UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE
14A
Proxy Statement
Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Electromed,
Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Date Filed:
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ELECTROMED, INC.
500 Sixth Avenue Northwest
New Prague, MN 56071
(952) 758-9299
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, NOVEMBER 10, 2017
To our Shareholders:
The Fiscal 2018 Annual
Meeting of Shareholders (the “Annual Meeting”) of Electromed, Inc. (the “Company”) will be held at the
Company’s offices at 500 Sixth Avenue Northwest, New Prague, Minnesota 56071 on Friday, November 10, 2017 at 10:00 a.m. Central
Time, for the following purposes:
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1.
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Election of the directors named in the accompanying proxy statement, thereby setting the number
of directors at six;
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2.
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Approval of the Electromed, Inc. 2017 Omnibus Incentive Plan;
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3.
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Ratification of the appointment of RSM US LLP as our independent registered public accounting firm;
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4.
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Approval, on a non-binding and advisory basis, of our executive compensation; and
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5.
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Transaction of any other business properly brought before the meeting or any adjournment thereof.
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The Board of Directors
has fixed the close of business on September 14, 2017 as the record date for determining the shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournments thereof. The stock transfer books of the Company will not be closed.
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By order of the Board of Directors,
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Stephen H. Craney
Chairman of the Board
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THE PROMPT SUBMISSION OF PROXIES WILL
SAVE THE COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. YOU MAY VOTE BY MAIL, ONLINE OR BY PHONE
IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN THE PROXY CARD, NOTICE OF INTERNET AVAILABILITY OR OTHER INSTRUCTIONS FROM THE
HOLDER OF RECORD.
Important Notice Regarding the Availability
of Proxy Materials
for the Annual Meeting to be held on November 10, 2017
The Notice, Proxy Statement, Form of Proxy Card, Annual Report on Form 10-K, and Shareholder Letter are available at http://www.smartvest.com/electromed/investor-relations/annual-meeting/
TABLE OF CONTENTS
ELECTROMED, INC.
Proxy Statement
Fiscal 2018 Annual Meeting of Shareholders
Friday, November 10, 2017
10:00 a.m. Central Time
This proxy statement
is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Electromed,
Inc., a Minnesota corporation (the “Company”), for use at the Fiscal 2018 Annual Meeting of Shareholders of the Company
to be held on Friday, November 10, 2017 (the “Annual Meeting”), and at any adjournment thereof. The Annual Meeting
will be held at the Company’s offices at 500 Sixth Avenue Northwest, New Prague, Minnesota 56071. Registration for the Annual
Meeting will begin at approximately 9:45 a.m. Central Time and the Annual Meeting will commence at 10:00 a.m. Central Time. This
solicitation is being made by mail; however, the Company also may use its officers, directors, and employees (without providing
them with additional compensation) to solicit proxies from shareholders in person or by telephone, facsimile, email or letter.
Distribution of this proxy statement and the proxy card, or a notice of internet availability, via U.S. Mail is scheduled to begin
on or about September 26, 2017.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL
MEETING AND VOTING
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Q:
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Why did I receive this proxy statement?
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A:
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The Company is soliciting your proxy vote at the Annual Meeting because you were the owner of record
of one or more shares of common stock of the Company at the close of business on September 14, 2017, the record date for the meeting,
and are therefore entitled to vote at the Annual Meeting.
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A proxy is your legal designation of another person or persons (the “proxy” or “proxies,”
respectively) to vote on your behalf. By giving your proxy, you are authorizing Stephen H. Craney and Kathleen S. Skarvan, the
designated proxies, the authority to vote your shares of common stock at the Annual Meeting in the manner you indicate on your
proxy card. If you authorize the proxies but do not give direction with respect to any nominee or other proposal, the proxies will
vote your shares as recommended by the Board. The proxies are authorized to vote in their discretion (except as otherwise provided
below) if other matters are properly submitted at the Annual Meeting, or any adjournments thereof.
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When and where is the Annual Meeting?
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The Annual Meeting will be held on Friday, November 10, 2017, at the Company’s building located
at 500 Sixth Avenue Northwest, New Prague, Minnesota 56071. Registration for the meeting will begin at approximately 9:45 a.m.
Central Time. The Annual Meeting will commence at 10:00 a.m. Central Time.
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You are voting on the following matters:
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Proposal 1
— To elect the directors named in this proxy statement, thereby setting
the number of directors at six;
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Proposal 2
— To approve the Electromed, Inc. 2017 Omnibus Incentive Plan;
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Proposal 3
— To ratify the appointment of RSM US LLP as our independent registered
public accounting firm; and
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Proposal 4
— To approve, on a non-binding and advisory basis, our executive compensation.
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Q:
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What does the Board recommend?
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A:
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The Board recommends a vote:
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FOR
the election of all of the directors named in this proxy statement, thereby setting the
number of directors at six (see Proposal 1);
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FOR
the approval of the Electromed, Inc. 2017 Omnibus Incentive Plan (see Proposal 2);
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FOR
the ratification of the appointment of RSM US LLP as the Company’s independent registered
public accounting firm (see Proposal 3); and
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FOR
the approval, by a non-binding and advisory vote, of named executive officer compensation
(see Proposal 4).
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Q:
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How many votes do I have?
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A:
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On any matter which may properly come before the Annual Meeting, each shareholder entitled to vote
thereon will have one (1) vote for each share of common stock owned of record by such shareholder as of the close of business on
September 14, 2017.
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How many shares of common stock may vote at the Annual Meeting?
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At the close of business on the record date, there were 8,260,167 outstanding shares of common
stock, each of which is eligible to cast one vote on matters presented at the Annual Meeting.
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What vote is required to approve each of the Proposals?
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Provided a quorum is present in person or by proxy at the Annual Meeting, each proposal will be
subject to the following requirements:
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Proposal
1
– Election of Directors — The nominees receiving the greatest number of votes relative to the votes cast for
the other nominees will be elected, regardless of whether an individual nominee receives votes from a majority of the quorum of
shares represented at the Annual Meeting (in person or by proxy). Election of the six directors named in this proxy statement will
be deemed to be shareholder approval of setting the number of directors at six.
Proposal
2
– Approval of the Electromed, Inc. 2017 Omnibus Incentive Plan - The affirmative vote of the holders of a majority
of the shares of common stock represented at the Annual Meeting (whether in person or by proxy) and entitled to vote on the proposal
will result in the approval of the Electromed, Inc. 2017 Omnibus Incentive Plan.
Proposal
3
– Ratification of the Appointment of RSM US LLP as the Company’s Independent Registered Public Accounting Firm
— The affirmative vote of the holders of a majority of the shares of common stock present at the Annual Meeting (whether
in person or by proxy) will result in approval of the proposal to ratify the appointment of RSM US LLP as the Company’s independent
registered public accounting firm.
Proposal
4
– Approval, by a Non-Binding and Advisory Vote, of Named Executive Officer Compensation — The affirmative vote
of the holders of a majority of the shares of common stock represented at Annual Meeting (whether in person or by proxy) and entitled
to vote on the proposal will result in the approval of our named executive officer compensation. However, this is a non-binding
and advisory vote, which means that the result of the vote is not binding on the Company, our Board or its Personnel and Compensation
Committee. To the extent there is any significant vote against our named executive officer compensation as disclosed in this proxy
statement, the Personnel and Compensation Committee will evaluate whether any actions are necessary to address the concerns of
shareholders.
Shareholders
do not have cumulative voting rights with respect to the election of directors or any other matter. With respect to each director
nominee, shareholders will be able to cast one vote per share owned by such shareholder as of the record date. Accordingly, a holder
of 100 shares will be able to cast 100 votes for each nominee.
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What constitutes a quorum?
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A:
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Transaction of business may occur at the Annual Meeting if a quorum is present. In order to achieve
a quorum, shareholders holding at least a majority of the Company’s issued and outstanding shares of common stock entitled
to vote as of the record date must be present in person or by proxy at the Annual Meeting. Based on the number of shares outstanding
as of the record date, the presence of 4,130,084 shares will constitute a quorum for the transaction of business on all proposals
properly brought before the Annual Meeting. If you submit a proxy or vote in person at the meeting, your shares will be counted
in determining whether a quorum is present at the Annual Meeting. Broker non-votes and abstentions are also counted for the purpose
of determining a quorum, as discussed below.
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Q.
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What is the effect of abstentions and withhold votes?
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A:
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You may either vote FOR or WITHHOLD authority to vote for each nominee for the Board. If you WITHHOLD
authority to vote on any or all nominees, your vote will have no effect on the outcome of the election. You may vote FOR, AGAINST
or ABSTAIN on proposals 2, 3 and 4. If you ABSTAIN from voting on proposals 2, 3 and 4, your shares will be deemed present but
will not be deemed to have voted in favor of the proposal, and your vote therefore has the same effect as a vote against the proposal.
If you authorize the proxies without providing voting instructions, your shares will be voted FOR each director nominee and FOR
proposals 2, 3 and 4.
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Q:
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What is the effect of broker non-votes?
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A:
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Shares that are held by stock brokers in “street name” may be voted by the stock broker
on “routine” matters, such as the number of directors and ratification of our independent registered public accounting
firm. To vote on “non-routine” matters, the stock broker must obtain shareholder direction. When the stock broker does
not obtain direction to vote the shares, the stock broker’s abstention is referred to as a “broker non-vote.”
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Brokers do
not have discretion to vote shares for the election of directors, for the approval of the Electromed, Inc. 2017 Omnibus Incentive
Plan, for the advisory vote on our executive officer compensation or for any other non-routine matters that may be brought before
the meeting. Accordingly, if your shares are held in street name and you do not submit voting instructions to your broker, your
shares will not be counted in determining the outcome of these proposals. Brokers will have discretion to vote on the number of
directors and the ratification of RSM US LLP as the Company’s independent registered public accounting firm if you do not
provide voting instructions.
Broker non-votes
will be considered present for quorum purposes at the Annual Meeting. Broker non-votes in connection with the election of directors
are not deemed “votes cast,” and, since directors are elected by a plurality, will have no effect on the election.
Approval of other non-routine business matters requires the affirmative vote of the majority of the shares present in person or
by proxy and entitled to vote at the Annual Meeting. Because broker non-votes are not entitled to vote on non-routine business
matters, they will have no effect on the outcome of the vote on such matters.
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How do I vote my shares?
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A:
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If you are a shareholder of record, you may vote your shares at the Annual Meeting using one of
the mail, phone or internet methods described on your notice of internet availability, proxy card or other voting instructions
from the holder of record.
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Proxy card
. If you received a full set of proxy materials, the proxy card is a means by
which you may authorize the voting of your shares of common stock at the Annual Meeting. The shares of common stock represented
by each properly executed proxy card will be voted at the Annual Meeting in accordance with such shareholder’s directions.
The Company urges you to specify your choices by marking the appropriate boxes on the proxy card. After you have marked your choices,
please sign and date the proxy card and mail the proxy card in accordance with the instructions that accompanied it. If you sign
and return the proxy card without specifying your choices, your shares will be voted
FOR
the Board’s nominees,
FOR
the approval of the Electromed, Inc. 2017 Omnibus Incentive Plan,
FOR
the ratification of the appointment of RSM US LLP
as the Company’s independent registered public accounting firm, and
FOR
the approval, by a non-binding and advisory
vote, of named executive officer compensation.
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Multiple proxy cards
. If you receive more than one notice of internet availability, proxy
card or voting instruction card, it likely means that you have multiple accounts with one or more holders of record. Please be
sure to vote all of the shares by following the instructions on each such notice and/or card.
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In person at the Annual Meeting
. All shareholders of record as of the record date may vote
in person at the Annual Meeting. Even if you plan to attend the Annual Meeting, the Company requests that you vote ahead of time
using one of the methods above.
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You are a
“street name” holder rather than a “shareholder of record” if your shares are held in the name of a stock
broker, bank, trust or other nominee as a custodian, and this proxy statement was forwarded to you by that organization. If you
are a “street name” holder, you must instruct your nominee as to your voting preferences. Please contact your nominee/custodian
to do so. Because a beneficial owner is not the shareholder of record, you may not vote your shares in person at the Annual Meeting
unless you obtain a legal proxy from the broker, bank, trustee or nominee that holds your shares, giving you the right to vote
the shares at the Annual Meeting.
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Can I change my vote after I have mailed in my proxy card?
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A:
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Proxies solicited by the Board may be revoked at any time prior to the Annual Meeting. No specific
form of revocation is required. You may revoke your proxy by:
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Voting in person at the Annual Meeting;
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Returning a later-dated signed proxy card; or
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Giving personal or written notice of the revocation to the inspector of election at the commencement
of the Annual Meeting.
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If your shares
are held in street name through a broker or other nominee, you will need to contact that nominee if you wish to change your voting
instructions.
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Q:
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How will my shares be voted if I do not specify how they should be voted?
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A:
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If you are a record holder and authorize the proxies to vote on your behalf, but do not mark choices
for a particular proposal, then the proxies solicited by the Board will be voted in accordance with the Board’s recommendation
for that proposal, as set forth in this proxy statement.
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If you are
a street name holder and do not submit specific voting instructions to your broker, the organization that holds your shares is
permitted to vote your shares with respect to “routine” items, but not with respect to “non-routine” items.
On non-routine items for which you do not submit specific voting instructions to your broker, the shares will be treated as “broker
non-votes.” Broker non-votes will be counted for purposes of determining whether a quorum is present, but will not be considered
shares entitled to vote on the proposal and therefore will not be treated as affirmative or opposing votes. The proposal to ratify
the appointment of RSM US LLP as our independent registered public accounting firm is considered routine and therefore may be voted
upon by your broker if you do not give instructions to your broker. The other proposals set forth on the Notice of Annual Meeting
are non-routine matters.
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Who can attend the Annual Meeting?
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A:
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All shareholders of record as of the close of business on the record date may attend the Annual
Meeting. We will request identification in order to ensure an orderly meeting.
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If you are
not a shareholder of record but hold shares through a broker, bank, trustee, or other nominee as custodian (i.e., in street name),
we will request proof of your beneficial ownership as of the record date, such as an account statement, a copy of the voting instruction
card provided by your custodian, a legal proxy provided by your custodian, or other similar evidence of ownership.
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What is the record date for the Annual Meeting?
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A:
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The Board has fixed September 14, 2017, as the record date for the Annual Meeting.
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Who will count the votes?
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A:
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All proxies submitted to the Company and all votes cast at the Annual Meeting will be tabulated
by Broadridge Financial Solutions.
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Q:
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Who is paying for this proxy solicitation?
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A:
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The entire cost of this proxy solicitation will be borne by the Company. The cost will include
the cost of supplying necessary additional copies of the solicitation materials for beneficial owners of shares held of record
by brokers, dealers, banks and voting trustees and their nominees and, upon request, the reasonable expenses of such record holders
for completing the mailing of such materials to such beneficial owners.
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Q:
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How do I nominate a candidate for election as a director at next year’s annual meeting?
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A:
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Nominations for director are made by the Board upon recommendation by its Nominating and Governance
Committee, which is composed of independent directors. Shareholders may nominate a candidate for director to stand for election
at the annual meeting of shareholders to be held in the fiscal year ending June 30, 2018 (the “Fiscal 2019 Annual Meeting”)
by following the procedures explained below in this proxy statement under “CORPORATE GOVERNANCE–Nominating and Governance
Committee–Director Nominations” and contained in the rules and regulations of the Securities and Exchange Commission
(the “SEC”).
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Q:
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What is a shareholder proposal?
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A:
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A shareholder proposal is a proposal submitted by a shareholder that, if approved, would recommend
or require that the Company and/or the Board take the proposed action. If you intend to submit a shareholder proposal, the proposal
should state as clearly as possible the course of action that you believe the Company should follow. If your proposal is included
in the Company’s proxy statement, then the Company must also provide the means for shareholders to vote on the matter. The
deadlines and procedures for submitting shareholder proposals for the Fiscal 2019 Annual Meeting are explained in the following
question and answer. The Company reserves the right to reject, rule out of order, or take appropriate action with respect to any
proposal that does not comply with these and other applicable requirements.
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Q:
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When are shareholder proposals and director nominations due for the Fiscal 2019 Annual Meeting?
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A:
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In order to be considered for inclusion in next year’s proxy statement, shareholder proposals
must be submitted in writing to the Company no later than May 29, 2018 (120 days prior to the one-year anniversary of the mailing
of this proxy statement). The Company suggests that proposals for the Fiscal 2019 Annual Meeting be submitted by certified mail,
return receipt requested. The proposal must be in accordance with the provisions of Rule 14a-8 promulgated by the SEC under the
Exchange Act of 1934, as amended (the “Exchange Act”).
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Shareholders
who intend to present a shareholder proposal at the Fiscal 2019 Annual Meeting without including such proposal in the Company’s
proxy statement must provide the Company notice of such proposal no later than August 12, 2018 (90 days prior to the one-year anniversary
of the Annual Meeting). The Company reserves the right to reject, rule out of order, or take appropriate action with respect to
any proposal that does not comply with these and other applicable requirements.
Shareholders
who intend to present a director nomination at the Fiscal 2019 Annual Meeting, without including such nomination in the Company’s
proxy statement must provide the Company notice of such nomination no later than August 12, 2018 (90 days prior to the one-year
anniversary of the Annual Meeting) and no earlier than July 13, 2018 (120 days prior to the one-year anniversary of the Annual
Meeting). The Company reserves the right to reject, rule out of order, or take appropriate action with respect to any nomination
that does not comply with these and other applicable requirements.
If the Company
does not receive notice of a shareholder proposal or director nomination intended to be submitted to the Fiscal 2019 Annual Meeting
by the dates set forth above, the authorized proxies for next year’s annual meeting may vote on any such proposal in their
discretion without notice of such proposal appearing in such proxy statement.
ELECTION
OF DIRECTORS
(Proposal 1)
The Board is currently
composed of six directors. Six individuals, all of whom are current directors, have been nominated for re-election at the Annual
Meeting. If elected, each director will hold office until the Fiscal 2019 Annual Meeting and until his or her successor is elected
and qualified, or until his or her earlier death, resignation, disqualification or removal. Each of the director nominees has consented
to be named in this proxy statement and to serve, if elected. The Company has no reason to believe that any of the director nominees
named below will be unable or unwilling to serve as director if elected. If for any reason any nominee withdraws or is unable to
serve as director (neither of which is expected at this time), the shares represented by all valid proxies will be voted for the
election of a substitute nominee recommended by the Board or, alternatively, not voted for any nominee.
The six nominees receiving
the highest number of affirmative votes cast will be elected as directors. Except as otherwise directed, the proxies will vote
all valid proxies for the six nominees identified below.
The Bylaws of the
Company, as amended (the “Bylaws”), provide that the number of directors shall be determined by the shareholders annually.
The Board has recommended that the number of directors be set at six. The Board believes that the current number of directors strikes
an optimal balance between providing diversity of viewpoints and expertise while allowing each director to influence the strategic
direction of the Company. If each of the six directors named in this proxy statement are elected at the Annual Meeting, then their
election will be deemed to be shareholder approval of setting the number of directors at six.
Nominees for Election as Directors at the Annual Meeting
The Board has nominated
each of the following persons for election to serve as directors and recommends that shareholders vote “FOR” the election
of each such nominee:
Name
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Age
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Director
Since
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Stephen H. Craney
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73
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2010
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William V. Eckles
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42
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2011
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Stan K. Erickson
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67
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2014
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Lee A. Jones
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60
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2014
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Kathleen S. Skarvan
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61
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2013
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George H. Winn
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80
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2005
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Biographical information
relating to each of the director nominees is set forth below:
Stephen H. Craney
Mr. Craney has served
on the Board since November 2010 and has served as Chairman of the Board since May 2012. Since 1984, Mr. Craney has founded and
operated a number of successful companies, including RiverSide Electronics, Ltd., RiverBend Electronics, Ltd., RiverStar, Inc.,
Custom Control Systems, Inc., RiverStyks, LLC, 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 startup companies for more than 20 years through a local entrepreneur network. Among other attributes, skills, experiences and
qualifications, our Board believes that Mr. Craney’s 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. Eckles
Mr. Eckles has served
on the Board since July 2011. 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 allow him
to make a significant contribution to the Board.
Stan K. Erickson
Mr. Erickson has served
on the Board since November 2014. Mr. Erickson is currently President and Chief Executive Officer of Liberty Capital, Inc., a company
he co-founded in September 2013 to provide capital and advisory services. In November 2012, he retired from a 32-year career at
ZieglerCat, Inc., one of the largest Caterpillar dealers in the U.S. where he most recently served as President and Chief Operating
Officer. Mr. Erickson is a veteran of the United States Marine Corps, earned a business degree from the University of Minnesota,
a CPA Certification and began his business career as an auditor and tax professional. Mr. Erickson serves on the board of directors
of Titan Machinery, Inc. (NASDAQ) and several private company boards, advisory committees and associations. Among other attributes,
skills, experiences and qualifications, our Board believes that Mr. Erickson will be an asset to the Board due to Mr. Erickson’s
extensive experience in finance and management.
Lee A. Jones
Ms. Jones has served
on the Board since September 2014. Since November 2011, Ms. Jones has served as the President and Chief Executive Officer of Rebiotix,
Inc., a biotechnology company that develops and commercializes medical therapies. She has more than 30 years of healthcare and
medical device industry experience. Until September 2013, Ms. Jones was on the board of Algos Preclinical Services, Inc. and was
on the board of Uroplasty, Inc. from August 2006 through June 2014. From June 2010 until June 2011, she was a CEO-in-Residence
at the University of Minnesota Venture Center and from February 2009 until June 2010, Ms. Jones was the Chief Administrative Officer
of the Schulze Diabetes Institute of the University of Minnesota. Among other attributes, skills, experiences and qualifications,
our Board believes that Ms. Jones is an asset to the Board due to her experience operating a company in the medical device industry
and experience as an executive officer of a medical products company.
Kathleen S. Skarvan
Ms. Skarvan has served
as the Chief Executive Officer of the Company since December 2012 and was elected to the Board in November 2013. Most recently,
she was appointed to the additional position of President of the Company in August 2015. Previously, Ms. Skarvan served as Vice
President of Operations at OEM Fabricators from November 2011 until October 2012. Prior to her position with OEM Fabricators, Ms.
Skarvan served in various roles at Hutchinson Technology Incorporated, most recently as the President of the Disk Drive Components
Division from April 2007 until March 2011. As President of the Disk Drive Components Division, Ms. Skarvan managed a public company
division with annual revenues in excess of $300 million. Ms. Skarvan also served as a Senior Vice President of Hutchinson Technology
Incorporated from December 2010 to March 2011, and as Vice President of Sales & Marketing of the Disk Drive Components Division
from October 2003 until April 2007. She has served on the Board of Trustees of the St. Cloud State University Foundation since
June 2015. Ms. Skarvan has a bachelor’s degree from St. Cloud State University. Among other attributes, skills, experiences
and qualifications, our Board believes that, as the President and Chief Executive Officer of the Company, Ms. Skarvan is the person
most familiar with the Company’s day to day operations and most capable of effectively identifying strategic priorities and
leading the execution of strategy.
Dr. George H. Winn,
D.D.S.
Dr. Winn has served
on the Board since 2005 and served as its Vice Chairman from May 2012 through November 2014. He has practiced dentistry with an
emphasis in orthodontics and facial pain management in New Prague, Minnesota, for 50 years. He holds a bachelor of arts from Mankato
State College, a bachelor of science from the University of Minnesota and a D.D.S. from the University of Minnesota School of Dentistry.
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 University of Minnesota School of Dentistry. Dr. Winn previously served for
nine years on the University of Minnesota Foundation Board of Trustees, which included service on its executive and finance committees,
from 2007 through 2016. Among other attributes, skills, experiences and qualifications, our Board believes that, in addition to
the vast industry relationships that Dr. Winn has developed, his education and experience give him insight into the medical device
industry that is valuable in his role as a director.
Required Vote and Board Recommendation
The Board recommends
that you vote “
FOR
” each of the nominees to the Board, thereby setting the number of directors at six. 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. 2017 OMNIBUS INCENTIVE PLAN
(Proposal 2)
Introduction
On
August 25, 2017, the Board, upon recommendation of the Personnel and Compensation Committee (as used in this section of this proxy
statement, the “Committee”), approved the Electromed, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”),
subject to shareholder approval. Approval by shareholders is being sought in order to: (1) meet the shareholder approval requirements
of the NYSE American; (2) obtain approval of the material terms of the 2017 Plan, including performance criteria and individual
award limitations, for purposes of qualifying certain compensation under the 2017 Plan as performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”); and (3) qualify certain stock options
authorized under the 2017 Plan for treatment as incentive stock options for purposes of Section 422 of the Code. The purpose of
the 2017 Plan is to provide long-term incentives to persons with responsibility for success and growth at our Company. The 2017
Plan authorizes the issuance of up to 900,000 shares of our common stock pursuant to awards granted thereunder. As provided in
the 2017 Plan, we will cease making awards under the Electromed, Inc. 2014 Equity Incentive Plan (the “2014 Plan”)
upon shareholder approval of the 2017 Plan.
Key
Features of the 2017 Plan
The
Board believes that equity-based incentives are an important part of total compensation for our executives as well as for employees
and our non-employee directors and aligns their interests with the interests of our shareholders. We believe that shareholders
should approve this new plan for the following reasons:
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●
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No
Repricing, Replacement or Repurchase of Underwater Options or Stock Appreciation Rights
.
The 2017 Plan prohibits, without shareholder approval, actions to reprice, replace or
repurchase options or stock appreciation rights (“SARs”) when the exercise
price per share of an option or SAR exceeds the fair market value of the underlying shares.
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No
In-the-Money Option or SAR Grants
. The 2017 Plan prohibits the grant of options or
SARs with an exercise price less than the fair market value of our common stock on the
date of grant (except in the limited case of “substitute awards” as described
below).
|
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●
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No
Liberal Share Counting
. Shares delivered or withheld to pay the exercise price or
satisfy a tax withholding obligation in connection with an award under the 2017 Plan,
shares that we repurchase using option exercise proceeds, and shares subject to a SAR
that are not issued in connection with the stock settlement of that award upon its exercise
may not be used again for new grants.
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●
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Dividend
Equivalents Subject to Performance Conditions
. Dividends and dividend equivalents
payable with respect to the unvested portion of full value awards whose vesting is subject
to the satisfaction of performance conditions will be subject to the same restrictions
and risk of forfeiture as the underlying shares or units.
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|
●
|
No
Liberal Definition of “Change in Control.”
No change in control would
be triggered solely because of shareholder approval of a business combination transaction.
|
|
●
|
Double
Trigger Accelerated Vesting Following a Change in Control
. The 2017 Plan provides
that if outstanding awards are continued, assumed or replaced in connection with a change
in control that constitutes a corporate transaction, then accelerated vesting of an award
will occur only if employment is terminated involuntarily (other than for “cause”)
within 12 months of the change of control.
|
The
descriptions set forth below are in all respects qualified by the terms of the 2017 Plan, which is attached to this proxy statement
as Appendix A.
Purpose
The
purpose of the 2017 Plan is to promote the interests of our Company and our shareholders by providing key personnel of our Company
and our affiliates with an opportunity to acquire a proprietary interest in the Company and thereby develop a stronger incentive
to put forth maximum effort for the continued success and growth of our Company and our affiliates. In addition, the opportunity
to acquire a proprietary interest in our Company will aid in attracting and retaining key personnel of outstanding ability. The
2017 Plan is also intended to provide non-employee directors of the Company with an opportunity to acquire a proprietary interest
in the Company, to compensate non-employee directors for their contributions to the Company and to aid in attracting and retaining
non-employee directors.
Administration
The
2017 Plan, if approved by shareholders, will be administered by the Committee. The Committee has the authority to adopt, revise
and waive rules relating to the 2017 Plan and to determine the timing and identity of participants, the amount of any awards and
other terms and conditions of awards. The Committee may delegate its responsibilities under the 2017 Plan to one or more of its
members or to one or more directors or executive officers of the Company with respect to the selection and grants of awards to
employees of the Company who are not deemed to be officers, directors or 10% shareholders of the Company under applicable Federal
securities laws. We will cease making awards under the 2014 Plan upon shareholder approval of the 2017 Plan.
Eligibility
All
employees of our Company and our affiliates, non-employee directors of our Company and any natural person who is a consultant
or advisor, or is employed by a consultant or advisor retained by our Company or our affiliates, and provides services to us or
our affiliates are eligible to receive awards under the 2017 Plan at the discretion of the Committee. No awards may be granted
under the 2017 Plan in conjunction with a capital-raising transaction or the promotion or maintenance of a market for our securities.
Incentive stock options under the 2017 Plan may only be awarded to employees of the Company. As of September 21, 2017, there were
approximately 122 total employees and non-employee directors. Such employees, directors and others who currently or may in the
future provide services to us and our affiliates may be considered for the grant of awards under the 2017 Plan at the discretion
of the Committee.
Shares
Available
The
total number of shares of common stock of the Company available for distribution under the 2017 Plan is 900,000, subject to adjustment
for future stock splits, stock dividends and similar changes in the capitalization of the Company. The shares of our common stock
covered by the 2017 Plan may be authorized but unissued shares, or shares purchased in the open market.
Any
shares subject to an award under the 2017 Plan that are forfeited, cancelled, returned to the Company for failure to satisfy vesting
requirements, settled for cash or otherwise terminated without payment being made thereunder shall, to the extent of such expiration,
forfeiture, cancellation, return, cash settlement or termination, will remain in the pool of shares available for grant under
the 2017 Plan. The following shares will, however, continue to be charged against the foregoing maximum share limitations and
will not again become available for grant: (i) shares tendered by the participant or withheld by us in payment of the exercise
price of a stock option, (ii) shares tendered by the participant or withheld by us to satisfy any tax withholding obligation with
respect to an award, (iii) shares subject to a SAR that are not issued in connection with the settlement of the SAR upon its exercise
and (iv) shares repurchased by us with proceeds received from the exercise of a stock option issued under the 2017 Plan.
Types
of Awards
The
2017 Plan allows us to grant stock options, SARs, restricted stock, restricted stock units and other stock-based awards, as well
as cash incentive awards. The Committee may provide that the vesting or payment of any award will be subject to the attainment
of certain performance objectives established by the Committee, in addition to completion by the plan participant of a specified
period of service. The Committee may amend the terms of any award previously granted, but no amendment may materially impair the
rights of any participant with respect to an outstanding award without the participant’s consent, unless such amendment
is necessary to comply with applicable laws or stock exchange rules.
Stock
Options
Stock
options granted under the 2017 Plan may be either incentive stock options (“ISOs”), which are specifically designated
as such for purposes of compliance with Section 422 of the Code or its successor, or non-statutory stock options (“NSOs”).
Options will vest as determined by the Committee, subject to statutory limitations regarding the maximum term of ISOs and the
maximum value of ISOs that by vest in a single year. The exercise price of options may not be less than the fair market value
of our common stock on the date of grant, which, if our shares or not readily tradable on an established securities market will
be determined by the Committee as the result of a reasonable application of a reasonable valuation method that satisfies the requirements
of Section 409A of the Code. The exercise price must be paid in full at the time of exercise and may be paid in cash or such other
manner as permitted by the Committee, including by withholding shares issuable upon exercise or by delivery of shares already
owned by a participant. Although not necessarily indicative of fair market value, the last reported sale price of a share of our
common stock on the NYSE American on September 21, 2017, was $7.50 per share.
Stock
Appreciation Rights
SARs
provide for payment to the participant of all or a portion of the excess of the fair market value of a specified number of shares
of our common stock on the date of exercise over a specified exercise price, which may not be less than the fair market value
of our common stock on the date of grant. Payment may be made in cash or shares of our common stock or a combination of both,
as determined by the Committee.
Restricted
Stock
Restricted
stock awards are awards of shares of our common stock that are subject to vesting conditions, and the corresponding lapse or waiver
of forfeiture conditions and other restrictions, based on such factors and occurring over such period of time as the Committee
may determine.
Restricted
Stock Units
Restricted
stock units provide a participant with the right to receive, in cash or shares of our common stock or a combination of both, the
fair market value of a specified number of shares of our common stock, and will be subject to such vesting and forfeiture conditions
and other restrictions as the Committee determines.
Other
Stock-Based Awards
The
Committee may grant other awards under the 2017 Plan that are valued by reference to and/or payable in whole or in part in shares
of our common stock.
Cash
Incentive Awards
Cash
incentive awards permit a participant to receive cash or other forms of awards upon the satisfaction of one or more performance
goals over a specified performance cycle as determined by the Committee.
Terms
of Awards and Plan Provisions
Performance-Based
Compensation
For
purposes of any 2017 Plan awards (other than stock options and SARs) that are intended to qualify as performance-based compensation
for Section 162(m) purposes, the lapsing of restrictions, vesting and payment of such awards, as applicable, will be subject to
the achievement of one or more performance goals over a specified performance period, all as determined by the Committee. The
vesting and exercisability of stock options and SARs need not be made subject to the achievement of one or more performance goals
in order to be considered performance-based compensation for purposes of Section 162(m) of the Code. The performance measures
upon which such performance goals may be based shall be limited to one or a combination of two or more of the following business
criteria: net earnings or net income; earnings before one or more of interest, taxes, depreciation, amortization and share-based
compensation expense; earnings per share (basic or diluted); revenue; gross profit; operating income; profitability as measured
by return ratios (including, but not limited to, return on assets, return on equity, return on invested capital and return on
revenue) or by the degree to which any of the foregoing earnings measures exceed a percentage of revenue or gross profit; cash
flow (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital); market share; margins
(including, but not limited to, one or more of gross, operating and net earnings margins); stock price; total shareholder return;
asset quality; non-performing assets; operating assets; balance of cash, cash equivalents and marketable securities; cost and
expense management; economic value added or similar value added measurements; improvement in or attainment of working capital
levels; productivity ratios; employee retention or satisfaction measures; safety record; customer satisfaction; debt, credit or
other leverage measures or ratios; implementation or completion of critical projects; referrals; approvals; and approvals as a
percentage of referrals.
Any
performance goal utilized may be expressed in absolute amounts, on a per share basis, relative to one or more other performance
measures, as a growth rate or change from preceding periods, or as a comparison to the performance of specified companies or other
external measures, and may relate to one or any combination of corporate or business performance criteria. The Committee will
specify the manner of calculating the performance goals it establishes for any performance period. The Committee will select the
applicable performance measures and establish the corresponding performance goals for any performance period, and certify any
amount payable in connection with an award intended to qualify as performance-based compensation, within the time periods prescribed
by and consistent with the other requirements of Section 162(m) of the Code. The Committee may adjust downward, but not upward,
any amount determined to be otherwise payable in connection with such an award.
Maximum
Award Amounts
The
aggregate number of shares that may be subject to certain awards during any calendar year to any one participant under the 2017
Plan shall not exceed 150,000 shares with respect to stock options, SARs and other awards intended to qualify as performance-based
compensation for Section 162(m) purposes (subject to certain adjustments as further set forth in the 2017 Plan). The maximum amount
payable with respect to any cash incentive awards and awards other than stock options and SARs denominated in cash that are granted
to any one participant in any calendar year may not exceed $1,000,000.
Substitute
Awards
Awards
may be granted under the 2017 Plan in substitution for awards granted by another entity acquired by our company or with which
our company combines. The terms and conditions of these substitute awards will be comparable to the terms of the awards replaced,
and may therefore differ from the terms and conditions otherwise set forth in the 2017 Plan to the extent that the Committee at
the time of the grant may deem appropriate to conform, in whole or in part, to the provisions of the award in substitution for
which it has been granted. Shares subject to substitute awards will not count against the 2017 Plan share reserve, nor will they
reduce the shares authorized for grant to a participant in any calendar year.
Repricing
of Awards
The
Committee may not reduce the exercise price of stock options or SARs granted under the 2017 Plan, exchange outstanding stock options
or SARs with new stock options or SARs with a lower exercise price or a new full value award, repurchase underwater stock options
or SARs or take any other action that would constitute a “repricing,” unless such action is first approved by our
shareholders.
Transferability
of Awards
Except
as noted below, during the lifetime of a person to whom an award is granted, only that person, or that person’s guardian
or legal representative, may exercise an option or SAR, or receive payment with respect to performance units or any other award.
No award may be sold, assigned, transferred, exchanged or otherwise encumbered other than to a successor in the event of a participant’s
death or pursuant to a qualified domestic relations order. However, the Committee may provide that awards, other than incentive
stock options, may be transferable to members of the participant’s immediate family or to one or more trusts for the benefit
of such family members or partnerships in which such family members are the only partners, if the participant does not receive
any consideration for the transfer.
Termination
of Service
Unless
otherwise provided in an award agreement, upon termination of a participant’s service with us, all unvested and unexercisable
portions of the participant’s outstanding awards will immediately be forfeited without consideration. If a participant’s
service with us terminates other than for cause (as defined in the 2017 Plan), death or disability, the vested and exercisable
portions of the participant’s outstanding stock options and SARs generally will remain exercisable for a period of three
months after termination. If a participant’s service terminates due to retirement, death or disability, the vested and exercisable
portions of the participant’s outstanding stock options and SARs generally will remain exercisable for one year after termination.
Upon termination for cause or upon conduct during a post-termination exercise period that would constitute cause, all unexercised
stock options and SARs and all unvested portions of any other outstanding awards will immediately be forfeited without consideration.
Withholding
The
2017 Plan permits us to withhold from cash awards, and to require a participant receiving shares of common stock under the 2017
Plan to pay us in cash, an amount sufficient to cover any required withholding taxes. In lieu of cash, the Committee may permit
a participant to cover withholding obligations through a reduction in the number of shares delivered to such participant or a
surrender of shares then owned by the participant.
Change
in Control
If
a change in control (as defined in the 2017 Plan) that involves a corporate transaction (as defined in the 2017 Plan) occurs and
any outstanding award is continued, assumed or replaced by our Company or the surviving or successor entity in connection with
such change in control, and if within 12 months after the change in control a participant’s employment or other service
is terminated without cause (as defined in the 2017 Plan), then (i) each of the participant’s outstanding options and SARs
will become exercisable in full, and (ii) each of the participant’s unvested full value awards will fully vest (with vesting
in full for a performance-based award determined by the method provided in the 2017 Plan). If any outstanding award is not continued,
assumed or replaced in connection with such change in control, then the same consequences as specified in the previous sentence
will occur in connection with a change in control unless and to the extent the Committee elects to terminate such award in exchange
for a payment in an amount equal to the intrinsic value of the award (or, if there is no intrinsic value, the award may be terminated
without payment). The Committee may, in its discretion, take such other action as it deems appropriate with respect to outstanding
awards for a change in control not involving a corporate transaction or may generally provide for different circumstances upon
any change in control in an individual award agreement.
If
any payments or benefits provided under the 2017 Plan taken together with other payments an individual may receive in connection
with a change in control may constitute a “parachute payment” under Section 280G of the Code, such payments or benefits
may be reduced to provide the individual with the best after-tax result. Specifically, the individual will receive either a reduced
amount so that the excise tax imposed under Section 4999 of the Code is not triggered, or the individual will receive the full
amount of the payments and benefits and then be liable for any excise tax.
Adjustment
of Awards
In
the event of an equity restructuring, such as a stock dividend or stock split, that affects the per share value of our common
stock, the Committee will make appropriate adjustment to: (i) the aggregate number and kind of securities reserved for issuance
under the 2017 Plan, (ii) the number and kind of securities subject to outstanding awards under the 2017 Plan, (iii) the exercise
price of outstanding options and SARs, and (iv) any maximum limitations prescribed by the 2017 Plan as to grants of certain types
of awards. The Committee may also make similar adjustments in the event of any other change in our Company’s capitalization,
including a merger, consolidation, reorganization or liquidation.
Amendment
and Termination
The
2017 Plan has a term of ten years from its effective date, or the earlier termination of the 2017 Plan by the Board. If our shareholders
fail to approve the 2017 Plan by December 31, 2017, then the 2017 Plan will be of no further force or effect. The Board may amend
the 2017 Plan at any time, but no amendment may materially impair the rights of any participant with respect to outstanding awards
without the participant’s consent. Shareholder approval of any amendment of the 2017 Plan will be obtained if required by
applicable law or the rules of the NYSE American. Awards that are outstanding on the 2017 Plan’s termination date will remain
in effect in accordance with the terms of the 2017 Plan and the applicable award agreements.
New
Plan Benefits
No
benefits or amounts have been granted, awarded or received under the 2017 Plan that were subject to shareholder approval. In addition,
the Committee will determine the number and types of awards that will be granted under the 2017 Plan. Thus, it is not possible
to determine the benefits that will be received by eligible participants if the 2017 Plan is approved by our shareholders.
Required
Vote and Board Recommendation
Provided
a quorum is present, approval of this 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.
The
Board recommends that you vote “
FOR
” the proposal to approve the Electromed, Inc. 2017 Omnibus Incentive Plan.
RATIFICATION
OF THE APPOINTMENT OF THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 3)
The
Board, acting on the recommendation of its Audit Committee, has selected RSM US LLP (“RSM”) as the Company’s
independent registered public accounting firm for the fiscal year ending June 30, 2018 (“fiscal 2018”). RSM was the
Company’s independent registered public accounting firm for the most recent completed fiscal year.
Notwithstanding
its selection of RSM, 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 of RSM is not ratified by our shareholders, the Audit Committee may reconsider whether it
should appoint another independent registered public accounting firm.
A
representative of RSM is expected to be present at the Annual Meeting, 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 Company’s financial
statements.
Audit
Fees
The
following table presents fees billed by RSM to the Company for the audit of the Company’s annual financial statements, the
review of the Company’s interim financial statements, and various other audit and non-audit services provided in connection
with the fiscal year ended June 30, 2017, or “fiscal 2017,” and the fiscal year ended June 30, 2016, or “fiscal
2016.”
Category
|
|
Year
Ended June 30,
|
|
2017
|
|
2016
|
Audit
Fees
(a)
|
|
$133,200
|
|
$127,064
|
|
(a)
|
Includes
the annual audits and quarterly reviews of the Company’s financial statements.
|
RSM
provided no other services to the Company in fiscal 2017 or fiscal 2016 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 2017 and fiscal 2016 were pre-approved by our Audit Committee.
Required
Vote and Board Recommendation
The
Board recommends that you vote “
FOR
” the ratification of the appointment of RSM US LLP as the Company’s
independent registered public accounting firm. Approval 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.
APPROVAL,
ON A NON-BINDING AND ADVISORY BASIS, OF EXECUTIVE COMPENSATION
(Proposal 4)
The
Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Exchange Act require that we provide our shareholders
with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our executive officers as disclosed
in this proxy statement in accordance with the compensation disclosure rules of the SEC.
We
seek to closely align the interests of our named executive officers with the interests of our shareholders. We designed our compensation
program to reward our named executive officers for their individual performance and contributions to our overall business objectives,
and for achieving and surpassing the financial goals set by our Personnel and Compensation Committee and our Board.
The
vote on this resolution is not intended to address any specific element of compensation. Instead, the vote relates to the overall
compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure
rules of the SEC.
Accordingly,
we ask our shareholders to vote on the following resolution at the Annual Meeting:
RESOLVED,
that the Company’s shareholders approve, on a non-binding, advisory basis, the compensation of the named executive officers,
as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission,
including the summary compensation table and the other related tables and disclosure.
While
the Board and especially the Personnel and Compensation Committee intend to carefully consider the results of the voting on this
proposal when making future decisions regarding executive compensation, the vote is not binding on the Company, the Personnel
and Compensation Committee or the Board and is advisory in nature. To the extent there is any significant vote against this Proposal
4, the Personnel and Compensation Committee will evaluate what actions may be necessary to address our shareholders’ concerns.
Required
Vote and Board Recommendation
The
Board recommends that you vote “
FOR
” the approval, on a non-binding and advisory basis, of the compensation
of the named executive officers. Approval 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.
This vote is advisory and is not binding on the Company, the Board or the Personnel and Compensation Committee.
CORPORATE
GOVERNANCE
Independence
Our
Board annually reviews the materiality of any relationship that each of our directors has with our Company, either directly or
indirectly. Based on that review, our Board has determined that, with the exception of Ms. Skarvan, our President and Chief Executive
Officer, all of our current directors are “independent directors” as defined under the applicable regulations of the
SEC and the NYSE American.
In
determining the independence of our directors, our Board considered that the Company made payments of approximately $112,000,
$55,000, and $101,000 during fiscal 2017, fiscal 2016 and the fiscal year ended June 30, 2015, or “fiscal 2015,” respectively,
to RiverSide Electronics, Ltd. (“RiverSide”), an entity that is solely owned by Mr. Craney, in exchange for certain
electronic parts. The Board determined that the terms of the Company’s transactions with RiverSide were consistent with
what could be obtained in an arm’s length transaction with an unrelated party and that the transactions did not exceed 5%
of RiverSide’s consolidated gross annual revenues for the applicable fiscal years.
The
Board also considered that Mr. Eckles is the chief executive officer and owns approximately 20% of the outstanding stock of Blue
Earth Valley Communications, Inc. (“Blue Earth”), an entity from which the Company purchased approximately $41,000,
$44,000 and $40,000 of telecommunications services in fiscal 2017, fiscal 2016 and fiscal 2015, respectively. The Board determined
that the terms of the Company’s transactions with Blue Earth were consistent with what could be obtained in an arm’s
length transaction with an unrelated party and that the transactions did not exceed 5% of Blue Earth’s consolidated gross
annual revenues for the applicable fiscal years.
Code
of Ethics
The
Board has approved a Code of Ethics and Business Conduct (the “Code of Ethics”) that applies to all employees, directors,
and officers, including the Chief Executive Officer and Chief Financial Officer (Principal Financial Officer and Principal Accounting
Officer). The Code of Ethics is available in the “Investor Relations” section of our website at www.smartvest.com.
We intend to disclose on our website any amendment to or waiver from any provision of the Code of Ethics that applies to our Chief
Executive Officer or Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), and that relates
to any element of the Code of Ethics identified in Item 406(b) of Regulation S-K, as promulgated by the SEC. Such disclosure will
be provided promptly following the date of the amendment or waiver.
Director
Attendance at Annual Meetings
Directors’
attendance at annual meetings can provide shareholders with an opportunity to communicate directly with members of the Board about
matters concerning the Company. The Company encourages all directors to attend the Company’s annual meetings, but it does
not have a formal attendance policy. All of the Company’s current directors attended the Fiscal 2017 Annual Meeting of Shareholders.
Board
Leadership Structure
We
have separate individuals serving as Chairman of the Board and as Chief Executive Officer because we believe independent directors
and management have different perspectives and roles in strategy development. The Chief Executive Officer is responsible for setting
the strategic direction of the Company and managing the day-to-day leadership and performance of the Company, while the Chairman
provides guidance to the Chief Executive Officer, sets the agenda for meetings of the Board and presides over meetings of the
full Board. We believe this structure promotes active participation of the independent directors and strengthens the role of the
Board in fulfilling its oversight responsibility and fiduciary duties to our shareholders while recognizing the day-to-day management
direction of the Company by the Chief Executive Officer.
Risk
Oversight
It
is management’s responsibility to manage risk and bring to the Board’s attention the most material risks to the Company.
The Board 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 Company’s 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 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
fiscal 2017, the Board held four formal meetings. 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 Company’s Articles of Incorporation, as amended. Each director attended at least 75% of the total number of
Board meetings held during the most recent completed fiscal year and the total number of meetings held by all committees on which
the director served during the same fiscal year.
Committee
Membership
The
Board has three standing committees: the Audit Committee, the Personnel and Compensation Committee, and the Nominating and Governance
Committee. The following table sets forth the current membership of each of the Company’s standing committees:
Director
|
|
Board
Committee
|
|
Independent
Director
|
|
Audit
|
|
Nominating
and Governance
|
|
Personnel
and Compensation
|
|
Stephen
H. Craney
|
|
Member
|
|
|
|
Chair
|
|
✓
|
William
V. Eckles
|
|
Member
|
|
Chair
|
|
|
|
✓
|
Stan
K. Erickson
|
|
Chair
|
|
Member
|
|
|
|
✓
|
Lee
A. Jones
|
|
|
|
Member
|
|
Member
|
|
✓
|
Kathleen
S. Skarvan
|
|
|
|
|
|
|
|
|
George
H. Winn
|
|
|
|
|
|
Member
|
|
✓
|
Our
Board has evaluated independence for the members of each committee in accordance with NYSE American 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 American.
Audit
Committee
Our
Audit Committee currently consists of Mr. Erickson (Chair), Mr. Craney, and Mr. Eckles. Under its charter, the Audit Committee
must consist of at least three independent directors and its composition must otherwise satisfy NYSE American and SEC requirements
applicable to audit committees. The principal functions of the Audit Committee are to evaluate and review the Company’s
financial reporting process and systems of internal controls. The Audit Committee evaluates the independence of the Company’s
independent registered public accounting firm, recommends selection of the Company’s independent registered public accounting
firm to the Board, approves fees to be paid to our independent registered public accounting firm, and reviews the Company’s
financial statements with management and the independent registered public accounting firm. The Audit Committee has recommended
to the Board the appointment of RSM US LLP to serve as the Company’s independent registered public accounting firm for fiscal
2018. The Audit Committee operates under a written charter approved by the Board, a copy of which is available in the “Investor
Relations” section of the Company’s website at www.smartvest.com. The Audit Committee held four meetings during the
most recent completed fiscal year.
Our
Board has affirmatively determined that each of the members of the committee satisfy the additional independence requirements
for audit committee members pursuant to the NYSE American LLC Company Guide and the rules and regulations promulgated by the SEC.
The Board has further determined that Mr. Erickson qualifies as an “audit committee financial expert” as defined by
Item 407(d)(5) of Regulation S-K under the Securities Act of 1933, as amended.
Report
of the Audit Committee
In
accordance with its written charter adopted by the Board, as amended, the Audit Committee assists the Board with fulfilling its
oversight responsibility regarding the quality and integrity of the accounting, auditing and financial reporting practices of
the Company. A copy of the Audit Committee charter, which has been adopted by the Board and further describes the role and responsibilities
of the Audit Committee, is available online in the “Investor Relations” section of our website at www.smartvest.com.
In
discharging its duties, the Audit Committee:
|
(1)
|
reviewed
and discussed the audited financial statements included in the annual report on Form
10-K for the fiscal year ended June 30, 2017 with management;
|
|
(2)
|
discussed
with the independent auditors the matters required to be discussed by the applicable
Public Company Accounting Oversight Board standards; and
|
|
(3)
|
received
the written disclosures and the letter from the independent accountant required by applicable
requirements of the Public Company Accounting Oversight Board regarding the independent
accountant’s communications with the Audit Committee concerning independence, and
discussed with the independent accountant matters relating to their independence.
|
Based
upon the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements
be included in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2017, for filing with the Securities
and Exchange Commission.
|
Audit Committee
|
|
|
|
Stephen H. Craney
|
|
William V. Eckles
|
|
Stan K. Erickson (Chair)
|
Personnel
and Compensation Committee
The
current members of the Personnel and Compensation Committee are Mr. Craney (Chair), Ms. Jones and Dr. Winn. Our Board has affirmatively
determined that each of the members of the committee satisfy the additional independence requirements for compensation committee
members pursuant to the NYSE American LLC Company Guide.
The
Board has authorized the Personnel and Compensation Committee to, among other duties, develop the Company’s compensation
strategy, review compensation policies and plans for the Company’s executive officers, and administer the Company’s
compensation plans. Neither the Personnel and Compensation Committee nor the Board engages compensation consultants to assist
in determining or recommending the amount or form of compensation for executive officers or directors. The Chief Executive Officer
may give the committee input in regard to the compensation of the Chief Financial Officer, but the Chief Executive Officer is
not present during voting or deliberations relating to her own compensation. The committee operates under a written charter approved
by the Board, a copy of which is available in the “Investor Relations” section of our website at www.smartvest.com.
The Personnel and Compensation Committee held four meetings during the most recent completed fiscal year.
Nominating
and Governance Committee
The
current members of the Nominating and Governance Committee are Mr. Eckles (Chair), Ms. Jones, and Mr. Erickson. Our Nominating
and 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 Governance Committee makes recommendations to our Board
regarding candidates for directorships and the size and composition of our Board and its committees. The Nominating and Governance
Committee acts pursuant to a written charter approved by the Board, a copy of which is available in the “Investor Relations”
section of our website at www.smartvest.com. The Nominating and Governance Committee held three meetings during the most recent
completed fiscal year.
Director
Nominations
The
Nominating and Governance Committee is responsible for identifying and recommending director nominees for nomination by the full
Board. Shareholders may recommend a nominee to be considered by the Nominating and Governance Committee by submitting a written
proposal to the Chairman of the Board, at 500 Sixth Avenue Northwest, New Prague, Minnesota 56071. Any notice of a shareholder
nomination must satisfy the timing and content requirements of our Bylaws and must be accompanied by a writing from the proposed
nominee consenting to being named as a nominee and to serve as a director if elected.
When
selecting candidates for recommendation to the Board, the Nominating and Governance Committee considers the attributes of the
candidates and the needs of the Board and reviews all candidates in the same manner, regardless of the source of the recommendation.
In evaluating director nominees, the Nominating and Governance Committee seeks to confirm that candidates 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:
|
●
|
appropriate
size and diversity of the Board;
|
|
●
|
needs
of the Board with respect to particular talent and experience;
|
|
●
|
knowledge,
skills and experience of nominee;
|
|
●
|
experience
in domestic and international business matters;
|
|
●
|
familiarity
with legal and regulatory requirements;
|
|
●
|
familiarity
with accounting rules and practices; and
|
|
●
|
the
desire to balance the benefit of continuity with the periodic injection of the fresh
perspective provided by a new member.
|
The
Nominating and Governance Committee does not have a formal diversity policy at this time. However, as summarized above, the Nominating
and 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. Moreover, potential nominees are not discriminated against
on the basis of sex, religion, national origin, sexual orientation, disability or other basis proscribed by law.
SECURITY
HOLDER COMMUNICATIONS TO THE BOARD OF DIRECTORS
Any
shareholder wishing to communicate with the Board should send the communication, in written form, to the President and Chief Executive
Officer of the Company at the Company’s principal place of business at 500 Sixth Avenue Northwest, New Prague, Minnesota
56071. The President and Chief Executive Officer will promptly send the communication to each member of the Board identified on
the communication.
COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Section
16(a) of the Exchange Act requires that our directors and executive officers file initial reports of ownership and reports of
changes in ownership with the SEC. Directors and executive officers are required to furnish us with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms furnished to us and written representations from our directors
and executive officers, all Section 16(a) filing requirements were met for fiscal 2017.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of
September 14, 2017 by (i) each of our named executive officers; (ii) each of our directors; (iii) all of our executive officers,
directors and director nominees as a group; and (iv) each beneficial owner of 5% or more of our outstanding common stock. Ownership
percentages are based on 8,260,167 shares of common stock outstanding as of the close of business on September 14, 2017.
Beneficial
ownership is determined in accordance with the rules of the SEC. To our knowledge and subject to applicable community property
laws, each of the holders of stock listed below has sole voting and investment power as to the stock owned unless otherwise noted.
The table below includes the number of shares underlying options that are exercisable within 60 days from September 14, 2017.
Except as otherwise noted below, the address for each director or officer listed in the table is c/o Electromed, Inc., 500 Sixth
Avenue Northwest, New Prague, Minnesota 56071.
Name
|
|
Amount and Nature of Beneficial Ownership
|
|
Percentage of Outstanding Shares
|
Executive Officers and Directors
|
|
|
|
|
|
|
Kathleen S. Skarvan
|
|
213,990
|
(a)
|
|
2.4
|
%
|
Jeremy T. Brock
|
|
128,001
|
(b)
|
|
1.4
|
%
|
Stephen H. Craney
|
|
547,901
|
|
|
6.2
|
%
|
William V. Eckles
|
|
190,994
|
|
|
2.0
|
%
|
Stan K. Erickson
|
|
15,317
|
|
|
*
|
|
Lee A. Jones
|
|
11,183
|
|
|
*
|
|
George H. Winn
|
|
603,891
|
(c)
|
|
6.8
|
%
|
|
|
|
|
|
|
|
Executive officers and directors as a group (7 persons)
|
|
1,711,277
|
(d)
|
|
19.3
|
%
|
|
|
|
|
|
|
|
Red Oak Partners, LLC
1969 SW 17
th
Street
Boca Raton, Florida 33486
|
|
1,117,075
|
(e)
|
|
12.6
|
%
|
|
(a)
|
Includes
options to purchase 125,001 shares.
|
|
(b)
|
Includes
options to purchase 98,001 shares.
|
|
(c)
|
Includes
446,303 shares owned by G&J Winn Family LLLP, of which Dr. Winn and his spouse are
general partners.
|
|
(d)
|
Includes
options to purchase 223,002 shares.
|
|
(e)
|
Based
on Schedule 13G/A filed with the SEC on February 14, 2017. David Sandberg is the controlling
member of Red Oak Partners, LLC (“Red Oak Partners”), which serves as a general
partner of The Red Oak Fund, LP (the “Red Oak Fund”), The Red Oak Long Fund,
LP (the “Red Oak Long Fund”), The Red Oak Institutional Founders Long Fund,
LP (the “Red Oak Founders Fund”), and as a managing member of Pinnacle Capital
Partners LLC (“Pinnacle Partners”), the general partner of Pinnacle Opportunities
Fund, LP (“Pinnacle Fund” together with the aforementioned funds, the “Red
Oak Funds”). Red Oak Partners has discretionary trading and voting authority over
shares held in a separate managed account held by Wolverine Trading LLC (“Wolverine”).
Red Oak Partners beneficially owns and shares voting and dispositive power over all of
the shares reported, including 484,380 shares held by the Red Oak Founders Fund, 305,003
shares held by Red Oak Fund, 129,707 shares held by Red Oak Long Fund, and 197,985 shares
held by Pinnacle Fund. Mr. Sandberg, as the managing member of Red Oak Partners beneficially
owns the shares beneficially owned by Red Oak Partners. Red Oak Partners shares discretionary
trading and voting authority over shares held by Wolverine. Each of the Red Oak Funds
disclaims beneficial ownership with respect to any shares other than the shares owned
directly by such fund.
|
EXECUTIVE
COMPENSATION
The
following discussion describes the compensation awarded to our two executive officers (collectively, our “named executive
officers”):
Name
|
|
Age
|
|
Title
|
Kathleen
S. Skarvan
|
|
61
|
|
President
and Chief Executive Officer
|
Jeremy
T. Brock
|
|
38
|
|
Chief
Financial Officer
|
Kathleen
S. Skarvan
Ms.
Skarvan joined Electromed in December 2012 as Chief Executive Officer, became a director in November 2013 and was appointed to
the additional position of President in August 2015. Ms. Skarvan served as Vice President of Operations at OEM Fabricators from
November 2011 until October 2012. Prior to her position with OEM Fabricators, Ms. Skarvan served in various roles at Hutchinson
Technology Incorporated, most recently as the President of the Disk Drive Components Division from April 2007 until March 2011.
As President of the Disk Drive Components Division, Ms. Skarvan managed a public company division with annual revenues in excess
of $300 million. Ms. Skarvan also served as a Senior Vice President of Hutchinson Technology Incorporated from December 2010 to
March 2011, and as Vice President of Sales & Marketing of the Disk Drive Components Division from October 2003 until April
2007. She has served on the Board of Trustees of the St. Cloud State University Foundation since June 2015. Ms. Skarvan has a
bachelor’s degree from St. Cloud State University.
Jeremy
T. Brock
Mr.
Brock joined Electromed in August 2011 as controller and principal accounting officer and became the Company’s Chief Financial
Officer in October 2011. Prior to joining the Company, Mr. Brock spent five years with the CPA firm CliftonLarsonAllen LLP and
focused on performing and managing audit and tax engagements in the manufacturing, distribution and technology sectors. As a Certified
Public Accountant, Mr. Brock also has worked on strategic business planning, risk assessments, and the design and implementation
of internal controls.
Mr. Brock brings additional management and leadership experience from
serving in the United States Marine Corps from 1998 to 2002. Mr. Brock has a bachelor’s degree in accounting and finance
from the University of Northern Iowa.
Executive
Compensation Components for Fiscal 2017
We
provide a compensation package to our executive officers, including base salary, cash incentive compensation, certain perquisites
and participation in benefit arrangements that are generally available to all salaried employees, such as health and retirement
plans. We have also periodically awarded our executive officers with long-term equity incentive grants in the form of restricted
shares of common stock or stock options. 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 are eligible
to participate in our equity incentive plans and the Board may grant equity awards to the executives thereunder.
Base
Salary
For
fiscal 2017, our Chief Executive Officer and Chief Financial Officer had base salaries of $285,120 and $200,000, respectively.
Base salaries for our executive officers are determined and paid on a fiscal-year basis and, for fiscal 2017, were established
by our Compensation Committee in accordance with the terms of each executive officer’s existing employment agreement.
In
order to provide its recommendations regarding base salaries, the Personnel and Compensation Committee reviews individual performance
and our operating results and considers compensation data for medical device manufacturing companies located in the Midwest. The
Personnel and Compensation Committee also considers the Chief Executive Officer’s recommendations as to compensation for
the Company’s other executive officer. The Personnel and Compensation Committee uses a subjective process to set base salaries
and does not specifically weight any factors. Based upon the information reviewed, the Personnel and Compensation Committee makes
a recommendation with respect to compensation for the Company’s executive officer. The Board sets the compensation for each
executive officers based on the recommendation of the committee. The Chief Executive Officer is not present during the committee’s
deliberations or voting on her compensation.
Cash
Incentive Compensation
Our
Chief Executive Officer and Chief Financial Officer were each eligible to earn cash incentive compensation for fiscal 2017 pursuant
to the Fiscal 2017 Officer Bonus Plan established by the Personnel and Compensation Committee and ratified by the Board. So long
as the minimum performance threshold was exceeded, our Chief Executive Officer was eligible to receive cash incentive compensation
in an amount equal to between 10% and 60% of her base salary depending upon actual performance against established goals and milestones
related to financial and operational performance. After evaluation of actual performance against the established goals, Ms. Skarvan
received a cash incentive compensation payment award of $106,920 for her fiscal 2017 performance.
So
long as the minimum performance threshold was exceeded, our Chief Financial Officer was eligible to receive cash incentive compensation
in an amount equal to between 7.5% and 45% of his base salary depending upon actual performance against established goals and
milestones related to financial and operational performance. After evaluation of actual performance against the established goals,
Mr. Brock received a cash incentive compensation payment award of $45,000 for his fiscal 2017 performance.
Equity
Compensation
Our
Board and its Personnel and Compensation Committee believe that stock-based compensation promotes the creation of long-term shareholder
value and aligns the interests of our management with the interests of our shareholders by ensuring that a portion of their total
compensation is at risk and changes in value with the value of our securities. As employees of our company, each of our named
executive officers was previously eligible to receive equity compensation pursuant to our 2012 Stock Incentive Plan (the “2012
Plan”) and, after its ratification by our shareholders in November 2014, are eligible to receive equity compensation pursuant
to the “2014 Plan”. Upon the ratification by our shareholders of the 2017 Plan, we will cease making awards under
the 2014 Plan.
During
fiscal 2017, we granted a combination of shares of common stock and options to purchase additional shares of common stock to each
of our Chief Executive Officer and Chief Financial Officer. On July 1, 2016, Ms. Skarvan received 20,000 restricted shares of
common stock and an option to purchase up to 40,000 shares of common stock. On the same date, Mr. Brock received 10,000 restricted
shares of common stock and an option to purchase up to 20,000 shares of common stock. All of the awards were granted pursuant
to the 2014 Plan. Each of the foregoing options have an exercise price of $3.82 per share, representing the “fair market
value” or our common stock as of the date of grant, and expire after 10 years. The restricted stock awards and options are
all scheduled to vest in substantially equal increments on June 30 in each of 2017, 2018 and 2019.
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, disability and life insurance plans and receive matching contributions to a 401(k) plan, which
are benefits that are generally available to all of our full time employees. The goal of these programs is to promote health and
welfare benefits. In addition, the employment agreements with our Chief Executive Officer and our Chief Financial Officer provide
for monthly automobile allowances for each officer, and our employment agreement with our Chief Executive Officer provides for
a monthly housing allowance.
Compensation Actions for Fiscal 2018
In July 2017, the
base salaries of our President and Chief Executive Officer and our Chief Financial Officer were increased for fiscal 2018 to $345,000
and $230,000, respectively. The composition of the equity compensation to our named executive officers for fiscal 2018 was maintained
with one-third in restricted stock awards and the remaining two-thirds in common stock options.
In September 2017,
the Personnel and Compensation Committee established the final terms of the Fiscal Year 2018 Officer Bonus Plan (the “2018
Officer Bonus Plan”) for officers of our company, including the named executive officers. The 2018 Officer Bonus Plan is
effective for fiscal 2018 and provides an opportunity for each participant to earn an annual cash bonus based on Company revenue
growth versus fiscal 2017 (subject to achievement of threshold earnings before interest and taxes (“EBIT”)). The committee
has established target payouts of 50.0% and 30.0% of annual base salary for Ms. Skarvan and Mr. Brock, respectively, under the
plan. The following summarizes the potential payments under the plan:
|
●
|
Company revenue growth below minimum performance will
not result in any payouts under the plan.
|
|
●
|
Company revenue growth between minimum and target performance will result in a potential bonus
payout starting at 12.5% and increasing in increments of 17.5% of the participant’s respective target payout for every whole
percent of revenue growth in excess of minimum performance.
|
|
●
|
Company revenue growth equal to target performance will result in a potential bonus payout equal
to 100.0% of the participant’s respective target payout.
|
|
●
|
Company revenue growth above target performance will result a potential bonus payout equal to 100.0%
of the participant’s respective target payout, plus an additional increment of 5.0% of their target payout for every whole
percent of revenue growth in excess of target performance.
|
Notwithstanding the
foregoing, Company revenue growth also will not result in any payout unless EBIT also exceeds an established threshold amount.
Company revenue growth above target performance will only increase the resulting payout as a percent of target if EBIT also exceeds
an amount equal to the threshold EBIT amount plus an additional increment of 30.0% of threshold EBIT for every whole percent of
revenue growth in excess of target performance.
In addition to the
2018 Officer Bonus Plan, the Company has established a supplemental cash bonus opportunity for extraordinary performance. If actual
revenue growth is beyond approximately 166.7% of target performance, then a pool equal to 30.0% of the portion of actual EBIT in
excess of the applicable threshold amount will be established. Payments from the pool, if any, will be allocated among all bonus-eligible
employees, including the named executive officers, pro rata based on their individual cash bonus target payouts for fiscal 2018.
If the aggregate pool amount is less than $30,000, then no payments will be made from the pool.
Employment Agreements
Effective September
2017, we entered into amended and restated employment agreements with certain key employees, including each Named Executive Officer.
The amended and restated
employment agreements supersede the existing employment agreements between us and each executive. The employment agreement with
Ms. Skarvan is initially effective for a period of four years, and thereafter will continue to renew in successive two-year increments
unless terminated in advance in accordance its terms. The employment agreement with Mr. Brock is initially effective for a period
of two years, and thereafter will continue to renew in successive one-year increments unless terminated in advance in accordance
its terms. Notwithstanding the foregoing, the applicable term will automatically expire on the one-year anniversary of a “change
of control” (as defined in the applicable employment agreement).
Under the amended
and restated employment agreements, if the executive’s employment is terminated by us for any reason other than for “cause”
(as defined in the applicable employment agreement) or is terminated by them for “good reason” (as defined in the applicable
employment agreement), and in either case the termination of employment occurs before a change of control, then the executive will
be eligible to (A) receive an amount equal to (i) one times their annualized base salary as of the termination date, plus (ii)
100% of their target annual bonus for the fiscal year in which the termination date occurs, plus (iii) a pro rata portion of the
same target annual bonus amount based on the portion of the applicable fiscal year that had elapsed prior to the termination date,
and (B) have us continue to pay the Company portion of COBRA premiums for up to 12 months. If any such termination occurs within
twelve months after a change of control, then the Executive will instead be eligible to (A) receive an amount equal to (i) 1.5
times their annualized base salary as of the termination date, plus (ii) 150% of their target annual bonus for the fiscal year
in which the termination date occurs, plus (iii) a pro rata portion of the same target annual bonus amount based on the portion
of the fiscal that had then elapsed prior to the termination date, and (B) have us continue to pay the Company portion of COBRA
premiums for up to 18 months. All of the above severance benefits are contingent on the executive signing and not revoking a release
of claims and the executive remaining in strict compliance with the terms of their employment agreement and their existing non-competition,
non-solicitation, and confidentiality agreement with the Company and any other written agreement between the executive and the
Company. Each executive remains a party to their existing non-competition, non-solicitation, and confidentiality agreement with
the Company notwithstanding the amendment and restatement of their employment agreement. In addition to the specific terms summarized
above, each Executive remains eligible to participate in the other compensation and benefits programs generally available to Company
employees.
President and Chief Executive Officer
Under Ms. Skarvan’s
amended and restated employment agreement, she is entitled to an annualized base salary of $345,000, and will be eligible for a
merit-based increase on or about each successive July 1, subject to final approval by our board of directors.
Ms. Skarvan is also
eligible to earn an annualized cash bonus as determined by the board of directors, starting with a target of 50% of her annualized
base salary for the fiscal year ending June 30, 2018 under the Company’s Fiscal Year 2018 Management Bonus Plan, the terms
of which are materially consistent with the management bonus plan for the prior fiscal year.
Under her former employment
agreement, for fiscal 2017, Ms. Skarvan was entitled to be eligible receive a bonus in a maximum aggregate amount of 50% of her
base salary if she achieved the goals and milestones set forth in the applicable bonus plan implemented for each fiscal year. Notwithstanding
this provision, the Board and its Personnel and Compensation Committee used 50% as the target bonus amount for Ms. Skarvan’s
total bonus eligibility under the Fiscal 2017 Officer Bonus Plan.
Chief Financial Officer
Under
Mr. Brock’s amended and restated employment agreement, he is entitled to an annualized base salary of $230,000, and will
be eligible for a merit-based increase on or about each successive July 1, subject to final approval by our board of directors.
Mr.
Brock is also eligible to earn an annualized cash bonus as determined by the board of directors, starting with a target of 30%
of his annualized base salary for the fiscal year ending June 30, 2018 under the Company’s Fiscal Year 2018 Management Bonus
Plan, the terms of which are materially consistent with the management bonus plan for the prior fiscal year.
Under his former employment
agreement, for fiscal 2017, Mr. Brock was entitled to be eligible to receive a bonus in a maximum aggregate amount of 30% of his
base salary if he achieved the goals and milestones set forth in the applicable bonus plan implemented for each fiscal year. Notwithstanding
this provision, the Board and its Personnel and Compensation Committee used 30% as the target bonus amount for Mr. Brock’s
total bonus eligibility under the Fiscal 2017 Officer Bonus Plan.
Summary Compensation Table
The following table
provides information regarding the compensation earned during fiscal 2017 and fiscal 2016 by our named executive officers:
Name
and principal position
|
|
Fiscal
Year
|
|
Salary
($)
(a)
|
|
Stock
awards
($)
(b)
|
|
Option
awards
($)
(c)
|
|
Non-equity
incentive
plan
compensation
($)
(d)
|
|
All
other compensation
($)
(e)
|
|
Total
($)
|
Kathleen S. Skarvan
President and Chief Executive Officer
|
|
2017
|
|
285,120
|
|
76,400
|
|
120,400
|
|
106,920
|
|
28,389
|
|
617,229
|
|
2016
|
|
237,600
|
|
36,000
|
|
54,760
|
|
397,999
|
|
20,612
|
|
746,971
|
Jeremy T. Brock
Chief Financial Officer
|
|
2017
|
|
200,000
|
|
38,200
|
|
60,200
|
|
45,000
|
|
15,316
|
|
358,716
|
|
2016
|
|
170,500
|
|
18,000
|
|
27,380
|
|
171,361
|
|
13,905
|
|
401,145
|
|
(a)
|
Amounts
shown are not reduced to reflect the named executive officers’ elections, if any,
to contribute portions of their salaries to 401(k) plans.
|
|
(b)
|
The
values of stock awards in this table represent the fair value of such awards granted
during the fiscal year, which is determined by multiplying the number of shares of restricted
stock by the closing price of our common stock as of the date of grant, as reported by
the NYSE American.
|
|
(c)
|
The
values of option awards in this table represent the fair value of such awards granted
during the fiscal year, as computed in accordance with FASB ASC 718 (formerly FAS 123(R)).
The assumptions used to determine the valuation of the awards are discussed in Note 7
to our consolidated financial statements, included in the Company’s annual report
on Form 10-K for fiscal 2017, filed with the SEC on September 5, 2017.
|
|
(d)
|
Represents
payments made under the Fiscal 2017 Officer Bonus Plan. See the discussion under “Executive
Compensation Components for Fiscal 2017 – Cash Incentive Compensation” above.
|
|
(e)
|
Includes
Company matches to 401(k) plans of $18.789 for Ms. Skarvan and $10,516 for Mr. Brock
with respect to fiscal 2017 and $11,012 for Ms. Skarvan and $9,105 for Mr. Brock with
respect to fiscal 2016.
|
Outstanding Equity Awards at June 30, 2017
The following table
sets forth certain information regarding equity awards granted to our named executive officers outstanding as of June 30, 2017:
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
Name
|
|
Grant
Date
|
|
Number
of securities underlying unexercised
options (#) Exercisable
|
|
Number
of securities underlying unexercised options (#) Unexercisable
|
|
Option
exercise price
($)
|
|
Option
expiration date
|
|
Number
of shares of stock that have not vested (#)
|
|
Market
value of shares of stock that have not vested
(a)
($)
|
Kathleen S. Skarvan
|
|
12/03/2012
|
|
20,000
|
|
—
|
|
1.75
|
|
12/02/2022
|
|
|
|
|
|
07/01/2013
|
|
15,000
|
|
—
|
|
1.31
|
|
06/30/2023
|
|
|
|
|
|
07/01/2014
|
|
50,000
|
|
—
|
|
1.40
|
|
06/30/2024
|
|
|
|
|
|
07/01/2015
|
|
26,667
|
|
13,333
(b)
|
|
1.80
|
|
06/30/2025
|
|
|
|
|
|
07/01/2015
|
|
|
|
|
|
|
|
|
|
6,666
(c)
|
|
36,863
|
|
07/01/2016
|
|
13,334
|
|
26,666
(d)
|
|
3.82
|
|
06/30/2026
|
|
|
|
|
|
07/01/2016
|
|
|
|
|
|
|
|
|
|
13,333
(e)
|
|
73,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeremy T. Brock
|
|
05/30/2012
|
|
18,000
|
|
—
|
|
2.53
|
|
05/29/2022
|
|
|
|
|
|
11/15/2012
|
|
20,000
|
|
—
|
|
1.59
|
|
11/14/2022
|
|
|
|
|
|
07/01/2013
|
|
10,000
|
|
—
|
|
1.31
|
|
06/30/2023
|
|
|
|
|
|
07/01/2014
|
|
30,000
|
|
_
|
|
1.40
|
|
06/30/2024
|
|
|
|
|
|
07/01/2015
|
|
13,334
|
|
6,666
(f)
|
|
1.80
|
|
06/30/2025
|
|
|
|
|
|
07/01/2015
|
|
|
|
|
|
|
|
|
|
3,333
(g)
|
|
18,431
|
|
07/01/2016
|
|
6,667
|
|
13,333
(h)
|
|
3.82
|
|
06/30/2025
|
|
|
|
|
|
07/01/2016
|
|
|
|
|
|
|
|
|
|
6,666
(i)
|
|
36,863
|
|
(a)
|
Equals
the number of unvested shares of restricted stock multiplied by the fair market value
of our stock on June 30, 2017, the last trading day of our fiscal year, as reported by
the NYSE American.
|
|
(b)
|
Scheduled
to vest with respect to 13,333 shares on June 30, 2018.
|
|
(c)
|
Scheduled
to vest with respect to 6,666 shares on June 30, 2018.
|
|
(d)
|
Scheduled
to vest with respect to 13,333 shares on each of June 30, 2018 and June 30, 2019.
|
|
(e)
|
Scheduled
to vest with respect to 6,667 shares on June 30, 2018 and 6,666 shares on June 30, 2019.
|
|
(f)
|
Scheduled
to vest with respect to 6,666 shares on June 30, 2018.
|
|
(g)
|
Scheduled
to vest with respect to 3,333 shares on June 30, 2018.
|
|
(h)
|
Scheduled
to vest with respect to 6,667 shares on June 30, 2018 and 6,666 shares on June 30, 2019.
|
|
(i)
|
Scheduled
to vest with respect to 3,333 shares on each of June 30, 2018 and June 30, 2019.
|
DIRECTOR COMPENSATION
In fiscal 2017, each
non-employee director was paid $1,000 for each Board meeting the director attended and the members of each of the Audit, Personnel
and Compensation, and Nominating and Governance Committees were paid a $1,000 retainer for service in the first fiscal quarter
and a $500 retainer for the second, third and fourth fiscal quarters. Compensation for Board and committee members is expected
to be re-evaluated in connection with review of committee composition following the Annual Meeting.
During fiscal 2017,
the Board, upon the recommendation of its Personnel and Compensation Committee, determined that each non-employee director will
receive an annual grant of restricted stock as a component of his or her compensation for service as a director of the Company.
Accordingly, each non-employee director received a grant of 2,611 shares of restricted stock pursuant to the 2014 Plan on December
1, 2016. Future restricted stock awards are expected to be granted to non-employee directors on or about the date of the applicable
year’s annual meeting of shareholders.
The following table
provides information regarding compensation paid to and earned by non-employee directors during fiscal 2017:
Non-Employee
Director
|
|
Stock
Awards
($)
(a)
|
|
Fees
Earned or
Paid in Cash
($)
|
|
Total
($)
|
Stephen H. Craney
|
|
10,000
|
|
9,000
|
|
19,000
|
William V. Eckles
|
|
10,000
|
|
9,000
|
|
19,000
|
Stan K. Erickson
|
|
10,000
|
|
9,000
|
|
19,000
|
Lee A. Jones
|
|
10,000
|
|
9,000
|
|
19,000
|
George H. Winn
|
|
10,000
|
|
5,000
|
|
17,000
|
|
(a)
|
The
amounts shown in this column represent the grant-date fair value of restricted stock
awards computed in accordance with FASB ASC Topic 718. See Note 7, Share-Based Payments,
to our audited financial statements included in our annual report on Form 10-K for fiscal
2017 for a description of our accounting for these awards and the assumptions used in
valuing the awards. All of these shares were eligible to receive dividends paid on our
common stock while restricted and vested six months after the date of grant.
|
EQUITY COMPENSATION PLAN INFORMATION
The following table
provides information concerning equity compensation arrangements as of June 30, 2017:
Plan
Category
|
|
Number
of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of outstanding
options, warrants and rights
|
|
Number
of securities
remaining available for
future issuance under equity
compensation plans
|
Equity compensation plans approved by security holders
|
|
459,834
(a)
|
|
$2.53 per share
|
|
237,251
(b)
|
Equity compensation plans not approved by security holders
(c)
|
|
287,800
|
|
$3.50 per share
|
|
N/A
|
Total
|
|
747,634
|
|
$2.91 per share
|
|
N/A
|
|
(a)
|
Consists
of shares underlying equity awards issued pursuant to the 2012 and 2014 Plans.
|
|
(b)
|
Consists
of shares available for future awards under the 2014 Plan. Upon shareholder approval
of the 2014 Plan, the Board determined no further awards will be issued under the 2012
Plan. Upon shareholder approval of the 2017 Plan, no further awards will be issued under
the 2014 Plan.
|
|
(c)
|
Consists
of shares underlying equity awards and warrants issued prior to our initial public offering,
which occurred in 2010.
|
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
Pursuant to its charter,
our Audit Committee is responsible for reviewing and approving in advance any related party transaction, which consists of any
transaction or series of transactions that occur during a fiscal year for which:
|
●
|
the amounts involved exceeded the lesser of $120,000 or one percent of the average of our total
assets at the end of the 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.
|
In determining whether
to approve or ratify a related party transaction, 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 party’s 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 director’s 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 or she is required to abstain from voting on the approval of the transaction.
The Company purchases
certain electronic parts from RiverSide Electronics, Ltd. (“RiverSide”), an entity which is solely owned by Stephen
H. Craney, a director. During fiscal 2016 the Company made payments to RiverSide of approximately $55,000. During fiscal 2017,
the amount of such payments was approximately $112,000. The Audit Committee has determined that the terms of its transactions with
RiverSide are consistent with what could be obtained in an arm’s length transaction with an unrelated party.
Since the beginning
of fiscal 2014, there have been no other related party transactions.
OTHER MATTERS
The Board 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 will vote thereon in accordance with their best judgment.
HOUSEHOLDING
We have adopted a
procedure approved by the SEC called “householding,” by which certain shareholders who do not participate in electronic
delivery of proxy materials but who have the same address and appear to be members of the same family receive only one copy of
our annual report, proxy statement and shareholder letter. Each shareholder participating in householding continues to receive
a separate proxy card. Householding reduces both the environmental impact of our annual meetings and our mailing and printing expenses.
If you or another
shareholder with whom you share an address currently receive multiple copies of our annual report, proxy statement, and/or shareholder
letter, or if you hold shares in more than one account, but would like to receive only a single copy of materials for your household,
then please send a written request addressed to the attention of our President and Chief Executive Officer at 500 Sixth Avenue
Northwest, New Prague, Minnesota 56071. If you currently participate in householding and would prefer to receive separate copies
of materials for fiscal 2017 and the Annual Meeting, then please contact us in the manner described above and you will receive
additional copies, free of charge and promptly upon receipt of your request.
ADDITIONAL INFORMATION
Our annual report
on Form 10-K for fiscal 2017, as filed with the SEC, is available on the SEC’s Internet site, www.sec.gov, and our corporate
website, www.smartvest.com, under “Investor Relations.” A copy of the Annual Report will be sent to any shareholder
without charge upon written request addressed to the attention of our President and Chief Executive Officer at 500 Sixth Avenue
Northwest, New Prague, Minnesota 56071. Additional copies of the annual report on Form 10-K, this proxy statement and the accompanying
form of proxy may be obtained from our President and Chief Executive Officer, at the address above. Copies of exhibits to the annual
report on Form 10-K may be obtained upon payment to us of the reasonable expense incurred in providing such exhibits.
Appendix A
ELECTROMED,
INC.
2017
OMNIBUS INCENTIVE PLAN
1.
Purpose
.
The purpose of the Electromed, Inc. 2017 Omnibus Incentive Plan (the “
Plan
”)
is to attract and retain the best available personnel for positions of responsibility with the Company, to provide additional
incentives to them and align their interests with those of the Company’s shareholders, and to thereby promote the Company’s
long-term business success.
2.
Definitions
.
In this Plan, the following definitions will apply.
(a) “
Affiliate
” means any entity that is a Subsidiary or Parent of the Company.
(b) “
Agreement
” means the written or electronic agreement, notice or other document containing the terms and conditions
applicable to each Award granted under the Plan, including all amendments thereto. An Agreement is subject to the terms and conditions
of the Plan.
(c) “
Award
” means a grant made under the Plan in the form of Options, Stock Appreciation Rights, Restricted Stock,
Stock Units, or an Other Stock-Based Award or a Cash Incentive Award.
(d) “
Board
” means the Board of Directors of the Company.
(e) “
Cash Incentive Award
” means a dollar-denominated performance-based Award as described in Section 11(b).
(f) “
Cause
” means, unless otherwise defined in a then-effective written agreement (including an Agreement) between
a Participant and the Company or any Affiliate, a Participant’s (i) material failure to perform Participant’s
job duties competently as reasonably determined by the Committee (other than by reason of Disability); (ii) gross misconduct by
participant, which the Committee determines is (or will be if continued) demonstrably and materially damaging to the Company;
(iii) fraud, misappropriation, or embezzlement by Employee; (iv) conviction of a felony crime or crime of moral turpitude; and
(v) material breach of the Company’s business conduct or ethics code or of any fiduciary duty or nondisclosure, non-solicitation,
non-competition or similar obligation owed to the Company or any Affiliate.
(g) “
Change in Control
” means, unless otherwise defined in a then-effective written agreement (including an Agreement)
between a Participant and the Company or any Affiliate, one of the following:
(1) An Exchange Act Person becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of
the Company representing 50% or more of the combined voting power of the Company’s then outstanding Voting Securities, except
that the following will not constitute a Change in Control:
(A) any acquisition of securities of the Company by an Exchange Act Person from the Company for the purpose of providing financing
to the Company;
(B) any formation of a Group consisting solely of beneficial owners of the Company’s Voting Securities as of the effective date
of this Plan;
(C) any repurchase or other acquisition by the Company of its Voting Securities that causes any Exchange Act Person to become the
beneficial owner of 50% or more of the Company’s Voting Securities; or
(D) with respect to any particular Participant, any acquisition of securities of the Company by the Participant, any Group including
the Participant, or any entity controlled by the Participant or a Group including the Participant.
If,
however, an Exchange Act Person or Group referenced in clause (A), (B), or (C) above acquires beneficial ownership of additional
Company Voting Securities after initially becoming the beneficial owner of 50% or more of the combined voting power of the Company’s
Voting Securities by one of the means described in those clauses, then a Change in Control will be deemed to have occurred. Furthermore,
a Change in Control will occur if a Person becomes the beneficial owner of more than 50% of the Company’s Voting Securities
as the result of a Corporate Transaction only if the Corporate Transaction is itself a Change in Control pursuant to subsection
2(g)(3).
(2) Individuals who are Continuing Directors cease for any reason to constitute a majority of the members of the Board.
(3) A Corporate Transaction is consummated, unless, immediately following such Corporate Transaction, all or substantially all of
the individuals and entities who were the beneficial owners of the Company’s Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, 50% or more of the combined voting power of the then outstanding
Voting Securities of the surviving or acquiring entity resulting from such Corporate Transaction (including beneficial ownership
through any Parent of such entity) in substantially the same proportions as their ownership, immediately prior to such Corporate
Transaction, of the Company’s Voting Securities.
Notwithstanding
the foregoing, to the extent that any Award constitutes a deferral of compensation subject to Code Section 409A, and if that Award
provides for a change in the time or form of payment upon a Change in Control, then no Change in Control shall be deemed to have
occurred upon an event described in this Section 2(g) unless the event would also constitute a change in ownership or effective
control of, or a change in the ownership of a substantial portion of the assets of, the Company under Code Section 409A.
(h) “
Code
” means the Internal Revenue Code of 1986, as amended and in effect from time to time. For purposes of
the Plan, references to sections of the Code shall be deemed to include any applicable regulations thereunder and any successor
or similar statutory provisions.
(i) “
Committee
” means two or more Non-Employee Directors designated by the Board to administer the Plan under Section
3, each member of which shall be (i) an independent director within the meaning of applicable stock exchange rules and regulations,
(ii) a non-employee director within the meaning of Exchange Act Rule 16b-3, and (iii) an outside director for purposes of Code
Section 162(m).
(j) “
Company
” means Electromed, Inc., a Minnesota corporation, and any successor thereto.
(k) “
Continuing Director
” means an individual (i) who is, as of the effective date of the Plan, a director of the
Company, or (ii) who becomes a director of the Company after the effective date hereof and whose initial election, or nomination
for election by the Company’s shareholders, was approved by at least a majority of the then Continuing Directors, but excluding,
for purposes of this clause (ii), an individual whose initial assumption of office occurs as the result of an actual or threatened
proxy contest involving the solicitation of proxies or consents by a person or Group other than the Board, or by reason of an
agreement intended to avoid or settle an actual or threatened proxy contest.
(l) “
Corporate Transaction
” means (i) a sale or other disposition of all or substantially all of the assets of
the Company, or (ii) a merger, consolidation, share exchange or similar transaction involving the Company, regardless of whether
the Company is the surviving corporation.
(m) “
Disability
” means (A) any permanent and total disability under any long-term disability plan or policy of
the Company or its Affiliates that covers the Participant, or (B) if there is no such long-term disability plan or policy, “total
and permanent disability” within the meaning of Code Section 22(e)(3).
(n) “
Employee
” means an employee of the Company or an Affiliate.
(o) “
Exchange Act
” means the Securities Exchange Act of 1934, as amended and in effect from time to time.
(p) “
Exchange Act Person
” means any natural person, entity or Group other than (i) the Company or any Affiliate;
(ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate; (iii) an underwriter
temporarily holding securities in connection with a registered public offering of such securities; or (iv) an entity whose Voting
Securities are beneficially owned by the beneficial owners of the Company’s Voting Securities in substantially the same
proportions as their beneficial ownership of the Company’s Voting Securities.
(q) “
Fair Market Value
” means the fair market value of a Share determined as follows:
(1) If the Shares are readily tradable on an established securities market (as determined under Code Section 409A), then Fair Market
Value will be the closing sales price for a Share on the principal securities market on which it trades on the date for which
it is being determined, or if no sale of Shares occurred on that date, on the next preceding date on which a sale of Shares occurred,
as reported in
The Wall Street Journal
or such other source as the Committee deems reliable; or
(2) If the Shares are not then readily tradable on an established securities market (as determined under Code Section 409A), then
Fair Market Value will be determined by the Committee as the result of a reasonable application of a reasonable valuation method
that satisfies the requirements of Code Section 409A.
(r) “
Full Value Award
” means an Award other than an Option Award or Stock Appreciation Right Award or Cash Incentive
Award.
(s) “
Grant Date
” means the date on which the Committee approves the grant of an Award under the Plan, or such later
date as may be specified by the Committee on the date the Committee approves the Award.
(t) “
Group
” means two or more persons who act, or agree to act together, as a partnership, limited partnership,
syndicate or other group for the purpose of acquiring, holding, voting or disposing of securities of the Company.
(u) “
Non-Employee Director
” means a member of the Board who is not an Employee.
(v) “
Option
” means a right granted under the Plan to purchase a specified number of Shares at a specified price.
An “
Incentive Stock Option
” or “
ISO
” means any Option designated as such and granted in
accordance with the requirements of Code Section 422. A “
Non-Qualified Stock Option
” or “
NQSO
”
means an Option other than an Incentive Stock Option.
(w) “
Other Stock-Based Award
” means an Award described in Section 11(a) of this Plan.
(x) “
Parent
” means a “parent corporation,” as defined in Code Section 424(e).
(y) “
Participant
” means a Service Provider to whom a then-outstanding Award has been granted under the Plan.
(z) “
Performance-Based Compensation
” means an Award to a person who is, or is determined by the Committee to likely
become, a “covered employee” (as defined in Section 162(m)(3) of the Code) and that is intended to constitute “performance-based
compensation” within the meaning of Section 162(m)(4)(C) of the Code.
(aa) “
Plan
” means this Electromed, Inc. 2017 Omnibus Incentive Plan, as amended and in effect from time to time.
(bb) “
Restricted Stock
” means Shares issued to a Participant that are subject to such restrictions on transfer,
vesting conditions and other restrictions or limitations as may be set forth in this Plan and the applicable Agreement.
(cc) “
Retirement
” means any termination of a Participant’s Service, other than for Cause, occurring at or
after age 65, or at or after age 55 with 10 years or more of continuous service to the Company and its Affiliates.
(dd) “
Service
” means the provision of services by a Participant to the Company or any Affiliate in any Service Provider
capacity. A Service Provider’s Service shall be deemed to have terminated either upon an actual cessation of providing services
to the Company or any Affiliate or upon the entity to which the Service Provider provides services ceasing to be an Affiliate.
Except as otherwise provided in this Plan or any Agreement, Service shall not be deemed terminated in the case of (i) any approved
leave of absence; (ii) transfers among the Company and any Affiliates in any Service Provider capacity; or (iii) any change in
status so long as the individual remains in the service of the Company or any Affiliate in any Service Provider capacity.
(ee) “
Service Provider
” means an Employee, a Non-Employee Director, or any natural person who is a consultant or
advisor, or is employed by a consultant or advisor retained by the Company or any Affiliate, and who provides services (other
than in connection with (i) a capital-raising transaction or (ii) promoting or maintaining a market in Company securities) to
the Company or any Affiliate.
(ff) “
Share
” means a share of Stock.
(gg) “
Stock
” means the common stock, $0.01 par value per share, of the Company.
(hh) “
Stock Appreciation Right
” or “
SAR
” means the right to receive, in cash and/or Shares as
determined by the Committee, an amount equal to the appreciation in value of a specified number of Shares between the Grant Date
of the SAR and its exercise date.
(ii) “
Stock Unit
” means a right to receive, in cash and/or Shares as determined by the Committee, the Fair Market
Value of a Share, subject to such restrictions on transfer, vesting conditions and other restrictions or limitations as may be
set forth in this Plan and the applicable Agreement.
(jj) “
Subsidiary
” means a “subsidiary corporation,” as defined in Code Section 424(f), of the Company.
(kk) “
Substitute Award
” means an Award granted upon the assumption of, or in substitution or exchange for, outstanding
awards granted by a company or other entity acquired by the Company or any Affiliate or with which the Company or any Affiliate
combines. The terms and conditions of a Substitute Award may vary from the terms and conditions set forth in the Plan to the extent
that the Committee at the time of the grant may deem appropriate to conform, in whole or in part, to the provisions of the award
in substitution for which it has been granted.
(ll) “
Voting Securities
” of an entity means the outstanding equity securities (or comparable equity interests) entitled
to vote generally in the election of directors of such entity.
3.
Administration of the Plan
.
(a)
Administration
. The authority to control and manage the operations and administration of the Plan shall be vested in the
Committee in accordance with this Section 3.
(b)
Scope of Authority
. Subject to the terms of the Plan, the Committee shall have the authority, in its discretion, to take
such actions as it deems necessary or advisable to administer the Plan, including:
(1) determining the Service Providers to whom Awards will be granted, the timing of each such Award, the type of and the number of
Shares covered by each Award, the terms, conditions, performance criteria, restrictions and other provisions of Awards, and the
manner in which Awards are paid or settled;
(2) cancelling or suspending an Award, accelerating the vesting or extending the exercise period of an Award, or otherwise amending
the terms and conditions of any outstanding Award, subject to the requirements of Sections 6(b), 15(d) and 15(e);
(3) adopting sub-plans or special provisions applicable to Awards, establishing, amending or rescinding rules to administer the Plan,
interpreting the Plan and any Award or Agreement, reconciling any inconsistency, correcting any defect or supplying an omission
in the Plan or any Agreement, and making all other determinations necessary or desirable for the administration of the Plan;
(4) granting Substitute Awards under the Plan;
(5) taking such actions as are provided in Section 3(c) with respect to Awards to foreign Service Providers; and
(6) requiring or permitting the deferral of the settlement of an Award, and establishing the terms and conditions of any such deferral.
(c)
Awards to Foreign Service Providers
. The Committee may grant Awards to Service Providers who are foreign nationals, who
are located outside of the United States or who are not compensated from a payroll maintained in the United States, or who are
otherwise subject to (or could cause the Company to be subject to) legal or regulatory requirements of countries outside of the
United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee,
be necessary or desirable to comply with applicable foreign laws and regulatory requirements and to promote achievement of the
purposes of the Plan. In connection therewith, the Committee may establish such subplans and modify exercise procedures and other
Plan rules and procedures to the extent such actions are deemed necessary or desirable, and may take any other action that it
deems advisable to obtain local regulatory approvals or to comply with any necessary local governmental regulatory exemptions.
(d)
Acts of the Committee; Delegation
. A majority of the members of the Committee shall constitute a quorum for any meeting
of the Committee, and any act of a majority of the members present at any meeting at which a quorum is present or any act unanimously
approved in writing by all members of the Committee shall be the act of the Committee. Any such action of the Committee shall
be valid and effective even if one or more members of the Committee at the time of such action are later determined not to have
satisfied all of the criteria for membership in clauses (i), (ii) and (iii) of Section 2(h). To the extent not inconsistent with
applicable law or stock exchange rules, the Committee may delegate all or any portion of its authority under the Plan to any one
or more of its members or, as to Awards to Participants who are not subject to Section 16 of the Exchange Act, to one or more
directors or executive officers of the Company or to a committee of the Board comprised of one or more directors of the Company.
The Committee may also delegate non-discretionary administrative responsibilities in connection with the Plan to such other persons
as it deems advisable.
(e)
Finality of Decisions
. The Committee’s interpretation of the Plan and of any Award or Agreement made under the Plan
and all related decisions or resolutions of the Board or Committee shall be final and binding on all parties with an interest
therein.
(f)
Indemnification
. Each person who is or has been a member of the Committee or of the Board, and any other person to whom
the Committee delegates authority under the Plan, shall be indemnified by the Company, to the maximum extent permitted by law,
against liabilities and expenses imposed upon or reasonably incurred by such person in connection with or resulting from any claims
against such person by reason of the performance of the individual’s duties under the Plan. This right to indemnification
is conditioned upon such person providing the Company an opportunity, at the Company’s expense, to handle and defend the
claims before such person undertakes to handle and defend them on such person’s own behalf. The Company will not be required
to indemnify any person for any amount paid in settlement of a claim unless the Company has first consented in writing to the
settlement. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such
person or persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise.
4.
Shares Available Under the Plan
.
(a)
Maximum Shares Available
. Subject to Section 4(b) and to adjustment as provided in Section 12(a), the number of Shares
that may be the subject of Awards and issued under the Plan shall be 900,000. No further awards may be made under the Electromed,
Inc. 2014 Equity Incentive Plan after the effective date of this Plan. Each Share subject to an Award granted under the Plan shall
be counted against the maximum Share limitation as one Share. Shares issued under the Plan may come from authorized and unissued
shares. In determining the number of Shares to be counted against this share reserve in connection with any Award, the following
additional rules shall apply:
(1) Where the number of Shares subject to an Award is variable on the Grant Date, the number of Shares to be counted against the share
reserve shall be the maximum number of Shares that could be received under that particular Award, until such time as it can be
determined that only a lesser number of shares could be received.
(2) Where two or more types of Awards are granted to a Participant in tandem with each other, such that the exercise of one type of
Award with respect to a number of Shares cancels at least an equal number of Shares of the other, the number of Shares to be counted
against the share reserve shall be the largest number of Shares that would be counted against the share reserve under either of
the Awards.
(3) Shares subject to Substitute Awards shall not be counted against the share reserve, nor shall they reduce the Shares authorized
for grant to a Participant in any calendar year.
(4) Awards that may be settled solely in cash shall not be counted against the share reserve, nor shall they reduce the Shares authorized
for grant to a Participant in any calendar year.
(b)
Effect of Forfeitures and Other Actions
. Any Shares subject to an Award that expires, is cancelled or forfeited or is settled
for cash shall, to the extent of such cancellation, forfeiture, expiration or cash settlement, again become available for Awards
under this Plan, and the share reserve under Section 4(a) shall be correspondingly replenished as provided in Section 4(c) below.
The following Shares shall not, however, again become available for Awards or replenish the share reserve under Section 4(a):
(i) Shares tendered (either actually or by attestation) by the Participant or withheld by the Company in payment of the exercise
price of a stock option issued under this Plan, (ii) Shares tendered (either actually or by attestation) by the Participant or
withheld by the Company to satisfy any tax withholding obligation with respect to an award under this Plan, (iii) Shares repurchased
by the Company with proceeds received from the exercise of a stock option issued under this Plan, and (iv) Shares subject to a
stock appreciation right award issued under this Plan that are not issued in connection with the stock settlement of that award
upon its exercise.
(c)
Counting Shares Again Available
. Each Share that again becomes available for Awards as provided in Section 4(b) shall correspondingly
increase the share reserve under Section 4(c), with such increase based on the same share ratio by which the applicable share
reserve was decreased upon the grant of the applicable award.
(d)
Effect of Plans Operated by Acquired Companies
. If a company acquired by the Company or any Subsidiary or with which the
Company or any Subsidiary combines has shares available under a pre-existing plan approved by shareholders and not adopted in
contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan
(as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such
acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such
acquisition or combination) may be used for Awards under the Plan and shall supplement the Share reserve under Section 4(a). Awards
using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing
plan absent the acquisition or combination, and shall only be made to individuals who were not Employees or Non-Employee Directors
prior to such acquisition or combination.
(e)
No Fractional Shares
. Unless otherwise determined by the Committee, the number of Shares subject to an Award shall always
be a whole number. No fractional Shares may be issued under the Plan, but the Committee may, in its discretion, adopt any rounding
convention it deems suitable or pay cash in lieu of any fractional Share in settlement of an Award.
(f)
Individual Option and SAR Limit
. The aggregate number of Shares subject to Option and/or Stock Appreciation Right Awards
granted during any calendar year to any one Participant shall not exceed 150,000 Shares (subject to adjustment as provided in
Section 12(a)).
(g)
Performance-Based Compensation Limit
. With respect to Awards of Performance-Based Compensation, (i) the maximum number
of Shares that may be the subject of Full Value Awards that are denominated in Shares or Share equivalents and that are granted
to any Participant during any calendar year shall not exceed 150,000 Shares (subject to adjustment as provided in Section 12(a));
and (ii) the maximum amount payable with respect to Full Value Awards and Cash Incentive Awards that are denominated other than
in Shares or Share equivalents and that are granted to any one Participant during any calendar year shall not exceed $1,000,000.
5.
Eligibility
.
Participation in the Plan is limited to Service Providers. Incentive Stock
Options may only be granted to Employees.
6.
General Terms of Awards
.
(a)
Award Agreement
. Except for any award that involves only the immediate issuance of unrestricted Shares, each Award shall
be evidenced by an Agreement setting forth the amount of the Award together with such other terms and conditions applicable to
the Award (and not inconsistent with the Plan) as determined by the Committee. If an Agreement calls for acceptance by the Participant,
the Award evidenced by the Agreement will not become effective unless acceptance of the Agreement in a manner permitted by the
Committee is received by the Company within 30 days of the date the Agreement is delivered to the Participant. An Award to a Participant
may be made singly or in combination with any form of Award. Two types of Awards may be made in tandem with each other such that
the exercise of one type of Award with respect to a number of Shares reduces the number of Shares subject to the related Award
by at least an equal amount.
(b)
Vesting and Term
. Each Agreement shall set forth the period until the applicable Award is scheduled to vest and, if applicable,
expire (which shall not be more than ten years from the Grant Date), and, consistent with the requirements of this Section 6(b),
the applicable vesting conditions and any applicable performance period. The Committee may provide in an Agreement for such vesting
conditions and timing as it may determine. Unless the Committee provides otherwise, the vesting of Awards granted hereunder will
be suspended during any unpaid leave of absence.
(c)
Transferability
. Except as provided in this Section 6(c), (i) during the lifetime of a Participant, only the Participant
or the Participant’s guardian or legal representative may exercise an Option or SAR, or receive payment with respect to
any other Award; and (ii) no Award may be sold, assigned, transferred, exchanged or encumbered, voluntarily or involuntarily,
other than by will or the laws of descent and distribution. Any attempted transfer in violation of this Section 6(c) shall
be of no effect. The Committee may, however, provide in an Agreement or otherwise that an Award (other than an Incentive Stock
Option) may be transferred pursuant to a domestic relations order or may be transferable by gift to any “family member”
(as defined in General Instruction A.1(a)(5) to Form S-8 under the Securities Act of 1933) of the Participant. Any Award held
by a transferee shall continue to be subject to the same terms and conditions that were applicable to that Award immediately before
the transfer thereof. For purposes of any provision of the Plan relating to notice to a Participant or to acceleration or termination
of an Award upon the death or termination of Service of a Participant, the references to “Participant” shall mean
the original grantee of an Award and not any transferee.
(d)
Termination of Service
. Unless otherwise provided in an applicable Agreement or another then-effective written agreement
between a Participant and the Company, and subject to Section 12 of this Plan, if a Participant’s Service with the Company
and all of its Affiliates terminates, the following provisions shall apply (in all cases subject to the scheduled expiration of
an Option or SAR Award, as applicable):
(1) Upon termination of Service for Cause, or upon conduct during a post-termination exercise period that would constitute Cause,
all unexercised Option and SAR Awards and all unvested portions of any other outstanding Awards shall be immediately forfeited
without consideration.
(2) Upon termination of Service for any other reason, all unvested and unexercisable portions of any outstanding Awards shall be immediately
forfeited without consideration.
(3) Upon termination of Service for any reason other than Cause, death or Disability, the currently vested and exercisable portions
of Option and SAR Awards may be exercised for a period of three months after the date of such termination. However, if a Participant
thereafter dies during such three-month period, the vested and exercisable portions of the Option and SAR Awards may be exercised
for a period of one year after the date of such termination.
(4) Upon termination of Service due to Retirement, death or Disability, the currently vested and exercisable portions of Option and
SAR Awards may be exercised for a period of one year after the date of such termination.
(e)
Rights as Shareholder
. No Participant shall have any rights as a shareholder with respect to any Shares covered by an Award
unless and until the date the Participant becomes the holder of record of the Shares, if any, to which the Award relates.
(f)
Performance-Based Awards
. Any Award may be granted as a performance-based Award if the Committee establishes one or more
measures of corporate, business unit or individual performance which must be attained, and the performance period over which the
specified performance is to be attained, as a condition to the grant, vesting, exercisability, lapse of restrictions and/or settlement
in cash or Shares of such Award. In connection with any such Award, the Committee shall determine the extent to which performance
measures have been attained and other applicable terms and conditions have been satisfied, and the degree to which the grant,
vesting, exercisability, lapse of restrictions and/or settlement of such Award has been earned. Any performance-based Award that
is intended by the Committee to qualify as Performance-Based Compensation shall additionally be subject to the requirements of
Section 16 of this Plan. Subject to Section 16 with respect to Performance-Based Compensation, the Committee shall also have the
authority to provide, in an Agreement or otherwise, for the modification of a performance period and/or adjustments to or waivers
of the achievement of performance goals under specified circumstances such as (i) the occurrence of events that are unusual in
nature or infrequently occurring, such as a Change in Control, an equity restructuring (as described in Section 12(a)), acquisitions,
divestitures, restructuring activities, recapitalizations, or asset write-downs, (ii) a change in applicable tax laws or accounting
principles, or (iii) the Participant’s death or Disability.
(g)
Dividends and Dividend Equivalents
. No dividends, dividend equivalents or distributions will be paid with respect to Shares
subject to an Option or SAR Award. Any dividends or distributions payable with respect to Shares that are subject to the unvested
portion of a Restricted Stock Award will be subject to the same restrictions and risk of forfeiture as the Shares to which such
dividends or distributions relate. In its discretion, the Committee may provide in an Award Agreement for a Stock Unit Award or
an Other Stock-Based Award that the Participant will be entitled to receive dividend equivalents, based on dividends actually
declared and paid on outstanding Shares, on the units or other Share equivalents subject to the Stock Unit Award or Other Stock-Based
Award, and such dividend equivalents will be subject to the same restrictions and risk of forfeiture as the units or other Share
equivalents to which such dividend equivalents relate. The additional terms of any such dividend equivalents will be as set forth
in the applicable Agreement, including the time and form of payment and whether such dividend equivalents will be credited with
interest or deemed to be reinvested in additional units or Share equivalents. Any Shares issued or issuable during the term of
this Plan as the result of the reinvestment of dividends or the deemed reinvestment of dividend equivalents in connection with
an Award or a Prior Plan Award shall be counted against, and replenish upon any subsequent forfeiture, the Plan’s share
reserve as provided in Section 4.
7.
Stock Option Awards
.
(a)
Type and Exercise Price
. The Agreement pursuant to which an Option Award is granted shall specify whether the Option is
an Incentive Stock Option or a Non-Qualified Stock Option. The exercise price at which each Share subject to an Option Award may
be purchased shall be determined by the Committee and set forth in the Agreement, and shall not be less than the Fair Market Value
of a Share on the Grant Date, except in the case of Substitute Awards (to the extent consistent with Code Section 409A and, in
the case of Incentive Stock Options, Code Section 424).
(b)
Payment of Exercise Price
. The purchase price of the Shares with respect to which an Option Award is exercised shall be
payable in full at the time of exercise. The purchase price may be paid in cash or in such other manner as the Committee may permit,
including by payment under a broker-assisted sale and remittance program, by withholding Shares otherwise issuable to the Participant
upon exercise of the Option or by delivery to the Company of Shares (by actual delivery or attestation) already owned by the Participant
(in either case, such Shares having a Fair Market Value as of the date the Option is exercised equal to the purchase price of
the Shares being purchased).
(c)
Exercisability and Expiration
. Each Option Award shall be exercisable in whole or in part on the terms provided in the
Agreement. No Option Award shall be exercisable at any time after its scheduled expiration. When an Option Award is no longer
exercisable, it shall be deemed to have terminated.
(d)
Incentive
Stock Options
.
(1) An Option Award will constitute an Incentive Stock Option Award only if the Participant receiving the Option Award is an Employee,
and only to the extent that (i) it is so designated in the applicable Agreement and (ii) the aggregate Fair Market Value (determined
as of the Option Award’s Grant Date) of the Shares with respect to which Incentive Stock Option Awards held by the Participant
first become exercisable in any calendar year (under the Plan and all other plans of the Company and its Affiliates) does not
exceed $100,000 or such other amount specified by the Code. To the extent an Option Award granted to a Participant exceeds this
limit, the Option Award shall be treated as a Non-Qualified Stock Option Award. The maximum number of Shares that may be issued
upon the exercise of Incentive Stock Option Awards under the Plan shall be 900,000, subject to adjustment as provided in Section
12(a).
(2) No Participant may receive an Incentive Stock Option Award under the Plan if, immediately after the grant of such Award, the Participant
would own (after application of the rules contained in Code Section 424(d)) Shares possessing more than 10% of the total combined
Voting Power of all classes of stock of the Company or an Affiliate, unless (i) the per Share exercise price for such Award is
at least 110% of the Fair Market Value of a Share on the Grant Date and (ii) such Award will expire no later than five years after
its Grant Date.
(3) For purposes of continued Service by a Participant who has been granted an Incentive Stock Option Award, no approved leave of
absence may exceed three months unless reemployment upon expiration of such leave is provided by statute or contract. If reemployment
is not so provided, then on the date six months following the first day of such leave, any Incentive Stock Option held by the
Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock
Option.
(4) If an Incentive Stock Option Award is exercised after the expiration of the exercise periods that apply for purposes of Code Section
422, such Option shall thereafter be treated as a Non-Qualified Stock Option.
(5) The Agreement covering an Incentive Stock Option Award shall contain such other terms and provisions that the Committee determines
necessary to qualify the Option Award as an Incentive Stock Option Award.
8.
Stock Appreciation Right Awards
.
(a)
Nature of Award
. An Award of Stock Appreciation Rights shall be subject to such terms and conditions as are determined
by the Committee, and shall provide a Participant the right to receive upon exercise of the SAR Award all or a portion of the
excess of (i) the Fair Market Value as of the date of exercise of the SAR Award of the number of Shares as to which the SAR Award
is being exercised, over (ii) the aggregate exercise price for such number of Shares. The per Share exercise price for any SAR
Award shall be determined by the Committee and set forth in the applicable Agreement, and shall not be less than the Fair Market
Value of a Share on the Grant Date, except in the case of Substitute Awards (to the extent consistent with Code Section 409A).
(b)
Exercise of SAR
. Each SAR Award may be exercisable in whole or in part at the times, on the terms and in the manner provided
in the Agreement. No SAR Award shall be exercisable at any time after its scheduled expiration. When a SAR Award is no longer
exercisable, it shall be deemed to have terminated. Upon exercise of a SAR Award, payment to the Participant shall be made at
such time or times as shall be provided in the Agreement in the form of cash, Shares or a combination of cash and Shares as determined
by the Committee. The Agreement may provide for a limitation upon the amount or percentage of the total appreciation on which
payment (whether in cash and/or Shares) may be made in the event of the exercise of a SAR Award.
9.
Restricted Stock Awards
.
(a)
Vesting and Consideration
. Shares subject to a Restricted Stock Award shall be subject to vesting and the lapse of applicable
restrictions based on such conditions or factors and occurring over such period of time as the Committee may determine in its
discretion. The Committee may provide whether any consideration other than Services must be received by the Company or any Affiliate
as a condition precedent to the grant of a Restricted Stock Award, and may correspondingly provide for Company reacquisition or
repurchase rights if such additional consideration has been required and some or all of a Restricted Stock Award does not vest.
(b)
Shares Subject to Restricted Stock Awards
. Unvested Shares subject to a Restricted Stock Award shall be evidenced by a
book-entry in the name of the Participant with the Company’s transfer agent or by one or more Stock certificates issued
in the name of the Participant. Any such Stock certificate shall be deposited with the Company or its designee, together with
an assignment separate from the certificate, in blank, signed by the Participant, and bear an appropriate legend referring to
the restricted nature of the Restricted Stock evidenced thereby. Any book-entry shall be subject to comparable restrictions and
corresponding stop transfer instructions. Upon the vesting of Shares of Restricted Stock, and the Company’s determination
that any necessary conditions precedent to the release of vested Shares (such as satisfaction of tax withholding obligations and
compliance with applicable legal requirements) have been satisfied, such vested Shares shall be made available to the Participant
in such manner as may be prescribed or permitted by the Committee. Except as otherwise provided in the Plan or an applicable Agreement,
a Participant with a Restricted Stock Award shall have all the rights of a shareholder, including the right to vote the Shares
of Restricted Stock.
10.
Stock Unit Awards
.
(a)
Vesting and Consideration
. A Stock Unit Award shall be subject to vesting and the lapse of applicable restrictions based
on such conditions or factors and occurring over such period of time as the Committee may determine in its discretion. If vesting
of a Stock Unit Award is conditioned on the achievement of specified performance goals, the extent to which they are achieved
over the specified performance period shall determine the number of Stock Units that will be earned and eligible to vest, which
may be greater or less than the target number of Stock Units stated in the Agreement. The Committee may provide whether any consideration
other than Services must be received by the Company or any Affiliate as a condition precedent to the settlement of a Stock Unit
Award.
(b)
Settlement of Award
. Following the vesting of a Stock Unit Award, and the Company’s determination that any necessary
conditions precedent to the settlement of the Award (such as satisfaction of tax withholding obligations and compliance with applicable
legal requirements) have been satisfied, settlement of the Award and payment to the Participant shall be made at such time or
times in the form of cash, Shares (which may themselves be considered Restricted Stock under the Plan) or a combination of cash
and Shares as determined by the Committee.
11.
Other Awards
.
(a)
Other Stock-Based Awards
. The Committee may from time to time grant Shares and other Awards that are valued by reference
to and/or payable in whole or in part in Shares under the Plan. The Committee shall determine the terms and conditions of such
Awards, which shall be consistent with the terms and purposes of the Plan. The Committee may direct the Company to issue Shares
subject to restrictive legends and/or stop transfer instructions that are consistent with the terms and conditions of the Award
to which the Shares relate.
(b)
Cash Incentive Awards
. A Cash Incentive Award shall be considered a performance-based Award for purposes of, and subject
to, Section 6(g), the payment of which shall be contingent upon the degree to which one or more specified performance goals have
been achieved over the specified performance period. Cash Incentive Awards may be granted to any Participant in such dollar-denominated
amounts and upon such terms and at such times as shall be determined by the Committee. Following the completion of the applicable
performance period and the vesting of a Cash Incentive Award, payment of the settlement amount of the Award to the Participant
shall be made at such time or times in the form of cash, Shares or other forms of Awards under the Plan (valued for these purposes
at their grant date fair value) or a combination of cash, Shares and other forms of Awards as determined by the Committee and
specified in the applicable Agreement.
12.
Changes in Capitalization, Corporate Transactions, Change in Control
.
(a)
Adjustments for Changes in Capitalization
. In the event of any equity restructuring (within the meaning of FASB ASC Topic
718) that causes the per share value of Shares to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization
through an extraordinary dividend, the Committee shall make such adjustments as it deems equitable and appropriate to (i) the
aggregate number and kind of Shares or other securities issued or reserved for issuance under the Plan, (ii) the number and kind
of Shares or other securities subject to outstanding Awards, (iii) the exercise price of outstanding Options and SARs, and (iv)
any maximum limitations prescribed by the Plan with respect to certain types of Awards or the grants to individuals of certain
types of Awards. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization,
or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing sentence may be made
as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of Participants. In
either case, any such adjustment shall be conclusive and binding for all purposes of the Plan. No adjustment shall be made pursuant
to this Section 12(a) in connection with the conversion of any convertible securities of the Company, or in a manner that would
cause Incentive Stock Options to violate Section 422(b) of the Code or cause an Award to be subject to adverse tax consequences under Section
409A of the Code.
(b)
Corporate Transactions
. Unless otherwise provided in an applicable Agreement or another written agreement between a Participant
and the Company, the following provisions shall apply to outstanding Awards in the event of a Change in Control that involves
a Corporate Transaction.
(1)
Continuation, Assumption or Replacement of Awards
. In the event of a Corporate Transaction, then the surviving or
successor entity (or its Parent) may continue, assume or replace Awards outstanding as of the date of the Corporate Transaction
(with such adjustments as may be required or permitted by Section 12(a)), and such Awards or replacements therefor shall remain
outstanding and be governed by their respective terms, subject to Section 12(b)(4) below. A surviving or successor entity may
elect to continue, assume or replace only some Awards or portions of Awards. For purposes of this Section 12(b)(1), an Award shall
be considered assumed or replaced if, in connection with the Corporate Transaction and in a manner consistent with Code Section
409A (and Code Section 424 if the Award is an ISO), either (i) the contractual obligations represented by the Award are expressly
assumed by the surviving or successor entity (or its Parent) with appropriate adjustments to the number and type of securities
subject to the Award and the exercise price thereof that preserves the intrinsic value of the Award existing at the time of the
Corporate Transaction, or (ii) the Participant has received a comparable equity-based award that preserves the intrinsic value
of the Award existing at the time of the Corporate Transaction and contains terms and conditions that are substantially similar
to those of the Award.
(2)
Acceleration
. If and to the extent that outstanding Awards under the Plan are not continued, assumed or replaced
in connection with a Corporate Transaction, then (i) all outstanding Option and SAR Awards shall become fully vested and exercisable
for such period of time prior to the effective time of the Corporate Transaction as is deemed fair and equitable by the Committee,
and shall terminate at the effective time of the Corporate Transaction, and (ii) all outstanding Full Value Awards shall fully
vest immediately prior to the effective time of the Corporate Transaction, and (iii) to the extent vesting of any Award is subject
to satisfaction of specified performance goals, such Award shall be deemed “fully vested” for purposes of this Section
12(b)(2) if the performance goals are deemed to have been satisfied at the target level of performance and the vested portion
of the Award at that level of performance is proportionate to the portion of the performance period that has elapsed as of the
effective time of the Corporate Transaction. The Committee shall provide written notice of the period of accelerated exercisability
of Option and SAR Awards to all affected Participants. The exercise of any Option or SAR Award whose exercisability is accelerated
as provided in this Section 12(b)(2) shall be conditioned upon the consummation of the Corporate Transaction and shall be effective
only immediately before such consummation.
(3)
Payment for Awards
. If and to the extent that outstanding Awards under the Plan are not continued, assumed or replaced
in connection with a Corporate Transaction, then the Committee may provide that some or all of such outstanding Awards shall be
canceled at or immediately prior to the effective time of the Corporate Transaction in exchange for payments to the holders as
provided in this Section 12(b)(3). The Committee will not be required to treat all Awards similarly for purposes of this Section
12(b)(3). The payment for any Award canceled shall be in an amount equal to the difference, if any, between (i) the fair market
value (as determined in good faith by the Committee) of the consideration that would otherwise be received in the Corporate Transaction
for the number of Shares subject to the Award, and (ii) the aggregate exercise price (if any) for the Shares subject to such Award.
If the amount determined pursuant to the preceding sentence is not a positive number with respect to any Award, such Award may
be canceled pursuant to this Section 12(b)(3) without payment of any kind to the affected Participant. With respect to an Award
whose vesting is subject to the satisfaction of specified performance goals, the number of Shares subject to such an Award for
purposes of this Section 12(b)(3) shall be the number of Shares as to which the Award would have been deemed “fully vested”
for purposes of Section 12(b)(2). Payment of any amount under this Section 12(b)(3) shall be made in such form, on such terms
and subject to such conditions as the Committee determines in its discretion, which may or may not be the same as the form, terms
and conditions applicable to payments to the Company’s shareholders in connection with the Corporate Transaction, and may,
in the Committee’s discretion, include subjecting such payments to vesting conditions comparable to those of the Award canceled,
subjecting such payments to escrow or holdback terms comparable to those imposed upon the Company’s shareholders under the
Corporate Transaction, or calculating and paying the present value of payments that would otherwise be subject to escrow or holdback
terms.
(4)
Termination After a Corporate Transaction
. If and to the extent that Awards are continued, assumed or replaced under
the circumstances described in Section 12(b)(1), and if within twelve months after the Corporate Transaction a Participant experiences
an involuntary termination of Service for reasons other than Cause, then (i) outstanding Option and SAR Awards issued to
the Participant that are not yet fully exercisable shall immediately become exercisable in full and shall remain exercisable for
one year following the Participant’s termination of employment, and (ii) any Full Value Awards that are not yet fully vested
shall immediately vest in full (with vesting in full for a performance-based award determined as provided in Section 12(b)(2),
except that the proportionate vesting amount will be determined with respect to the portion of the performance period during which
the Participant was a Service Provider).
(c)
Other Change in Control
. In the event of a Change in Control that does not involve a Corporate Transaction, the Committee
may, in its discretion, take such action as it deems appropriate with respect to outstanding Awards, which may include: (i) providing
for the cancellation of any Award in exchange for payments in a manner similar to that provided in Section 12(b)(3) or (ii)
making such adjustments to the Awards then outstanding as the Committee deems appropriate to reflect such Change in Control, which
may include the acceleration of vesting in full or in part. The Committee will not be required to treat all Awards similarly in
such circumstances, and may include such further provisions and limitations in any Award Agreement as it may deem equitable and
in the best interests of the Company.
(d)
Dissolution or Liquidation
. Unless otherwise provided in an applicable Agreement, in the event of a proposed dissolution
or liquidation of the Company, the Committee will notify each Participant as soon as practicable prior to the effective date of
such proposed transaction. An Award will terminate immediately prior to the consummation of such proposed action.
(e)
Parachute Payment Limitation
. Notwithstanding any other provision of this Plan or any other plan, arrangement or agreement
to the contrary, if any of the payments or benefits provided or to be provided by the Company or its Affiliates to a Participant
or for the Participant’s benefit pursuant to the terms of this Plan or otherwise (“Covered Payments”) constitute
“parachute payments” within the meaning of Section 280G of the Code, and would, but for this Section 12(e) be subject
to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state
or local law and any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then the Covered
Payments shall be reduced (but not below zero) to the minimum extent necessary to ensure that no portion of the Covered Payments
is subject to the Excise Tax.
13.
Plan Participation and Service Provider Status
.
Status as a Service Provider shall not
be construed as a commitment that any Award will be made under the Plan to that Service Provider or to eligible Service Providers
generally. Nothing in the Plan or in any Agreement or related documents shall confer upon any Service Provider or Participant
any right to continued Service with the Company or any Affiliate, nor shall it interfere with or limit in any way any right of
the Company or any Affiliate to terminate the person’s Service at any time with or without Cause or change such person’s
compensation, other benefits, job responsibilities or title.
14.
Tax Withholding
.
The Company shall have the right to withhold from any cash payment under
the Plan to a Participant or other person (including a Successor or a Transferee) an amount sufficient to cover any required withholding
taxes. The Company shall have the right to require a Participant or other person receiving Shares under the Plan to pay the Company
a cash amount sufficient to cover any required withholding taxes before actual receipt of those Shares. In lieu of all or any
part of a cash payment from a person receiving Shares under the Plan, the Committee may permit the individual to cover all or
any part of the required withholdings (but not to exceed the minimum statutory amount required to be withheld if such limitation
is necessary to avoid an adverse accounting impact, and otherwise not to exceed the maximum individual statutory tax rate in each
applicable jurisdiction) through a reduction of the number of Shares delivered or delivery or tender to the Company of Shares
held by the Participant or other person, in each case valued in the same manner as used in computing the withholding taxes under
the applicable laws.
15.
Effective Date, Duration, Amendment and Termination of the Plan
.
(a)
Effective Date
. The Plan shall become effective on the date it is approved by the Company’s shareholders, which shall
be considered the date of its adoption for purposes of Treasury Regulation §1.422-2(b)(2)(i). No Awards shall be made under
the Plan prior to its effective date. If the Company’s shareholders fail to approve the Plan by December 31, 2017, then
the Plan will be of no further force or effect.
(b)
Duration of the Plan
. The Plan shall remain in effect until all Shares subject to it are distributed, all Awards have expired
or terminated, the Plan is terminated pursuant to Section 15(c), or the tenth anniversary of the effective date of the Plan, whichever
occurs first (the “
Termination Date
”). Awards made before the Termination Date shall continue to be outstanding
in accordance with their terms and the terms of the Plan unless otherwise provided in the applicable Agreements.
(c)
Amendment and Termination of the Plan
. The Board may at any time terminate, suspend or amend the Plan. The Company shall
submit any amendment of the Plan to its shareholders for approval only to the extent required by applicable laws or regulations
or the rules of any securities exchange on which the Shares may then be listed. No termination, suspension, or amendment of the
Plan may materially impair the rights of any Participant under a previously granted Award without the Participant’s consent,
unless such action is necessary to comply with applicable law or stock exchange rules.
(d)
Amendment of Awards
. Subject to Section 15(e), the Committee may unilaterally amend the terms of any Agreement evidencing
an Award previously granted, except that no such amendment may materially impair the rights of any Participant under the applicable
Award without the Participant’s consent, unless such amendment is necessary to comply with applicable law or stock exchange
rules or any compensation recovery policy as provided in Section 17(i).
(e)
No Option or SAR Repricing
. Except as provided in Section 12(a), no Option or Stock Appreciation Right Award granted under
the Plan may be (i) amended to decrease the exercise price thereof, (ii) cancelled in conjunction with the grant of any new Option
or Stock Appreciation Right Award with a lower exercise price, (iii) cancelled in exchange for cash, other property or the grant
of any Full Value Award at a time when the per share exercise price of the Option or Stock Appreciation Right Award is greater
than the current Fair Market Value of a Share, or (iv) otherwise subject to any action that would be treated under accounting
rules as a “repricing” of such Option or Stock Appreciation Right Award, unless such action is first approved by the
Company’s shareholders.
16.
Performance-Based Compensation
.
(a)
Designation of Awards
. If the Committee determines at the time a Full Value Award or Cash Incentive Award is granted to
a Participant that such Participant is, or is likely to be, a “covered employee” for purposes of Code Section 162(m)
as of the end of the tax year in which the Company would ordinarily claim a tax deduction in connection with such Award, then
the Committee may provide that this Section 16 will be applicable to such Award, which shall be considered Performance-Based Compensation.
(b)
Compliance with Code Section 162(m)
. If an Award is subject to this Section 16, then the grant of the Award, the vesting
and lapse of restrictions thereon and/or the distribution of cash, Shares or other property pursuant thereto, as applicable, shall
be subject to the achievement over the applicable performance period of one or more performance goals based on one or more of
the performance measures specified in Section 16(c). The Committee will select the applicable performance measure(s) and specify
the performance goal(s) based on those performance measures for any performance period, specify in terms of an objective formula
or standard the method for calculating the amount payable to a Participant if the performance goal(s) are satisfied, and certify
the degree to which applicable performance goals have been satisfied and any amount that vests and is payable in connection with
an Award subject to this Section 16, all within the time periods prescribed by and consistent with the other requirements of Code
Section 162(m). In specifying the performance goals applicable to any performance period, the Committee may provide that one or
more objectively determinable adjustments shall be made to the performance measures on which the performance goals are based,
which may include adjustments that would cause such measures to be considered “non-GAAP financial measures” within
the meaning of Rule 101 under Regulation G promulgated by the Securities and Exchange Commission, including adjustments for events
that are unusual in nature or infrequently occurring, such as a Change in Control, acquisitions, divestitures, restructuring activities
or asset write-downs, or for changes in applicable tax laws or accounting principles. The Committee may also adjust performance
measures for a performance period to the extent permitted by Code Section 162(m) in connection with an event described in Section
12(a) to prevent the dilution or enlargement of a Participant’s rights with respect to Performance-Based Compensation. The
Committee may adjust downward, but not upward, any amount determined to be otherwise payable in connection with an Award subject
to this Section 16. The Committee may also provide, in an Agreement or otherwise, that the achievement of specified performance
goals in connection with an Award subject to this Section 16 may be waived upon the death or Disability of the Participant or
under any other circumstance with respect to which the existence of such possible waiver will not cause the Award to fail to qualify
as “performance-based compensation” under Code Section 162(m).
(c)
Performance Measures
. For purposes of any Full Value Award or Cash Incentive Award considered Performance-Based Compensation
subject to this Section 16, the performance measures to be utilized shall be limited to one or a combination of two or more of
the following performance measures: (i) net earnings or net income; (ii) earnings before one or more of interest, taxes, depreciation,
amortization and share-based compensation expense; (iii) earnings per share (basic or diluted); (iv) revenue; (v) gross profit;
(vi) operating income; (vii) profitability as measured by return ratios (including, but not limited to, return on assets, return
on equity, return on invested capital and return on revenue) or by the degree to which any of the foregoing earnings measures
exceed a percentage of revenue or gross profit; (viii) cash flow (including, but not limited to, operating cash flow, free cash
flow and cash flow return on capital); (ix) market share; (x) margins (including, but not limited to, one or more of gross, operating
and net earnings margins); (xi) stock price; (xii) total shareholder return; (xiii) asset quality; (xiv) non-performing assets;
(xv) operating assets; (xvi) balance of cash, cash equivalents and marketable securities; (xvii) cost and expense management;
(xviii) economic value added or similar value added measurements; (xix) improvement in or attainment of working capital levels;
(xx) productivity ratios; (xxi) employee retention or satisfaction measures; (xxii) safety record; (xxiii) customer satisfaction;
(xxiv) debt, credit or other leverage measures or ratios; and (xxv) implementation or completion of critical projects; (xxvi)
referrals; (xxvii) approvals; and (xxviii) approvals as a percentage of referrals. Any performance goal based on one or more of
the foregoing performance measures may be expressed in absolute amounts, on a per share basis (basic or diluted), relative to
one or more other performance measures, as a growth rate or change from preceding periods, or as a comparison to the performance
of specified companies, indices or other external measures, and may relate to one or any combination of Company, Affiliate, division,
business unit, operational unit or individual performance.
17.
Other Provisions
.
(a)
Unfunded Plan
. The Plan shall be unfunded and the Company shall not be required to segregate any assets that may at any
time be represented by Awards under the Plan. Neither the Company, its Affiliates, the Committee, nor the Board shall be deemed
to be a trustee of any amounts to be paid under the Plan nor shall anything contained in the Plan or any action taken pursuant
to its provisions create or be construed to create a fiduciary relationship between the Company and/or its Affiliates, and a Participant.
To the extent any person has or acquires a right to receive a payment in connection with an Award under the Plan, this right shall
be no greater than the right of an unsecured general creditor of the Company.
(b)
Limits of Liability
. Except as may be required by law, neither the Company nor any member of the Board or of the Committee,
nor any other person participating (including participation pursuant to a delegation of authority under Section 3(c) of the Plan)
in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall
have any liability to any party for any action taken, or not taken, in good faith under the Plan.
(c)
Compliance with Applicable Legal Requirements and Company Policies
. No Shares distributable pursuant to the Plan shall
be issued and delivered unless and until the issuance of the Shares complies with all applicable legal requirements, including
compliance with the provisions of applicable state and federal securities laws, and the requirements of any securities exchanges
on which the Company’s Shares may, at the time, be listed. During any period in which the offering and issuance of Shares
under the Plan is not registered under federal or state securities laws, Participants shall acknowledge that they are acquiring
Shares under the Plan for investment purposes and not for resale, and that Shares may not be transferred except pursuant to an
effective registration statement under, or an exemption from the registration requirements of, such securities laws. Any stock
certificate or book-entry evidencing Shares issued under the Plan that are subject to securities law restrictions shall bear or
be accompanied by an appropriate restrictive legend or stop transfer instruction. Notwithstanding any other provision of this
Plan, the acquisition, holding or disposition of Shares acquired pursuant to the Plan shall in all events be subject to compliance
with applicable Company policies, including those relating to insider trading, pledging or hedging transactions, minimum post-vesting
holding periods and stock ownership guidelines, and to forfeiture or recovery of compensation as provided in Section 17(i).
(d)
Other Benefit and Compensation Programs
. Payments and other benefits received by a Participant under an Award made pursuant
to the Plan shall not be deemed a part of a Participant’s regular, recurring compensation for purposes of the termination,
indemnity or severance pay laws of any country and shall not be included in, nor have any effect on, the determination of benefits
under any other employee benefit plan, contract or similar arrangement provided by the Company or an Affiliate unless expressly
so provided by such other plan, contract or arrangement, or unless the Committee expressly determines that an Award or portion
of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been
made in lieu of a portion of competitive cash compensation.
(e)
Governing Law
. To the extent that federal laws do not otherwise control, the Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the State of Minnesota without regard to its conflicts-of-law principles
and shall be construed accordingly.
(f)
Severability
. If any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
(g)
Code Section 409A
. It is intended that (i) all Awards of Options, SARs and Restricted Stock under the Plan will not provide
for the deferral of compensation within the meaning of Code Section 409A and thereby be exempt from Code Section 409A, and (ii)
all other Awards under the Plan will either not provide for the deferral of compensation within the meaning of Code Section 409A,
or will comply with the requirements of Code Section 409A, and Awards shall be structured and the Plan administered and interpreted
in accordance with this intent. The Plan and any Agreement may be unilaterally amended by the Company in any manner deemed necessary
or advisable by the Committee or Board in order to maintain such exemption from or compliance with Code Section 409A, and any
such amendment shall conclusively be presumed to be necessary to comply with applicable law. Notwithstanding anything to the contrary
in the Plan or any Agreement, with respect to any Award that constitutes a deferral of compensation subject to Code Section 409A:
(1) If any amount is payable under such Award upon a termination of Service, a termination of Service will be deemed to have occurred
only at such time as the Participant has experienced a “separation from service” as such term is defined for purposes
of Code Section 409A;
(2) If any amount shall be payable with respect to any such Award as a result of a Participant’s “separation from service”
at such time as the Participant is a “specified employee” within the meaning of Code Section 409A, then no payment
shall be made, except as permitted under Code Section 409A, prior to the first business day after the earlier of (i) the
date that is six months after the Participant’s separation from service or (ii) the Participant’s death. Unless the
Committee has adopted a specified employee identification policy as contemplated by Code Section 409A, specified employees will
be identified in accordance with the default provisions specified under Code Section 409A.
None
of the Company, the Board, the Committee nor any other person involved with the administration of this Plan shall (i) in any way
be responsible for ensuring the exemption of any Award from, or compliance by any Award with, the requirements of Code Section
409A, (ii) have any obligation to design or administer the Plan or Awards granted thereunder in a manner that minimizes a Participant’s
tax liabilities, including the avoidance of any additional tax liabilities under Code Section 409A, and (iii) shall have any liability
to any Participant for any such tax liabilities.
(h)
Rule 16b-3
. It is intended that the Plan and all Awards granted pursuant to it shall be administered by the Committee so
as to permit the Plan and Awards to comply with Exchange Act Rule 16b-3. If any provision of the Plan or of any Award would otherwise
frustrate or conflict with the intent expressed in this Section 17(h), that provision to the extent possible shall be interpreted
and deemed amended in the manner determined by the Committee so as to avoid the conflict. To the extent of any remaining irreconcilable
conflict with this intent, the provision shall be deemed void as applied to Participants subject to Section 16 of the Exchange
Act to the extent permitted by law and in the manner deemed advisable by the Committee.
(i)
Forfeiture and Compensation Recovery
.
(1) The Committee may specify in an Agreement that the Participant’s rights, payments, and benefits with respect to an Award
will be subject to reduction, cancellation, forfeiture or recovery by the Company upon the occurrence of certain specified events,
in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include termination of
Service for Cause; violation of any material Company or Affiliate policy; breach of noncompetition, non-solicitation or confidentiality
provisions that apply to the Participant; a determination that the payment of the Award was based on an incorrect determination
that financial or other criteria were met or other conduct by the Participant that is detrimental to the business or reputation
of the Company or its Affiliates.
(2) Awards and any compensation associated therewith may be made subject to forfeiture, recovery by the Company or other action pursuant
to any compensation recovery policy adopted by the Board or the Committee at any time, including in response to the requirements
of Section 10D of the Exchange Act and any implementing rules and regulations thereunder, or as otherwise required by law. Any
Agreement may be unilaterally amended by the Committee to comply with any such compensation recovery policy.
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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ELECTROMED, INC.
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500 SIXTH AVENUE NW
NEW PRAGUE, MN 56071
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
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VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP
THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN
THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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The
Board of Directors recommends you vote FOR the following:
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☐
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☐
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☐
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1.
Election of Directors, thereby setting the number of directors at six
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Nominees
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01 Stephen H. Craney
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02 William V. Eckles
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03 Stan K. Erickson
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04 Lee A. Jones
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05 Kathleen S. Skarvan
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06 George H. Winn
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The Board of Directors recommends you vote FOR proposals 2, 3 and 4.
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For
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Against
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Abstain
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2.
To approve the Electromed, Inc. 2017 Omnibus Incentive Plan.
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3.
To ratify appointment of RSM US LLP as our independent registered public accounting firm.
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4.
To approve on a non-binding and advisory basis, our executive compensation.
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NOTE:
Such other
business as may properly come before the meeting or any adjournment thereof.
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Please sign exactly as your
name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please
give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation
or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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0000344776_1 R1.0.1.17
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Annual Report on Form 10-K, Notice and
Proxy Statement and Shareholder Letter is now available
at https://materials.proxyvote.com/285409
ELECTROMED,
INC.
Annual Meeting of Shareholders
November 10, 2017 10:00 AM CST
This
proxy is solicited by the Board of Directors
The
shareholder(s) hereby appoint(s) Stephen H. Craney and Kathleen S. Skarvan, or either of them, as proxies, each with the power
to appoint (his/her) substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this
ballot, all of the shares of Common Stock that the shareholders are entitled to vote at the Annual Meeting of Shareholders to
be held at 10:00 AM, CST on November 10, 2017 at 500 Sixth Avenue North West, New Prague, MN 56071, and any adjournment or postponement
thereof.
This
proxy, when properly executed, will be voted in the manner directed by ELECTROMED, INC. herein. If no such direction is made,
this proxy will be voted in accordance with the Board of Directors’ recommendations.
Continued
and to be signed on reverse side
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0000344776_2 R1.0.1.17
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