Stephen H.
CraneyDirector
Since
1984, Mr. Craney has founded and operated a number of successful companies,
including RiverSide Electronics, Ltd., RiverBend Electronics, Ltd., RiverStar,
Inc., and JMW Enterprises, Inc. Before becoming an entrepreneur, Mr. Craney
worked as an engineer, having earned an electrical engineering degree from the
University of Wisconsin-Madison. Mr. Craney is also an active member of a
number of community groups, such as the Winona Historical Society. In addition,
he has provided support and advice to start up companies for more than 20 years
through a local entrepreneur network. Among other attributes, skills,
experiences and qualifications, our Board believes that Mr. Craneys experience
developing companies with a strong record of growth, his technical knowledge in
the electronics field, his research and development experience and his
connections within the business community make him uniquely qualified to serve
as a director.
William V.
EcklesDirector
Mr.
Eckles has served as the President and Chief Executive Officer of Blue Earth
Valley Communications, Inc. since 2003. He also serves as a director of First
Bank Blue Earth, FNB Bancshares, Inc. (Blue Earth, Minnesota), and Hector
Communications Corporation (New Ulm, Minnesota). Mr. Eckles received his
undergraduate degree from the University of St. Thomas in 1999, and received an
MBA from the University of St. Thomas in 2007. Among other attributes, skills,
experiences and qualifications, our Board believes that Mr. Eckles experience
leading and setting the strategic direction of growing companies will allow him
to make a significant contribution to the Board of Directors.
Thomas M.
HagedornDirector
Mr.
Hagedorn has served for approximately fifteen years as president of various
entities in a family of real estate and mortgage companies headquartered in
Northern Virginia; namely Premium Financial Services, Premium Realty Ltd., and
Premium Title Services, a mortgage company, real estate brokerage company, and
title insurance company, respectively. As president of these entities Mr.
Hagedorn manages all aspects of the companies activities, including managing
between one to five employees in each company, maintaining records and funds
with respect to escrow accounts of clients, and coordinating responses in
connection with regulatory audits of the escrow accounts managed by each
company. Mr. Hagedorn has also been a founding investor for various start-up
ventures, including Hansen Engine Corporation, as well as several energy
companies where new technology is a principal factor. Mr. Hagedorn is a former
member of the Minnesota State Legislature and the U.S. Congress, representing
southern Minnesota. Among other attributes, skills, experiences and
qualifications, our Board believes that Mr. Hagedorns leadership and
management experience, as well as his familiarity with the opportunities and
challenges related to raising capital and his knowledge of legislative
procedures, allow him to make valuable contributions as a director.
Craig N. HansenDirector
Mr.
Hansen is the co-founder of the Company and is the Vice President of Research
and Development at Hansen Engine Corporation. Mr. Hansen has been with Hansen
Engine Corporation since 1977. He is a graduate of Western Iowa Technical School.
He has more than forty patents in several fields with numerous additional
patents pending. The patents that Mr. Hansen has assigned to the Company form
the technical basis for the Electromed SmartVest System. Mr. Hansen is the
brother of Robert D. Hansen, the Companys Chief Executive Officer. Among other
attributes, skills, experiences and qualifications, our Board believes that Mr.
Hansens history with the Company and considerable experience with research and
development in the medical device industry make him uniquely qualified to serve
as a director.
- 8 -
Darrel L.
KloecknerDirector
Mr.
Kloeckner was first elected to the Board of Directors in 2010. Mr. Kloeckner
has been self-employed as a business consultant to privately held corporations since
1995. Before that, Mr. Kloeckner worked as a certified public
accountant, providing consulting, accounting and tax services to privately held
corporations and their owners. Mr. Kloeckner holds an accounting degree from
the University of Minnesota and is a member of the Minnesota Society of
Certified Public Accountants. Among other attributes, skills, experiences and
qualifications, our Board believes that Mr. Kloeckners significant financial
expertise, as well as his expertise in providing advice and consultation to
businesses of the Companys size, will allow him to make valuable contributions
as a director.
Dr. George H.
WinnDirector
Dr.
George Winn has practiced dentistry with emphasis in orthodontics and facial
pain management in New Prague, MN, for forty-five years. He is a graduate of
Mankato State College, B.A., the University of Minnesota, B.S., and the
University of Minnesota School of Dentistry, Doctor of Dental Surgery. He has
served as an associate clinical professor in the Department of Operative
Dentistry and participates in a medical ethics program of the American College
of Dentists at the School of Dentistry, University of Minnesota. Among other
attributes, skills, experiences and qualifications, our Board believes that, in
addition to the industry relationships that Dr. Winn has developed, his
education and experience give him insight into the medical device industry,
which makes him uniquely qualified to serve as a director.
Required Vote and Board Recommendation
Proposal 1
:
The Board of Directors recommends that
you vote
FOR
the proposal to set the number of directors at seven (7).
Adoption of the proposal requires the affirmative vote of a majority of the
voting power of the shareholders present, whether in person or by proxy, and
entitled to vote at the Annual Meeting, provided that a quorum is present.
Proposal 2
:
The Board of Directors recommends that
you vote
FOR
each of the nominees to the Board of Directors. The election of
each nominee requires the affirmative vote of a plurality of the voting power
of the shareholders present, whether in person or by proxy, and entitled to
vote at the Annual Meeting, provided that a quorum is present.
APPROVAL OF THE ELECTROMED, INC. 2012 STOCK
INCENTIVE PLAN
(Proposal 3)
The
Board of Directors has approved the Electromed, Inc. 2012 Stock Incentive Plan
(the 2012 Plan), contingent upon approval by the shareholders. The 2012 Plan,
if approved, will reserve 200,000 shares of Company common stock for non-qualified
stock options and restricted stock units, with awards to be granted at the
discretion of the Board of Directors or the Personnel and Compensation
Committee. The Board believes that a stock incentive plan is important to
provide a mechanism to offer both management and non-management employees and
consultants the ability to participate in the long-term growth of the Company,
provided that such employees and consultants meet ongoing commitments to the
Company.
Summary of the 2012 Plan
The
principal provisions of the 2012 Plan are summarized below. This summary is not
a complete description of all of the 2012 Plans provisions, and is qualified
in its entirety by reference to the 2012 Plan which is attached to this Proxy
Statement as Appendix I. Capitalized terms in this summary not defined in this
Proxy Statement have the meanings set forth in the 2012 Plan.
Purpose and Eligible
Participants
The
purpose of the 2012 Plan is to attract, retain and motivate competent personnel
by furnishing stock incentives to those employees (including officers),
directors, and consultants upon whose efforts the success of the Company
depends. As of the mailing date of this Proxy Statement, approximately 92
employees (including officers), 7 directors, and approximately 310 consultants
to the Company (including, but not limited to, independent contractors who
provide medical-based training to patient acquirers of the SmartVest® garment
located through the United States, consultants providing manufacturing and
research and development services, and consultants providing marketing
services) are eligible to participate in the 2012 Plan.
- 9 -
Types of Awards
The
2012 Plan permits the grant of the following types of awards, in the amounts
and upon the terms determined by the Administrator:
Options
. Options or non-qualified stock
options (NSOs) may be issued pursuant to and subject to the 2012 Plan.
Options shall vest as determined by the Administrator. The exercise price of
each share subject to an NSO will be determined as of the date of the grant of
the NSO and will not be less than 100% of the fair market value of a share on
the date of the grant of the NSO. Recipients of options have no rights as a
shareholder with respect to any shares covered by the award until the award is
exercised and a stock certificate or book entry evidencing such shares is
issued or made, respectively.
Restricted
Stock Units.
Restricted stock units consist of a right
to receive shares (or cash, in the Administrators discretion) on one or more
vesting dates in the future. The vesting dates may be based on the passage of
time or the satisfaction of other criteria, such as continued employment or
Company performance. Recipients of restricted stock units have no rights as a
shareholder with respect to any shares covered by the award until the date a
stock certificate or book entry evidencing such shares is issued or made,
respectively.
Number of Shares
The
stock to be awarded or optioned under the 2012 Plan shall consist of authorized
but unissued or reacquired shares of common stock. The maximum aggregate number
of shares of common stock reserved and available for awards under the 2012 Plan
is 200,000. Shares subject to awards granted under the 2012 Plan that expire or
are terminated or forfeited for any reason will remain in the pool of shares
available for issuance under the 2012 Plan. Shares subject to an award which
are withheld to pay the exercise price or satisfy the tax withholding
obligation applicable to an award will not again become available for issuance
under the 2012 Plan.
Administration
Subject
to the terms of the 2012 Plan, a Committee (as defined in the 2012 Plan) will
have the discretion to (i) determine which persons will be designated as
participants; (ii) make awards and determine the terms and conditions of
awards, including the number of shares subject to an award, vesting criteria,
performance conditions and the manner of exercise; (iii) delegate to employees
the authority to make awards and determine the terms and conditions of awards,
for persons who are not subject to the reporting requirements of Section 16 of
the Securities Exchange Act of 1934; (iv) modify the terms of outstanding
awards as permitted by the 2012 Plan; (v) prescribe the form of agreements to
evidence awards; (vi) interpret the 2012 Plan; and (vii) make all other
determinations necessary or advisable for the administration of the 2012 Plan
or any agreement issued thereunder, to the extent permitted by law and the 2012
Plan. The Committee will be composed of at least two (2) members of the Board
that qualify as independent directors to the extent required by laws or
regulations applicable to the Company.
Amendments
The
Committee may from time to time, insofar as permitted by law, suspend or
terminate the 2012 Plan or revise or amend it in any respect. However, no
amendments to the 2012 Plan will be effective without the approval of the
Companys shareholders to the extent such approval is required by applicable
laws or regulations, and, except for adjustments or other modifications
permitted by the 2012 Plan, no termination, suspension or amendment of the 2012
Plan may adversely affect any outstanding award without the consent of the
affected participant.
Term
The
2012 Plan will be effective upon approval by the Companys shareholders and
will terminate at midnight on December 31, 2016, or such earlier time as
permitted by the 2012 Plan. No awards will be granted under the 2012 Plan
following its termination, but awards that are outstanding under the 2012 Plan
at the time of termination will continue in accordance with their terms.
- 10 -
Payment
Upon
exercise of an option granted under the 2012 Plan, and as permitted in the
Committees discretion, the option holder must pay the exercise price in cash
(or cash equivalent), provided that the Committee may allow such payment to be
made by surrendering or delivering by attestation previously-acquired shares of
Company common stock, by withholding shares of Company common stock from the
number of shares that would otherwise be issuable upon exercise of the option (
e.g.
, a net share settlement), through
broker-assisted cashless exercise (if compliant with applicable securities laws
and any insider trading policies of the Company), or a combination of any of
the foregoing. If the exercise price is paid, in whole or in part, with Company
common stock, the then-current fair market value of the stock delivered or withheld
will be used to calculate the number of shares required to be delivered or
withheld.
Transfer
Restrictions
Awards
made under the 2012 Plan will not be transferable, other than by will or by the
laws of descent and distribution, or, if provided in the agreement covering a
non-qualified option, by gift to members of the participants immediate
family or to certain trusts or partnerships (as defined and permitted by the
2012 Plan and applicable federal securities law).
New Plan Benefits
The
amount of future awards will be determined or recommended to the Board of
Directors by the Committee. The 2012 Plan does not require awards in specific
amounts or to specific recipients or provide formulae to determine the amount
or recipient of awards. As a result, the Company cannot determine the awards
that will be made under the 2012 Plan or that would have been made in the past
if the 2012 Plan had been in place.
Equity Compensation
Plan Information
Prior
to its initial public offering in August 2010, the Company had historically
awarded 5,000 warrants to purchase Company common stock to sales
representatives following one year of satisfactory service, at the discretion
of the Chief Executive Officer. In addition, the Company had periodically
awarded warrants to executive officers as a form of long-term incentive
compensation, and had periodically awarded warrants in lieu of cash
compensation to certain other service providers. The warrants issued pursuant
to these arrangements may be exercised upon payment of the exercise price in
cash and expire at various dates through November 2018. The warrants contain
standard antidilution provisions. Please see Note 7 to the Consolidated
Financial Statements, included in Part II, Item 8 of our Annual Report on Form
10-K for the fiscal year ended June 30, 2011.
- 11 -
The following
table provides information concerning equity compensation arrangements as of
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(b)
|
|
|
Number of securities
remaining available
for future
issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)
(1)
(c)
|
|
Equity compensation plans approved by
security holders
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Equity compensation plans not approved by
security holders
|
|
|
|
646,967
|
|
|
$
|
3.83 per share
|
|
|
|
N/A
|
|
Total
|
|
|
|
646,967
|
|
|
$
|
3.83 per share
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
As of June 30, 2011, we had not authorized a formal equity compensation plan or
reserved a pool of securities that would be available for future issuance pursuant
to equity compensation arrangements. However, in addition to the equity awards
reflected in the foregoing table, the Board of Directors has authority to
authorize future equity grants on a case-by-case basis as compensation to new
employees, in an aggregate amount up to our then-remaining number of authorized
shares. We currently have 13,000,000 authorized shares of common stock and
2,000,000 shares of undesignated stock. We would be required by NYSE Amex rules
to obtain shareholder approval for most other forms of equity compensation
arrangements. In addition, we are subject to certain contractual restrictions
regarding equity grants. Information regarding the proposed 2012 Plan is
provided elsewhere in this Proxy Statement and is not reflected in the table
above.
Additional
information concerning historical equity awards is available in this proxy
statement in the following tables and the narrative accompanying them:
Summary Compensation Table, Outstanding Equity Awards at 2011 Fiscal Year End,
and Director Compensation Table for the 2011 Fiscal Year. On October 3, 2011,
the closing price of our common stock was $3.41.
Federal Income Tax Matters
Options
Under
present law, an optionee will not recognize any taxable income on the date an
NSO is granted pursuant to the 2012 Plan. Upon exercise of the option, however,
the optionee must recognize, in the year of exercise, compensation taxable as
ordinary income in an amount equal to the difference between the option price
and the fair market value of Company common stock on the date of exercise. Upon
the sale of the shares, any resulting gain or loss will be treated as capital
gain or loss. The Company will receive an income tax deduction in its fiscal
year in which NSOs are exercised equal to the amount of ordinary income
recognized by those optionees exercising options, and must comply with
applicable tax withholding requirements.
Restricted Stock
Units
A
recipient of restricted stock units will generally recognize compensation taxable
as ordinary income in an amount equal to the fair market value of the shares
(or the amount of cash) distributed to settle the restricted stock units on the
vesting date(s). The Company normally will receive a corresponding deduction at
the time of vesting, equal to the amount of compensation the recipient is
required to recognize as ordinary taxable income, and must comply with
applicable tax withholding requirements.
The foregoing is only a summary of
the effect of U.S. federal income taxation with respect to the grant and
exercise of awards under the 2012 Plan. It does not purport to be complete, and
does not discuss the tax consequences of an individuals death or the
provisions of the income tax laws of any municipality, state or foreign country
in which any eligible individual may reside.
- 12 -
Other Information
Other
than as a result of their right to participate in the 2012 Plan, no person who was a director or executive officer
in the year ended June 30, 2011 or who is a nominee for director at the
meeting, or any associate of such persons, has any substantial interest in this
proposal.
Required Vote and Board
Recommendation
The
Board of Directors recommends that you vote
FOR
the proposal to approve the
Electromed, Inc. 2012 Stock Incentive Plan. Adoption of the proposal requires
the affirmative vote of a majority of the voting power of the shareholders
present, whether in person or by proxy, and entitled to vote at the Annual
Meeting, provided that a quorum is present.
RATIFICATION OF THE APPOINTMENT OF MCGLADREY
& PULLEN, LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
(Proposal 4)
The
Board of Directors, acting on the recommendation of the Companys Audit
Committee, has selected McGladrey & Pullen, LLP (McGladrey) as the
Companys independent registered public accountant for the fiscal year ending
June 30, 2012. McGladrey was the Companys independent registered public
accountant for the 2011 fiscal year.
Notwithstanding
its selection, the Audit Committee, in its discretion, may appoint another
independent registered public accounting firm at any time during the year if
the Audit Committee believes that such a change would be in the best interests
of the Company and its shareholders. If the appointment is not ratified by our
shareholders, the Audit Committee may reconsider whether it should appoint
another independent registered public accounting firm.
A
representative of McGladrey is expected to be present at the Annual Meeting.
Such representative will have an opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions
regarding preparation of the Companys financial statements.
Audit Fees
The
following table presents fees billed by McGladrey to the Company for the audit
of the Companys annual financial statements, the review of the Companys
interim financial statements, and various other audit and non-audit services
provided in connection with the fiscal years ended June 30, 2011 and June 30,
2010.
|
|
|
|
|
|
|
|
Category
|
|
Fiscal Year
|
|
Fees
|
|
Audit Fees
(1)
|
|
|
2011
|
|
|
$93,410
|
|
|
|
|
2010
|
|
|
$249,000
|
|
|
|
|
|
|
|
|
|
Audit-Related
Fees
(2)
|
|
|
2011
|
|
|
$0
|
|
|
|
|
2010
|
|
|
$0
|
|
|
|
|
|
(1)
|
Audit
services included the annual audits and reviews of the Companys quarterly
financial statements. The 2010 fees also include fees relating to the
Companys initial public offering.
|
|
|
|
|
(2)
|
Audit-related
services related to responding to technical accounting questions and related
research, and meetings with the Companys management.
|
- 13 -
McGladrey
provided no other services to the Company in either fiscal 2011 or fiscal 2010
that are not included above.
Audit Committee Pre-Approval
Pursuant
to its written charter, the Audit Committee is responsible for pre-approving
all audit and permitted non-audit services to be performed for the Company by
its independent registered public accounting firm or any other auditing or
accounting firm. During the year, circumstances may arise that will require the
engagement of the independent registered public accounting firm for additional
services not contemplated in the original pre-approval. In those instances, we
will obtain pre-approval of the Audit Committee before engaging the independent
registered public accounting firm.
All
audit services and audit-related services incurred during fiscal 2011 were
pre-approved by our Audit Committee.
Required Vote and Board Recommendation
The
Board of Directors recommends a vote
FOR
the ratification of the appointment
of McGladrey & Pullen, LLP as the Companys independent registered public
accountant for the 2012 fiscal year. Adoption of the proposal requires the
affirmative vote of a majority of the voting power of the shareholders present,
whether in person or by proxy, and entitled to vote at the Annual Meeting,
provided that a quorum is present.
CORPORATE GOVERNANCE
Independence
Our
Board of Directors consists of a majority of independent directors. Our Board
of Directors has determined that four of the seven director nominees are
independent directors, as defined under the applicable regulations of the SEC
and the NYSE Amex. The four independent director nominees are Stephen H.
Craney, William V. Eckles, Thomas M. Hagedorn, and Darrel L. Kloeckner. In
addition, Noel D. Collis, MD, who served as a director for a portion of our
2011 fiscal year, was an independent director as defined by applicable rules
and regulations. In determining independence, our Board of Directors considered
that Mr. Hagedorn is a director and owns approximately 11% of the outstanding
equity of Hansen Engine Corporation, an entity that receives payment from the
Company in exchange for performing research and development services. In addition,
our Board of Directors considered that Mr. Hagedorns son was an employee of
the Company from December 1, 2009 through June 30, 2010. Our Board of Directors
also considered that the Company has made payments of approximately $611,000,
$409,000, and $380,000 during our 2011, 2010, and 2009 fiscal years,
respectively, to RiverSide Electronics, Ltd. (RiverSide), an entity which is
solely owned by Mr. Craney, in exchange for electronic parts. The Board of
Directors determined that the terms of its transactions with RiverSide were
consistent with what could be obtained in an arms length transaction with an
unrelated party and that the transactions did not exceed 5% of RiverSides
consolidated gross annual revenues. The Board of Directors also considered that
Mr. Eckles owns approximately 20% of the outstanding stock of Blue Earth
Valley Communications (Blue Earth), an entity from which the Company has
purchased approximately $25,000 of telecommunications services in each of its
past three fiscal years and from which the Company, through a wholly-owned
subsidiary of Blue Earth, leases industrial space for annual rent of
approximately $60,000. The Board of Directors determined that the terms of the
Companys transactions with Blue Earth were consistent with what could be
obtained in an arms length transaction with an unrelated party and that the
transactions did not exceed 5% of Blue Earths consolidated gross annual
revenues. See CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS.
Code of Ethics
The
Board of Directors has approved a Code of Ethics that applies to all employees,
directors, and officers, including the Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer. The Code of Ethics is available in the
Investor Relations section of our website at www.electromed.com. We intend to
disclose on our website, www.electromed.com, any amendment to, or waiver from
any provision of the Code of Ethics that applies to our Chief Executive
Officer, Chief Financial Officer, or Chief Accounting Officer, and that relates
to any element of the Code of Ethics identified in Item 406(b) of Regulation
S-K. Such disclosure will be provided promptly following the date of the
amendment or waiver.
- 14 -
Director Attendance at Annual Meetings
Directors
attendance at Annual Meetings can provide shareholders with an opportunity to
communicate directly with members of the Board of Directors about matters
concerning the Company. The Company encourages all directors to attend the Companys
annual meetings, but it does not have a formal attendance policy. Six of the
Companys current directors attended the Fiscal 2011 Annual Meeting of
Shareholders.
Board Leadership Structure
The
Board of Directors
believes the combined role of Chairman and Chief Executive Officer allows the
Companys leadership to develop strategic direction and hold management
accountable for the execution of strategy once it is developed. The combined
role promotes strategic development and execution and facilitates information
flow with management to aid in the Board of Directors evaluation of managements performance. The
Board of Directors believes that
the Companys Chief Executive Officer is best situated to serve as Chairman
because of his unique familiarity with the Companys history, business and
industry, which makes him most capable of effectively leading discussions among
directors of diverse backgrounds and experience regarding the Companys
operations and strategy identification, execution and evaluation. The Board
of Directors has not appointed a lead
independent director and believes that the independent directors roles as
members of their respective committees provide sufficient oversight.
Risk Oversight
It
is managements responsibility to manage risk and bring to the Boards
attention the most material risks to the Company. The Board of Directors has
oversight responsibility of the processes established to report and monitor
systems for material risks applicable to the company. The Audit Committee
provides oversight of management with respect to enterprise-wide risk
management, which focuses primarily on risks relating to the Companys ability
to maintain appropriate levels of credit and insurance coverage, financial and
accounting risks, and legal and compliance risks, including oversight of
internal controls over financial reporting. In addition, the Personnel and
Compensation Committee considers risks related to the attraction and retention
of talent and risks relating to the design of compensation programs and
arrangements. The Nominating and Corporate Governance Committee considers risks
and best practices relating to corporate governance policies and procedures.
The full Board considers strategic risks and opportunities and regularly
receives detailed reports from management and the committees, with respect to
their areas of responsibility for risk oversight.
Board and Committee Meetings
During
the 2011 fiscal year, the Board of Directors held ten formal meetings, three of
which were held jointly with the Nominating and Corporate Governance Committee.
In addition, directors frequently communicate with each other informally and,
when appropriate, take action by written consent of all directors, or in the
case of an action that does not require shareholder approval, the number of
directors required to take the action at a meeting, as permitted by the
Minnesota Business Corporation Act and the Companys Amended Articles of
Incorporation. Each director attended at least 75% of the total number of Board
meetings held during the 2011 fiscal year and the total number of meetings held
by all committees on which the director served during the 2011 fiscal year.
Committee Membership
The
Companys Board of Directors has three standing committees: the Audit
Committee, the Personnel and Compensation Committee, and the Nominating and
Corporate Governance Committee. The following table sets forth the membership
of each of the Companys standing committees:
|
|
|
|
|
Audit
Committee
|
|
Nominating
and Corporate
Governance Committee
|
|
Personnel
and
Compensation Committee
|
Darrel
L. Kloeckner (Chair)
|
|
Thomas
M. Hagedorn (Chair)
|
|
Thomas
M. Hagedorn (Chair)
|
Stephen
H. Craney
|
|
Stephen
H. Craney
|
|
Stephen
H. Craney
|
William
V. Eckles
|
|
William
V. Eckles
|
|
Darrel
L. Kloeckner
|
- 15 -
Our
Board of Directors has evaluated independence for the members of each committee
in accordance with NYSE Amex rules and, with respect to the members of the
Audit Committee, Rule 10A-3 of the Exchange Act. The membership and
responsibilities of each committee complies with the listing requirements of
the NYSE Amex.
Audit Committee
Our
Audit Committee currently consists of Darrel L. Kloeckner (Chair), Stephen H.
Craney, and William V. Eckles. Under its charter, the Audit Committee must
consist of at least three independent directors and its composition must
otherwise satisfy NYSE Amex and SEC requirements applicable to audit
committees.
The
principal functions of the Audit Committee are to evaluate and review the
Companys financial reporting process and systems of internal controls. The
Audit Committee evaluates the independence of the Companys independent
registered public accountant, recommends selection of the Companys independent
registered public accountant to the Board of Directors, approves fees to be
paid to our independent registered public accountant, and reviews the Companys
financial statements with management and the independent registered public
accountant. The Audit Committee has recommended to the Board of Directors the
appointment of McGladrey & Pullen, LLP to serve as the Companys
independent registered public accountant for the 2012 fiscal year. The Audit
Committee operates under a written charter approved and adopted by the Board of
Directors on April 20, 2010, a copy of which is available in the Investor
Relations section of the Companys website at www.electromed.com. The Audit
Committee held four formal meetings during the 2011 fiscal year.
The Board of Directors has determined
that Darrel L. Kloeckner is the “audit committee
financial expert” as defined by Item 407 (d)(5) of Regulation S-IC under the Securities Act of 1933, as amended.
Audit
Committee Independence
SEC
and NYSE Amex rules require our Audit Committee to be made up entirely of
independent directors. Our Board of Directors has affirmatively determined
that Mr. Kloeckner, Mr. Craney, and Mr. Eckles meet the definition of
independent director for purposes of serving on an audit committee under NYSE
Amex Rule 803 and Exchange Act Rule 10A-3.
Audit
Committee Review of Related Party Transactions
The
charter for the Audit Committee provides that the Audit Committee will review
and approve in advance any related party transaction of the type required to be
disclosed by Item 404 of Regulation S-K. In determining whether to
approve or ratify a transaction with a related party, the Audit Committee
considers all of the relevant facts and circumstances available to it,
including, among any other factors it deems appropriate: (i) the benefits to
the Company of the transaction; (ii) the nature of the related partys interest
in the transaction; (iii) whether the transaction would impair the judgment of
a director or executive officer to act in the best interests of the Company and
our shareholders; (iv) the potential impact of the transaction on a directors
independence; and (v) whether the transaction is on terms no less favorable than
terms generally available to an unrelated third party under the same or similar
circumstances. If a member of the Audit Committee is a related party with
respect to a transaction under review, he abstains from voting on the approval
of the transaction. We believe the terms of any of the transactions and
agreements described under the heading CERTAIN TRANSACTIONS AND
BUSINESS RELATIONSHIPS are at
least as favorable to us as could be obtained in an arms length transaction
with an unrelated party.
Report
of the Audit Committee
The
following report of the Audit Committee shall not be deemed to be filed with
the Securities and Exchange Commission (SEC) or incorporated by reference in
any previous or future documents filed by the Company with the SEC under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates the reference in any such
document.
- 16 -
In
accordance with its written charter adopted by the Board of Directors, as
amended, the Audit Committee assists the Board of Directors with fulfilling its
oversight responsibility regarding the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. The Audit Committee
charter is available in the Investor Relations section of our website at www.electromed.com. The charter was
adopted on April 20, 2010. In discharging its oversight responsibilities
regarding the audit process, the Audit Committee:
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(1)reviewed and discussed the audited
financial statements with management and the independent registered public
accountants;
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(2)
discussed with the independent registered public accountants the material
required to be discussed by Statement on Auditing Standards No. 61, as
amended by Auditing Standard No. 114, (AICPA, Professional Standards,
Vol. 1, AU section 380), as adopted by the PCAOB in Rule 3200T; and
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(3)received the written disclosures and the
letter from the independent registered public accountant required by
applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountants communications with the audit
committee concerning independence, and has discussed with the independent
registered public accountant the independent accountants independence.
|
Based
upon the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 2011, as filed with the Securities and Exchange Commission.
Audit Committee
Darrel L.
Kloeckner (Chair)
Stephen H. Craney
William V. Eckles
Personnel and Compensation Committee
The
current members of the Personnel and Compensation Committee are Thomas M.
Hagedorn (Chair), Stephen H. Craney, and Darrel L. Kloeckner. Our Board of
Directors has affirmatively determined that each of Mr. Hagedorn, Mr. Craney,
and Mr. Kloeckner meet the definition of independent director for purposes of
serving on a compensation committee under NYSE Amex Rule 805.
The
Board has authorized the Personnel and Compensation Committee to, among other
duties, develop the Companys compensation strategy, review compensation
policies and plans for the Companys executive officers, and administer the
Companys compensation plans. Neither the Personnel and Compensation Committee
nor the Board of Directors engages compensation consultants to assist in
determining or recommending the amount or form of compensation for executive
officers or directors. The Chief Executive Officer gives the Committee input in
regard to the compensation of the Chief Financial Officer and the Chief
Operating Officer, but the Chief Executive Officer is not present during voting
or deliberations relating to his own compensation. The committee operates under
a written charter adopted April 20, 2010, which is available in the Investor
Relations section of our website at www.electromed.com. The Personnel and
Compensation Committee acted by written consent one time during the 2011 fiscal
year.
Nominating and Corporate Governance Committee
The
current members of the Nominating and Corporate Governance Committee are Thomas
M. Hagedorn (Chair), Stephen H. Craney, and William V. Eckles. At this
time, our Board of Directors has affirmatively determined that each of Mr.
Hagedorn, Mr. Craney, and Mr. Eckles meet the definition of independent
director for purposes of serving on a nominating committee under NYSE Amex
Rule 804.
Our
Nominating and Corporate Governance Committee is responsible for oversight of
our corporate governance policies and procedures, our codes of conduct and
other corporate governance matters. In addition, our Nominating and Corporate
Governance Committee makes recommendations to our Board of Directors regarding
candidates for directorships and the size and composition of our Board of
Directors and its committees. The Nominating and Corporate Governance Committee
acts pursuant to a written charter, which was adopted April 20, 2010 and
amended September 23, 2010. The charter is available in the Investor
Relations section of our website at www.electromed.com.
The Nominating and Corporate Governance Committee held three formal
meeting during the 2011 fiscal year, all of which were held jointly with the
full Board of Directors meetings.
- 17 -
Director
Nominations
Director
nominees are recommended to the full Board by the Nominating and Corporate
Governance Committee. Shareholders may recommend a nominee to be considered by
the Nominating and Corporate Governance Committee by submitting a written
proposal to the Chairman of the Board of Directors, at 500 Sixth Avenue
Northwest, New Prague, Minnesota.
A consent signed by the proposed nominee agreeing to be considered as a
director should accompany the written proposal. The proposal should include the
name and address of the nominee, in addition to the qualifications and
experience of said nominee.
When
selecting candidates for recommendation to the Board of Directors, the
Nominating and Corporate Governance Committee will consider the attributes of
the candidates and the needs of the Board and will review all candidates in the
same manner, regardless of the source of the recommendation. In evaluating
director nominees, the Governance and Nominating Committee seeks to confirm
that candidate meet certain minimum qualifications, including being able to
read and understand basic financial statements, being familiar with our
business and industry, having high moral character and mature judgment, and
possessing the ability to work collegially with others. In addition, factors
such as the following are also considered:
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appropriate
size and diversity of the Board;
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needs
of the Board with respect to particular talent and experience;
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knowledge,
skills and experience of nominee;
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experience
in domestic and international business affairs;
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familiarity
with legal and regulatory requirements;
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appreciation
of the relationship of our business to the changing needs of society; and
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desire
to balance the benefit of continuity with the periodic injection of the fresh
perspective provided by a new member.
|
The
Nominating and Corporate Governance Committee does not have a formal diversity
policy at this time. However, as summarized above, the Nominating and Corporate
Governance Committee seeks to nominate candidates with a diverse range of
knowledge, experience, skills, expertise, and other qualities that will
contribute to the overall effectiveness of the Board of Directors. Moreover,
potential nominees are not discriminated against on the basis of sex, religion,
national origin, sexual orientation, disability or other basis proscribed by
law.
In
July 2011, the independent directors voted to recommended to the full Board the
nomination of William V. Eckles to serve as a director. Mr. Eckles was
recommended to the Nominating and Corporate Governance Committee by the
Companys Chief Executive Officer.
SECURITY HOLDER COMMUNICATIONS TO THE BOARD
OF DIRECTORS
Any
shareholder wishing to communicate with the Board of Directors about any matter
involving the business or operations of the Company should send the
communication, in written form, to the CEO of the Company at the Companys
principal place of business at 500 Sixth Avenue Northwest, New Prague,
Minnesota. The CEO of the Company will promptly send the communication to each
member of the Board of Directors.
- 18 -
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
Section 16(a)
of the Securities Exchange Act of 1934 requires the Companys executive
officers and directors, and persons who own more than ten percent of the
Companys common stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of common
stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders (Insiders) are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To
the Companys knowledge, based solely on review of the copies of such reports
furnished to the Company, or written representations from Insiders that no
other reports were required, the Company believes that during the fiscal year
ended June 30, 2011, all Form 3, Form 4 and Form 5 filing
requirements were met.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS,
DIRECTORS AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial
ownership of our outstanding common stock by (i) each of our named executive
officers (as defined in the section of this Proxy Statement entitled EXECUTIVE
COMPENSATION); (ii) each of our current directors and director nominees; and
(iii) all of our executive officers, current directors, and director nominees
as a group. We are not aware of any beneficial owners of more than 5% of our
common stock who are not executive officers or directors.
The
percentage ownership information shown in the table is based upon 8,101,085 shares outstanding as of October 3, 2011.
Unless
otherwise indicated, the persons or entities identified in this table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them. Except as otherwise noted below, the address for each person or
entity listed in the table is c/o Electromed, Inc., 500 Sixth Avenue NW, New
Prague, Minnesota 56071.
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Name
|
|
Number of
Shares
Beneficially
Owned
|
|
Percentage
of the Class
Beneficially
Owned
(1)
|
|
Robert D. Hansen
(2)
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600,355
|
|
|
|
7.39
|
%
|
Terry M. Belford, CPA, CMA
(3)
|
|
59,000
|
|
|
|
*
|
|
James J. Cassidy, Ph.D.
|
|
2,000
|
|
|
|
*
|
|
Stephen H. Craney
|
|
304,334
|
|
|
|
3.76
|
%
|
William V. Eckles
(4)
|
|
67,000
|
|
|
|
*
|
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Thomas M. Hagedorn
|
|
864,250
|
|
|
|
10.67
|
%
|
Craig N. Hansen
|
|
521,000
|
|
|
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6.43
|
%
|
Darrel L. Kloeckner
|
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40,625
|
|
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*
|
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George H. Winn, DDS
|
|
592,708
|
|
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|
7.32
|
%
|
Executive Officers and
Directors as a Group (9 persons)
(5)
|
|
3,051,272
|
|
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37.42
|
%
|
- 19 -
* Indicates ownership of less than 1%.
|
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(1)
|
Shares not outstanding but
deemed beneficially owned by virtue of the right of a person to acquire them
as of October 3, 2011, or within sixty days of such date, are treated as
outstanding only when determining the percent owned by such individual and
when determining the percent owned by a group.
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(2)
|
Includes 21,000 shares
which may be purchased upon exercise of warrants by Mr. Hansen that were
exercisable as of October 3, 2011, or within 60 days of such date; 100,000
shares of Company common stock pledged pursuant to a lending arrangement and
152,415 shares of Company common stock pledged as collateral under a secured
promissory note.
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(3)
|
Includes 33,000 shares
which may be purchased upon exercise of warrants by Mr. Belford that were
exercisable as of October 3, 2011, or within 60 days of such date.
|
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(4)
|
Includes 60,000 shares
held indirectly through Blue Earth Cellular, LLC.
|
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|
(5)
|
Includes 54,000 shares
which may be purchased upon exercise of warrants that were exercisable as of
October 3, 2011, or within 60 days of such date.
|
EXECUTIVE COMPENSATION
Executive Compensation Components
for Fiscal 2011
During
our 2011 fiscal year, we had two named executive officers, as that term is
defined under Item 402(m)(2) of Regulation S-K: Robert D. Hansen, our Chief
Executive Officer; and Terry M. Belford, our Chief Financial Officer. In
addition, effective June 1, 2011, we hired Dr. James J. Cassidy as our Chief
Operating Officer. Subsequent to the end of the 2011 fiscal year, our Chief
Financial Officer announced that he would retire effective on the earlier of
October 31, 2011 or the date on which our new permanent Chief Financial Officer
commences employment.
We
provide a compensation package to our executive officers that includes base
salary and annual performance-based cash awards. Our executive officers are
also eligible to receive perquisites and to participate in benefit arrangements
that are generally available to all salaried employees, such as health and
retirement plans. Historically, we have also periodically awarded our executive
officers with long-term equity incentive grants in the form of warrants.
Pursuant to their employment agreements, our executives are eligible to
participate in any employee benefit plan that provides opportunities to earn
equity incentive compensation. Accordingly, our executives will be eligible to
participate in the 2012 Plan if it is approved, and the Board of Directors may
determine to grant awards to the executives thereunder.
Base Salary
During
our 2011 fiscal year, our Chief Executive Officer and Chief Financial Officer
served pursuant to employment agreements effective January 1, 2010 and earned
base salaries of $208,993 and $146,000, respectively. During our 2010 fiscal
year, our Chief Executive Officer and Chief Financial Officer earned base
salaries of $184,950 and $128,450, respectively.
Base
salaries for our executive officers are determined and paid on a calendar-year
basis. In order to provide its recommendations regarding base salaries, the
Personnel and Compensation Committee reviews individual performance and our
operating results and considers compensation data for medical device
manufacturing companies located in the Midwest. The Personnel and Compensation
Committee also considers the Chief Executive Officers recommendations as to
compensation for the Companys other executive officers. The Personnel and
Compensation Committee uses a subjective process to set base salaries and does
not specifically weight any factors. Based upon the information reviewed by the
Personnel and Compensation Committee, the Committee makes a recommendation with
respect to compensation for the Companys executive officers and the Board of
Directors set the compensation for each of the executive officers based on the
information and recommendation provided by the Personnel and Compensation
Committee.
- 20 -
Incentive
Compensation
In
order to provide motivation to our executive officers, we provide
performance-based incentive compensation on a calendar-year basis, upon
achievement of goals established annually by the Board of Directors. The
incentive component of our executive compensation package consists of cash
incentive compensation and, historically, long-term equity compensation in the
form of warrants that typically vest in 20% increments over a 5-year period.
Cash
Incentive Compensation
Our
Chief Executive Officer and Chief Financial Officer earned cash incentive
compensation of $75,000 and $56,250, respectively, during the 2011 fiscal year.
During the 2010 fiscal year, our Chief Executive Officer and Chief Financial
Officer earned cash incentive compensation of $90,000 and $67,500,
respectively.
During
each of our 2011 and 2010 fiscal years, our Chief Executive Officer and Chief
Financial Officer were eligible to earn incremental cash incentive compensation
of $2,500 and $1,875, respectively, for each increment of $250,000 by which the
Companys revenue exceeded the calendar-year revenue threshold. We expect to
enter into a Separation Agreement and Release with our Chief Financial Officer
in connection with his retirement, pursuant to which he will receive a pro rata
portion of his calendar year 2011 bonus payment.
The
Personnel and Compensation Committee will set performance goals and related
incentive payments for future calendar years on an annual basis.
Equity
Incentive Compensation
We
did not issue warrants or other equity compensation to our named executive
officers during our 2011 or 2010 fiscal years. If the 2012 Plan is approved,
the Board of Directors may, in its discretion, issue equity awards to our
executive officers from the pool of shares reserved thereunder.
Perquisites and
Other Benefits
We
believe that providing perquisites to our executive officers is beneficial
because it improves our ability to retain qualified leaders and is consistent
with the practice of similarly-sized companies in our industry. Our executive
officers are eligible to participate in our group health and life insurance
plans and receive matching contributions to a 401(k) plan, which are benefits
that are generally available to all of our salaried employees. The goal of
these programs is to promote health and welfare benefits. In addition, we
provide an automobile to our Chief Executive Officer and, during the 2011 and
2010 fiscal years, made monthly automobile lease payments on behalf of our Chief
Financial Officer. The aggregate annual value of these perquisites was less
than $10,000 during each of the last two fiscal years. As described in
footnotes 3 and 6 to the Summary Compensation Table, we also pay premiums with
respect to life insurance policies on our Chief Executive Officer and his three
adult children.
Employment Agreements for our Named
Executive Officers
Chief Executive
Officer
For
a portion of the 2010 fiscal year, Robert D. Hansen, our Chief Executive
Officer, was employed pursuant to an Executive Employment Agreement dated
January 3, 2005 (the 2005 Employment Agreement), which was subject to annual
renewal by our Board of Directors. The 2005 Employment Agreement provided for
an annual base salary of $89,500, cash incentive awards upon achievement of
annual revenue and net income goals established by the Board of Directors, and
equity incentive awards in the form of warrants upon achievement of annual
revenue goals established by the Board of Directors. The 2005 Employment
Agreement also provided that The Company would pay the premiums on health and
life insurance policies for Mr. Hansen for the term of the agreement, and would
pay the premiums on life insurance policies for each of Mr. Hansens three
adult children, in each case for the benefit of the recipients estate or
another beneficiary chosen by the recipient. Following termination of the 2005
Employment Agreement, we have continued to pay the premiums on these life
insurance policies.
- 21 -
Effective
January 1, 2010, we entered into a new employment agreement with Mr. Hansen
(the 2010 Employment Agreement), which superseded the 2005 Employment
Agreement. The 2010 Employment Agreement has an initial term of three years
(the Initial Term), with automatic renewal for one-year periods thereafter
(each a Renewal Term, together, the Renewal Terms) unless written notice of
non-renewal is provided by the Board of Directors or Mr. Hansen at least 90
days prior to the anniversary date of agreement, and subject to earlier
termination as described below. Pursuant to the 2010 Employment Agreement, Mr.
Hansen receives a base salary on a calendar-year basis as determined by the
Board of Directors, is eligible to receive cash incentive compensation, is
entitled to the severance payments described below upon termination without
cause or resignation upon a change of control of the Company, and is entitled
to maintain, at the Companys expense, life insurance policies of at least
$1,000,000 for the benefit of his estate.
The
2010 Employment Agreement is terminable by the Board of Directors at any time
for any reason. If Mr. Hansen is terminated by the Board of Directors without
cause prior to the expiration of the Initial Term or any subsequent Renewal
Term or if he resigns within six months of a change of control of the Company,
the Company would be required to pay severance. With respect to a termination
without cause, the amount of the severance payment would be equal to Mr.
Hansens then-current base salary. With respect to a resignation upon a change
in control, the amount of the severance payment would be equal to the sum of
two times (2x) Mr. Hansens then-current base salary. In each instance, Mr.
Hansen would also be entitled to a pro rata portion of any earned but unpaid
incentive compensation at the time of termination and would, in order to
receive the severance and continued benefits, be required to sign a release of
claims against the Company, return all property owned by the Company and agree not
to disparage the Company.
The
2010 Employment Agreement defines cause as gross misconduct that damages the
Company; fraud, misappropriation, or embezzlement by the employee; conviction
of a felony crime or a crime of moral turpitude; unethical conduct in the
course of employment; or a material breach of the employment agreement. The
2010 Employment Agreement defines change of control as: (i) a change in
ownership, which is deemed to have occurred in the event one person, or more
than one person acting as a group, acquires more than 50% of the total fair
market value or total voting stock of the Company; (ii) a change in effective
control, which is deemed to have occurred when one person, or more than one
person acting as a group, acquires ownership of stock of the Company possessing
30% or more of the total voting power of the stock, or a majority of members of
the Companys Board of Directors is replaced during any 12-month period; and/or
(iii) a change in ownership of a substantial portion of the assets of the
Company, which is deemed to have occurred when one person, or more than one
person acting as a group, acquires assets from the Company that have a total
gross fair market value equal to or greater then 40% of the total gross fair
market value of all of the assets of the Company before the acquisition.
Mr.
Hansen has also entered into a Non-Competition, Non-Solicitation, and
Confidentiality Agreements (the Confidentiality Agreement). Pursuant to the
Confidentiality Agreement, Mr. Hansen has agreed to protect confidential
information of the Company and to return all confidential information and
property of the Company upon termination of employment for any reason, and that
he will not compete with the Company or solicit customers or business contacts
of the Company during the term of the agreement and for a period of 12 months
after termination, for any reason. In addition, Mr. Hansen agreed that he would
inform any potential new employer of his obligations under the Confidentiality
Agreement before accepting new employment.
Chief Financial
Officer
Effective
January 1, 2010, we entered into an employment agreement with Terry M. Belford
to serve as our Chief Financial Officer. Prior to January 1, 2010, the terms of
Mr. Belfords employment were set by our Board of Directors on an annual basis.
Mr. Belfords employment agreement provided for an initial term of three years,
with automatic renewal for one-year periods thereafter unless written notice of
non-renewal is provided by the Board of Directors or Mr. Belford at least 90
days prior to the anniversary date of the agreement, and subject to earlier
termination provisions similar to those contained in Mr. Hansens 2010
Employment Agreement. Pursuant to his employment agreement, Mr. Belford
received a base salary on a calendar-year basis as determined by the Board of
Directors, was eligible to receive cash incentive compensation, and was
entitled to certain severance payments upon termination without cause or
resignation upon a change of control of the Company. Subsequent to the end of
the 2011 fiscal year, we reached an agreement with Mr. Belford that he would
retire on the earlier of October 31, 2011 or the date on which our new
permanent Chief Financial Officer commences employment.
- 22 -
We
have entered into a Transition Agreement with Mr. Belford pursuant to which he
will continue to perform his ordinary and customary duties through the
effective date of his retirement. Until the effective date of his retirement,
Mr. Belford will continue to receive his current salary and benefits. In
addition, we expect to enter into a Separation Agreement and Release with Mr.
Belford on the effective date of his retirement. The Separation Agreement and
Release will provide that Mr. Belford will receive approximately $27,600 as
payment for accrued but unused vacation time and a payment in the amount of
approximately $147,000 representing six months of separation pay and a pro rata
portion of the calendar year 2011 bonus payment to which Mr. Belford may be
entitled under his employment agreement, which amount will be paid in a lump
sum on the first day of the seventh month following the effective date of Mr.
Belfords retirement. In exchange, Mr. Belford will execute a general release
of claims, will continue to be bound by the terms of his Non-Competition,
Non-Solicitation and Confidentiality Agreement dated January 1, 2010, which is
identical in form to the Confidentiality Agreement with Mr. Hansen, and will
provide consulting and transition services as reasonably requested by the
Company through December 31, 2011.
- 23 -
Summary Compensation Table
The
following table provides information regarding the compensation earned during
fiscal 2011 and fiscal 2010 by our named executive officers:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
principal position
|
|
Year
|
|
Salary
($)
(1)
|
|
Option
awards
($)
|
|
Non-equity
incentive
plan
compensation
($)
|
|
All other
compensation
($)
|
|
Total
($)
|
|
Robert D. Hansen
Chief Executive Officer
|
|
|
2011
|
|
|
208,993
|
|
|
0
|
|
|
75,000
|
(2)
|
|
17,774
|
(3)(4)
|
|
301,767
|
|
|
|
|
2010
|
|
|
184,950
|
|
|
0
|
|
|
90,000
|
(5)
|
|
17,025
|
(6)(7)
|
|
291,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry M. Belford
Chief Financial Officer
|
|
|
2011
|
|
|
146,000
|
|
|
0
|
|
|
56,250
|
(2)
|
|
7,241
|
(8)
|
|
209,491
|
|
|
|
|
2010
|
|
|
128,450
|
|
|
0
|
|
|
67,500
|
(5)
|
|
7,622
|
(9)
|
|
203,572
|
|
|
|
(1)
|
Amounts shown are not
reduced to reflect the named executive officers elections, if any, to
contribute portions of their salaries to 401(k) plans.
|
|
|
(2)
|
Reflects a cash incentive
payment earned as of December 31, 2010 for achieving performance goals for
the 2010 calendar year.
|
|
|
(3)
|
Includes premiums totaling
$6,083 paid by the Company with respect to life insurance for the benefit of
Mr. Hansen and his three adult children.
|
|
|
(4)
|
Includes a Company match
of $11,691 to Mr. Hansens 401(k) plan.
|
|
|
(5)
|
Reflects a cash incentive
payment earned as of December 31, 2009 for achieving performance goals for
the 2009 calendar year.
|
|
|
(6)
|
Includes premiums totaling
$6,823 paid by the Company with respect to life insurance for the benefit of
Mr. Hansen and his three adult children.
|
|
|
(7)
|
Includes a Company match
of $10,202 to Mr. Hansens 401(k) plan.
|
|
|
(8)
|
Includes a Company match
of $7,241 to Mr. Belfords 401(k) plan.
|
|
|
(9)
|
Includes a Company match of
$7,622 to Mr. Belfords 401(k) plan.
|
- 24 -
Outstanding Equity Awards at June
30, 2011
The
following table sets forth certain information regarding equity awards granted
to our named executive officers outstanding as of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number of
securities
underlying
unexercised
options
(# Exercisable)
(1)
|
|
Number of
securities
underlying
unexercised
options
(# Unexercisable)
(1)
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Robert D. Hansen
|
|
|
21,000
|
|
|
14,000
|
(2)
|
$
|
3.50
|
|
|
11/24/2018
|
|
Terry M. Belford
|
|
|
12,000
|
|
|
0
|
|
$
|
2.00
|
|
|
1/1/2012
|
|
|
|
|
21,000
|
|
|
14,000
|
(2)
|
$
|
3.50
|
|
|
11/24/2018
|
|
|
|
(1)
|
The Exercisable and
Unexercisable options are denominated as warrants to purchase common stock of
the Company.
|
|
|
(2)
|
The warrants vest ratably
on November 24 of each year from Fiscal Years 2009 2013, and expires on
November 24, 2018.
|
DIRECTOR COMPENSATION
The
following table provides information regarding compensation paid to and earned
by non-employee directors during fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash
(1)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Noel D. Collis, MD
(2)
|
|
|
3,000
|
|
|
-
|
|
|
3,000
|
|
Stephen H. Craney
|
|
|
4,000
|
|
|
-
|
|
|
4,000
|
|
Thomas M. Hagedorn
|
|
|
6,000
|
|
|
-
|
|
|
6,000
|
|
Craig N. Hansen
|
|
|
6,000
|
|
|
-
|
|
|
6,000
|
|
Darrel L. Kloeckner
|
|
|
4,000
|
|
|
-
|
|
|
4,000
|
|
George H. Winn DDS
|
|
|
5,000
|
|
|
-
|
|
|
5,000
|
|
|
|
(1)
|
In fiscal 2011, each
non-employee director was paid $1,000 for each Board meeting the director
attended. As of February 11, 2011, members of the Audit Committee were paid a
$1,000 retainer for service in the first fiscal quarter and a $500
retainer for the second, third and fourth fiscal quarters.
|
|
|
(2)
|
As previously disclosed,
Dr. Collis resigned from his director position on November 15, 2010.
|
- 25 -
CERTAIN TRANSACTIONS AND BUSINESS
RELATIONSHIPS
Described
below are transactions and series of similar transactions that have occurred
during the 2011 and 2010 fiscal years, to which we were or are a party in
which:
|
|
|
|
|
the amounts involved
exceeded the lesser of $120,000 or one percent of the average of our total
assets at year end for our last two completed fiscal years; and
|
|
|
|
|
|
a director, executive
officer, beneficial owner of more than 5% of any class of our voting
securities or any member of their immediate family had or will have a direct
or indirect material interest.
|
We
obtain engineering services from Hansen Engine Corporation (d/b/a Hansen Engine
Technologies, Inc.) (Hansen Engine) pursuant to a Letter Agreement dated
February 16, 2010 (the 2010 Agreement). Robert D. Hansen, our Chief Executive
Officer, is the President, Chief Executive Officer and Chairman of the Board of
Directors of Hansen Engine and owns approximately 11% of that entitys
outstanding common stock. Mr. Hansen devotes approximately 5% of his time
attending to matters related to Hansen Engine Corporation, where he is
primarily responsible for corporate governance matters through his service as a
member of Hansen Engines board of directors. In addition, Craig N. Hansen, a
member of our Board of Directors and the brother of Robert D. Hansen, and
Thomas M. Hagedorn, a member of our Board of Directors, are each a director of
Hansen Engine and own approximately 12% and 11%, respectively, of that entitys
outstanding common stock. The 2010 Agreement provides that Hansen Engine will
perform research and development work, primarily relating to the improvement of
device performance of the Electromed SmartVest System, in exchange for a
monthly fee of $30,000. During our 2011 and 2010 fiscal years, expenses
incurred to Hansen Engine were approximately $369,000 and $280,000,
respectively. The 2010 Agreement provides that all design outputs will be the
property of the Company and that all patents that result from work performed
pursuant to the agreement must be assigned to us. Such assignments are effected
in writing pursuant to our standard form of patent assignment.
From
May 2006 through December 2009, we leased a 5,000 square-foot building from Dr.
George H. Winn, a member of our Board of Directors. Our monthly lease payment
for the building was approximately $7,000 until we bought the building for
$555,000 on December 9, 2009.
On
March 2, 2010, we purchased from Robert D. Hansen, our Chief Executive Officer
and the chairman of our Board of Directors, the non-controlling interest in
Electromed Financial, LLC, a Minnesota limited liability company (Electromed
Financial) that was our majority-owned subsidiary. The purchase price for Mr.
Hansens interest in Electromed Financial was $125,000 and was accounted for as
an equity transaction. Electromed Financial is now our wholly-owned subsidiary.
Electromed Financial was formed on May 23, 2002 to assist in raising capital
from outside investors and may be engaged to support other financial-related
objectives of the Company.
The
Company purchases electronic parts from RiverSide Electronics, Ltd.
(RiverSide), an entity which is solely owned by Stephen H. Craney, a
director. The Company has made payments to RiverSide of approximately $611,000
and $409,000 during our 2011 and 2010 fiscal years, respectively. The Board of
Directors has determined that the terms of its transactions with RiverSide were
consistent with what could be obtained in an arms length transaction with an
unrelated party.
OTHER INFORMATION
The
Board of Directors knows of no other matters which may be brought before the
Annual Meeting. If any other matters are presented at the meeting on which a
vote may properly be taken, the persons named as proxy holders in the enclosed
proxy card will vote thereon in accordance with their best judgment.
- 26 -
ANNUAL REPORT AND FINANCIAL STATEMENTS
A
COPY OF THE COMPANYS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JUNE 30, 2011, ACCOMPANIES THE DELIVERY OF THIS PROXY STATEMENT (WITHOUT
EXHIBITS). NO PART OF THE ANNUAL REPORT IS INCORPORATED HEREIN AND NO PART
THEREOF IS TO BE CONSIDERED PROXY SOLICITING MATERIAL. THE COMPANY WILL FURNISH
WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING SOLICITED, UPON WRITTEN
REQUEST OF ANY SUCH PERSON, ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE
FORM 10-K, UPON THE PAYMENT, IN ADVANCE, OF REASONABLE FEES RELATED TO THE
COMPANYS FURNISHING SUCH EXHIBIT(S). ANY SUCH REQUESTS SHOULD INCLUDE A
REPRESENTATION THAT THE SHAREHOLDER WAS THE BENEFICIAL OWNER OF SHARES OF
COMPANY COMMON STOCK ON OCTOBER 3, 2011, THE RECORD DATE FOR THE FISCAL 2012
ANNUAL MEETING, AND SHOULD BE DIRECTED TO ROBERT HANSEN, CHIEF EXECUTIVE
OFFICER, AT THE COMPANYS PRINCIPAL ADDRESS.
Dated: October 11, 2011
New Prague, Minnesota
- 27 -
Appendix I
ELECTROMED, INC.
2012 STOCK INCENTIVE PLAN
1.
Purpose
of Plan
.
Under
the Electromed, Inc. 2012 Stock Incentive Plan (the Plan), the Company may
grant Options and Equity Units to Employees, Directors, and Consultants. The
Plan is designed to enable the Company and its Subsidiaries to attract, retain
and motivate Participants by providing them the opportunity to acquire equity
ownership in the Company.
2.
Definitions
.
The
following defined terms are used in this Plan:
2.1
Board
means the Board of Directors of the Company.
2.2
Broker
Exercise Notice
means a notice whereby a Participant, upon exercise of an
Option, irrevocably instructs a broker or dealer to sell a sufficient number of
shares or loan a sufficient amount of money to pay all or a portion of the
exercise price of the Option and/or any related withholding tax obligations and
remit such sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or dealer.
2.3
Code
means the Internal Revenue Code of 1986, as amended.
2.4
Committee
means the compensation committee appointed under Section 3 to administer the
Plan.
2.5
Common
Stock
means the common stock of the Company, or the number and kind of
shares of stock or other securities into which such Common Stock may be changed
in accordance with Section 4.3.
2.6
Company
means Electromed, Inc., a Minnesota corporation.
2.7
Consultant
means any independent contractor who provides services to the Company.
2.8
Control
Group
means the Company and any trade or business under common control
with the Company within the meaning of Code §414(b) and (c).
2.9
Director
means a member of the Board.
2.10 A Participant has a
Disability
if, by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or to last for a continuous period of at least 12
months:
(a) The Participant is unable to engage in any
substantial gainful activity, or
(b) The
Participant has received income replacement benefits for a period of at least
three months under a Participating Employers accident and health plan.
2.11
Employee
means a common law employee of the Company or a Subsidiary.
2.12
Equity
Unit
means a right to receive a share of Common Stock, subject to terms
established under Section 7.
2.13
Exchange
Act
means the Securities Exchange Act of 1934, as amended.
2.14
Expiration
Date
means the date an Option is scheduled to expire and no longer be
exercisable.
2.15
Fair
Market Value
of a share of Common Stock as of a particular day means the
closing price of a share of the Companys Common Stock on the Nasdaq Capital
Market on such day, or if no sale has been made on such market on such day, on
the last preceding day on which any such sale was made.
2.16
Option
means a non-qualified stock option granted to a Participant pursuant to Section
6.1 or 6.2.
2.17
Participant
means an Employee, Director or Consultant who has been designated as such.
2.18
Payment
Date
is defined in Section 8.5.
2.19
Performance
Period
means the period of time over which Equity Units are earned or
become vested.
2.20
Previously
Acquired Shares
means shares of Common Stock that are already owned by a
Participant.
2.21
Securities
Act
means the Securities Act of 1933, as amended.
2.22
Separation
from Service
is defined in
applicable guidance under Code §409A, which generally provides that:
|
|
|
|
(a)
|
a Participant will be deemed to have a Separation from Service only
if the Participant ceases to perform any services for the Company and other
members of the Control Group, or the Participant continues to provide only
insignificant services;
|
|
|
|
|
(b)
|
service is insignificant if it is performed at a rate that is no
more than 20% of the average level of services provided by the Participant
for the preceding three full calendar years;
|
2
|
|
|
|
(c)
|
a bona fide leave of absence will not be considered a Separation from
Service for the first six months of such leave or until the Participant no
longer has a right to reemployment by statute or contract, whichever is
longer;
|
|
|
|
|
(d)
|
transfer to an employer in which the Company or another member of the
Control Group has at least 50% ownership interest is not a Separation from
Service; and
|
|
|
|
|
(e)
|
for purposes of determining benefits earned by a Participant for
service as a Director, Separation from Service occurs when he or she ceases
to be a Director.
|
|
|
|
|
(f)
|
a Consultant is considered to have a Separation from Service upon
expiration of the contract (or in the case of more than one contract, all
contracts under which services are performed) if the expiration constitutes a
good faith and complete termination of the contractual relationship as
provided in Treas. Reg. 1.409A-1(h)(2)).
|
2.23
Subsidiary
means any entity in which the Company has a direct or indirect ownership
interest sufficient so that the entity is a member of the Control Group.
3.
Plan
Administration
.
Except
to the extent the Plan explicitly reserves responsibility to the Board, the
Plan shall be administered by the compensation committee (the Committee)
appointed by the Board. The Committee shall consist solely of not less than two
members of the Board who are considered (i) non-employee directors within the
meaning of Exchange Act Rule 16b-3 and (ii) outside directors within the
meaning of Code § 162(m). If no such Committee is appointed, the Plan shall be
administered by the Board and all references to the Committee shall be deemed
references to the Board. If the Board determines that an individual appointed
to the Committee does not meet any of the criteria for Committee membership,
the actions of the Committee taken prior to that determination due to the
appointment of that individual shall remain in effect unless the Board
determines otherwise.
The
Committee (and in the absence of a Committee, meeting the requirements of the
preceding paragraph, the Board) shall have the following authority, subject to
the terms of the Plan:
|
|
|
|
(a)
|
To
determine which Employees, Directors and Consultants will be designated as
Participants.
|
|
|
|
|
(b)
|
To
determine the terms of each Option including the number of shares of Common
Stock subject to the Option, the exercise price, the terms under which the
Option will vest or become exercisable, the Expiration Date of the Option,
and the period of time (if any) following Separation from Service that the
option may be exercised.
|
|
|
|
|
(c)
|
To determine the terms of each award of Equity Units, including any
performance goals or other requirements that must be met for the underlying
shares of Common Stock to be distributed.
|
3
|
|
|
|
|
(d)
|
To modify the terms of any outstanding Option or Equity Unit in any
manner permitted by the Plan as then in effect, or to cancel the Option or
Equity Unit, subject to the following:
|
|
|
|
|
|
|
(1)
|
Subject to Section 4.3, outstanding Options granted under this Plan
shall not be repriced.
|
|
|
|
|
|
|
(2)
|
If the modification or cancellation adversely affects a Participant,
it will not apply to that Participant without his or her consent, unless
required by law or necessary to avoid adverse tax treatment.
|
|
|
|
|
|
(e)
|
To delegate to one or more Employees (including but not limited to
Employees who are Directors) all or any part of its authority under the Plan
with regard to granting and administering Options or Equity Units for persons
who are not then subject to the reporting requirements of Section 16 of the
Exchange Act. (However, Options so granted generally will not qualify as
performance-based compensation for purposes of Code §162(m). Equity Units
granted under the Plan do not qualify as performance-based compensation
regardless of whether granted by the Board or Committee or pursuant to this
subsection (e)).
|
|
|
|
|
|
(f)
|
To exercise discretionary authority to construe the terms of the Plan
and to make all decisions and interpretations necessary or advisable to
operate the Plan.
|
|
|
|
4.
|
Shares Available for Issuance
.
|
4.1
Maximum
Number of Shares Available
. Subject to adjustment as provided in Section
4.3, the maximum number of shares of Common Stock that will be available for
issuance under the Plan will be 200,000 shares of Common Stock.
4.2
Accounting
for Incentive Awards
. Shares of Common Stock that are issued under the Plan
or are subject to outstanding Options or Equity Units will be applied to reduce
the maximum number of shares of Common Stock remaining available for issuance
under the Plan. Any shares of Common Stock that are subject to an Option or
Equity Unit that lapses, expires, is forfeited or for any reason is terminated
unexercised or unvested will automatically again become available for issuance
under the Plan. However, shares withheld for the purpose of paying the purchase
price upon exercise of an Option or paying applicable withholding taxes will
not again become available for issuance under the Plan.
4.3
Adjustments
.
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of the
Company, the Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation) will
make appropriate adjustment (which determination will be conclusive) as to the
number and kind of securities available for issuance under the Plan and, in
order to prevent dilution or enlargement of the rights of the Participants, the
number, kind and exercise price of securities subject to outstanding Options or
Equity Units.
4
The
Board or Committee may designate any Employee, Director or Consultant as a
Participant.
6.1
Grants
to Employees
. The Committee may grant Options to Employees, subject to such
terms and conditions, consistent with the other provisions of the Plan, as may
be determined by the Committee in its sole discretion. For tax purposes, all
Options granted under the Plan are non-qualified stock options; the Plan does
not provide for issuance of incentive stock options qualifying under Code §422.
The aggregate number of shares on which Options may be granted to any one
Employee during any calendar year may not exceed 25% of the 200,000 shares of Common
Stock available for issuance under the Plan. If an Option granted to an
Employee is canceled, said Option will nevertheless be included in applying
said 25% limit.
6.2
Grants
to Non-Employee Directors or Consultants
. The Committee may grant Options
to Directors or Consultants who are not Employees, subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion.
6.3
Exercise
Price
. The per share price to be paid upon exercise of an Option will be
determined at the time of the Option grant. The per share price to be paid by a
Participant upon exercise of an Option will be not less than 100% of the Fair
Market Value of one share of Common Stock on the date of grant.
6.4
Exercisability
and Duration
. An Option will become exercisable at such times and in such
installments as may be determined by the Committee at the time of grant. Unless
otherwise determined by the Committee at the time of grant, the Expiration Date
of each Option will be 10 years from its date of grant.
6.5
Payment
of Exercise Price
. The total purchase price of the shares to be purchased
upon exercise of an Option will be paid entirely in cash (including check, bank
draft or money order); provided, however, that the Committee may allow such
payments to be made, in whole or in part, by tender of a Broker Exercise
Notice, tender of Previously Acquired Shares, Attestation, Net Share Settlement,
or by a combination of such methods. Attestation means delivery by a
Participant to the Company of a written affidavit of ownership of Previously
Acquired Shares the Fair Market Value of which is then applied to the exercise
price of the Option in lieu of actual delivery of such Previously Acquired
Shares. Upon receipt of such Attestation of Previously Acquired Shares and
payment for any portion of the exercise price not paid by Attestation, the
Company shall deliver to the Participant a stock certificate for the number of
Option shares so exercised, or may deliver such shares in book entry form,
minus the number of Previously Acquired Shares attested to in the written
affidavit, and minus any shares withheld to cover tax obligations. Net Share
Settlement means that upon exercise of an Option, the purchase price is paid
by having the Company withhold a number of shares sufficient to cover the
purchase price and any required tax withholding. If the purchase price upon
exercise of an option is paid through tender of Previously Acquired Shares,
Attestation, or Net Share Settlement, the Fair Market Value on the date of exercise of the stock
delivered or withheld shall equal the total exercise price for the Shares being
purchased.
5
6.6
Manner
of Exercise
. An Option may be exercised by a Participant in whole or in
part from time to time, subject to the conditions contained in the Plan and in
the agreement evidencing such Option, by delivering in person, by facsimile or
electronic transmission or through the mail, a written notice of exercise to
the Company (Attention: Chief Financial Officer) at its principal executive
office in New Prague, Minnesota and paying in full the total exercise price for
the shares of Common Stock to be purchased in accordance with Section 6.5 of
the Plan. The Committee may permit a Participant to enter into a written plan
pursuant to Exchange Act Rule 10b5-1 specifying the date or dates the
Participants Options will automatically be exercised.
An
Employee, Director or Consultant may be granted one or more Equity Units under
the Plan, and such Equity Units will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Committee may impose such restrictions or conditions, not
inconsistent with the terms of the Plan, to the vesting of such Equity Units as
it deems appropriate, including, without limitation, that the Participant
remain an Employee, Director or Consultant until the end of the Performance
Period established for said Equity Units or that the Company satisfy designated
performance goals during the Performance Period.
|
|
8.
|
Effect of Separation from Service
.
|
8.1
Death
or Disability
. If a Participants Separation from Service occurs by reason
of his or her death or Disability:
|
|
|
|
(a)
|
Options outstanding at the time of said Separation
from Service will not expire as a result of said Separation from Service but
rather will vest and remain in effect for the remaining term of the Option.
However, the Committee in its sole discretion may provide at the time it
grants an Option to a Participant that the Option will expire not later than
a fixed period of time after the Participants Separation from Service.
|
|
|
|
|
(b)
|
All Equity Units then held by the Participant will
vest. The Company will transfer to the Participant (or to the beneficiary,
legal representative, heir, or legatee of a deceased Participant) a number of
shares of Common Stock equal to the number of the Participants outstanding
Equity Units, less any shares withheld to cover taxes. Said transfer shall
occur as of a date or dates determined by the Committee which shall not be
later than December 31 of the Year in which the Participant died or was
determined to have a Disability. However, as permitted by Code §409A, in
cases where a Participants death or Disability occurred in October,
November, or December, payment shall be considered timely if made by the
fifteenth day of the third month after the month in which the Participant
died or was determined to have a Disability.
|
6
8.2
Separation
from Service After Attaining Age 60
. If a Participants Separation from
Service occurs after he or she has attained age 60 and for a reason other than
the Participants death or Disability:
|
|
|
|
(a)
|
Options outstanding at the time of said Separation from Service will
not expire as a result of said Separation from Service but rather will vest
and remain in effect for the remaining term of the Option. However, the
Committee in its sole discretion may provide at the time it grants an Option
to a Participant that the Option will expire not later than a fixed period of
time after the Participants Separation from Service.
|
|
|
|
|
(b)
|
A fraction of each outstanding grant of Equity Units will be vested.
The fraction of a grant that will be vested is the number of Equity Units in
that grant, multiplied by a fraction (i) the numerator of which is the number
of months from the beginning of the Performance Period for that grant through
the month in which the Participants Separation from Service occurred and
(ii) the denominator of which is the total number of months in said
Performance Period. Except as otherwise provided by the Committee, any Equity
Units which are not vested will be forfeited.
|
|
|
|
|
(c)
|
The Company will transfer to the Participant a number of shares of
Common Stock equal to the number of the Participants vested Equity Units
(determined as provided in (b), less any shares withheld to cover taxes. Said
transfer shall occur as of a date or dates determined by the Committee which
shall not be earlier than the Participants Payment Date and shall not be
later than December 31 of the Year in which the Participants Payment Date occurred.
However, as permitted by Code §409A, if a Participants Payment Date occurs
during October, November, or December, payment shall be considered timely if
made by the fifteenth day of the third month after the month in which the
Participants Payment Date occurred.
|
8.3
Other
Separation from Service
. If a Participants Separation from Service occurs
under circumstances not covered under sections 8.1 and 8.2 (i.e. not due to
death or Disability and before age 60), then the provisions of (a) and (b)
shall apply:
|
|
|
|
(a)
|
If the Separation from Service is not for cause, (i) Options held
by the Participant which are exercisable as of the date of Separation from
Service will remain exercisable for a period of three months after such separation
(but in no event after the expiration date of any such options), and (ii)
Options which are not yet exercisable as of the date of the Separation from
Service will be forfeited immediately. If the Separation from Service is for
cause, all options will be forfeited immediately upon Separation from
Service, regardless of whether they were then exercisable.
|
|
|
|
|
(b)
|
All Equity Units then outstanding will be forfeited, and no payment
will be made with respect thereto.
|
7
|
|
|
|
(c)
|
For purposes of this section, the existence of cause will be
determined by the Committee by reference to any employment or other agreement
or policy applicable to the Participant. In addition, the Committee may
determine any of the following to constitute cause: (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted injury, in
each case related to the Company or any Subsidiary, (ii) any unlawful or
criminal activity of a serious nature, (iii) any intentional and deliberate
breach of a duty or duties that, individually or in the aggregate, are
material in relation to the Participants overall duties, or (iv) any material
breach of any employment, service, confidentiality or noncompete agreement
entered into with the Company or any Subsidiary.
|
8.4
Breach
of Confidentiality or Noncompete Agreements
. Notwithstanding anything in
the Plan to the contrary, in the event that a Participant materially breaches
the terms of any confidentiality or noncompete agreement entered into with the
Company or any Subsidiary, whether such breach occurs before or after such
Participants Separation from Service, the Committee in its sole discretion may
immediately terminate all rights of the Participant under the Plan and any
agreements evidencing an Option or Equity Unit grant then held by the
Participant without notice of any kind.
8.5
Payment
Date
. A Participants Payment Date is the first day of the seventh month
after the month in which the Participants Separation from Service occurred.
For example, if a Participants Separation from Service occurs on May 15, 2012,
her Payment Date is December 1, 2012, and payment must occur on or after
December 1, 2012 and on or before March 15, 2013. If another Participants
Separation from Service occurs January 31, 2013, his Payment Date is August 1,
2013 and payment must occur on or after August 1, 2013 and on or before
December 31, 2013.
8.6
Non-Employee
Directors
. Sections 8.1 through 8.5 are not applicable to Options or Equity
Units granted to Directors or Consultants who are not Employees. If such an
individual has a Separation from Service (i.e. ceases to be a Director or
Consultant):
|
|
|
|
(a)
|
He or she may exercise any outstanding Options within 12 months after
ceasing to be a Director or Consultant (or within such other period as
approved by the Board or Committee at the time the Options were granted).
|
|
|
|
|
(b)
|
All Equity Units then held by the
Participant will vest. The Company will transfer to the Participant a number
of shares of Common Stock equal to the number of the Participants
outstanding Equity Units. Said transfer shall occur as of a date or dates
determined by the Company which shall not be later than December 31 of the
Year in which the Participant ceased to be a Director or Consultant. However,
as permitted by Code §409A, if a Participants Separation from Service occurs
during October, November or December, payment shall be considered timely if
made by the fifteenth day of the third month after the month in which the
Participant ceased to be a Director.
|
8.7
Options Not Exercisable After Expiration Date
.
Notwithstanding any provisions of this Section 8 to the contrary, no Option
will be exercisable after its Expiration Date.
8
9.
Payment of
Withholding Taxes
.
9.1
General
Rules
. The Company is entitled to (i) withhold and deduct from the shares
of Common Stock payable under the Plan, from future wages of the Participant,
or from other amounts that may be due and owing to the Participant from the
Company or a Subsidiary, or make other arrangements for the collection of, all
legally required amounts necessary to satisfy any and all federal, state and
local withholding and employment-related tax requirements attributable to
exercise of an Option or payment with respect to an Equity Unit, or (ii)
require the Participant promptly to remit the amount of such withholding to the
Company before taking any action, including issuing any shares of Common Stock,
with respect to the Option or Equity Unit.
9.2
Special
Rules
. The Committee may, in its sole discretion and upon terms and
conditions established by the Committee, permit or require a Participant to
satisfy, in whole or in part, any withholding or employment-related tax
obligation described in Section 9.1 of the Plan by electing to tender
Previously Acquired Shares (including but not limited to the Shares the
acquisition of which triggered the tax obligation), by withholding shares of
Common Stock payable to the Participant under this Plan, by payments made
pursuant to a Broker Exercise Notice, or by a combination of such methods.
10.
Rights of
Eligible Recipients and Participants; Transferability
.
10.1
Employment
.
Nothing in the Plan will interfere with or limit in any way the right of the
Company or any Subsidiary to terminate the employment of any Employee or
Participant at any time, nor confer upon any Employee or Participant any right
to continue in the employ of the Company or any Subsidiary.
10.2
Rights
as a Shareholder
. As a holder of Options or Equity Units, a Participant
will have no rights as a shareholder unless and until the Options are exercised
or the Equity Units are paid in the form of Common Stock. However, as part of
any grant of Equity Units, the Committee may provide that a Participant will be
entitled to receive cash distributions equivalent to the dividends paid from
time to time on the Common Stock underlying such Units.
10.3
Restrictions
on Transfer
. Any Option or Equity Unit granted under this Plan shall by its
terms be non-transferable by the grantee other than by will or the laws of
descent and distribution and shall be exercisable during the grantees lifetime
only by the grantee or by the grantees guardian or legal representative,
except that an Option may, if the Option Agreement so provides, also be
transferable to members of the grantees Immediate Family, to a partnership
whose members are only the optionee and/or members of the grantees Immediate
Family, or to a trust for the benefit of only the grantee and/or members of the
grantees Immediate Family. Immediate Family for purposes of this section
includes only the grantees child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, and shall include adoptive relationships.
10.4
Non-Exclusivity
of the Plan
. Nothing contained in the Plan is intended to modify or rescind
any previously approved compensation plans or programs of the Company or create
any limitations on the power or authority of the Board to adopt such additional
or other compensation arrangements as the Board may deem necessary or
desirable.
9
11.
Securities
Law and Other Restrictions
.
Notwithstanding
any other provision of the Plan or any agreements entered into pursuant to the
Plan, the Company will not be required to issue any shares of Common Stock
under this Plan, and a Participant may not sell, assign, transfer or otherwise
dispose of shares of Common Stock issued pursuant to the Plan, unless
(a) there is in effect with respect to such shares a registration
statement under the Securities Act and any applicable state securities laws or
an exemption from such registration under the Securities Act and applicable
state securities laws, and (b) there has been obtained any other consent,
approval or permit from any other regulatory body which the Committee, in its
sole discretion, deems necessary or advisable. The Company may condition such
issuance, sale or transfer upon the receipt of any representations or
agreements from the parties involved, and the placement of any legends on
certificates representing shares of Common Stock, as may be deemed necessary or
advisable by the Company in order to comply with such securities law or other
restrictions.
12.
Plan
Amendment, Modification and Termination
.
The Board
or Committee may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board or
Committee may deem advisable. However, no amendments to the Plan will be
effective without approval of the stockholders of the Company if stockholder
approval of the amendment is then required pursuant to the rules of Nasdaq. No
termination, suspension or amendment of the Plan may adversely affect any outstanding
award without the consent of the affected Participant; provided, however, that
this sentence will not impair the right of the Board or Committee to take
whatever action it deems appropriate under Sections 3(d) and 4.3.
13.
Effective Date and Duration of the
Plan
.
The
Plan is effective upon approval by the Companys shareholders. The Plan will
terminate at midnight on December 31, 2016, and may be terminated prior to such
time by Board action, and no Options or Equity Units will be granted after such
termination. Awards outstanding upon termination of the Plan may continue to be
exercised or become free of restrictions and paid, in accordance with their
terms.
14.
Miscellaneous
.
14.1
Governing
Law
. The Plan will be construed in accordance with the laws of Minnesota.
14.2
Successors
and Assigns
. The Plan will be binding upon and inure to the benefit of the
successors and permitted assigns of the Company.
14.3
Code §409A
. The Plan is intended
to satisfy all applicable requirements of Code §409A and will be construed in
light of that intent.
10
This Plan was approved by the shareholders at
a meeting held ______________________, 2011.
11
Electromed, Inc.
ANNUAL MEETING OF SHAREHOLDERS
Friday, November 11, 2011
10:00 am Central Time
Electromed Headquarters
500 Sixth Avenue NW
New Prague, MN 56071
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting:
The Notice and Proxy Statement, Form of Proxy Card, Form
10-K and Annual Report are available
under the Investor Relations tab at www.electromed.com.
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Electromed, Inc.
500 Sixth Avenue NW
New Prague, MN 56071
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proxy
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This proxy is solicited by the Board of
Directors for use at the Annual Meeting on November 11, 2011.
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The shares of stock you hold in your account or in a dividend
reinvestment account will be voted as you specify on the reverse side.
If no choice is specified, the proxy
will be voted FOR Items 1, 2, 3, and 4.
By signing the proxy, you revoke all prior proxies and appoint Robert D.
Hansen and Dr. George H. Winn, and each of them with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all
adjournments.
See reverse for voting instructions.
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ELECTROMED,
INC.
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Shareowner Services
SM
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Creating superior
care through innovation®
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P.O. Box 64945
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St. Paul, MN 55164-0945
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Vote by Internet,
Telephone or Mail
24 Hours a Day, 7 Days a Week
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Your phone or Internet vote authorizes the named proxies
to vote your shares in the same manner as if you marked, signed and returned your proxy card.
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INTERNET
www.eproxy.com/elmd
Use the Internet to vote your proxy until 12:00 p.m. (CT) on November 10, 2011.
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PHONE 1-800-560-1965
Use a touch-tone telephone to vote your proxy until 12:00 p.m. (CT) on November 10, 2011.
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MAIL
Mark, sign and date
your proxy card and return it in the postage-paid envelope provided so that
it is received by the close of business on November 10, 2011.
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If you vote your proxy by Internet or by Telephone,
you do NOT need to mail back your Proxy Card.
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To vote by mail as the
Board of Directors recommends on all items below,
simply sign, date and return this proxy in the enclosed postage-paid return
envelope.
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ò
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Please detach here
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ò
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The Board of Directors Recommends a Vote FOR Items 1, 2, 3
and 4.
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1.
Set the number of directors at 7.
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For
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o
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Against
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o
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Abstain
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2.
Election of directors:
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01 Stephen H. Craney
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05 Robert D. Hansen
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Vote FOR
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o
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Vote WITHHELD
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02 William V. Eckles
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06 Darrel L.
Kloeckner
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all nominees
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from all nominees
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03 Thomas M.
Hagedorn
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07 Dr. George H.
Winn
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(except as marked)
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04 Craig N. Hansen
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(Instructions:
To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
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3.
Approve the Electromed, Inc. 2012 Stock Incentive Plan.
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o
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For
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o
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Against
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o
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Abstain
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4.
Ratify the appointment of McGladrey & Pullen, LLP as
the Companys independent registered public accounting firm for the fiscal
year ending June 30, 2012.
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o
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For
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o
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Against
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o
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Abstain
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In their discretion, the proxies
may vote on any other matters that are properly brought before the Annual
Meeting and any adjournment or postponement thereof.
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THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS
GIVEN, WILL BE VOTED
FOR
EACH PROPOSAL.
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Address Change? Mark box, sign,
and indicate changes below:
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Date
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Please indicate if you plan to
attend this meeting:
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Signature(s) in Box
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Please
sign exactly as your name(s) appears on proxy. If held in joint tenancy, all
persons should sign. Trustees, administrators, etc., should include title and
authority. Corporations should provide full name of corporation and title of
authorized officer signing the Proxy.
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