Kensey Nash 10-K 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Amendment No. 1)
For the Fiscal Year Ended: June 30, 2009
For the transition period from to .
Commission File Number: 001-34388
KENSEY NASH CORPORATION
(Exact name of registrant as specified in its charter)
735 Pennsylvania Drive, Exton, Pennsylvania 19341
(Address of principal executive offices and zip code)
Registrants telephone number, including area code: (484) 713-2100
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the registrants Common Stock held by non-affiliates of the registrant as of December 31, 2008 (the last business day of the registrants most recently completed second fiscal quarter) was $183,891,815, based on the closing price per share of Common Stock of $19.41 as of such date reported by the NASDAQ Global Select Market. Shares of the registrants Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrants Common Stock, par value $.001 per share, as of October 21, 2009 was 11,138,631.
This Amendment No. 1 (this Amendment) amends the Annual Report on Form 10-K of Kensey Nash Corporation (referred to herein as the Company, we, us and our) for its fiscal year ended June 30, 2009, which was filed with the Securities and Exchange Commission on September 14, 2009 (the Original Filing), and is being filed to include information required by Items 10, 11, 12, 13 and 14 of Part III of Form 10-K, which originally was omitted in reliance on General Instruction G(3) thereto. The Original Filing had indicated that such information would be provided through incorporation by reference to our definitive proxy statement (the 2009 Proxy Statement), which would be filed with the Securities and Exchange Commission no later than 120 days after June 30, 2009, or October 28, 2009, but the Company is not filing the 2009 Proxy Statement by such date. The Company does not, however, intend to delay its 2009 Annual Meeting of Stockholders, scheduled for December 9, 2009, and anticipates filing the 2009 Proxy Statement with the Securities and Exchange Commission by November 9, 2009.
This Amendment does not otherwise modify or update disclosures contained in the Original Filing. This Amendment should be read in conjunction with the Original Filing and the Companys other filings made with the Securities and Exchange Commission subsequent to the filing of the Original Filing.
The following table lists the members of the Companys Board of Directors (the Board), their age, their position with the Company, the year each was first elected as a director and the expiration of their current term.
Mr. Kaufmann has served as Chief Executive Officer and President of the Company since 1995, as Secretary since 1989, and as a director since 1992. Mr. Kaufmann joined the Company in 1989 as Chief Financial Officer and was appointed Vice President, Finance and Administration in January 1994. Prior to joining the Company, Mr. Kaufmann held executive finance positions at divisions of Hanson, PLC and Syntex Corporation. Mr. Kaufmann received a B.S. degree in Accounting from St. Josephs University.
Mr. Chefitz has been a director of the Company since June 1995. Mr. Chefitz has many years of experience in investment banking and venture capital in the healthcare industry. For more than seven years he has been Chairman of Notch Hill Advisors, a private management company, advisors to CK Capital L.P., a private fund. He is also a member of Boston University Medical School Alzheimer Advisory Board, a director of Nitric Bio, a venture-based enterprise, and serves on the board of directors of the American Committee for Witzman Institute of Science. He was a director of Barr Pharmaceuticals, Inc. from 1998 to December 2008, the time when Teva Pharmaceutical Industries Ltd acquired Barr Pharmaceuticals. From May 2004 to December 2005, Mr. Chefitz was a Managing Partner at QuanStar Group, LLC. In addition, he was a Senior Managing Director of Gerard Klauer Mattison & Co., LLC from June 1995 through November 1998. From March 1993 until March 1995, he served as a Managing Director and Head of Healthcare Investment Banking for Prudential Securities Incorporated in New York City, NY. Mr. Chefitz received a B.S. degree from Boston University and attended Boston College Law School. Mr. Chefitz is a member of the Audit Committee and the Compensation Committee and qualifies as an audit committee financial expert as defined in Securities and Exchange Commission (SEC) rules under the Sarbanes Oxley Act of 2002.
Mr. Lee has been a director of the Company since July 2000. Since August 2002, Mr. Lee has been the President of SL Consultant Inc. a private investment firm and hedge fund specializing in growing companies in the medical and high technology fields. Mr. Lee was the Founder, President, Chief Executive Officer and Chairman of PolyMedica Corporation from 1990 until August 2002, the time of his retirement from PolyMedica. Previously, Mr. Lee was President and a director of Shawmut National Ventures. Prior to that, Mr. Lee served as President and Chief Executive Officer and a director of RepliGen Corporation from 1984 to 1986. Mr. Lee received a B.A., cum laude, from Lehigh University, an M.B.A. from the Wharton School of Finance and Commerce at the University of Pennsylvania, and a J.D. degree from Fordham University School of Law. He is licensed to practice in the states of Massachusetts and New York and is a retired member of the respective States Bar Associations. Mr. Lee is a member of the Audit Committee and the Compensation Committee and qualifies as an audit committee financial expert as defined in SEC rules under the Sarbanes Oxley Act of 2002.
Mr. Bobb has been a director of the Company since 1984. Since 1978, Mr. Bobb has been a principal equity investor in a number of lower to middle market operating companies. These investments have included start-ups, turnarounds and acquisitions from both private and public sellers. In each instance, Mr. Bobb served as Chief Executive Officer or Chairman of the Board. Currently, Mr. Bobb is Chairman of the Board for each of Chemcoaters LLC, Chicago Steel LLC and Robert J. Bobb & Company. In addition to the foregoing private investments, Mr. Bobb serves as Chairman of Cardinal Growth L.P., a private equity fund investing in small to middle market companies since its inception in 2000. Mr. Bobb received a B.S. degree from Western Michigan University and a J.D. degree from the University of Notre Dame Law School. Mr. Bobb is a member of the Corporate Governance and Nominating Committee and Chairman of the Audit Committee and qualifies as an audit committee financial expert as defined in SEC rules under the Sarbanes Oxley Act of 2002.
Mr. Evans has served as Chief Operating Officer and as Assistant Secretary of the Company and has been a director since 1995. Mr. Evans is responsible for overseeing the Companys daily operations, protecting and developing the Companys intellectual property and assessing new technologies. From 1989 to 1994, Mr. Evans held several senior positions with the Company in product development and engineering. From 1986 until joining the Company in 1989, Mr. Evans held a number of positions in engineering and business development for several divisions of the General Electric Company. Mr. Evans received a B.S. degree in Engineering Science and a Masters degree in Business Management from The Pennsylvania State University and an M.S. degree in Electrical Engineering from the University of Pennsylvania. Mr. Evans is a Registered Professional Engineer in the United States.
Dr. Evarts has been a director of the Company since July 2000. Dr. Evarts is currently one of three Distinguished University Professors at the University of Rochester and Professor of Orthopaedics at the University of Rochester Medical Center, positions he has held since August 2006. From July 2003 to August 2006, Dr. Evarts had been Chief Executive Officer of the University of Rochester Medical Center and Senior Vice President and Vice Provost for Health Affairs at the University of Rochester. In addition, Dr. Evarts was the Chief Executive Officer of The Milton S. Hershey Medical Center, as well as the Senior Vice President for Health Affairs and Dean, College of Medicine. Previously, Dr. Evarts served as Professor and Chair of the Department of Orthopaedics at the University of Rochester School of Medicine and Dentistry and Medical Center and Vice President for Development. Prior to that, he was Chair of the Department of Orthopaedic Surgery at the Cleveland Clinic Foundation. Dr. Evarts holds an A.B. degree from Colgate University. He received his Medical Degree from the University of Rochester School of Medicine and Dentistry and served his internship and residency at the University of Rochester Strong Memorial Hospital. Dr. Evarts is a former board member of Carpenter Tech, The Hershey Foods Corporation, and board chair of the Hershey Trust. He is a member of the National Academy of Sciences Institute of Medicine. Dr. Evarts is the chairman of the Compensation Committee and a member of the Corporate Governance and Nominating Committee.
Mr. Maupay has been a director of the Company since June 1995. Prior to his retirement in 1995, Mr. Maupay was a group executive with Bristol-Myers Squibb, a bio-pharmaceutical research and development company, and President of its Convatec Division, from 1994 when Bristol-Myers Squibb bought Calgon Vestal Laboratories from Merck & Co. From 1988 to December 1994, Mr. Maupay served as President of Calgon Vestal Laboratories, a producer of skin care and infection control products, then a division of Merck & Co. Mr. Maupay spent 33 years in corporate and divisional positions at Merck & Co. Mr. Maupay received a B.S. degree in Pharmacy from Temple University and an M.B.A. degree from Lehigh University. Mr. Maupay is a director of SyntheMed, Inc. and Cubist Pharmaceuticals, Inc. and is also a director of several private companies. Mr. Maupay is the chairman of the Board and chairman of the Corporate Governance and Nominating Committee.
John E. Nash, P.E. serves as a director emeritus, and as such, Mr. Nash attends meetings of the Board, but does not have the right to vote on matters before the Board. Mr. Nash is a co-founder of Kensey Nash, is currently the Vice President of New Technologies and served as a director from 1984 until his retirement from
the Board in 2007. Upon his retirement from the Board, Mr. Nash was named as the Companys Board member emeritus in honor of his role as founder of the Company and as a tribute to his many years of service on the Board. He served as Vice Chairman of the Board and Executive Vice President from 1984 to October 1998. Prior to his co-founding the Company, Mr. Nash was employed by Syntex Corporation in a number of engineering and development positions within its Syntex Dental subsidiary, including Vice President of Research and Development. Mr. Nash holds qualifications in Mechanical and Production Engineering from Kingston College of Technology in the United Kingdom and is a Registered Professional Engineer in both the United Kingdom and the United States.
The Board has established three standing committees: an Audit Committee, a Compensation Committee, and a Corporate Governance and Nominating Committee. Each of these committees consists of only non-employee directors. The members of the committees are identified in the table below.
The following sets forth certain information regarding executive officers of the Company. Information pertaining to Mr. Kaufmann, who is both a director and Chief Executive Officer of the Company, and Mr. Evans, who is both a director and Chief Operating Officer of the Company, may be found in the section above entitled Directors. Information pertaining to Mr. Nash, who is both a director emeritus and Vice President of New Technologies, may be found in the section above entitled Director Emeritus.
The Board elects officers annually. Subject to the terms of employment agreements, Mr. Kaufmann serves at the direction of the Board, Mr. Evans serves at the direction of our Chief Executive Officer and the Board, Mr. Celano serves at the direction of our Chief Executive Officer and each of Messrs. DeWitt, Kronengold and Rauth serves at the direction of our Chief Executive Officer and Chief Operating Officer. In July 2008, the Board named Messrs. DeWitt, Kronengold and Rauth, who were at that time Vice Presidents, as executive officers of the Company in recognition of their strategic importance to the Company. See Executive CompensationEmployment Agreements.
The following table lists the current executive officers of the Company, their age, their position with the Company and the year each was first serving as an officer.
Mr. Celano has served as our Chief Financial Officer since March 2009. Mr. Celano has spent 24 years in public accounting, in which he also served as a partner at the public accounting firm KPMG LLP, from June 2002 to August 2004. Prior to joining KPMG, Mr. Celano was a co-leader of the Life Science Practice at the public accounting firm Arthur Andersen LLP. From September 2004 to May 2007, Mr. Celano served as Chief Financial Officer for BioRexis Pharmaceutical Corporation, a privately held venture-funded biopharmaceutical company that was acquired by Pfizer, Inc. in February 2007. From August 2007 to December 2008, Mr. Celano was the Managing Director, National Life Sciences Practice, for Aon Corporation of Philadelphia, PA. Mr. Celano also serves as a member of the board of directors of OraSure Technologies, Inc., a publicly held medical diagnostics company. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in Accounting from St. Josephs University.
Mr. DeWitt is our Vice President of Biomaterials. Mr. DeWitt was appointed as our Vice President of Biomaterials in August 2000. He had served as our Director of Polymer Products from May 1996 to 2000. Mr. DeWitt has held several positions at the Company since he joined in 1988, including Product Development Manager and Model Shop Manager. Prior to his employment with the Company, Mr. DeWitt held positions in the field of tool design and manufacturing with various companies including The Stanley Works and Doehler Jarvis Division of National Lead. Mr. DeWitt holds a B.A. degree in liberal arts from West Chester State University.
Dr. Kronengold, Ph.D. is our Vice President of Biomaterials Research. Dr. Kronengold was appointed to Vice President of Biomaterials Research in September 2004. He has held several positions within the Company since he joined in 1997. Prior to his association with the Company, Dr. Kronengold was a Research Consultant with Integra LifeSciences Corporation. Dr. Kronengold holds a Ph.D. and M.S. in Biomedical Engineering from UMDNJ-Robert Wood Johnson Medical School / Rutgers University and a B.S. in Chemical Engineering from Carnegie Mellon University.
Mr. Rauth, P.E. is our Vice President of Operations. Mr. Rauth was appointed to Vice President of Operations in October 2001. He had previously held the position of Director of Operations since May of 1999. Prior to joining the Company in 1999, Mr. Rauth was employed with Merck and Co. in various supervisory and management positions from 1995 through 1999. From 1986 through 1995, Mr. Rauth was a commissioned officer in the U.S. Navy holding various supervisory and leadership positions. He holds a B.S. in Chemical Engineering from Penn State University and a M.S. in Mechanical Engineering from Rensselaer Polytechnic Institute. Mr. Rauth is a Professional Engineer in the state of Pennsylvania.
Our current executive officers are subject to the terms of employment agreements and serve at the direction of the Board as further discussed for our Named Executive Officers under Executive CompensationCompensation Discussion and Analysis in the section entitled Employment Agreements.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934 requires our officers and directors and persons who own greater than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC and the NASDAQ Global Select Market (NASDAQ). Based solely on a review of the forms we have received and on written representations from certain reporting persons that no such forms were required for them, we believe that all Section 16 filing requirements applicable to our officers, directors and 10% beneficial owners were complied with on a timely basis during our fiscal year ended June 30, 2009 (fiscal 2009), except that Mr. Chefitz filed a Form 4 one day late to report an exercise of stock options under his 10b5-1 plan, Mr. Nash filed a Form 4 one day late to report a sale of Common Stock under his 10b5-1 trading plan and Mr. Bobb filed a Form 4 three days late to report a purchase of Common Stock.
Code of Conduct
The Board adopted the Kensey Nash Corporation Code of Business Conduct and Ethics, articulating standards of business and professional ethics, applicable to all of our directors, officers and employees. This Code also functions as our code of ethics under Section 406 of the Sarbanes-Oxley Act of 2002, applicable to our principal executive officer and principal financial officer. The full text of our Code of Conduct is available in full text on our website at www.kenseynash.com in the Corporate Governance section.
Stockholder Nominations of Directors
During fiscal 2009, the Board amended and restated its bylaws in the form of the Third Amended and Restated Bylaws of the Company (the Current Bylaws), to among other things, change the procedure by which stockholders of the Company may recommend nominees to the Board. Under the Current Bylaws, Stockholders who wish to nominate candidates are required to write to our Secretary. In accordance with the Current Bylaws, such nominations must be received by our Secretary not less than 90 days nor more than 120 days prior to first anniversary of the preceding years annual stockholder meeting; provided, however, that if the annual meeting date is advanced more than 30 days prior to, or delayed by more than 60 days after, the anniversary of the prior years annual meeting, or if no annual meeting of stockholders was held in the previous year, our Secretary must receive any stockholder nominations by the later of (1) 10 days after we have publicly disclosed the date of the annual meeting and (2) 90 days prior to the date of the annual meeting. In the event the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees or specifying the size of the increased Board made by the Company at least 100 days prior to the anniversary of the prior years annual meeting, a stockholders nomination will be timely, but only with respect to nominees for any new positions created by the increase, if the notice is delivered not later than the tenth day following the date the public announcement is first made. Previously, nominations were generally required to be delivered to our Secretary not less than 60 days nor more than 90 days prior to an annual stockholder meeting.
In addition to other requirements included in the Current Bylaws, nominations must specify the name of the nominee and the qualifications of such nominee for membership on the Board, disclose any agreements of the nominee regarding how the nominee will act or vote on any issue, and any agreements with respect to direct or indirect compensation, reimbursement or indemnification for serving as a director, along with the written consent of the nominee to being named in the proxy statement as a nominee and to serving as a director if elected. In connection with any stockholder nomination, as set forth in the Current Bylaws, the nominating stockholder must also provide additional information as to the stockholder giving notice, and, if applicable, each nominee proposed by the stockholder, including the business proposed to be brought at the annual meeting and any material interest therein, information regarding beneficial ownership of securities of the Company, and whether the stockholder intends to deliver to the Companys stockholders a proxy statement and form of proxy in connection with any proposed business.
The Audit Committee consists of Robert J. Bobb (Chairman), Steven J. Lee and Harold N. Chefitz. After reviewing the qualifications of the current members of the Audit Committee, and any relationships they may have with the Company that might affect their independence from the Company, the Board determined that (1) all current members of the Audit Committee are independent as that concept is defined in Section 10A of the Securities Exchange Act of 1934, (2) all current members of the Audit Committee are independent as that concept is defined in the NASDAQ listing standards, (3) all current members of the Audit Committee are financially literate, and (4) each current member qualifies as an audit committee financial expert as defined under applicable SEC rules.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A) explains the Companys executive compensation program for our Chief Executive Officer, each person who served as our Principal Financial Officer during fiscal 2009, including our current and former Chief Financial Officer and our Director of Finance, and each of our three most highly compensated executive officers other than the CEO and each person who served as our Principal Financial Officer, as of the end of fiscal 2009. It describes our compensation philosophy, how the Compensation Committee of our Board (the Compensation Committee or Committee) establishes executive compensation for the NEOs, the objectives of the various compensation programs and how performance metrics are selected and evaluated for the various components of our compensation programs.
As used in this CD&A and elsewhere herein, the following terms have the following meanings:
Role of the Compensation Committee
Our Compensation Committee, which consists of three independent members of the Board and all of whom are independent directors in accordance with the applicable independence requirements of the NASDAQ Marketplace Rules (NASDAQ independence requirements), maintains the primary responsibility and authority for determining our compensation philosophy and for reviewing and making all compensation decisions relating to our NEOs. The Compensation Committee may form and delegate the authority to one or more subcommittees
as it deems appropriate under circumstances set forth in the Compensation Committee charter. The Compensation Committee considers various factors in exercising its discretion to determine compensation, including the individual responsibilities and performance of each executive, the executives effectiveness in supporting the Companys short-term and long-term goals, and the pay levels of similarly situated executives within our Company, as well as our Companys overall financial performance. The Compensation Committee is solely responsible for reviewing and approving our CEOs strategic individual objectives and total compensation.
During the annual review process, which takes place after the end of each fiscal year, the Compensation Committee considers the following information:
On an annual basis, the Committee reviews the effectiveness and competitiveness of the compensation program in the context of our compensation philosophy and program objectives (as explained in the section titled Objectives of Our Compensation Philosophy below). Annually, the CEO presents his annual reviews of our NEOs, other than his own, to the Committee. After consideration of all of the information above, the Committee approves the salary increases, cash bonuses and equity-based awards for each NEO. The information is evaluated and these compensation decisions are approved at the first Compensation Committee meeting following the end of the Companys fiscal year, which, for fiscal 2009, was the Committee meeting held on September 22, 2009.
Objectives of Our Compensation Philosophy
The philosophy of the Compensation Committee is to provide competitive levels of total compensation to attract and retain talented and qualified executives who are critical to our long-term success. The compensation program is designed to motivate our executives and to align the financial interests of executives and stockholders through equity-based plans. Compensation is comprised of base salary, adjusted annually, as deemed necessary by the Compensation Committee, based on both compensation for similar executive positions and our executives individual performance and experience; cash bonus payments based upon the achievement of short-term annual corporate financial (based on total revenues and earnings per share) and strategic goals; and long-term equity-based awards incentives, which provide long-term incentives based on the same annual corporate financial and strategic goals. The Compensation Committee focuses on approving a balanced compensation package by combining components that emphasize both long-term strategic value for stockholders and shorter-term strategic and operational goals.
We believe that the compensation of our executives should reward their success in achieving key operating objectives such as, growth of total revenue and earnings per share. Our compensation philosophy is further designed to reward the execution of strategic non-financial goals that will provide both short-term and long-term growth for the Company, as well as other subjective factors determined and applied by the Committee and with input from our CEO and COO (as discussed below). In addition to the achievement of specific objectives within each NEOs area of responsibility, it is expected that each executive must demonstrate exceptional personal performance and contribute as a member of the executive management team to the Companys overall success. The Committee believes that a significant portion of the executives total compensation should be variable or at-risk.
The Committee approves the mix of at-risk and not-at-risk compensation elements based on the philosophy that each NEOs compensation should be influenced significantly by the executive officers roles and responsibilities, performance (which is measured by both financial and non-financial performance) and the executive officers overall level of experience, as well as other subjective factors determined and applied by the Committee and management and ultimately approved by the Committee. The Committee approves challenging annual financial and operating goals, which are based on the Board-approved internal operating plan set at the time the annual budget process is approved by the Board, as well as individual strategic non-financial goals that are established by the CEO and COO and reviewed, modified if deemed appropriate, and approved by the Compensation Committee.
The Compensation Committee believes that it has instituted an executive compensation program which:
Role of Executive Officers in the Compensation Process
Our CEO provides significant input on the compensation of our COO and CFO, including the individuals performance rating, annual merit adjustments, cash bonuses and equity-based awards. Our CEO and COO provide significant input on the compensation of our Vice President of Biomaterials and Vice President of Biomaterials Research, including the individuals performance rating, annual merit adjustments, cash bonuses and equity-based awards. Our CEO annually reviews the individual performance of each of the other NEOs and provides the Compensation Committee with (1) evaluations of each NEO, including an evaluation of each NEOs personal performance against his or her individual performance objectives and contributions as a member of the executive management team, and (2) recommendations regarding any increase in each NEOs base salary level (other than his own), as well as the NEOs performance rating for purposes of calculating his or her cash bonus payment and the amount of any long-term equity-based award. Each of the other NEOs strategic individual performance goals, other than our CEO, are set based upon the recommendation of the CEO and COO and the approval of the goals by the Compensation Committee and vary depending upon each NEOs roles and responsibilities.
Our CEO attends Compensation Committee meetings, as a non-voting participant, to provide the Committee with information regarding our NEOs and the Companys financial and strategic performance. Our CEO is not in attendance during discussions and deliberations of individual compensation actions affecting him personally and during the Compensation Committees executive sessions. The Compensation Committee considers the CEOs recommendations with respect to executive compensation and the Committee provides its input in an independent session. The Compensation Committee alone, however, makes the final decisions with respect to the compensation of our NEOs.
We have not historically used compensation consultants in determining our NEOs compensation and did not utilize any consultants related to the compensation of our NEOs for fiscal 2009.
Peer Group Benchmarking
In establishing our total direct compensation levels for our NEOs, compensation practices and total direct compensation are reviewed annually for comparable executive positions within our peer group. Our peer group has historically included, and currently includes, only publicly traded companies within the medical device industry, specifically cardiovascular or orthopaedics, and with similar financial metrics, which include, but are not limited to annual total revenue in a range of $36 million to $550 million, and market capitalization in a range of $70 million to $1.5 billion and with similarities to the Company in terms of financial profile, development stage, product focus, growth potential and revenue projections. Our CEO and the Compensation Committee evaluate the members of our peer group annually, and request additions or deletions of any member of our peer group as they deem appropriate. On an annual basis, the Compensation Committee approves the fiscal years peer group.
Our Human Resources Department compiles data from our peer group, by using Equilar Inc.s Equilar Insight Research Database, to research compensation trends and analyses for purposes of recommending salary, target cash bonuses and equity compensation awards. This data provides useful comparisons that are used by the CEO and Compensation Committee as a guide when establishing compensation packages for our CEO, COO and CFO. The Committee reviews compensation practices at peer companies to help ensure the Companys total compensation for our CEO, COO and CFO is within a reasonably competitive range, which generally means that the Compensation Committee targets total compensation levels, as well as individual compensation components, for our CEO, COO and CFO at somewhere around the 50th percentile of that paid by peer group members to similarly situated executives. However, the Compensation Committee does not adjust compensation to be at these targets each year. Furthermore, we continue to exercise our judgment and discretion with respect to our determination, as to the appropriate compensation levels of each of our NEOs, as we believe that over-reliance on the benchmarking of peer groups can result in compensation that is unrelated to the value delivered by our NEOs, which actual value substantiates any discretionary bonuses determined by the Committee based on the individuals performance review. The Compensation Committee generally does not directly compare any of the specific compensation elements, or the total compensation levels, for our other NEOs with those of executives at its peer group companies, as such comparisons are much more difficult given the unique job responsibilities and roles with our company of these other NEOs.
For the fiscal 2009 analysis, the companies comprising our peer group were:
For fiscal 2009, the following changes were made to our peer group:
The deletion of Vital Signs, Inc. from our fiscal 2009 peer group was due to the fact that it had been acquired by GE Healthcare and is no longer publicly traded.
Elements and Mix of Total Compensation and Benefits
There are three key compensation elements of our executive compensation program and they are collectively referred to as total compensation, which the Compensation Committee assesses and approves on an annual basis:
The Committee assesses these elements individually for each NEO, as well as each NEOs total compensation package, to create a unique compensation mix for each NEO, which is also consistent with our compensation philosophy, as described above in the section titled Objectives of Our Compensation Philosophy.
The table below summarizes the three key compensation elements of the Companys executive compensation program, a description of each of the key elements, and the objectives they are designed to achieve.
The three compensation elements that comprise each NEOs total compensation are then weighted based on factors, which include, but are not limited to, the portion of compensation that is at-risk and not-at-risk, as well as, short-term and long-term in nature. The weighting of the compensation elements differ for each NEO
due to the their responsibilities, experience and individual performance in our Company. The fiscal 2009 approved compensation element arrangements for each NEO, and the weighted percentage of each element, have stayed relatively consistent for the CEO, COO, and CFO, when compared with our fiscal 2008 and fiscal 2007 compensation programs. The total compensation for each of the other NEOs was weighted relatively similar for each Vice President.
Each compensation element of each of our NEOs is weighted based on the role of the NEO, as well as its relation to the other two key compensation elements. Each NEOs cash compensation element is based on the at-risk portion of the NEOs weighted corporate financial and strategic individual goals. These goals are established such that it will be challenging for the respective NEOs to achieve them. The long-term equity award component for each NEO is weighted dependent on the role of the NEO, as well as its relation to the other two key compensation elements.
Mr. Kaufmann, as our CEO, is responsible for leading strategic business decisions, including mergers and acquisitions of technologies or companies which are best aligned with our Companys, Boards and stockholders interests. Our CEO is held highly responsible for our Companys achievement of annual corporate financial goals, in addition to the achievement of his individual strategic goals, which are aligned with these corporate goals. The CEOs strategic goals include individual and team objectives relating to such matters as, growing the Companys biomaterials business by pre-defined measures established by the Compensation Committee, evaluating strategic opportunities for enhancing stockholder value, sustaining strong financial performance, profitability and growth, such as achievement of 100% of the Companys Board-approved internal operating plan and sustaining high levels of meaningful investor communications. The approved goals of the CEO are considered challenging to achieve and primarily weighted on achieving financial metrics. Therefore, the Compensation Committee believes that a significant portion of the CEOs total compensation is weighted on the at-risk compensation elements of cash bonuses and long-term equity awards. In addition, because of these responsibilities of our CEO with respect to our overall company strategy and performance, we set the total compensation and the individual compensation elements for our CEO at a level significantly higher than those of our other NEOs.
Mr. Evans, as our COO, is responsible for managing all aspects of operations, which includes manufacturing, quality control and assurance, product development, as well as overseeing biomaterials research, legal affairs, including intellectual property and business development and information technology. Similar to Mr. Kaufmann, Mr. Evans is also responsible for growing the Companys biomaterials business by pre-defined measures established by the Compensation Committee, evaluating strategic opportunities for enhancing stockholder value, sustaining strong financial performance, profitability and growth, such as achievement of 100% of the Companys Board-approved internal operating plan and sustaining high levels of meaningful investor communications. Mr. Evans is involved in all of the Companys key strategic business decisions, including mergers and acquisitions of technologies or companies. In addition, Mr. Evans is a member of our Board. The at-risk compensation elements of the COO are weighted on achievement of corporate financial targets, as well as detailed strategic individual goals, which are considered appropriate for his role and considered challenging to achieve. The strategic goals of our COO typically include individual and team objectives relating to improvement of the quality, value and competitiveness of our Companys products and business strategies. Therefore, the Compensation Committee believes that a significant portion of the COOs total compensation is weighted on the at-risk compensation elements of cash bonuses and long-term equity awards, yet weighted differently than the CEO and the CFO. In addition, because of these responsibilities of our COO with respect to our overall company strategy and performance, we set the total compensation and the individual compensation elements for our COO at a level significantly higher than those of our other NEOs, other than our CEO.
Mr. Celano, as our CFO, is responsible for managing all aspects of the finance function of our Company. Similar to the CEO and COO, Mr. Celano is also responsible for sustaining strong financials, such as achievement of 100% of the Companys internal operating plan (approved by the Board) and sustaining high levels of meaningful investor communications. The at-risk compensation elements of the CFO are weighted on achievement of corporate financial targets, as well as detailed strategic individual goals, which are considered appropriate for his role and considered challenging to achieve. The fiscal 2009 strategic goals of the CFO
included individual and team objectives relating to the Companys financial operations including compliance issues, financial and cost accounting analysis and management, cash management and cost savings. Therefore, the Compensation Committee believes that a significant portion of the CFOs total compensation is weighted on the at-risk compensation elements of cash bonuses and long-term equity awards, yet weighted differently than the CEO and the COO, due to their unique roles within the Company.
Mr. DeWitt and Dr. Kronengold, as our Vice Presidents, have similar strategic goals which are set by the CEO and COO, which include specific financials goals, such as biomaterials sales, growing the Companys biomaterials business both with existing customers and seeking new customers, successfully conducting clinical trials, assisting in the regulatory compliance process for new and existing products and developing prototypes of new products. The at-risk compensation elements of each of the Vice Presidents are weighted on achievement of corporate financial targets, but more heavily weighted on detailed strategic individual goals, which are considered appropriate for their role and are considered challenging to achieve. Mr. DeWitts strategic individual goals and team objectives for fiscal 2009 focused on biomaterials sales, launching new products, assisting in receiving regulatory approvals, initiating studies and developing prototypes for new products, as well as assisting in the production of current products. Dr. Kronengolds strategic individual goals and team objectives for fiscal 2009 focused on biomaterials sales goals, managing all aspects of our cartilage repair and extra-cellular matrix (ECM) technology programs, assisting in the regulatory process for new technologies and launching new products.
Fiscal 2009 Compensation Decisions
We determine the salaries of our NEOs based on job responsibilities and individual experience, and we also compare the base salary amounts of our CEO, COO and CFO against comparable compensation for similar positions within our peer group. We do not apply formulas or assign these factors specific mathematical weights; instead we exercise our judgment and discretion with respect to these factors. Our Compensation Committee expects to continue to provide compensation to our executive officers that are competitive with that provided to executives within our peer group (as discussed in Peer Group Benchmarking above). Our Compensation Committee reviews the salaries of our executives annually and grants increases in salaries based on individual performance during the prior fiscal year and current market and Company conditions, as appropriate.
In September 2009, the Compensation Committee determined, based on the recommendation of the CEO, that base salaries for Mr. Evans, Mr. DeWitt and Dr. Kronengold would be increased to $294,580, $195,840 and $191,530, respectively, in order to align the salary of each of our NEOs in accordance with their respective responsibilities within the Company. In addition, the Compensation Committee determined the base salary of Mr. Kaufmann would increase to $328,570 from $319,000 in order to set the CEOs base salary at a level that is generally competitive with that of other CEOs of the peer group, as well as at an appropriate level relative to each of our NEOs in accordance with their respective responsibilities within our Company. The fiscal 2009 increase in base salary for each of Messrs. Kaufmann, Evans, and DeWitt and Dr. Kronengold represents an average 3% increase from their prior year salary, reflecting annual merit adjustments. The Compensation Committee determined that the salary of Mr. Celano would remain at $250,000, as the Compensation Committee believed it continued to be appropriate from his recent hire date of March 2009, as well as considering the base salary and overall total compensation for other CFOs in our peer group.
In connection with the promotion of our Vice President of Biomaterials and Vice President of Biomaterials Research as executive officers, based on our CEOs recommendation and the Committees review of the information provided by our Human Resources Department, the Committee approved the annual base salaries of Mr. DeWitt and Dr. Kronengold.
The NEOs are eligible to receive a performance-based cash bonus based on the Companys achievement of financial and operating performance goals, as well as individual performance of strategic individual goals and team objectives. This cash incentive is calculated for the CEO and the COO as a percentage of base salary. The cash incentive for the CFO, Vice President of Biomaterials and Vice President of Biomaterials Research is based on a fixed dollar value.
Target Bonus Percentage. The employment agreement for each of the current NEOs establishes the target cash bonus opportunity for the NEO, expressed as a percentage of his then current base salary or a fixed dollar amount. The fiscal 2009 target contractual cash bonus opportunities for the CEO and the COO are set at a maximum of 100% of base salary, the CFOs is set at a maximum of 75% of base salary, and each of the Vice President of Biomaterials and the Vice President of Biomaterials Researchs is set at a maximum of 60% of base salary. The annual targets can be set below the maximum percentages, provided for in the respective employment agreements, as determined by the Compensation Committee. The fiscal 2009 target bonus for our current CFO was set at $125,000 but pro-rated to $41,100, for four months of service based on his recent hire date of March 2009. The fiscal 2009 target bonus for the Vice President of Biomaterials and the Vice President of Biomaterials Research was set at $40,000, as determined by the Compensation Committee considering the current responsibilities of the Vice Presidents and their influence on the Companys achievement of corporate financial targets. In addition, the Vice President of Biomaterials and the Vice President of Biomaterials Research are eligible for additional discretionary cash bonuses as the CEO recommends, and as approved by the Compensation Committee.
Bonus Calculation. The total cash bonus for each NEO is weighted on the achievement of the Companys annual corporate financial and strategic individual goals and team objectives. The weighted percentages are approved by the Compensation Committee and are primarily based on our compensation philosophy that a portion of the total compensation is of an at-risk nature for each respective NEO and the NEOs roles and responsibilities. In the event the Companys financial performance falls below a goal achievement factor of 80% for a particular corporate financial goal, no NEO will be eligible for the portion of his cash bonus attributable to that corporate financial. If the Companys financial performance is above the 80% factor for a corporate financial goal, then the cash bonus is weighted on a combination of corporate financial goals, as well as achievement of strategic individual and team objectives.
For fiscal 2009, the calculation of the cash bonus for our CEO, COO and our current CFO was weighted 70% on the achievement of the Companys corporate financial goals and 30% on the achievement of strategic individual and team objectives. Further, the portion of Mr. Kaufmanns cash bonus related to the percent achievement of each corporate financial goal, up to the actual achievement of 100% of that goal, was weighted 60% on the actual achievement percentage of the Companys earnings per share goal and 40% on the actual achievement percentage of the Companys total revenue goal. This 60%/40% ratio is primarily due to our compensation philosophy of at-risk compensation for the CEO role, as the Committee believes that the CEO has greater responsibilities, relative to the other NEOs with respect to matters that would impact earnings per share. The cash bonus of the COO and CFO, related to the corporate financial goals, were weighted 50% on the actual achievement percentage of the Companys earnings per share goal and 50% on the actual achievement percentage of the Companys total revenue goal. This 50%/50% ratio is primarily due to our compensation philosophy of at-risk compensation for the roles of the COO and CFO, as the Committee believes that each of the COO and CFO have greater responsibilities, relative to the other NEOs, other than the CEO, with respect to matters that would impact both earnings per share and total revenue.
For fiscal 2009, calculation of the cash available for awards to the Vice President of Biomaterials and the Vice President of Biomaterials Research was determined by the set target bonus multiplied by the average achievement percentage completed for the Companys financial goals. The cash available for their awards was then multiplied by the weight, as determined by the CEO and COO, of each strategic individual goal and the percent the executive has completed that goal.
We do not typically publicly disclose our financial targets or strategic targets, as our business plan is highly confidential. Due to the long-term nature of our Companys business plan, many of our strategic goals extend beyond the fiscal year. Therefore, disclosing specific objectives would provide competitors and other third parties with insights into our Companys planning process and would therefore cause competitive harm.
Fiscal 2009 Corporate Financial Goals
The Companys corporate financial goals for fiscal 2009 to which the NEOs cash bonuses were tied were as follows:
Total revenues for fiscal 2009 as reported in our Form 10-K for fiscal 2009, as filed with the SEC on September 14, 2009, were $82.1 million and presented a 92% achievement of the $89.0 million corporate financial goal. The $89.0 million total revenue goal was 100% of the Companys fiscal 2009 internal operating plan, as approved by the Board prior to the beginning of the fiscal year. Earnings per share as reported in our 10-K for fiscal 2009 was $1.69 and represented a 104% achievement of the $1.63 corporate financial goal.
Strategic Individual Goals and Team Objectives
For Fiscal 2009, the strategic individual goals and team objectives for each NEO were identified in the section above titled Elements and Mix of Total Compensation and Benefits, as these strategic goals are based specific to each NEO role and responsibility within our Company.
For fiscal 2009, based on the factors discussed above, we granted cash bonus awards as follows: Mr. Kaufmann, $312,700; Mr. Evans, $280,200; Mr. Celano, $41,100 (pro-rated for four months of service during fiscal 2009); Mr. DeWitt, $37,000 and Dr. Kronengold, $56,000. Dr. Kronengolds cash bonus includes a $20,000 discretionary award recommended by the CEO and approved by the Compensation Committee for the accomplishments of goals related to the cartilage repair and ECM technology programs in fiscal 2009.
The Company has established total revenue, earnings per share and strategic goals for its fiscal year ending June 30, 2010 (fiscal 2010) at 100% of the Companys internal operating plan, as approved by the Board prior to the beginning of fiscal 2010.
We use stock options, restricted stock, and other equity-based equivalents to provide long-term incentives. These awards help us retain and attract executives and align their interests with stockholders by setting multi-year vesting requirements. These awards are granted at the fair market value (always tied to the market price on the date of grant, never discounted) and therefore are aligned with the growth of our stock. We believe that long-term compensation is a critical component of our executive compensation program and is a way to foster a long-term focus on the Companys financial results. The amount of shares received in relation to the total potential received was based on a weighted consideration of the NEOs achievement of their strategic individual goals and team based objectives (consistent with the methodology described under the section titled Elements and Mix of Total Compensation and Benefits and Target Bonus Percentage).
Each year, the Compensation Committee decides the appropriate types and mix of equity-based awards. In addition, grant dates for equity-based awards are determined in accordance with our Equity Awards Policy,
which provides that awards generally will be granted at the first Compensation Committee meeting following the end of each fiscal year. Typically, the Compensation Committee will award stock options. The Compensation Committee considers stock options to be a particularly effective means to promote the overall financial objectives of the Company and its stockholders by motivating the executives who are granted stock options to achieve long-term growth in stockholder equity in the Company and by retaining those individuals who are instrumental in achieving this growth. The Compensation Committee will award other awards, such as restricted stock awards, at the Compensation Committees discretion. For fiscal 2009, the Compensation Committee decided to utilize only nonqualified stock options, rather than a mix of restricted stock and stock options.
We award long-term equity incentives annually to the CEO and each other NEO. Individual target awards were established for fiscal 2009 based on the same methodology as described above in the Bonus Calculations section, except, for the CEO, COO and our current CFO, 80% of the eligible award is weighted to the corporate financial goals and strategic individual and team objectives and 20% of the eligible award is discretionary and at the determination of the Compensation Committee. For fiscal 2009, we granted stock option awards as follows: Mr. Kaufmann, 38,000 shares; Mr. Evans, 29,000 shares; Mr. Celano, 4,400 shares (pro-rated for four months of service during fiscal 2009); Mr. DeWitt, 10,000 shares; Dr. Kronengold, 12,500 shares. These individual grants for fiscal 2009 performance were awarded on September 22, 2009, the date of the first Compensation Committee meeting following fiscal 2009. The shares awarded to each NEO were based on the ratio of other at-risk compensation elements. A significant portion of the CEOs and COOs at-risk compensation is tied to long-term incentives as compared to the CFO and to the Vice Presidents. The fiscal 2009 portion of equity compensation for our NEOs is consistent with that in relation to the median of our peer group.
Changes in the Principal Financial Officer During Fiscal 2009
On October 20, 2008, Wendy F. DiCicco submitted her resignation as Chief Financial Officer, as which she served as both the principal financial officer and principal accounting officer of the Company, which was effective on November 15, 2008, after the filing of the Companys Form 10-Q for the fiscal quarter ending September 30, 2008. Ms. DiCicco served as our Chief Financial Officer since August 1998.
Pursuant to the terms of Ms. DiCiccos employment agreement with the Company, Ms. DiCicco was not entitled to receive any severance benefits upon resignation from the Company. However on November 15, 2008, the Company, in order to obtain certain restrictive covenants for the benefit of the Company, including a severance repayment provision in the event Ms. DiCicco violates any of the restrictive covenants and a general release of claims, entered into a Separation and General Release Agreement, as amended by the First Amendment to the Separation and General Release Agreement, effective as of December 4, 2008 (as amended, the Separation Agreement) with Ms. DiCicco. Among other things, the Separation Agreement provided for (1) payment of a lump sum bonus equal to $51,200 to be paid no later than December 12, 2008; and (2) accelerated vesting of options to purchase 16,000 shares of the Companys common stock; and (3) all of Ms. DiCiccos options to purchase 53,000 shares of the Companys common stock, which, including those options vested pursuant to the Separation Agreement, would remain exercisable for a period of twelve months following the date of Ms. DiCiccos termination.
The fiscal 2009 base salary of Ms. DiCicco of $223,800 was determined based on the recommendation by the CEO, after considerations of the total compensation mix appropriate based on her experience, individual performance, roles and responsibilities as CFO, in accordance with the Companys compensation philosophy discussed above, and was approved by the Compensation Committee at the September 2008 Committee meeting.
On October 27, 2008, the Board designated Ryan D. Lake, who is the Companys Director of Finance, to assume the additional roles of the Companys principal financial officer and principal accounting officer on an interim basis, until the Board elected a new Chief Financial Officer. Mr. Lake was the appointed principal financial and accounting officer as of November 15, 2008, the effective date of Ms. DiCiccos resignation, and served in such capacity until March 10, 2009, when Mr. Celano was named our CFO. During this interim period, Mr. Lake reported directly to the Companys President and CEO, Mr. Kaufmann.
Mr. Lake, age 31, was appointed Director of Finance in October 2008. Mr. Lake has served in various senior roles at the Company since 2002. He had previously held the position of Director of Accounting since 2007. From 2005 to 2007, Mr. Lake served the Company as Senior Accounting and Compliance Manager. From 2003 to 2005, Mr. Lake served the Company as General Accounting Manager. From 1999 until he joined the Company in 2002, Mr. Lake was an Accounting and Audit Senior at the public accounting firm Deloitte & Touche, LLP. Prior to that, Mr. Lake was an accountant at the forensic accounting firm Nihill & Riedley, P.C. Mr. Lake holds a B.S. degree in Accounting from West Chester University of Pennsylvania and is a Certified Public Accountant in the Commonwealth of Pennsylvania.
The base salary for Mr. Lake during fiscal 2009, which includes the period for which he served as interim principal financial and accounting officer, was set at $125,000 and was determined by the former Chief Financial Officer and approved by our CEO as part of the annual performance review in September 2008, and was based on Mr. Lakes department contributions for fiscal 2008, as well as internal review of base salary of similarly situated employees, considerations of his professional accounting background and his several years of service with the Company as compared against national salary survey data provided by the Companys Human Resources Department. In September 2009, as part of the annual performance review by our CFO and CEO, our CEO approved an increase to Mr. Lakes base salary to $137,500. The salary increase was based upon Mr. Lakes fiscal 2009 performance, similar salaries of the employees at the director level of the Company, as well as consideration of industry-published salary surveys available from Aon Corporations Radford Group. Mr. Lake is not employed pursuant to an executive compensation agreement.
The fiscal 2009 cash bonus granted to Mr. Lake was determined by the Compensation Committee and was based on several factors, which included the consideration of Mr. Lakes appointment as interim Principal Financial and Accounting Officer between the former and the current CFO, the limited duration of Mr. Lake serving in such capacity, as well as his efforts and time to perform his duties as principal financial and accounting officer, in addition to those associated with serving as Director of Finance. For fiscal 2009, Mr. Lake was awarded a cash bonus of $25,000, which included a $15,000 discretionary bonus.
Mr. Lake was also awarded a non-qualified stock option to acquire 6,000 shares of Common Stock on September 22, 2009, in connection with the Companys other equity-based awards for fiscal 2009.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code (the Code) provides that compensation paid to certain executive officers in excess of $1,000,000 in any year is not deductible by the Company for federal income tax purposes unless, in general, such compensation is performance-based, is established by a committee comprised solely of two or more independent directors and is objective, and unless the plan or agreement providing for such performance-based compensation has been approved by the stockholders in advance of payment. The Compensation Committee currently intends to maximize the tax deductibility of compensation paid to executive officers, where possible. However, the Compensation Committee also realizes that in order to attract and retain individuals with superior talent, it may, from time to time, pay compensation to our executive officers that may not be deductible.
Perquisites (fringe benefits)
Contractually, none of our executives are entitled to benefits that are not otherwise available to our employees generally. We do not provide a defined benefit pension arrangement, post-retirement health coverage or similar benefits for any of our executives.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee has reviewed and discussed with our management the section entitled Compensation Discussion and Analysis set forth herein. Based on that review and analysis, the Compensation
Committee recommended to the Board that the Compensation Discussion and Analysis be included herein for filing with the Securities and Exchange Commission.
Compensation Committee Interlocks and Insider Participation
During fiscal 2009, C. McCollister Evarts, M.D., Steven J. Lee and Harold N. Chefitz served on the Compensation Committee of the Board. None of the persons who served on the Compensation Committee during fiscal 2009 was an officer or employee of the Company during fiscal 2009, or has been an officer of the Company or had any relationship requiring disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934. In addition, none of the Companys executive officers serves, or has served during the last completed fiscal year, as a member of the board or compensation committee of any other entity that has or has one or more of its executive officers serving as a member of the Compensation Committee or the Board.
The following table sets forth information regarding the compensation awarded, paid to or earned for services rendered in all capacities to us by each of our Named Executive Officers for the fiscal years ended June 30, 2009, 2008 and 2007.
Fiscal 2009 SUMMARY COMPENSATION TABLE
See Executive CompensationCompensation Discussion and Analysis in the section titled Changes in the Principal Financial Officer During Fiscal 2009 above and the section titled Employment Agreements below for a discussion of employment agreements and other arrangements entered into with our NEOs.
FISCAL 2009 ALL OTHER COMPENSATION TABLE
Fiscal 2009 Grants of Plan Based AwardsThe following table shows the grants of awards made in fiscal 2009 to our Named Executive Officers:
FISCAL 2009 GRANTS OF PLAN BASED AWARDS
Outstanding Equity Awards at Fiscal 2009 Year-EndThe following table provides information regarding unexercised stock options and outstanding equity awards held at the end of fiscal 2009 by our Named Executive Officers. All values in the table are based on the market value of our Common Stock of $26.21 per share, its closing price on June 30, 2009, the last trading day of fiscal 2009, as reported by NASDAQ.
OUTSTANDING EQUITY AWARDS AT FISCAL 2009 YEAR-END
Fiscal 2009 Option Exercises and Stock VestedThe following table provides information regarding stock option awards exercised by our Named Executive Officers and nonvested stock awards of our Named Executive Officers that vested during fiscal 2009. There were no cash-settled SARs exercised by our Named Executive Officers during fiscal 2009.
FISCAL YEAR 2009 OPTION EXERCISES AND STOCK VESTED TABLE
Employment AgreementsEffective January 1 2009, we updated each of our executives employment agreements entered into with the Company to, amongst other things, comply with Section 409A of the Code. Mr. Kaufmann is a party to an employment agreement with the Company dated as of January 1, 2009 that expires on the earlier of his employment termination and June 27, 2010 (unless extended by mutual agreement between us and Mr. Kaufmann), and provides for a minimum annual base salary of $319,000, or his most recent per annum base salary, whichever is greater. The Board increased Mr. Kaufmanns salary to $328,570 effective October 1, 2009. Mr. Evans is a party to an employment agreement with the Company dated as of January 1, 2009 that expires on the earlier of his employment termination and June 27, 2010 (unless extended by mutual agreement between us and Mr. Evans), and provides for a minimum annual base salary of $286,000, or his most recent per annum base salary, whichever is greater. The Board increased Mr. Evans salary to $294,580 effective October 1, 2009. Mr. Celano is party to a two-year employment agreement with the Company dated as of March 10, 2009, his date of hire, that is set to expire on the earlier of his employment termination and March 9, 2011 (unless extended by mutual agreement between us and Mr. Celano). This agreement provides for a minimum annual base salary of $250,000, or his most recent per annum base salary, whichever is greater. Mr. DeWitt is party to a two year employment agreement with the Company dated January 1, 2009 that expires on the earlier of his employment termination or December 31, 2010 (unless extended by mutual agreement between us and Mr. DeWitt), and provides for a minimum annual base salary of $192,000, or his most recent per annum base salary, whichever is greater. The Board increased Mr. DeWitts salary to $195,840 effective October 1, 2009. Dr. Kronengold is party to a two year employment agreement with the Company dated January 1, 2009 that expires on the earlier of his employment termination or December 31, 2010 (unless extended by mutual agreement between us and Dr. Kronengold), and provides for a minimum annual base salary of $179,000, or his most recent per annum base salary, whichever is greater. The Board increased Dr. Kronengolds salary to $191,530 effective October 1, 2009.
Each of these employment agreements provides that a bonus may be paid, or an equity award granted, at the discretion of the Board or the Compensation Committee. In addition, the employment agreements restrict each of the executives from competing with us or soliciting our employees, customers or suppliers during the term of the agreement and for 12 months after termination of his employment with the Company.
These agreements provide for compensation and benefits in the event that (1) the executives employment is terminated by the Company without Cause prior to a Change in Control during his or her employment term; (2) the executives employment is terminated during the employment term by the Company with Cause or by the executive other than for Good Reason; and (3) upon or following a Change in Control, either the Company terminates the executives employment for a reason other than Cause or the executive terminates his employment with the Company for Good Reason, in either case during his employment term.
For purposes of all five of these employment agreements, the following terms are defined below:
Cause means any of the following:
A Change in Control shall occur if:
Good Reason means, following a Change in Control, any of the following:
For purposes of the agreements of Mr. Kaufmann, Mr. Evans and Mr. Celano, the following term is defined below:
Estimated Bonus means:
For purposes of the agreements of Mr. DeWitt and Dr. Kronengold agreements, the following term is defined below:
Estimated Bonus means:
If the employment of Mr. Kaufmann, Mr. Evans, Mr. Celano, Mr. DeWitt or Dr. Kronengold is terminated, then under his respective agreement, he will receive the compensation and benefits described below. If the executive violates the employment agreements restrictions on competing with the Company or soliciting its employees, customers or suppliers, the Company will have the right to terminate payment or provision of the compensation and benefits described below and the Company will be entitled to reimbursement of any of these amounts that the Company has already paid. In addition, for any stock option the executive exercised after his employment termination date, he will be required to pay the Company the difference between the exercise price of such stock option and the Companys closing stock price on the date on his employment termination.
Termination Without Cause Prior to a Change in Control
If the Company terminates the executive without Cause and the executive executes a general release, then:
Termination with Cause or Voluntarily by the Executive (including Retirement)
If the executives employment is terminated either by the Company with Cause, or by the executive other than for Good Reason following a Change in Control, during the employment term, the executive will be entitled to payment of his base salary accrued through the employment termination date. If executives employment termination is due to his retirement, the executives stock options that are vested on the employment termination date will remain exercisable for a period of one year from the employment termination date; but not past the original term of the stock option.
Termination Upon or Following a Change In Control
If, upon or following a Change in Control, either the Company terminates the executive for a reason other than Cause or the executive quits his employment with the Company for Good Reason, and if the executive executes a general release, then:
Executives Employment Not Renewed
In the event the employment agreement is not renewed upon the expiration of its original term, the Company will not have any further obligations under that employment agreement and the executives employment will then be at-will.
Separation and General Release Agreement with Ms. DiCicco
For a discussion of the Separation Agreement between the Company and Ms. DiCicco, see Executive CompensationCompensation Discussion and Analysis in the section titled Changes in the Principal Financial Officer During Fiscal 2009 above.
FISCAL 2009 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following table shows the potential incremental payments and benefits, which our Named Executive Officers would be entitled to receive upon termination of employment under their respective employment agreements. The amounts shown in the table are based on an assumed termination as of June 30, 2009 and represent estimates of the incremental amounts that would be paid to each Named Executive Officer upon his or her termination in accordance with the terms of his or her agreement based on their fiscal 2009 base salary, fiscal 2009 target incentive awards and our current premium costs for their health and welfare benefits.
All of the payments in the table shown above were determined in accordance with each respective NEOs employment agreement unless otherwise described in the footnotes below.
BOARD OF DIRECTORS COMPENSATION
The Compensation Committee recommends our directors compensation package, subject to approval by the Board, at the Board meeting immediately following our Annual Meeting. In discharging this duty, the Compensation Committee is guided by three goals: compensation should fairly pay directors for work required in a company of our operational size and scope; compensation should align directors interests with the long-term interests of stockholders; and the structure of the compensation should be adequate to enable the Company to attract and retain well-qualified directors. The Compensation Committee reviews the compensation of directors annually. The Compensation Committee reviews retainers and equity compensation of our peer group and benchmarks our directors compensation packages in conjunction with establishing the structure of our directors compensation. We do not pay additional compensation to our executive officers for their service as directors.
In consideration of service on the Board, on the date of our fiscal 2008 Annual Meeting of the stockholders of the Company, each non-employee director who was elected, re-elected or continued to serve as a director because his term had not expired, received the following compensation package for the period December 2008 to December 2009:
The following table provides information on compensation earned during fiscal 2009 by each non-employee director:
FISCAL 2009 DIRECTOR COMPENSATION TABLE
At June 30, 2009, each of the directors named below held the number of outstanding restricted stock awards and stock options (all of which are vested) to purchase the number of shares of our Common Stock shown next to his name:
Equity Compensation Plan Information
As of June 30, 2009, we maintained the Employee Plan and the Non-Employee Director Compensation Plan (Directors Plan), each of which was approved by our stockholders. The following table provides information, as of June 30, 2009, about the securities authorized for issuance under these equity compensation plans. This table does not include any awards that have been made in fiscal 2010. The Directors Plan was terminated in December 2005.
Security Ownership of Management and Certain Stockholders
The following table sets forth, as of October 21, 2009, certain information with respect to the beneficial ownership of our Common Stock by (1) each person known by us to own beneficially more than 5% of the outstanding shares of Common Stock, (2) each of our directors, (3) each of the Named Executive Officers and (4) all of our executive officers and directors as a group. Unless otherwise indicated, each person or group has sole dispositive and voting power with respect to the shares of our Common Stock shown below as beneficially owned by such person. The percentages below are based on 11,138,631 outstanding shares of Common Stock.
Related Party Transactions and Approval Policy
There are no transactions with related persons required to be disclosed herein pursuant to Item 404(a) of Regulation S-K.
As stated in our Corporate Governance and Nominating Committee charter, each director is responsible for disclosing to the Corporate Governance and Nominating Committee situations that he or she reasonably believes give rise to a potential related person transaction or conflict of interest. In addition, the Corporate Governance and Nominating Committee shall ask directors about potential related person transactions or potential conflicts of interest at least annually. The Board, upon recommendation of the Corporate Governance and Nominating Committee and after consultation with our outside counsel, shall determine on a case-by-case basis whether a conflict of interest exists.
As stated in our Audit Committee charter, a function of the Audit Committee is to review and approve (or deny) related person transactions and resolve conflicts of interest questions involving Board members or management (as required by applicable securities laws, rules and regulations, and the rules of NASDAQ and any other securities exchange on which securities of the Company are listed) and review and monitor compliance with other written policies of the Company regarding related person transactions or conflicts of interest. Our Code of Conduct and Ethics has a section that describes how we identify potential conflicts of interest. Each of these charters and codes mentioned above are located on our website at www.kenseynash.com in the Corporate Governance section.
The Board has determined that each of Robert J. Bobb, Harold N. Chefitz, C. McCollister Evarts, M.D., Steven J. Lee and Walter R. Maupay, Jr. is a non-employee director who meets the NASDAQ independence requirements. In addition the Board has determined that each of the non-employee directors of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee is a non-employee director who meets the NASDAQ independence requirements, including additional requirements for Audit Committee members.
In addition to the NASDAQ independence requirements, we also use the independence guidelines set forth in our Corporate Governance Guidelines, which are available on our website at www.kenseynash.com in the Corporate Governance section. The Board has determined that each of the directors that meet the NASDAQ independence requirements also meet the independence guidelines in our Corporate Governance Guidelines.
Independent Auditor Fees
The following table shows fees that we paid (or accrued) for professional services rendered by our independent auditors, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively Deloitte) for fiscal 2009 and for fiscal 2008:
Audit Fees. Consists of fees incurred for professional services rendered for the audit of our annual financial statements, review of the interim financial statements included in quarterly reports, assessment of internal controls over financial reporting as a result of the Sarbanes-Oxley Act of 2002 and services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists of fees incurred for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements that are not reported under Audit Fees. We did not incur any such fees for fiscal 2009. Fiscal 2008 audit related fees were incurred for professional services rendered in conjunction with our acquisition of certain assets of the MacroPore Biosurgery spinal and orthopaedic business unit of Cytori Therapeutics, Inc. and the sale of our endovascular business to The Spectranetics Corporation. Please refer to Note 9 Acquisitions and Note 26 Sale of Endovascular Business, included in our Form 10-K for fiscal 2009.
Tax Fees. Consists of fees incurred for professional services for tax compliance, tax advice and tax planning. These services include tax planning, assistance with the preparation of various U.S. tax returns, and advice on other tax-related matters.
All Other Fees. Represents fees incurred for services provided to us other than those included in the categories above, which could include, but are not limited to, non-audit related fees. We did not incur any such fees for fiscal 2009 or fiscal 2008.
Deloitte did not bill the Company in fiscal 2009 or fiscal 2008 for any services other than those described above.
The Audit Committee has determined that the provision of audit and non-audit services provided by our independent auditors as described above is compatible with maintaining the independent auditors independence. In accordance with its charter, the Audit Committee approves in advance all audit and non-audit services to be provided by our independent auditors. In certain cases, the Chairman of the Audit Committee has been delegated the authority by the Audit Committee to pre-approve certain additional services, and such pre-approvals are communicated to the full Audit Committee at its next meeting. During fiscal 2009, all services were pre-approved by the Audit Committee in accordance with this policy.
15(a) CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Incorporated by reference to Item 8 of this Report on Form 10-K.
15(b) FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not required, are not applicable or the information is scheduled in our financial statements or notes thereto.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of October 2009.