
|
|
$
|
337,500
|
|
$
|
600,000
|
|
$
|
999,569
|
|
$
|
2,049,569
|
Jacqueline L. Studer
|
|
$375,000
|
|
|
60
|
%
|
|
|
$
|
225,000
|
|
$
|
324,000
|
|
$
|
549,776
|
|
$
|
1,248,776
|
Giovani Twigge
|
|
$370,000
|
|
|
60
|
%
|
|
|
$
|
222,000
|
|
$
|
343,000
|
|
$
|
549,776
|
|
$
|
1,262,776
|
(1) Represents actual grant date fair
value computed in accordance with FASB ASC Topic 718.
Mr. Ayerss 2016 base salary was $800,000,
which is the same base salary paid to Mr. Ayers in 2015 and 2014, reflecting our
philosophy that the portion of the Chief Executive Officers total compensation
that is performance-based should grow as a percentage of the total over time.
The Compensation Committee approved base salary increases of between 3% to 5.1%
in 2016 for each of the other named executive officers to more closely align
these base salaries to the median of the proxy peer group and market survey data
for these positions.
2016 Annual Performance-Based Cash
Bonus
|
In February 2016, the Compensation
Committee selected each of our named executive officers, as well as certain
other senior executives, as participants in the 2014 Plan for the 2016 fiscal
year, with the intent to make cash bonuses payable to these named executive
officers and other senior executives for fiscal year 2016 eligible to qualify as
performance-based compensation under Section 162(m). The Compensation
Committee established operating income, as adjusted to eliminate the effects of
differences between actual and budgeted foreign currency exchange rates in 2016
and to eliminate the effects of discrete items such as acquisition- and
litigation-related expenses and restructuring charges, as the performance goal
applicable to the participants in the 2014 Plan. The Committee then fixed the
maximum amount payable to Mr. Ayers for fiscal year 2016 as 1.5% of operating
income (as adjusted), and fixed the maximum amount payable to the other
participating senior executives, including each of the other named executive
officers, for fiscal year 2016 as 0.75% of operating income (as adjusted),
subject in each case to the limitations under the 2014 Plan ($5 million per
participant)
and an overall cap per participant
equal to 200% of his or her target bonus. In addition, the aggregate amount
payable to all of the participating executives (other than the Chief Executive
Officer) is limited to the aggregate amount of the bonus pool. In the event the
Company did not achieve positive operating income (adjusted as described above)
for fiscal year 2016, the selected participants would not be eligible to receive
an annual, performance-based cash bonus for fiscal year 2016 under the 2014
Plan.
In February 2017, the Compensation
Committee certified that the Company achieved its operating income goal for
fiscal year 2016. In light of the limitations described above, each
participating executive was entitled to a maximum bonus amount for fiscal year
2016 equal to 200% of his or her target bonus. The Compensation Committee then
exercised its negative discretion, as permitted under Section 162(m), to
determine the actual annual performance-based cash bonuses awarded to each of
the named executive officers for performance during 2016, using the guidelines
and performance criteria set forth in the SET Incentive Plan.
Table of Contents
Pursuant to the SET Incentive Plan
parameters for 2016, 50% of the annual performance-based cash bonus for the
named executive officers is based on an equal weighting of three financial
metrics selected by the Compensation Committee, and 50% is determined by the
Compensation Committee based on the Companys achievement of non-financial
performance
goals approved by the Board, as
described above under Annual Performance-Based Cash Bonus on page 55. Based on
overall performance against financial and non-financial goals, the Compensation
Committee determined that the maximum aggregate amount of the bonus pool equaled
154.5% of the sum of the participants target bonuses.
For the financial performance goals in
2016, the SET Incentive Plan included three equally-weighted factors: organic
revenue growth, operating profit, and earnings per share, as depicted
below:
|
|
|
|
|
|
|
|
|
|
Organic
Revenue
Growth
Rating
|
+
|
Operating
Profit
Rating
|
+
|
Earnings
per
Share (EPS)
Rating
|
=
|
Financial
Performance
Factor
|
|
|
33% Weighting
|
|
33%
Weighting
|
|
33% Weighting
|
|
|
|
|
|
|
|
|
|
|
|
|
Each of the three Company financial
performance metrics that comprise the financial performance factor is subject to
a rating calculated on a sliding scale, ranging from 50% to 180% (with no payout
below threshold performance), using the approved budget goal for the applicable
factor as 100% of target payout. The Companys performance versus the
approved budget goal with respect to each financial metric selected by the
Compensation Committee for the SET Incentive Plan for 2016, and the resulting
calculation of the financial performance factor, is illustrated in the table
below:
|
|
2016
Actual
|
|
2016
Approved
Budget Goal (1)
|
|
Variance
to
Approved
Budget
Goal
|
|
Payout
Rating (2)
|
|
Weighting
|
|
Weighted
Average
Percentage
|
Organic Revenue Growth (3)
|
|
|
11.4
|
%
|
|
|
|
8.2
|
%
|
|
|
|
|
3.2
|
%
|
|
|
|
161.3
|
%
|
|
|
33%
|
|
|
53.2
|
%
|
|
Operating Profit ($ in
millions)
|
|
$
|
350.2
|
|
|
|
$
|
310.4
|
|
|
|
|
$
|
39.8
|
|
|
|
|
180
|
%
|
|
|
33%
|
|
|
59.4
|
%
|
|
Earnings per Share
(Diluted)
|
|
$
|
2.44
|
|
|
|
$
|
2.16
|
|
|
|
|
$
|
0.28
|
|
|
|
|
180
|
%
|
|
|
33%
|
|
|
59.4
|
%
|
|
2016 Financial Performance
Factor (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172.0
|
%
|
|
(1) In evaluating financial
performance, the Compensation Committee reviewed the 2016 budget as adjusted to
eliminate the effects of changes in foreign currency exchange rates during 2016,
as compared to the rates assumed in the budget, as well as the impact of the
permanent extension of the federal research and development tax
credit.
(2) Achievement of the Companys
approved budget goal for each of the financial metrics equates to 100% payout,
with separate pre-defined performance scales for each financial metric resulting
in an increase or decrease in the percentage payout, as described
above.
(3) Organic revenue growth is not a
measure defined by generally accepted accounting principles in the United States
of America (GAAP), otherwise referred to herein as a non-GAAP financial
measure. In calculating organic revenue growth, we exclude the effect of changes
in foreign currency exchange rates because changes in foreign currency exchange
rates are not under managements control, are subject to volatility and can
obscure underlying business trends. We also exclude the effect of acquisitions
because the nature, size and number of acquisitions can vary dramatically from
period to period and therefore can also obscure underlying business trend. Information regarding organic revenue growth and its calculation is provided in
Appendix A.
The non-financial goals for 2016 for the
SET Incentive Plan in general covered the following objectives:
●
|
Implementation of certain commercial
strategies, including go-direct initiatives, and continued traction of
IDEXX SDMA
TM
and achievement of
global instrument placement goals;
|
●
|
Development, commercialization and
launch of certain products, including our SediVue Dx
Instrument;
|
●
|
Achievement of specific product
development and key operational milestones; and
|
●
|
Increase employee engagement,
decrease employee turnover, hire and develop key leadership talent,
including gender and ethnically diverse
talent.
|
The Compensation Committee, upon analysis
of the achievement of the non-financial goals described above, determined that
the non-financial performance factor for the senior executives should be 137% of
target. In accordance with the equal weighting applied to the financial and
non-financial factors set forth in the SET Incentive Plan, the incentive plan
design results in a 154.5% overall performance-based bonus factor for the
participants in the SET Incentive Plan other than the Chief Executive Officer.
With respect to the individual
|
|
60
|
|
Table of
Contents
performance factors of each of the
participating senior executives, the Compensation Committee considered the
relative contributions made by each of these executives to the achievement of
the Companys financial and non-financial goals applicable to the SET Incentive
Plan, as well as other factors such as the scope of and tenure in their roles at
the Company.
The Compensation Committee awarded Mr.
Ayers an overall performance factor of 154.5% of target bonus, consistent with
the bonus pool performance target and average bonus payout as a percentage of
target of the other participating senior executives, in accordance with the SET
Incentive Plan.
With respect to the named executive
officers other than Mr. Ayers, the Compensation Committee also consulted with
the Chief Executive Officer regarding his performance assessment of these named
executive officers. In light of the significant role played by Mr. Mazelsky in
conceiving the fully-direct sales strategy in the U.S. and successfully
implementing the second year of this sale strategy, a key goal for 2016,
the Compensation Committee determined that a
larger performance factor over target for Mr. Mazelsky was merited, and given
the limited size of the bonus pool, a correspondingly more moderate (but still
significant) performance factor over target was merited for some participants
who had less tenure in their roles. Accordingly, the Compensation Committee set
a performance factor significantly over target for each participating senior
executive that resulted in an overall performance-based factor of 177.8% for Mr.
Mazelsky, 154.5% for each of Mr. McKeon and Mr. Twigge, each of whom has been in
his role at the Company for more than three years, and 144% for the other
participating senior executives, each of whom has been in his or her role for
less than three years, including Ms. Studer. The Compensation Committee believes
these performance-based factors over target are appropriate due to the
exceptional performance of the Company in 2016, and each participating senior
executives relative contribution to the Companys performance against the
financial and non-financial performance goals described above.
2016 Long-Term Equity Incentive
Awards
|
In February 2016, the Compensation
Committee granted Mr. Ayers stock options with an aggregate grant value of
approximately $3,500,000 that vest ratably over five years. Although the
Compensation Committee considered the peer group proxy and market data in making
this equity award, it did not target any particular percentage of the median
total direct compensation and determined the amount of the award in its
discretion. However, the Compensation Committee believes this award results in
total direct compensation for the Chief Executive Officer that is slightly below
median in relation to the benchmark group, consistent with good compensation
practices and our philosophy of creating long-term value for the benefit of our
stockholders.
In February 2016, the Compensation
Committee granted stock options and performance-based RSUs with an aggregate
grant value of approximately $1,100,000 to Mr. McKeon, $1,000,000 to Mr.
Mazelsky, and $550,000 to each of Ms. Studer and Mr. Twigge, in each case that
vest ratably over five years. Each of these named executive officers received
75% of their equity award value in the form of stock options and 25% of their
award value in the form of performance-based RSUs. In determining the size of
equity awards granted to these named executive officers in 2016, the
Compensation
Committee reviewed compensation
summaries for each that summarized the value of outstanding vested and unvested
stock options and vesting of RSUs and the cumulative value realized by the
executives upon exercise of stock options and vesting of RSUs since commencement
of employment. As with the determination of Mr. Ayerss equity award, the
Compensation Committee considered the peer group proxy and market data in making
these equity awards, but did not target any particular percentage of the median
total direct compensation and determined the amounts of the awards in its
discretion.
The Compensation Committee also reviewed
an analysis of the Companys aggregate share usage and aggregate fair value of
equity compensation awarded, relative to the Companys prior levels and in
relation to the peer group. The aggregate fair value of equity compensation
awarded in 2016 was below the median of the latest year of peer group data and
below the median for the average of the past three years. The Compensation
Committee considered this information as well as Mr. Ayerss advice and
recommendation regarding the prospects for long-term contribution by each of the
named executive officers, other than Mr. Ayers, in making these 2016 equity
awards.
Table
of Contents
The performance-based RSUs granted to each
of Mr. McKeon, Mr. Mazelsky, Ms. Studer and Mr. Twigge for fiscal year 2016
included a performance component. Specifically, these RSUs were eligible to vest
and become payable only if the Company achieved consolidated operating income,
as adjusted to eliminate the effects of discrete items such as acquisition- and
litigation-related expenses and restructuring charges, for fiscal year 2016 that
is at least 55%
of this metric in our approved
2016 budget. Failure to meet this performance goal for fiscal year 2016 would
result in the forfeiture of these RSUs. In February 2017, the Compensation
Committee certified that this performance goal was achieved for fiscal year
2016, meaning that these RSUs granted in February 2016 will vest ratably over
five years, with one-fifth of the shares underlying the RSU award vesting in
February of each year beginning in 2017.
Compensation Committee Report
The Compensation Committee has reviewed
and discussed with management the Compensation Discussion and Analysis set forth
in this Proxy Statement for the year ended December 31, 2016. Based on this
review and discussion, the Compensation Committee recommended to the Board of
Directors, and the Board of Directors has approved, the inclusion of the
Compensation Discussion and Analysis in this Proxy Statement.
Compensation Committee
M. Anne Szostak, Chair
Thomas
Craig
William T. End
Lawrence D. Kingsley
|
|
62
|
|
Table of
Contents
Executive Compensation
Tables
Summary Compensation Table
The following table sets forth the
compensation earned during 2016, 2015 and 2014 by our Chief Executive Officer,
Chief Financial Officer, and the three other highest-paid executives for the
Companys 2016 fiscal year.
Name and
Principal
Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
(1)
|
|
Option
Awards
(1)
|
|
Non-Equity
Incentive
Plan
Compensation (2)
|
|
All
Other
Compensation
|
|
Total
Compensation
|
Jonathan W. Ayers
(3)
President and Chief
Executive
Officer
|
|
2016
|
|
$
|
800,000
|
|
|
|
|
$
|
|
|
|
|
$
|
3,497,863
|
|
|
|
$
|
1,545,000
|
|
|
|
$
|
20,818
|
(4)
|
|
|
|
$
|
5,863,681
|
|
|
2015
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
2,996,921
|
|
|
|
|
950,000
|
|
|
|
|
20,784
|
|
|
|
|
|
4,767,705
|
|
|
2014
|
|
|
800,000
|
|
|
|
|
|
549,940
|
|
|
|
|
1,648,617
|
|
|
|
|
1,310,000
|
|
|
|
|
16,709
|
|
|
|
|
|
4,325,266
|
|
Brian P. McKeon
(5)
Executive Vice President,
Chief
Financial Officer
and Treasurer
|
|
2016
|
|
$
|
533,538
|
|
|
|
|
$
|
274,996
|
|
|
|
$
|
824,505
|
|
|
|
$
|
621,000
|
|
|
|
$
|
17,227
|
(6)
|
|
|
|
$
|
2,271,266
|
|
|
2015
|
|
|
516,923
|
|
|
|
|
|
250,074
|
|
|
|
|
749,230
|
|
|
|
|
370,500
|
|
|
|
|
17,468
|
|
|
|
|
|
1,904,195
|
|
|
2014
|
|
|
496,153
|
|
|
|
|
|
975,075
|
|
|
|
|
1,424,465
|
|
|
|
|
492,000
|
|
|
|
|
18,164
|
|
|
|
|
|
3,405,857
|
|
Jay
Mazelsky
Executive Vice
President
|
|
2016
|
|
$
|
447,969
|
|
|
|
|
$
|
250,027
|
|
|
|
$
|
749,542
|
|
|
|
$
|
600,000
|
|
|
|
$
|
22,625
|
(7)
|
|
|
|
$
|
2,070,163
|
|
|
2015
|
|
|
434,215
|
|
|
|
|
|
187,555
|
|
|
|
|
561,923
|
|
|
|
|
290,500
|
|
|
|
|
23,179
|
|
|
|
|
|
1,497,372
|
|
|
2014
|
|
|
416,923
|
|
|
|
|
|
124,992
|
|
|
|
|
374,694
|
|
|
|
|
386,000
|
|
|
|
|
16,073
|
|
|
|
|
|
1,318,682
|
|
Jacqueline L. Studer (8)
Corporate Vice President,
General Counsel
and
Corporate Secretary
|
|
2016
|
|
$
|
373,308
|
|
|
|
|
$
|
137,532
|
|
|
|
$
|
412,244
|
|
|
|
$
|
324,000
|
|
|
|
$
|
36,118
|
(9)
|
|
|
|
$
|
1,283,202
|
|
|
2015
|
|
|
361,846
|
|
|
|
|
|
137,445
|
|
|
|
|
412,085
|
|
|
|
|
207,500
|
|
|
|
|
142,661
|
|
|
|
|
|
1,261,537
|
|
|
2014
|
|
|
181,731
|
|
|
|
|
|
349,967
|
|
|
|
|
|
|
|
|
|
161,000
|
|
|
|
|
66,965
|
|
|
|
|
|
759,663
|
|
Giovani Twigge
Corporate Vice President
and Chief Human
Resources
Officer
|
|
2016
|
|
$
|
367,231
|
|
|
|
|
$
|
137,532
|
|
|
|
$
|
412,244
|
|
|
|
$
|
343,000
|
|
|
|
$
|
15,251
|
(10)
|
|
|
|
$
|
1,275,258
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Reflects the aggregate grant date
fair value computed in accordance with FASB ASC Topic 718. See Note 4 in the
notes to our consolidated financial statements included in our 2016 Annual
Report on Form 10-K for the relevant assumptions used to determine the valuation
of our stock awards and stock options.
(2) Amounts shown reflect the named executive officers annual,
performance-based cash bonus amounts under our SET Incentive Plan. See 2016
Annual Performance-Based Cash Bonus on page 59.
(3) Reflects compensation Mr. Ayers received as an employee.
Mr. Ayers received no additional compensation for his service as a
Director.
(4) Amount shown includes $10,600 in Company matching contributions
under the Companys 401(k) plan, and the remainder includes tax preparation
fees, reimbursements for executive physicals and premiums paid on behalf of Mr.
Ayers under the Companys disability and life insurance
plans.
(5) Mr. McKeon became our
Executive Vice President, Chief Executive Officer and Treasurer on January 1,
2014. Amounts included under Stock Awards and Option Awards for 2014 include a
new hire equity award of options and RSUs with an aggregate value in the amount
of $1,500,000.
(6) Amount shown includes $10,600 in Company matching
contributions under the Companys 401(k) plan, and the remainder includes tax
preparation fees, reimbursements for executive physicals and premiums paid on
behalf of Mr. McKeon under the Companys disability and life insurance
plans.
(7) Amount shown includes
$10,600 in Company matching contributions under the Companys 401(k) plan, and
the remainder includes tax preparation fees, reimbursements for executive
physicals and premiums paid on behalf of Mr. Mazelsky under the Companys
disability and life insurance plans.
(8) Ms. Studer was appointed as our Corporate Vice President, General
Counsel and Corporate Secretary on September 1, 2014. Amounts included under
Stock Awards for 2014 include a new hire equity award of RSUs with an aggregate
value in the amount of approximately $350,000.
(9) Amount shown includes a relocation allowance of $16,403 relating to
Ms. Studers relocation to Maine in connection with her appointment as our
Corporate Vice President, General Counsel and Corporate Secretary and $10,600 in
Company matching contributions under the Companys 401(k) plan, and the
remainder includes tax preparation fees, reimbursements for executive physicals,
and premiums paid on behalf of Ms. Studer under the Companys disability and
life insurance plans.
(10) Amount shown
includes $10,600 in Company matching contributions under the Companys 401(k)
plan, and the remainder includes tax preparation fees and premiums paid on
behalf of Mr. Twigge under the Companys disability and life insurance
plans.
Table of
Contents
2016
Grants of Plan-Based Awards
The following table sets forth each grant
of an award made to the named executive officers during the Companys 2016
fiscal year. All equity awards were made under the 2009 Plan described
below.
|
|
|
|
|
|
Estimated
Possible
Pay-outs
Under Non-Equity
Incentive Plan
Awards
(2)
|
|
Estimated
Possible
Pay-outs
Under Equity
Incentive
Plan
Awards
|
|
All
Other
Option
Awards: #
of
Securities
Underlying
Options
(6)(7)
|
|
Exercise/
Base
Price
of
Option
Awards
(1)
|
|
Grant
Date Fair
Value
of
Stock
Option
Awards (8)
|
Name
|
|
Grant
Date
|
|
Action
Date
(1)
|
|
Target
($) (3)
|
|
Maximum
($) (4)
|
|
Target
($)
(5)
|
|
Maximum
($)
(5)
|
|
|
|
Jonathan W. Ayers (9)
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,430
|
|
|
|
$
|
67.85
|
|
|
|
|
3,497,863
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
P. McKeon
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
4,053
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
274,996
|
|
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,009
|
|
|
|
$
|
67.85
|
|
|
|
|
824,505
|
|
|
|
|
|
|
|
$
|
402,000
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jay
Mazelsky
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
3,685
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,027
|
|
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,735
|
|
|
|
$
|
67.85
|
|
|
|
|
749,542
|
|
|
|
|
|
|
|
$
|
337,500
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacqueline L. Studer
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,532
|
|
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,504
|
|
|
|
$
|
67.85
|
|
|
|
|
412,244
|
|
|
|
|
|
|
|
$
|
225,000
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Giovani Twigge
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,532
|
|
|
|
2/14/2016
|
|
2/9/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,504
|
|
|
|
$
|
67.85
|
|
|
|
|
412,244
|
|
|
|
|
|
|
|
$
|
222,000
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) On February 9, 2016, the
Compensation Committee approved the grant of the above stock options and RSUs to
the named executive officers at the closing sale price of the common stock on
the NASDAQ Global Select Market on February 12, 2016.
(2) The non-equity incentive plan awards reported under this
caption represent the possible annual, performance-based cash bonus amounts
under our SET Incentive Plan, the material terms of which are discussed under
the heading Compensation Discussion and AnalysisDetermination of Executive
Compensation Annual Performance-Based Cash Bonus above. The actual award
payments under the SET Incentive Plan, as determined by the Compensation
Committee on February 9, 2016, are included in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table above. The SET Incentive
Plan does not provide for a threshold payout, and if minimum performance goals
are not met, no annual performance-based cash bonus is earned under the
plan.
(3) Annual performance-based cash
bonus amounts awarded under the SET Incentive Plan are determined by multiplying
a target bonus, represented as a percentage of annual base salary, by a factor
calculated by combining two equally weighted measures: (1) Company financial
performance against budget with respect to pre-determined financial metrics, and
(2) achievement of non-financial performance goals. For a discussion of the 2016
financial metrics and performance goals under the SET Incentive Plan, see
Compensation Discussion and Analysis2016 Executive Compensation Determinations
2016 Annual Performance-Based Cash Bonus above. For 2016, Mr. Ayers had a
target bonus of 125% of base salary, each of Mr. McKeon and Mr. Mazelsky had a
target bonus of 75% of base salary and each of Ms. Studer and Mr. Twigge had a
target bonus of 60% of base salary. The Target amount set forth above
represents an assumption that the financial and non-financial performance goal
ratings for each of the named executive officers participating in the SET
Incentive Plan is 100%.
(4) The maximum
annual performance-based cash bonus for fiscal year 2016 was determined under
the 2014 Plan (as defined below) as a percentage of the Companys consolidated
operating income, determined in accordance with generally accepted accounting
principles in the U.S. and as reported in the Companys audited financial
statements, adjusted to eliminate the effects of foreign currency exchange rates
and other discrete items. The maximum annual, performance-based cash bonus
payable to Mr. Ayers under the 2014 Plan for fiscal year 2016 was 1.5% of the
Companys operating income (as adjusted) for such period, subject to a maximum
bonus of 250% of Mr. Ayerss annual base salary for 2016. The maximum annual,
performance-based cash bonus payable to each of the other named executive
officers under the 2014 Plan for fiscal year 2016 was 0.75% of the Companys
operating income (as adjusted) for such period, subject, in the case of Mr.
McKeon and Mr. Mazelsky, to an overall maximum bonus of 150% of their annual
base salary for 2016 and in the case of Ms. Studer and Mr. Twigge, to an overall
maximum bonus of 120% of their annual base salary for
2016.
(5) Granted under our 2009 Plan
as performance-based RSUs that are eligible to vest only if the Company achieved
consolidated operating income, as adjusted to eliminate the effects of discrete
items such as acquisition- and litigation-related expenses and restructuring
charges, for fiscal year 2016 that is at least 55% of this metric in our
approved 2016 budget. There is no threshold or maximum payout associated with
these performance-based RSUs. If the stated target performance goal was not met,
these awards would be forfeited, and if performance is achieved above target, no
additional RSUs are awarded. The number of performance-based RSUs reflected as
the Target amount set forth above represents the total number of these RSUs
that will be held by the executive in the event that the stated performance goal
has been achieved. If the performance goal is achieved, the reported number of
RSUs will be subject to additional time-based vesting requirements, with
one-fifth of the shares underlying the RSU award vesting in February of each
year beginning in 2017 (subject to the executives continued employment). For
more information regarding these performance-based RSUs, please see the
information under the heading 2016 Long-Term Equity Incentive Awards beginning
on page 61.
|
|
64
|
|
Table of
Contents
(6) Options become exercisable in equal
annual installments over a five-year period commencing on the first anniversary
of the date of grant.
(7) Pursuant to the 2009 Plan, upon a change in control
of IDEXX, each outstanding stock option or RSU award held by all employees of
IDEXX, including executives, is subject to the vesting provisions described
below under the heading Stock Incentive Plans. Under the change in control
agreements between the Company and each of its executives, vesting of options
and RSUs held by each executive may accelerate in full in the event of a change
in control of the Company followed by a qualifying termination of the
executives employment, as described below under the heading Change in Control
Agreements.
(8) Reflects the aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. See Note 4 in the notes to our consolidated
financial statements included in our 2016 Annual Report on Form 10-K for the
relevant assumptions used to determine the valuation of our stock awards and
stock options.
(9) In the event of
termination of Mr. Ayerss employment by the Company other than for cause
(except following a change in control), his stock options and RSUs will continue
to vest in accordance with their terms for two years. See Employment
Agreements below.
In addition to the footnotes to the
Summary Compensation Table and 2016 Grants of Plan-Based Awards table above, the
following sections of this Proxy Statement further describe other material
factors of the compensation and awards described in those tables. For a
description of the material terms of Mr. Ayerss employment agreement and the
change in control agreements for each of our named executive officers, see
Employment Agreements and Change in Control Agreements below; for a
description of the material terms of the 2014 Plan, see below under the heading
2014 Incentive Compensation Plan; for a description of the material terms of
the 2009 Plan, see below under the heading Stock Incentive Plans. For an
explanation of the amount of salary and bonus in proportion to total
compensation, and a description of the criteria applied in determining grants of
plan-based awards, see the Compensation Discussion and Analysis
above.
2016
Outstanding Equity Awards at Fiscal Year End
The table below sets forth information
with respect to unexercised options and stock that has not vested for each of
the named executive officers as of the end of the Companys 2016 fiscal
year.
|
|
|
|
Option Awards
(1)
|
|
Stock Awards
(1)
|
Name
|
|
Grant
Date
(2)
|
|
#
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
#
of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
(3)
|
|
# of
Shares/
Units
of Stock
Not
Vested
|
|
Market
Value
of Shares or
Units of Stock
that have Not
Vested
(4)
|
Jonathan W. Ayers
(5)
|
|
2/14/2010
|
|
|
36,250
|
|
|
|
|
|
|
|
26.6550
|
|
|
2/13/2017
|
|
|
|
|
|
|
|
|
|
|
2/14/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2011
|
|
|
490,000
|
|
|
|
|
|
|
|
38.7950
|
|
|
2/13/2018
|
|
|
|
|
|
|
|
|
|
|
2/14/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2012
|
|
|
96,000
|
|
|
|
24,000
|
|
|
|
43.7100
|
|
|
2/13/2019
|
|
|
|
|
|
|
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400
|
|
|
|
281,448
|
|
|
|
2/14/2013
|
|
|
68,400
|
|
|
|
45,600
|
|
|
|
45.8400
|
|
|
2/13/2020
|
|
|
|
|
|
|
|
|
|
|
2/14/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,320
|
|
|
|
506,606
|
|
|
|
2/14/2014
|
|
|
36,274
|
|
|
|
54,408
|
|
|
|
62.0000
|
|
|
2/13/2024
|
|
|
|
|
|
|
|
|
|
|
2/14/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,322
|
|
|
|
624,111
|
|
|
|
2/14/2015
|
|
|
29,978
|
|
|
|
119,910
|
|
|
|
79.5400
|
|
|
2/13/2025
|
|
|
|
|
|
|
|
|
|
|
2/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
199,430
|
|
|
|
67.8500
|
|
|
2/13/2026
|
|
|
|
|
|
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
|
|
|
|
|
Option Awards
(1)
|
|
Stock Awards
(1)
|
Name
|
|
|
Grant
Date
(2)
|
|
#
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
#
of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
(3)
|
|
# of Shares/
Units
of
Stock
Not
Vested
|
|
Market
Value
of Shares or
Units of Stock
that have Not
Vested
(4)
|
Brian
P. McKeon (6)
|
|
|
2/14/2010
|
|
|
9,924
|
|
|
|
|
|
|
26.6550
|
|
2/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2011
|
|
|
6,602
|
|
|
|
|
|
|
38.7950
|
|
2/13/2018
|
|
|
|
|
|
|
|
|
|
|
|
5/09/2012
|
|
|
7,504
|
|
|
|
|
|
|
44.0450
|
|
5/08/2019
|
|
|
|
|
|
|
|
|
|
|
|
5/08/2013
|
|
|
8,790
|
|
|
|
|
|
|
43.6800
|
|
5/07/2023
|
|
|
|
|
|
|
|
|
|
|
|
1/01/2014
|
|
|
15,135
|
|
|
|
28,341
|
|
|
53.1850
|
|
12/31/2023
|
|
|
|
|
|
|
|
|
|
|
|
1/01/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,460
|
|
|
|
992,104
|
|
|
|
|
2/14/2014
|
|
|
14,840
|
|
|
|
22,258
|
|
|
62.0000
|
|
2/13/2024
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,178
|
|
|
|
255,414
|
|
|
|
|
2/14/2015
|
|
|
7,496
|
|
|
|
29,976
|
|
|
79.5400
|
|
2/15/2025
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,515
|
|
|
|
294,934
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
47,009
|
|
|
67.8500
|
|
2/13/2026
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,053
|
|
|
|
475,295
|
|
Jay Mazelsky
(7)
|
|
|
9/1/2012
|
|
|
6,483
|
|
|
|
2,671
|
|
|
47.5300
|
|
8/31/2019
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,366
|
|
|
|
277,461
|
|
|
|
|
2/14/2013
|
|
|
16,932
|
|
|
|
11,284
|
|
|
45.8400
|
|
2/13/2020
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,089
|
|
|
|
127,707
|
|
|
|
|
12/5/2013
|
|
|
29,402
|
|
|
|
19,600
|
|
|
52.0000
|
|
12/4/2023
|
|
|
|
|
|
|
|
|
|
|
|
12/5/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,922
|
|
|
|
225,393
|
|
|
|
|
2/14/2014
|
|
|
8,244
|
|
|
|
12,366
|
|
|
62.0000
|
|
2/13/2024
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,209
|
|
|
|
141,779
|
|
|
|
|
2/14/2015
|
|
|
5,622
|
|
|
|
22,482
|
|
|
79.5400
|
|
2/13/2025
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,886
|
|
|
|
221,171
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
42,735
|
|
|
67.8500
|
|
2/13/2026
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,685
|
|
|
|
432,140
|
|
Jacqueline L. Studer
(8)
|
|
|
9/1/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,387
|
|
|
|
397,193
|
|
|
|
|
2/14/2015
|
|
|
3,322
|
|
|
|
16,488
|
|
|
79.5400
|
|
2/13/2025
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,382
|
|
|
|
162,067
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
23,504
|
|
|
67.8500
|
|
2/13/2026
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
|
237,706
|
|
Giovani
Twigge
|
|
|
2/14/2012
|
|
|
10,244
|
|
|
|
3,414
|
|
|
43.7100
|
|
2/13/2019
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
40,106
|
|
|
|
|
2/14/2013
|
|
|
10,158
|
|
|
|
6,772
|
|
|
45.8400
|
|
2/13/2020
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
653
|
|
|
|
76,577
|
|
|
|
|
2/14/2014
|
|
|
5,772
|
|
|
|
8,654
|
|
|
62.0000
|
|
2/13/2024
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
846
|
|
|
|
99,210
|
|
|
|
|
2/14/2015
|
|
|
4,122
|
|
|
|
16,488
|
|
|
79.5400
|
|
2/13/2025
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,382
|
|
|
|
162,067
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
23,504
|
|
|
67.8500
|
|
2/13/2026
|
|
|
|
|
|
|
|
|
|
|
|
2/14/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
|
237,706
|
|
|
|
66
|
|
Table of Contents
(1) Pursuant to the 2009 Plan and the
2003 Stock Incentive Plan (2003 Plan), upon a change in control of IDEXX, each
outstanding stock option or RSU award held by all employees of IDEXX, including
executives, is subject to the vesting provisions described below under the
heading Stock Incentive Plans. Under the change in control agreements between
the Company and each of its executives, vesting of options and RSUs held by each
executive may accelerate in full in the event of a change in control of the
Company followed by a qualifying termination of the executives employment. See
Change in Control Agreements below.
(2) Options become exercisable in equal annual installments over a
five-year period commencing on the first anniversary of the date of grant. RSUs
vest in equal installments over a five-year period commencing on the first
anniversary of the date of grant.
(3)
Options granted prior to 2006 expire on the day immediately prior to the tenth
anniversary of the date of grant, options granted between 2006 and the day
before the date of our 2013 Annual Meeting expire on the day immediately prior
to the seventh anniversary of the date of grant, and options granted on or after
the date of our 2013 Annual Meeting expire on the day immediately prior to the
tenth anniversary of the date of grant.
(4) Market value is determined by multiplying the number of shares by
$117.27, the closing sale price of the Companys common stock at December 30,
2016.
(5) In the event of termination
of Mr. Ayerss employment by the Company other than for cause except following a
change in control, his stock options and RSUs will continue to vest in
accordance with their terms for two years (see Employment Agreements
below).
(6) Mr. McKeon was granted
awards prior to January 1, 2014 as a Director. All grants after January 1, 2014
were in connection with his hiring or employment as Executive Vice President,
Chief Financial Officer and Treasurer.
(7) Mr. Mazelsky was granted awards on September 1, 2012 in connection
with his hiring as Executive Vice President in July 2012.
(8) Ms. Studer was granted an award on September 1, 2014 in
connection with her hiring in June 2014 to serve as Corporate Vice President,
General Counsel and Corporate Secretary in September 2014.
2016 Option
Exercises and Stock Vested
The table below sets forth information
with respect to exercises of stock options and vesting of RSUs for the named
executive officers during the 2016 fiscal year.
|
|
Option Awards
(1)
|
|
Stock Awards
(2)
|
Name
|
|
#
Shares
Acquired
on Exercise
|
|
Value
Realized
on Exercise
|
|
# Shares
Acquired
on
Vesting
|
|
Value
Realized
on Vesting
|
Jonathan W. Ayers
|
|
|
150,000
|
|
|
|
$
|
12,164,681
|
|
|
8,734
|
|
|
$
|
592,602
|
|
Brian P. McKeon
|
|
|
10,934
|
|
|
|
|
508,562
|
|
|
4,175
|
|
|
|
297,571
|
|
Jay Mazelsky
|
|
|
2,204
|
|
|
|
|
151,194
|
|
|
4,748
|
|
|
|
473,848
|
|
Jacqueline L. Studer
|
|
|
800
|
|
|
|
|
30,488
|
|
|
1,475
|
|
|
|
151,234
|
|
Giovani Twigge
|
|
|
21,618
|
|
|
|
|
1,630,428
|
|
|
1,683
|
|
|
|
114,192
|
|
(1) Reflects the gross number of shares
acquired and value realized upon exercise by each named executive officer,
without reduction for shares that were used to pay the exercise price or to
satisfy tax obligations.
(2) Reflects
the number of shares acquired and value of such shares upon vesting prior to the
withholding of the following number of shares for each named executive officer
to satisfy such officers tax obligations: Ayers (2,833), McKeon (1,634),
Mazelsky (1,584), Studer (495) and Twigge (598).
2016
Nonqualified Deferred Compensation
The table below sets forth information
with respect to voluntary contributions, earnings and distributions for the
named executive officers under our Executive Deferred Compensation Plan (the
Executive Plan). Cash compensation voluntarily deferred by the executive under
the Executive Plan is invested in a hypothetical investment account denominated
as a number of DSUs equal to the compensation deferred into such account divided
by the closing sale price of a share of our common stock on the date of the
applicable deferral. Investment accounts are not subject to any interest
or other investment returns or earnings, other
than returns or earnings produced by fluctuations in the price of a share of
IDEXX common stock affecting the value of the DSUs in the account. The DSUs are
fully vested and non-forfeitable, since they represent compensation already
earned and voluntarily deferred. Upon distribution, an officer receives a number
of shares of our common stock equal to the number of DSUs in his or her account.
An officer can elect to receive his or her distribution in either a lump sum
amount or in a fixed schedule. However, except upon a change in control or in
the event
Table of Contents
of the officers death or an
unforeseeable emergency (as defined in the Executive Plan), an officer cannot
receive shares of IDEXX common stock equal to the number of DSUs in his or her
account sooner than one year following termination of his or her employment with
the company for any reason. In the case of an executive who has been identified
by the plan administrator as a specified employee with the meaning of Section
409A(a)(2)(B) of the Code, his or her distribution may not occur sooner than six
months following his or her
termination of
employment. Upon a change in control of the Company (as defined in the
Executive Plan), all benefits under the Executive Plan shall be
distributed.
The Board approved the suspension of the
Executive Plan in February 2013, and following the suspension, no officers could
elect to participate in the Executive Plan. Suspension of the Executive Plan
does not affect the investment accounts for officers who elected to participate
in the Executive Plan prior to December 31, 2012, and distributions from such
accounts will be made pursuant to the officers stated distribution election and
the terms of the Executive Plan.
Name
|
|
Executive
Contribution
in 2016
|
|
Registrant
Contributions
in
2016
|
|
Aggregate
Earnings
Accrued in
2016
(1)
|
|
Aggregate
Withdrawals/
Distributions
|
|
Aggregate
Balance at
December
30,
2016
|
Jonathan W. Ayers
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
2,623,923
|
|
|
|
$
|
|
|
|
$
|
6,938,162
|
(2)
|
Brian P. McKeon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jay Mazelsky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacqueline L. Studer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Giovani Twigge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents the increase in the
value of DSUs during 2016. No portion of the amounts reported in this column
represent above-market or preferential interest or earnings accrued on the
applicable plan and, accordingly, have not been included in a Change in Pension
Value and Nonqualified Deferred Compensation Earnings column of the 2016
Summary Compensation Table.
(2) This
amount represents the portions of bonuses earned by Mr. Ayers in 2003, 2004 and
2005 that he elected to defer under the Executive Plan, plus all earnings
accrued thereon in subsequent years. The bonuses were payable (absent the
deferral) in February 2004, 2005 and 2006, respectively, and represented
compensation for 2003, 2004 and 2005 in the amounts of $273,000, $288,750 and
$325,000, respectively, and as such those amounts were reported in the Summary
Compensation Tables for those years.
Equity
Compensation Plan Information
The following table summarizes our equity
compensation plan information as of December 31, 2016:
|
|
December 31,
2016
|
Plan
Category
|
|
Number of
Securities
to be Issued Upon Exercise
of Outstanding
Options,
Warrants and Rights
(a)
|
|
Weighted
Average
Exercise Price of
Outstanding Options,
Warrants and
Rights (1)
(b)
|
|
Number of
Securities
Remaining Available for
Future Issuance Under
Equity
Compensation Plans
(Excluding Securities
Reflected in
Column (a))
(c)
|
Equity
compensation plans approved by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
security holders
|
|
|
3,879,149
|
(2)
|
|
|
|
$
|
57.305
|
|
|
|
13,020,080
|
(3)
|
|
Equity
compensation plans not
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Only stock option awards were used
in computing the weighted-average exercise price.
(2) Consists of shares of
common stock subject to outstanding options, restricted stock units and deferred
stock units under the 2009 Plan (3,879,149 shares). Excludes 1,308,328 shares
issuable under the Companys 1997 Employee Stock Purchase Plan (the 1997 Plan)
in connection with the current and future offering periods. See Note 4 to the
consolidated financial statements included in our 2016 Annual Report on Form
10-K for a description of our equity compensation plans.
(3) Includes 11,711,752 shares available for issuance under
the 2009 Plan. The 2009 Plan provides for the issuance of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted stock
unit awards and other stock unit awards. Also includes 1,308,328 shares issuable
under the 1997 Plan in connection with the current and future offering periods.
See Note 4 to the consolidated financial statements for the year ended December
31, 2016 included in our 2016 Annual Report on Form 10-K for a description of
our equity compensation plans.
|
|
68
|
|
Table of Contents
EXECUTIVE
COMPENSATION
|
|
2014 Incentive Compensation
Plan
|
In 2014, the Board adopted the 2014
Incentive Compensation Plan (the 2014 Plan), which was approved by the
stockholders at our 2014 Annual Meeting. The purpose of the 2014 Plan is to
assist the Company in retaining and motivating officers and other employees of
the Company designated to participate in the 2014 Plan by providing incentive
compensation that provides appropriate financial rewards for individual
performance. The 2014 Plan is intended to provide flexibility to the Company to
make annual incentive compensation payments to its Chief Executive Officer and
the other named executive officers that are not subject to the deduction
limitations under Section 162(m). The Compensation Committee, which consists
solely of outside directors for purposes of Section 162(m), administers the
2014 Plan. Individuals eligible to participate in the
2014 Plan are the officers or other employees of the Company or any of its
subsidiaries who are designated by the Compensation Committee to participate in
the 2014 Plan (Participants). The Compensation Committee may delegate some or
all of its power and authority under the 2014 Plan to the Chief Executive
Officer or other executive of the Company as the committee deems appropriate,
provided that, with respect to any person who is a covered employee within the
meaning of Section 162(m) of the Code or who, in the committees judgment, is
likely to be a covered employee at any time during the applicable performance
period or during any period in which an award may be paid under the 2014 Plan
following a performance period, only the Compensation Committee is permitted to
(i) designate such person to participate in the 2014 Plan for such performance
period, (ii) establish performance goals and awards under the 2014 Plan for such
person, and (iii) certify the achievement of such performance goals.
Under the terms of the 2014 Plan, not
later than the earlier of 90 days after the beginning of each performance period
under the 2014 Plan and the expiration of 25% of the applicable performance
period, the Compensation Committee will (i) designate one or more performance
periods, which shall be one or more of the Companys fiscal years or a portion
of any fiscal year of the Company, as the committee may establish; (ii)
determine the Participants for each performance period; (iii) establish one or
more objective performance goals for each Participant or any group of
Participants (or both) and specify any adjustments to such performance goals
necessary to exclude the impact of unusual or non-recurring items and the
cumulative effect of accounting changes for the performance period; and (iv)
establish an award opportunity for each Participant or group of Participants,
based upon the achievement of such performance goals. To the extent necessary
for an award under the 2014 Plan to be performance-based under Section 162(m)
of the Code and the regulations thereunder,
performance goals established by the Compensation Committee must be based
exclusively on one or more of the objective corporate-wide or subsidiary,
division, operating unit or individual measures set forth in the 2014
Plan.
The 2014 Plan establishes a maximum award
payment for each Participant under the plan of $5 million per performance
period, and in the event that there are two or more performance periods during
any calendar year, the maximum award payment under the plan is $10 million for
such calendar year. The Compensation Committee retains the discretion under the
2014 Plan to reduce the amount of any payment with respect to any award that
would otherwise be made to any Participant pursuant to the performance goals
established in accordance the plan, and may exercise such negative discretion
based on the extent to which any other performance goals are achieved,
regardless of whether such performance goals are set forth in the 2014 Plan or
are assessed on an objective or subjective basis.
Following the conclusion of each
performance period and prior to the payment of any award under the 2014 Plan,
the Compensation Committee will certify in writing that the performance goals
for the applicable performance period and other material terms applicable to the
award have been satisfied. The award amount shall be paid in (i) cash,(ii)
common stock or stock units under the 2009 Plan or any successor equity plan of
the Company, or (iii) a combination of (i) and (ii), in each case subject to
such restrictions as the Compensation Committee shall determine. Payment to each
Participant shall be made not later than the 15th day of the third month of the
calendar year following the calendar year in which the Participants right to
payment ceased being subject to a substantial risk of forfeiture, unless payment
is deferred in accordance with the requirements of Section 409A of the Code. All
awards under the 2014 Plan are subject the Companys Policy on Recovery of
Incentive Compensation in Event of Certain Financial Restatements (as may be
amended from time to time), and any successor or replacement policy, also known
as a clawback policy, under which the Company can recover annual
performance-based cash incentive compensation granted to executives on or after
March 3, 2010.
In February 2016, the Compensation
Committee designated the Companys 2016 fiscal year as the relevant performance
period under the 2014 Plan and certain senior executives (including all of the
named executive officers) as Participants for that period. In February 2016, the
Compensation Committee also specified that the Companys consolidated operating
income, as adjusted to eliminate the effects of differences between
Table of Contents
actual and budgeted foreign currency
exchange rates in 2016 and certain discrete items, would be the relevant
performance goal for purposes of determining maximum amounts payable to the
Participants for fiscal year 2016 under the 2014 Plan. As stated above, the
amount of the incentive award actually paid to the Participants is determined by
the Compensation Committee in its sole discretion based on such factors as it
deems appropriate, provided that the actual award
shall not exceed the maximum incentive award with respect to each such
Participant. For information regarding the annual bonus paid to the named
executive officers for fiscal year 2016, see the discussion under the heading
2016 Executive Compensation Determinations beginning on page 59.
Stock Incentive
Plans
In February 2009, the Board adopted the
2009 Plan, which was originally approved by the stockholders at our 2009 Annual
Meeting. At our 2013 Annual Meeting, the stockholders approved amendments to the
2009 Plan that, among other things, increased the number of authorized shares
under the plan and extended the maximum term of stock options and stock
appreciation rights under the plan from seven to ten years. Prior to the 2009
Plan, options and other equity awards were granted under the 2003 Stock
Incentive Plan (the 2003 Plan) and prior stock incentive plans, each of which
were approved by our stockholders. The vesting, change in control,
transferability and other relevant provisions for grants under the 2009 Plan are
the same as for grants under the 2003 Plan.
Upon a change in control (as defined in
the 2009 Plan), options and awards granted to all participants, including our
executives and Directors, are subject to the following vesting provisions: 25%
of the unvested options and awards vest and become exercisable, unless the
successor company in a corporate transaction does not assume or substitute
option awards, in which case all options granted under the 2009 Plan and the
2003 Plan become fully vested and exercisable. In addition, if an optionee is
terminated by the successor company without cause within two years following a
change in control, then all options held by such optionee become fully vested
and exercisable.
In general, options granted under the 2009
Plan and 2003 Plan are not transferable, except by will or the laws of descent
and distribution, and are exercisable during the lifetime of the grantee only
while he or she is serving as an employee or Director of the Company or, except
as described below, within three months after he or she ceases to serve as an
employee or Director of the Company; provided, however, that the Board has the
discretion to allow a grantee to designate a beneficiary to exercise the options
upon the grantees death.
If a grantee dies or becomes disabled
(within the meaning of Section 22(e)(3) of the Code) while serving as an
employee or Director, or dies within three months after ceasing to serve as an
employee or Director, options are exercisable within one year following the date
of death or disability. In addition, options granted to Directors and employees
since February 2016 will vest immediately upon the grantees death or
disability. Options granted to Directors since February 2010 are exercisable for
two years following the date of retirement, provided the Director has served on
the Board for at least five years. Options granted to employees since February
2010 are exercisable for two years following the date of retirement, provided
the employee retires from the Company at or after age 60, and that the employee
has been an employee of the Company for at least ten years. Options granted
prior to 2006 expire on the day immediately prior to the tenth anniversary of
the date of grant, options granted between 2006 and the day before the date of
our 2013 Annual Meeting expire on the day immediately prior to the seventh
anniversary of the date of grant, and options granted on or after the date of
our 2013 Annual Meeting expire on the day immediately prior to the tenth
anniversary of the date of grant.
When RSUs granted under the 2009 Plan
vest, an equivalent number of shares of our common stock is then issued and
delivered to the grantee. Generally, if a grantee ceases to be an employee or
Director, then the balance of each RSU award that has not yet vested will be
forfeited, except that unvested RSUs from awards granted since February 2016
will vest immediately upon the grantees death or disability.
Deferred stock units are granted to our
Directors pursuant to the Director Plan, and for information regarding deferred
stock units, please see the discussion under Director Plan beginning on page
37.
Executive Bonus Recovery
Policy
Effective March 3, 2010, the Board adopted
a Policy on Recovery of Incentive Compensation in Event of Certain Financial
Restatements, also known as a clawback policy,
that applies to annual performance-based cash incentive compensation
granted to all officers of the Company subject to reporting under Section 16 of
the Securities Exchange
|
|
70
|
|
Table of Contents
Act of 1934 on or after March 3, 2010. For
purposes of the policy as originally adopted, incentive compensation meant
bonuses and other cash incentive payouts, whether paid or unpaid, vested or
unvested. In March 2014, the policy was amended to include stock options,
restricted stock units, and other similar equity awards within the definition of
incentive compensation subject to the policy.
Under the clawback policy, if the Company
is required to restate its financial results for any of the three most recent
fiscal years completed after March 3, 2010, other than a restatement due to
changes in accounting principles or applicable law, and the Board or the
Compensation Committee determines that an executive subject to the policy has received more incentive compensation for the
relevant fiscal year than would have been paid had the incentive compensation
been based on the restated financial results, the Board or Compensation
Committee will take such action in its discretion that it determines appropriate
to recover the incentive compensation that would not have been paid or awarded
to the executive.
The clawback policy applies to an
executive only if the Board or Compensation Committee determines that the
executive has engaged in fraud or willful misconduct that caused or partially
caused the restatement. The Board or Compensation Committee has the sole
discretion to determine whether an executive has engaged in such
conduct.
Potential Payments Upon
Termination or Change-in-Control
Employment Agreements
In connection with the hiring of Mr. Ayers
as our president, Chief Executive Officer and Chairman of the Board in January
of 2002, the Company entered into an employment agreement with Mr. Ayers. This
employment agreement provides, among other things, that if the employment of Mr.
Ayers is terminated at any time by the Company other than for cause (except
within two years following a change in control), the Company will pay Mr. Ayers
his base salary and continue to provide him with benefits (medical, dental and
life insurance) for two years following such termination, and that his stock
options will continue to vest in accordance with their terms during such
two-year period. RSUs granted to Mr. Ayers will also continue to vest in
accordance with their terms during such two-year period. Under the employment
agreement with Mr. Ayers,
cause is defined as
willful, material misconduct, gross negligence in the performance of his duties
or breach of either his invention and non-disclosure agreement or non-compete
agreement with the Company. Mr. Ayers is also party to a change in control
agreement (described below) pursuant to which, if the employment of Mr. Ayers is
terminated either by the Company other than for cause or by Mr. Ayers for good
reason (each as defined in his change in control agreement) within two years
following a change in control, he will receive the payments and benefits
described below under the heading Change in Control Agreements. In connection
with his hiring, Mr. Ayers also executed the Companys standard non-compete
agreement and invention and non-disclosure agreement, the terms of which are
described below.
The following table describes potential
payments to Mr. Ayers under the employment agreement described above, assuming
he was terminated without cause on December 30, 2016 and not in connection with
or after a change in control. The actual amounts to be paid out can only be
determined in the event of and at the time of his actual termination.
Potential Termination
Payments
|
|
|
|
|
|
|
|
|
Name
|
|
Salary (1)
|
|
Benefits
(1)(2)
|
|
Continued Vesting of
Equity
Awards (3)
|
|
Total
|
Jonathan W. Ayers
|
|
$1,600,000
|
|
$38,060
|
|
$14,436,001
|
|
$16,074,061
|
(1) Mr. Ayerss salary and benefits
will be paid by the Company. Salary and benefits are calculated by multiplying
by two the annual salary and benefits in effect on December 30,
2016.
(2) Amount shown represents the
aggregate incremental cost to the Company to continue to provide benefits to Mr.
Ayers for a period of two years following termination, consisting of the
following: (a) medical and dental coverage ($28,962), and (b) premiums paid on
behalf of Mr. Ayers under the Companys accidental death and dismemberment,
disability and life insurance plans ($9,098).
(3) Mr. Ayerss stock options and RSUs would continue to vest in
accordance with their terms for two years following termination. This amount
represents the intrinsic value of unvested stock options and RSUs as of December
30, 2016 that would continue to vest for two years following termination on
December 30, 2016 using the closing sale price of the Companys common stock as
of December 30, 2016 to illustrate the potential value at
termination.
Table of Contents
Except as described above with respect to
Mr. Ayers and the change in control agreements described below, the Company does
not have any contracts, agreements, plans or arrangements with any other
executives providing for the
payment of severance
or other benefits to such officers upon a termination of employment with the
Company for any reason, other than arrangements that are generally available to
all salaried employees.
Change in
Control Agreements
The Company has entered into executive
employment agreements (the change in control agreements) with its executives,
including each of the named executive officers. Each change in control agreement
has an initial term that automatically renews for successive periods of one
year, unless the Company provides notice of nonrenewal to the executive within
120 days prior to the renewal date.
The change in control agreements for all
of the named executive officers are identical except as described below. The
change in control agreements provide for the Company to make certain payments
and provide certain benefits to the named executive officers upon a qualifying
termination of employment that follows a change in control of the Company, as
described further below. For a further discussion of the Companys reasons for
having change in control agreements, refer to the discussion of change in
control agreements under the heading Compensation Policies and Practices
beginning on page 52.
The change in control agreements define a
change in control of the Company as any of the following events (provided, in
each case, that with respect to any payments or benefits subject to Section 409A
of the Code, the following events must constitute a change in control event
within the meaning of the applicable Treasury regulation):
●
|
The acquisition by any person of 35%
or more of the shares of common stock or combined voting power of the
Companys outstanding securities;
|
●
|
A change in the composition of the
Companys Board such that a majority of the Board no longer consists of
incumbent directors, or directors nominated or elected by incumbent
directors, who had been directors of the Company during the 24 months
prior to the change in composition;
|
●
|
A reorganization, merger,
consolidation, or sale or other disposition of all or substantially all of
the assets of the Company (a business combination), unless immediately
following such business combination:
|
|
●
|
The stockholders of the Company
immediately prior to such business combination own more than a majority of
the outstanding shares of common stock and the combined voting power of
the Companys outstanding voting securities of the corporation
resulting in the business combination in
substantially the same proportion as their ownership immediately prior to
the transaction,
|
|
●
|
No person owns 20% or more of the
stock of the corporation resulting from the business combination,
and
|
|
●
|
At least half of the members of the
board of the corporation resulting from the business combination were
members of the Board at the time of the agreement providing for such
business combination; and
|
●
|
Approval by the stockholders of a
complete liquidation or dissolution of the Company or sale of
substantially all of the assets of the
Company.
|
For a period of two years following a
change in control, the Company may not generally reduce an executives annual
base salary or target bonus, or the aggregate benefits to which the executive is
entitled under incentive plans and welfare benefit plans, below the level to
which the executive was entitled prior to the change in control.
If the employment of an executive is
terminated either by the Company without cause, as defined below, or by the
executive for good reason, as defined below, within the period of two years
following a change in control, then the Company shall provide the following
payments and benefits to the executive:
●
|
A prorated payment of the
executives target bonus for the portion of the year of termination prior
to the date of termination;
|
●
|
An amount equal to two times (or
three times in the case of Mr. Ayers) the sum of the executives annual
base salary plus the average bonus received by the executive for the three
full fiscal years preceding the change in control;
|
●
|
The continuation of all benefits
under welfare benefit, savings and retirement plans (including, without
limitation, medical, dental and life insurance plans) for a period of two
years (or three years in the case of Mr. Ayers) following the date of
termination; and
|
●
|
Any other amounts or benefits
required to be paid to the executive under any plan, program, policy or
practice or contract or agreement of the
Company.
|
|
|
72
|
|
Table of
Contents
The Company will also reimburse the
executive up to $12,500 per year (an aggregate of $25,000) for expenses incurred
in connection with outplacement services and relocation costs in connection with
obtaining new employment outside the State of Maine until the earlier of two
years from termination of the executives employment or the date he or she
secures full time employment.
Upon a change in control, each outstanding
stock option, RSU or other equity award, each of which is referred to as an
equity award, held by an executive shall become immediately exercisable or
vested as to 25% of the number of shares as to which such equity award otherwise
would not then be exercisable or vested. If the executives employment is
terminated without cause, or by the executive for good reason, within two years
following a change in control by the Company, all equity awards held by the
executive shall become fully exercisable and vested. In addition, the 2009 Plan
provides that all equity awards become fully vested and exercisable in the event
a successor company in a corporate transaction does not assume or substitute the
outstanding awards.
Under the change in control agreements,
cause is defined as the willful failure of the executive to substantially
perform the executives duties with the Company, or the willful engaging by the
executive in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company. Under the change in control agreements,
good reason is defined as one or more of the following conditions arising
without the consent of the executive:
●
|
Any material reduction of the
executives annual base salary;
|
●
|
Any material reduction of the
executives authority, duties or responsibilities;
|
●
|
Any material reduction of the budget
over which the executive has authority;
|
●
|
A material change in the geographic
location at which the executive is employed; or
|
●
|
Certain breaches by the Company of
the agreement.
|
Under the change in control agreements
with Mr. Ayers, Mr. McKeon and Ms. Studer, if the executive does not hold the
same position with the entity surviving any change in control as he or she holds
with the Company, then good reason will be deemed to exist. In addition, good
reason will be deemed to exist under the change in control agreement with Mr.
Ayers if there is a material diminution in the authority, duties or
responsibilities of the supervisor to whom Mr. Ayers reports, including a
requirement that Mr. Ayers report to a corporate officer or employee instead of
directly to the Board.
Any notice of termination for good reason
must be given to the Company (or its successor) within 60 days of the initial
existence of one or more of the conditions described above. The Company (or its
successor) will then be entitled to a period of 30 days during which it may
remedy the condition(s) and not be required to pay benefits under the change in
control agreement.
Under the change in control agreements,
there is no tax gross-up provision and the Company is not required to
reimburse the executives for any tax liabilities resulting from payments
received by them under their change in control agreements.
As a condition of receipt of any payments
or benefits under the change in control agreements, the executives will be
required to sign a customary release prepared by and provided by the Company (or
its successor) and to abide by the provisions thereof. The release will contain
a release and waiver of any claims the executive or his or her representatives
may have against the Company (or its successor) and its officers, Directors,
affiliates and/or representatives, and will release those entities and persons
from any liability for such claims including, but not limited to, all employment
discrimination claims.
The change in control agreements do not
supersede the standard non-compete agreements and invention and non-disclosure
agreements between each executive and the Company. These non-compete agreements
provide that for a period of two years after voluntary termination by the
executive or termination by the Company with cause, the executive may not engage
in any business enterprise that competes with the Company or recruit, solicit or
induce any employee of the Company to terminate their employment with the
Company. The invention and non-disclosure agreements include standard provisions
that all developments made or conceived by the executive during his or her
employment by the Company shall be the sole property of the Company and that the
executive will not disclose or use for his or her own benefit or the benefit of
others the Companys proprietary information.
The following table describes potential
payments to each of our named executive officers under the change in control
agreements that were in effect as of December 30, 2016. The table assumes a
change in control occurred and the officers employment was terminated either by
the Company without cause or by the officer for good reason on December 30,
2016. The actual amounts to be paid out can only be determined in the event of
and at the time of a change in control and a qualifying termination of each
named executive officer.
Table of
Contents
Potential
Change in Control Payments
|
Name
|
|
Salary
(1)
|
|
Multiple
of
Average
Bonus (1)
|
|
Pro-Rated
Bonus (1)
|
|
Benefits
(2)
|
|
Outplacement
|
|
Accelerated
Vesting
of
Equity
Awards (3)
|
|
Total
|
Jonathan W.
Ayers
|
|
$
|
2,400,000
|
|
$
|
3,420,000
|
|
$
|
1,000,000
|
|
|
$
|
57,090
|
(4)
|
|
|
|
$
|
25,000
|
|
|
|
$
|
23,821,978
|
|
|
$
|
30,724,068
|
Brian P.
McKeon
|
|
|
1,072,000
|
|
|
862,500
|
|
|
402,000
|
|
|
|
32,098
|
(5)
|
|
|
|
|
25,000
|
|
|
|
|
8,518,360
|
|
|
$
|
10,911,958
|
Jay
Mazelsky
|
|
|
900,000
|
|
|
667,667
|
|
|
337,500
|
|
|
|
37,183
|
(6)
|
|
|
|
|
25,000
|
|
|
|
|
7,340,913
|
|
|
$
|
9,308,263
|
Jacqueline L.
Studer
|
|
|
750,000
|
|
|
415,000
|
|
|
225,000
|
|
|
|
37,536
|
(7)
|
|
|
|
|
25,000
|
|
|
|
|
2,580,627
|
|
|
$
|
4,033,163
|
Giovani
Twigge
|
|
|
740,000
|
|
|
461,067
|
|
|
222,000
|
|
|
|
31,850
|
(8)
|
|
|
|
|
25,000
|
|
|
|
|
3,612,492
|
|
|
$
|
5,092,409
|
(1) Amounts for Mr. Ayers are three
times his salary and three times his average annual bonus for the prior three
years. The amounts for all other named executive officers represent two years of
such payments. Salary and bonus payments shall generally be paid in a lump sum
on the 90th day following the date of termination, provided that the executive
has signed the required release and the statutory period during which the
executive is entitled to revoke the release has expired on or before that 90th
day. Benefits shall be paid by the Company over the period stated in note
(2).
(2) Benefits shall be paid by the
Company over three years for Mr. Ayers and two years for all other named
executive officers.
(3) Represents the intrinsic value of
accelerated equity awards (stock options and RSUs), calculated based on the
exercise price of the underlying awards and the closing sale price of the
Companys common stock as of December 30, 2016.
(4) Amount shown represents the
aggregate incremental cost to the Company to continue to provide benefits to Mr.
Ayers for a period of three years following termination, consisting of the
following: (a) medical and dental coverage ($43,443), and (b) premiums paid on
behalf of Mr. Ayers under the Companys accidental death and dismemberment,
disability and life insurance plans ($13,647).
(5) Amount shown represents the
aggregate incremental cost to the Company to continue to provide benefits to Mr.
McKeon for a period of two years following termination, consisting of the
following: (a) medical and dental coverage ($28,961), and (b) premiums paid on
behalf of Mr. McKeon under the Companys accidental death and dismemberment,
disability and life insurance plans ($3,137).
(6) Amount shown represents the
aggregate incremental cost to the Company to continue to provide benefits to Mr.
Mazelsky for a period of two years following termination, consisting of the
following: (a) medical and dental coverage ($27,761), and (b) premiums paid on
behalf of Mr. Mazelsky under the Companys accidental death and dismemberment,
disability and life insurance plans ($9,422).
(7) Amount shown represents the
aggregate incremental cost to the Company to continue to provide benefits to Ms.
Studer for a period of two years following termination, consisting of the
following: (a) medical and dental coverage ($27,761), and (b) premiums paid on
behalf of Ms. Studer under the Companys accidental death and dismemberment,
disability and life insurance plans ($9,775).
(8) Amount shown represents the
aggregate incremental cost to the Company to continue to provide benefits to Mr.
Twigge for a period of two years following termination, consisting of the
following: (a) medical and dental coverage ($23,354), and (b) premiums paid on
behalf of Mr. Twigge under the Companys accidental death and dismemberment,
disability and life insurance plans ($8,496).
|
|
74
|
|
Table of
Contents
General
Information About the 2017 Annual Meeting and Voting
The Proxy
Statement and How Proxies Work
Our Board is asking for your proxy to vote
at the 2017 Annual Meeting because you were a stockholder as of the close of
business on March 10, 2017 (Record Date) and are entitled to vote at the 2017
Annual Meeting. This Proxy Statement and the accompanying materials are being
provided to you in connection with the solicitation by the Board of proxies to
be voted at our 2017 Annual Meeting and at any adjournment or postponement
thereof.
Giving us your proxy means that you
authorize us to vote your shares at the 2017 Annual Meeting in the manner that
you direct, or if you do not direct us, in the manner as recommended by the
Board in this Proxy Statement. You can vote for or against one or all of the
Director nominees or abstain from voting for one or all nominees. You also can
vote for or against the other proposals or abstain from voting. If you request a
proxy card, and return your signed proxy card, but do not give voting
instructions, the shares represented by that proxy will be voted FOR each
proposal as recommended by the Board of Directors.
Who Can
Vote
As of the Record Date, there were
87,922,781 shares of common stock outstanding. Each share of common stock is
entitled to one vote on each matter properly brought before the 2017 Annual
Meeting.
Most of our stockholders hold their shares
through a stockbroker, bank, trustee or other nominee rather than directly in
their own name. As summarized below, there are some distinctions between shares
held of record and those beneficially owned in street name:
●
|
Stockholder of
Record:
If your shares are registered directly in your name with
our transfer agent, American Stock Transfer & Trust Company, you are
considered the stockholder of record of those shares and these proxy
materials are being made available directly to you by us. As the
stockholder of record, you have the right to grant your voting proxy
directly to us or to vote in person at the 2017 Annual
Meeting.
|
●
|
Beneficial Owner
of Shares Held in Street Name:
If your shares are held in a
brokerage account through a bank, broker, trustee or other nominee, you
are considered the beneficial owner of shares held in street name and
these proxy materials are being made available to you through your bank,
broker, trustee or nominee. As the beneficial owner of shares held in
street name, you have the right to direct your bank, broker, trustee, or
nominee on how to vote and are also invited to attend the 2017 Annual
Meeting. Your bank, broker, trustee or nominee is obligated to provide you
with voting instructions for use in instructing the bank, broker, trustee
or nominee how to vote these shares. However, since you are not the
stockholder of record, you may not vote these shares in person at the
meeting unless you have obtained a legal proxy from your bank, broker,
trustee or nominee entitling you to vote your shares at the 2017 Annual
Meeting.
|
Notice of
Internet Availability (Notice and Access)
Instead of mailing a printed copy of our
proxy materials to each stockholder, we are furnishing proxy materials via the
Internet. If you received a Notice of Internet Availability, you will not
receive a printed copy of the proxy materials unless you specifically request a
printed copy. The Notice of Internet Availability will instruct you how to
access and review all of the important information contained in the proxy
materials. The Notice of Internet Availability also instructs you how to submit
your proxy on the Internet and how to vote by telephone.
If you would like to receive a printed or
emailed copy of our proxy materials, you should follow the instructions for
requesting such materials included in the Notice of Internet
Availability.
The Notice of Internet Availability is
first being sent to stockholders on or about March 23, 2017. Also on or about
March 23, 2017, we will first make available to our stockholders this Proxy
Statement and the form of proxy relating to the 2017 Annual Meeting, as well as
our 2016 Annual Report on Form 10-K filed with the SEC on February 17,
2017.
Table of
Contents
GENERAL
INFORMATION ABOUT THE 2017 ANNUAL MEETING AND
VOTING
|
How to
Vote
You can vote online at the virtual 2017
Annual Meeting or by proxy. We recommend that you submit a proxy even if you
plan to attend the 2017 Annual Meeting. This will ensure that your vote will be
counted if you are unable to, or later decide not to, participate in the virtual
meeting. You can revoke your proxy and change your vote at the 2017 Annual
Meeting in one of the ways described below. All shares represented by proxies
that have been properly voted and not revoked will be voted at the 2017 Annual
Meeting.
We are offering stockholders four methods
of voting:
●
|
You may vote over the
Internet.
|
●
|
You may vote by
telephone.
|
●
|
If you are a registered holder of
our shares, you may request a paper proxy card from us, and indicate your
vote by completing, signing and dating the card where indicated and by mailing or otherwise returning the card in the
prepaid envelope accompanying the paper proxy
card.
|
●
|
You may vote online at the virtual
2017 Annual Meeting. If you attend the 2017 Annual Meeting over the
Internet, you will be able to vote your shares online, even if you already
voted by Internet, telephone or mail. You will need to enter your control
number (included in your Notice of Internet Availability, your proxy card
or the voting instructions that accompanied your proxy materials) to vote
your shares at the 2017 Annual Meeting.
|
Please see How to Vote on page 9 to
determine how to vote your shares by mail, telephone or Internet.
Revoking a
Proxy
You can revoke your proxy, whether it was
given by Internet, telephone or mail, before it is voted by:
●
|
Submitting a new proxy with a later
date, including a proxy given via the Internet or by
telephone;
|
●
|
Providing written notice to our
Corporate Vice President, General Counsel and Corporate Secretary before
or at the 2017 Annual Meeting prior to the voting on any proposal, if you
are a registered holder of our shares; or
|
●
|
Voting online at the virtual 2017
Annual Meeting.
|
The last vote you submit chronologically
(by any means) will supersede your prior vote(s). Your attendance at the virtual
2017 Annual Meeting over the Internet will not, by itself, revoke your
proxy.
Quorum
In order to transact business at the 2017
Annual Meeting, we must have a quorum. This means that at least a majority of
the issued and outstanding shares entitled to vote as of the Record Date must be
represented at the 2017 Annual Meeting, either by proxy or in person.
Abstentions and broker non-votes (which
are
described below) are counted as present and entitled to vote for purposes of
determining a quorum. Treasury shares, which are shares owned by us, are not
voted and do not count towards establishing a quorum. If a quorum is not
present, the meeting will be adjourned until a quorum is obtained.
Votes
Needed
Approval of each of the proposals requires
the favorable vote of a majority of the votes cast. Only votes for or against a
proposal count as votes cast. Abstentions and broker non-votes (which are
described below) are not counted as votes cast and, therefore, will have no
effect on the outcome of the matters to be voted on at the 2017 Annual
Meeting.
Votes will be tabulated by an independent
inspector of elections appointed for the 2017 Annual Meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes. The preliminary voting results will be announced at the 2017 Annual
Meeting. The final voting results will be tallied by the inspector of elections
and reported in a Current Report on Form 8-K, which will be filed with the SEC
within four business days after the 2017 Annual Meeting.
|
|
76
|
|
Table of
Contents
GENERAL
INFORMATION ABOUT THE 2017 ANNUAL MEETING AND
VOTING
|
Broker
Non-Votes
If you are a beneficial owner of shares
held in street name and do not give voting instructions to your bank or
brokerage firm, your bank or brokerage firm will be able to vote your shares
with respect to certain discretionary items, but will not be allowed to vote
your shares with respect to certain non-discretionary items. The following are
non-discretionary items on which your bank or brokerage firm may not vote
without voting instructions from you:
●
|
Election of Directors (Proposal
One)
|
●
|
The Advisory Vote to Approve
Executive Compensation (Proposal Three)
|
●
|
The Advisory Vote on the Frequency
of the Advisory Vote to Approve Executive Compensation (Proposal
Four)
|
In the case of these non-discretionary
items for which your bank or brokerage firm does not have voting instructions,
the bank or brokerage firm is required to indicate on its proxy that it does not
have discretionary authority to vote on these matters, and your shares will be
treated as broker non-votes with respect to these proposals. Ratification of
the appointment of our independent registered public accounting firm (Proposal
Two) is considered to be a discretionary item on which banks and brokerage
firms
may
vote.
Conduct of
the 2017 Annual Meeting
Rules for the conduct of the 2017 Annual
Meeting will be available at the meeting. Under our Amended and Restated
By-Laws, the Chairman of the Board of Directors may adopt
rules and procedures that he believes are appropriate to
ensure that the 2017 Annual Meeting is conducted properly.
Webcast of
the 2017 Annual Meeting
The 2017 Annual Meeting will be a
completely virtual meeting of stockholders, which will be conducted over the
Internet via live webcast at 1:00 p.m., Eastern Time, on Wednesday, May 3, 2017.
Stockholders of record as of March 10, 2017, will be able to attend the virtual
2017 Annual Meeting online and submit our questions during the meeting by
visiting
www.virtualshareholdermeeting.com/IDXX2017
.
To participate in the virtual annual meeting, you will need the control number
included on your Notice of Internet Availability of the proxy materials, on your
proxy card or on the instructions that accompanied your proxy materials. The
webcast will begin
promptly at 1:00 p.m., Eastern
Time. Online check-in will begin at 12:45 p.m., Eastern Time, and you should
allow ample time for the online check-in procedures.
The webcast will include consideration of
the proposals and our Chief Executive Officers presentation regarding our
business, and will provide audio and the accompanying graphic presentation, and
will include the question-and-answer session that follows the presentation.
Stockholders accessing the webcast will be able to ask questions during the
meeting.
Voting on
Other Matters
If other matters are properly presented at
the 2017 Annual Meeting for consideration, the persons named in the proxy will
have the discretion to vote on those matters for you. As of the date of this
Proxy Statement, we do not know of any other matters to be raised at the 2017
Annual Meeting and the dates
by which other
matters to be voted on at the 2017 Annual Meeting must have been submitted by
our stockholders pursuant to Rule 14a-8 of the Securities Exchange Act of 1934
or our Amended and Restated By-Laws have passed.
Table of
Contents
GENERAL
INFORMATION ABOUT THE 2017 ANNUAL MEETING AND
VOTING
|
Solicitation of Proxies
We will pay the expenses of the
solicitation of proxies by our Board. Proxies can be solicited on our behalf by
Directors, officers or employees, without additional remuneration, in person or
by telephone, by mail, electronic transmission and facsimile transmission. We
have hired MacKenzie Partners, Inc., to distribute and solicit proxies and will
pay MacKenzie Partners, Inc. a fee of approximately $15,000, plus reasonable
out-of-pocket expenses, for its services.
Brokers, banks, trustees and other
nominees will be requested to make available proxy-soliciting material to the
owners of our common stock held in their names and, as required by law, we will
reimburse them for their reasonable out-of-pocket expenses for this
service.
Householding of Annual Meeting Materials
Some of our stockholders may be
participating in the practice of householding proxy statements, annual
reports, and the Notice of Internet Availability. This means that only one copy
of such documents may have been sent to multiple stockholders in your household.
We will promptly deliver a separate copy of the Notice of Internet Availability,
proxy statement or annual report if you call or write us at the following
address or telephone number:
Investor Relations
IDEXX Laboratories,
Inc.
One IDEXX Drive
Westbrook, Maine, 04092
Telephone: 207-556-8155
If you want to receive separate copies of
the Notice of Internet Availability, proxy statement and annual report in the
future, or if you are receiving multiple copies and would like to receive only
one copy for your household, you should contact your bank, broker or other
nominee record holder, or you may contact us at the above address and telephone
number.
|
|
78
|
|
Table of Contents
Requirements for Submission of Proxy Proposals, Nomination of
Directors and Other Business of Stockholders
Proposals
submitted under Rule 14a-8
In order to be considered for inclusion in
next years proxy statement, stockholder proposals submitted pursuant to Rule
14a-8 must be submitted in writing and addressed to and be received by our
Corporate Vice President, General Counsel and Corporate Secretary at IDEXX
Laboratories, Inc., One IDEXX Drive, Westbrook, Maine 04092 by November 23,
2017. The deadline to submit a proposal for inclusion in our proxy materials for
the 2017 Annual Meeting has passed.
Proposals
submitted outside of Rule 14a-8
Our Amended and Restated By-Laws also
establish an advance notice procedure that a stockholder must follow to nominate
persons for election as Directors or to introduce an item of business at an
Annual Meeting outside of the process under Rule 14a-8. These procedures provide
that nominations for Director and/or an item of business to be introduced at an
Annual Meeting must be submitted in writing to our Corporate Vice President,
General Counsel and Corporate Secretary and received by the deadline indicated
below at IDEXX Laboratories, Inc., One IDEXX Drive, Westbrook, Maine
04092.
Our Amended and Restated By-Laws provide
that stockholder nominations or other proposals must include certain information
regarding:
●
|
The stockholder submitting the
nomination or proposal;
|
●
|
Any nominee for Director;
and/or
|
●
|
The item of
business.
|
We must receive notice in writing of your
intention to introduce a nomination or proposed item of business at our 2018
Annual Meeting, and all supporting information,
not less than
90 days or
more than
120 days before the first anniversary of the 2017 Annual Meeting.
However, if the date of our 2018 Annual
Meeting is advanced by more than 20 days, or delayed by more than 60 days, from
the date of the 2017 Annual Meeting, then we must receive such notice at the
address noted above not earlier than the 120th day before such Annual Meeting;
and not later than the close of business on the later of the 90th day before
such Annual Meeting or the 10th day after the day on which notice of the meeting
date was mailed or public disclosure was made, whichever occurs
first.
Assuming that our 2018 Annual Meeting is
held between April 13, 2018 and July 2, 2018, as is currently expected, we must
receive the written notice of your intention to introduce a nomination or
proposed item of business at our 2018 Annual Meeting, and all supporting
information, no earlier than January 3, 2018 and no later than February 2,
2018.
Table of Contents
Forward
Looking Statements
This Proxy Statement and the accompanying
materials contain forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These statements are based on
managements current expectations and involve risks and uncertainties, which may
cause results to differ materially from those set forth in the statements. The
forward-looking statements may include statements regarding product development,
product potential or financial performance. No forward-looking statement can be
guaranteed and actual results may differ materially from those projected. We
undertake no obligation to publicly update any forward-looking statement,
whether as a result of new information, future events, or otherwise.
Forward-looking statements should be evaluated together with the many
uncertainties that affect our business, particularly those mentioned in the risk
factors and cautionary statements in Part I, Item 1A of our 2016 Annual Report
on Form 10-K, and in our Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, if any, which we incorporate herein by reference.
Other
Matters
The Board knows of no other matters to be
presented for stockholder action at the 2017 Annual Meeting. If, however, other
matters do properly come before the 2017 Annual Meeting or any adjournments or
postponements thereof, the Board intends that the persons named in the proxies
will vote upon such matters in accordance with their best judgment.
The Board hopes that you will attend the
2017 Annual Meeting. Whether or not you plan to attend the 2017 Annual Meeting,
you are urged to vote at your earliest convenience in the manner and method set
forth under the section entitled How to Vote on page 9.
By order of the Board of
Directors,
Jacqueline L. Studer
Corporate Vice
President,
General Counsel and Corporate
Secretary
March 23, 2017
|
|
80
|
|
Table of Contents
Appendix
A Reconciliation of Non-GAAP Financial Measures
We report our results in conformity with
U.S. generally accepted accounting principles (GAAP). We use certain non-GAAP
financial measures in this Proxy Statement to supplement our consolidated
results presented in accordance with GAAP or as part of our executive
compensation program. Our reconciliation of these non-GAAP financial measures is
included in this Appendix.
While we believe that these non-GAAP
financial measures are useful, this information should be considered as
supplemental in nature and should not be considered in isolation or as a
substitute for the related financial information prepared in accordance with
GAAP. In addition, these non-GAAP financial measures may not be the same as
similarly titled measures reported by other companies.
Organic
Revenue Growth
Organic revenue growth represents the
percentage change in revenue, as compared to the same period for the prior year,
net of the impact of changes in foreign currency exchange rates, acquisitions
and divestitures. Organic revenue growth should be considered in addition to,
and not as a replacement for or as a superior measure to, revenue growth
reported in accordance with GAAP. We believe that reporting organic revenue
growth provides useful information to investors by facilitating easier
comparisons of our revenue performance with prior and future periods and to the
performance of our peers.
In this Proxy Statement, we report the
Companys organic revenue growth in 2016. The reconciliation of this non-GAAP
financial measure is as follows:
Net Revenue
(dollars in
thousands)
|
|
For the Year Ended
December
31,
2016
|
|
For the Year Ended
December
31,
2015
|
|
Dollar
Change
|
|
Percentage
Change
|
|
Change
from
Currency
|
|
Change
from
Acquisitions
|
|
Organic
Revenue
Growth
|
Total Company
|
|
$1,775,423
|
|
$1,601,892
|
|
$173,531
|
|
10.8%
|
|
(0.8%)
|
|
0.2%
|
|
11.4%
|
Adjusted
Constant Currency EPS Growth
Adjusted constant currency EPS growth
represents the percentage change in earnings per share (diluted), as compared to
the same period for the prior year, net of the impact of changes in foreign
currency exchange rates and excluding non-recurring items. Adjusted constant
currency EPS growth should be considered in addition to, and not as a
replacement of or a superior measure to, earnings per share (diluted) growth
reported in accordance with GAAP. We believe that reporting adjusted constant
currency EPS growth provides useful information to investors by facilitating
easier comparisons of our earnings per share performance with prior and future
periods.
In this Proxy Statement, we report the
adjusted constant currency EPS growth for 2016, which excludes the effect of an
$8.2 million non-cash software impairment charge in the third quarter of 2015,
which represents approximately $0.06 per share in earnings per share (diluted)
for 2015, and the impact of changes in foreign currency exchange rates. We
estimate the net impact of changes in foreign currency exchange rates on
adjusted EPS results by restating results to the average exchange rates or
exchange rate assumptions for the comparative period, which includes adjusting
for the estimated impacts of foreign currency hedging transactions and certain
impacts on our effective tax rates.
Table of Contents
APPENDIX A
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
|
The reconciliation of this non-GAAP
financial measure is as follows:
|
|
For the Year Ended
December
31, 2016
|
|
For the Year Ended
December
31, 2015
|
|
Year-over-Year
Growth
|
Earnings per share
(diluted)
|
|
$2.44
|
|
$2.05
|
|
19%
|
Impairment
charge
|
|
|
|
0.06
|
|
|
Adjusted EPS
|
|
2.44
|
|
2.11
|
|
16%
|
Change from
currency
|
|
0.20
|
|
|
|
|
Adjusted constant currency
EPS
|
|
$2.64
|
|
$2.11
|
|
25%
|
Adjusted
Constant Currency Operating Margin Improvement
Adjusted constant currency operating
margin improvement represents the percentage change in operating margin, as
compared to the same period for the prior year, net of the impact of changes in
foreign currency exchange rates and excluding non-recurring items. Adjusted
constant currency operating margin improvement should be considered in addition
to, and not as a replacement of or a superior measure to, operating margin
improvement reported in accordance with GAAP. We believe that reporting adjusted
constant currency operating margin improvement provides useful information to
investors by facilitating easier comparisons of our operating margin performance
with prior and future periods.
In this Proxy Statement, we report the
adjusted constant currency operating margin improvement for 2016, which excludes
the effect of an $8.2 million non-cash software impairment charge in the third
quarter of 2015, which represents approximately 50 basis points for operating
margin for 2015, and the impact of changes in foreign currency exchange rates.
We estimate the net impact of changes in foreign currency exchange rates on
adjusted operating margin results by restating results to the average exchange
rates or exchange rate assumptions for the comparative period, which includes
adjusting for the estimated impacts of foreign currency hedging transactions and
certain impacts on our effective tax rates.
The reconciliation of this non-GAAP
financial measure is as follows:
Dollar amounts in
thousands
|
|
For the Year
Ended
December 31, 2016
|
|
For the Year
Ended
December 31, 2015
|
|
Year-over-Year
Change
(basis
points)
|
Revenue
|
|
|
$
|
1,775,423
|
|
|
|
|
$
|
1,601,892
|
|
|
|
|
Change from currency
|
|
|
|
14,105
|
|
|
|
|
|
|
|
|
|
|
Constant currency revenue
|
|
|
$
|
1,789,528
|
|
|
|
|
$
|
1,601,892
|
|
|
|
|
Income from operations
|
|
|
$
|
350,239
|
|
|
|
|
$
|
299,912
|
|
|
|
|
Operating
margin
|
|
|
|
19.7
|
%
|
|
|
|
|
18.7
|
%
|
|
|
100 bps
|
Impairment
charge
|
|
|
|
|
|
|
|
|
|
8,212
|
|
|
|
|
Adjusted income from
operations
|
|
|
|
350,239
|
|
|
|
|
|
308,124
|
|
|
|
|
Adjusted operating
margin
|
|
|
|
19.7
|
%
|
|
|
|
|
19.2
|
%
|
|
|
50 bps
|
Change
from currency
|
|
|
|
24,180
|
|
|
|
|
|
|
|
|
|
|
Adjusted constant currency income from
operations
|
|
|
$
|
374,419
|
|
|
|
|
$
|
308,124
|
|
|
|
|
Adjusted constant currency
operating margin
|
|
|
|
20.9
|
%
|
|
|
|
|
19.2
|
%
|
|
|
170
bps
|
|
|
82
|
|
Table of Contents
APPENDIX A
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
|
After-Tax
Return on Invested Capital
After-tax return on invested capital
represents our after-tax income from operations for the year ended December 31,
2016, divided by our average invested capital using the beginning and ending
balance sheet values. After-tax return on invested capital, after-tax income
from operations and average invested capital are not measures of financial
performance under GAAP and should be considered in addition to, and not as a
replacement of or a superior measure to, return on assets, net income, total
assets or other financial measures reported in accordance with GAAP. We believe
that reporting after-tax return on invested capital provides useful information
to investors for evaluating the efficiency and effectiveness of our use of
capital.
In this Proxy Statement, we report our
after-tax return on invested capital for 2016. The reconciliation of this
non-GAAP financial measure is as follows:
Amounts in
thousands (except percentages)
|
For
the Year Ended
December 31, 2016
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
(as reported)
|
|
$
|
350,239
|
|
|
|
|
|
|
|
|
After-tax income from
operations (1)
|
|
|
241,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
As
of
December 31, 2016
|
|
As
of
December 31, 2015
|
Total stockholders
equity (deficit)
|
|
$
|
(108,213
|
)
|
|
|
|
$
|
(83,995
|
)
|
|
Line of
credit
|
|
|
611,000
|
|
|
|
|
|
573,000
|
|
|
Long-term
debt
|
|
|
593,110
|
|
|
|
|
|
597,085
|
|
|
Deferred tax
liabilities - long term
|
|
|
39,287
|
|
|
|
|
|
49,389
|
|
|
Total invested
capital
|
|
|
1,135,184
|
|
|
|
|
|
1,135,479
|
|
|
Average invested
capital
|
|
|
1,135,332
|
|
|
|
|
|
|
|
|
After-tax return on
invested capital
|
|
|
21
|
%
|
|
|
|
|
|
|
|
(1) After-tax income from operations
represents income from operations reduced by our reported effective tax rate of
31.0% for the year ended December 31, 2016. See Note 12 in the notes to our
consolidated financial statements included in our 2016 Annual Report on Form
10-K for information on our effective tax rate.
Table of Contents
Table of Contents
IDEXX
LABORATORIES, INC.
ONE IDEXX DRIVE
WESTBROOK, ME 04092
VOTE BY
INTERNET
Before The Meeting
- Go to
www.proxyvote.com
Use the
Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 p.m. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an electronic
voting instruction form.
During
The Meeting
- Go to
www.virtualshareholdermeeting.com/IDXX2017
You may
attend the Meeting via the Internet and vote during the Meeting. Have the
information that is printed in the box marked by the arrow available and follow
the instructions.
VOTE BY
PHONE - 1-800-690-6903
Use any touch-tone
telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time
the day before the cut-off date or meeting date. Have your proxy card in hand
when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided or return it to Vote Processing, c/o
Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE
OR BLACK INK AS FOLLOWS:
|
|
E19983-P88297
|
|
KEEP THIS PORTION FOR YOUR
RECORDS
|
|
|
|
DETACH AND
RETURN THIS PORTION ONLY
|
THIS PROXY
CARD IS VALID ONLY WHEN SIGNED AND DATED.
IDEXX LABORATORIES, INC.
|
|
|
|
|
|
|
|
|
The Board of Directors recommends you vote FOR the
following:
|
|
|
|
|
|
|
|
|
1.
|
|
Election of
Directors
|
|
|
|
|
|
|
|
|
|
|
Nominees:
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
1a.
|
|
Rebecca M. Henderson, PhD
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1b.
|
|
Lawrence D. Kingsley
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1c.
|
|
Sophie V. Vandebroek, PhD
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
The Board of Directors
recommends you vote FOR the following proposals:
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
2.
|
|
Ratification of Appointment of
Independent Registered Public Accounting Firm. To ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm for the current fiscal year (Proposal Two).
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
|
Advisory Vote on Executive
Compensation. To approve a nonbinding advisory resolution on the Company's
executive compensation (Proposal Three).
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
The Board of Directors
recommends you vote 1 year on the following proposal:
|
|
1 Year
|
|
2 Years
|
|
3 Years
|
|
Abstain
|
|
|
|
4.
|
|
Advisory Vote on the Frequency of Advisory
Votes on Executive Compensation. To recommend, by nonbinding advisory
vote, the frequency of future advisory votes on the Company's executive
compensation (Proposal Four).
|
|
☐
|
|
☐
|
|
☐
|
|
☐
|
|
Please sign exactly as your name(s)
appear(s) hereon. When signing as attorney, executor, administrator, or
other fiduciary, please give full title as such. Joint owners should each
sign personally. All holders must sign. If a corporation or partnership,
please sign in full corporate or partnership name by authorized
officer.
|
|
|
|
|
|
|
|
|
Signature
[PLEASE SIGN WITHIN BOX]
|
Date
|
|
Signature
(Joint Owners)
|
Date
|
|
Table of Contents
Important Notice
Regarding the Availability of Proxy Materials for the Annual
Meeting:
The Notice and Proxy Statement
and Annual Report are available at
www.idexxproxymaterials.com.
IDEXX
LABORATORIES, INC.
Proxy for the
2017 Annual Meeting of Stockholders
To Be Held on
May 3, 2017
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior
proxies, hereby appoint(s) Jonathan W. Ayers, Brian P. McKeon and Jacqueline L.
Studer, and each of them, with full power of substitution, as proxies to
represent and vote, as designated on the reverse side of this ballot, all shares
of Common Stock of IDEXX Laboratories, Inc. (the "Company") which the
undersigned would be entitled to vote at the 2017 Annual Meeting to be held at
1:00 PM EDT on Wednesday, May 3, 2017 at
www.virtualshareholdermeeting.com/IDXX2017.
This proxy, when properly executed,
will be voted in the manner directed herein. If no such direction is made, this
proxy will be voted in accordance with the Board of Directors'
recommendations.
Continued and to be signed on reverse
side
IDEXX Laboratories (NASDAQ:IDXX)
Historical Stock Chart
From Mar 2024 to Apr 2024
IDEXX Laboratories (NASDAQ:IDXX)
Historical Stock Chart
From Apr 2023 to Apr 2024