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 (Amendment No. )
Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
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Natus Medical Incorporated
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Proposed maximum aggregate value of transaction:
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Natus Medical
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Incorporated
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2019
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Notice of Annual Meeting and
Proxy Statement
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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION
Dear Natus Shareholders:
The Natus Board of Directors, management team and more than 2,000 Natus employees invite you to attend our 2019 Annual Meeting of Shareholders (the “Annual Meeting”),
which will be held at 5995 Pacific Mesa Court
,
San Diego, California 92121 on June 5, 2019 at 8:00 a.m. (PT).
We have made significant changes to your company since our last shareholder’s meeting. These changes include a new executive management team, a new organization
structure, and the appointment of two new directors to the board. The goal of these changes is to further strengthen our market position, provide increased quality and innovation in our products and improve our financial performance. We are very
excited about our future opportunities and look forward to reporting our progress in the year ahead.
The attached Notice of 2019 Annual Meeting of Shareholders and Proxy Statement includes further details about the business that will be conducted at our Annual Meeting.
Shareholders may also access these materials at the Investor Relations page on our website at
www.natus.com
.
Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. We urge you to promptly vote and submit your
proxy via the Internet, by phone, or by signing, dating and returning the enclosed proxy card in the enclosed envelope. If you attend the Annual Meeting, you can vote in person even if you previously submitted your proxy.
Sincerely,
Jonathan A. Kennedy
President & Chief Executive Officer
Dear Natus Shareholders:
Thank you for your investment in Natus Medical. We are proud to make important products and devices that enhance patient care and the quality of life for people around
the world.
It is a privilege to serve as a member of your Board -- and since July 2018, to serve as Board Chairperson. My Board colleagues and I are inspired by the opportunities
ahead for Natus and believe that the operational enhancements being deployed this year will result in a stronger and more efficient Natus. We look forward to providing high-quality medical devices and delivering value for all stakeholders for
many years to come.
The new Board has worked diligently to develop a robust shareholder engagement program, comprised of proactive and ongoing conversations with our major shareholders.
Since the 2018 Annual Shareholders Meeting, management and I have contacted 100% of our top active shareholders, representing more than 80% of our outstanding shares. These shareholder meetings focused on corporate governance practices, executive
compensation, board refreshment, risk oversight and the “One Natus” reorganization effort. The feedback and suggestions we received were shared with the full board and were instrumental to the governance and compensation program changes the Board
has now approved. Specifically, in response to shareholder feedback and in conjunction with a review of our governance practices, the Board has made or proposed the following:
Governance Changes:
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Adopted proxy access permitting a shareholder, or group of 20 shareholders, owning 3% of our shares for at least three years to nominate the greater of two directors or 20% of the
board
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Established share ownership guidelines for executives and directors
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Requested declassification of the Board and
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as a result
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filed a management proposal to do so – more information can be found on page
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Requested the removal of cumulative voting and
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as a result
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filed a management proposal to do so – more information can be found on page
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Compensation Program Changes:
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Our long-term incentive equity awards now include a performance-based component.
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Adopted a clawback policy and stock ownership guidelines.
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In addition to revising our governance, your Board of Directors remains committed to ongoing refreshment. As part of this commitment, the Board actively reviews the
needs of the company and the skills of our directors to ensure that the Board’s decisions are enriched by a diversity of experiences and perspectives. In February 2019, the Board was pleased to announce the additions of Alice D. Schroeder, former
CEO and Chair of WebTuner Corporation, and Thomas J. Sullivan, President and CEO of A&E Medical Corporation. Alice and Tom each bring a wealth of relevant experience, and further enhance the overall skill profile of your Board.
On behalf of the Natus Medical Board of Directors, thank you for your continued support.
Sincerely,
Barbara R. Paul, M.D.
Chairperson of Board
NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS AND NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS
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Date and Time:
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Place:
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June 5, 2019
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5995 Pacific Mesa Court
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8:00 a.m.
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San Diego, CA 92121
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Proposals to be voted on at the 2019 Annual Meeting of Shareholders (the “Annual Meeting”):
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Proposal 1.
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Amendment to our Restated Certificate of Incorporation to declassify the Board of Directors.
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Proposal 2.
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Amendment to our Restated Certificate of Incorporation to eliminate cumulative voting.
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Proposal 3.
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Election of three director nominees named in the attached Proxy Statement to serve until either the 2022 annual meeting
(if Proposal 1 is not adopted) or the 2020 annual meeting (if Proposal 1 is adopted) and, in either case, until their respective successors are duly elected and qualified.
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Proposal 4.
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Approval, on an advisory basis, of the named executive officer compensation disclosed in the attached Proxy Statement.
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Proposal 5.
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Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2019.
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And any other business that properly comes before the meeting or any adjournment or postponement thereof by or at the direction of the Board of
Directors.
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
Record Date:
Shareholders who owned shares of our common stock at the close of business on April 12, 2019, are entitled to attend and vote at the Annual Meeting. A complete list of these shareholders will be
available during normal business hours for ten days prior to the Annual Meeting at our corporate headquarters located at 6701 Koll Center Parkway Suite 120, Pleasanton, CA 94566. A shareholder may examine the list for any purpose germane to the
Annual Meeting. The list will also be available during the Annual Meeting for inspection by any shareholder present at the Annual Meeting.
Your vote is very important. Please submit your proxy or voting instructions as soon as possible to ensure that your shares
will be represented at the Annual Meeting whether or not you expect to attend the Annual Meeting.
REVIEW THE PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS:
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VIA THE INTERNET
Visit the website listed on your proxy card or voting instruction form.
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BY MAIL
Sign, date, and return the enclosed proxy card or voting instruction form.
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BY TELEPHONE
Call the telephone number on your proxy card or voting instruction form.
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IN PERSON
Attend the annual meeting in person and vote by ballot
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By Order of the Board of Directors,
Barbara R. Paul, M.D.
Chairperson of the Board of Directors
, 2019
Important notice regarding the availability of proxy materials for the
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2019 Annual Meeting of Shareholders to be held on June 5, 2019:
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Our Proxy Statement and 2018 Annual Report to shareholders are available on the Internet at www.proxyvote.com
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Natus Medical Incorporated
●
6701 Koll Center Parkway Suite 120, Pleasanton, CA 94566
●
www.natus.com
TABLE OF CONTENTS
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Note Regarding Forward-Looking Statements:
This proxy statement contains forward-looking statements, which are generally statements that are not historical facts. Forward-looking statements
can be identified by the words “expects”, “anticipates”, “believes”, “intends”, “estimates”, “plans”, “will”, “outlook” and similar expressions. Forward-looking statements are based on management's current plans, estimates, assumptions and
projections, and speak only as of the date they are made. These forward-looking statements include, without limitation, statements regarding the anticipated timing and benefits of the implementation of the Company’s new “One Natus” organizational
structural, the expected benefits of recent and anticipated corporate governance initiatives and the Company’s strategies for driving growth and long-term value for our shareholders. These statements relate to current estimates and assumptions of
our management as of the date of this proxy statement and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance, or achievements to differ materially from those expressed
or implied by the forward-looking statements. Forward-looking statements are only predictions and the actual events or results may differ materially. Natus cannot provide any assurance that its future results or the results implied by the
forward-looking statements will meet expectations. The Company's future results could differ materially due to a number of factors, including the ability of the Company to realize the anticipated benefits from the new structure and corporate
governance initiatives, its consolidation strategy and recent and anticipated governance initiatives, effects of competition, the Company's ability to successfully integrate and achieve its profitability goals from recent acquisitions, the demand
for Natus products and services, the impact of adverse global economic conditions and changing governmental regulations, including foreign exchange rate changes, on the Company's target markets, the Company's ability to expand its sales in
international markets, the Company's ability to maintain current sales levels in a mature domestic market, the Company's ability to control costs, risks associated with bringing new products to market, and the Company's ability to fulfill product
orders on a timely basis, as well as those factors identified under the heading Item 1A “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Natus disclaims any obligation to update information
contained in any forward looking statement, except as required by law.
This summary highlights important information you will find in this Proxy Statement regarding Natus and the upcoming Annual Meeting. This summary
does not contain all of the information that you should consider. Please carefully review the complete Proxy Statement before you vote.
SHAREHOLDER VOTING PROPOSALS
(Page 1)
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Proposal
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Board’s Voting
Recommendation
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Annual Meeting of
Shareholders
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Proposal 1:
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Amendment to our Restated Certificate of Incorporation to declassify our Board of Directors
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✓
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FOR
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Date and Time:
June 5, 2019
8 a.m. PT
Place:
5995 Pacific Mesa Court
San Diego, CA
92121
Record Date:
April 12, 2019
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Proposal 2:
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Amendment to our Restated Certificate of Incorporation to eliminate cumulative voting
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✓
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FOR
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Proposal 3:
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Election of Directors
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✓
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FOR
each nominee
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Proposal 4:
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Advisory Vote to Approve Named Executive Officer Compensation
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FOR
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Proposal 5:
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Ratification of Appointment of Independent Registered Public Accounting Firm
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FOR
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YOUR BOARD OF DIRECTORS (THE “BOARD”)
(
Page 9)
Your Board is also committed to implementing operational changes designed to support the profitable growth of the Company. We have announced, and
are continuing to implement, a new organizational structure that includes recent steps to:
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Consolidate our Neuro, Newborn Care and Otometrics Business Units into “One Natus”.
This initiative creates globally-led operational teams in Sales & Marketing, Manufacturing, R&D, Quality, and General and Administrative
functions. The new structure provides for increased transparency, efficiency and cross-functional collaboration across common technologies, processes and customer channels. We expect to implement this new structure throughout 2019.
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Create New Senior Management Positions.
In connection with our organizational redesign, we created new senior management positions in order to better align the skills of our management team to our business and to help us
more efficiently and successfully execute our business strategies.
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Three of our current directors are standing for election at the Annual Meeting. The following chart provides key information on each of our
current directors.
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Committee Membership
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Directors
(1)
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Year
Appointed
or Elected
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Independent
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Age
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Audit
Committee
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Nominating &
Governance
Committee
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Compensation
Committee
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Compliance
& Quality
Committee
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Other
Public
Company
Boards
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Jonathan A. Kennedy
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2018
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No
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48
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1
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President & Chief Executive
Officer, Natus Medical
Incorporated
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Alice D. Schroeder
*
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2019
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Yes
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62
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✓
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✓
C
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✓
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2
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Former Chair & Chief
Executive Officer,
WebTuner
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Thomas J. Sullivan
*
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2019
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Yes
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55
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✓
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✓
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0
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President & Chief Executive
Officer, A&E Medical
Corporation
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Natus Medical Incorporated
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2019 Proxy Statement
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Barbara R. Paul, M.D.
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2016
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Yes
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✓
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1
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Former Chief Medical
Officer, Community
Health Systems, Inc.
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Kenneth E. Ludlum
*
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2002
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Yes
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65
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✓
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✓
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0
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Former Chief Financial
Officer, CareDx, Inc.
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Lisa W. Heine
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2018
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Yes
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✓
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✓
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President & Chief Executive
Officer, Precardia, Inc.
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Joshua H. Levine
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2018
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Yes
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✓
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✓
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President & Chief Executive
Officer, Accuray Inc.
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*
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Denotes an audit committee financial expert.
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C
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Indicates a Chairperson role on the committee.
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(1)
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Mr. Robert A. Gunst will not be standing for reelection at our Annual Meeting and is retiring from our Board. He
will no longer serve on our Board following the Annual Meeting.
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Assuming the election of each of our director nominees, the following charts highlight our Board composition following the 2019 Annual Meeting:
CORPORATE GOVERNANCE HIGHLIGHTS
Natus believes that good corporate governance practices are essential to fostering shareholder relations and creating shareholder value.
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WHAT WE DO
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✓
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Proxy access rights
added to the Natus Bylaws
in 2018 to permit a Natus shareholder (or a group of up to 20 of our shareholders), owning at least 3% of our outstanding shares of common stock continuously for at least three years, to nominate up to the greater of two directors or 20%
of the members of our Board for inclusion in our proxy statement.
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Special shareholders meetings
can be called
by shareholders owning a sufficient percentage of our outstanding voting shares.
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Independent Board
with seven of our eight
current directors meeting independence requirements (all but our Chief Executive Officer).
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Regular executive sessions of independent directors
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Senior management succession planning
considered annually or as requested by the Board.
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Active shareholder engagement
throughout the
year
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Since our annual meeting in 2018, we have contacted our largest shareholders representing more than 80% of our outstanding shares.
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Regular board refreshment
with five of seven
of our current independent directors joining the Board in the past three years.
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Annual Board and committee self-assessments
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Natus Medical Incorporated
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2019 Proxy Statement
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✓
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“Clawback” policy
for performance-based
compensation.
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Achieved gender equality on our Board.
An
equal mix of men and women will serve as independent directors on the Board following the Annual Meeting.
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Established Stock Ownership Guidelines for Directors and Executives.
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Independent Board Chair.
Dr. Barbara Paul
has served as Board Chair since June 2018 and has been heavily involved in the Company’s shareholder engagement process.
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No overboarding.
Each of our independent
directors serves on no more than two other public company boards and our CEO serves on only one outside public company Board.
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WHAT WE DON’T DO
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No shareholder rights plan (“poison pill”).
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No supermajority voting provisions in the Company’s organizational documents.
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Classified board.
If Proposal 1 is approved
at our Annual Meeting, we will declassify the Board.
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Cumulative voting.
If Proposal 2 is approved
at our Annual Meeting, we will eliminate the ability of shareholders to exercise cumulative voting in future director elections.
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COMMITMENT TO SHAREHOLDER ENGAGEMENT
Our Board and senior management are committed to engaging with our shareholders. Throughout the year, members of our senior management discuss our
business, corporate governance and financial results with current and prospective shareholders. The feedback we collect from these discussions is shared with the Board and its committees and is incorporated into our decision-making processes.
Since our annual meeting in 2018, we have contacted our largest shareholders representing more than 80% of our outstanding shares.
Recent Governance Enhancements
We are committed to strengthening our corporate governance practices and responding to our shareholders’ feedback. Over the last year, based on
feedback provided during meetings with our shareholders and the Board’s consideration of best practices, we:
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Amended our Bylaws to implement proxy access
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The new proxy access provision allows a qualifying shareholder, or group of up to 20 qualifying shareholders, to nominate and include in our proxy materials up
to two director nominees (or 20% of the Board, if greater). We believe this provides a meaningful opportunity for our shareholders to nominate directors for our Board and further increases the accountability of our Board to existing
shareholders, without the cost and distraction of a contested election.
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Included Proposal 1 in this Proxy Statement to end the use of a classified board.
We believe that the phasing out of the classified board and the annual election of all of our directors by 2021 will increase accountability to our shareholders. See “Proposal 1 – Amendment to our Restated Certificate of Incorporation
to declassify our Board” for additional details.
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Included Proposal 2 in this Proxy Statement to eliminate cumulative voting.
We
believe it is in the best interest of Natus and its shareholders to eliminate cumulative voting given that, when coupled with our majority voting standards, shareholders who exercise their cumulative voting rights may unintentionally
cause the failed election of an otherwise qualified director for whom shareholders do not cumulate votes. See “Proposal 2 – Amendment to our Restated Certificate of Incorporation to eliminate cumulative voting” for additional details.
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Refreshed our Board with the addition of two new independent directors in February 2019.
We are committed to the regular evaluation of our Board composition and Board refreshment. Five of our eight current directors have joined the Natus board in the past year. These actions are part of Natus’ ongoing board refreshment
process on behalf of shareholders designed to build a board with the best mix of skills, expertise and experience to support the Natus management team in shareholder value creation.
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Natus Medical Incorporated
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2019 Proxy Statement
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EXECUTIVE COMPENSATION
(
Page 27)
Summary
Natus is a leading provider of medical devices and services used for the screening, treatment and monitoring of common medical conditions in newborn
care, hearing, balance impairment, neurological dysfunction, neurosurgery and sleep disorders. Our executive compensation program is designed to:
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attract and retain individuals with the skills and performance needed to achieve our business objectives;
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competitively reward and incentivize individuals over time; and
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align the short and long-term compensation of those individuals with the Company’s performance.
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Compensation Program Highlights
(
Page 28)
Our Compensation Committee believes that the most effective executive compensation program is one that is designed to reward achievement and that
aligns executives’ interests with those of shareholders by rewarding performance, with the ultimate objective of improving shareholder value.
WHAT WE DO
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✓
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Link Pay to Performance.
Annual bonus payouts are based on
the achievement of challenging operating and financial performance goals and Performance Stock Units (PSUs) granted to our Chief Executive Officer and Chief Financial Officer are eligible to be earned and vest based on our relative total
shareholder return (TSR) as compared to a pre-established comparator group of companies. To further link compensation paid to performance attained, we implemented Market Stock Units (MSUs) and PSUs as part of our executive compensation
program for annual equity awards made to all executive officers in 2019, as described in further detail on page 29. No annual bonuses were paid to our current executive officers for 2018 (or 2017) performance due to our failure to
achieve the performance goals set by our Compensation Committee.
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✓
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Maintain Executive Stock Ownership Guidelines.
Our named
executive officers are subject to stock ownership guidelines that, following completion of a five-year phase-in period, will require them to hold shares of our common stock having a value ranging from 1.0x to 5.0x their annual base
salary.
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✓
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Subject Incentive Compensation to our Clawback Policy.
In
2019 we adopted a claw-back policy covering annual and long-term incentive compensation paid to our executive officers.
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✓
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Engage an Independent Compensation Consultant.
Our
Compensation Committee engages an independent compensation consultant to provide peer group analysis and market data.
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WHAT WE DON’T DO
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Provide Excise Tax Gross-Ups
. None of our named executive
officers or other employees is entitled to a gross-up for any excise taxes on change in control-related compensation.
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Reprice Stock Options without Shareholder Consent
. We are not
permitted to reprice stock options without shareholder consent under our 2011 Stock Awards Plan.
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Provide Pension or Deferred Compensation Benefits.
We do not
maintain any defined benefit pension or deferred compensation plans.
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Pay Excessive Compensation.
Beginning in 2019, we have
targeted the total direct compensation (base salary, target annual bonus and target long-term equity awards) for our NEOs at the 50
th
percentile of the market.
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✗
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Provide Excessive Perquisites or Personal Benefits
. We
generally do not provide perquisites or personal benefits to our named executive officers.
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Natus Medical Incorporated
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2019 Proxy Statement
|
NATUS MEDICAL INCORPORATED
PROXY STATEMENT FOR THE
2019 ANNUAL MEETING OF SHAREHOLDERS
GENERAL MEETING AND VOTING INFORMATION
Our Board is soliciting your proxy for use at the Annual Meeting to be held at 8:00 a.m. PT, on June 5, 2019, at 5995 Pacific Mesa Court, San
Diego, CA 92121.
Unless the context otherwise requires, references in this Proxy Statement to “Natus,” the “Company,” “our,” “we,” “us,” and similar terms refer to
Natus Medical Incorporated, a Delaware corporation.
Important Notice Regarding the Availability of Proxy Materials for the 2019 Annual Meeting of Shareholders to be Held on June
5, 2019
In accordance with U.S. Securities and Exchange Commission (“SEC”) rules, we are using the Internet as our primary means of furnishing proxy
materials to shareholders. Consequently, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the
proxy materials, including our proxy statement and 2018 Annual Report, and voting via the Internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may obtain paper copies of our proxy
materials if they so choose. We believe this rule makes the proxy distribution process more efficient, less costly and helps in conserving natural resources. If you previously elected to receive our proxy materials electronically, these materials
will continue to be sent via email unless you change your election.
The Notice and the Proxy Materials are first being made available to shareholders on the date of the notice of meeting.
Voting Proposals and Recommendations
The items of business scheduled to be voted on at the Annual Meeting and our Board’s recommendation on each item are as follows:
Proposal
|
|
Our Board’s
Recommendation
|
Proposal 1.
|
Amendment to our Restated Certificate of Incorporation to declassify our Board
|
✔
FOR
|
Proposal 2.
|
Amendment to our Restated Certificate of Incorporation to eliminate cumulative voting
|
✔
FOR
|
Proposal 3.
|
Election of Directors
|
✔
FOR each nominee
|
Proposal 4.
|
Advisory Vote to Approve Named Executive Officer Compensation
|
✔
FOR
|
Proposal 5.
|
Ratification of Appointment of Independent Registered Public Accounting Firm
|
✔
FOR
|
Other than the items of business described in this Proxy Statement, we are not aware of any other business to be acted upon at the Annual Meeting.
However, if other business properly comes before the Annual Meeting or any postponement or adjournment thereof by or at the direction of our Board, our shareholders will be asked to consider and transact such other business.
Record Date and Shareholders List
The Board has fixed the close of business on April 12, 2019 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting. A list of shareholders of record entitled to vote at the Annual Meeting will be available for inspection by any shareholder, for any purpose germane to the meeting, during normal business hours, for a period of ten days prior to the
meeting, at our corporate headquarters located at 6701 Koll Center Parkway Suite 120, Pleasanton, CA 94566. The list will also be made available during the Annual Meeting for inspection by any shareholder present at the meeting.
|
1
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Natus Medical Incorporated
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2019 Proxy Statement
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GENERAL MEETING AND VOTING INFORMATION
Eligibility to Vote
You are entitled to vote your shares at the Annual Meeting if our records show that you held your shares as of the record date, April 12, 2019. At
the close of business on that date, shares of our common stock were outstanding and entitled to vote at the Annual Meeting. We have no other class of voting securities outstanding. Each shareholder is entitled to one vote per share on each
proposal to be voted upon at the Annual Meeting.
How to Vote
You may hold Natus’ shares in multiple accounts and therefore receive more than one proxy card or voting instruction form and related materials.
Please vote EACH proxy card and voting instruction form that you receive.
Shares Held of Record
.
If you hold your shares in your own name as a holder of record with
our transfer agent, Wells Fargo Shareowner Services, you may authorize that your shares be voted at the Annual Meeting in one of the following ways:
By Internet
|
·
|
If you received a Notice or a printed copy of the Proxy Materials, follow the instructions in the Notice or on the proxy card.
|
By Telephone
|
·
|
If you received a printed copy of the Proxy Materials, follow the instructions on the proxy card.
|
By Mail
|
·
|
If you received a printed copy of the Proxy Materials, complete, sign, date, and mail your proxy card in the enclosed, postage-prepaid
envelope.
|
In Person
|
·
|
You may also vote in person if you attend the Annual Meeting.
|
Shares Held in Street Name.
If your shares are held in a brokerage account or by another nominee you are considered the
beneficial owner
of shares held in
street name
, and these proxy materials are being forwarded to you together with a voting instruction card by your broker, trustee or other nominee. As the beneficial owner, you have the right to
direct your broker, trustee or nominee how to vote and are also invited to attend the Annual Meeting.
Your vote is important. Whether or not you plan to attend the Annual Meeting, please submit your proxy promptly by the Internet
or phone or by completing, dating, signing and returning the enclosed proxy card as promptly as possible in the accompanying reply envelope. If your shares are held in street name by a broker, trustee or other nominee and you do not instruct this
nominee how to vote your shares, your shares will not be voted on any matter other than approval of appointment of our independent accountants.
Broker Voting
Brokers holding shares of record for their customers are entitled to vote shares held for a beneficial owner on “routine” matters, such as the
ratification of the appointment of KPMG LLP as our independent registered public accounting firm (Proposal 5), without instructions from the beneficial owner of those shares. However, these brokers are generally not entitled to vote on certain
non-routine matters, including the election of directors, amendments to our Restated Certificate of Incorporation and matters relating to equity compensation plans or executive compensation, unless their customers submit voting instructions. If
you hold your shares in street name through a broker and the broker does not receive your voting instructions, the broker will not be permitted to vote your shares in its discretion on any of the proposals at the Annual Meeting other than the
proposal to ratify the appointment of KPMG LLP (Proposal 5).
If you are a beneficial owner and do not provide your broker or other shareholder of record with voting instructions, your
shares may constitute “broker non-votes.” Generally, broker non-votes occur when shares held by a broker, bank, or other nominee in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker, bank,
or other nominee (i) has not received voting instructions from the beneficial owner and (ii) lacks discretionary voting power to vote those shares with respect to that particular proposal.
How Many Votes
You are entitled to one vote for each of our common shares that you owned on the record date. The accompanying Proxy Card indicates the number of
shares that you owned on the record date.
The Board has submitted Proposal 2 included in this Proxy Statement to be voted upon by shareholders at the Annual Meeting to eliminate cumulative
voting by shareholders in director elections. If Proposal 2 is approved at the Annual Meeting, a Certificate of Amendment will be immediately filed with the State of Delaware such that cumulative voting will no longer be available to our
shareholders at the time of the vote on Proposal 3 for the election of directors.
If Proposal 2 is not approved by our shareholders at the Annual Meeting, shareholders will have the right to request cumulative voting for the election of directors
at the Annual Meeting. This means that each shareholder will be able to give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of common shares owned by such shareholder, or to distribute the
shareholder’s votes on the same principle among two or more candidates, as the shareholder
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Natus Medical Incorporated
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2019 Proxy Statement
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GENERAL MEETING AND VOTING INFORMATION
may elect. If voting for the election of Directors is cumulative, the persons named in the accompanying Proxy Card will vote the common shares
represented by proxies given to them in such manner so as to elect as many of the nominees named in this Proxy Statement as possible.
Voting Deadline
If you are a shareholder of record, your proxy must be received by telephone or the Internet by 11:59 p.m. ET on June 4, 2019, the day before the
Annual Meeting, in order for your shares to be voted at the Annual Meeting. If you are a shareholder of record and you received a printed copy of the Proxy Materials, you may instead mark, sign, date and return the enclosed proxy card, which must
be received before the polls close at the Annual Meeting.
If you hold your shares in street name through a broker, bank or other nominee, please follow the instructions provided by the broker, bank or
other nominee who holds your shares.
Appointment of Proxies
The Board has appointed Jonathan A. Kennedy, President and Chief Executive Officer of the Company and Drew Davies, Executive Vice President and
Chief Financial Officer to serve as proxy holders to vote your shares according to the instructions you submit. If you properly submit a proxy but do not indicate how you want your shares to be voted on one or more items, your shares will be
voted in accordance with the recommendations of our Board as set forth above under “Voting Proposals and the Recommendations of the Board.” With respect to any other matter properly presented at the Annual Meeting, or any adjournment or
postponement thereof, your proxy, if properly submitted, gives authority to the proxy holders to vote your shares on such matter in accordance with their best judgment.
Revocation of Your Proxy
You may change your vote at any time prior to the vote at the Annual Meeting. If you are the shareholder of record, you may change your vote by
granting a new proxy bearing a later date (which automatically revokes your earlier proxy), by providing a written notice of revocation to our Corporate Secretary prior to your shares being voted, or by attending the Annual Meeting and voting in
person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to
your broker, trustee or other nominee, or, if you have obtained a legal proxy from your broker, trustee or other nominee giving you the right to vote your shares, by attending the Annual Meeting and voting in person.
Any change to your proxy or voting instructions that is provided by telephone or the Internet must be submitted by 11:59 p.m. ET on June 4, 2019.
Quorum
Holders of a majority of shares of our common stock issued and outstanding and entitled to vote as of the record date must be present in person or
represented by proxy to meet the quorum requirement pursuant to our Bylaws for holding the Annual Meeting and transacting business. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.
Required Vote for Each Proposal
The following summary describes the vote required to approve each of the proposals at the Annual Meeting.
Voting Item
|
|
Vote Standard
|
Treatment of Abstentions and
Broker Non-Votes
|
Proposal 1.
|
Amendment to our Restated Certificate of Incorporation to declassify our Board
|
Majority of our outstanding shares
|
Abstentions and broker non-votes will have the effect of votes “against”
|
Proposal 2.
|
Amendment to our Restated Certificate of Incorporation to eliminate cumulative voting
|
Majority of our outstanding shares
|
Abstentions and broker non-votes will have the effect of votes “against”
|
Proposal 3.
|
Election of Directors
|
Majority of votes cast (“for” votes must exceed the number of “against” votes in an uncontested director election)
|
Abstentions and broker non-votes not counted as votes cast (only “for” and “against” votes are counted)
|
Proposal 4.
|
Executive Compensation (Advisory)
|
Majority of shares represented at the Annual Meeting and entitled to vote thereat
|
Abstentions and broker non-votes will have the effect of votes “against”
|
Natus Medical Incorporated
|
2019 Proxy Statement
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3
|
GENERAL MEETING AND VOTING INFORMATION
Voting Item
|
|
Vote Standard
|
Treatment of Abstentions and
Broker Non-Votes
|
Proposal 5.
|
Ratification of Independent Registered Public Accounting Firm
|
Majority of shares represented at the Annual Meeting and entitled to vote thereat
|
Abstentions will have the effect of votes “against”; broker non-votes will have no effect
|
Proxy Solicitation Costs
Natus is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting
votes. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for any telephone charges you may incur. In
addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees who will not receive any additional compensation
for such solicitation activities. Upon request, we will also reimburse brokerage houses and other custodians, nominees and fiduciaries for forwarding proxy and solicitation materials to shareholders.
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Natus Medical Incorporated
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2019 Proxy Statement
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PROPOSAL 1 - AMENDMENT TO OUR RESTATED CERTIFICATE OF
INCORPORATION
|
PROPOSAL 1 – AMENDMENT TO OUR
RESTATED CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD
Natus is seeking approval to amend its Restated Certificate of Incorporation, as amended to date (the “Restated Certificate of Incorporation”), in
order to phase out the classified board structure. The vote required to approve this Proposal 1 is the affirmative vote of the holders of at least a majority of the issued and outstanding shares of our common stock.
BACKGROUND
In 2018, the Board announced its commitment to taking certain actions to strengthen the corporate governance practices of Natus, including seeking
shareholder approval of an amendment to its Restated Certificate of Incorporation to declassify the Board.
Declassify the Board
Our Restated Certificate of Incorporation provides that the Board shall be divided into three classes. Directors in each class are elected every
three years to three-year terms, with the term of one class expiring at each annual meeting. Currently, two classes contain two directors each and one class contains four directors as a result of two new director appointments to that class made
in February 2019 (one member of this class is not standing for election in 2019, bringing the size of this class to three persons). Our classified board structure has been in place since we became public in 2001.
Our Nominating & Governance Committee regularly considers a broad range of corporate governance issues and is committed to adopting governance
practices that are beneficial to Natus Medical Incorporated and our shareholders. We recognize that in recent years there has been an increased interest in the elimination of classified boards at public companies as a means to improve the
accountability of such boards.
If Proposal 1 is approved, the three director nominees standing for election at our 2019 annual meeting will stand for election for one-year terms
expiring in 2020. At our 2020 annual meeting, we would expect the directors elected at the 2019 annual meeting and the directors with terms expiring at the 2020 annual meeting (currently expected to be five directors) to stand for election for
one-year terms expiring in 2021.
If Proposal 1 is approved, the term of office for each director elected at the 2021 annual meeting and thereafter will expire at the next annual
meeting of shareholders and until their successors are elected and qualified or until their earlier death, resignation, removal or disqualification. Furthermore, if Proposal 1 is approved, if there is a vacancy in the Board, because the number of
directors is increased or otherwise, at or following the 2019 Annual Meeting, any director elected or appointed to fill such vacancy will hold office for a term expiring at the next annual meeting. If Proposal 1 is approved, beginning with our
2021 annual meeting, all directors, regardless of their original term of office, would stand for election every year for a term of one year. If Proposal 1 is not approved, the Board will remain classified.
The table below summarizes the implementation of the declassification of the Board pursuant to the proposed amendment:
Annual Meeting Year
|
Number of
Directors
Expected to be
Up for Election
|
|
Length of
Term
for Directors
Elected
|
|
|
Year that
Term Would
Expire
|
|
2019
|
3
|
|
|
One Year
|
|
|
|
2020
|
|
2020
|
5
|
|
|
One Year
|
|
|
|
2021
|
|
2021 and thereafter
|
All
|
|
|
Annual Election
|
|
|
|
One year later
|
|
VOTE REQUIRED
If a quorum is present, the vote required to approve this Proposal 1 to declassify the board is at least a majority of all of the issued and
outstanding shares of common stock whether or not represented in person or by proxy at the Annual Meeting.
THE PROPOSED AMENDMENT
This general description of Proposal 1 is qualified in its entirety by reference to the text of the amendment set forth in this Proposal for the
declassification of the Board. Additions are indicated by red underlined text and deletions are indicated by strike-outs. If Proposal 1 is approved by shareholders, it will become effective upon the filing of a Certificate of Amendment with the
State of Delaware, which Natus Medical Incorporated would intend to file promptly following the shareholder vote on Proposals 1 and 2 during the Annual Meeting. The Board would also adopt corresponding amendments to our Bylaws. If Proposal 1 is
not
5
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Natus Medical Incorporated
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2019 Proxy Statement
|
approved, the Restated Certificate of Incorporation and our Bylaws will continue to allow for the Board to be classified, with directors elected
for three year terms to succeed the directors of the class whose terms expire at each annual meeting.
Article Fifth will be amended as follows if our shareholders vote to approve this Proposal 1 (with the following language not reflecting any
amendments effected pursuant to Proposal 2):
FIFTH:
“Qualified Public Offering” as used in
this Certificate of Incorporation shall mean the corporation’s initial firm commitment underwritten public offering pursuant to an effective registration under the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of the Corporation to the public
. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the
corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that
, effective upon the closing of a Qualified Public Offering
:
1.
The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors
shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
The
Board of Directors shal
l
b
e
divided into three
classes designated as Class I, Class II and Class III, respectively. Directors shall
be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors.
At the first
Subject
to the rights of the holders of any series of Preferred Stock, commencing with the 2019 annual meeting of stockholders, each director
following the date hereof, the term of
office of the Class I directors
shall
be elected for a term
expir
e
ing
and Class I directors shall be elected for a full term of three years. At
the second
at the next succeeding
annual meeting of stockholders
following the date hereof, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders
following the date hereof, the term of office of the Class III
directors
shall expire
and Class
III directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders
, directors shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting
;
provided,
however, that any director elected or appointed prior to the 2019 annual meeting of stockholders shall complete the term to which such
director has been elected or appointed
.
Each holder of voting stock or of any class or series thereof shall be entitled to cumulative voting rights as to the directors to be elected by each series or class or the combined classes in accordance with the provisions of Section 214
of the Delaware General Corporation Law.
Subject to the rights of the
holders of any series of Preferred Stock,
N
n
otwithstanding the
foregoing provisions of this Article FIFTH, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Subject to the rights of the
holders of any series of Preferred Stock,
A
a
ny vacancies on the Board
of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the
corporation entitled to vote generally in the election of directors (the '"Voting Stock”) voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum
of the Board of Directors.
Subject to the rights of the holders of any series of Preferred Stock,
N
n
ewly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such
newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office
for a term expiring at the next succeeding annual meeting of stockholders and shall serve
for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and
until such director’s successor shall have been elected and
qualified.
THE BOARD RECOMMENDS A VOTE
“
FOR
”
AMENDING OUR RESTATED CERTIFICATE OF INCORPORATION TO
DECLASSIFY THE BOARD
|
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Natus Medical Incorporated
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2019 Proxy Statement
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PROPOSAL 2 - AMENDMENT TO OUR RESTATED CERTIFICATE OF
INCORPORATION
|
PROPOSAL 2 – AMENDMENT TO OUR
RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE CUMULATIVE VOTING
Additionally, Natus is seeking approval to amend its Restated Certificate of Incorporation in order to eliminate cumulative voting in the election
of directors. The vote required to approve this Proposal 2 is the affirmative vote of the holders of at least a majority of the issued and outstanding shares of our common stock.
BACKGROUND
In 2018, the Board announced its commitment to taking certain actions to strengthen the corporate governance practices of Natus, including seeking
shareholder approval of an amendment to its Restated Certificate of Incorporation to eliminate cumulative voting.
Eliminate Cumulative Voting of Directors
Cumulative voting, which our Restated Certificate of Incorporation currently permits, enables a shareholder to “cumulate” their voting power in
favor of the election of one or more director nominees. Cumulative voting allows a shareholder to cast a number of votes for a single nominee, or among fewer than all nominees, equal to the number of shares the shareholder holds multiplied by the
number of directors to be elected. Our Amended and Restated Bylaws (our “Bylaws”) provide that in uncontested elections, directors are elected if the votes cast “for” the nominee exceed the votes “against” such nominee’s election. Accordingly,
the use of cumulative voting rights can permit one or more directors to be elected based on the votes of a minority of shareholders casting votes in the election. By allowing shareholders to cast multiple votes for a single or few nominees,
instead of voting separately on each nominee, cumulative voting can result in the election of a board member who has not been supported by the holders of a majority of the shares voting on the election of directors.
The Board believes that maintaining cumulative voting in our corporate governance structure is problematic for a number of reasons. Cumulative
voting provides an unusual mechanism through which a minority shareholder with relatively large holdings can elect a director nominee without the support of majority shareholders. Natus wishes to establish procedures through which all
shareholders, including minority shareholders, can share their opinions and actively participate in elections without giving a minority shareholder the ability to have a disproportionate influence over the election of directors. These
special-interest shareholders (or small groups of such shareholders) could cumulate their votes to elect specific directors who otherwise would not be elected. Such directors may be focused on the special agendas of those who cumulated votes to
elect them and may not align with the views of a majority of our shareholders. Further, a system in which shareholders can cast one vote per share for each director nominee is the prevailing election standard among large U.S. public companies.
Very few large publicly traded companies provide for cumulative voting.
We recently adopted proxy access procedures for director elections at annual meetings. The Board believes that cumulative voting is incompatible
with proxy access
.
Proxy access is intended to give individuals or shareholder groups an ability to influence director elections by including nominees in our proxy materials. When coupled
with cumulative voting, substantial shareholders can direct all or a large percentage of their votes toward just one director’s seat, which could result in the election of a director that does not represent the views of many of our shareholders.
Consequently, eliminating cumulative voting will help ensure that only those nominees with broad shareholder support will ultimately be elected to the Board.
Both management and the Board view this proposal to eliminate cumulative voting as an appropriate balancing measure in view of the annual election
of Natus Medical Incorporated’s directors (assuming the adoption of Proposal 1), the recently adopted proxy access provisions and the director majority voting standard. Therefore, the Board believes that it is in the best interests of Natus
Medical Incorporated and its shareholders to eliminate cumulative voting.
This proposal to eliminate cumulative voting is not in response to any shareholder effort of which we are aware to remove any directors or
otherwise gain representation on the Board, to accumulate our common shares, or to obtain control of the Company or the Board by means of a solicitation in opposition to management or otherwise.
VOTE REQUIRED
If a quorum is present, the vote required to approve this Proposal 2 to eliminate cumulative voting is at least a majority of all of the issued
and outstanding shares of common stock whether or not represented in person or by proxy at the Annual Meeting.
THE PROPOSED AMENDMENT
This general description of Proposal 2 is qualified in its entirety by reference to the text of the amendment set forth in this Proposal to eliminate cumulative
voting. Additions are indicated by red underlined text and deletions are indicated by strike-outs. If Proposal 2 is approved by shareholders, it will become effective upon the filing of a Certificate of Amendment with the State
Natus Medical Incorporated
|
2019 Proxy Statement
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7
|
of Delaware, which Natus Medical Incorporated would intend to file promptly following the shareholder vote on Proposals 1 and 2 during the Annual
Meeting. The Board would also adopt corresponding amendments to our Bylaws. Cumulative voting would not be permitted in elections of directors thereafter. If Proposal 2 is not approved, the Restated Certificate of Incorporation and our Bylaws
will continue to allow for cumulative voting.
Section 1 of Article Fifth will be amended as follows if our shareholders vote to approve this Proposal 2 (with the following language not
reflecting any amendments effected pursuant to Proposal 1):
The management of the business and the conduct of the affairs of the corporation shall be vested in its
Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
The Board of Directors shall be
divided into three classes designated as Class l, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the date hereof, the term of office of the Class I directors shall expire and Class 1 directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the
term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Each holder of voting stock or of any class or series thereof shall be entitled to cumulative voting rights as to the
directors to be elected by each series or class or the combined classes in accordance with the provisions of Section 214 of the Delaware General Corporation Law
.
Subject to the rights of the holders of any series of
Preferred Stock, no holder of voting stock or of any class or series thereof shall have the right to cumulate the voting power of such stock in the election of directors
.
Notwithstanding the foregoing provisions of this Article FIFTH, each director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or
other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors (the
'"Voting Stock”) voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any
increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director’s successor shall have been elected and qualified.
THE BOARD RECOMMENDS A VOTE
“
FOR
”
AMENDING OUR RESTATED CERTIFICATE OF INCORPORATION TO
ELIMINATE CUMULATIVE VOTING
|
James B. Hawkins
|
|
|
|
|
|
Austin F. Noll
|
85% of Natus EPS Goal
80% of SBU Pre-Tax Net Income
|
15%
|
15%
|
20%
|
25%
|
25%
|
Leslie McDonnell
|
Carsten Buhl
|
As in previous years, for 2018, performance metrics and weightings under our annual bonus plans varied for our named
executive officers depending on their position.
|
·
|
For Messrs. Kennedy, Davies and Hawkins, Natus non-GAAP earnings per share (EPS) and Natus revenue were selected
as the performance metrics in order to incentivize them to grow our revenue base and manage our business efficiently. No annual bonus would be payable unless 85% of the Natus EPS goal was achieved. In addition, all 2018 bonuses were
subject to downward adjustment by up to 10% of the amount earned, in our Compensation Committee’s discretion, based on the compliance- and quality-related goals, including goals relating to regulatory processes and procedures.
|
|
·
|
For our SBU leaders, including Messrs. Noll and Buhl and Ms. McDonnell, SBU revenue and SBU non-GAAP pre-tax
income were selected as the primary performance metrics in order to align their annual bonuses with the SBUs that they manage. In addition, a portion of their annual bonus opportunity was based on the achievement of specified
strategic objectives, generally consisting of discrete operational goals, and Natus non-GAAP EPS and revenue goals to encourage the executives to focus on Natus performance as a whole. No annual bonus would be payable unless 85% of
the Natus EPS goal was achieved and 80% of the operating income goal for the named executive officer’s SBU was achieved. In addition, all 2018 bonuses were subject to downward adjustment by up to 10% of the amount earned, in our
Compensation Committee’s discretion, based on achievement of compliance- and quality related goals, including goals relating to regulatory processes and procedures.
|
Natus EPS and SBU pre-tax income are non-GAAP performance metrics. The table below sets forth the target performance goals
for each of the performance metrics for our 2018 annual bonus plans.
Performance Metric
|
Target
|
Natus Revenue
|
$541.8 million
|
Natus EPS
|
$1.63
|
Neurology SBU Revenue
|
$283.7 million
|
Neurology SBU Net Pre-Tax Income
|
$91.5 million
|
Newborn Care SBU Revenue
|
$128.5 million
|
Newborn Care SBU Net Pre-Tax Income
|
$24.0 million
|
Otometrics SBU Revenue
|
$128.6 million
|
Otometrics SBU Net Pre-Tax Income
|
$22 million
|
For 2018, Natus revenue was $530.9 million and Natus non-GAAP EPS was $1.43, in each case, as described in our earnings release filed with the SEC on February 13,
2019. A reconciliation of our non-GAAP EPS to GAAP earnings per share, as well as a description of the adjustments made to earnings per share, is also included in such earnings release. Because we did not achieve 85% of the Natus EPS target set
forth in the table above
,
no annual bonuses were paid to our current named executive officers for 2018 performance
.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
Long-Term Equity Awards
We believe that to effectively align their interests with those of our shareholders and properly incentivize them to drive long-term shareholder
value, our executives receive equity-based awards the value of which will be dependent on our stock price performance. Long-term equity awards are a critical component of our executive compensation program because they contribute to a culture of
ownership among our employees, align their interests with the interests of our shareholders and preserve our cash resources.
We grant long-term equity awards on an annual basis to our executive officers and certain other employees. Our Compensation Committee annually
determines the grant date fair value of the equity awards to be granted to our executive officers, taking into consideration the factors described above. In addition, we typically grant long-term equity awards to executive officers in connection
with their hires and in connection with promotions or significant changes in responsibilities.
Since December 2014, we have primarily granted restricted stock to employees located in the United States and restricted stock units (RSUs) to
employees located elsewhere. We believe that restricted stock and RSUs directly align the interests of our executives with those of our shareholders because the ultimate value received in respect of the awards depends on the performance of our
common stock after the date of grant. Restricted stock and RSUs also encourage retention through time-based vesting. Restricted stock and RSUs granted to our executive officers typically vest over four years, generally subject to continued
employment with us through the applicable vesting date. In 2018, we granted PSUs to Messrs. Kennedy and Davies and granted an option to Mr. Kennedy, as described in further detail below. We believe that these awards provide additional alignment
of these executives’ interests with those of our shareholders because the ultimate value received in respect of the PSUs depends both on the performance of our common stock after the date of grant and our TSR performance relative to a
pre-established comparator group of companies and the option granted to Mr. Kennedy will only have value if the price of our common stock increases.
2018 Annual Equity Awards
In January 2018, each of our named executive officers who were then employed by us was granted a restricted stock award with respect to the number
of shares of our common stock set forth in the table below:
Executive
|
Shares of Restricted
Stock
|
Jonathan A. Kennedy
|
34,100
|
Austin F. Noll
|
15,800
|
James B. Hawkins
|
111,300
|
Sharon Villaverde
|
1,570
|
The restricted stock awards vest as to 50% of the shares on the second anniversary of the date of grant and as to 25% of the shares on each of the
third and fourth anniversaries of the date of grant, generally subject to the named executive officer’s continued employment with us through the applicable vesting date, with accelerated vesting in connection with certain terminations of
employment as described under “Potential Payments Upon a Termination or Change in Control” below.
2018 Additional Equity Awards
In connection with his promotion to Chief Executive Officer, Mr. Kennedy was granted an option to purchase 74,124 shares of our common stock and
22,695 PSUs (at target). The option is scheduled to vest in equal annual installments on each of the first four anniversaries of the date of grant, generally subject to his continued employment with us through the applicable vesting date. The
PSUs are eligible to be earned, as to 0%-200% of the PSUs, based on our total shareholder return (TSR) compared to a pre-established comparator group of companies over a performance period ending on December 31, 2020 and, to the extent earned,
will vest on that date, generally subject to Mr. Kennedy’s continued employment with us. The PSUs are eligible to be earned as follows, with straight line interpolation between performance levels and the number of PSUs capped at 100% of our TSR
is negative:
Relative TSR Percentile Rank
|
Percentage of PSUs Earned
|
<35
th
Percentile
|
0%
|
35
th
Percentile
|
50%
|
60
th
Percentile
|
100%
|
90
th
Percentile or above
|
200%
|
2018 New Hire Equity Awards
Mr. Davies was granted 23,845 shares of restricted stock and 23,845 PSUs (at target) in connection with his hire in October 2018. The restricted
stock award is scheduled to vest as to 25% of the shares on each of the first four anniversaries of the date of grant, generally subject to Mr. Davies’ continued employment with us through the applicable vesting date. Mr. Davies PSUs are eligible
to be earned, as to 0%-200% of the PSUs, and vest on the same terms as are described above.
Ms. McDonnell was granted 16,836 shares of restricted stock in connection with her hire in February 2018. The restricted stock awards were
scheduled to vest as to 50% of the shares on each of the first and second anniversaries of the date of grant. These restricted shares became vested in connection with Ms. McDonnell’s termination of employment in January 2019 in accordance with
the terms of her employment agreement.
Mr. Buhl was granted 23,501 RSUs in connection with his hire in February 2018. The RSUs were scheduled to vest as to 50% of the shares on each of
the first and second anniversaries of the date of grant. These RSUs became vested in connection with Mr. Buhl’s termination of employment in January 2019 in accordance with the terms of his services agreement.
2019 Equity Awards
In 2019, annual equity awards made to our executive officers consisted of 50% PSUs and MSUs (based on grant date fair value, assuming target
performance), which we believe will further align our executives’ interests with those of our shareholders as described above.
Other Elements of Compensation
Employee Stock Purchase Plan
We maintain our 2011 Employee Stock Purchase Plan, or our ESPP, to encourage our employees to acquire shares of our common
stock in order to better align their interests with those of our other shareholders. Our named executive officers are eligible to participate in our ESPP on the same basis as our other employees.
Our named executive officers are eligible to receive broad-based benefits
that are available to all of our salaried employees, including, for U.S.-based named executive officers, h
ealth, dental, vision, group life, disability and accidental death and dismemberment insurance benefits and retirement benefits
under our 401(k) plan, subject to applicable plan terms
. Our named executive officers are eligible to participate in all of our employee benefit plans on the same basis as our
other employees. In 2018, Mr. Buhl participated in a private defined contribution pension arrangement, pursuant to which we contributed a monthly amount equal to 10% of his base salary.
Perquisites and Personal
Benefits
We generally do not provide any perquisites or personal benefits to our named executive officers that are not provided to our other employees.
However, from time to time we do offer relocation and other limited personal benefits to our executive officers. In 2018, Mr. Davies was eligible to be reimbursed for relocation expenses up to $150,000 and Mr. Buhl received a monthly automobile
allowance and Company-provided mobile phone and internet access.
Change in Control and
Severance Benefits
We have entered into employment agreement with each of our named executive officers who are currently employed by us, which provide for initial
base salaries and severance payments and benefits in connection with certain terminations of employment, including in connection with a change in control. These severance payments and benefits are more fully described below under “Potential
Payments upon Termination or Change in Control.” We believe that reasonable severance payments and benefits are necessary to attract and retain executives and are important in incentivizing them to pursue a change in control transaction if it is
in the best interests of our shareholders, regardless of whether it creates uncertainty for them personally.
Other Executive Compensation Policies and
Practices
Stock Ownership Guidelines
To further align their interests with those of our shareholders, in 2018 our Compensation Committee approved stock ownership guidelines for our named executive
officers and directors. Under these guidelines, our named executive officers and directors are required to acquire and maintain shares of our common stock having a value equal to the following multiple of their annual base salary or cash
compensation, as applicable, following the completion of a five-year phase-in period:
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
Position
|
Required Stock Ownership
|
Chief Executive Officer
|
5.0x annual base salary
|
Chief Financial Officer
|
2.0x annual base salary
|
Other Named Executive Officer
|
1.0x annual base salary
|
Non-Employee Director
|
5.0x annual retainer
|
Our Compensation Committee approved a clawback policy in 2019 that will cover annual and long-term incentive compensation awarded or paid to our
named executive officers. Under this policy, if we are required to restate our financial statements due to fraud, misconduct or SEC or financial non-compliance and the amount of annual or long-term incentive compensation awarded or paid would
have been lower had the achievement of applicable financial performance been calculated based on the restated financial results, our Compensation Committee may, in its discretion, recover the amount of the excess compensation awarded or paid
during the three-year period preceding the date of such restatement. We believe this clawback policy enhances the accountability of our executive officers and significantly mitigates the risks associated with our executive compensation program.
Compensation Risk Assessment
Our Compensation Committee regularly reviews our compensation policies and practices, including the risks created by our compensation plans, and
has concluded that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
Tax and Accounting
Considerations
Our Compensation Committee considers the tax and accounting consequences of compensation paid under our executive compensation program. However,
our Co
mpensation Committee believes that its primary responsibility is to maintain an executive compensation program that attracts, retains and rewards the executives
necessary for our success. Accordingly, the Compensation Committee has paid, and may continue to pay, in its discretion, compensation that is not fully deductible or is limited as to tax deductibility.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” disclosure with management. Based on this review
and discussion, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” be included in the Proxy Statement distributed in connection with the Annual Meeting.
The Compensation Committee:
Thomas J. Sullivan (Chair)
Joshua H. Levine
Kenneth E. Ludlum
This report shall not be deemed soliciting material or to be filed with the SEC, or incorporated by reference in any document so filed, whether
made before or after the date hereof, except to the extent we specifically request that it be treated as soliciting material or it is specifically incorporated by reference therein.
Summary Compensation Table
The table below sets forth the
compensation awarded to, earned by, or paid to our named executive officers in respect of their service to us during 2018 and, if applicable, 2017 and 2016.
Name and principal
position
|
Year
(6)
|
Salary
($)
|
Bonus
($)(7)
|
Stock
awards
($)(8)
|
Option
awards
($)(9)
|
Non-equity
incentive
plan
compensation
($)(10)
|
All other
compensation
($)(11)
|
Total
($)
|
Jonathan A. Kennedy
President and Chief Executive Officer
|
2018
|
569,231
|
—
|
2,179,067
|
817,803
|
—
|
5,560
|
4,645,618
|
2017
|
489,103
|
—
|
1,113,600
|
—
|
—
|
5,578
|
1,790,859
|
2016
|
438,750
|
—
|
1,000,090
|
—
|
375,195
|
5,560
|
1,819,595
|
B. Drew Davies
Executive Vice President and Chief Financial Officer(1)
|
2018
|
103,846
|
—
|
1,788,590
|
—
|
—
|
153,306
|
1,957,301
|
Austin F. Noll
Vice President and General Manager, Neurology SBU
|
2018
|
375,000
|
—
|
603,560
|
—
|
—
|
5,992
|
984,552
|
2017
|
367,244
|
—
|
556,800
|
—
|
—
|
6,020
|
1,021,840
|
2016
|
339,167
|
—
|
530,075
|
—
|
139,859
|
1,242
|
1,010,343
|
Leslie McDonnell
Former Vice President and General Manager, Newborn Care SBU(2)
|
2018
|
297,427
|
—
|
500,012
|
—
|
—
|
162.500
|
959,939
|
Carsten Buhl
Former President and Chief Executive Officer, Otometrics SBU(3)
|
2018
|
286,080
|
—
|
725,006
|
—
|
—
|
51,989
|
1,063,075
|
James B. Hawkins
Former President and Chief Executive Officer(4)
|
2018
|
453,750
|
—
|
12,473,133
|
—
|
—
|
1,690,971
|
14,617,854
|
2017
|
820,000
|
—
|
4,106,400
|
—
|
—
|
6,144
|
4,932,544
|
2016
|
750,000
|
—
|
3,999,905
|
—
|
985,502
|
6,064
|
5,741,471
|
Sharon Villaverde
Former Vice President of Finance and interim Chief Financial Officer(5)
|
2018
|
196,960
|
50,000
|
309,994
|
—
|
—
|
5,379
|
586,477
|
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
(1)
|
Mr. Davies commenced employment with us on October 1, 2018 as our Executive Vice President and Chief Financial Officer.
|
(2)
|
Ms. McDonnell commenced employment with us on February 12, 2018 as our Vice President and General Manager, Newborn Care SBU and terminated employment in January 2019.
|
(3)
|
Mr. Buhl commenced employment with us on February 19, 2018 as our President and Chief Executive Officer, Otometrics SBU and terminated employment in January 2019. Mr. Buhl’s cash
compensation was paid in Danish Kroners (DKK) and is converted in the table above and the tables below to U.S. dollars based on the conversion rate in effect on December 31, 2018 of 6.52 DKK to one U.S. dollar.
|
(4)
|
Mr. Hawkins resigned as our President and Chief Executive Officer on July 11, 2018.
|
(5)
|
Ms. Villaverde served as our Vice President, Finance from January 1, 2018 until July 10, 2018 and as our interim Chief Financial Officer from July 11, 2018 until September 30, 2018.
She resigned on October 26, 2018. Ms. Villaverde was not a named executive officer for 2017 or 2016 and, as a result, no amounts are reported for her for those years.
|
(6)
|
Certain amounts for 2016 and 2017 have been updated to not give effect to rounding. In addition, no annual bonuses were earned with respect to 2017.
|
(7)
|
Represents a one-time cash bonus that was paid to Ms. Villaverde in September 2018 in recognition of her service as our interim Chief Financial Officer.
|
(8)
|
The amounts reported in this column reflect the aggregate grant date fair value of restricted stock awards, RSUs and PSUs granted to our named executive officers in the applicable
year. In 2018, each of our named executive officers other than Mr. Buhl was granted a restricted stock award and Mr. Buhl was granted RSUs. In addition, Messrs. Kennedy and Davies were each granted PSUs in 2018 in connection with his
promotion or hire, as applicable. All amounts reported in this column for 2016 and 2017 reflect the aggregate grant date fair value of restricted stock awards granted to the named executive officer in the applicable year. The
aggregate grant date fair value of all stock awards reported in this column was computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures, and, for the PSUs, using a Monte Carlo simulation model based
the probable outcome of the performance conditions as of the date of grant. The aggregate grant date fair value of the PSUs assuming achievement of the maximum achievement of applicable performance conditions was $1,877,078 for Mr.
Kennedy and $1,752,962 for Mr. Davies. For Mr. Hawkins, the amount reported in this column also includes the incremental fair value, computed in accordance with ASC Topic 718, associated with the modification of stock awards held by
him in connection with his termination of employment ($8,231,473). The assumptions that we used in computing the foregoing amounts are described in Note 14 to the consolidated financial statements filed with our Annual Report on Form
10-K for the years ended December 31, 2018, December 31, 2017 and December 31, 2016.
|
(9)
|
The amount reported in this column reflects the aggregate grant date fair value of the stock option granted to Mr. Kennedy in connection with his promotion, computed in accordance
with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions that we used in computing this amounts are described in Note 14 to the consolidated financial statements filed with our Annual Report on Form 10-K for
the year ended December 31, 2018.
|
(10)
|
The amounts reported in this column reflect the annual bonuses earned by our named executive officers in the applicable year.
|
(11)
|
The amounts reported in this column for 2018 for all of the named executive officers other than Mr. Buhl reflect 401(k) matching contributions and group life insurance premiums paid
on behalf of our named executive officers. For Mr. Hawkins, the amount reported for 2018 also includes cash severance ($1,650,000) paid to him in connection with his termination of employment and the estimated cost of 18 months’ of
Company-paid continued health coverage that will be provided to him ($36,415, based on the rates in effect during 2018), as described in further detail under the subsection titled “Separation Agreement with Mr. Hawkins” below. For Mr.
Davies, the amount reported also includes $150,000 of relocation expenses that were reimbursed to him during 2018.For Mr. Buhl, the amount reported consists of the actual cost of the mobile phone provided to Mr. Buhl in 2018 ($394),
the amount paid in respect of his car allowance in 2018 ($20,350), Company-paid insurance ($163), Company defined contribution pension contributions ($30,762) and Company ATP ($319).
|
Grants of Plan-Based Awards Table
The table below sets forth the grants of plan-based awards granted to our named executive officers during 2018.
Name
|
Grant
date
|
Estimated future payouts under
non-equity incentive plan
awards(1)
|
Estimated future payouts under
equity incentive plan awards(2)
|
All
other
stock
awards:
Number
of shares
of
stock
or units
(#)(3)
|
All other
option
awards:
Number of
securities
underlying
options
(#)(4)
|
Exercise
or base
price of
option
awards
($/Sh)
|
Grant
date fair
value of
stock and
option
awards
(5)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Jonathan A. Kennedy
|
—
|
240,500
|
481,000
|
962,000
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1/2/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
34,100
|
—
|
—
|
1,302,620
|
7/11/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
74,124
|
35.25
|
817,588
|
7/11/2018
|
—
|
—
|
—
|
11,348
|
22,695
|
45,390
|
—
|
—
|
—
|
876,481
|
B. Drew Davies
|
—
|
56,250
|
112,500
|
225,000
|
|
|
|
—
|
—
|
—
|
—
|
10/1/2018
|
—
|
—
|
—
|
11,923
|
23,845
|
47,690
|
—
|
—
|
—
|
938,539
|
10/1/2018
|
|
|
|
—
|
—
|
—
|
23,845
|
—
|
—
|
850,074
|
Austin F. Noll
|
—
|
93,750
|
187,500
|
375,000
|
—
|
—
|
—
|
|
—
|
—
|
—
|
1/2/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
15,800
|
—
|
—
|
603,560
|
Leslie McDonnell
|
|
74,356
|
148,713
|
297,427
|
—
|
—
|
—
|
|
—
|
—
|
—
|
2/12 /2018
|
—
|
—
|
—
|
—
|
—
|
—
|
16,836
|
—
|
—
|
500,000
|
Carsten Buhl
|
|
71,520
|
143,040
|
286,080
|
—
|
—
|
—
|
|
—
|
—
|
—
|
2/19/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
23,501
|
—
|
—
|
725,006
|
James B. Hawkins
|
—
|
412,500
|
825,000
|
1,650,000
|
—
|
—
|
—
|
|
—
|
—
|
—
|
1/2/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
111,300
|
—
|
—
|
4,251,660
|
|
—
|
—
|
—
|
—
|
—
|
—
|
|
—
|
—
|
8,231,473 (6)
|
Sharon Villaverde
|
1/2/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
1,570
|
—
|
|
59,974
|
9/17/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
7,430
|
—
|
—
|
250,020
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts reported in these columns reflect the threshold, target and maximum annual bonus opportunity for the applicable named executive officer for 2018. Mr. Kennedy’s annual
bonus opportunity is based on a blend of his base salary and annual bonus opportunity prior to and following his promotion to President and Chief Executive Officer in July 2018. The annual bonus opportunity for Messrs. Davies and Buhl
and Ms. O’Donnell is prorated to reflect the portion of the year during which the named executive officer was employed by us. No annual bonuses were paid to our named executive officers for 2018 performance, as described in further
detail under “Compensation Discussion and Analysis – Annual Bonus” above.
|
(2)
|
The number of shares reported in these columns reflects the number of shares that may be earned by Mr. Kennedy or Mr. Davies, as applicable, in respect of the PSUs that were granted
to them in 2018. The PSUs are eligible to be earned based on our TSR compared to our peer group over a performance period that began on the date the applicable PSUs were granted and ends on December 31, 2020. To the extent earned, the
PSUs will vest on December 31, 2020, generally subject to the named executive officer’s continued employment with us through such date.
|
(3)
|
The number of shares reported in this column reflects the number of shares of restricted stock granted to each of our named executive officers other than Mr. Buhl, and the number of
RSUs granted to Mr. Buhl, in 2018. The restricted stock awards granted to Messrs. Kennedy, and Noll are scheduled to vest as to 50% of the shares on the second anniversary of the date of grant and as to 25% of the shares on each of
the third and fourth anniversaries of the date of grant, generally subject to the named executive officer’s continued employment with us through the applicable vesting date. The restricted stock award granted to Mr. Davies is
scheduled to vest as to 25% of the shares on each of the first four anniversaries of the date of grant, generally subject to Mr. Davies’ continued employment with us through the applicable vesting date. The restricted stock award
granted to Ms. McDonnell and the RSUs granted to Mr. Buhl were scheduled to vest in equal installments on each of the first two anniversaries of the date of grant. In connection with their terminations of employment, the restricted
stock awards held by Mr. Hawkins and Ms. McDonnell, and the RSUs held by Mr. Buhl, vested in full. The restricted stock granted to Ms. Villaverde was forfeited in connection with her termination of employment.
|
(4)
|
The number of shares reported in this column reflects the number of shares that are subject to the stock option that was granted to Mr. Kennedy in 2018. The stock option is
scheduled to vest in equal annual installments on each of the first four anniversaries of the date of grant, generally subject to Mr. Kennedy’s continued employment with us through the applicable vesting date.
|
(5)
|
The amounts reported in this column reflect the aggregate grant date fair value of the stock or stock option award, as applicable, granted to the applicable named executive officer,
computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures, and, for the PSUs, using a Monte Carlo simulation model based on the probable outcome of the performance conditions as of the date of grant. See
notes (7) and (8) to the Summary Compensation Table above.
|
(6)
|
The amount reported in this row reflects the incremental fair value, computed in accordance with ASC Topic 718, associated with the modification of stock awards held by Mr. Hawkins
in connection with his termination of employment.
|
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
Outstanding Equity Awards at Fiscal Year-End Table
The table below sets forth the
outstanding equity awards held by our named executive officers as of December 31, 2018.
Name
|
Option awards(1)
|
Stock awards
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Equity
incentive
plan
awards:
number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number of
shares or
units of stock
that have not
vested
(#)
|
Market
value of
shares or
units of stock
that have not
vested
(#)(2)
|
Equity
incentive
plan
awards:
number
of
unearned
shares,
units or
other
rights
that have
not
vested
(#)
|
Equity
incentive
plan
awards:
market or
payout
value of
unearned
shares,
units or
other
rights
that have
not
vested
($)(2)
|
Jonathan A. Kennedy
|
—
|
—
|
—
|
—
|
—
|
6,000(3)
|
204,180
|
|
|
—
|
—
|
—
|
—
|
—
|
10,990(4)
|
373,990
|
|
|
—
|
—
|
—
|
—
|
—
|
32,000(5)
|
1,088,960
|
|
|
—
|
—
|
—
|
—
|
—
|
34,100(6)
|
1,160,423
|
|
|
—
|
—
|
—
|
—
|
—
|
|
|
11,348(7)
|
386,173
|
17,600
|
—
|
—
|
$22.50
|
1/1/2020
|
—
|
—
|
—
|
—
|
—
|
74,124(8)
|
—
|
$35.25
|
7/11/2024
|
—
|
—
|
—
|
—
|
B. Drew Davies
|
—
|
—
|
—
|
|
|
23,845(9)
|
811,445
|
—
|
—
|
—
|
—
|
—
|
|
|
|
|
11,923(7)
|
405,740
|
Austin F. Noll
|
—
|
—
|
—
|
—
|
—
|
3,125(3)
|
106,344
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
5,825(4)
|
198,225
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
16,000(5)
|
544,480
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
15,800(6)
|
537,674
|
—
|
—
|
14,250
|
—
|
—
|
$14.34
|
6/7/2019
|
—
|
—
|
—
|
—
|
20,000
|
—
|
—
|
$22.50
|
1/1/2020
|
—
|
—
|
—
|
—
|
Leslie McDonnell
|
—
|
—
|
—
|
—
|
—
|
16,836(10)
|
573,098
|
|
|
Carsten Buhl
|
—
|
—
|
—
|
—
|
—
|
23,501(11)
|
799,739
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
James B. Hawkins
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Sharon Villaverde
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1)
|
All stock option awards were granted with a six-year term and with an exercise price that was equal to the closing price on the date of grant.
|
(2)
|
The amounts reported in this column reflect the market value of the applicable award based on the closing price of a share of our common stock on December 31, 2018 ($34.04). For
this purpose, the PSUs held by Messrs. Kennedy and Davies are valued based on the threshold level of achievement of applicable performance conditions.
|
(3)
|
The number of shares reported reflects shares of restricted stock that were granted to the named executive on January 1, 2015 and were not vested as of December 31, 2018. These
shares vested on January 1, 2019.
|
(4)
|
The number of shares reported reflects shares of restricted stock that were granted to the named executive on January 1, 2016 and were not vested as of December 31, 2018. 50% of
these shares vested on January 1, 2019 and the remaining 50% of these shares are scheduled to vest on January 1, 2020, generally subject to the named executive officer’s continued employment with us through the applicable vesting
date.
|
(5)
|
The number of shares reported reflects shares of restricted stock that were granted to the named executive on January 1, 2017 and were not vested as of December 31, 2018. 50%
of these shares vested on January 1, 2019 and the remaining shares are scheduled to vest in equal installments on January 1, 2020 and January 1, 2121, generally subject to the named executive officer’s continued employment with
us through the applicable vesting date.
|
(6)
|
The number of shares reported reflects the number of shares of restricted stock granted to the named executive officer on January 2, 2018. These restricted stock awards are
scheduled to vest as to 50% of the shares on the second anniversary of the date of grant and as to 25% of the shares on each of the third and fourth anniversaries of the date of grant, generally subject to the named executive
officer’s continued employment with us through the applicable vesting date.
|
(7)
|
The number of shares reported reflects the number of shares that would be earned by Mr. Kennedy or Mr. Davies, as applicable, in respect of the PSUs that were granted to them in
2018 if the applicable performance conditions were achieved at threshold levels. The PSUs are eligible to be earned based on our TSR compared to a pre-established comparator group of companies over a performance period that began on
the date the applicable PSUs were granted ends on December 31, 2020. To the extent earned, the PSUs will vest on December 31, 2020, generally subject to the named executive officer’s continued employment with us through such date. The
number of shares that would be earned and eligible to vest based on achievement of applicable performance conditions at target and maximum levels is set forth in the Grants of Plan-Based Awards Table above.
|
(8)
|
The number of shares reported reflects the number of shares that are subject to the stock option that was granted to Mr. Kennedy in 2018. The stock option is scheduled to vest in
equal annual installments on each of the first four anniversaries of the date of grant, generally subject to Mr. Kennedy’s continued employment with us through the applicable vesting date.
|
(9)
|
The number of shares reported reflects the number of shares of restricted stock granted to Mr. Davies on October 1, 2018. This restricted stock award.is scheduled to vest as to 25%
of the shares on each of the first four anniversaries of the date of grant, generally subject to Mr. Davies’ continued employment with us through the applicable vesting date.
|
(10)
|
The number of shares reported reflects shares of restricted stock that were granted to Ms. McDonnell on February 12, 2018. These shares were scheduled to vest in equal annual
installments on each of the first two anniversaries of the grant date. In connection with Ms. McDonnell’s termination of employment, these shares vested in full pursuant to the terms of her executive employment agreement with the
Company.
|
(11)
|
The number of shares reported reflects the number of RSUs granted to Mr. Buhl on February 19, 2018. The RSUs were scheduled to vest in equal installments on each of the first two
anniversaries of the grant date. In connection with Mr. Buhl’s termination of employment, these RSUs vested in full.
|
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
Option Exercises and Stock Vested Table
The table below sets forth the number
of shares acquired by our named executive officers on the exercise of stock options or the vesting of restricted stock, and the value realized by them in connection with such exercise or vesting.
Name
|
Option awards
|
Stock awards
|
Number of shares
acquired on
exercise
(#)
|
Value
realized on
exercise
($)(1)
|
Number of shares
acquired on vesting
(#)
|
Value realized on
vesting
($)(1)
|
Jonathan A. Kennedy
|
31,345
|
739,928
|
—
|
—
|
B. Drew Davies
|
—
|
—
|
—
|
—
|
Austin F. Noll
|
9,375
|
204,141
|
—
|
—
|
Leslie McDonnell
|
—
|
—
|
—
|
—
|
Carsten Buhl
|
—
|
—
|
—
|
—
|
James B. Hawkins
|
420,000
|
8,299,202
|
292,755
|
9,382,798
|
Sharon Villaverde
|
—
|
—
|
—
|
—
|
(1)
|
The value realized on exercise or vesting, as applicable, is equal to the number of shares of our common stock acquired on the exercise of the stock option or the number of shares
of restricted stock hat vested, as applicable, multiplied by the closing price of our common stock on the exercise or vesting date.
|
Pension Benefits
We do not have any qualified or non-qualified defined benefit plans.
Nonqualified Deferred Compensation
We do not have any non-qualified defined contribution or other deferred compensation plans.
Potential Payments Upon a Termination or Change in Control
We have entered into employment
agreements with each of our named executive officers who are currently employed by us that provide for severance payments and benefits upon certain terminations of employment, including following a change in control, subject to the named
executive officer’s execution of an effective release of claims and continued compliance with an 18-month post-termination of employment employee non-solicitation restrictive covenant and other restrictive covenants. The severance payments and
benefits that could become payable under these agreements are summarized below. As used in the summary below, the terms “cause,” “good reason,” and “change of control” have the meanings set forth in the applicable employment agreement.
Employment Agreement with Mr. Kennedy
Pursuant to his employment agreement
with us, in the event that Mr. Kennedy’s employment terminates other than for cause, death or disability, he would be entitled to the following severance payments and benefits:
|
·
|
A lump sum payment equal to two times his annual base salary as then in
effect, payable within 30 days following such termination;
|
|
·
|
Immediate vesting and, if applicable, exercisability of all equity awards
,
other than PSUs
,
held by Mr. Kennedy that are then outstanding;
|
|
·
|
Prorated vesting of PSUs based on actual relative TSR through the termination date and the period of time
elapsed as of the termination date relative to the term of the PSUs; and
|
|
·
|
Up to 18 months of Company-paid group health coverage at the level provided at the time of termination for Mr.
Kennedy and his eligible dependents.
|
In the event that Mr. Kennedy’s employment terminates other than for cause, death or disability or Mr. Kennedy resigns for
good reason, in each case, within 12 months following a change of control, he would be entitled to the following severance payments and benefits (without duplication of the amounts listed above):
|
·
|
A lump sum payment equal to two times the sum of his annual base salary and target annual bonus as then in
effect or, if greater, as in effect immediately prior to our entering into the agreement providing for such change in control (or, if there is no agreement, immediately prior to the change in control), payable within 30 days
following such termination;
|
|
·
|
Immediate vesting and, if applicable, exercisability of all equity awards
,
other than PSUs
,
held by Mr. Kennedy that are then outstanding;
|
|
·
|
Vesting of PSUs at 100% of target; and
|
|
·
|
Up to 24 months of Company-paid group health coverage at the level provided at the time of termination for Mr.
Kennedy and his eligible dependents.
|
Employment Agreements with Mr. Davies
Pursuant to his employment agreement
with us, in the event that Mr. Davies’ employment terminates other than for cause, death or disability, he would be entitled to the following severance payments and benefits:
|
·
|
Base salary continuation for 12 months following such termination,
beginning on the latest payroll date that is within 70 days from the date of termination (with the first payment to include all amounts that would have been paid prior to such date);
|
|
·
|
Immediate vesting and, if applicable, exercisability of all restricted stock awards held by Mr. Davies that are
outstanding on the date of termination; and
|
|
·
|
Up to 12 months of Company-paid group health coverage at the level
provided at the time of termination for Mr. Davies and his eligible dependents
.
|
In the event that Mr. Davies’ employment terminates other than for cause, death or disability or Mr. Davies resigns for good
reason, in each case, within six months following a change of control, he would be entitled to the severance payments and benefits listed above, except that the base salary payment would be based on the amount in effect immediately prior to our
entering into the agreement providing for such change of control (or, if there is no agreement, immediately prior to the change of control), if greater than his base salary in effect as of such termination, and he would also be entitled to
receive an amount equal to his target annual bonus as then in effect or, if greater, as in effect immediately prior to our entering into the agreement providing for such change in control (or, if there is no agreement, immediately prior to the
change in control).
Employment Agreements with Mr. Noll
Pursuant to his employment agreement with us, Mr. Noll would be entitled to the following severance payments and benefits in
the event his employment terminates other than for cause, death or disability:
|
·
|
Base salary continuation for 12 months following such termination,
beginning on the latest payroll date that is within 70 days from the date of termination (with the first payment to include all amounts that would have been paid prior to such date);
|
|
·
|
Immediate vesting and, if applicable, exercisability of all equity awards held by Mr. Noll that are outstanding
on the date the release of claims becomes effective; and
|
|
·
|
Up to 12 months of Company-paid group health coverage at the level provided at the time of termination for Mr.
Noll and his eligible dependents.
|
Mr. Noll would be entitled to receive the following severance payments and benefits in the event that his employment
terminates other than for cause, death or disability or if he resigns for good reason, in each case, within 6 months following a change of control, except that the base salary payment would be based on the amount in effect immediately prior to
our entering into the agreement providing for such change of control (or, if there is no agreement, immediately prior to the change of control), if greater than his base salary in effect as of such termination, and he would also be entitled to
receive an amount equal to his target annual bonus as then in effect or, if greater, as in effect immediately prior to our entering into the agreement providing for such change in control (or, if there is no agreement, immediately prior to the
change in control).
Termination for Cause, due to Death or Disability or Voluntary Resignation (other than for Good
Reason)
Upon a termination of employment for cause, due to death or disability or due to a named executive officer’s voluntary resignation (other than
for good reason within 12 months following a change of control), our named executive officer would only be eligible
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
for any severance benefits payable in accordance with our policies for all employees as then in effect, which currently consist primarily of disability and group life insurance
benefits.
Section 280G
Each named executive officer’s employment agreement, other than Mr. Buhl’s service agreement, provides that if the payments
or benefits provided under such agreement or otherwise constitute “parachute payments” within the meaning of Section 280G of the Code, the named executive officer will be entitled to receive (i) the amount of such payments or benefits reduced so
that no portion of the payments or benefits would be subject to an excise tax under Section 4999 of the Code or (ii) the full amount of such payments and benefits, whichever results in the payment of the greater after-tax amount to the named
executive officer.
Separation Agreement with Mr. Hawkins
Prior to his termination of employment in July 2018, Mr. Hawkins was party to an employment agreement with us that provided
for severance payment and benefits in connection with, among other things, a termination of employment other than for cause, death or disability. In connection with his resignation on July 11, 2018, we entered into an agreement confirming the
terms of his resignation that provided severance payments and benefits that were consistent with those payable under his employment agreement in connection with a without cause termination. In exchange for a release of claims, and Mr. Hawkins’
agreement to certain covenants regarding return of Company property, confidentiality and non-solicitation of our employees, we agreed to pay Mr. Hawkins a lump sum severance payment of $1,650,000, which equaled two years’ of his annual base
salary, accelerated vesting and, if applicable, exercisability of all shares of restricted stock and stock options held by him, with such stock options remaining exercisable for 37 days following the effective date of the release of claims, and
up to 18 months’ of Company-paid group health coverage for him and his eligible dependents at the level provided prior to termination.
Separation Agreement with Mr. Buhl
In connection with his termination of employment, the Company entered into a separation agreement with Mr. Buhl that provides
him with continued base salary, car allowance and participation in the Company’s defined contribution pension scheme during a 12-month notice period beginning on his termination date. In addition, Mr. Buhl received an additional cash payment of
$304,331 (with amounts paid in DKK converted to U.S. dollars as described in note (3) to the Summary Compensation Table above) and his initial RSU award became full vested in connection with his termination of employment.
Separation Agreement with Ms. McDonnell
In connection with her termination of employment, the Company entered into a separation agreement with Ms. McDonnell. In
exchange for a release of claims, and Ms. McDonnell’s agreement to certain covenants regarding return of Company property, confidentiality and non-disparagement, we agreed to pay her, as required by her employment agreement, a lump sum payment
equal to 12 months’ of her base salary ($325,000), a prorated annual bonus equal to 50% of her base salary ($162,500), and up to 12 months’ of Company-paid COBRA premiums. In addition, the restricted stock award granted to Ms. McDonnell in
February 2018 became fully vested in connection with her termination of employment.
Ms. Villaverde
Ms. Villaverde resigned in October 2018. In connection with her resignation, she did not receive any severance payments or
benefits.
Equity Awards
Our 2011 Stock Awards Plan provides that in connection with a change in control transaction, outstanding awards may be assumed or substituted for
with equivalent awards by the successor or a parent or subsidiary thereof and, if an award is not assumed or substituted for with an equivalent award, it will become fully vest and, if applicable exercisable in connection with such a change in
control transaction. The PSUs granted to Messrs. Kennedy and Davies provide for prorated accelerated vesting in the event of a termination of employment due to death or disability or a change in control based on performance through such date (or,
in the event of a termination of employment due to death or disability, a date that is not more than 60 days thereafter) and the portion of the performance period then elapsed.
Beginning with awards granted in 2018, awards will vest in full upon a participant’s retirement after age 65 if the participant has accrued ten
years of service with us. As of December 31, 2018, none of our named executive officers who are currently employed were eligible for this retirement vesting.
Potential Payments Upon a Termination or Change in Control Table
The table below sets forth the amount of the cash severance payments, continued health coverage benefits and equity acceleration that each of our
currently employed named executive officers would have been entitled to receive (1) upon a termination other than for cause, death or disability and (2) upon a termination of employment other than for cause, death or disability or a resignation
for good reason within 12 months following a change in control (any of the foregoing, a “qualifying termination”), assuming that the qualifying termination and, if applicable, change in control occurred on December 31, 2018. The actual severance
paid to Messrs. Hawkins and Buhl and Ms. McDonnell in connection with their terminations of employment is described above. Ms. Villaverde did not receive any severance in connection with her termination of employment
.
Name
|
Cash Severance
Payment
($)(1)
|
Continued
Health
Coverage
($)(2)
|
Acceleration of
Equity Awards
($)(3)
|
Total Termination
Benefits
($)(4)
|
Jonathan A. Kennedy
|
Qualifying termination
|
1,300,000
|
36,415
|
2,982,023
|
4,318,430
|
Qualifying termination within 12 months following a change in control
|
2,600,000
|
48,553
|
3,599,899
|
6,248,417
|
B. Drew Davies
|
Qualifying termination
|
450,000
|
24,277
|
811,446
|
1,285,722
|
Qualifying termination within 12 months following a change in control
|
742,500
|
24,277
|
901,606
|
1,668,383
|
Austin F. Noll
|
Qualifying termination
|
375,000
|
24,277
|
1,386,723
|
1,786,000
|
Qualifying termination within 12 months following a change in control
|
562,500
|
24,277
|
1,386,723
|
1,973,500
|
(1)
|
For Messrs. Kennedy, Davies and Noll, the amount reported in this column reflects the amounts payable under the named executive officer’s employment agreement, based on the named
executive officer’s base salary and target annual bonus as in effect on December 31, 2018.
|
(2)
|
The amount reported in this column reflects the estimated cost of Company-paid group health coverage for the named executive officer based on the cost of such coverage as of
December 31, 2018.
|
(3)
|
For Messrs. Kennedy, Davies and Noll, the amount reported in this column reflects the value of the unvested restricted stock held by the named executive officer on December 31,
2018, based on the closing price of a share of our common stock on that date of $34.03 per share. For Mr. Kennedy, the amount reported in this column also reflects the value of his PSUs, assuming target levels of performance and based
on the closing price of our common stock on that same date and, with respect to the amount reported under a qualifying termination other than within 12 months following a change in control, prorated based on his service for 20% of the
applicable performance period. No amount is included in respect of Mr. Kennedy’s unvested stock options because such options were out-of-the-money on December 31, 2018. For Mr. Davies, the amount reported under a qualifying
termination other than within 12 months following a change in control reflects the value of his PSUs, assuming target levels of performance and based on the closing price of our common stock on December 31, 2018, prorated based on his
service for 3 months out of the 27-month performance period. Mr. Davies would also be entitled to receive such accelerated PSU vesting upon a termination of employment due to his death or disability.
|
(4)
|
The amounts reported in this table do not include any potential reduction in payments or benefits that may be made in connection with a change in control or a qualifying termination
thereafter as a result of Section 4999 of the Code.
|
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
Pay Ratio Disclosure
As required by SEC rules, we are providing the following information about the relationship of the annual total compensation of our employees (other than our Chief
Executive Officer) to the annual total compensation of our Chief Executive Officer. Under these rules, the median employee is only required to be identified once every three years if there have not been any changes in our employee population or
compensation arrangements that we reasonably believe would significantly affect our pay ratio disclosure. There were no changes to our workforce or compensation arrangements during 2018 that we reasonably believe
would significantly affect our pay ratio disclosure and, therefore, we did not re-identify our median employee for 2018.To identify our median employee for 2017, we
first identified our total employee population as of December 20, 2017, which consisted of 2,089 employees, of which 1,391 were located in the United States and 698 were located outside of the United States. As permitted under SEC rules, we then
excluded all employees located in the following countries
: Australia (12), Brazil (1), China (36), Spain (9), Finland (2), Hong Kong (3), India (2), Jordan (2), Lebanon (1),
Mexico (2), Malaysia (1), Netherlands (3), Norway (2), New Zealand (1), Portugal (1), Sweden (4), Singapore (4) and South Africa (1). After excluding these employees, our employee population for purposes of identifying the median employee
consisted of
2,002 employees, of which 1,391 were located in the United States and 611 were located outside of the United States. We then used base salary as our consistently applied compensation measure, converting compensation paid to
non-U.S. employees using foreign exchange rates in effect on December 20, 2017, and annualized the compensation for employees hired after January 1, 2017 in order to identify our median employee.
Using this same median employee for 2018, to determine our pay ratio for 2018, we calculated this employee’s compensation for 2018 in accordance with SEC rules, which
was $55,601. With respect to the annual total compensation of our Chief Executive Officer, we used the amount reported in the “Total” column of our Summary Compensation Table in this proxy statement above for Mr. Kennedy, $2,278,434. If we
adjusted Mr. Kennedy’s annual base salary as if he served as our CEO for a full year (to $650,000) his adjusted annual total compensation for 2018, with no additional changes to the other amounts included in the Summary Compensation Table for
2018 above, would be $2,356,434. After giving effect to these adjustments, Mr. Kennedy’s adjusted annual total compensation for 2018 would be approximately 42 times that of our median employee
Accordingly, we estimate that the ratio of the annual total compensation of our Chief Executive Officer for 2018 to the median of the annual total compensation of all
of our employees for 2018 (other than our Chief Executive Officer) for 2018 was 42-to-1.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described
above. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to
make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above.
Director Compensation
In accordance with our non-employee director compensation program, each of our non-employee directors receives an annual cash
retainer and an annual equity award in connection with his or her services as a director. Our employee directors do not receive any additional compensation for service on the Board. The compensation paid to our employee directors during 2018,
Messrs. Kennedy and Hawkins, in respect of their services as employees is reported in the Summary Compensation Table above.
Our Compensation Committee reviewed our non-employee director compensation program and did not make any changes for 2018. In
2018, each non-employee director received a cash retainer for his or her service in accordance with the following schedule, in each case, prorated for partial years of service and payable in equal quarterly installments:
Type of Retainer
|
Amount of Retainer
|
Board Retainer
|
$60,000
|
Additional Retainer for Committee Chairs
|
Audit Committee
|
$20,000
|
Compensation Committee
|
$10,000
|
Quality & Compliance Committee
|
$10,000
|
Nominating & Governance Committee
|
$7,500
|
Additional Retainer for Committee Member
|
Audit Committee
|
$15,000
|
Compensation Committee
|
$10,000
|
Quality & Compliance Committee
|
$10,000
|
Nominating & Governance Committee
|
$6,000
|
Additional Retainer for Board Chair
|
$75,000
|
In accordance with our non-employee director compensation program, each non-employee director who continues in office or is
elected at an annual shareholder meeting is granted shares of restricted stock having a fair market value on the date of grant equal to $150,000. These shares of restricted stock vest on the one-year anniversary of the date of grant, generally
subject to the non-employee directors service to the Board through such date. Under our stock ownership guidelines, our non-employee directors are required to hold stock having a value equal to five times their annual retainer following the
completion of a five-year phase-in period.
Director Compensation Table
The table below sets forth the
compensation earned by our non-employee directors in 2018 in respect of their service to the Board.
Name
|
Fees Earned or Paid
in Cash ($)
|
Stock Awards ($)(3)
|
Total ($)
|
Robert A. Gunst
|
147,250
|
149,992
|
297,242
|
Kenneth E. Ludlum
|
112,000
|
149,992
|
261,992
|
Barbara R. Paul
|
129,000
|
149,992
|
278,992
|
Joshua H. Levine(1)
|
42,500
|
149,992
|
192,492
|
Lisa W. Heine(1)
|
38,000
|
149,992
|
187,992
|
William M. Moore(2)
|
47,500
|
—
|
47,500
|
Doris E. Engibous(2)
|
49,250
|
—
|
49,250
|
(1)
|
Mr. Levine and Ms. Heine were elected to the Board at our 2018 Annual Meeting. Their cash compensation reflects the cash compensation they received for the portion of 2018 during
which they were directors.
|
(2)
|
Mr. Moore and Ms. Engibous no longer serve on the Board. Their cash compensation reflects the cash compensation they received for the portion of 2018 during which they were
directors.
|
EXECUTIVE COMPENSATION AND OTHER INFORMATION
|
(3)
|
The amounts reported in this column reflect the aggregate grant date fair value of restricted stock awards granted to our non-employee directors in 2018, which was computed in
accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions that we used in computing these amounts are described in Note 14 to the consolidated financial statements filed with our Annual Report on
Form 10-K for the year ended December 31, 2018. As of December 31, 2018. Mr. Gunst held options to purchase 8,000 shares of our common stock and each of our current non-employee directors held 4,132 unvested shares of restricted
stock.
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PROPOSAL 4 – ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
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PROPOSAL 4 –
ADVISORY VOTE TO APPROVE NAMED
EXECUTIVE OFFICER COMPENSATION
Our Compensation Committee believes that the most effective executive compensation program is one that is designed to reward achievement and that
aligns executives’ interests with those of shareholders by rewarding performance, with the ultimate objective of improving shareholder value. The Compensation Committee also seeks to ensure that we maintain our ability to attract and retain
superior employees in key positions and that the compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of a selected group of our peer companies and the broader marketplace
from which we recruit and compete for talent.
We are asking you to indicate your support for the compensation of our named executive officers as described in this Proxy Statement. This vote is
not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement.
We urge shareholders to read the “Compensation Discussion and Analysis” beginning on page 28, which describes in more detail how our executive
compensation policies and procedures are designed and operate to achieve our compensation and strategic objectives, as well as the “Summary Compensation Table” and other related compensation tables and narrative appearing on pages
38 through 49
. The Compensation Committee and the Board believe that the policies, procedures, and compensation programs described in these sections have contributed to the Company’s long-term
performance.
We are asking our shareholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including
the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth on pages
28 to 49
of this proxy statement, is hereby approved by shareholders.”
While the results of this advisory vote are not binding, the Compensation Committee will consider the outcome of the vote in deciding whether to take any action as a
result of the vote and when making future compensation decisions for named executive officers. Our current policy is to provide our shareholders with an opportunity to approve the compensation of our named executive officers each year at the
annual meeting. It is expected that the next such vote will occur at the 2020 annual meeting.
PROPOSAL 5 – AUDIT MATTERS
|
PROPOSAL 5 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed KPMG LLP, an independent registered public accounting firm, to audit our consolidated financial
statements for the year ending December 31, 2019.
Shareholder ratification of the selection of KPMG LLP as our independent registered public accounting firm is not required by applicable law, our
Restated Certificate of Incorporation, our Bylaws or otherwise. However, the Board is submitting the selection of KPMG LLP to the shareholders for ratification as a matter of good corporate practice. If the shareholders fail to ratify the
selection, the Audit Committee will reconsider retaining KPMG LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during
the year if they determine that such a change would be in the best interests of Natus and its shareholders.
Representatives of KPMG LLP are expected to attend the Annual Meeting and will be available to respond to appropriate questions and to make a
statement if they so desire.
KPMG has been our independent registered public accounting firm since 2014, serving in that capacity and reporting on our consolidated financial
statements and the effectiveness of our internal controls over financial reporting continuously through the 2019 fiscal year.
The Audit Committee maintains oversight over KPMG by holding regular private sessions with KPMG, performing annual evaluations, reviewing KPMG’s
proposed audit scope, approach and independence, obtaining, on a periodic basis, a statement from the independent auditors regarding the relationships and services with us that may affect independence, discussing the financial statements and
audit findings, including any significant adjustments and new accounting policies, and being directly involved in the selection of new lead audit partners pursuant to SEC rules requiring that a new lead audit partner be designated in the normal
course every five years to bring a fresh perspective to the audit engagement. A new partner was so designated in advance of the 2019 audit year.
THE BOARD RECOMMENDS A VOTE “
FOR
” THE RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
|
Fees
Paid to Principal Accountants
.
During 2017 and 2018, KPMG was retained to provide services in the following categories and amounts:
|
2018
|
2017
|
|
(in millions)
|
Audit Fees
|
$3,489,689
|
$3,058,102
|
Audit-Related Fees
|
3,441
|
70,345
|
Tax Fees
|
79,828
|
35,024
|
All Other Fees
|
0
|
1,780
|
Audit Fees.
Amounts paid under “Audit Fees”
include aggregate fees for the audit of our consolidated financial statements and the effectiveness of internal controls over financial reporting, the three quarterly reviews of the Company’s reports on Form 10-Q and other SEC filings, and
services in connection with statutory and regulatory filings.
Audit-Related Fees.
Amounts paid under
“Audit-Related Fees” were for miscellaneous audit and consulting services.
Tax Fees.
Amounts paid under “Tax Fees” in
2018 were for tax compliance ($37,875) and other tax services (including tax planning and tax advice) ($41,953), and in 2017 were for tax compliance ($19,697) and other tax services (including tax planning and tax advice) ($15,327).
All Other Fees.
Amounts paid under “All Other Fees” in 2018 and
2017 included fees for online research tools.
Pre-Approval
of Services
. The Audit Committee is responsible for pre-approving audit and non-audit services provided by our independent registered public accounting firm (or subsequently approving non-audit services in those circumstances where a
subsequent approval is necessary and permissible) in order to assure that the provision of such services does not impair the auditor’s independence. These services may include audit services, audit-related services, tax services and other
services. The Audit Committee has the sole authority to approve all audit engagement fees and terms and all non-audit engagements. Pre-approval is generally detailed as to the particular service or category of services and is generally subject to
a specific budget. Our independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by our independent auditors in accordance with this pre-approval, and the fees for the
services performed to date. Our Audit Committee may also pre-approve particular services on a case-by-case basis. All audit and non-audit services performed by KPMG in 2018 and 2017 were approved by the Audit Committee.
The Audit Committee is comprised of two (to be updated) directors who are independent under the applicable rules of the Nasdaq Stock Market and
the Securities and Exchange Commission. The Audit Committee assists the Board in its oversight of the Company’s financial reporting process and administration of corporate policy in matters of accounting and control.
The Board has adopted a written Audit Committee Charter. As stated in the charter, management is responsible for the preparation, presentation and
integrity of the Company’s financial statements. The Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and objectivity and (ii) the report of the Company’s independent
auditors with respect to such financial statements. The Company’s accounting and financial reporting principles and internal controls and procedures are designed to assure compliance with accounting standards and applicable laws and regulations.
The Audit Committee appoints the independent auditors and periodically reviews their performance and independence from management, and
pre-approves all audit and non-audit services provided by the independent auditors. The Audit Committee functions as the liaison with the independent auditors, who are responsible for auditing the Company’s financial statements and expressing an
opinion as to their conformity with accounting principles generally accepted in the United States. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examination,
evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.
In the performance of its oversight function, the Audit Committee has done the following:
|
·
|
Reviewed and discussed the audited financial statements with management and the independent auditors;
|
|
·
|
Discussed with the independent auditors any matters required to be discussed by Auditing Standard No. 1301, Communication with Audit Committees; and
|
|
·
|
Received and discussed the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board
(United States) regarding the independent auditor’s communications with the Audit Committee concerning independence; and
|
|
·
|
Discussed with the independent auditors the firm’s independence.
|
Based upon the review and discussions described above, the Audit Committee recommended to the Board, and the Board has approved, that the audited
financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for filing with the Securities and Exchange Commission.
The Audit Committee:
Kenneth E. Ludlum (Chair)
Alice D. Schroeder
Thomas J. Sullivan
Robert A. Gunst (until the 2019 Annual Meeting)
This report of the Audit Committee shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference.
Deadline for Receipt of Shareholder Proposals and
Director Nominations for the 2020 Annual Meeting
Proposals for Inclusion in Proxy Materials.
In order for a shareholder proposal to be eligible for inclusion in our proxy statement for the 2020 annual meeting, the written proposal must be received by the Corporate Secretary of the Company at its principal executive offices at the address
below no later than , 2019 and must comply with the requirements of the Rule 14a-8 under the Exchange Act.
Director Nominations for Inclusion in Proxy
Materials.
Under the Company’s proxy access right, a shareholder, or a group of up to 20 shareholders, owning at least 3% of our outstanding shares continuously for at least three years, is permitted to nominate up to the greater of two
directors or 20% of the Board for inclusion in our proxy statement, provided that the shareholder(s) and the nominee(s) satisfy the requirements in our Bylaws. In order for a shareholder to nominate a director for election to the Board for
inclusion in our proxy statement for the 2020 annual meeting, written notice must be received by the Corporate Secretary of the Company at its principal executive offices at the address below no earlier than
,
2019 and no later than
,
2019. However, if the date of the 2020 annual meeting is a date that is not within 30 calendar days before or after
June 5, 2020 (the anniversary date of the Annual Meeting), written notice must be received by the later of 180 days prior to the date of the 2020 annual meeting or the close of business on the 10
th
calendar day after the day on which public disclosure of the date of the 2020 annual meeting is made. Other specifics regarding the content of the notice and certain other eligibility and procedural
requirements, can be found in Section 2.13 of Article 2 of our Bylaws.
Proposals and Director Nominations Not Intended
for Inclusion in Proxy Materials.
In order for a shareholder to present a proposal or nominate a director for election to the Board at our 2020 annual meeting, but not have such proposal or nomination included in the proxy statement for
our 2020 annual meeting, written notice of the proposal or director nomination(s) must be received by the Corporate Secretary of the Company at its principal executive offices at the address below no later than April 6, 2020. However, if the date
of the 2020 annual meeting is a date that is not within 30 calendar days before or after June 5, 2020 (the anniversary date of the Annual Meeting), written notice must be received within a reasonable time before we begin the solicitation of
proxies for the 2020 annual meeting. Other specifics regarding the notice procedures, including the required content of the notice, can be found in Section 2.3 of Article 2 (with respect to shareholder proposals) and Section 2.13 of Article 2
(with respect to director nominations) of our Bylaws.
Our Bylaws require that a shareholder must provide certain information concerning the proposing person, the nominee and the proposal, as
applicable. Nominations and proposals not meeting the requirements set forth in our Bylaws will not be entertained at the 2020 annual meeting. Shareholders should contact the Corporate Secretary of the Company in writing at
6701 Koll Center Parkway Suite 120, Pleasanton, CA 94566
to obtain additional information as to the proper form and content of shareholder nominations or proposals.
Directors
and Officers Indemnification
.
Pursuant to our Bylaws, we indemnify our directors and officers to the fullest extent permitted by law.
We have also entered into indemnification agreements with each of our directors and executive officers that contractually commit us to provide this indemnification to him or her.
Section
16(a) Beneficial Ownership Reporting Compliance
.
To our knowledge, all reports that were required to be filed during 2018 by our
executive officers, directors and beneficial owners of more than 10% of our common stock under Section 16 of the Exchange Act were filed on a timely basis.
Related
Persons Transactions
.
Under the Audit Committee charter, the Audit Committee is responsible for reviewing and approving or ratifying all transactions with related persons that are required to be disclosed pursuant to Item 404(a) of Regulation
S-K adopted by the SEC. Related persons include our executive officers and directors, nominees for directors, 5% or more beneficial owners of our common stock, and immediate family members of these persons. Transactions involving amounts paid
by Natus or its subsidiaries in excess of $120,000 and in which the related person has a direct or indirect material interest are referred to as “related person transactions.” The Audit Committee will generally consider all relevant factors
when determining whether to approve or ratify a related person transaction.
Additional Information
.
Our Bylaws, Board Governance Guidelines and
charters of each of the Audit Committee, Compensation Committee, Nominating & Governance Committee, and Compliance & Quality Committee are posted on our website at
www.natus.com
under “Investors - Governance.” Our Code of Business Conduct and Ethics (applicable to all of the Company’s employees,
executive officers and directors) is posted at
www.natus.com
under
“Governance.”
Annual Report on Form 10-K
.
The Company will furnish without charge to each person whose proxy is solicited, upon the written request of such person, a copy of the 2018 Annual Report as filed with the SEC, including the financial statements and financial statement schedules
(upon request, exhibits thereto will be furnished subject to payment of a specified fee). Requests for copies of such report should be directed to: Natus Medical Incorporated Attention: Corporate Secretary,
6701 Koll Center Parkway Suite 120, Pleasanton, CA 94566.
Delivery of Proxy Materials
.
We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, shareholders of record who have the same address and last name and did not receive a Notice
or otherwise receive their Proxy Materials electronically will receive only one copy of the Proxy Materials unless we receive contrary instructions from one or more of such shareholders. Upon oral or written request, we will deliver promptly a
separate copy of the Proxy Materials to a shareholder at a shared address to which a single copy of the Proxy Materials was delivered. If you are a shareholder of record at a shared address to which we delivered a single copy of the Proxy
Materials and you desire to receive a separate copy of the Proxy Materials for the Annual Meeting or for our future meetings, or if you are a shareholder at a shared address to which we delivered multiple copies of the Proxy Materials and you
desire to receive one copy in the future, please submit your request to Broadridge ICS, either by calling toll-free 800-542-1061, or by writing to Broadridge ICS, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Upon such
request, we will promptly deliver a separate copy of the annual report and/or, as applicable, the proxy materials to any shareholder at a shared address to which we delivered a single copy of any of the materials. Any shareholders who share the
same address and currently receive multiple copies of our proxy materials or annual report who wish to receive only one copy in the future can contact their broker, trustee or other nominee to request information about householding.
By Order of the Board,
William Hill
General Counsel
ALL SHAREHOLDERS ARE URGED TO SUBMIT THEIR PROXIES PROMPTLY
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE,
MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. E75265-P24174 Please indicate if you plan to attend this
meeting. For address changes and/or comments, please check this box and write them on the back where indicated. NOTE: Transaction of such other business as may properly come before the meeting or any adjournment thereof. Advisory
approval of the Company's named executive officer compensation; andTo ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. Amendment to our Restated
Certificate of Incorporation to declassify the Board of Directors;Amendment to our Restated Certificate of Incorporation to eliminate cumulative voting;Election of directors of the Company to serve until either the 2022 annual meeting (if
Proposal 1 is not adopted) or the 2020 annual meeting (if Proposal 1 is adopted) and, in either case, until their respective successors are duly elected and qualified. Nominees:3a. Jonathan A. Kennedy3b. Thomas J. Sullivan 3c. Alice D.
Schroeder The Board of Directors recommends you vote FOR For Against Abstain proposals 1, 2, 3, 4 and 5. For Against Abstain ! ! !! ! ! ! !Yes No Please sign exactly as your name(s) appear(s) hereon. When signing as attorney,
executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized
officer. NATUS MEDICAL INCORPORATED NATUS MEDICAL INCORPORATED C/O BROADRIDGEP.O. BOX 1342 BRENTWOOD, NY 11717 ! ! !! ! ! ! ! !! ! !! ! !! VOTE BY INTERNET - www.proxyvote.comUse the Internet to transmit your voting instructions
and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and
to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALSIf you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy
statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to
receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
Address Changes/Comments: Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting:The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. E75266-P24174 NATUS MEDICAL INCORPORATEDThis proxy is solicited on behalf of the Board of Directors Annual Meeting of
StockholdersJune 5, 2019 8:00 A.M., PTThe stockholder(s) hereby appoint(s) Jonathan A. Kennedy and Drew Davies, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to
vote, as designated on the reverse side of this ballot, all of the shares of Common stock of NATUS MEDICAL INCORPORATED that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held on Wednesday, June 5,
2019, at 8:00 a.m., PT, at 5995 Pacific Mesa Court, San Diego, California 92121 and any adjournment or postponement thereof.This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made,
this proxy will be voted in accordance with the Board of Directors' recommendations.(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)Continued and to be signed on reverse side