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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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ICU MEDICAL, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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ICU MEDICAL, INC.
951 Calle Amanecer
San Clemente, California 92673-6213

NOTICE OF THE 2017 ANNUAL MEETING OF STOCKHOLDERS
To be held May 9, 2017


The 2017 Annual Meeting of Stockholders ("Annual Meeting") of ICU Medical, Inc. (the ''Company'') will be held virtually, exclusively via online live webcast at www.virtualshareholdermeeting.com/ICUI2017 on Tuesday, May 9, 2017 at 9:00 a.m., Pacific Daylight Time.

At the meeting, stockholders will be asked to:

1.
To elect the following eight directors of the Company to serve until the next annual meeting of stockholders or until their successors have been elected and qualified: Vivek Jain, George A. Lopez, M.D., Joseph R. Saucedo, Richard H. Sherman, M.D., Robert S. Swinney, M.D., David C. Greenberg, Elisha W. Finney, and Douglas E. Giordano.
2.
To consider a proposal to approve the Amended and Restated ICU Medical, Inc. 2011 Stock Incentive Plan, including an increase to the number of shares under the plan by 1,425,000 shares to 4,179,510 shares;
3.
To ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2017;
4.
To hold an advisory vote to approve our named executive officer compensation;
5.
To hold an advisory vote to determine the frequency of future advisory votes on our named executive officer compensation; and
6.
To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. We are not aware of any other business to come before the Annual Meeting.    

The Board of Directors has determined that only holders of common stock, par value $0.10, of the Company of record as of the close of business on March 24, 2017 will be entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment thereof. A list of such stockholders shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, at the above address, and electronically during the meeting at www.virtualshareholdermeeting.com/ICUI2017.

All stockholders are invited to attend the Annual Meeting virtually by visiting www.virtualshareholdermeeting.com/ICUI2017. Any stockholder attending the Annual Meeting virtually may vote online while polls are open during the Annual Meeting even if such stockholder returned a proxy.


By Order of the Board of Directorshttp://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11522180&doc=5
Virginia Sanzone, Vice President General Counsel and Secretary
San Clemente, CA
April 10, 2017



TABLE OF CONTENTS
 
Page




    



ICU Medical, Inc.
951 Calle Amanecer
San Clemente, California 92673-6213

PROXY STATEMENT
FOR 2017 ANNUAL MEETING OF STOCKHOLDERS

April 10, 2017

This Proxy Statement is furnished to the stockholders of ICU Medical, Inc. (the "Company") in connection with the solicitation of proxies by the Board of Directors (the "Board") of the Company for use at the 2017 Annual Meeting of Stockholders of the Company (the "Annual Meeting"), for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.

The Notice, this Proxy Statement, the annual report to stockholders and the proxy card are being made available to stockholders on or about April 10, 2017.

Annual Meeting of Stockholders

Time and Date

The Annual Meeting will be held virtually on Tuesday May 9, 2017 at 9 a.m. Pacific Daylight Time. Stockholders may attend the Annual Meeting by visiting www.virtualshareholdermeeting.com/ICUI2017

Record Date

As of March 24, 2017 the outstanding voting securities of the Company consisted of 19,797,197 shares of $0.10 par value common stock (the “Common Stock”).

Voting

Each stockholder of record at the close of business on March 24, 2017 is entitled to one vote for each share held as of that date on each matter submitted to a vote of stockholders. The presence in person electronically or by proxy of holders of a majority of the issued and outstanding Common Stock will constitute a quorum for the transaction of such business as shall properly come before the Annual Meeting. There are no cumulative voting rights.

Voting Matters

Elect eight directors.
Approve the Amended and Restated ICU Medical, Inc. 2011 Stock Incentive Plan, including an increase to the number of shares under the Plan by 1,425,000.
Ratify Deloitte & Touche LLP as our independent auditor for fiscal year 2017.
Advisory vote on executive compensation.
Advisory vote on frequency of future votes on executive compensation.
To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

Additional voting information about voting at the Annual Meeting is detailed below. Stockholders may also obtain additional information about accessing and voting during the Annual Meeting by calling Investor Relations at (800) 824-7890.




1




IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ONLINE ON MAY 9, 2017

This proxy statement and the annual report to stockholders are available at http://ir.icumed.com.

You will be able to attend the Annual Meeting, vote, and submit your questions prior to or during the meeting via the Internet only by visiting www.virtualshareholdermeeting.com/ICUI2017. Access the website at least 10 minutes before the beginning of the meeting to register your attendance and complete the verification procedures to confirm that you were a stockholder of record as of March 24, 2017, the record date. To access the virtual Annual Meeting at the above website you will need to enter your unique control number provided to you on your proxy card to verify your identity.

YOUR VOTE IS IMPORTANT
Whether or not you expect to attend the Annual Meeting via live webcast, please vote as soon as possible to ensure your vote is counted at the meeting. Please complete, sign, date and return the enclosed proxy promptly or submit your proxy over the Internet or by telephone. If you are a stockholder of record and attend the virtual Annual Meeting, you may withdraw your proxy and vote electronically during the virtual Annual Meeting. You will find information on submitting your proxy over the Internet and by telephone and information about voting electronically during the Annual Meeting below under Voting Information.
THANK YOU FOR ACTING PROMPTLY


QUESTIONS AND ANSWERS ABOUT THE VIRTUAL ANNUAL MEETING AND PROXY MATERIALS

Voting Information

How do I submit my proxy?

You will have the opportunity to attend the virtual Annual Meeting and vote electronically during the virtual Annual Meeting if you choose. Whether or not you vote electronically during the virtual Annual Meeting, it is important that your shares be represented and voted. If you are a stockholder of record, you can give a proxy to have your shares voted at the virtual Annual Meeting either:

by mailing the enclosed proxy card in the enclosed envelope. Proxy cards submitted by mail must be received by the time of the meeting in order for your shares to be voted;
electronically, via the Internet by accessing www.proxyvote.com using your control number on your proxy card until 11:59 P.M. Eastern Time the day before the meeting date; or
over the telephone by calling toll free number 1-800-690-6903 until 11:59 P.M. Eastern Time the day before the meeting date.

The Internet and telephone proxy submission procedures are set up for your convenience and are designed to verify your identity, to allow you to give voting instructions, and to confirm that those instructions have been properly recorded. If you are a stockholder of record and you would like to submit your proxy by telephone or by using the Internet, please refer to the specific instructions on the attachment to the enclosed proxy card. Alternatively, you may submit your proxy by mail by returning your signed proxy card in the enclosed envelope. If we receive your proxy by mail, electronically or by telephone before the Annual Meeting, we will vote your shares as you direct.

If you hold your shares in “street name,” you must give voting instructions in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

How can I vote my shares during the virtual meeting?


2


The procedures for voting during the Annual Meeting are designed to verify your identity and allow you to vote. You should retain the attachment to the proxy card enclosed with this Proxy Statement on which your unique control number appears. You will need to write this control number on your ballot to verify your identity.

To vote during the meeting, visit www.virtualshareholdermeeting.com/ICUI2017 and vote electronically. Electronically submitted ballots must be received before the polls are closed during the Annual Meeting to be counted. We anticipate that the polls will be open from approximately 9:05 to 9:20 A.M. PDT on May 9, 2017.

Even if you currently plan to electronically attend the virtual Annual Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the Annual Meeting. If you vote by proxy and then decide to electronically attend the virtual Annual Meeting, you will be able to vote electronically during the Annual Meeting, even if you have previously submitted your proxy.
    
How can I request proxy materials?

To request a print or electronic copy of our Proxy Statement, Annual Report to Stockholders and proxy card, you may call our toll-free telephone number at (800) 824-7890; email us at ir@icumed.com; or visit our web site at www.icumed.com.

Your vote is important. Thank you for voting.


3


Voting Matters and Board Recommendations
The Board is not aware of any matter that will be presented for a vote at the 2017 Annual Shareholder's Meeting other than those shown below.
The term ''broker non-votes'' refers to shares held by a broker in street name that are present by proxy but are not voted pursuant to rules prohibiting brokers from voting on non-routine matters without instructions from the beneficial owner of the shares. Broker non-votes on non-routine matters are not counted as entitled to vote on a matter in determining the number of affirmative votes required for approval of the matter but are counted as present for quorum purposes. Of the proposals to be considered at the Annual Meeting, only the ratification of the selection of the independent registered public accountant is considered to be a routine matter on which brokers may vote without instructions from beneficial owners. The approval of the election of directors, the approval of the Amended and Restated ICU Medical, Inc. 2011 Stock Incentive Plan, the advisory vote to approve named executive officer compensation and the advisory vote on the frequency of holding an advisory vote on executive compensation are considered non-routine matters on which your brokers may not vote without instructions from you as the beneficial owners.
Assuming that a quorum is present, the votes required to approve the matters before the Annual Meeting are as follows:
Election of Directors: The election of directors will be decided by a plurality of the votes. The eight director nominees receiving the most votes will be elected. In an uncontested election of directors (one in which the only nominees are those nominated by the Board), any nominee who receives a greater number of votes "withheld" from his or her election than votes "for" his or her election shall, within 10 days following the certification of the stockholder vote, tender his or her written resignation to the Chairperson of the Board for consideration by the Nominating/Corporate Governance Committee of the Board ("the Nominating Committee"). The Nominating Committee shall consider such tendered resignation and within 60 days following the certification of the stockholder vote, shall make a recommendation to the Board concerning the acceptance or rejection of the resignation.

Approval of the Amended and Restated ICU Medical, Inc. 2011 Stock Incentive Plan, including an increase to the number of shares under the plan by 1,425,000 shares to 4,179,510 shares: Stockholder approval of this matter requires the affirmative vote of a majority of the outstanding shares of common stock, par value $0.10, of the Company (the “Common Stock”) entitled to vote thereon and present in person or by proxy. Abstentions will therefore have the same effect as an “Against” vote with respect to this proposal, but broker non-votes are not counted as entitled to vote and will have no effect on the vote for this matter;

Ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm: Stockholder approval of this matter requires the affirmative vote of a majority of the outstanding shares of Common Stock entitled to vote thereon and present in person or by proxy. Abstentions and broker non-votes will therefore have the same effect as an “Against” vote with respect to this proposal. As brokers have the authority to vote on this matter, broker non-votes are not expected.

Advisory Vote on our Named Executive Officer Compensation: Stockholder approval of this matter requires the affirmative vote of a majority of the outstanding shares of Common Stock entitled to vote thereon and present in person or by proxy. Abstentions will therefore have the same effect as an “Against” vote with respect to this proposal, but broker non-votes are not counted as entitled to vote and will have no effect on the vote for this matter.

Advisory Vote on the Frequency of Holding an Advisory Vote on Executive Compensation: Stockholder approval of this matter requires the affirmative vote of a majority of the outstanding shares of Common Stock entitled to vote thereon and present in person or by proxy. Broker non-votes are not counted as entitled to vote and thus will have no effect on the outcome of this matter. With respect to this matter, if none of the frequency alternatives (one year, two years or three years) receive a majority vote, we will consider the frequency that receives the highest number of votes by stockholders to be the frequency that has been selected by our stockholders..


4


Board Recommendations

The Board recommends that you vote:

FOR the election of the eight nominees for election to the Board to serve until the next annual meeting of stockholders or until their successors have been elected and qualified;

FOR the approval of the Amended and Restated ICU Medical, Inc. 2011 Stock Incentive Plan;

FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2017;

FOR the approval, on an advisory basis, of our named executive officer compensation; and

ONE YEAR on the frequency of holding future advisory votes on our named executive officer compensation.
Virtual Annual Meeting Attendance
The Annual Meeting will be held entirely virtually, as permitted by Delaware law. The Annual Meeting is to be held virtually at www.virtualshareholdermeeting.com/ICUI2017, on Tuesday, May 9, 2017 at 9:00 a.m., Pacific Daylight Time, and at any adjournments thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. There will be no physical location at which stockholders may attend the Annual Meeting, but stockholders may attend and participate in the meeting electronically. Stockholders who participate in the virtual Annual Meeting will be deemed to be present in person and will be able to vote during the Annual Meeting at the times that the polls are open. Stockholders who wish to attend the meeting should go to www.virtualshareholdermeeting.com/ICUI2017, at least 10 minutes before the beginning of the meeting to register their attendance and complete the verification procedures to confirm that they were stockholders of record as of March 24, 2017, the record date. Stockholders of record will need to provide the control number on the attachment to the enclosed proxy card to verify their identity.

Beneficial owners whose stock is held for them in street name by their brokers or other nominees may also attend the meeting by going to www.virtualshareholdermeeting.com/ICUI2017, at least 10 minutes before the beginning of the meeting to register their attendance and complete the verification procedures to confirm that they were stockholders as of the record date. Such beneficial owners may not vote at the meeting, and may only cause their shares to be voted by providing voting instructions to the persons who hold the beneficial owners’ shares for them. Beneficial owners will need to provide the name of the broker or other nominee that holds their shares to gain access to the virtual meeting.

Revoking or Changing Your Vote

A stockholder giving a proxy may revoke its vote at any time before it is voted at the Annual Meeting by filing with the Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if the person executing the proxy is present at the Annual Meeting electronically and elects to vote electronically during the meeting. Subject to such revocation or suspension, all shares represented by each properly executed proxy or electronic vote received by the Company will be voted in accordance with the instructions indicated thereon, and if instructions are not indicated, will be voted in favor of (i) the election of the nominees for director named in or otherwise nominated as set forth in this proxy statement, (ii) the approval of the Amended and Restated ICU Medical, Inc. 2011 Stock Incentive Plan; (iii) the ratification of the selection of the independent registered public accounting firm, (iv) the approval, on an advisory basis, of our named executive officer compensation, (v) “one year” on the frequency of holding future advisory votes on our named executive officer compensation and (vi) in the discretion of the proxy holders, any other business that comes before the meeting. Currently, no matter is expected to be considered at the Annual Meeting other than the proposals set forth in the accompanying Notice of Annual Meeting of Stockholders. However, if any other matters are properly brought before the Annual Meeting for action, it is intended that the shares of our Common Stock represented by proxies will be voted by the persons named as proxies on the proxy card in accordance with their discretion on such matters.


5


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to shares of Common Stock owned as of March 24, 2017, by (a) each director and each nominee, (b) each named executive officer and (c) all directors and executive officers as a group. Unless otherwise indicated in the footnotes following the table, and subject to community property laws where applicable, the Company believes that the persons as to whom the information is given have sole voting and investment power over the shares listed as beneficially owned. The business address of the Company’s directors and officers, the George A. Lopez, M.D. Second Family Limited Partnership and the Lopez Family Trust is 951 Calle Amanecer, San Clemente, California 92673.
Stock Ownership of Management
 

Shares of Common Stock Owned
 
Shares Acquirable
 
Total Shares Beneficially Owned
 
Percent of Outstanding Shares (1)

 
Joseph R. Saucedo
2,728

 
35,115

 
37,843

 
*

 
 
Richard H. Sherman, M.D.
69,199

 
29,115

 
98,314

 
*

 
 
Robert S. Swinney, M.D.
14,644

 
51,115

 
65,759

 
*

(2)
 
George A. Lopez, M.D.
1,566,759

 
208,433

 
1,775,192

 
8.9
%
(3)
 
David C. Greenberg
1,292

 
6,081

 
7,373

 
*

(4)
 
Elisha W. Finney
362

 
4,452

 
4,814

 
*

 
 
Vivek Jain
41,946

 
575,519

 
617,465

 
3.0
%
 
 
Scott E. Lamb
5,839

 
133,451

 
139,290

 
*

 
 
Alison D. Burcar
2,288

 
82,913

 
85,201

 
*

 
 
Tom McCall
857

 
7,107

 
7,964

 
*

 
 
Steven C. Riggs
1,326

 
13,534

 
14,860

 
*

 
 
Douglas E. Giordano

 

 

 
n/a

 
 
All directors and executive officers as a group (12 persons)
1,707,240

 
1,146,835

 
2,854,075

 
13.6
%
 
____________________________
 
 
 
 
 
 
 
 
* Represents less than 1% of our outstanding Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
The beneficial ownership percentage of each stockholder is calculated based on the number of shares of Common Stock outstanding as of March 24, 2017, plus each beneficial owner's RSUs that vest within 60 days of March 24, 2017, plus each beneficial owner's outstanding options to acquire Common Stock exercisable or exercisable within 60 days of March 24, 2017 held by the beneficial owner whose percent of outstanding stock is calculated.
(2)
Does not include 1,125 shares owned by Dr. Swinney's wife as to which he has no voting or investment power and disclaims any beneficial ownership of such shares.
(3)
Includes 986,843 shares owned by the George A. Lopez, M.D. Second Family Limited Partnership (the “Partnership”), representing 5.0% of the total shares of Common Stock outstanding as of March 24, 2017. Dr. Lopez is the general partner of the Partnership and holds a 1% general partnership interest in the Partnership. As general partner, he has the power to vote and power to dispose of the 986,843 shares owned by the Partnership and may be deemed to be a beneficial owner of such shares. Trusts for the benefit of Dr. Lopez’s children, the Christopher George Lopez Children’s Trust and the Nicholas George Lopez Children’s Trust (collectively, the "Trusts"), own a 99% limited partnership interest in the Partnership. Dr. Lopez is not a trustee of and has no interest in his children’s Trusts. Except to the extent of the undivided one percent general partnership interest in the assets of the Partnership, Dr. Lopez disclaims any beneficial ownership of the shares owned by the Partnership.

Includes 4,002 shares owned by the Lopez Family Trust. Dr. Lopez is a trustee and beneficiary of the Lopez Family Trust. Includes 173,950 shares held by Dr. Lopez as Trustee of the Lopez Charitable Remainder Trust #1 for the benefit of Dr. Lopez.



  
(4)
Includes 500 shares held by David C. Greenberg, TTEE David C. Greenberg, Declaration of Trust.

6


5% or More Beneficial Ownership
 
Name and Address of Beneficial Owner
 
Shares of Common Stock Owned
 
Percent of Outstanding Shares
 
 
 
Pfizer Inc.
 
3,200,000

 
16.2
%
 
(1)(2)
 
235 East 42nd Street, New York, NY 10017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 BlackRock Inc.
 
1,650,899

 
8.3
%
 
(1)(3)
 
55 East 52nd Street, New York, NY 10055
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The Vanguard Group, Inc.
 
1,266,725

 
6.4
%
 
(1)(4)
 
100 Vanguard Blvd, Malvern, PA 19355
 
 
 
 
 
 
____________________________
 
 
 
 
 
 
(1)
Information included solely in reliance on information included in statements filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13(d) or Section 13(g) of the Securities Act of 1934, as amended, by the indicated holder.
(2)
Pfizer, Inc. stated in its Schedule 13D filing with the SEC on February 13, 2017 that, of the 3,200,000 shares beneficially owned, it has shared voting power with respect to all 3,200,000 shares and shared dispositive power with respect to all 3,200,000 shares with its indirectly wholly owned affiliates, C.P. Pharmaceuticals International C.V., Pfizer Production LLC, and Pfizer Manufacturing LLC.
(3)
BlackRock, Inc. stated in its Schedule 13G/A filing with the SEC on January 9, 2017 that, of the 1,650,899 shares beneficially owned, it has sole voting power with respect to 1,613,171 shares and sole dispositive power with respect to all 1,650,899 shares.
(4)
The Vanguard Group, Inc. stated in its Schedule 13G/A filing with the SEC on February 10, 2017 that, of the 1,266,725 shares beneficially owned, it has sole voting power with respect to 26,769 shares, shared voting power with respect to 1,900 shares, sole dispositive power with respect to 1,239,956 shares and shared dispositive power with respect to 26,769 shares.



7


EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

Executive Officers

The following table lists the names, ages, certain positions and offices held by our executive officers as of March 24, 2017:
 
 
Age
 
Office Held
Vivek Jain
 
45
 
Chairman of the Board and Chief Executive Officer
Alison D. Burcar
 
44
 
Corporate Vice President and General Manager, Infusion Consumables
Scott E. Lamb
 
54
 
Treasurer and Chief Financial Officer
Tom McCall
 
59
 
Corporate Vice President, Marketing and Communications and General Manager, Critical Care
Steven C. Riggs
 
58
 
Corporate Vice President, Operations
 
Mr. Jain joined the Company in February 2014 as Chairman of the Board and Chief Executive Officer. Mr. Jain served as CareFusion Corporation's ("CareFusion") President of Procedural Solutions from 2011 to February 2014. Mr. Jain served as President, Medical Technologies and Services of CareFusion from 2009 until 2011. Mr. Jain served as the Executive Vice-President-Strategy and Corporate Development of Cardinal Health from 2007 until 2009. Mr. Jain served as Senior Vice President, Business Development and M&A for the Philips Medical Systems business of Koninklijke Philips Electronics N.V., an electronics company from 2006 to August 2007. Mr. Jain served as an investment banker at J.P. Morgan Securities, Inc., an investment banking firm, from 1994 to 2006. Mr. Jain's last position with J.P. Morgan was as Co-Head of Global Healthcare Investment Banking from 2002 to 2006.

Ms. Burcar has served as our Corporate Vice President and General Manager, Infusion Consumables since February 2017. Ms. Burcar served as our Vice President and General Manager of Infusion Systems from July 2014 to February 2017. Ms. Burcar served as Vice President of Product Development from July 2009 to July 2014. Ms. Burcar served as our Vice President of Marketing from 2002 to July 2009, our Marketing Operations Manager from 1998 to 2002 and held research and development project/program management positions from 1995 to 1998. 

Mr. Lamb has served as our Treasurer and Chief Financial Officer since February 2008. Mr. Lamb served as our Controller from 2003 to February 2008.  Mr. Lamb served as Senior Director of Finance for Vitalcom, Inc. from 2000 to 2003.

Mr. McCall has served as our Corporate Vice President, Marketing and Communications and General Manager, Critical Care since February 2017. Mr. McCall served as our Vice President and General Manager of Critical Care from July 2014 to February 2017. Mr. McCall served as our Vice President of Marketing from July 2010 to July 2014. Mr. McCall served as Vice President of Marketing Communications and Brand Strategy for Masimo Corporation from 2006 to 2010 and as Vice President of Corporate Marketing and Brand Development for Welch Allyn, Inc. from 2001 to 2006.

Mr. Riggs has served as our as Corporate Vice President, Operations since February 2017. Mr. Riggs served as our of Vice President of Operations from 2002 to October 2013 and resumed this position in February 2014 and served until February 2017. Mr. Riggs served as Acting Chief Executive Officer from October 2013 to February 2014. Mr. Riggs served as our Director of Operations from 1998 to 2002 and as our Senior Manager of Quality Assurance and Quality Control from 1992 to 1998.

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis describes important information regarding the executive compensation program at ICU Medical, Inc. It describes our compensation philosophy, objectives regarding the compensation of our named executive officers, our policies and practices, and determinations related to executive compensation specific to 2016. For 2016, the term “named executive officers” represents the five executive officers in the compensation tables below:

Vivek Jain, our Chief Executive Officer (“CEO”) and Chairman of the Board;
Scott E. Lamb, our Treasurer and Chief Financial Officer (“CFO”);
Steve C. Riggs, our Corporate Vice President, Operations;
Alison D. Burcar, our Corporate Vice President and General Manager, Infusion Consumables; and
Tom McCall, our Corporate Vice President, Marketing and Communications and General Manager, Critical Care.



8


Executive Summary

Our executive compensation program is designed to provide a total compensation package intended to attract and retain high-caliber executive officers and employees, and also to incentivize employee contributions that are consistent with our corporate objectives and stockholder interests. The Compensation Committee believes it is important to provide a competitive total compensation package and share our success with our named executive officers, as well as our other employees, when our objectives are met.

2016 Business Highlights
We are one of the world’s leading pure-play infusion therapy companies with global operations and a wide-ranging product portfolio that includes IV solutions, IV smart pumps, dedicated and non-dedicated IV sets and needlefree connectors, along with pain management and safety software technology designed to help meet clinical, safety and workflow goals. In addition, the Company manufactures automated pharmacy IV compounding systems with workflow technology, closed systems transfer devices for hazardous IV drugs, and cardiac monitoring systems to optimize patient fluid levels. 
Strong 1-year, 3-year and 5-year Total Shareholder Return. Our stock price increased from a closing of $112.78 per share at fiscal year-end 2015 to $147.35 per share at fiscal year-end 2016. Our total stockholder return, or TSR, for 2016 and the three-year and five-year periods ended December 31, 2016, was 30.7%, 131.3% and 227.4%, respectively. We ranked at the 80th, 80th and 57th percentiles among our compensation peer group for these periods, respectively.

Strong Operational and Financial Results. We experienced significant growth in revenue, net income, adjusted earnings per share, and adjusted EBITDA.

(in millions, except per share and per share amounts)
 
 
 
 
 
 
2016
 
2015
 
Change
Revenue
 
$
379.4

 
$
341.7

 
11.0
%
Net Income
 
$
63.1

 
$
45.0

 
40.2
%
Adjusted EBITDA(1)
 
$
134.1

 
$
113.9

 
17.7
%
Diluted earnings per share
 
$
3.66

 
$
2.73

 
34.1
%
Adjusted Diluted EPS(2)
 
$
4.88

 
$
3.96

 
23.2
%
Closing Stock Price at Fiscal Year-end
 
$
147.35

 
$
112.78

 
30.7
%
____________________________
(1) Adjusted EBITDA adjusts from net income certain items as described in Annex A to this proxy statement. Our reconciliation of Adjusted EBITDA from net income is contained on Annex A to this proxy statement.
(2) Adjusted Diluted EPS represents diluted earnings per share adjusted for certain items as described in Annex A to this proxy statement. Our reconciliation of Adjusted Diluted EPS from diluted earnings per share is contained in Annex A to this proxy statement.

Completion of Acquisition of Pfizer’s Hospira Infusion Systems Business

On February 3, 2017, we completed our acquisition of Pfizer’s Hospira Infusion systems (“HIS”) business. We believe combining HIS with our current infusion therapy business will create a pure-play infusion business enabling us to offer customers a full suite of intravenous therapy devices and solutions. The combination unifies a split distribution channel which we believe in the long-term will reduce costs and improve efficiencies. We believe that the acquisition significantly expands our footprint allowing us to potentially compete more successfully on a global scale and eliminates our single customer concentration risk that clouded our strategic value. This transaction was not considered by the Compensation Committee in January 2017, when determining the named executive officers' 2016 cash bonuses.

Stockholder Engagement and Evolution of Compensation Program

Each year, the Compensation Committee considers the Say-On-Pay vote results from the prior Annual Meeting of Stockholders in its evaluation of the compensation program for our named executive officers. At our 2016 Annual Meeting of Stockholders, approximately 95% of the votes cast were voted in favor of our Say-On-Pay proposal, which we believe affirms

9


our stockholders’ support of our executive compensation program, as well as the modifications we made to our executive compensation program following the results of our 2015 Say-On-Pay proposal.

In 2015, Institutional Shareholder Services (“ISS”), recommended that our stockholders vote against our Say-On-Pay proposal, which ultimately was not approved at our 2015 Annual Meeting of Stockholders, with approximately 28% of the votes cast in favor of the proposal. Even though the vote is only advisory in nature, at the request of our Board management spoke with major stockholders to better understand their views and concerns about our executive compensation program. In these discussions, stockholders were generally supportive of, and did not express substantial disagreement with, the overall design of our executive compensation program. Their concerns primarily focused on the size of our CEO’s "sign-on" compensation package, as well as the use of appreciation in our stock price as the sole measure for achievement of performance-based vesting for the 2014 stock option grants, versus other longer-term performance measures. As the Compensation Committee determines the compensation of our executive officers during the first fiscal quarter of each year - which preceded our 2015 Annual Meeting of Stockholders, it decided to address these concerns in making its 2016 executive compensation decisions.

2016 Program Changes

In 2016, upon consideration of the vote results, feedback from these stockholder discussions, and an analysis prepared by its compensation consultant, Compensia, the Compensation Committee made the following modifications to our executive compensation program for 2016, as further discussed below under “Elements of Executive Compensation”:

Granted performance-based RSU awards for 50% of each executive’s LTI award, in place of the performance-based stock options used in prior years;

For the performance-based RSU awards - selected compound annual growth rates (“CAGR”) in Adjusted EBITDA per share, subject to a 3-year cliff vesting, as the performance measure for our performance-based equity awards to strengthen the tie between our executive officers' long-term incentive ("LTI") compensation and our performance over a longer time-period. We selected this measure as it rewards our executive officers' based on the Company's continued financial and operational improvement and the measure is an indicator of the success of our executive officers' consistent business execution in driving long-term stockholder value creation with sensible capital deployment.

Reduced the multiplier used in calculating our CEO's LTI award from 4.5x to 3.0x of his base salary; and

Maintained each named executive officer’s base salary and target annual bonus opportunity at their 2015 levels.

In addition, in March 2017, our Board adopted our Amended and Restated 2011 Stock Incentive Plan. If our stockholders approve this plan at the Annual Meeting (as part of Proposal 2), then all equity awards granted under the plan on or after the date of this Annual Meeting will only accelerate and vest in full upon a change in control of the Company if the surviving entity does not assume or replace such outstanding awards with economically equivalent awards (as opposed to accelerating in full upon a “single-trigger” change in control).

Pay for Performance    

"Pay for performance" is the underlying tenet of our compensation philosophy. Consistent with this focus, our 2016 executive compensation program includes annual performance-based cash bonuses and long-term incentive compensation, primarily in the form of RSU awards, both time- and performance-based.

For 2016, on average, approximately 75% of our named executive officers’ target total direct compensation consisted of "variable" pay (assuming target performance of cash bonuses and long-term performance RSUs) and included the following elements:

Performance-based cash. Our 2016 short-term performance-based cash bonuses are earned based on pre-set financial targets using Adjusted EBITDA as the performance measure. When the Company performs below target, cash incentive opportunities are reduced (as far as to $0). Cash incentive opportunities can range from 0% to 175% of target incentive opportunity based on performance. For 2016, the Company performed at 145% of target under the Adjusted EBITDA measure and cash incentives for our NEOs were paid at 132% - 145% of target incentive opportunity after review of individual and business unit performance.


10


Long-term performance RSU awards that are earned only upon achievement of performance goals over a three-year performance period. Our long-term performance RSUs recognize contributions to long-term success and long-term awards align our executive officers' compensation with Company performance and allow us to retain key employees through long-term vesting and potential wealth creation.

Time-based RSU awards. The time-based RSUs awarded to our executive officers balance pay-for-performance and retention objectives. Realized value will vary based on stock price performance. Retention is achieved via a three-year vesting period. These longer vesting periods reinforce the executives' focus on long-term stockholder value.

Payouts of these variable compensation elements closely align with our business financial results.

Fixed pay included base salaries and other benefits. The following chart shows the mix between "fixed" and "variable" pay for our named executive officers in 2016 (on average).
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11522180&doc=2
    
In particular, we believe that our equity compensation program supports a long-term performance orientation by aligning the interests of our executives and our stockholders. In 2016, the Compensation Committee granted performance-based RSU awards instead of stock options to the named executive officers, which it believes based on feedback from our stockholders better aligns our equity compensation program with stockholders’ interests. These RSU awards will be earned, if at all, based on the achievement of pre-established Adjusted EBITDA per share growth targets measured over a three-year period. In addition, in 2016 the Compensation Committee granted time-based RSU awards with multi-year vesting requirements, which are intended to satisfy our retention objectives.

Strong Governance and Compensation Practices

We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. The Compensation Committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. Our compensation philosophy and related corporate governance policies and practices are complemented by the following specific compensation practices that are designed to align our executive compensation program with long-term stockholder interests:

What We Do:

Compensation At-Risk. Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on Company performance, including short-term cash and long-term equity incentives, which also align the interests of our executive officers and stockholders.


11


Meaningful Stock Ownership Guidelines. We maintain guidelines for the minimum ownership of shares of our Common Stock by our executive officers and the non-employee members of our Board, including a 5x base salary requirement for our CEO and 1x base salary requirement for our other executive officers.

Performance-Based Annual Cash Bonuses: Our annual cash bonus program results in payments funded based on the achievement of pre-established Company financial performance goals and adjusted based on individual performance as determined by the Compensation Committee.

Multi-Year and Performance Vesting. The equity awards granted to our executive officers generally vest over multi-year periods, and 50% of the grant date value of the equity awards granted to our named executive officers in 2016 will be earned based on the achievement of a pre-established Adjusted EBITDA per share growth targets measured over a three-year period, which we believe is consistent with current market practice, our retention objectives and our pay for performance philosophy.

Limited Perquisites. We provide only limited perquisites or other personal benefits to our executive officers, such as a Section 401(k) matching contribution and Company-paid annual physicals.

Independent Compensation Committee. The Compensation Committee is comprised solely of independent directors.

Independent Compensation Committee Advisor. The Compensation Committee engaged its own compensation consultant to assist with its 2016 compensation reviews. This consultant performed no other services for us in 2016.

Annual Executive Compensation Review. The Compensation Committee conducts an annual review and approval of our compensation strategy, including a review and determination of our compensation peer group used for comparative purposes and a review of our compensation-related risk profile to ensure that our compensation programs do not encourage excessive or inappropriate risk taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us.

Annual Say-on-Pay Vote. We conduct an annual Say-on-Pay vote, and our Board has recommended that our stockholders vote for a frequency of “one year” for future Say-on-Pay votes at this Annual Meeting.

What We Do Not Do:

No Tax Reimbursements. We do not provide any tax reimbursement payments (“gross-ups”) on any perquisites or other personal benefits or on any severance or change-in-control payments or benefits.

Hedging and Pledging Prohibited. We prohibit our executive officers and the non-employee members of our Board from hedging or pledging our securities.

No Defined Benefit Pension Plans. We do not currently offer, nor do we have plans to provide, pension arrangements or nonqualified deferred compensation plans or arrangements to our executive officers. At this time, we maintain a defined contribution plan that is intended to satisfy the requirements of Sections 401(a) and 401(k) of the Internal Revenue Code (the “Code”), which is available to our executive officers on the same basis as our other full-time, salaried U.S. employees.

How We Determine Executive Compensation

Compensation Philosophy and Objectives

Our executive compensation program is designed to align our named executive officers’ interests with those of our stockholders by establishing a direct and meaningful link between our business financial results and their compensation. In determining total compensation of our named executive officers, the Compensation Committee has worked with its compensation consultant, as described in greater detail below in “Engagement of Compensation Consultant,” to implement compensation policies based on the following factors:

the overall business and financial performance of the Company;
the individual’s performance, experience and skills;
the terms of employment agreements or other arrangements with the individual;
competitive market data for similar positions based on the Company’s compensation peer group; and

12


results from the prior year’s stockholder advisory vote on the compensation of our named executive officers.

The main objectives of our executive compensation program are to:

provide competitive total pay opportunities that help attract, incentivize and retain leadership and key talent;
establish a direct and meaningful link between business financial results, individual/team performance and rewards;
provide strong incentives to promote the profitability and growth of the Company, create long-term stockholder value and incentivize superior performance; and
encourage the continued attention and dedication of our executives and provide reasonable individual security to enable our executives to focus on our best interests.

In making compensation decisions in 2016, the Compensation Committee believes that a critical factor in ensuring the Company’s ability to attract, retain and motivate its executive officers is ensuring that their compensation is competitive with companies that it considers to be competitors. In determining the appropriate level and form of compensation, the Compensation Committee reviews market data relating to the cash and equity compensation of similarly-sized medical device and life sciences companies that is provided by its compensation consultant, as described in greater detail below in “Engagement of Compensation Consultant.”

Engagement of Compensation Consultant

Since 2007, our Compensation Committee has engaged Compensia, a national compensation consulting firm, to assist each year in reviewing and making appropriate changes to our executive compensation guiding principles, to update our compensation peer group, to evaluate the competitiveness of our executive officers' compensation, and to assist it in the course of its deliberations concerning executive compensation decisions. Compensia serves at the discretion of the Compensation Committee.

In January 2016, Compensia conducted a compensation analysis (which our Compensation Committee used as a reference when setting our executive compensation levels), using the following peer companies:
Abaxis
Insulet
Natus Medical
ABIOMED
Integra LifeSciences
NuVasive
Cantel Medical
Masimo
NxStage Medical
Globus Medical
Meridian Bioscience
Wright Medical Group
Haemonetics
Merit Medical Systems
ZELTIQ Aesthetics

The market data used for the Compensation Committee’s comparative analysis is drawn from publicly-available sources for the companies in the compensation peer group. The peer group consists of companies in the publicly-held health care equipment and supply sectors that generally met the following characteristics: positive revenue growth, annual revenues of 0.5-2.0 times our revenues and aggregate market values of 0.5-3.0 times our aggregate market value. We believe these characteristics are relevant because their similarity captures the similarity in the labor market for executives.
 
Elements of Compensation
    
In setting compensation levels for our executive officers, the Compensation Committee considers each element of compensation separately as well as the aggregate value of all elements of compensation for each individual. Amounts realized or realizable from awards under prior bonus or incentive plans, including stock options, do not significantly influence the pay setting process of current compensation levels. The significant compensation components are base salary, annual cash bonuses and equity awards; we also provide severance and change in control payments and benefits.

Base Salaries

The Compensation Committee initially established the base salaries with our named executive officers as the result of an arms-length negotiation with each individual. It reviews base salaries when position responsibilities change.    


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The base salaries for 2016 remain unchanged from 2015. In reviewing the base salaries of our named executive officers in 2016, the Compensation Committee considered the market for similar positions based on the compensation peer group and took into account individual performance. The following table presents each named executive officer's base salary for 2016:

Name
 
Position
 
2016 Base Salary Rate
Vivek Jain
 
Chief Executive Officer/ Chairman of the Board
 
$
650,000

Scott E. Lamb
 
Treasurer and Chief Financial Officer
 
$
395,150

Steven C. Riggs
 
Vice President of Operations
 
$
360,582

Alison D. Burcar
 
Vice President and General Manager Infusion Systems
 
$
315,000

Tom McCall
 
Vice President and General Manager of Critical Care
 
$
293,550


Annual Cash Incentives

Pursuant to the terms of our 2008 Performance-Based Incentive Plan (the “Performance-Based Incentive Plan”), the Compensation Committee sets target bonus opportunities and selects performance measures and related target levels for each year; we refer to this annual cash incentive program as our "MIP." Cash bonuses under the MIP are based on our actual performance for the applicable year based on the Company’s achievement of the performance measure target levels.

Financial performance was a key factor in decisions and outcomes for the 2016 MIP. Specifically, for 2016, payment of bonuses under the MIP was based on the achievement of Adjusted EBITDA goals. The performance against the target levels for the 2016 MIP accounted for 100% of the named executive officers’ cash bonuses for 2016, although the Compensation Committee reserved discretion to adjust any bonus.
 
The following table presents the 2016 target bonus opportunities and the eligible MIP range (threshold and maximum)as a percentage of total base salary for each named executive officer.
Name
 
Target Bonus (% of 2016 Base Salary)
 
Threshold Bonus (% of Target Bonus)

 
Stretch Bonus (% of Target Bonus)

Vivek Jain
 
100%
 
33%
 
175%
Scott E. Lamb
 
60%
 
33%
 
175%
Steven C. Riggs
 
60%
 
33%
 
175%
Alison D. Burcar
 
60%
 
33%
 
175%
Tom McCall
 
60%
 
33%
 
175%
Payouts under the 2016 MIP were based on achieving a pre-established Adjusted EBITDA target level for the year. The Compensation Committee determined to use Adjusted EBITDA as the performance measure under our 2016 MIP because it believes Adjusted EBITDA is a positive indicator of our operating results and increased stockholder value. For purposes of the 2016 MIP, "Adjusted EBITDA" means net income adjusted for intangible asset amortization expense, depreciation expense, stock compensation expense, restructuring and strategic transaction expense, gain on sale of building, legal settlements, impairment of assets held for sale and income tax expense, as further described in Annex A to this proxy statement. In early 2016, the Compensation Committee determined that the Stretch Bonus should be increased to 175%, from 150% in 2015. In determining this increase the Compensation Committee considered annual forecasts for the upcoming year, broader industry performance and analyst expectations. Consideration was also given to the cost/benefit of the additional upside opportunity. The Compensation Committee's analysis determined that the additional bonus payouts would be justified if the incremental level of EBITDA outperformance was reached. The intent of the MIP is to incentivize key employees for exceptional performance.

Based on a review of economic conditions, the Compensation Committee set performance goals under the 2016 MIP based on achievement of the following financial target levels:

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Threshold Goal
Target Goal
Stretch Goal
Adjusted EBITDA Performance (in millions)
$120.0
$125.0
$140.0
MIP % Payout
33%
100%
175%

The following table presents the possible threshold, target and stretch bonus payouts for the 2016 MIP, as well as the actual amounts earned under the MIP for each named executive officer for 2016. For achievement of an Adjusted EBITDA below the threshold goal, the named executive officers were not eligible to receive a cash bonus. Based on the Company's actual Adjusted EBITDA performance of $134 million for 2016, the potential payout was between the target and maximum payout levels, determined on a linear basis between the applicable upper and lower percentages. The actual MIP percentage payout for 2016 was determined to be 145% of target. In February 2017, based on the review of each named executive officer's individual performance and contributions to the Company's success, the individual performance factors for Ms. Burcar and Mr. McCall were adjusted slightly downward by the Compensation Committee to 95% and 91% of the 145% earned based on financial measures, respectively.
Name
 
Salary
 
Potential Threshold Bonus
 
Potential Target Bonus
 
Potential Maximum Bonus
 
Actual bonus paid
 
Actual bonus paid % of Target Bonus
Vivek Jain
 
$
650,000

 
$
214,500

 
$
650,000

 
$
1,137,500

 
$
942,500

 
145
%
Scott E. Lamb
 
$
395,150

 
$
78,240

 
$
237,090

 
$
414,908

 
$
343,780

 
145
%
Steven C. Riggs
 
$
360,582

 
$
71,395

 
$
216,349

 
$
378,611

 
$
313,706

 
145
%
Alison D. Burcar
 
$
315,000

 
$
62,370

 
$
189,000

 
$
330,750

 
$
260,348

 
138
%
Tom McCall
 
$
293,550

 
$
58,123

 
$
176,130

 
$
308,228

 
$
232,404

 
132
%
Equity Awards

We grant equity awards to our executive officers to align their interests with the interests of our stockholders and to achieve our retention objectives. The use of equity awards further promotes our efforts to encourage the profitability and growth of the Company through the establishment of strong incentives. In the case of performance-based equity awards, our Compensation Committee establishes performance targets no later than 90 days after the beginning of a performance period, while the outcome as to the performance targets is substantially uncertain.

In 2016, the Compensation Committee decided to grant performance-based RSUs in lieu of granting stock options to our named executive officers. This decision was based, in part, on the Compensation Committee's belief that performance-based RSUs drive performance on specific financial metrics that will translate into long-term stockholder value creation. We also believe a combination of performance and time-based RSUs effectively balance pay-for-performance and retention objectives.

The following table presents the equity award grants to our named executive officers for 2016.
Name
 
Total Target Award Multiple of Base Salary
 
Time-Based RSUs (#)
 
Time-Based RSUs ($)(1)
 
Performance RSUs (#)
 
Performance RSUs ($)(1)
Vivek Jain
 
3x
 
11,276

 
975,036

 
11,276

 
975,036

Scott E. Lamb
 
1.2x
 
2,742

 
237,101

 
2,742

 
237,101

Steven C. Riggs
 
1.2x
 
2,503

 
216,434

 
2,503

 
216,434

Alison D. Burcar
 
2x
 
3,643

 
315,010

 
3,643

 
315,010

Tom McCall
 
1.2x
 
2,037

 
176,139

 
2,037

 
176,139

____________________________
(1) Reflects the grant-date fair value of the time-based RSUs and performance-based RSUs.

Consistent with our overall pay philosophy, our Compensation Committee determined the size of the 2016 equity awards so that the target total direct compensation of the named executive officers fell in the competitive market range, as appropriate,

15


after considering factors such as Company and individual performance, experience, longevity with the Company, internal pay parity considerations and unique requirements of the position.

The RSU awards granted to the named executive officers in 2016 were subject to the following provisions:

The performance-based RSUs have a three-year performance period and will be earned, if at all, upon the achievement of a minimum specified compound annual growth rate ("CAGR") in [Adjusted EBITDA per share]. At the beginning of the commencement period, it was determined that the shares of our Common Stock subject to the performance-based RSUs will be earned (and vest in full on December 31, 2018, the last day of the performance period), subject to the executive officer’s continued employment as of that date as follows:

Adjusted EBITDA Per Share CAGR
 
Percentage of awards that will vest
Less than 8%
 
0% - forfeited
At least 8% but less than 10%
 
100%
At least 10% but less than 12%
 
200%
Greater than 12%
 
300%

The time-based RSUs vest in equal annual increments over a three-year period from the date of grant.

We do not pay or accrue dividend equivalents on any RSU awards, including performance-based awards.

In the event of a corporate transaction or change in control of the Company, the time-based RSUs granted in 2016 would vest in full and the performance-based RSUs would be considered earned at the 200% level.

Severance and Change in Control Payments and Benefits

For 2016, the Company was a party to an employment agreement with our CEO and retention agreements with the remaining named executive officers. These agreements provide for severance payment and benefits upon a qualifying termination of employment, both outside and in the change in control context, as described in greater detail below in “Potential Payments upon Termination or Change in Control.” We believe that these payments and benefits are essential for us to fulfill our objective of attracting and retaining key managerial talent.
    
At the end of 2016, the Compensation Committee adopted the Severance Plan to be effective January 1, 2017. Initial participants in the Severance Plan include the named executive offices, except our CEO, as the retention agreements for these executives terminated pursuant to their terms at the end of 2016. The Severance Plan provides for the payment of severance and other benefits to participants in the event of a qualifying termination of employment with the Company, as described in greater detail below in “Potential Payments upon Termination or Change in Control”, and were determined following a review of Compensia’s analysis of relevant market data. Highlights of the severance benefits provided under our Severance Plan include:

12 to 18 months’ salary for all participating executives upon a qualifying termination (reduced from 18 to 24 months’ salary under the retention agreements). 18 months’ salary would only be paid upon a qualifying termination in connection with a change in control.

150% target bonus would only be paid upon a qualifying termination in connection with a change in control (as opposed to payable upon any qualifying termination -- regardless of a change in control -- under the retention agreements).

Our Compensation Committee believes these arrangements:

contribute to overall competitiveness of executive total compensation and enhance the Company’s ability to attract/retain key executives;

further align the interests of key executives with those of the Company’s stockholders and promote objective evaluations of strategy alternatives by executives;


16


motivate our executives to drive business success independent of the possible occurrence of any change-of-control transaction and reduce distractions associated with the potential for a transaction or termination of employment; and

maximize stockholder value by retaining "key" personnel through the completion of the transaction so that the Company is delivered in the condition bargained for by a potential acquirer.

In addition, if our stockholders approve our Amended and Restated 2011 Stock Incentive Plan (under Proposal 2), then all equity awards granted under the plan on or after the date of this Annual Meeting will only accelerate and vest in full upon a change in control of the Company if the surviving entity does not assume or replace such outstanding awards with economically equivalent awards (as opposed to accelerating in full upon a “single-trigger” change in control).

Health and Welfare Benefits; Perquisites
    
All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans. The Company does not provide pension or other post-retirement benefits, other than matching contributions under the Company’s 401(k) retirement plan. Except as described in the following sentence, the Company does not provide perquisites or other personal benefits to our executive officers. In addition, the Company reimburses the named executive officers for the cost of an annual physical examination.

Stock Ownership Guidelines     

We maintain established stock ownership guidelines for our CEO and the non-employee members of our Board discussed below in "Compensation of Directors." Our CEO has up to five years from the time of appointment to acquire and retain shares of our Common Stock that equal or exceed five times his annual base salary. In 2014, we established stock ownership guidelines for our remaining executive officers. These executive officers have up to five years to acquire and retain shares of our Common Stock that equal the annual base salary of the executive officer. Shares beneficially owned by our CEO, our other executive officers, directly or indirectly, such as shares held by an immediate family member living in the same household or shares in a trust, and vested restricted shares and shares represented by vested RSUs, count toward meeting the stock ownership guidelines. All of our executive officers who have met the five year mark are in compliance with the stock ownership guidelines.

Anti-Pledging / Hedging Policies

All executive officers and non-employee members of our Board are prohibited from engaging in any speculative transactions in Company securities, including share pledging, engaging in short sales, engaging in transactions in put options, call options or other derivative securities, or engaging in any other forms of hedging transactions.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code

Section 162(m) of the Code disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for its chief executive officer, and the three next most-highly compensated executive officers (other than its chief financial officer), unless compensation is “qualified performance-based compensation” for purposes of Section 162(m) of the Code. Where reasonably practicable and to the extent that the Section 162(m) deduction disallowance becomes applicable to our Company, our compensation committee may seek to qualify the variable compensation paid to the covered executive officers for an exemption from the deductibility limitations. As such, in approving the amount and form of compensation for our named executive officers in the future, our compensation committee will consider all elements of the cost to our Company of providing such compensation, including the potential impact of Section 162(m) of the Code. However, the Compensation Committee may, in its judgment, authorize compensation payments that are not exempt from the deductibility limitations of Section 162(m) of the Code when it believes that such payments are appropriate to attract and retain executive talent or to advance any other aspects of our compensation philosophy or objectives and are in the best interests of our stockholders.

Section 280G of the Code

Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies that undergo a change in control. In addition, Section 4999 of the Code imposes a 20% penalty on the individual receiving the excess payment.


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Parachute payments are compensation that is linked to or triggered by a change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G of the Code based on the executive’s prior compensation. In approving the compensation arrangements for our named executive officers in the future, the Compensation Committee will consider all elements of the cost to the Company of providing such compensation, and will include the potential impact of Section 280G of the Code. However, the Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G of the Code and the imposition of excise taxes under Section 4999 of the Code when it believes that such arrangements are appropriate to attract and retain executive talent.

Accounting Considerations

ASC Topic 718, Compensation-Stock Compensation, or ASC Topic 718, requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock options and RSUs under our equity incentive award plans are accounted for under ASC Topic 718. The Compensation Committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

Summary Compensation Table

The following table shows all compensation awarded to, earned by or paid to each of our principal executive officer, principal financial officer and the next three most highly compensated executive officers in 2016 whose 2016 total compensation exceeded $100,000. Non-equity incentive plan compensation in the table below are included in the year earned rather than the year actually paid; a portion of certain amounts may be paid in the following year.

Name and principal position
Year
 Salary ($)
 Bonus ($)
Stock Awards ($) (1)
Option Awards ($)
 Non-equity incentive plan compensation ($) (2)
 All other compensation ($) (3)
 Total ($)
Vivek Jain, Chairman of the Board and Chief Executive Officer
2016
650,000


1,950,072


942,500

9,275

3,551,847

2015
650,000


1,462,587

1,462,519

975,000

948

4,551,054

2014
574,162


4,000,013

11,898,739

910,000


17,382,914

Scott E. Lamb, Treasurer and Chief Financial Officer
2016
395,150


474,202


343,780

9,275

1,222,407

2015
395,150


395,160

395,173

355,635

9,100

1,550,218

2014
395,150



1,906,000

359,587

9,100

2,669,837

Steven C. Riggs, Vice President of Operations
2016
360,582


432,868


313,706

9,275

1,116,431

2015
360,582


360,632

360,596

324,524

9,100

1,415,434

2014
390,509



2,382,500

328,130

9,100

3,110,239

Alison D. Burcar, Vice President and General Manager of Infusion Systems
2016
315,000


630,020


260,348

9,275

1,214,643

2015
315,000


315,009

315,009

283,500

9,100

1,237,618

2014
315,000



1,429,500

264,600

9,559

2,018,659

Tom McCall, Vice President and General Manager of Critical Care
2016
293,550


352,278


232,404

9,100

887,332

2015
293,550


176,189

176,151

237,776

9,100

892,766

2014
293,550

40,000


70,360

143,840

8,085

555,835

____________________________
(1)
Amounts represents the grant date fair value of performance-based RSUs granted in the period and the grant date fair value of time-based RSUs granted during the period, each computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. The amounts in this column assume the target level of performance conditions will be achieved. The grant date fair value of performance-based RSUs is based on the closing stock price on the date of grant and the probable outcome of the applicable performance conditions, which is the target value. We provide information regarding the assumptions used to calculate the value of all stock awards made to executive officers in Note 7 to the consolidated financial statements contained in our Annual Report on Form 10-K, filed on March 1, 2017. There can be no assurance that awards will vest (if an award does not vest, no value will be realized by the individual).

The following table presents the values of the performance-based RSUs (target and maximum) for each named executive officer.

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Performance-Based RSUs
Name
 
Target ($)
 
Maximum ($)
Vivek Jain
 
975,036

 
2,925,107

Scott E. Lamb
 
237,101

 
711,302

Steven C. Riggs
 
216,434

 
649,303

Alison D. Burcar
 
315,010

 
945,031

Tom McCall
 
176,139

 
528,418

 
(2)
The amounts for all named executive officers represent the cash bonuses earned by the named executive officers for fiscal year 2016 based on the achievement of Adjusted EBITDA goals and each respective officer's fiscal year 2016 performance and stretch performance goals, consistent with the terms of the Performance-Based Incentive Plan and MIP.
(3)
Other compensation includes our match on the officer’s 401(k) contributions and, for 2016, reimbursements for the cost of annual physical examinations that we provide for members of our senior management.
Grants of Plan-Based Awards in 2016

The following table presents awards in 2016 under the Company’s various incentive award plans.
 
 
 
 
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
 
Estimated Future Payouts Under Equity Incentive Plan Awards
 
All Other Stock Awards: Number of Shares of Stock or Units
 
Grant date fair value of stock and option awards (4)
Name
Grant Date
 
Threshold ($)
 
Target ($)
 
Maximum ($)
 
Threshold (#)
 
Target (#)
 
Maximum (#)
 
 
Vivek Jain
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance bonus (1)
02/01/16
 
$
214,500

 
$
650,000

 
$
1,137,500

 

 

 
$

 
 
 
 
 
Performance RSUs (2)
02/05/16
 
$

 
$

 
$

 
11,276

 
11,276

 
33,828

 
 
 
$
975,036

 
RSUs (3)
02/05/16
 
$

 
$

 
$

 

 

 

 
11,276

 
$
975,036

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Scott E. Lamb
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance bonus (1)
02/01/16
 
$
78,240

 
$
237,090

 
$
414,908

 

 

 

 
 
 
 
 
Performance RSUs (2)
02/05/16
 
$

 
$

 
$

 
2,742

 
2,742

 
8,226

 
 
 
$
237,101

 
RSUs (3)
02/05/16
 
$

 
$

 
$

 

 

 

 
2,742

 
$
237,101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven C. Riggs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance bonus (1)
02/01/16
 
$
71,395

 
$
216,349

 
$
378,611

 

 

 

 
 
 
 
 
Performance RSUs (2)
02/05/16
 
$

 
$

 
$

 
2,503

 
2,503

 
7,509

 
 
 
$
216,434

 
RSUs (3)
02/05/16
 
$

 
$

 
$

 

 

 

 
2,503

 
$
216,434

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alison D. Burcar
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance bonus (1)
02/01/16
 
$
62,370

 
$
189,000

 
$
330,750

 

 

 

 
 
 
 
 
Performance RSUs (2)
02/05/16
 
$

 
$

 
$

 
3,643

 
3,643

 
10,929

 
 
 
$
315,010

 
RSUs (3)
02/05/16
 
$

 
$

 
$

 

 

 

 
3,643

 
$
315,010

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tom McCall
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance bonus (1)
02/01/16
 
$
58,123

 
$
176,130

 
$
308,228

 

 

 

 
 
 
 
 
Performance RSUs (2)
02/05/16
 
$

 
$

 
$

 
2,037

 
2,037

 
6,111

 
 
 
$
176,139

 
RSUs (3)
02/05/16
 
$

 
$

 
$

 

 

 

 
2,037

 
$
176,139

____________________________
(1)
Performance bonuses are payable under the Performance-Based Incentive Plan and 2016 MIP if certain annual financial achievements are met or exceeded. The amounts actually earned by our named executive officers from this bonus arrangement in 2016 are reflected in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. The material terms of the Performance-Based Incentive Plan are discussed above under the caption “Annual Cash Incentive.”

19


(2)
Performance RSUs are granted under the 2011 Stock Incentive Plan and have a performance period of three years from the date of grant. The performance RSUs will vest, if at all, upon the achievement of a minimum specified compound CAGR in Adjusted EBITDA per share, subject to a three-year cliff vesting ending on December 31, 2018. If at that date, our Adjusted EBITDA per share CAGR is at least 8% but less than 10%, 100% of the awarded units will vest. If our Adjusted EBITDA per share CAGR is at least 10% but less than 12%, 200% of the awarded units will vest. If our Adjusted EBITDA per share CAGR is greater than 12%, 300% of the awarded units will vest. If the Company does not achieve the threshold performance metric of Adjusted EBITDA per share CAGR of at least 8%, zero shares will be earned and the performance RSUs will be forfeited.
(3)
Amounts reflect the number of RSUs granted under the 2011 Stock Incentive Plan and vest ratably on the anniversary of the grant over three years.
(4)
Amounts represents the grant date fair value of performance-based RSUs granted in the period and the grant date fair value of time-based RSUs granted during the period, each computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. The grant date fair value of performance-based RSUs is based on the closing stock price on the date of grant and the probable outcome of the applicable performance conditions, which is the target value. We provide information regarding the assumptions used to calculate the value of all stock awards made to executive officers in Note 7 to the consolidated financial statements contained in our Annual Report on Form 10-K, filed on March 1, 2017.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table
In February 2014, the Company and Vivek Jain entered into an executive employment agreement (the “Agreement”), under which Mr. Jain serves as the Chief Executive Officer of the Company
The Agreement provides for an indefinite term, subject to earlier termination in connection with a termination of employment, and for the following compensation in respect of Mr. Jain’s services as Chief Executive Officer of the Company:

an annual base salary $650,000;

an initial non-qualified stock option grant (the “Initial Option”) to purchase shares of the Company’s Common Stock, at an exercise price equal to the closing price of such stock on the date of grant, with a “Black Scholes” value at grant of $11.7 million, as follows: fifty percent (50%) of the Initial Option vests ratably during the period of employment as to twenty-five percent (25%) of the shares subject thereto on each annual anniversary of Mr. Jain’s employment commencement date (February 13, 2014) and, to the extent vested, such shares will become exercisable based on achievement of milestones related to the price of the Company’s Common Stock during the period of employment and the term of the Initial Option;

the remaining fifty percent (50%) of the Initial Option (the “Time-Based Option”) vests during the period of employment as to twenty-five percent (25%) of the shares subject thereto on the one (1) year anniversary of the employment commencement date and as to 1/48th of the shares subject thereto on each monthly anniversary thereafter;

a RSU grant (the “Initial RSU”) with a value equal to $4,000,000 based on the closing price of the Company’s stock underlying the RSU on the date of grant, vesting ratably in equal annual increments over a three year period commencing on the employment commencement date;

participation in the annual bonus plan of the Company, pursuant to which Mr. Jain’s target bonus opportunity will not be less than one hundred percent (100%) of his base salary;

Mr. Jain will be considered for annual equity incentive awards under any applicable plans adopted by the Company during the period of employment for which executives are generally eligible;

paid annual vacation with vacation accrual of not less than five weeks per year; and

certain other benefits and reimbursements.

The Agreement also provides for certain payments and benefits upon a qualifying termination of employment or upon a change in control, as described under “Potential Payments upon Termination or Change in Control” below.


20


Outstanding Equity Awards at December 31, 2016

The following table contains information about stock and option awards held at December 31, 2016, by our named executive officers. Except as indicated below, stock awards and options were granted pursuant to our 2011 Stock Incentive Plan.


 
Option Awards
 
Stock Awards
 
Name
Number
 of
Securities
 Underlying Unexercised
 Options
(#)
Exercisable
 
Number
 of
Securities
Underlying Unexercised
Options
 (#)
Unexercisable
 
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
($)
 
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
($)
 
Vivek Jain
158,564

 
158,561

 
$
58.79

(1)
02/24/24
 
 
 
 
 
 
 
 
 
 
258,712

 
106,529

 
$
58.79

(3)
02/24/24
 
 
 
 
 
 
 
 
 
 
20,457

 
40,916

 
$
88.76

(5)
02/11/25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22,680

 
$
3,341,898

(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
10,986

 
$
1,618,787

(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
11,276

 
$
1,661,519

(6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33,828

 
$
4,984,556

(7)
 
437,733

 
306,006

 
 
 
 
 
44,942

 
$
6,622,204

 
33,828

 
$
4,984,556

 
Scott E. Lamb
23,772

 

 
$
46.53

(8)
02/01/22
 
 
 
 
 
 
 
 
 
 
22,639

 
984

 
$
61.76

(6)
02/06/23
 
 
 
 
 
 
 
 
 
 
50,000

 
50,000

 
$
58.79

(1)
02/24/24
 
 
 
 
 
 
 
 
 
 
5,527

 
11,056

 
$
88.76

(5)
02/11/25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,968

 
$
437,335

(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
2,742

 
$
404,034

(6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,226

 
$
1,212,101

(7)
 
101,938

 
62,040

 
 
 
 
 
5,710

 
$
841,369

 
8,226

 
$
1,212,101

 
Steven C. Riggs
2,462

 
984

 
$
61.76

(9)
02/06/23
 
 
 
 
 
 
 
 
 
 

 
62,500

 
$
58.79

(1)
02/24/24
 
 
 
 
 
 
 
 
 
 
5,044

 
10,088

 
$
88.76

(5)
02/11/25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,709

 
$
399,171

(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
2,503

 
$
368,817

(6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,509

 
$
1,106,451

(7)
 
7,506

 
73,572

 
 
 
 
 
5,212

 
$
767,988

 
7,509

 
$
1,106,451

 
Alison D. Burcar
1,042

 

 
$
43.62

(10)
07/20/21
 
 
 
 
 
 
 
 
 
 
2,160

 

 
$
46.53

(8)
02/01/22
 
 
 
 
 
 
 
 
 
 
13,665

 
984

 
$
61.76

(9)
02/06/23
 
 
 
 
 
 
 
 
 
 
37,500

 
37,500

 
$
58.79

(1)
02/24/24
 
 
 
 
 
 
 
 
 
 
4,406

 
8,813

 
$
88.76

(5)
02/11/25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,366

 
$
348,630

(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
3,643

 
$
536,796

(6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10,929

 
$
1,610,388

(7)
 
58,773

 
47,297

 
 
 
 
 
6,009

 
$
885,426

 
10,929

 
$
1,610,388

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

21


Tom McCall
209

 

 
$
60.40

(11)
10/11/22
 
 
 
 
 
 
 
 
 
 
376

 
187

 
$
61.76

(9)
02/06/23
 
 
 
 
 
 
 
 
 
 
781

 
2,188

 
$
58.79

(3)
02/24/24
 
 
 
 
 
 
 
 
 
 
2,464

 
4,928

 
$
88.76

(5)
02/11/25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,324

 
$
195,091

(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
2,037

 
$
300,152

(6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6,111

 
$
900,456

(7)
 
3,830

 
7,303

 
 
 
 
 
3,361

 
$
495,243

 
6,111

 
$
900,456

 
____________________________
(1)
Performance stock options were granted pursuant to our 2014 Inducement Stock Incentive Plan (the "2014 Plan") on 02/24/2014 and vest ratably at 25% per year over four years. Fifty percent of the performance stock options will become exercisable when they satisfy the time-vesting schedule and the closing price of our Common Stock was equal to or more than 125% of the exercise price for 30 consecutive trading days during the term of the grant. The remaining 50% of the performance stock options will become exercisable when they satisfy the time-vesting schedule and the closing price of our Common Stock was equal to or more than 150% of the exercise price for 30 consecutive trading days during the term of the grant. Fifty percent of the performance options were exercisable at December 31, 2016.
(2)
RSU award granted on 02/24/2014 pursuant to our 2014 Plan and vests one-third annually. Market value is determined based on the closing price of our stock at December 31, 2016 of $147.35.
(3)
Time-based stock options were granted on 02/24/2014 under the 2014 Plan and vest 25% after one year, monthly for 36 months thereafter.
(4)
RSU award granted on 02/11/2015 and vests one-third annually. Market value is determined based on the closing price of our stock at December 31, 2016 of $147.35.
(5)
Performance stock options to purchase our Common Stock were granted on 02/11/2015. All of the performance stock options become exercisable when they satisfy the time-vesting schedule and the closing price of our Common Stock was equal to or more than 130% of the exercise price for 30 consecutive trading days during the term of the grant.
(6)
RSU award granted on 02/05/2016 and vests one-third annually. Market value is determined based on the closing price of our stock at December 31, 2016 of $147.35.
(7)
Performance awards granted on 02/05/2016 will vest, if at all, upon the achievement of a minimum specified compound CAGR in Adjusted EBITDA per share, subject to a three-year cliff vesting ending on December 31, 2018. If at that date, our Adjusted EBITDA per share CAGR is at least 8% but less than 10%, 100% of the awarded units will vest. If our Adjusted EBITDA per share CAGR is at least 10% but less than 12%, 200% of the awarded units will vest. If our Adjusted EBITDA per share CAGR is greater than 12%, 300% of the awarded units will vest. If the Company does not achieve the threshold performance metric, zero shares will be earned. Unearned shares and market value is determined based on the closing price of our stock at December 31, 2016 of $147.35 and assumes the maximum achievement level was reached. In calculating the number of performance shares and their value, we are required by SEC rules to compare the Company’s performance through 2016 under each outstanding performance award against the threshold, target, and maximum performance levels for the grant and report in this column the applicable potential payout amount. If the performance is between levels, we are required to report the potential payout at the next highest level. For example, if the previous fiscal year’s performance exceeded target, even if it is by a small amount and even if it is highly unlikely that we will pay the maximum amount, we are required by SEC rules to report the awards using the maximum potential payouts.
(8)
Time-based stock options were granted on 02/01/2012 and vested 25% after one year, monthly for 36 months thereafter.
(9)
Time-based stock options were granted on 02/06/2013 and vest 25% after one year, monthly for 36 months thereafter.
(10)
Time-based stock options were granted on 07/20/2011 and vested 25% after one year, monthly for 36 months thereafter.
(11)
Time-based stock options were granted on 10/11/2012 and vested 25% after one year, monthly for 36 months thereafter.

Options Exercised and Stock Vested

The following table contains information about stock options exercised and vesting of RSUs during 2016, by the named executive officers of the Company.

 
 
 
 
Option awards
 
Stock Awards
Name
 
Grant Type
 
Number of shares acquired on exercise (#)
 
 Value realized on exercise(1) ($)
 
Number of shares acquired on vesting (#)
 
 Value realized on vesting(2) ($)
Vivek Jain
 
RSU
 
 
 
 
 
28,172

 
$
2,497,640

Scott E. Lamb
 
Option
 
75,000

 
$
5,454,726

 
 
 
 
 
RSU
 
 
 
 
 
1,484

 
$
129,954

Steven C. Riggs
 
Option
 
118,361

 
$
6,651,059

 
 
 
 
 
RSU
 
 
 
 
 
1,354

 
$
118,570

Alison D. Burcar
 
RSU
 
 
 
 
 
1,183

 
$
103,595

Tom McCall
 
Option
 
20,259

 
$
1,402,193

 
 
 
 
 
RSU
 
 
 
 
 
661

 
$
57,884

____________________________

22


(1) 
Represents the difference between the fair market value of our stock underlying the options at exercise and the exercise price of the option.
(2) 
Represents the amounts realized based on the fair market value of our stock on the vesting date.


Potential Payments upon Termination or Change in Control

Employment Agreement with Mr. Jain

In the event that Mr. Jain’s employment terminates as a result termination by the Company without “cause”, by Mr. Jain for “good reason”, or due to “disability” or death, he will receive, subject to delivery and non-revocation of a general release of claims in favor of the Company:

if such termination had occurred prior to the second annual anniversary of his employment commencement date (February 13, 2014), a lump sum payment in cash equal to three times the sum of (x) his base salary and (y) target bonus for the year of termination;

if such termination occurs on or following February 13, 2016, and not in connection with or following a change in control, a lump sum payment in cash equal to one times the sum of (x) his base salary and (y) target bonus for the year of termination;

if such termination occurs on or following February 13, 2016 and in connection with, or at any time following, a change in control, a lump sum payment in cash equal to two times the sum of (x) his base salary and (y) target bonus for the year of termination;

immediate vesting of one hundred percent (100%) of the shares subject to the Time-Based Option and the Initial RSU; and

extension of the exercise period for all of Mr. Jain’s outstanding Company stock options, to the extent vested, for a period of three years following the termination date, but in no event later the ten year term/expiration date of the applicable option.

In the event of a “change in control”, Mr. Jain will vest in one hundred percent (100%) of the shares subject to the Initial Option and Initial RSU, and all performance goals or other vesting criteria will be deemed achieved at target levels.
    
Retention Agreements

On December 2, 2013, we entered into retention agreements with Mr. Lamb, Mr. Riggs, Ms. Burcar, and Mr. McCall that were effective in 2016. All retention agreements expired in January 2017 and were replaced by the Severance Plan.
The retention agreements provided that, if within three months prior or 12 months after a change in control of the Company their employment is terminated for other than cause, disability or death or for good reason the officer will be entitled to the items that follow. These retention agreements do not contain any tax gross-up provisions but, instead provide for the same most favorable excise tax option.

Payments would have been made within sixty days following the date of termination. Payments to Mr. Lamb, Mr. Riggs, Ms. Burcar and Mr. McCall would have included the following if termination without cause or for good reason in connection with a change in control:

Mr. Lamb, Mr. Riggs and Ms. Burcar would have received 200% of their annual base salary. Mr. McCall would have received 150% of his annual base salary.
Mr. Lamb, Mr. Riggs and Ms. Burcar would have received 200% of their target annual bonuses. Mr. McCall would have received 150% is his target annual bonus.
Mr. Lamb, Mr. Riggs and Ms. Burcar's benefits for medical insurance, dental insurance, vision insurance, life insurance and disability insurance would continue through December 31, 2016. Mr. McCall's benefits for medical insurance, dental insurance, vision insurance, life insurance and disability insurance would continue through June 30, 2016.
Unvested stock options or other equity awards would vest 100% for Mr. Lamb, Mr. Riggs and Ms. Burcar and would vest 90% for Mr. McCall.


23


The retention agreements provided that, if employment is terminated by the Company other than for cause, disability or death, or by the employee for "good reason", in either case outside the change in control context, the employee would be entitled to receive 100% of their annual salary and 12 months of benefits.

All payments and benefits under the retention agreements were subject to the execution non-revocation of a general release of claims against the Company.

Equity Plan

As described above, the RSUs granted in 2016 will vest in full upon a corporate transaction or change in control (with performance-based RSUs vesting at the 200% level). In addition, upon a change in control under our 2011 Stock Incentive Plan, all outstanding equity awards granted before the date of this Annual Meeting will vest in full.

Definitions

For the purposes of the arrangements in place in 2016 (e.g., Mr. Jain's employment agreement, the 2011 Stock Incentive Plan and the retention agreements), a change in control generally means the following:

the acquisition by an individual, entity or group of beneficial ownership of 50% or more of either the outstanding Common Stock or voting securities of the Company; or
a change in the composition of the majority of the Board, which is not supported by a majority of the current Board; or
a major corporate transaction, such as a reorganization, merger or consolidation or sale or disposition of all or substantially all of the Company’s assets (unless certain conditions are met); or
approval of the stockholders of the Company of a complete liquidation or dissolution of the Company.
    
For the purposes of Mr. Jain's employment agreement, cause generally means the following:

his gross neglect and willful and repeated failure to substantially perform his assigned duties, which failure is not cured within 30 days after a written demand for substantial performance is received by him from the Board which identifies the manner in which the Board believes he has not substantially performed his duties; or
his engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; or
his conviction of, or plea of no contest to, a felony or a crime involving fraud, embezzlement, or theft; or
his improper and willful disclosure of the Company’s confidential or proprietary information where such disclosure causes (or should reasonably be expected to cause) significant harm to the Company.
    
For the purposes of the retention agreements, cause generally means the following:

the employee’s intentional, willful and continuous failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the employee gives notice of termination for good reason), which failure is materially and demonstrably injurious to the Company, and which failure is not cured within 30 days after a written demand for substantial performance and is received by the employee from the Board which specifically identifies the manner in which the Board believes the employee has not substantially performed the employee’s duties; or
the employee’s intentional and willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company or is intended to result in substantial personal enrichment; or
the employee’s conviction for a felony or the employee’s plea of nolo contendere in connection with a felony indictment.

For the purposes of Mr. Jain's employment agreement, good reason generally means the following and occurs without the employee's written consent and is not due to a circumstance applied by the Company to a group of similarly situated employees:

any significant diminution in his duties, responsibilities or authority; or
a material reduction in his annual base salary; or
a requirement that he reports to a corporate officer or employee instead of reporting directly to the Board; or
a material change in the location that he performs his principal duties, resulting in a material increase in the daily commuting distance; or
a material breach by the Company

24



For the purposes of the retention agreements, good reason generally means the following and occurs without the employee's written consent and is not due to a circumstance applied by the Company to a group of similarly situated employees:
    
any significant diminution in the employee’s duties, responsibilities or authority; or
a material reduction in the employee’s annual base salary; or
failure by the Company to continue a material compensation or benefit plan; or
a material change in the location the employee performs their principal duties, resulting in a material increase in the daily commuting distance; or
a material breach by the Company

Severance Plan

Effective January 1, 2017, we have adopted the Severance Plan for our named executive officers, other than the CEO. Under the Severance Plan, in the event of a termination of employment by the Company without “cause” or by the named executive officer for “good reason” (each, as defined in the Severance Plan), in either case outside the change in control context, the named executive officer will be eligible to receive:

A lump-sum cash payment in an amount equal to 12 months’ salary.
Company-paid COBRA premium payments for the named executive officer and the named executive officer’s covered dependents for up to 12 months.
A pro-rated lump-sum cash performance bonus, calculated based on the achievement of applicable performance goals or objectives for the year of termination.

In the event of a termination of employment by the Company without “cause” or by the named executive officer for “good reason”, in either case, within the period beginning 60 days prior to a “change in control” (as defined in the Severance Plan) and ending on the one-year anniversary of such change in control, the Severance Plan provides that the named executive officer will be eligible to receive:

A lump-sum cash payment in an amount equal to 18 months’ salary, plus 150% of the named executive officer’s target annual cash performance bonus for the year of termination.
Company-paid COBRA premium payments for the named executive officer and the named executive officer’s covered dependents for up to 18 months.
A pro-rated lump-sum cash performance bonus, calculated based on the achievement of applicable performance goals or objectives for the year of termination.
Full accelerated vesting of each outstanding time-based equity award held by the named executive officer as of his or her termination date.

The named executive officer’s right to receive the severance payments and benefits described above is subject to his or her delivery and non-revocation of a general release of claims in favor of the Company, and his or her continued compliance with non-solicitation covenants.

In addition, in the event that any payment under the Severance Plan, together with any other amounts paid to the named executive officer by the Company, would subject the named executive officer to an excise tax under Section 4999 of the Internal Revenue Code, such payments will be reduced to the extent that such reduction would produce a better net after-tax result for the named executive officer.

The following table summarizes the payments and benefits that would have been made if the employment of a named executive officer had been terminated without cause by the Company or for good reason by the named executive officer (or, with respect to Mr. Jain, upon his death or disability) in connection with a change in control of the Company on December 31, 2016:


25


Change in Control Termination
 
 
Vivek
Jain
 
Scott E. Lamb
 
Steven C. Riggs
 
Alison D. Burcar
 
Tom
McCall
Number of options that would accelerate
 
306,005

 
62,040

 
73,572

 
47,297

 
6,572

Number of PRSU/RSUs that would accelerate
 
67,494

 
11,194

 
10,218

 
13,295

 
7,303

 
 
 
 
 
 
 
 
 
 
 
Intrinsic value of accelerated options and equity awards
 
$
35,818,855

 
$
6,809,456

 
$
7,715,927

 
$
5,880,621

 
$
1,524,692

Salary
 
$
1,300,000

 
$
790,300

 
$
721,164

 
$
630,000

 
$
440,325

Bonus(1)
 
$
1,885,000

 
$
687,560

 
$
627,412

 
$
520,696

 
$
348,606

Benefits
 
$

 
$

 
$

 
$

 
$

Total
 
$
39,003,855

 
$
8,287,316

 
$
9,064,503

 
$
7,031,317

 
$
2,313,623

____________________________
(1) The bonus amounts included are based on the target performance bonuses for 2016.

The following table summarizes the payments and benefits that would have been made if the employment of a named executive officer had been terminated without cause by the Company or for good reason by the named executive officer (or, with respect to Mr. Jain, upon his death or disability) on December 31, 2016 and not in connection with a change in control:
Termination not in Connection with a Change in Control
 
 
Vivek
Jain
 
Scott E. Lamb
 
Steven C. Riggs
 
Alison D. Burcar
 
Tom
 McCall
Number of options that would accelerate
 
306,005

 

 

 

 

Number of RSUs that would accelerate
 
22,680

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Intrinsic value of accelerated options and equity awards
 
$
29,215,512

 
$

 
$

 
$

 
$

Salary
 
$
650,000

 
$
395,150

 
$
360,582

 
$
315,000

 
$
293,550

Bonus (1)
 
$
942,500

 
$

 
$

 
$

 
$

Benefits
 
$

 
$
19,473

 
$
19,473

 
$
21,824

 
$
16,034

Total
 
$
30,808,012

 
$
414,623

 
$
380,055

 
$
336,824

 
$
309,584

____________________________
(1) The bonus amount included are based on the target performance bonus for 2016.

The following table summarizes the payments that would have been made upon a change in control on December 31, 2016:
 
 
Vivek
Jain
 
Scott E. Lamb
 
Steven C. Riggs
 
Alison D. Burcar
 
Tom
 McCall
Number of options that would accelerate
 
306,005

 
62,040

 
73,572

 
47,297

 
6,572

Number of PRSUs/RSUs that would accelerate
 
67,494

 
11,194

 
10,218

 
13,295

 
7,303

 
 
 
 
 
 
 
 
 
 
 
Intrinsic value of accelerated options and equity awards
 
$
35,818,855

 
$
6,809,456

 
$
7,715,927

 
$
5,880,621

 
$
1,524,692

Total
 
$
35,818,855

 
$
6,809,456

 
$
7,715,927

 
$
5,880,621

 
$
1,524,692




26


Director Compensation

In 2016, our non-employee directors received an annual cash retainer paid on a quarterly basis as follows:
 
Board
Audit Committee
Compensation Committee
Nominating/Corporate Governance Committee
Annual Retainer - chairperson

$
85,000

$
80,000

$
70,000

Annual Retainer - member
$
60,000





In 2016, our non-employee directors also received equity awards of options to purchase our Common Stock and RSUs valued at approximately $150,000 in the aggregate, with approximately 50% consisting of options and 50% consisting of RSUs. As a result, in May 2016, each non-employee director received (i) an option grant to purchase 2,424 shares of our Common Stock, which is exercisable after one year and expires 10 years from the grant date and (ii) 743 RSUs which fully vest after one year. In addition, in January 2016, upon joining the Board Ms. Finney received pro-rated equity awards valued at approximately $75,000 in the aggregate, with approximately 50% consisting of options and 50% consisting of RSUs. As a result, Ms. Finney received an option grant to purchase 1,285 shares of our Common Stock and 362 RSUs, both of which have the same terms as the respective equity awards above.

While Dr. Lopez remains a member of the Board, Dr. Lopez has waived any annual retainer, meeting fees and equity payments made to non-employee members of the Board for their service. Dr. Lopez formerly served as an employee in our Research and Development Department, and terminated his employment with us effective September 30, 2015 (the “Termination Date”). Pursuant to a Buy-Out Agreement, dated as of September 30, 2015, between us and Dr. Lopez (the “Buy-Out Agreement”), subject to Dr. Lopez’s not revoking a general release of claims in favor of the Company, he is entitled to, among other things, (1) a cash payment in the aggregate equal to $1,837,500, paid in equal monthly installments until December 31, 2020; (2) continued vesting of any unvested stock options and RSUs held by Dr. Lopez as of the Termination Date, subject to continued vesting unless Dr. Lopez is removed from the Board for cause; (3) a lump sum cash payment equal to $700,000 in the event a change in control of the Company were to have occurred on or prior to January 31, 2016; (4) a continuation from his employment agreement of customary non-competition, non-solicitation and non-disparagement provisions; and (5) in Dr. Lopez’s capacity as a member of the Board, administrative type support services extended to Board members.

Douglas E. Giordano joined the Board in February 2017 in connection with the closing of the Company’s acquisition of Pfizer's Hospira Infusion Systems business ("HIS"). A portion of the purchase consideration for this acquisition was satisfied by the delivery of 3.2 million of the Company's newly issued shares of Common Stock to Pfizer. In connection with the Company's issuance of stock consideration, the Company and Pfizer entered into a Shareholder's Agreement which gives Pfizer the right to designate one individual for election to the Board so long as Pfizer beneficially owns at least 10% of the total outstanding shares of the Company stock. Mr. Giordano is Pfizer’s designated director. Mr. Giordano will not be compensated for his service on the Board.



27


The following table shows all compensation awarded to, earned by or paid to our non-employee directors for service as a director in 2016.

2016 Director Compensation Table
        


Name (1)
 

Fees earned or
paid in cash ($)
 
Stock awards ($) (2)
 
Option awards ($)
(3)(4)
 
Other ($)
 


Total ($)
George A. Lopez, M.D.
 
$

 
$

 
$

 
$
355,645

(5) 
$
355,645

Joseph R. Saucedo
 
$
85,000

 
$
75,088