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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 


 

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Preliminary Proxy Statement

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Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to § 240.14a-12

 

BIO-TECHNE CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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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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September 11, 2018

 

Dear Shareholder:

 

You are cordially invited to join Bio-Techne Corporation’s 2018 Annual Shareholder Meeting on October 25, 2018, at 12:00 p.m. Central Time. Like last year, this year’s meeting will again be conducted solely as a webcast. You will be able to join the annual meeting online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/TECH18. You will also be able to vote your shares electronically at the annual meeting. A Notice of the Annual Meeting and a Proxy Statement covering the formal business of the meeting appear on the following pages.

 

We are pleased to offer this virtual meeting to provide ready access for our shareholders and cost savings for the company. Hosting a virtual meeting can facilitate shareholder attendance and participation from any location in the world. After the meeting, we will post any questions and answers regarding topics of material interest to shareholders.

 

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

 

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

 

Sincerely,

 

 

Charles (“Chuck”) R. Kummeth

 

President and Chief Executive Officer

 

 

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Thursday, October 25, 2018

 

12:00 p.m. Central Time

 

The 2018 Annual Meeting of Shareholders of Bio-Techne Corporation will be held as a virtual meeting only. You will be able to attend by joining the webcast, where you will be able to vote your shares, and submit questions. The webcast is available at www.virtualshareholdermeeting.com/TECH18. The following will be considered and acted upon at the 2018 Annual Meeting, each of which is explained more fully in our Proxy Statement.

 

Items of Business:

 

 

1.

Set the number of members of the Board of Directors at eight (8), as recommended by our Board of Directors;

     
 

2.

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

     
 

3.

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

     
 

4.

Approve the allocation of 900,000 additional shares to the Second Amended and Restated 2010 Equity Incentive Plan reserve;

     
 

5.

Ratify the appointment of KPMG, LLP as the Company’s independent registered public accounting firm for the 2019 fiscal year, as recommended by our Audit Committee; and

     
 

6.

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

 

Shareholders of record at the close of business on August 31, 2018 will be entitled to vote at the Annual Meeting or any adjournment or postponement of the meeting.

 

  By order of the Board of Directors
 
  Brenda S. Furlow
General Counsel and Corporate Secretary
September 11, 2018

 

 

YOUR VOTE IS IMPORTANT.

 

We encourage you to read the Proxy Statement and vote your shares as soon as possible. You may vote via the Internet at www.proxyvote.com or by telephone at 1-800-690-6903. If you received paper copies of your proxy materials in the mail, you may vote by mail, and a return envelope for your proxy card is enclosed for your convenience. The Proxy Statement and 2018 Annual Report to Shareholders are available at www.proxyvote.com.

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

6

   

BUSINESS, GOVERNANCE, AND COMPENSATION HIGHLIGHTS

6

   

Item 1.  ESTABLISHING THE NUMBER OF DIRECTORS AT EIGHT

11

   

Item 2.  ELECTION OF DIRECTORS

12

   

Nominees for Director

13

   

Corporate Governance – The Role and Governance of the Board

16

   

Corporate Governance -- Board Committees

18

   

Corporate Governance – Meetings and Attendance

19

   

Director Qualifications, Diversity and Refreshment

20

   

Director Compensation

21

   

Additional Governance Matters – Corporate Sustainability

23

   

EXECUTIVE COMPENSATION

23

   

Compensation Discussion and Analysis

25

   

I.

Executive Summary

26

   

II.

Compensation Philosophy and Objectives

30

   

III.

Our Process for Establishing Executive Compensation

31

   

IV.

Elements of the 2018 Compensation Program

33

   

V.

Compensation Policies and Practices

38

   

Executive Compensation Committee Report on Executive Compensation

39

   

2018 Summary Compensation Table

40

   

2018 Grants of Plan-Based Awards

43

   

2018 Outstanding Equity Awards at Fiscal Year-End

44

   

2018 Option Exercises and Stock Vested

46

 

 

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Executive Employment Agreements and Change in Control Arrangements

46
   

Pay Ratio Disclosure

49

   

Item 3.  ADVISORY VOTE ON EXECUTIVE COMPENSATION

49

   

PRINCIPAL SHAREHOLDERS

51

   

MANAGEMENT SHAREHOLDINGS

52

   

Item 4.  APPROVE ALLOCATION OF ADDITIONAL SHARES TO THE COMPANY’S SECOND AMENDED AND RESTATED 2010 EQUITY INCENTIVE PLAN

53

   

Item 5.  RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2019

56

   

Audit Committee Report

56

   

Audit Fees

57

   

ADDITIONAL CORPORATE GOVERNANCE MATTERS

58

   

ADDITIONAL VOTING INFORMATION

59

   

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

Appendix A

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 


 

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

 

 

 

BUSINESS, GOVERNANCE, AND COMPENSATION HIGHLIGHTS


 

To assist you in reviewing the proposals to be acted upon, we are providing information about business, governance and compensation highlights for fiscal year 2018. For more complete information about these topics, please review the Company’s Annual Report on Form 10-K and the complete Proxy Statement.

 

BUSINESS HIGHLIGHTS

 

Our team continued to deliver on our long-term strategy in fiscal year 2018, leading to another record year of strong financial results. Our revenue increased by over 14%, our reported EBITDA increased 8%, and we finished the year with $197 million in operating cash flow.

 

*Cash from Operations excludes earnout payments.

 

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This strong financial and operational year translated into solid returns for our shareholders: we were able to return over $48 million to our shareholders in the form of dividends, while our total shareholder return was 32.3% in the past fiscal year.

 

 

   * 3-year and 5-year represent annualized figures

 

 

We are very proud of these accomplishments, and we believe that we are well-positioned to continue our strong performance and growth. We are accelerating our momentum to innovate best-in-class life sciences tools and products for our customers in the fields of research, diagnostics and therapeutics. Our recent acquisitions of Quad Technologies and Exosome Diagnostics give us even more runway into the growing and scalable markets of Cell Therapy and Cancer Diagnostics, markets that already know our brands for research reagents and tools.

 

GOVERNANCE HIGHLIGHTS

 

Many of our corporate governance practices are the direct result of feedback from our shareholders and other stakeholders. The result of our continuous efforts to improve the governance of our company can be seen in our well-balanced, strong and experienced board; our ongoing shareholder engagement efforts; our executive compensation program; and our incorporation of many market best practices.

 

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Board of Directors

 

Our strong performance during fiscal year 2018, and the past several years, can be at least partially attributed to our experienced board of directors. Our pre-dominantly independent board includes a range of newer and tenured directors with a balanced and diverse background of experience, education and talent:

 

 

 

Continued Shareholder Engagement Efforts

 

In 2018, we continued our shareholder engagement and outreach, but we expanded it as follows:

 

We conducted outreach under the leadership of our chair and several other members of our Board. Our outreach in the prior year had been triggered in part by our desire to understand disappointing 2017 “Say on Pay” voting results. The 2017 engagement had been led by management and discussed in depth by the Board of Directors. However, when our 2018 Say on Pay voting results came in notably lower than the 2017 results, our Board concluded that it was important for the Board to engage directly with shareholders to determine if shareholders had concerns or requests that had not been previously raised or captured in the 2017 engagement discussions.

 

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We responded to concerns voiced by our shareholders. Because shareholders did not identify concerns with our compensation structure or pay quantum in our 2017 engagement discussions, no significant changes resulted from these discussions. However, for 2018, in response to further discussions with shareholders, we expanded our disclosure in several areas, as described in more detail in the section entitled “Shareholder Outreach Following 2017 Say on Pay Vote. Our Board also received and considered valuable feedback on environmental, social, and governance (“ESG”) matters beyond compensation, which is reflected in the sections entitled “Director Qualifications, Diversity and Refreshment” and “Additional Governance Matters – Corporate Sustainability” and will be the basis for ongoing discussions and engagement.

 

Governance Best Practices

 

We also continued to adhere to the governance best practices noted below. We believe these practices form an important foundation for actions and decisions of management and the Board in the best interests of our shareholders, and we remain committed to considering and discussing how our governance program should evolve over time.

 

Independent Board

7 of 8 directors are independent

Leadership The roles of chair and CEO are currently split, with the chair being an independent director
  Balance of industry, scientific and functional expertise among directors
  Each committee is made up solely of independent directors
  Annual Board and committee evaluation process, as well as periodic individual director assessments
  Director tenure policy led to refreshment of two Board seats in 2018, with additional refreshment in coming years

Shareholder

Annual election of directors

Rights Majority vote standard in uncontested elections, with resignation policy
  No shareholder rights plan
  No supermajority voting provisions
  Shareholders holding 10% or more of our outstanding stock have the right to call certain special meetings
  Proxy access to nominate director candidates

Good Governance

Prohibition of hedging and pledging of company stock

Practices Stock ownership guidelines for directors and executive officers
  Continual engagement with shareholders on strategy, financial results and governance

 

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Executive Compensation: Our Pay-for-Performance Culture

 

With our strategic focus on growing the business over the long term, it is imperative that our executive compensation program motivates our talented management team in such a manner as to encourage and reward successful execution of this business strategy. To do this, we have established an executive pay program with a strong pay-for-performance foundation. We utilize the following compensation elements to achieve this:

 

Type

Element

Performance

Period

Objective

Fixed

Base Salary

Annual

Recognizes an individual’s role and responsibilities and serves as an important retention vehicle

Performance -based

Annual Bonus

Annual

Rewards achievement of annual Company-wide and divisional financial objectives

Performance -based

Performance-based Stock Options and Restricted Stock Units

Long-Term

Supports the achievement of corporate strategic goals that drive the creation of long-term, sustainable shareholder value

       
 

Time-Based Stock Options and Restricted Stock Units

Long-Term

Aligns the interests of management and stockholders and serves an important retention vehicle

 

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We believe that pay should be linked to performance – and that executives and long-term shareholders alike should benefit from our success and growth.

 

 

 

ITEMS 1 AND 2: ELECTION OF DIRECTORS

 

Item 1. ESTABLISHING THE NUMBER OF DIRECTORS AT EIGHT


 

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

 

Our bylaws provide that the number of directors shall be determined by the shareholders at each Annual Meeting. Your Board unanimously recommends that the number of directors be set at eight.

 

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

 

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Item 2. ELECTION OF DIRECTORS


 

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

 

Over the last several years, we have undergone a thoughtful, gradual board refreshment process. In 2014, we implemented a director retirement provision in our Principles of Corporate Governance, and have subsequently followed that policy. As a result, the average director tenure has dropped from 13.8 years in 2013 to 8.3 years currently. While refreshment is important, it is also critical to the effectiveness of the Board to make replacements gradually so that the Board retains a balance of experience and new perspectives. In 2017, with three directors reaching the retirement age of 75, the Nominations and Governance Committee recommended, and the Board unanimously approved, a transition plan that staggered these individuals’ retirement to provide for continuity and a smooth transition. In the past year, two of those three directors retired and two new directors, Dr. Alpna Seth and Dr. Joseph Keegan, were nominated and elected at the 2017 Annual Meeting. As permitted by the Principles of Corporate Governance, the Board had approved a one-year waiver of the retirement limitation for Dr. Charles Dinarello. Pursuant to the plan, Dr. Dinarello is now retiring effective as of the 2018 Annual Meeting.

 

The eight directors elected at the Annual Meeting will hold office until the 2019 Annual Meeting of Shareholders and until their successors have been elected and qualified, or until their earlier death, resignation or removal. Each nominee has informed the Board that he or she is willing to serve as a director. If any nominee should decline or become unable or unavailable to serve as a director for any reason, your proxy (the “Proxy”) authorizes the persons named in the Proxy to vote for a replacement nominee, if the Board names one, as such persons determine in their best judgment. As an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.

 

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

 

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Nominees for Director

 

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

 

Robert V. Baumgartner, Chairman 

 

Age: 62

Independent Director Since: 2003

 

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

 

 

John L. Higgins 

 

Age: 48

Independent Director Since: 2009                                          Other Public Directorships: Ligand Pharmaceuticals, Inc.

 

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

 

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Joseph D. Keegan, Ph.D. 

 

Age: 65

Independent Director Since: 2017                                          Other Public Directorships:  Interpace Diagnostics 

 

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

 

 

Charles R. Kummeth 

 

Age:  58

Director Since: 2013                                                                Other Public Directorships:  Sparton Corporation; Gentherm, Inc.

 

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

 

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Roeland Nusse, Ph.D. 

 

Age: 67

Independent Director Since: 2010

 

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

 

 

Alpna Seth, Ph.D. 

 

Age: 55

Independent Director Since: 2017                                             Other Public DIrectorships: Seattle Genetics, inc.  

 

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

 

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Randolph Steer, M.D., Ph.D. 

 

Age: 68

Independent Director Since: 1990

 

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

 

 

Harold J. Wiens 

 

Age: 72

Independent Director Since: 2014

 

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

 

Corporate Governance – The Role and Governance of the Board

 

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

 

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

 

Board Independence

 

The Board annually reviews the independence of each director. The Board has affirmatively determined that all of the Company’s non-employee directors are “independent” as such term is defined in the applicable requirements of the SEC and NASDAQ (collectively, the “Applicable Rules”). Mr. Kummeth is not independent based on his service as the Company’s CEO and President. In making its independence determinations, the Board reviewed transactions and relationships between the director, or any member of his or her immediate family, and the Company and its subsidiaries based on information provided by the director, Company records and publicly available information.

 

Board Leadership Structure

 

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

 

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

 

Risk Oversight

 

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

 

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

 

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Corporate Governance -- Board Committees 

 

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

 

Each member of our Audit, Nominations and Governance and Executive Compensation committees is independent, as determined by the Board, under the Applicable Rules. In addition, each member of the Audit Committee and the Executive Compensation Committee meets the additional independence standards for committee members under the Applicable Rules. The members of each standing committee are appointed by the Board each year for a term of one year and until their successors are elected, or until the earlier death or resignation or removal from the committee or the Board. In addition, the Board has, on occasion, established committees to deal with particular matters the Board believes appropriate to be addressed in that manner.

 

Audit Committee

 

The Audit Committee is responsible for the appointment, supervision and evaluation of the Company’s independent registered public accounting firm and for reviewing the Company’s internal audit procedures, the quarterly and annual financial statements of the Company and the results of the annual audit. The Audit Committee’s other responsibilities include approval of related party transactions, oversight of the Company’s cash investment policy and monitoring the Company’s financial fraud hotline and other compliance matters having financial impact. The Board has determined that, for FY 2018, Messrs. Baumgartner and Higgins are “audit committee financial experts” as such term is defined in the Applicable Rules.  

 

Executive Compensation Committee

 

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

 

Nominations and Governance Committee

 

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

 

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Corporate Governance – Meetings and Attendance

 

The Board met seven times during FY 2018, including four in-person meetings and three meetings by teleconference. Each director attended at least 75% of the Board meetings and meetings of the committees on which he or she served. Directors meet their responsibilities not only by attending Board and committee meetings but also by conducting business via written actions in lieu of meetings and otherwise communicating informally throughout the year on various Board and committee matters with executive management, advisors and others on matters affecting the Company. All directors attended the Annual Meeting of Shareholders in October 2017, which was held by teleconference as a virtual meeting.

 

The membership of each standing committee as of June 30, 2018 and the number of committee meetings held during FY 2018 are identified in the table below.

 

Director

Audit

Executive

Compensation

Nominations &

Governance

Science & Technology

Robert V. Baumgartner

X

 

Chair

 

Charles A. Dinarello, M.D.

     

X

John L. Higgins

Chair

 

X

 

Joseph Keegan, Ph.D.

 

X

   

Charles R. Kummeth

       

Roeland Nusse, Ph.D.

   

X

Chair

Alpna Seth, Ph.D.

   

X

X

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

 

Chair

 

X

Harold J. Wiens

X

X

   

Number of meetings held during FY 2018

12

4

3

2

 

 

Shareholder Engagement and Communications

 

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

 

Specifically, in early 2018, partly as a result of recent shareholder “Say on Pay” votes relating to executive compensation disclosures, management and certain key directors undertook a robust engagement process with our largest shareholders. Our directors led the engagement outreach, including: our Board chair, Mr. Baumgartner, who also serves as Chair of our Nominations and Governance Committee and as a member of the Audit Committee; Dr. Steer, Chair of our Executive Compensation Committee; and Mr. Wiens, who serves both on the Executive Compensation and Audit Committees. We contacted our ten largest shareholders at the time, which represented approximately 52% of our shareholdings. We held eight meetings with shareholders representing approximately 45% of our holdings. A further description of those discussions and the Board’s response are described in several sections below, including in the sections entitled “Director Qualifications, Diversity and Refreshment,” “Shareholder Outreach Following 2017 Say on Pay Vote” and “Additional Governance Matters.”

 

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

 

Director Qualifications, Diversity and Refreshment

 

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

 

While the Company does not have a formal diversity policy for board membership, the Company seeks directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. The Nominations and Governance Committee considers, among other factors, diversity with respect to perspectives, backgrounds, skills and experience in its evaluation of candidates for board membership. Such diversity considerations are discussed by the Nominations and Governance Committee in connection with the general qualifications of each potential nominee. The Nominations and Governance Committee also appreciates and is taking into account the shareholder feedback regarding the importance of board diversity received during the Board’s 2018 shareholder outreach.

 

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

 

As described in the first paragraph of “Item 2 Election of Directors,” above, in FY 2017 and 2018 three directors meeting the retirement age as specified in our Principles of Corporate Governance have retired or are planning to do so. In 2017, Dr. Roger Lucas and Dr. Karen Holbrook retired and two new directors, Dr. Alpna Seth and Dr. Joseph Keegan, were nominated and elected with overwhelming support from shareholders at the 2017 Annual Meeting. This year, Dr. Charles Dinarello is not being re-nominated and is retiring at the close of the 2018 Annual Shareholder meeting. At the 2017 Annual Shareholder Meeting, Dr. Dinarello received a less than 50% favorable vote, likely because he missed several board meetings the previous year and therefore had an attendance record of less than 75%. In accordance with Bio-Techne’s Principles of Corporate Governance, Dr. Dinarello tendered his resignation immediately after the Annual Shareholder Meeting. The Board considered all of the relevant factors, including the fact that two of the nine board members had just retired, and decided not to accept Dr. Dinarello’s resignation at that time. However, the Board did determine that it would continue its refreshment process by planning for Dr. Dinarello’s retirement at the close of the 2018 Annual Shareholder Meeting.

 

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This director transition was one of the topics discussed during the Board’s shareholder outreach initiative in early 2018. Some shareholders expressed concern that the Board had rejected Dr. Dinarello’s resignation and allowed him to continue serving on the board. Shareholders appeared satisfied after receiving further explanation about the Board’s desire for an orderly transition and the plan for Dr. Dinarello to retire in 2018. We appreciated shareholders’ feedback on this matter and the importance of transparency related to Board decisions of this nature.

 

Director Compensation

 

The Company believes that compensation for non-employee directors should be competitive and should encourage ownership of the Company’s stock. The Executive Compensation Committee periodically reviews the level and form of the Company’s director compensation and, if it deems appropriate, recommends to the Board changes in director compensation. No adjustments to director compensation levels were made in FY 2017 or FY 2018. Recently, the Executive Compensation Committee re-evaluated compensation for non-employee directors against those of directors in the same peer companies used for executive compensation. Based on that analysis, it recommended and the Board adopted a small change to the cash portion of director compensation effective after the 2018 Annual Shareholder Meeting, raising the annual retainer fee from $62,500 to $70,000. This adjustment in cash compensation brings non-employee director compensation more in line with the peer group of companies, especially considering the Company does not provide additional compensation for committee participation other than for service as committee chair. There were no other changes proposed or adopted.

 

Director Compensation for FY 2018

 

Each non-employee member of the Board receives an annual retainer fee of $62,500, which will increase to $70,000 annually after the 2018 Annual Shareholder Meeting. Additional cash compensation is paid for the following roles:

 

Board Chair – $50,000

Chair of Audit – $25,000

Chair of Executive Compensation – $17,500

Chair of Nominations and Governance – $15,000

 

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

 

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

 

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Director Stock Ownership Guidelines

 

Effective in the last fiscal year, the Board adopted stock ownership guidelines for all directors and executive officers to better align their interests with other shareholders. Non-employee directors are required to own stock at least equivalent in value to three times their annual retainer fee within five years. Although they have five years from July 1, 2016 (or their appointment or election to the Board), all except the two newest directors, Drs. Seth and Keegan, met the requirements as of July 1, 2018.

 

Directors who are not employees of the Company were compensated for FY 2018 as follows:

 

Name

Fees Earned
or Paid
in Cash
(1)

Stock

Awards (2)

Option

Awards (3)

All Other Compensation (4)

Total

Robert V. Baumgartner

$122,500

$92,412

$92,471

$1,002

$308,385

Charles A. Dinarello, M.D.

62,500

92,412

92,471

1,002

248,385

John L. Higgins

87,500

92,412

92,471

1,002

273,385

Karen A. Holbrook, Ph.D.(5)

38,750

--

--

292

39,042

Joseph Keegan, Ph.D.(5)

41,667

92,412

92,471

709

227,259

Roger C. Lucas, Ph.D.(5)

20,833

--

--

292

21,126

Roeland Nusse, Ph.D.

72,500

92,412

92,471

1,002

258,385

Alpna Seth, Ph.D.(5)

41,667

92,412

92,471

709

227,259

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

80,000

92,412

92,471

1,002

265,885

Harold J. Wiens

62,500

92,412

92,471

1,002

248,385

 

(1) 

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

(2) 

Amounts represent the total grant date fair value of equity-based compensation for 739 shares of restricted stock granted pursuant to the Company's Second Amended and Restated 2010 Equity Incentive Plan in FY 2018 at the grant date market value of $125.05 per share, in accordance with Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. As of June 30, 2018, each non-employee director held 739 unvested shares of restricted stock.

(3) 

Amounts represent the total grant date fair value of equity-based compensation for 3,125 stock option awards granted pursuant to the Company's Second Amended and Restated 2010 Equity Incentive Plan in FY 2018, as calculated in accordance with the Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. Assumptions used in the calculation of these amounts are described in Note 9 to the Company's audited financial statements for FY 2018, included in the Company's Annual Report on Form 10-K. As of June 30, 2018, the following non-employee directors held options to purchase the following number of shares of the Company's Common Stock: Mr. Baumgartner-34,370; Dr. Dinarello-39,370; Mr. Higgins-49,370; Dr. Holbrook-36,245; Dr. Keegan-3,125; Dr. Lucas-13,245; Dr. Nusse-44,370; Dr. Seth-3,125; Dr. Steer-29,370; and Mr. Wiens-17,370.

(4) 

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

(5)  Served as a director for part of fiscal year 2018, and therefore received pro-rated compensation.

  

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Additional Governance Matters – Corporate Sustainability

 

Our mission is to build EPIC Tools for EPIC Science. We have built a creative, caring team of colleagues throughout the world who bring unique perspectives and talents in support of that mission and who embody our four key values – Empowerment, Passion, Innovation and Collaboration, or EPIC. Their dedication leads to innovative technologies that help our customers address some of society's most difficult challenges in the healthcare and life sciences fields.

 

We understand that delivering on our mission over the long term requires a focus on corporate sustainability, including environmental, social, and governance (“ESG”) considerations. Specifically, we focus on the following:

 

Quality Products

By providing high quality products to researchers and clinicians, we improve the lives of people across the globe while also providing for the future success of our business.

Employee Involvement

Our commitment to becoming an excellent workplace means investing in ongoing opportunities for employee development in a diverse and inclusive environment, and a focus on our EPIC values.

Environment

Through continuous improvement, we develop products that meet customer needs while furthering our objective to be an environmentally responsible business.

Community Involvement and Giving

Key to our mission and values is a philosophy of caring and supporting the communities in which we live and work. Through both corporate giving and the individual contributions of our employees, we seek to make a difference.

Responsible Business Conduct

We have implemented codes of conduct and other ESG standards and policies that apply both to our own activities and to those of our third-party suppliers.

 

 

We have and will continue to invest in corporate sustainability measures and activities, as guided by and reported to the Board from time to time. For example, our focus on supporting employee development and building our EPIC culture is an ongoing initiative that is particularly important as we have grown from approximately 700 to over 2,100 employees in the past five years. Especially given our rapid growth, the Board believes building a common set of values and culture is vital to supporting our continued growth. We are also demonstrating environmental stewardship in numerous ways, as affirmed by our ongoing initiatives to obtain ISO 14001:2015 – Environmental Management certification at several sites, including our headquarters site in Minneapolis, Minnesota. As we implement these measures, the Company will publish descriptions and examples on our website over the coming year, at https://www.bio-techne.com/corporate-responsibility.

 

EXECUTIVE COMPENSATION


 

Shareholder Outreach Following 2017 Say on Pay Vote

 

At our 2017 Annual Meeting of Shareholders, our advisory vote on executive compensation (the “Say on Pay vote”) received 56.8% approval from shares present and entitled to vote, which was lower than the prior year’s 74.0% approval. Concerned by this response, as referenced above, the Company engaged in a governance outreach effort during the year to our ten largest shareholders representing over 52% of outstanding shares. The discussions with shareholders were led by members of our Board, including the Chair of our Board, the Chair of our Executive Compensation Committee, and another member of our Executive Compensation Committee, as well as members of management. The shareholders with whom we engaged provided their perspective on executive compensation, governance, and other matters of relevance to shareholders. They conveyed that they were generally quite satisfied with the actions of management, the Company’s performance and changes over the past five years in compensation structure and levels. They did not express concern about peers selected for executive compensation comparisons, acknowledging that the Company does not have many appropriate comparisons available and that comparisons by market cap were as or more relevant than revenue. The topics raised by shareholders concerning executive compensation were focused primarily on the desire for additional disclosure with respect to certain elements of executive compensation, rather than concerns about compensation structure.

 

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The results of these meetings with shareholders were reviewed and analyzed by both the Executive Compensation Committee and the full Board of Directors. After considering shareholder input, the Committee has taken a number of steps to address concerns, including the following compensation-related topics raised by shareholders and the Company’s responses, as noted in the table below:

 

 

Issues Raised

How We’ve Responded

Adequacy of link between executive pay and Company performance

We have provided additional disclosure in this year’s CD&A. In particular, see the Executive Summary section for additional information regarding how our compensation program is structured to align pay and performance.

Additional disclosure concerning long-term incentives

In this year’s CD&A, in the section entitled “Elements of Compensation” we have provided a detailed description of our long-term incentives. In the “Executive Summary” section, we have also included the actual achievement to targets for long term performance equity grants issued in August 2015 and vested in August 2018.

Consider alternative performance measures other than adjusted operating income and organic revenue, for both short- and long-term incentive compensation

The Executive Compensation Committee has considered shareholder comments and determined that, at this time, these measures continue to best align executive performance with shareholder value. Since one of our primary growth strategies relies on strategic M&A, the Committee believes a continued focus on revenue and operating income is key to the Company’s financial success and that they are the most important factors driving stock performance.

Above-median benchmarking for CEO pay

The Executive Compensation Committee analyzes market compensation data provided by Aon at the 25th, 50th and 75th percentiles.  However, we do not target any percentile or percentile range as a specific objective.  Rather, our compensation decisions are based on the full consideration of many factors, including performance.  As a result of evaluating compensation based on multiple factors, total target compensation for our NEOs may in certain circumstances be above or below the reference points provided by Aon.

 

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

 

Compensation Discussion and Analysis

 

In this Compensation, Discussion and Analysis (“CD&A”), we provide an overview of our executive compensation philosophy and objectives as well as a description of the material components of our executive compensation program. This CD&A is intended to be read in conjunction with the tables which immediately follow this section, which provide further historical compensation information.

 

As of June 30, 2018, the following executive officers constituted our Named Executive Officers (collectively, our “NEOs”):

 

Name

Title

Charles Kummeth

President and Chief Executive Officer

James Hippel

Senior Vice President – Finance and Chief Financial Officer

David Eansor

Senior Vice President – Biotechnology

Robert Gavin

Senior Vice President – Protein Platforms

Brenda Furlow

Senior Vice President – General Counsel and Secretary

 

 

CD&A Reference Guide

 

Executive Summary

Section I

Compensation Philosophy and Objectives

Section II

Establishing Executive Compensation

Section III

Elements of Compensation

Section IV

Additional Compensation Practices and Policies

Section V

 

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I.

  Executive Summary

 

We continued to execute on our long-term growth strategy in FY 2018. Our CEO has led a strategy of growth through investments in the core business as well as through acquisitions that has led to another year of positive financial performance. The Company ended the year with 14% overall revenue growth and 9% in organic revenue growth, with total revenues at $643 million for FY 2018. The Company is diversifying in many adjacent life science areas that will provide accelerated growth and stability for investors, including diagnostics and tools for use in therapeutics as well as research. Our acquisitions are fundamental to our growth plans and, we believe, enable us to meet or exceed our long-term strategic targets. At the same time, we continue to focus on operational productivity, managing costs and investing prudently. As a result, we were able to maintain margins in our core business and return approximately $48 million to our shareholders in the form of dividends this year. Our NEO compensation for FY 2018 reflects this continued strong performance.

 

*Cash from Operations excludes earn-out payments

 

FY 2018: Incentive Payouts Reflect Continued Positive Performance

 

Our Executive Compensation Committee aligns pay with performance and strategic initiatives by tying a significant portion of awards to rigorous revenue- and earnings-based financial goals and by using both short- and long-term incentives. For FY 2018, given the results described above, the Committee approved annual cash incentive payouts that were above target for the CEO, CFO and General Counsel, reflecting our strong above-target results in Company-wide organic revenue and adjusted operating income. Similarly, the other NEOs received above target annual incentives based on strong Company-wide and division performance.

 

Annual cash awards for FY 2018 were paid out at 87.4% to 161.3% of base salary based on the following FY 2018 performance:

 

 

$624.1 million of Consolidated Organic Revenue;

 

$231.1 million of Consolidated Adjusted Operating Income;

 

$421.5 million of Biotechnology net sales, $110.1 million of Diagnostics net sales and $111.9 million of Protein Platforms net sales; and

 

$199.1 million of Biotechnology segment operating income, $28.3 million of Diagnostics segment operating income and $18 million of Protein Platforms segment operating income.

 

The financial highlights above reflect as-reported GAAP and adjusted numbers. Cash bonus performance payouts are made based on growth of organic revenue, and adjusted operating income, and are in the amounts reflected in the 2018 Summary Compensation Table. Organic revenue and adjusted operating income measures for cash bonus consideration exclude the impact of foreign currency translation, certain acquisitions and acquisition-related amortization, costs and expenses, non-recurring litigation expenses, stock-based compensation expense and other unusual items. For a comprehensive discussion of our financial results, please refer to our Annual Report on Form 10-K for FY 2018.

 

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Longer Term: Incentive Pay Aligned with Performance

 

For the past three years, NEOs have also received performance-based equity awards (half the value in restricted stock units and half in stock options) that vest as follows (i) 50% on a three-year organic revenue goal and (ii) 50% on a three-year adjusted operating income goal. The first three-year 100% cliff-based equity awards granted in FY 2016 vested in August 2018 based on performance in FY 2018. The targets set three years ago for these grants were as follows:

 

Metric

Threshold

Target

Maximum

Actual

Company-Wide Organic Revenue for FY 2018

$528.2M

$556.0M

$583.8M

$581.2M

Company-Wide Adjusted Operating Income for FY 2018

$218.3M

$229.8M

$241.3M

$228.5M

 

 

A similar structure was used for performance-based grants issued in FY 2017, 2018 and 2019 that will vest based on performance of the business in the third fiscal year after grant.

 

How Our Pay Program Works

 

Our Executive Compensation Committee (the “Committee”) oversees the executive compensation program, which includes several compensation elements that have each been tailored to reward specific aspects of Company-wide and business line performance that the Board believes are central to delivering long-term stockholder value. Executive compensation packages are focused on our key business and performance objectives. In particular, we strive to align executive compensation with our key strategic objectives: building core products and innovation, geographic expansion, commercial execution, operational excellence and talent retention and recruitment.

 

Base Salary

Base salaries are set to be competitive to the marketplace. Base salaries are not automatically adjusted annually but instead are adjusted when the Committee judges that an increase is earned, due to a change in an executive officer’s responsibilities, demonstrated performance or relevant market data.

Short-Term Incentives

The annual cash incentive award plan is based on achieving certain strategic goals for each executive which may be based on Company-wide and/or divisional Organic Revenue and Adjusted Operating Income, depending on the responsibility and oversight of the executive.

Long-Term Incentives

Long-term equity awards incentivize executives to deliver long-term stockholder value, while also providing a retention vehicle for our executives.

The LTI mix is currently 50% time-based awards and 50% performance-vesting awards. LTI awards include stock options and RSUs.

 

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Target Pay

 

We utilize the above-mentioned compensation elements to create executive compensation packages that are heavily weighted to variable, at-risk pay in order to align pay with performance. The Compensation Committee does not have any formal policies for allocating total compensation among the various components. Instead, the Compensation Committee uses its judgment, in consultation with its independent compensation consultant, to establish a mix of current, short-term and long-term incentive compensation, and cash and equity compensation for each Named Executive Officer. The balance between these components may change from year to year based on corporate strategy and objectives, among other considerations. For fiscal year 2018, our NEOs had the following target pay mix:

 

 

 

Pay Aligned with Performance

 

As is demonstrated below, since Charles Kummeth became the CEO in 2013, the Company has done exceptionally well. The pay packages – focused on Company-wide and divisional performance objectives, particularly in operating income and organic revenue, have driven strong growth and shareholder value. While pay has gone up, so too has total shareholder return.

 

 

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Best Practices in Compensation Governance

 

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

 

 

Pay for performance. Approximately 92% of CEO target total direct compensation was directly or indirectly tied to Company performance and approximately 74% of other NEOs’ target total direct compensation was directly or indirectly tied to Company performance.

 

Emphasize long-term performance. Approximately 71% of our NEOs’ target direct compensation is equity-based with multi-year vesting.

 

Minimum required vesting. We do not allow vesting of options, full-value or stock appreciation rights to occur in a period of less than one year, subject to certain exceptions.

 

Develop sound financial goals. Financial goals for incentive plans are based on targets that are challenging but achievable.

 

Use double-trigger vesting provisions. Vesting connected with a change in control requires qualifying termination of employment (“double-trigger” provision).

 

Impose stock ownership requirements. Align executives with shareholders by requiring the CEO to own stock valued at 3x his base salary and other executive officers to hold stock valued at 1x their base salaries.

 

No hedging or pledging. Directors and executive officers may not hedge Company securities and, subject to limited exceptions, may not pledge Company securities as collateral for any loan.

 

No repricing of stock options or stock appreciation rights. No re-pricing or exchange of stock options or stock appreciation rights without shareholder approval.

 

Mitigate undue risk. Annually review all incentive programs for material risk.

 

Independent Board Chair. Effective independent Board leadership and oversight of management.

 

Engage independent consultants. The Committee engages independent compensation and legal consultants.

 

Review tally sheets. Review of executive compensation program components includes potential severance and change in control payouts.

 

No golden parachute tax gross-ups. We do not enter into new agreements with executive officers providing for golden parachute tax gross-ups.

 

Executive Compensation Initiatives to Align with Shareholders

 

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

 

 

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

 

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

 

 

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

 

 

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

 

 

In FY 2018, in response to a substantial engagement effort by directors with key shareholders, we have provided significant additional disclosure around the decisions by the Executive Compensation Committee relating to targets for and achievement of long-term incentives, explanations for the selection of both long term and short-term incentive measures, and the linkage between executive pay and company performance.

 

II. Compensation Philosophy and Objectives

 

The Committee reviews and approves each executive’s compensation annually and is responsible for assuring that compensation for the executive officers is consistent with the objectives of attracting and retaining highly qualified executives, tying pay to performance and Company strategy, aligning executives’ incentives with long-term shareholder interests, and encouraging internal pay equity. The Committee determines the appropriate level for each compensation component based on these overall compensation objectives. The Committee’s philosophy is to strive to provide market competitive compensation and emphasize at-risk cash bonus opportunities and equity compensation that reflect the Company’s performance goals and are commensurate with each executive’s scope of responsibility within the organization.

 

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

 

Key Considerations in Development of Annual and Long-Term Goals

Business Environment

Competitive Factors

Company-Specific Factors

●  Market Outlook

●  Industry Trends

●  Historical Trends

●  International Trends

●  Competitive Landscape

●  Historical Performance

●  Analyst Expectations

●  Market Growth

●  Five-Pillar Strategy

●  Tax Policy

 

●  Capital Deployment Opportunities

   

●  Recent Capital Deployment Decisions 

 

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

 

III. Our Process for Establishing Executive Compensation

 

Responsibility of the Executive Compensation Committee

 

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

 

Role of the Chief Executive Officer in Compensation Decisions

 

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

 

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

 

Role of Consultants

 

The Committee has retained Aon as its independent outside compensation consultant since 2013 to assist with setting executive compensation. The Committee has sole authority to retain or replace such independent compensation consultants. The Committee annually evaluates the independent compensation consultant’s independence and performance under the applicable NASDAQ listing standards. The Committee believes that working with an independent compensation consultant furthers the Company’s objectives to recruit and retain qualified executives, align their interests with those of shareholders and ensure that their compensation packages will appropriately motivate and reward ongoing achievement of business goals.

 

In FY 2018, the Committee determined that Aon continued to be independent under applicable NASDAQ listing standards and retained them to advise the Committee with respect to compensation of the CEO and other executive officers. In that capacity, Aon provided the Committee with a peer group analysis and assisted the Committee in structuring the compensation program for the CEO and other executive officers. Aon did not provide any additional services to the Company during FY 2018.

 

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Use of Peer Group

 

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

 

The Committee uses our compensation peer group as one data point when setting executive pay packages. Although useful as a reference, the Committee does not target any percentile within this peer group as a specific objective. Instead, our compensation decisions are based on the full consideration of many factors, including, but not limited to individual and company performance, market data, internal equity, experience, strategic needs, responsibilities, and the portion of long-term incentive compensation allocated to performance-based versus time-based awards. As a result of evaluating compensation based on the criteria described above, total target compensation for our NEOs may in certain circumstances be above or below the median levels of the peer group.

 

In advance of setting FY 2018 compensation opportunities for the NEOs, the Compensation Committee, with the assistance of Aon, reviewed the peer group to ensure the constituents remained reasonable for pay and performance comparisons. Based on the review, certain modifications were made to the peer group, largely to reflect acquisition activity. Accordingly, the FY 2018 peer group was modified as follows: (i) Affymetrix, Alere, Cepheid, Heartware and Medivation were removed from the peer group and (ii) NuVasive, Inc., ABIOMED, Inc., Haemonetics Corporation, and Masimo Corporation were added to the peer group.

 

At the time the peer group was confirmed, the peer group had the following median statistics:

 

 

Revenues of $757 million, based on the trailing four quarters; Bio-Techne’s revenues were positioned at the 34th percentile of the peer group;

 

 

Net Income of $92 million, based on the trailing four quarters; Bio-Techne’s Net Income was positioned at the 74th percentile of the peer group; and

 

 

Market capitalization of $4.52 billion; Bio-Techne’s market capitalization was positioned at the 47th percentile of the peer group.

 

For compensation decisions for fiscal year 2018, the following companies were selected as our peer group:

 

ABIOMED, Inc.

Align Technology, Inc.

Alkermes plc

Bio-Rad Laboratories, Inc.

Globus Medical, Inc.

Haemonetics Corporation

Insulet Corporation

Luminex Corporation

Masimo Corporation

Myriad Genetics, Inc.

NuVasive, Inc.

PerkinElmer, Inc.

QIAGEN

Seattle Genetics, Inc.

The Medicines Company

 

 

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IV.

Elements of the 2018 Compensation Program

 

The Company’s executive compensation program consists of base salaries, annual cash performance bonuses, long-term equity awards and various benefits, including the Company’s Profit Sharing and Savings Plan, in which all qualified employees of the Company participate.

 

Pay Element

 

Alignment with Shareholder Value Creation

Base Salary

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

Annual Cash Incentive

Drives Company-wide and division performance

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

Long-Term Equity Awards

Aligns executives’ interests with those of shareholders

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

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

Other Compensation and Benefits

Attracts and retains high-performing executives by offering competitive benefits

 

 

Base Salary

 

Base salary is the only fixed component of our executive officers’ total cash compensation, and provides competitive pay to attract and retain our talented executives. Annual salary decisions are made in recognition of competitive data as well as the skills and experience each individual brings to the Company, the length of time with the Company and the performance contributions each makes.

 

Our NEOs received the following base salaries for fiscal year 2018:

 

Named Executive Officer

 

2017

   

2018

   

% Change

 

Charles Kummeth

  $ 880,000     $ 911,000       3.5%  

James Hippel

  $ 460,000     $ 476,100       3.5%  

David Eansor

  $ 430,000     $ 455,000       5.8%  

Robert Gavin

  $ 375,000     $ 393,750       5.0%  

Brenda Furlow

  $ 350,000     $ 385,000       10.0%  

 

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Annual Cash Incentives

 

Executives are eligible to receive cash performance bonuses under the Company’s Short-Term Incentive Plan if predetermined, objective goals are achieved. Challenging goals are set each year to incentivize each executive to focus attention on strategically important goals. Executives may earn between zero and 200% of their target bonus opportunities.

 

FY 2018 Performance Metrics

 

For FY 2018, annual cash incentive awards were based upon the Company’s consolidated adjusted operating income results, consolidated organic revenue results, and, with respect to the SVPs who lead our reporting segments, FY 2018 adjusted operating income and organic revenue results for their respective divisions. Targets for each of these metrics were set to align with the Company’s strategic objectives of strengthening core products, expanding geographically, and committing to commercial execution and operational excellence. In addition, setting clear goals and rewarding achievement promotes the Company’s strategic objective of talent retention and recruitment. Overall achievement is calculated for each executive by determining the weighted average of performance based on adjusted operating income results and organic revenue results within each applicable category.

 

Our NEOs in FY 2018 had the following weighting to their respective annual incentives:

 

 

Company-Wide Goals

Division Goals

Executive

Adjusted

Operating

Income

Organic

Revenue

Adjusted

Operating

Income

Organic

Revenue

Charles Kummeth

50%

50%

   

James Hippel

50%

50%

   

David Eansor

25%

25%

25%

25%

Robert Gavin

25%

25%

25%

25%

Brenda Furlow

50%

50%

   

 

 

*

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

 

 

**

To calculate the payout for each executive, the percentage of the bonus for each metric is calculated and the resulting percentages are averaged to determine the applicable blended percentage rate. The Committee determined that for FY 2018 David Eansor, our SVP – Biotechnology, should be compensated in relation to divisional EBITDA and organic revenue that excludes Advanced Cell Diagnostics business, since he had not managed this business during the year.

 

The range of eligible payouts for FY 2018 at threshold, target, and maximum performance was based on a percentage of each NEO’s salary, as follows:

 

Performance Level

Performance Achievement

Payout Range

Threshold

95% of target

50% of target award opportunity

Target

100% of target

100% of target award opportunity

Maximum

105% of target

200% of target award opportunity

 

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

 

FY 2018 Performance Goals and Achievement

 

In August 2018, the Committee evaluated FY 2018 actual performance against the pre-established performance metrics and determined that the performance objectives were met as follows:

 

 

Performance Goals

2018 Achievement

Metric

Threshold

Target

Maximum

Actual

As a %
of Target

Company-Wide Adjusted Operating Income

$213.5M

$224.7M

$235.9M

$231.1M

103%

Company-Wide Organic Revenue

$585.0M

$615.8M

$646.6M

$624.1M

101%

Biotech Division Adjusted Operating Income*

$174.8M

$184.0M

$193.2M

$187.6M

102%

Biotech Division Organic Revenue*

$327.6M

$344.8M

$362.1M

$355.2M

103%

Diagnostics Division Adjusted Operating Income

$28.6M

$30.1M

$31.6M

$27.6M

92%

Diagnostics Division Organic Revenue

$106.8M

$112.4M

$118.0

$108.5M

97%

Protein Platforms Division Adjusted Operating Income

$13.0M

$13.7M

$14.3M

$17.5M

128%

Protein Platforms Division Organic Revenue

$102.0M

$107.4M

$112.8M

$110.7M

103%

*Excludes results from Advanced Cell Diagnostics business

 

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FY 2018 Actual Earned Incentives

 

Based on the Committee’s evaluation of FY 2018 performance against the applicable performance metrics, as outlined in the previous table, payouts under the Short-Term Incentive Plan for FY 2018 for our NEOs were as follows:

 

 

 

FY 2018 Opportunity

Actual

Executive

2018 Base Salary

Target Annual Incentives
(as % of base salary)

Target Annual Incentives
($)

2018 Earned Award

As a % of Target

Charles Kummeth

$911,000

100%

$911,000

$1,552,900

142%

James Hippel

$476,100

65%

$309,465

$473,413

142%

David Eansor

$455,000

50%

$227,500

$398,145

146%

Robert Gavin

$393,750

45%

$177,188

$317,626

161%

Brenda Furlow

$385,000

45%

$173,250

$246,103

142%

 

Long-Term Incentive Compensation

 

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

 

FY 2018 Grants

 

In FY 2018, long-term incentive awards were granted to all NEOs, including our CEO, in the first quarter of the fiscal year. The following table sets forth the target value of the long-term incentive awards granted to our NEOs in FY 2018. Additional detail with respect to each award granted is provided below.

 

 

Stock Options*

Restricted Stock Units*

Executive

Time-based

Performance-

vesting

Time-based

Performance-

vesting**

Charles Kummeth

$1,775,000

$1,774,996 

$1,775,000

$1,774,933 

James Hippel

$740,000

$369,999 

$369,981 

David Eansor

$362,500

$181,248 

$181,239 

Robert Gavin

$325,000

$162,491 

$162,481 

Brenda Furlow

$325,000

$143,749 

$143, 724 

* Amounts shown above represent the total grant date fair value of equity-based compensation, and for the performance-based grants, assumes target. The fair value of equity awards is determined pursuant to the Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. Assumptions used in the calculation of the fair value are described in Note 9 to the Company's audited financial statements for FY 2018, included in the Company's Annual Report on Form 10-K.

 

** Performance cash units were also granted solely to compensate executives for dividends that may be granted to shareholders but that are not paid for unvested restricted stock units during the three-year vesting period.

 

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Stock Options

 

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

 

Restricted Stock

 

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

 

Performance-vesting Stock Options and RSUs

 

FY 2018 Performance Metrics for LTIP Awards. Under the Long-Term Incentive Plan for FY 2018, the Committee approved grants of stock options and restricted stock units (as well as cash performance units to compensate for dividends that would not be received during the vesting period for those restricted stock units) to all executives. These grants have a three-year cliff vesting schedule and therefore vest following the Company’s 2020 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted operating income and consolidated organic revenue goals for FY 2020. These targets promote long-term achievement of the Company’s strategic objectives.

 

 

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

 

 

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

 

The Committee discussed input received from shareholders during the engagement process this year. A few shareholders suggested that metrics other than revenue and EBITA might be appropriate, and also that different measures might be used for long-term and short-term incentives. After considering these suggestions, the Committee affirmed its view that consolidated adjusted operating income and consolidated organic revenue are most appropriate for the long-term incentive plan because they are measurable performance metrics that reflect the Company’s business performance and stress the balance between top-line growth and bottom-line performance, thereby incenting long-term profitable growth.  The Committee believes that over the long-term, these performance metrics, working in tandem, are most appropriate for driving long-term shareholder value creation. Some shareholders had suggested the Committee consider measures such as Return On Invested Capital, but such a measure would undermine one of the Company’s strategic initiatives to acquire strategic assets that are typically dilutive in the near term. The Committee also believes that using LTIP metrics based on 2020 performance differentiates the performance criteria from the 2018 metrics used to evaluate STIP performance; while the measures are of the same nature, one drives near term performance and the other encourages longer term management of the Company.

 

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The following table sets forth the threshold, target, and maximum potential payouts to our NEOs under the performance-vested equity for FY 2018:

 

   

Stock Options

   

Restricted Stock Units*

 

Executive

 

Threshold

   

Target

   

Maximum

   

Threshold

   

Target

   

Maximum

 

Charles Kummeth

  $ 887,498     $ 1,774,996     $ 2,662,494     $ 887,467     $ 1,774,933     $ 2,662,400  

James Hippel

  $ 184,999     $ 369,999     $ 554,998     $ 184,991     $ 369,981     $ 554,972  

David Eansor

  $ 90,624     $ 181,248     $ 271,872     $ 90,620     $ 181,239     $ 271,859  

Robert Gavin

  $ 81,245     $ 162,491     $ 243,736     $ 81,241     $ 162,481     $ 243,722  

Brenda Furlow

  $ 71,874     $ 143,749     $ 215,623     $ 71,862     $ 143,724     $ 215,586  

*Executives also received cash performance unit grants to compensate for dividends that may be paid to shareholders during the three-year vesting period, in the following amounts at Threshold, Target and Maximum, respectively: Kummeth -- $29,808, $59,616, and $89,422; Hippel -- $6,214, $12,426, and $18,640; Eansor -- $3,044, $6,087, and $9,131; Gavin -- $2,729, $5,457, and $8,186; Furlow -- $2,414, $4,827, and $7,241.

 

Awards will vest on a linear scale depending on the level of performance between threshold and maximum levels. Adjusted operating income and organic revenue exclude the impact of foreign currency translation, acquisitions and acquisition-related amortization, costs and expenses, non-recurring litigation expenses and other unusual items.

 

 

V.

Compensation Policies and Practices

 

Clawback Provisions

 

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

 

Executive Stock Ownership Guidelines

 

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

 

Named Executive Officer

Applicable Multiple

President and CEO

3x base salary

Other executive officers

1x base salary

 

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

 

Although all of our current NEOs have until July 1, 2021 to meet the guidelines, the CEO and all other NEOs (except one who joined the Company very recently) already meet the guidelines.

 

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Succession Planning

 

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

 

Accounting and Tax Treatment

 

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

 

The Executive Compensation Committee considers the deductibility of executive compensation under Section 162(m) of the Code in designing, establishing and implementing our executive compensation policies and practices. Section 162(m) generally prohibits us from deducting any compensation over $1 million per taxable year paid to certain of our named executive officers unless, under tax laws in effect prior to January 1, 2018, such compensation is treated as “performance-based compensation” within the meaning of Section 162(m) of the Code. The Tax Cuts and Jobs Act(the “Tax Act”) among other changes, repealed the exception from the deduction limit under Section 162(m) for performance-based compensation effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017 that are not materially modified after that date. However, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) as revised by the Tax Act, including the uncertain scope of the transition relief adopted in connection with repealing Section 162(m)’s performance-based compensation exception, no assurance can be given that previously granted compensation intended to satisfy the requirements for performance-based compensation will in fact qualify for such exception. Section 162(m) and the deduction of performance-based compensation remained in effect for our FY 2018.

 

While the Executive Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, the Committee also looks at other factors in making its decisions and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by us for tax purposes.

 

In addition to considering the tax consequences, the Committee considers the accounting consequences of its decisions, including the impact of expenses being recognized in connection with equity-based awards, in determining the size and form of different equity-based awards.

 

Executive Compensation Committee Report on Executive Compensation

 

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

 

The Committee reviewed and discussed the Compensation Discussion and Analysis above with management. Based on the Committee’s review and its discussions with management, the Committee approved the inclusion of the Compensation Discussion and Analysis in the Company’s Proxy Statement for the 2018 Annual Meeting.

 

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

Harold Wiens

Joseph Keegan, Ph.D.

  Members of the Executive Compensation Committee

 

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2018 Summary Compensation Table

 

The NEOs received compensation for the fiscal years ended June 30, 2018, 2017 and 2016 as set forth in the chart below.

 

Name and Principal Position

Fiscal

Year

Salary (1)

Bonus

Stock
Awards (2)

Option

Awards (2)

Non-Equity

Incentive Plan

Compensation (3)

All Other C

ompensation

Total

Charles Kummeth,

2018

$911,000

̶

$3,550,008(4)

$3,550,081(5)

$1,610,925(6)

$42,860(7)

$9,664,874

President and CEO

2017

880,000

3,550,140(4)

3,549,359(5)

1,053,594

43,798

9,076,890

 

2016

800,000

2,500,044(4)

2,908,732(5)

1,221,097

38,241

7,468,114

James Hippel,

2018

476,100

---

370,000(8)

1,110,007(9)

483,485(10)

9,295(11)

2,448,887

Senior Vice President of Finance and CFO

2017

460,000

349,988(8)

1,049,814(9)

356,310

10,660

2,226,773

 

2016

425,000

216,980(8)

685,875(9)

421,660

9,042

1,758,557

David Eansor,

2018

455,000

---

181,248(12)

543,753(13)

403,181(14)

8,100(15)

1,591,282

Senior Vice President-Biotechnology

2017

430,000

162,522(12)

487,412(13)

256,210

11,061

1,347,206

 

2016

400,000

108,490(12)

342,938(13)

282,110

7,950

1,141,488

Robert Gavin,

2018

393,750

---

162,490(16)

487,488(17)

322,662(18)

8,100(19)

1,374,490

Senior Vice President-Protein Platforms

2017

375,000

150,015(16)

449,909(17)

226,426

13,889

1,215,239

 

2016

350,000

108,490(16)

342,938(17)

136,278

5,250

942,956

Brenda Furlow,

2018

385,000

143,731(20)

431,239(21)

250,132(22)

8,100(23)

1,218,802

Senior Vice President  General Counsel

2017

350,000

125,001(20)

374,931(21)

166,834

7,950

1,024,716

 

2016

300,000

---

86,796(20)

274,342(21)

137,373

7,950

806,461

 

(1) 

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

(2) 

Amounts shown above represent the total grant date fair value of equity-based compensation based on the estimated probable outcome of the performance based-objectives applicable to such awards on the grant date and excluding the effect of estimated forfeitures. The fair value of equity awards is determined pursuant to the Financial Accounting Standards Board's Accounting Standards Codification (ASC) Topic 718. Assumptions used in the calculation of the fair value are described in Note 9 to the Company's audited financial statements for FY 2018, included in the Company's Annual Report on Form 10-K.

(3) 

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

(4) 

For 2018, represents 14,194 shares of time-vested restricted stock granted on October 26, 2017 plus performance based restricted stock units also granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming the highest level of performance conditions will be achieved is $2,662,500. For 2017, represents 16,653 shares of time-vested restricted stock granted on August 18, 2016 plus performance based restricted stock units also granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,662,500. For 2016, represents 11,522 shares of time-vested restricted stock granted on August 7, 2015, plus shares of performance based restricted stock units also granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $1,875,033.

 

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(5) 

For 2018, includes a time-vested option to purchase 78,228 shares of Common Stock issued on October 26, 2018, plus a performance-vested option also granted on Oct0ber 26, 2017. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,662,500. For 2017, includes a time-vested option to purchase 102,779 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,662,500. For 2016, includes a time-vested option to purchase 79,517 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $2,181,540.

(6) 

Includes cash bonus of $1,552,900 earned under the Company’s short-term incentive plan in effect for the applicable year, and a cash performance unit payment of $58,025 vested based on actual performance achieved under the 2016 performance-based award.

(7) 

Includes $8,250 for 401k match, $3,002 for a supplemental life and disability insurance policy ($2,007 to cover the cost of the premium and $1,015 as a tax reimbursement related to payment for the premium), and $32,753 in dividends paid on unvested restricted stock, which amount was not factored into the grant date fair value of such awards.

(8) 

For 2018, represents shares of performance based restricted stock units granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $555,000. For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $525,000. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $325,470.

(9) 

For 2018, includes a time-vested option to purchase 32,613 shares of Common Stock issued on October 26, 2017, plus a performance vested option also granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $555,000. For 2017, includes a time-vested option to purchase 40,533 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $525,000. For 2016, includes a time-vested option to purchase 25,000 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $342,938.

(10) 

Includes cash bonus of $473,413 earned under the Company’s short-term incentive plan in effect for the applicable year, and a cash performance unit payment of $10,072 vested based on actual performance achieved under the 2016 performance-based award.

(11) 

Includes $8,203 for 401k match and $1,092 for a supplemental life and disability insurance policy ($725 to cover the cost of the premium and $367 as a tax reimbursement related to payment for the premium).

(12) 

For 2018, represents shares of performance based restricted stock units granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $271,875. For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $243,750. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $162,735.

 

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(13) 

For 2018, includes a time-vested option to purchase 15,976 shares of Common Stock issued on October 26, 2017, plus a performance bested option also granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance condition will be achieved is $271,875. For 2017, includes a time-vested option to purchase 18,819 shares of Common Stock issued on August 18, 2016, plus a performance bested option also granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance condition will be achieved is $243,750. For 2016, includes a time-vested option to purchase 12,500 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $171,469.

(14) 

Includes cash bonus of $398,145 earned under the Company’s short-term incentive plan in effect for the applicable year, and a cash performance unit payment of $5,036 vested based on actual performance achieved under the 2016 performance-based award.

(15) 

401k match.

(16) 

For 2018, represents shares of performance based restricted stock units granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $243,750. For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $225,000. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $162,735.

(17) 

For 2018, includes a time-vested option to purchase 14,323 shares of Common Stock issued on October 26, 2017, plus a performance bested option also granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance condition will be achieved is $243,750. For 2017, includes a time-vested option to purchase 17,371 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $225,000. For 2016, includes a time-vested option to purchase 12,500 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $171,469.

(18) 

Includes cash bonus of $317,626 earned under the Company’s short-term incentive plan in effect for the applicable year, and a cash performance unit payment of $5,036 vested based on actual performance achieved under the 2016 performance-based award.

(19) 

401k match.

(20) 

For 2018, represents shares of performance based restricted stock units granted on October 26, 2017. The value of the 2018 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $215,625. For 2017, represents shares of performance based restricted stock units granted on August 18, 2016. The value of the 2017 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $187,500. For 2016, represents shares of performance based restricted stock units granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $130,188.

(21) 

For 2018, includes a time-vested option to purchase 12,670 shares of Common Stock issued on October 26, 2017, plus a performance bested option also granted on October 26, 2017. The value of the 2018 performance based award at the grant date assuming that the highest level of performance condition will be achieved is $215,625. For 2017, includes a time-vested option to purchase 14,476 shares of Common Stock issued on August 18, 2016, plus a performance vested option also granted on August 18, 2016. The value of the 2017 performance based award at the grant date assuming that the highest level of performance conditions will be achieved is $187,500. For 2016, includes a time-vested option to purchase 10,000 shares of Common Stock issued on August 7, 2015, plus a performance vested option also granted on August 7, 2015. The value of the 2016 performance-based award at the grant date assuming that the highest level of performance conditions will be achieved is $137,169.

(22) 

Includes cash bonus of $246,103 earned under the Company’s short-term incentive plan in effect for the applicable year, and a cash performance unit payment of $4,029 vested based on actual performance achieved under the 2016 performance-based award.

(23) 

401k match.

 

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2018 Grants of Plan-Based Awards

 

The following table sets forth certain information with respect to grants of plan-based awards for the named executive officers granted in FY 2018.

 

     

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

    Estimated Future Payouts
Under Equity Incentive
Plan Awards
(2)
   

All Other Stock Awards: Number of Shares (3)

(#)

   

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

(#)

   

Exercise or Base Price of Option Awards (per share)

($)

   

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

($)

 

Name

Grant Date

 

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

                                 

Charles

  $ 546,600     $ 1,093,200     $ 2,186,400                                            
Kummeth     29,807       59,615       89,422                                           ---  
 

10/26/2017

    ---       ---       ---       7,097       14,194       21,291       ---       ---       ---     $ 2,662,400  
 

10/26/2017

    ---       ---       ---       39,114       78,228       117,342       ---       ---     $ 125.05       2,662,494  
 

10/26/2017

                      ---       ---       ---       ---       78,228     $ 125.05       1,774,996  
 

10/26/2017

                      ---       ---       ---       14,194       ---       ---       1,774,960  

James

    166,635       333,270       666,540                                           ---  
Hippel     6,213       12,426       18,640                                           ---  
 

10/26/2017

    ---       ---       ---       1,479       2,959       4,438       ---       ---       ---       554,972  
 

10/26/2017

    ---       ---       ---       8,153       16,306       24,460       ---       ---       125.05       554,998  
 

10/26/2017

                                              32,613       125.05       739,990  

David

    136,500       273,000       546,000                                            
Eansor     3,044       6,087       9,131                                           ---  
 

10/26/2017

    ---       ---       ---       724       1,448       2,174                         271,859  
 

10/26/2017

    ---       ---       ---       3,994       7,988       11,982       ---       ---       125.05       271,872  
 

10/26/2017

                                              15,976       125.05       362,496  

Robert

    98,348       196,875       393,750                                            
Gavin     2,729       5,457       8,186                                           ---  
 

10/26/2017

                      649       1,298       1,949       ---       ---       ---       243,722  
 

10/26/2017

                      3,580       7,160       10,472       ---       ---       125.05       243,736  
 

10/26/2017

                                              14,323       125.05       324,989  

Brenda

    86,625       173,250       346,500                                            
Furlow     2,414       4,827       7,241                                           ---  
 

10/26/2017

                      574       1,148       1,724       ---       ---       ---       215,586  
 

10/26/2017

    ---       ---       ---       3,167       6,334       9,503       ---       ---       125.05       215,623  
 

10/26/2017

    ---       ---       ---                               12,670       125.05       287,483  

 

(1) 

Row 1 for each NEO represents cash bonuses that could have been earned under the Company’s Management Incentive Plan for FY 2018 and would have been paid in FY 2019. The payout under the Company’s Management Incentive Plan for FY 2018 for each participant depended on an individualized ratio of consolidated adjusted operating income results, consolidated organic revenue results, and with respect to Messrs. Eansor and Gavin, division adjusted operating income results and division organic revenue results. On August 1, 2018, the Committee approved the following bonuses: Mr. Kummeth in the amount of $1,552,900, Mr. Hippel in the amount of $473,413, Mr. Eansor in the amount of $398,145, Mr. Gavin in the amount of $317,626, and Ms. Furlow in the amount of $246,103. Row 2 for each NEO represents performance-based cash units granted during the fiscal year under the Company’s 2010 Equity Incentive Plan. Such awards vest following the Company’s 2020 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted earnings per share and organic revenue growth goals in FY 2020.

(2) 

Represents the number of performance-based equity awards granted to the participant NEOs during the fiscal year under the Company’s Second Amended and Restated 2010 Equity Incentive Plan (“Equity Plan”). For each NEO, Row 3 represents performance-based restricted stock units and Row 4 represents performance-based options, which awards vest following the Company’s 2020 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted earnings per share and organic revenue growth goals in FY 2020.

(3) 

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

(4) 

Represents the number of time-based stock options granted to the participant during the fiscal year under the Company’s Equity Plan. Such awards vest annually in pro-rata increments over a period of four years, beginning on August 9, 2018.

(5) 

The fair value of the equity awards is determined pursuant to ASC Topic 718, based on the probable outcome of the performance conditions and excluding the effect of estimated forfeitures. Assumptions used in the calculation of the fair value of the equity awards are described in Note 9 to the Company’s audited financial statements for FY 2018, included in the Company’s Annual Report on Form 10-K.

 

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2018 Outstanding Equity Awards at Fiscal Year-End

 

The following table shows all outstanding stock options and restricted stock held by the named executive officers on June 30, 2018.

 

   

Option Awards

 

Stock Awards

 
Name  

Number of

Securities

Underlying

Unexercised

Options

Exercisable
(#)

   

Number of

Securities

Underlying

Unexercised

Options

Unexercisable
(#)

   

Number of

Securities

Underlying

Unexercised

Unearned

Options
(#)

   

Option

Exercise

Price
($)

 

Option

Expiration

Date

 

Number

of Shares

of Stock

that have

not

Vested
(#)

   

Market

Value

of Shares

of Stock

that have

not

Vested
($)

   

Number of Unearned

Shares,

Units or

Other

Rights

that have

not Vested
(#)

   

Market

Value of

Unearned

Shares

that have

not

Vested
($)

 

Charles Kummeth

    65,000  (1)               $ 67.46  

4/1/2020

                               
      50,000  (2)                 67.46  

4/1/2020

                       
      46,316  (3)                 86.25  

4/1/2021

                       
      66,849  (4)                 94.35  

8/12/2021

                       
      39,758  (5)     39,759  (5)           108.49  

8/7/2022

    3,841  (6)   $ 568,276              
                  119,275  (7)     108.49  

8/7/2022

                17,283  (8)   $ 2,557,020  
      25,695  (9)     77,084  (9)           106.59  

8/18/2023

    11,102  (10)     1,642,541              
                  154,169  (11)     106.59  

8/18/2023

                24,979  (12)     3,695,643  
            78,228  (13)           125.05  

8/9/2024

    14,194  (14)     2,100,002              
                  117,342  (15)     125.05  

8/9/2024

                21,291  (16)     3,150,003  

James Hippel

    25,000  (17)                 86.25  

4/1/2021

                       
      10,000  (18)                 86.25  

4/1/2021

                       
      26,250  (19)     8,750  (19)           94.35  

8/12/2021

                       
      12,500  (20)     12,500  (20)           108.49  

8/7/2022

                       
                  18,750  (7)     108.49  

8/7/2022

                3,000  (8)     443,850  
      10,134  (21)     30,399  (21)           106.59  

8/18/2023

                       
                  30,400  (11)     106.59  

8/18/2023

                4,925  (12)     728,654  
            32,613  (22)           125.05  

8/9/2024

                       
                  24,460  (15)     125.05  

8/9/2024

                4,438  (16)     656,602  

David Eansor

    11,250  (23)     3,750  (23)           94.35  

8/12/2021

                       
      6,250  (24)     6,250  (24)           108.49  

8/7/2022

                       
                  9,375  (7)     108.49  

8/7/2022

                1,500  (8)     221,925  
      4,705  (25)     14,114  (25)           106.59  

8/18/2023

                       
                  14,114  (11)     106.59  

8/18/2023

                2,287  (12)     338,362  
            15,976  (26)           125.05  

8/9/2024

                       
                  11,982  (15)     125.05  

8/9/2024

                2,174  (16)     321,643  

 

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Robert Gavin

    7,500  (27)     2,500  (27)           93.32  

7/31/2021

                       
                  16,667  (28)     93.32  

7/31/2021

                       
      3,750  (29)     1,250  (29)           90.25  

11/30/2021

                       
      6,250  (30)     6,250  (30)           108.49  

8/7/2022

                       
                  9,375  (7)     108.49  

8/7/2022

                1,500  (8)     221,925  
      4,343  (31)     13,028  (31)           106.59  

8/18/2023

                       
                  13,028  (11)     106.59  

8/18/2023

                2,111  (12)     312,322  
            14,323  (32)           125.05  

8/9/2024

                       
                  10,742  (15)     125.05  

8/9/2024

                1,949  (16)     288,355  

Brenda Furlow

    11,250  (33)     3,750  (33)           94.35  

8/12/2021

                       
      5,000  (34)     5,000  (34)           108.49  

8/7/2022

                       
                  7,500  (7)     108.49  

8/7/2022

                1,200  (8)     177,540  
      3,619  (35)     10,857  (35)           106.59  

8/18/2023

                       
                  10,857  (11)     106.59  

8/18/2023

                1,759  (12)     260,244  
            12,670  (36)           125.05  

8/9/2024

                       
                  9,503  (15)     125.05  

8/9/2024

                1,724  (16)     255,066  

 

(1) 

Vested in FY 2017 pursuant to time-based vesting provisions.

(2) 

Vested in FY 2014 pursuant to the achievement of certain performance goals.

(3) 

Vested in FY 2018 pursuant to time-based vesting provisions.

(4) 

Vested in FY 2017 pursuant to the achievement of certain performance goals.

(5) 

Vests 19,879 shares on each of August 7, 2016, August 7, 2017 and August 7, 2018, and 19,880 shares on August 7, 2019.

(6) 

Restricted stock risk of forfeiture will lapse for 3,841 shares on August 7, 2018.

(7) 

Vests in full or in part following the Company’s 2018 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted operating income and organic revenue growth goals in the 2018 fiscal year.

(8) 

Restricted stock units vest in full or in part following the Company’s 2018 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted operating income and organic revenue growth goals in the 2018 fiscal year.

(9) 

Vests 25,695 shares on each of August 18, 2017, August 18, 2018 and August 18, 2019 and 25,694 shares on August 18, 2020.

(10) 

Restricted stock risk of forfeiture will lapse with respect to 5,551 shares on each of August 18, 2018 and August 18, 2019.

(11) 

Vests in full or in part on August 18, 2019 if certain performance goals are achieved (or such later date as performance is certified).

(12) 

Restricted stock units vest in full or in part following the Company’s 2019 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted operating income and organic revenue growth goals in the 2019 fiscal year.

(13) 

Vests 19,557 shares on each of August 9, 2018, August 9, 2019 and August 9, 2020 and August 9, 2021.

(14) 

Restricted stock risk of forfeiture will lapse with respect to 4,731 shares on each of August 9, 2018, August 9, 2019, and 4,732 on August 9, 2020.

(15) 

Vests in full or in part on August 9, 2020 if certain performance goals are achieved (or such later date as performance is certified).

(16) 

Restricted stock units vest in full or in part following the Company’s 2020 fiscal year if the Company achieves threshold, target or maximum consolidated adjusted operating income and organic revenue growth goals in the 2020 fiscal year.

(17) 

Vested in FY 2018 pursuant to time-based vesting provisions

(18) 

Vested in FY 2015 pursuant to the achievement of certain performance goals.

(19) 

Granted August 12, 2014. Vests ratably on the first four anniversaries of the grant date.

(20) 

Granted on August 7, 2015. Vest ratably on the first four anniversaries of the grant date.

 

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(21) 

Vests 10,134 shares on August 18, 2017 and 10,133 shares each on August 18, 2018, August 19, 2019 and August 18, 2020.

(22) 

Vests 8,153 shares on each of August 9, 2018, August 9, 2019 and August 9, 2020 and 8,154 shares on August 9, 2021.

(23) 

Granted August 12, 2014. Vests ratably on the first four anniversaries of the grant date.

(24) 

Granted August 7, 2015. Vests ratably on the first four anniversaries of the grant date.

(25) 

Vests 4,705 shares each on August 18, 2017, August 18, 2018 and August 19, 2019 and 4,704 shares on August 18, 2020.

(26) 

Vests 3,994 shares on each of August 9, 2018, August 9, 2019, August 9, 2020 and August 9, 2021.

(27) 

Granted July 31, 2014. Vests ratably on the first four anniversaries of the grant date.

(28) 

Vested in FY 2017 pursuant to discretionary authority of the Board.

(29) 

Granted December 1, 2014. Vests ratably on the first four anniversaries of the grant date.

(30) 

Granted August 7, 2015. Vests ratably on the first four anniversaries of the grant date.

(31) 

Vests 4,343 shares each on August 18, 2017, August 18, 2018 and August 19, 2019 and 4,342 shares on August 18, 2020.

(32) 

Vests 3,580 shares on August 9, 2018 and 3,581 shares each on August 9, 2019, August 9, 2020 and August 9, 2021.

(33) 

Granted August 12, 2014. Vests ratably on the first four anniversaries of the grant date.

(34) 

Granted August 7, 2015. Vests ratably on the first four anniversaries of the grant date.

(35) 

Granted August 18, 2016. Vests ratably on the first four anniversaries of the grant date.

(36) 

Vests 3,167 shares on each of August 9, 2018, August 9, 2019 and 3,168 shares on each of August 9, 2020 and August 9, 2021.

 

2018 Option Exercises and Stock Vested

 

The following table shows options exercised by the named executive officers during FY 2018 and each vesting of stock, including restricted stock and restricted stock units during FY 2018, for each of the named executive officers on an aggregated basis. The value realized on exercise is equal to the difference between the market price of the underlying shares at the date of exercise and the exercise price of the options. The value realized on vesting is equal to the market price of the underlying shares at the date of vesting.

 

   

Option Awards

   

Stock Awards

 
Name  

Number of

Shares

Acquired on

Exercise
(#)

   

Value Realized on

Exercise
($)

   

Number of

Shares Acquired

on Vesting
(#)

   

Value

Realized

on Vesting
($)

 

Charles Kummeth

                18,640     $ 2,187,912  

James Hippel

                       

David Eansor

                1,167       112,662  

Robert Gavin

                       

Brenda Furlow

                833       97,878  

 

 

Executive Employment Agreements and Change in Control Arrangements

 

We have entered into employment agreements with our executive officers that outline the compensation and benefits payable to the executives and specify the payments that may be made upon certain termination events. The descriptions below are qualified in their entirety by reference to the agreements themselves, which have been referenced as exhibits to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

 

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Compensation Arrangements

 

The employment agreements with our NEOs provide for annual base salaries to be reviewed on at least an annual basis by the Committee, and state that the executives will be eligible to participate in the Company’s Management Incentive Plan. Cash bonuses under the Management Incentive Plan are targeted at a specified percentage of the executive’s base salary, as set by the Committee each year. Executives are also eligible for periodic long-term equity awards as determined by the Committee. The employment agreements provide that incentive compensation is subject to recoupment to the extent required by laws or regulations that are applicable to Bio-Techne.

 

Benefits

 

Our executives are entitled to participate in all general Bio-Techne benefit plans to the extent eligible to do so based on age, tenure and title, as well as to receive reimbursement for necessary and reasonable out-of-pocket expenses incurred in connection with performing their employment duties and paid vacation of four weeks per calendar year.

 

Under the employment agreements with Mr. Kummeth and Mr. Hippel, Bio-Techne provides reimbursement for supplemental life insurance and supplemental short-term and long-term disability insurance in a maximum amount that, when aggregated with coverage provided to them under Bio-Techne’s other benefit plans, is three times the applicable base salary for life insurance and 60% and 70% of applicable base salary for short-term and long-term disability insurance, respectively. The reimbursement amounts provided to Mr. Kummeth and Mr. Hippel also include an additional reasonable gross-up amount to cover taxes incurred by them as a result of such payments.

 

Potential Severance Events

 

Non-Change of Control Events

 

In the event Bio-Techne terminates an executive’s employment without “cause” (as defined in the employment agreements) or in the event an executive resigns for “good reason” (as defined in the employment agreements), the executive would be entitled to severance in the amount of one year of his or her then-current base salary. Any severance payments under the employment agreements are contingent upon the executive executing and complying with a release of claims against the Company.

 

The employment agreements define “cause” to include: (i) habitual neglect of, or willful or material failure to perform employment duties; (ii) embezzlement or any act of fraud; (iii) commission of acts that can be charged as a felony; (iv) dishonesty in dealing between the executive and Bio-Techne or between the executive and other Bio-Techne employees; (v) use or misuse of any controlled substance or of alcohol in a manner that adversely affects the executive’s job performance or otherwise could reflect negatively on the public image of Bio-Techne; (vi) habitual absenteeism; or (vii) willfully acting in a manner materially adverse to the best interests of Bio-Techne.

 

The employment agreements define “good reason” to mean: (i) a change in the executive’s reporting responsibilities, titles or offices which diminishes the executive’s responsibility or authority; (ii) a material reduction in executive’s total compensation from that provided in the executive’s employment agreement; (iii) a requirement imposed by Bio-Techne that results in the executive being based at a location that is outside a 50 mile radius of Bio-Techne; or (iv) physical working conditions or requirements that a reasonable person would find intolerable (provided that Bio-Techne has a 30-day right to cure or address such intolerable conditions).

 

Change of Control Events

 

If an executive resigns for Good Reason or is terminated upon a “change of control” (as defined in the employment agreement) or within one year thereafter, the executive would be entitled to severance in the amount of two years of his then-current base salary, with respect to Mr. Kummeth, or one year of his or her then-current base salary, with respect to all other NEOs, plus in each case the pro-rated value of any cash incentive compensation earned through the date of separation (based on higher of the target cash incentive compensation amount in either the prior year or the year in which the change of control occurs), the automatic acceleration of any vesting requirements of outstanding equity awards, and the payment of COBRA health insurance premiums for two years, with respect to Mr. Kummeth, or one year, with respect to all other NEOs. Any severance payments under the employment agreements are contingent upon the executive executing and complying with a release of claims against the Company.

 

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For the purpose of the employment agreements, “change of control” generally means: (i) a person, entity or group becomes the owner of more than 50% of the combined voting power of Bio-Techne’s then-outstanding securities (other than in connection with an equity financing or solely as the result of a repurchase of outstanding shares by Bio-Techne); (ii) a merger, consolidation or similar transaction occurs and the shareholders of Bio-Techne immediately prior to the event to not own outstanding voting securities of more than 50% of the combined voting power of the surviving entity following the event; or (iii) a sale, lease or other disposition of substantially all of the total gross value of Bio-Techne’s consolidated assets occurs.

 

Quantification of Potential Severance Events as of June 30, 2018

 

For each named executive officer, the estimated amount of potential payments at June 30, 2018, assuming the executive’s employment terminates pursuant to a covered reason, is as follows:

 

   

Cash Severance
Upon Termination

   

Severance Upon Termination

Following a Change in Control

 
Name   Without
Cause or
Resignation
for Good Reason
   

Cash
Severance
(1)

   

Value of
Accelerated
Equity
Awards
(2)

 

Charles Kummeth

  $ 930,444     $ 3,680,709     $ 24,931,594  

James Hippel

    495,544       1,020,882       5,660,699  

David Eansor

    474,444       897,625       2,944,052  

Robert Gavin

    413,194       754,172       2,290,636  

Brenda Furlow

    404,444       670,216       2,016,365  

 

(1) 

Assumes that the triggering event took place on the last business day of FY 2018, and the payout upon termination is equal to the applicable multiple of base salary plus the actual non-equity incentive plan compensation earned for FY 2018 plus the maximum value of unvested performance-based cash units plus payment of COBRA health insurance premiums for the applicable number of years.

(2) 

Assumes that the triggering event took place on the last business day of FY 2018, the price per share of the Company's securities is the closing market price as of that date, and the payout upon termination is equal to the maximum value of unvested equity awards. Represents the sum of the value of accelerated restricted stock and RSUs, calculated by multiplying the number of restricted stock and RSUs by the price per share on June 30, 2018, plus the value of accelerated option shares, calculated by subtracting the aggregate exercise price from the price per share on June 30, 2018 and multiplying the difference by the number of option shares.

 

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Pay Ratio Disclosure


 

As a result of Section 953(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, (collectively, the “Rule”), beginning with our 2018 proxy statement, the SEC requires disclosure of the ratio of annual total compensation received by our CEO compared to the median of the annual total compensation of all of our employees (other than our CEO), commonly referred to as the ”pay ratio” disclosure.

 

To identify our median employee, we used our employee population on May 1, 2018 and calculated annualized cash compensation as reported in our payroll systems, which included base salary or wages, cash bonuses, and commissions paid. As of May 1, 2018, we had 1,852 employees, of which 1,443 were employed in the United States, with the remaining 409 employed outside the United States. A total of 337 of our employees outside the United States are employed in the United Kingdom, Canada, Germany and China. As permitted by the Rule, we excluded 72 other employees employed outside of the United States (which includes subsidiaries in 17 countries each with employee populations of 1 to 10 employees), consisting in the aggregate of less than 5% of our total employee population.

 

After identifying our median employee, we calculated the annual total compensation of the median employee in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $73,840. Our median employee did not receive any equity compensation.

 

Our CEO, Mr. Kummeth, received annual total compensation for FY 2018 in the amount of $9,664,874 as reflected in the Summary Compensation Table included in this Proxy Statement. Based on this information, we estimate that Mr. Kummeth’s FY 2018 annual total compensation was approximately 131 times the median of the annual total compensation of all employees.

 

Item 3. ADVISORY VOTE ON EXECUTIVE COMPENSATION


 

Your Board recommends a vote “FOR” support of the Company’s named executive officer compensation.

 

Consistent with the results of the shareholder advisory vote held at the 2018 Annual Meeting of Shareholders regarding the frequency of “say on pay” votes, the Board has adopted a policy providing for annual say on pay advisory votes. This vote is not intended to address any specific item of compensation, but rather our overall compensation policies and procedures relating to the named executive officers. Our Executive Compensation Committee has described our compensation philosophy in the Compensation Discussion and Analysis contained in this Proxy Statement. Shareholders are urged to read the Compensation Discussion and Analysis, which also discusses how the Company’s compensation policies and procedures implement the Company’s compensation philosophy, as well as the 2018 Summary Compensation Table and other related tables and narrative disclosure that describe the compensation of the Chief Executive Officer, the Chief Financial Officer and the other named executive officers of the Company in FY 2018. The Executive Compensation Committee and the Board believe the policies and procedures articulated in the Compensation Discussion and Analysis are effective in implementing the Company’s compensation philosophy and in achieving its goals and that the compensation of the named executive officers in FY 2018 reflects and supports these compensation policies and procedures. 

 

We ask our stockholders to vote on the following resolution at the Annual Meeting:

 

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the 2018 Summary Compensation Table and the other related tables and disclosures.”

 

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This advisory vote on named executive officer compensation, commonly referred to as a say on pay advisory vote, is not binding on the Board. However, the Executive Compensation Committee will take into account the result of the vote when determining future executive compensation arrangements.

 

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

 

Equity Compensation Plan Information

 

We currently award stock-based compensation, including stock options and restricted stock, under our Second Amended and Restated 2010 Equity Incentive Plan. The following table presents information about common stock authorized for issuance under the Second Amended and Restated 2010 Equity Incentive Plan as of June 30, 2018:

 

Plan Category

 

Number of Securities to be Issued Upon Exercise of Outstanding Options

(# in 000’s)

   

Weighted Avg. Exercise Price of Outstanding Options

($)

   

Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A))

(# in 000’s)

 
   

(A)

   

(B)

   

(C)

 

Equity compensation plans approved by shareholders

    3,452     $ 105.17       2,361  

Equity compensation plans not approved by shareholders

    0       N/A       0  

Total

    3,452     $ 105.17       2,361  

 

 

As of August 31, 2018, there were 1,551,594 shares available for future grants under the Amended Plan, and the closing price per share of our common stock was $192.17 as reported on The NASDAQ Global Select Market.

 

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PRINCIPAL SHAREHOLDERS


 

The following table provides information concerning the only persons known to the Company to be the beneficial owners of more than 5% of the Company’s outstanding Common Stock as of August 31, 2018.

 

Name and Address of Beneficial Owner

 

Amount and Nature
of Shares
Beneficially Owned

   

Percent
of Class

 

BlackRock, Inc.

40 East 52nd Street

New York, NY 10022

    3,776,455(1)       10.1%  

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

    3,145,154(2)       8.39%  

Eaton Vance Management

2 Int’l Place

Boston, MA 02110

    2,028,469(3)       5.42%  

Brown Capital Management, LLC

1201 N. Calvert Street

Baltimore, MD 21202

    2,025,700(4)       5.41%  

 

 

(1) 

BlackRock, Inc. reported its beneficial ownership on a Schedule 13G/A filed with the SEC on July 10, 2018. The filing indicates that as of June 30, 2018, BlackRock, Inc. had sole voting power over 3,623,785 shares, shared voting power over no shares, sole dispositive power over 3,776,455 shares, and shared dispositive power over no shares.

(2) 

The Vanguard Group reported its beneficial ownership on a Schedule 13G/A filed with the SEC on February 8, 2018. The filing indicates that as of December 31, 2017, The Vanguard Group has sole voting power of 20,641 shares, shared voting power over 4,512 shares, sole dispositive power over 3,122,854 shares, and shared dispositive power over 22,300 shares.

(3) 

Eaton Vance Management reported its beneficial ownership on a Schedule 13G filed with the SEC on February 14, 2018. The filing indicates that as of December 31, 2017, Eaton Vance Management has shared voting power and dispositive power over 2,028,469 shares of Common Stock, and shared voting and dispositive power over no shares.

(4) 

Brown Capital Management, LLC reported its beneficial ownership on a Schedule 13G/A filed with the SEC on February 14, 2018. The filing indicates that as of December 31, 2017, Brown Capital Management, LLC has sole voting power of 1,297,455 shares, shared voting power over no shares, sole dispositive power over 2,025,700 and shared dispositive power over no shares.

 

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MANAGEMENT SHAREHOLDINGS


 

The following table sets forth the number of shares of the Company’s Common Stock beneficially owned as of August 31, 2018, by each executive officer of the Company named in the Summary Compensation Table (the “named executive officers”), by each director and by all directors and current executive officers as a group. Other than Charles Kummeth, who beneficially owns 1.4% of total shares outstanding, each individual beneficially owns less than one percent of total shares outstanding, which includes shares subject to options exercisable by him or her. As a group, executive officers and directors beneficially own 3.8% of total shares outstanding.

 

Name of Director or Executive Officer

 

Number of
Shares Beneficially
Owned (1)

 

Charles R. Kummeth

    546,272  (2)

Robert V. Baumgartner

    37,082  (3)

Joseph Keegan, Ph.D.

    3,864  (4)

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

    33,082  (5)

Charles A. Dinarello, M.D.

    42,582  (6)

Alpna Seth, Ph.D..

    3,864  (7)

John L. Higgins

    42,382  (8)

Roeland Nusse, Ph.D.

    49,082  (9)

David Eansor

    48,390  (10)

Robert Gavin

    62,419  (11)

Brenda Furlow

    41,090  (12)

James Hippel

    136,540  (13)

Harold J. Wiens

    21,582  (14)

Officers and directors as a group (15 persons)

    1,451,813  (15)

 

 

(1) 

Unless otherwise indicated, the person listed as the beneficial owner has sole voting and sole investment power over outstanding shares. Shares beneficially owned includes shares underlying restricted stock awards that are currently outstanding, shares underlying restricted stock units that are currently outstanding and vested, shares underlying options that are currently outstanding and exercisable and options that are currently outstanding and will become exercisable within 60 days of August 31, 2018. Percentage ownership calculations are based on 37,758,275 shares issued and outstanding on August 31, 2018.

(2) 

Includes 92,176 shares held directly and 454,096 shares subject to vested but unexercised stock options

(3) 

Includes 7,712 shares held directly, 26,245 shares subject to vested but unexercised stock options, and 3,125 shares subject to stock options that will vest within 60 days of August 31, 2018.

(4) 

Includes 739 shares held directly and 3,125 shares subject to stock options that will vest within 60 days of August 31, 2018.

(5) 

Includes 3,712 shares held directly, 26,245 shares subject to vested but unexercised stock options, and 3,125 shares subject to stock options that will vest within 60 days of August 31, 2018.

(6) 

Includes 8,212 shares held directly, 31,245 shares subject to vested but unexercised stock options, and 3,125 shares subject to stock options that will vest within 60 days of August 31, 2018.

(7) 

Includes 739 shares held directly and 3,125 shares subject to stock options that will vest within 60 days of August 31, 20