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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑K/A

 

(Mark One)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2015

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-19720

 

ABAXIS, INC.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code: (510) 675-6500

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒  No ☐

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐  No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.  (Check one):

 

Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
		(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

 

The aggregate market value of the voting stock held by non-affiliates of Abaxis as of September 30, 2014, the last business day of the second fiscal quarter, based upon the closing price of such stock on the NASDAQ Global Select Market on September 30, 2014, was $777,852,000.  For purposes of this disclosure, 7,184,000 shares of common stock held by persons who hold more than 10% of the outstanding shares of the registrant’s common stock and shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily conclusive for any other purpose.

 

As of May 29, 2015, there were 22,672,000 shares of the registrant’s common stock outstanding.

 

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ABAXIS, INC.

EXPLANATORY NOTE

 

Abaxis, Inc., or Abaxis, is filing this amendment, or the Amendment, to its Annual Report on Form 10-K, or 10-K, for the fiscal year ended March 31, 2015, as filed with the Securities and Exchange Commission, or SEC, on June 1, 2015.  This Amendment is filed solely for the purpose of including the information required by Part III of Form 10-K.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, in connection with this Amendment, the Company’s Chief Executive Officer and Chief Financial Officer are providing Exchange Act Rule 13a-14(a) certifications as included herein.  Accordingly, Item 15 of Part IV has also been amended to reflect the filing of these new certifications.

Except as described above, this Amendment does not modify or update disclosure in, or exhibits to, the original 10-K.  Furthermore, this Amendment does not change any previously reported financial results, nor does it reflect events occurring after the date of the original 10-K.  Information not affected by this Amendment remains unchanged and reflects the disclosures made at the time the original 10-K was filed.

 

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Abaxis, Inc.

Annual Report on Form 10-K/A

For The Fiscal Year Ended March 31, 2015

TABLE OF CONTENTS

 

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PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The following table sets forth information concerning Abaxis’ executive officers and directors as of May 29, 2015.

 

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(1)	Member of the Audit Committee

(2)	Member of the Compensation Committee

(3)	Member of the Nominating and Corporate Governance Committee

Clinton H. Severson has served as our Chief Executive Officer and one of our directors since June 1996.  He was appointed Chairman of the Board in May 1998.  From June 1996 until April 2015, Mr. Severson also served as our President.  From February 1989 to May 1996, Mr. Severson served as President and Chief Executive Officer of MAST Immunosystems, Inc., a privately-held medical diagnostic company.  Since January 2015, Mr. Severson has served on the Board of Directors of Cutera.  Since June 2011, Mr. Severson has served on the Board of Directors of Response Biomedical Corporation.  Since November 2008, Mr. Severson has served on the Board of Directors of Trinity Biotech, a biotechnology company.  From November 2006 to February 2012, Mr. Severson served on the Board of Directors of CytoCore, Inc., a biotechnology company.  Mr. Severson is also a member of the Board of Directors of a privately-held company.  Mr. Severson was selected as a director because of his in-depth knowledge of our operations, financial condition and strategy in his position as our Chief Executive Officer, as well as his extensive senior management experience in medical diagnostics and experience serving on the Boards of Directors of various public and private companies.

Vernon E. Altman joined the Board in April 2011 and has served as our lead independent director since April 2014.  Mr. Altman joined the founding group to start Bain & Company, a global business consulting firm, in 1973 and is currently Senior Advisor of Bain & Company.  Mr. Altman is Chairman of the Board of Directors of Vobile, Inc.  He also served on the Board of Directors of Napster, Inc. prior to its acquisition.  Mr. Altman was selected to serve as director because of his vast array of experiences in many different industry segments, including operational, executive leadership and board experience.

Richard J. Bastiani, Ph.D. joined the Board in September 1995.  Dr. Bastiani is currently retired.  Dr. Bastiani was President of Dendreon, a biotechnology company, from September 1995 to September 1998.  From 1971 until 1995, Dr. Bastiani held a number of positions with Syva Company, a diagnostic company, including as President from 1991 until Syva was acquired by a subsidiary of Hoechst AG of Germany in 1995.  From 2007 to 2011, Dr. Bastiani served as Chairman of the Board of Directors of Response Biomedical Corporation.  From 1998 to 2005, Dr. Bastiani served as Chairman of the Board of Directors of ID Biomedical Corporation, after he was appointed to the Board of Directors of ID Biomedical Corporation in October 1996.  Dr. Bastiani is also a member of the Board of Directors of three privately-held companies.  Dr. Bastiani was selected as a director because of his extensive leadership experience with biotechnology companies and his in-depth knowledge of our business, strategy and management team, as well as his experience serving as Chairman of the Compensation Committee and on the Boards of Directors of various public and private companies.

Michael D. Casey joined the Board in October 2010.  Mr. Casey is currently retired.  From September 1997 to February 2002, Mr. Casey served as the Chairman, President, Chief Executive Officer and a director of Matrix Pharmaceutical, Inc., a biotechnology company.  From November 1995 to September 1997, Mr. Casey was Executive Vice President at Schein Pharmaceutical, Inc., a biotechnology company.  From December 1996 to September 1997, he also served as President of the retail and specialty products division of Schein Pharmaceutical, Inc.  From June 1993 to November 1995, he served as President and Chief Operating Officer of Genetic Therapy, Inc., a biotechnology company.  Mr. Casey was President of McNeil Pharmaceutical (a unit of Johnson & Johnson) from 1989 to June 1993 and Vice President, Sales and Marketing for Ortho Pharmaceutical Corp. (a subsidiary of Johnson & Johnson) from 1985 to 1989.  Mr. Casey has served on the Board of Directors of Celgene Corporation since 2002.  Mr. Casey previously served on the Board of Directors of AVI Biopharma, Inc. (now known as Sarepta Therapeutics, Inc.) from 2006 to 2010, Allos Therapeutics, Inc. from 2002 to 2010, Cholestech Corporation from 2001 to 2007, OrthoLogic Corporation from 2004 to 2007, Sicor, Inc. from 2002 to 2004, Bone Care International, Inc. from 2001 to 2005 and Durect Corp. from 2004 to 2013.  Mr. Casey was selected to serve as director because of his extensive industry knowledge and experience, including operational, leadership and board experience from his executive positions at pharmaceutical/biotechnology companies.

 

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Henk J. Evenhuis joined the Board in November 2002.  Mr. Evenhuis is currently retired.  Mr. Evenhuis served as Executive Vice President and Chief Financial Officer of Fair Isaac Corporation, an analytic software company, from October 1999 to October 2002.  From 1987 to 1998, he was Executive Vice President and Chief Financial Officer of Lam Research Corporation, a semiconductor equipment manufacturer.  He served on the Board of Directors of Credence Systems Corporation from 1993 to 2008.  Mr. Evenhuis was selected as a director because of his financial expertise and prior senior leadership experience as a Chief Financial Officer at global technology companies, as well as his experience serving on the boards of various public companies, which provides a strong foundation to serve as Chairman of the Audit Committee.

Prithipal Singh, Ph.D. joined the Board in June 1992.  Dr. Singh is currently retired.  Prior to retiring, Dr. Singh was the Founder, Chairman and Chief Executive Officer of ChemTrak Inc., a manufacturer of medical diagnostic equipment, from 1988 to 1998.  Dr. Singh was an Executive Vice President of Idetec Corporation, an animal health care company, from 1985 to 1988 and a Vice President of Syva Corporation, a diagnostic company, from 1977 to 1985.  Dr. Singh was selected as a director because of his insight and experience with biotechnology companies through his prior executive leadership and management positions.

 

Kenneth P. Aron, Ph.D. has served as our Chief Technology Officer since April 2008.  Dr. Aron joined us in February 2000 as Vice President of Research and Development.  From April 1998 to November 1999, Dr. Aron was Vice President of Engineering and Technology of Incyte Pharmaceuticals, a genomic information company.  From April 1996 to April 1998, Dr. Aron was Vice President of Research, Development and Engineering for Cardiogenesis Corporation, a manufacturer of laser-based cardiology surgical products.

Achim Henkel has served as the Managing Director of our subsidiary, Abaxis Europe GmbH, since its incorporation in 2008.  From January 2000 to June 2008, Mr. Henkel served as our Sales and Marketing Manager for Europe, the Middle East and Africa.  Starting in October 2014, Mr. Henkel also serves as our Sales and Marketing Manager for Asia.  From January 1998 to December 2000, Mr. Henkel served as a consultant to the Company.

Alberto R. Santa Ines has served as our Chief Financial Officer and Vice President of Finance since April 2002.  Mr. Santa Ines joined us in February 2000 as Finance Manager and was promoted to Interim Chief Financial Officer and Director of Finance in April 2001 and to his current position in April 2002.  From March 1998 to January 2000, Mr. Santa Ines was a self-employed consultant to several companies.  From August 1997 to March 1998, Mr. Santa Ines was the Controller of Unisil, a semiconductor company.  From April 1994 to August 1997, he was a Senior Finance Manager at Lam Research Corporation, a semiconductor equipment manufacturer.

Ross Taylor has served as our Vice President of Business Development and Investor Relations since October 2014.  Mr. Taylor will serve as our Chief Financial Officer, Vice President of Finance and Secretary starting in August 2015.  From 2005 to 2014, Mr. Taylor served as Senior Vice President, Equity Research Analyst at CL King & Associates, an investment banking firm.

Craig M. Tockman, DVM has served as our Vice President of Animal Health Sales and Marketing for North America since April 2014.  Dr. Tockman joined in June 2006 as Director of Professional Services and was promoted to Director of Field Operations in October 2013.  From 2003 to 2006, Dr. Tockman served on the Company’s Advisory Board since he joined in 2003 as a founding member.

Donald P. Wood has served as our President and Chief Operating Officer since April 2015.  Mr. Wood joined us in October 2007 as Vice President of Operations, served as Chief Operations Officer from April 2009 to April 2014 and served as Chief Operating Officer from April 2014 to April 2015.  From April 2003 to September 2007, Mr. Wood was the Vice President of Operations of Cholestech Corporation, a medical products manufacturing company that was subsequently acquired by Inverness Medical Innovations, Inc. in September 2007.  From July 2001 to March 2003, Mr. Wood served as Vice President of Bone Health, a business unit of Quidel Corporation, a manufacturing and marketer of point-of-care diagnostics, and was responsible for Bone Health Product Operations, Device Research and Development, and Sales and Marketing.  He also served as Quidel’s Vice President of Ultrasound Operations from August 1999 to July 2001.  Prior to joining Quidel, Mr. Wood was the Director of Ultrasound Operations for Metra Biosystems Inc., a developer and manufacturing company of point-of-care products for osteoporosis, from July 1998 to August 1999 prior to Quidel’s acquisition of Metra Biosystems Inc.

 

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Term and Number of Directors

All of our directors hold office until the next annual meeting of shareholders of Abaxis and until their successors have been elected and qualified.  Our Bylaws authorize our Board of Directors to fix the number of directors at not less than four nor more than seven.  The number of authorized directors of Abaxis is currently six.

Each of our executive officers serves at the discretion of the Board of Directors.  There are no family relationships among any of our directors or executive officers.

Identification of Audit Committee and Financial Expert

The Audit Committee of the Board of Directors oversees Abaxis’ corporate accounting, financial reporting process and systems of internal control and financial controls.  The following outside directors comprise the Audit Committee:  Mr. Evenhuis, Mr. Altman, Dr. Bastiani, Mr. Casey, and Dr. Singh.  Mr. Evenhuis serves as Chairman of the Audit Committee.

The Board annually reviews the Nasdaq Stock Market, or NASDAQ, listing standards definition of independence for Audit Committee members and has determined that all members of the Audit Committee are independent (based on the requirements for independence set forth in Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing standards).  SEC regulations require Abaxis to disclose whether a director qualifying as an “audit committee financial expert” serves on the Audit Committee.  The Board of Directors has determined that Mr. Evenhuis qualifies as an “audit committee financial expert,” as defined in applicable SEC rules.  The Board of Directors made a qualitative assessment of Mr. Evenhuis’s level of knowledge and experience based on a number of factors, including his formal education and experience as a chief financial officer for public reporting companies.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10% of our equity securities to file initial reports of ownership and reports of changes in ownership with the SEC.  Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such persons.

Based solely on our review of the copies of Forms 3, 4 and 5 and amendments thereto received by us or filed with the SEC, we believe that during the period from April 1, 2014 through March 31, 2015, our executive officers, directors and greater than 10% shareholders complied with all applicable filing requirements applicable to these executive officers, directors and greater than 10% shareholders.

Code of Business Conduct and Ethics

Abaxis has adopted a Code of Business Conduct and Ethics that applies to all of our executive officers, directors and employees, including without limitation our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.  The Code of Business Conduct and Ethics is available on our website at www.abaxis.com under “Investor Relations” at “Corporate Governance.”  We intend to disclose any amendment to, or waiver of, any provision of the Code of Business Conduct and Ethics by disclosing such information on our website, to the extent required by the applicable rules and exchange requirements.

Shareholder Director Nomination Process

The Nominating and Corporate Governance Committee will consider director nominations made by shareholders in accordance with the requirements of the Company’s bylaws consistent with the procedures set forth in the bylaws.  Any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if timely notice of such shareholder’s intent to make such nomination or nominations has been given in writing to the Secretary of the Company.  To be timely, a shareholder nomination for a director to be elected at an annual meeting must be received at the Company’s principal executive offices not fewer than 120 calendar days in advance of the date that the Company’s proxy statement was released to shareholders in connection with the previous year’s annual meeting of shareholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year’s proxy statement, or in the event of a nomination for director to be elected at a special meeting, notice by the shareholders to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the special meeting was mailed or such public disclosure was made.  Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Company entitled to vote for the election of directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the Company if so elected.  Other than the foregoing, there are no stated minimum criteria for director nominees, although the Nominating and Corporate Governance Committee may also consider such other factors as it may deem to be in the best interests of the Company and its shareholders.

 

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Item 11.

Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes the principles underlying the material components of our executive compensation program for our executive officers, including the Named Executive Officers in the “Summary Compensation Table.”  We also provide an overview of the overall objectives of the program and the factors relevant to an analysis of these policies and decisions.  Our “Named Executive Officers” and their current roles with Abaxis are as follows:

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Clinton H. Severson, Chief Executive Officer and Chairman of the Board

·

Alberto R. Santa Ines, Chief Financial Officer and Vice President of Finance

·

Kenneth P. Aron, Ph.D., Chief Technology Officer

·

Achim Henkel, Managing Director of Abaxis Europe GmbH

·

Donald P. Wood, President and Chief Operating Officer

On April 28, 2015, Mr. Wood was appointed to the role of President and Chief Operating Officer.  Prior to that date, Mr. Severson had served as our President.  Also on May 1, 2015, we entered into a transition agreement with Mr. Santa Ines, pursuant to which he will retire from his position as Chief Financial Officer and Vice President of Finance effective on July 31, 2015, after which he will provide part-time, non-executive employee services to us until May 15, 2016.  In connection with Mr. Santa Ines’ retirement, Mr. Taylor, our Vice President of Business Development and Investor Relations since October 2014, will become our Chief Financial Officer and Secretary, effective as of August 1, 2015.  Although Mr. Taylor is not a Named Executive Officer for fiscal 2015, this Compensation Discussion and Analysis includes information about Mr. Taylor's compensation to the extent that information may be necessary to understand our executive compensation program and the information contained herein.

Executive Summary

The Compensation Committee believes our executive compensation program reflects a strong pay-for-performance philosophy and is well-aligned with the long-term interests of shareholders.

Fiscal 2015 Business Performance

During fiscal 2015, we continued our efforts to enhance our business and create and sustain long-term value.  We demonstrated significant year-over-year growth in revenue, net income and liquidity, and completed the fiscal year in what we believe is a stronger position than any other time in our history.

Our fiscal 2015 achievements include:

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Increased worldwide revenues from continuing operations by 25%, from $162.0 million in fiscal 2014 to $202.6 million in fiscal 2015.  Revenues from continuing operations in North America increased by 29%, or $36.5 million, in fiscal 2015 compared to fiscal 2014, and revenues from continuing operations outside of North America increased by 11%, or $4.0 million, in fiscal 2015 compared to fiscal 2014.  Revenues from instrument sales increased to $48.6 million, an increase of 30% over fiscal 2014.  Revenues from consumable sales increased to $144.4 million, or 23%, in fiscal 2015 compared to fiscal 2014.  In our veterinary market, total revenues from continuing operations increased to $164.0 million, an increase of 25% over fiscal 2014.

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Increased diluted net income per share from continuing operations to $0.91 in fiscal 2015 from $0.72 in fiscal 2014.

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Generated cash from operations of $36.4 million through the continued conservative management of our working capital and overall business.

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Paid four quarterly dividends of $0.10 per share on our outstanding common stock during fiscal 2015, returning approximately $9.0 million in cash to all shareholders.

 

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Delivered significant returns to our shareholders as our stock price increased 65% during fiscal 2015 (from $38.88 per share on March 31, 2014 to $64.11 per share on March 31, 2015).

 

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Receipt of approval from the Center for Veterinary Biologicals of the U.S. Department of Agriculture, or USDA, of our VetScan Canine Ehrlichia Antibody Test Kit for use in rapid detection of canine Ehrlichia.  This is the only test approved for detection of antibodies to all three dominant species impacting dogs in the U.S.:  E. canis, E. chafeensis and E. ewingii.  Accordingly, this improves the efficiency and the economics of carrying out such testing on these vector-borne diseases.

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Receipt of approval from the USDA of our VetScan FeLV/FIV Rapid Test Kit for the detection of FeLV antigen and FIV antibodies from feline blood samples.  Feline Leukemia virus (FeLV) and the feline immunodefiency virus (FIV) are retroviruses found in cats, and are among the most common infectious diseases in this species.

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Receipt of approval from the USDA of our VetScan Anaplasma Rapid Test Kit for the detection of A. phagocytophelium and A. platys in canine whole blood, serum, or plasma samples.  The approval of our VetScan Anaplasma Rapid Test Kit allows us to now offer a complete assessment of tickborne diseases based on our unique blend of novel peptides which are reactive with species-specific antibodies, coupled with targeted amplification on a rapid test format.

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Sold the assets of our Abaxis Veterinary Reference Laboratories, or AVRL, realizing significant value for our shareholders and enabling us to focus on our core product offerings.  In connection with the sale of our AVRL business, we recognized a pre-tax gain of $12.3 million ($7.7 million after-tax) on sale of discontinued operations during fiscal 2015.

We ended fiscal 2015 with cash, cash equivalents and investments of $157.3 million, an increase of $36.1 million from the end of fiscal 2014.

Fiscal 2015 Compensation

Consistent with our pay-for-performance philosophy, our Compensation Committee took the following actions in April 2014 with respect to the fiscal 2015 compensation of our Named Executive Officers.

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Base Salary.  Mr. Wood’s fiscal 2015 base salary was increased by 15.4% as compared to fiscal 2014 in connection with his appointment as our Chief Operating Officer in April 2014.  Mr. Henkel’s fiscal 2015 base salary was increased by 20.5% as compared to fiscal 2014 because he was assigned increased responsibilities of expanding sales and marketing distribution internationally.  We increased the fiscal 2015 base salary of our Chief Executive Officer by 3.1% and the fiscal 2015 base salaries of Mr. Santa Ines and Dr. Aron by 7.7%.  These increases were made primarily to maintain our Compensation Committee’s general guideline of targeting executive officer salaries to be between the 25th and 50th percentiles of our peer group, to ensure an appropriate balance in the Named Executive Officers’ compensation mix between cash and equity, to retain employees with the qualifications desired for each particular position, to compensation Named Executive Officers for increased responsibilities when applicable and reward each of the Named Executive Officers for his performance in the prior year.

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Annual Bonus.  Mr. Wood’s fiscal 2015 target annual bonus opportunity was increased by 40.0% as compared to fiscal 2014 in connection with his appointment as our Chief Operating Officer.  Mr. Henkel’s fiscal 2015 target annual bonus opportunity was increased by 38.2% in connection with his increased responsibilities of expanding sales and marketing distribution internationally.  We increased the fiscal 2015 target annual bonus opportunity of our Chief Executive Officer by 3.7% and the fiscal 2015 target annual bonus opportunities of Mr. Santa Ines and Dr. Aron by 13.3% as compared to their fiscal 2014 target annual bonus opportunities.  For fiscal 2015, the Compensation Committee targeted total cash compensation (salary, plus bonus payable at 100% achievement of performance goals - which we refer to as “target bonus”) to be at or slightly above the 75th percentile of Abaxis’ peer group for each Named Executive Officer’s total cash compensation as this provides for a larger percentage of at-risk pay while accounting for the company’s below market median positioning on base salary.  The fiscal 2015 target annual bonus opportunity increases were made to ensure an appropriate balance in the Named Executive Officers’ compensation mix between cash and equity, to retain employees with the qualifications desired for each particular position and provide an opportunity to reward each of the Named Executive Officers for strong performance during fiscal 2015.  For fiscal 2015, due to exceeding our financial goals, the actual total cash compensation earned under our annual cash incentive bonus program was at 121-127% of the target bonus opportunities for our Named Executive Officers.  In addition, as a result of our improvement in performance in fiscal 2015 as compared to fiscal 2014, including (a) a 25% increase in revenues from continuing operations, (b) the successful sale of the assets of AVRL and (c) obtaining regulatory approvals of rapid tests, the Compensation Committee approved an additional discretionary bonus pool of $1.7 million for all employees, of which the Named Executive Officers were awarded the following amounts:  (a) Mr. Severson, $302,260, (b) Mr. Santa Ines, $183,515, (c) Dr. Aron, $183,515, (d) Mr. Henkel, €95,481, and (e) Mr. Wood, $226,695.  The Compensation Committee only approved the discretionary bonuses due to very special circumstances; the payment of discretionary bonuses is not part of our normal executive compensation program.

 

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Equity Awards.  We granted our Named Executive Officers equity awards in the form of restricted stock units subject to a mix of time-based and performance-based vesting, which are intended to incentivize, encourage retention and enhance share ownership, aligning the interests of our Named Executive Officers with the interests of our shareholders.  The time-based restricted stock units vest over a four-year time-based vesting schedule that is heavily weighted (approximately 70%) towards the fourth year, to emphasize the long-term nature of these awards.  The performance-based restricted stock units awarded in fiscal 2015 vest if certain financial goals for fiscal year 2015 are achieved and the recipient continues to serve Abaxis for three and four years following the date of grant, which means that our executive officer’s ability to earn compensation under these awards is dependent on our meeting such goals and on their continued service with us over the long-term.  In early fiscal 2015, all of the performance-based restricted stock units granted to our Named Executive Officers in fiscal 2014 were cancelled because the corporate performance targets for fiscal 2014 performance-based restricted stock units were not met.  For the restricted stock units with performance-based vesting granted in fiscal 2015, the performance criteria based on financial goals was achieved during fiscal 2015 and therefore, each executive officer became eligible to earn their fiscal 2015 restricted stock unit award if they satisfy the additional timed-based service criteria for the award to vest.

Executive Compensation Governance Highlights

Below we summarize certain executive compensation-related practices that we follow and that we believe serve our shareholders’ long-term interests.

 

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Executive Compensation Program Overview

Overview

The goals of our executive compensation program are to attract, retain, motivate and reward executive officers who contribute to our success and to incentivize these executives on both a short-term and long-term basis to achieve our business objectives.  This program combines cash and equity awards in the forms and proportions that we believe will motivate our executive officers to increase shareholder value over the long-term.

Our executive compensation program is designed to achieve the following specific objectives:

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align our executive compensation with achievement of our strategic business objectives;

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align the interests of our executive officers with both short-term and long-term shareholder interests; and

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place a substantial portion of our executives’ compensation at risk such that actual compensation depends on overall company performance.

Executive Compensation Program Objectives and Framework

Our executive compensation program has three primary components:  (1) base salary, (2) short-term cash incentive bonuses and (3) long-term equity grants.  Base salaries for our executive officers are a minimum fixed level of compensation consistent with or below competitive market practice.  Short-term cash incentive bonuses awarded to our executive officers are intended to incentivize and reward achievement of financial, operating and strategic objectives during the fiscal year and targets are typically set to be above market.  Our executive officers’ total potential cash compensation is heavily weighted toward annual cash incentive bonuses, because our Compensation Committee and Board of Directors believe this weighting best aligns the interests of our executive officers with that of shareholders generally and helps ensure a strong pay-for-performance culture.  Long-term equity grants awarded to our executive officers are designed to ensure strong performance, promote retention and align our executives’ long-term interests with shareholders’ long-term interests by ensuring that incentive compensation is linked to our long-term company performance.  Equity awards are typically set to be above market, as the majority of these awards are earned only if we achieve key performance goals and our Named Executive Officers continue in service for the long-term.  As described below in “Competitive Market Analysis,” our Compensation Committee assesses compensation market practices by reference to a compensation peer group developed by our independent executive compensation advisor.

Executive compensation is reviewed annually by our Compensation Committee and Board of Directors, and adjustments are made to reflect company objectives and competitive conditions.  Our executive compensation review process includes our Compensation Committee engaging an independent compensation consulting advisor annually, as described below in “Competitive Market Analysis,” and an annual review by our Compensation Committee, with the assistance of outside counsel, of our equity incentive plans.  We also offer our executive officers participation in our 401(k) plan, health care insurance, flexible spending accounts and certain other benefits available generally to all full-time employees.  Prior to the granting of any equity incentive awards to executive officers, the Board of Directors and/or our Compensation Committee reviews, with the assistance of outside counsel, our equity incentive plans to ensure compliance therewith.  All of our equity awards granted to our executive officers during fiscal 2015 were granted under and in compliance with the terms of our 2005 Equity Incentive Plan.  Our 2014 Equity Incentive Plan became the successor to and replaced our 2005 Equity Incentive Plan upon its approval by our shareholders in October 2014 and accordingly, fiscal 2016 equity awards to our Named Executive Officers were granted under and subject to the terms of our 2014 Equity Incentive Plan.

Pay for Performance Philosophy

Our executive compensation is weighted heavily toward at-risk, performance-based compensation designed to align the interests of our Named Executive Officers with those of our shareholders.  Annual cash incentive bonus and restricted stock units comprise a significant portion of the Named Executive Officers’ total compensation.  Based on our fiscal 2015 financial plan, the Compensation Committee sets the performance metrics and establishes target compensation at the beginning of the performance period.

 

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The fiscal 2015 corporate performance metrics and specific financial targets for the Named Executive Officers to earn a cash bonus payout are as follows:

(1)	“Threshold” refers to the minimum level of achievement of the target performance goal necessary to earn any bonus payout under the plan.

(2)	The bonus payout percentage depends on the level of the performance metric achieved over the threshold.  Additional information on bonus payment calculation is described in “Annual Cash Incentive Bonus - Bonus Calculations.”

(3)	Revenues for the Named Executive Officers is based on consolidated revenues from continuing and discontinued operations, except for Mr. Henkel, whose revenue target is based on revenues from continuing operations from Europe.

Annual cash incentive bonuses for our Named Executive Officers in fiscal 2015 were contingent on the achievement of the specified corporate performance goals described above and individual performance.  As further described under “Annual Cash Incentive Bonus – Bonus Calculations,” the Compensation Committee determined that the quarterly pre-determined revenues and income before income tax provision goals for fiscal 2015 were satisfied at an aggregate performance level of 103-107% and 111%, respectively, and therefore, the Named Executive Officers (other than Mr. Henkel) earned 127% of their target annual bonus awards for fiscal 2015 and Mr. Henkel earned 121% of his target annual bonus award for fiscal 2015.

The performance-based restricted stock units granted to our Named Executive Officers in fiscal 2015 vested based on (1) achieving specified financial targets over a single-fiscal year performance period and (2) the executive officer remaining in the service of the company over a four-year vesting period.  The awards are comprised of two specified corporate performance targets for fiscal 2015 (90% of a target performance goal and 100% of a target performance goal), which are both equally weighted at 50%.  The specific fiscal 2015 financial targets are as follows:

 

For fiscal 2015, the Compensation Committee determined that our actual performance and corresponding vesting percentages, with respect to the target goal were as follows:

 

In early fiscal 2015, the Compensation Committee maintained the same percentage of total target direct equity award compensation that consisted of performance-based restricted stock units granted to our Chief Executive Officer at 65% and increased the percentage from 64% to 73% to our other Named Executive Officers to further align compensation with corporate performance and shareholder value.  In April 2015, the Compensation Committee determined that the pre-determined consolidated income from operations for fiscal 2015 was above 100% of the target goal required to vest, and accordingly, the performance criteria based on financial goals were achieved during fiscal 2015 and therefore each executive officer became eligible earn their fiscal 2015 restricted stock unit award if they satisfy the additional timed-based service criteria for the award to vest.

 

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As shown in the above charts, for fiscal 2015, we delivered approximately 65% of our Chief Executive Officer’s target total direct compensation and approximately 65% for the other Named Executive Officers’ target total direct compensation in the form of long-term incentive awards, the actual economic value of which will depend directly on our long-term success and the performance of our stock price over the period during which the awards vest.

Compensation-Setting Process

Role of Our Compensation Committee

Our Compensation Committee, which operates under a written charter adopted by the Board of Directors, is primarily responsible for reviewing and recommending to the Board of Directors the compensation arrangements for our executive officers for approval by the Board of Directors.  In carrying out these responsibilities, the Compensation Committee reviews all components of executive officer and director compensation for consistency with the Compensation Committee’s compensation philosophy as in effect from time to time.  In connection with its review and recommendations, our Compensation Committee also considers the recommendations of our Chief Executive Officer, Mr. Clinton Severson, regarding the compensation of our executive officers who report directly to him.  These recommendations generally include annual adjustments to compensation levels and, an assessment of each executive officer’s overall individual contribution, scope of responsibilities and level of experience.  Our Compensation Committee gives considerable weight to Mr. Severson’s recommendations because of his direct knowledge of each executive officer’s performance and contribution to our financial performance.  However, Mr. Severson does not participate in the determination of his own compensation.  The Compensation Committee presents its recommendation for executive compensation to the Board of Directors for final review and approval.  Typically, these recommendations are made to our Board of Directors by the first quarter of the ensuing fiscal year.

No other executive officers participate in the determination or recommendation of the amount or form of executive officer compensation, except our Compensation Committee may discuss with our Chief Executive Officer or Chief Financial Officer our financial, operating and strategic business objectives, bonus targets or performance goals.  The Compensation Committee reviews and determines the appropriateness of the financial measures and performance goals, as well as assesses the degree of difficulty in achieving specific bonus targets and performance goals.  Our Compensation Committee does not delegate any of its functions in determining executive and/or director compensation.  To date, our Compensation Committee has not established any formal policies or guidelines for allocating compensation between long-term and currently paid out compensation, cash and non-cash compensation, or among different forms of non-cash compensation.  However, as described above, our Compensation Committee does aim for a significant portion of our executive officer compensation in the form of variable, at-risk pay.

 

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Competitive Market Analysis

In December 2012, our Compensation Committee engaged Pay Governance, an independent executive compensation advisor, to review our executive compensation programs.  Pay Governance, with input from the Compensation Committee, updated the comparative frame of reference that resulted in a group of 16 companies (the “Compensation Peer Group”).  This Compensation Peer Group represented similarly-situated medical device and diagnostic companies that were identified by Pay Governance as companies with similar financial growth and as competitors for executive talent.  The following companies comprised the Compensation Peer Group:

Certain information regarding the size and value of the Compensation Peer Group companies relative to the Company is set forth below (based on financials at the time of review in December 2012).

(1)	Represents earnings before interest, taxes, depreciation and amortization.

When making fiscal 2015 executive compensation decisions, the Compensation Committee believed that the Compensation Peer Group was still an appropriate frame of reference for Abaxis.  The report prepared in March 2013 by Pay Governance with market data on the Compensation Peer Group identified in December 2012 was considered by the Compensation Committee in its fiscal 2015 executive compensation decisions as a point of reference.  Our Compensation Committee and Board of Directors may engage compensation consultants in the future as they deem it to be necessary or appropriate, and intends to retain one each year.

Independent Compensation Consultant

The Compensation Committee has considered and assessed all relevant factors, including but not limited to those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934, as amended, that could give rise to a potential conflict of interest with respect to Pay Governance’s work.  The Compensation Committee determined, based on its analysis of these factors, that the work of Pay Governance, and the individual compensation advisors employed by Pay Governance as compensation consultants, do not create any conflict of interest.

Shareholder Advisory Vote on Executive Compensation

Executive Compensation Components

We provide an annual base salary to each of our executive officers to compensate them for services rendered during the year.  Salaries are reviewed annually by the Compensation Committee and adjusted for the ensuing year based on both (i) an evaluation of individual job performance during the prior year, and (ii) an evaluation of the compensation levels of similarly-situated executive officers in our Compensation Peer Group and in our industry generally.

 

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Our Board of Directors set salaries for fiscal 2015 after considering an analysis of total cash compensation for our executive officers compared to the Compensation Peer Group by Pay Governance and the recommendations of the Compensation Committee.  For fiscal 2015 base salaries, our Compensation Committee recommended that we increase base salaries in amounts designed to make such amounts competitive with those of similarly-situated executives at our peer companies, to ensure an appropriate balance in the Named Executive Officers’ compensation mix between cash and equity, to retain employees with the qualifications desired for each particular position and reward each of the Named Executive Officers for his performance in the prior year.  For fiscal 2015 and 2016, the Compensation Committee made recommendations to target salaries to be between the 25th and 50th percentile of our Compensation Peer Group.  Our Compensation Committee considered this 25th and 50th percentile range as a general guideline for the appropriate level of potential salaries, but did not attempt to specifically match this or any other percentile.  Our Compensation Committee also considered the recommendations of the Chief Executive Officer regarding the compensation of each of the Named Executive Officers who reported directly to him.  However, the Compensation Committee and our Board of Directors did not base their considerations on any single factor but rather considered a mix of factors and evaluated individual salaries against that mix.

Our Board of Directors set salaries for fiscal 2015 after considering an analysis of total cash compensation for our executive officers compared to the Compensation Peer Group prepared by Pay Governance and the recommendations of the Compensation Committee.  For fiscal 2015 base salaries, our Compensation Committee recommended that we increase base salaries in amounts designed to reward each of the Named Executive Officers for their performance in the prior year while maintaining base salaries at an appropriately competitive level for each Named Executive Officer’s position.  The Compensation Committee and Board of Directors determined that many of the prior recommendations made by Pay Governance in March 2013 continued to be relevant for fiscal 2015, and accordingly, based on the peer company analysis of total compensation from March 2013, the Compensation Committee recommended to the Board of Directors to increase base salaries for our Named Executive Officers from fiscal 2014 to fiscal 2015 at 3.1-7.7% to reflect annual merit increases and individual performances, except for Mr. Henkel, who received an increase of 20.5%, which reflects a merit increase and an increase for assuming additional responsibilities of expanding our sales and marketing distribution internationally, and Mr. Wood, who received an increase of 15.4% in his base salary, which reflects a merit increase and an increase for his promotion to Chief Operating Officer in April 2014.  With these increases for fiscal 2015 base salaries fell between the 25th and 50th percentile of our Compensation Peer Group from the market data obtained from March 2013, reflecting the Compensation Committee’s general guideline for the appropriate level of base salary as described above.

Based on the recommendations of the Compensation Committee, our Board of Directors approved the following base salaries (effective July 2014 for fiscal 2015 and June 2015 for fiscal 2016) for our Named Executive Officers:

Fiscal 2015 and 2016 base salary increases for the Named Executive Officers were as follows:

The fiscal 2016 base salary for Mr. Taylor, who will be succeeding Mr. Santa Ines as our Chief Financial Officer in August 2015, is $250,000.

 

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Annual Cash Incentive Bonus

Based on the individual performances of the Named Executive Officers over the prior year, the scope of responsibilities, and on the peer company analysis of total compensation prepared by Pay Governance in March 2013, the Compensation Committee recommended to the Board of Directors to increase target bonus opportunities for fiscal 2015 for our Named Executive Officers.  In April 2014, our Compensation Committee and Board of Directors (with Mr. Severson abstaining) approved the fiscal 2015 target bonus levels for our executive officers.  The following table summarizes the fiscal 2015 target bonus amounts for our Named Executive Officers:

(1) Mr. Henkel’s increase in target bonus reflected his increased responsibilities of expanding sales and marketing distribution internationally.

(2) Mr. Henkel’s target bonus for fiscal 2015 and fiscal 2016 was €235,000 and €300,000, respectively.  These amounts have been converted to U.S. dollars in the table above using the Euro to U.S. dollar exchange rate on the date the Compensation Committee approved the compensation for Mr. Henkel.  Mr. Henkel’s increase in target bonus is calculated in Euros.

(3) Mr. Wood’s increase in target bonus reflected his promotion to Chief Operating Officer, effective April 2014.

 

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Bonus Decisions and Analysis

(1)  Financial goals include both continuing operations and discontinued operations of AVRL.

(2)  The actual and target bonus level for income before income tax provision includes bonus expense, if earned, however, in accordance with our executive officer bonus program, actual income before income tax provision amount excludes the gain on sale of AVRL and the discretionary bonus earned during the period.

 

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In making determinations of the fiscal 2015 bonuses awarded based on the corporate performance goals and payout methodology described above, the Compensation Committee approved the payment of a one-time, discretionary cash bonus to each of our Named Executive Officers in recognition of their contributions to a strong company performance in fiscal 2015.  The Compensation Committee only approved the discretionary bonuses due to very special circumstances; the payment of discretionary bonuses is not part of our normal executive compensation program.  The Compensation Committee determined that it was appropriate to award these discretionary bonuses in recognition of the improvement in performance in fiscal 2015, as compared to the prior fiscal year, including (a) a 25% increase in revenue from continuing operations, (b) the successful sale of the assets of AVRL and (c) obtaining regulatory approvals of rapid tests.  The discretionary bonuses were determined based on our Chief Executive Officer’s recommendations, other than with respect to himself, and the Compensation Committee’s assessment of individual contributions.  These discretionary bonus amounts for each Named Executive Officer were as follows:

Stock Options

Prior to fiscal 2007, a substantial portion of our executive compensation arrangement consisted of long-term incentive grants, comprising of stock options.  Starting in fiscal 2007, the company decided to grant restricted stock units instead of stock options because stock options are highly dilutive and we incur an expense upfront even though executives do not necessarily realize any value from stock options.

 

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In April 2014, our Compensation Committee and Board of Directors (with Mr. Severson abstaining) approved the fiscal 2015 long-term equity incentive compensation awards for our Named Executive Officers.  The following table summarizes the fiscal 2015 restricted stock units with time-based vesting and performance units awarded to our Named Executive Officers.

The Compensation Committee chose to structure the fiscal 2015 restricted stock units granted to the Named Executive Officers to be more heavily weighted towards those with performance-based vesting, to further its policy of providing performance-based pay that is directly aligned with company performance.  Accordingly, our Named Executive Officers received, on average, over 70% of their fiscal 2015 restricted stock units in the form of performance-based vesting restricted stock units.

On April 28, 2015, the Compensation Committee determined that the Company’s consolidated income from operations for fiscal 2015 was above 100% of target and accordingly, because the performance criteria was achieved during fiscal 2015, the FY2015 Performance RSUs became eligible to vest in full, if each executive officer completes the remaining timed-based service criteria necessary for the award to vest.

Other Compensation Policies and Benefits

Benefits and Perquisites

We do not provide any of our executive officers with any material perquisites.  Currently, all benefits offered to our executive officers, including an opportunity to participate in our 401(k) plan, medical, dental, vision, life insurance, disability coverage, long-term care insurance benefits and flexible spending accounts, are also available on a non-discriminatory basis to other full-time employees.  We also provide vacation and other paid holidays to all full-time employees, including our Named Executive Officers.  From time to time when determined appropriate by the Compensation Committee, we may provide benefits to executive officers in unique circumstances necessary to assist them in their services to our Company.

Clawback Policy

Stock Ownership Guidelines

We maintain stock ownership guidelines for our executive officers and directors, as follows:

These guidelines require that executives and directors be meaningfully invested in the Company’s stock, and therefore be personally invested in the Company’s performance to ensure strong alignment with shareholder interests.  Our stock ownership guidelines were adopted in 2011 and give all executive officers and directors through the first day of each of the Company’s fiscal years beginning with April 1, 2016 to accumulate enough shares to satisfy the stock ownership requirements.  All of our Named Executive Officers meet these guidelines and our Chief Executive Officer’s stock ownership is currently 68.3 times his base salary.

 

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Employment Agreements

In October 2010, we entered into an employment agreement with Mr. Severson, our Chief Executive Officer, which amended, restated and superseded Mr. Severson’s existing employment agreement, dated July 11, 2005.  The amended and restated employment agreement provides Mr. Severson with a severance payment equal to two years of salary, bonus and benefits if his employment with us is terminated for any reason other than cause.  Additionally, upon Mr. Severson’s termination without cause or resignation for good reason, all of Mr. Severson’s unvested stock options, restricted stock units and other equity awards would vest in full.  Certain severance benefits provided pursuant to the Severance Plan (described below in “Change in Control and Severance Agreements”) with respect to a change of control supersede those provided pursuant to the employment agreement.

On May 30, 2008, we entered into a service agreement with Mr. Henkel in connection with his appointment as Managing Director of our subsidiary, Abaxis Europe GmbH.  The service agreement provides that Mr. Henkel will be a participant in our Severance Plan.  In addition, the service agreement provides for six months of salary payments if Mr. Henkel is preventing from working due to illness or upon his death, which will be reduced by any health insurance payments upon such events.

On April 29, 2015, we entered into an offer letter agreement with Mr. Taylor in connection with his appointment as Chief Financial Officer, effective as of August 1, 2015.  The offer letter provides for an annual base salary of $250,000, a target annual cash incentive for fiscal 2016 of $425,000, an award of 9,000 restricted stock units subject to time-based vesting and 16,000 restricted stock units subject to performance-based vesting and a relocation bonus of $25,000.  The relocation bonus must be repaid, up to the full $25,000 amount, if Mr. Taylor resigns from employment or is terminated by us for Cause (as defined in Severance Plan described below) before October 20, 2018, the four year anniversary of Mr. Taylor’s initial employment start date with the Company, with the repayment amount pro-rated based on the time of such resignation or termination.  However, if there is a change in control of the Company prior to October 20, 2018 and Mr. Taylor remains an employee of our Company through such change in control, he does not need to repay the relocation bonus.  Additionally, the offer letter agreement also provides that Mr. Taylor will be a participant in the Severance Plan, on the specific terms and adjustments described below.

On May 1, 2015, we entered into a transition agreement providing for Mr. Santa Ines’ retirement, effective as of July 31, 2015.  Pursuant to this agreement, Mr. Santa Ines will remain with the Company after his retirement as a part-time, nonexecutive employee on an hourly basis until May 15, 2016 and, subject to Mr. Santa Ines’ service through such date and the effectiveness of a release of claims, the time-based vesting of the performance restricted stock units granted to Mr. Santa Ines in April 2014 (which have already vested in full as to the Company’s performance) will be accelerated in full.  The transition agreement also provides that upon his retirement on July 31, 2015, Mr. Santa Ines will cease to be eligible for any severance of change of control benefits, including under the Severance Plan.

Change in Control and Severance Agreements

In July 2006, our Board of Directors, after considering a change of control program analysis from the peer company analysis prepared by our compensation advisor at that time and upon the recommendation of our Compensation Committee, approved and adopted the Abaxis, Inc. Executive Change of Control Severance Plan (the “Severance Plan”).  The Severance Plan was adopted by our Board of Directors to reduce the distraction of executives and potential loss of executive talent that could arise from a potential change of control.  Participants in the Severance Plan include Abaxis’ senior managers who are selected by the Board of Directors.  Each of our Named Executive Officers, as well as Mr. Taylor, are designated as participants in the Severance Plan, however Mr. Santa Ines will cease such participation as of his retirement from Chief Financial Officer on July 31, 2015.

The Board of Directors has amended the Severance Plan from time to time to ensure its compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  In May 2014, our Compensation Committee determined to discontinue the practice of providing “single-trigger” equity vesting acceleration upon a change of control and the tax “gross up” provisions in the Severance Plan, as further described below.  Accordingly, Mr. Taylor’s offer letter agreement with us provides that, notwithstanding the terms of the Severance Plan, Mr. Taylor will not be entitled to automatic vesting acceleration and the tax payment described above upon a change of control.  Instead, Mr. Taylor will be entitled to automatic equity vesting acceleration only on a “double-trigger” basis, requiring a termination in connection with a change of control, and will not be entitled to an excise tax gross up.

The Severance Plan (with respect to Mr. Taylor, as adjusted by his offer letter) provides that, if the participant’s employment is terminated by us (or any successor of Abaxis) for any reason other than cause, death, or disability within 18 months following the change of control date and such termination constitutes a separation in service, the participant is eligible to receive severance benefits as follows:

·

on the 60th day after the termination date, a lump sum cash payment equal to two times the sum of the participant’s annual base salary and the participant’s target annual bonus amount for the year in which the change of control occurs;

 

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·

payment of up to 24 months of premiums for medical, dental and vision benefits, provided, however, that if the participant becomes eligible to receive comparable benefits under another employer’s plan, our benefits will be secondary to those provided under such other plan;

·

reimbursement, on a monthly basis, of up to 24 months of premiums for disability and life insurance benefits if the participant elects to convert his or her disability and/or life insurance benefits under our plans into individual policies following termination;

·

for a participant who joined the Severance Plan on or after May 2014, full vesting of all equity awards;

·

for a participant who joined the Severance Plan on or after May 2014, a “better after tax” provision providing that any payment or benefit the participant may receive that would be a “parachute payment” within the meaning of 280G of the Code subject to an excise tax imposed under Section 4999 of the Code (the “Excise Tax”) will be either paid in full and subject to such Excise Tax or cut back to an amount that will not trigger the Excise Tax, whichever results in the greatest economic benefit for the participant; and

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for a participant who joined the Severance Plan prior to May 2014 payment of an amount equal to any Excise Tax, as well as a payment in reimbursement of Excise Taxes and income taxes arising from the initial Excise Tax payment, provided, however, that payment of such amount is capped at $1,000,000 per participant.

Payment of the foregoing severance benefits is conditioned upon the participant’s execution of a valid and effective release of claims against us.

In addition, for participants who joined the Severance Plan prior to May 2014, the Severance Plan provides that upon the occurrence of a change of control, the participant’s outstanding stock option(s) and other unvested equity-based instruments will accelerate in full, and any such stock awards shall become immediately exercisable.  Under the 2005 Equity Incentive Plan, all equity awards held by executive officers accelerate upon a change in control.  This equity acceleration does not apply to Mr. Taylor.  Our 2014 Equity Incentive Plan does not contain this automatic vesting acceleration provision.

Compensation Policies and Practices as They Relate to Risk Management

In fiscal 2015, our Compensation Committee commissioned its outside compensation consultant Pay Governance to conduct a risk assessment of our executive compensation policies and practices.  After reviewing such analysis and reviewing our compensation policies and practices, in fiscal 2015, our Compensation Committee concluded that the mix and design of these policies and practices are not reasonably likely to encourage our employees to take excessive risks.  In connection with its evaluation, our Compensation Committee considered, among other things, the structure, philosophy and design characteristics of our primary incentive compensation plans and programs in light of our risk management and governance procedures, as well as other factors that may calibrate or balance potential risk-taking incentives.

Deductibility of Executive Compensation

We have considered the provisions of Section 162(m) of the Code and related Treasury Regulations that restrict deductibility of executive compensation paid to our Named Executive Officers and our other executive officers holding office at the end of any year to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under the statute or regulations.  The Compensation Committee endeavors to maximize deductibility of compensation under Section 162(m) of the Code to the extent practicable while maintaining a competitive, performance-based compensation program.  However, tax consequences, including tax deductibility, are subject to many factors (such as changes in the tax laws and regulations or interpretations thereof and the timing of various decisions by officers regarding stock options) which are beyond the control of both Abaxis and our Compensation Committee.  In addition, our Compensation Committee believes that it is important to retain maximum flexibility in designing compensation programs that meet its stated business objectives.  For these reasons, our Compensation Committee, while considering tax deductibility as a factor in determining compensation, will not limit compensation to those levels or types of compensation that will be deductible.

 

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Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee has ever been an executive officer or employee of Abaxis.  None of our executive officers currently serves, or has served during the last completed fiscal year, on the Compensation Committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

COMPENSATION COMMITTEE REPORT ⁽¹⁾

The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis included in this Annual Report on Form 10-K/A for the fiscal year ended March 31, 2015.

Based upon this review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K/A for the fiscal year ended March 31, 2015.

 

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(1)

The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Abaxis under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in any such filing.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

The following table sets forth for fiscal 2015, 2014 and 2013, the compensation awarded or paid to, or earned by, Abaxis’ Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers at March 31, 2015 (collectively, the “Named Executive Officers”).

 

(1)

Awards consist of restricted stock units granted to the Named Executive Officer in the fiscal year specified.  Amounts shown do not reflect whether the Named Executive Officer has actually realized a financial benefit from the awards (such as by vesting in a restricted stock unit award).  Amounts listed in this column represent the grant date fair value of the awards granted in the fiscal year indicated as computed in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation-Stock Compensation” (“ASC 718”).  For restricted stock units subject to performance-based vesting, such grant date fair value is based on the probable outcome of the performance conditions as of the grant date, in accordance with ASC 718.  Assuming the highest level of performance conditions were met for fiscal 2015, the grant date fair value of performance unit awards would be as follows:  (a) Mr. Severson, $1.5 million, (b) Mr. Santa Ines, $980,000, (c) Dr. Aron, $980,000, (d) Mr. Henkel, $980,000 and (e) Mr. Wood, $980,000.

 

(2)

For a discussion of the assumptions used in determining the fair value of awards of restricted stock units in the above table and other additional information on restricted stock unit granted, see Note 15 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on June 1, 2015.

 

(3)

Represents the cash performance bonuses earned during each fiscal year based on achievement of corporate financial performance goals, as described under “Executive Compensation – Compensation Discussion and Analysis” above.  The annual cash bonuses were paid in four quarterly installments within one month following the end of the applicable quarter upon achieving the established quarterly revenues and/or quarterly income before income tax provision goals for that quarter.  Amounts do not include bonuses paid during a fiscal year, with respect to bonuses earned in a prior fiscal year.

 

(4)	Amounts listed are based upon our actual costs expensed in connection with such compensation.

 

(5)

In fiscal 2015, consists of $6,027 in supplemental health plan expenses reimbursed by us, $438 in group life insurance paid by us, $418 in disability insurance premiums paid by us, $444 in long-term care insurance premiums paid by us and $6,531 in matching contributions made by us to Mr. Severson’s 401(k) account.

 

(6)

In fiscal 2015, consists of $5,619 in supplemental health plan expenses reimbursed by us, $410 in group life insurance paid by us, $418 in disability insurance premiums paid by us, $513 in long-term care insurance premiums paid by us and $6,406 in matching contributions made by us to Mr. Santa Ines’ 401(k) account.

 

(7)

In fiscal 2015, consists of $19,786 in supplemental health plan expenses reimbursed by us, $410 in group life insurance paid by us, $418 in disability insurance premiums paid by us, $302 in long-term care insurance premiums paid by us and $6,406 in matching contributions made by us to Dr. Aron’s 401(k) account.

 

(8)	Amounts have been converted to U.S. dollars in the table above based on using the month end Euro to U.S. dollar exchange rate for salary compensation and the quarter end Euro to U.S. dollar exchange rate for bonus compensation.

 

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(9)

In fiscal 2015, consists of $4,480 in supplemental health plan expenses reimbursed by us, $218 in long-term care insurance premiums paid by us and $8,497 in pension insurance contributions made by us. These benefit amounts have been converted to U.S. dollars based on using the month end Euro to U.S. dollar exchange rate.

 

(10)

In fiscal 2015, consists of $13,927 in supplemental health plan expenses reimbursed by us, $438 in group life insurance paid by us, $418 in disability insurance premiums paid by us, $326 in long-term care insurance premiums paid by us and $6,406 in matching contributions made by us to Mr. Wood’s 401(k) account.

(1)

Total compensation is defined as total compensation as reported in the “Summary Compensation Table” for fiscal 2015.  Included in the total compensation are long-term equity incentive awards with performance-based vesting criteria.  Performance units only provide an economic benefit if the performance goals are achieved.

Employment Agreements.  In October 2010, we entered into an employment agreement with Clinton H. Severson, our Chief Executive Officer, which amended, restated and superseded Mr. Severson’s existing Employment Agreement, dated July 11, 2005.  The amended and restated employment agreement provides Mr. Severson with a severance payment equal to two years of salary, bonus and benefits if his employment with us is terminated for any reason other than cause.  Additionally, upon Mr. Severson’s termination without cause or resignation for good reason, all of Mr. Severson’s unvested stock options, restricted stock units and other equity awards would vest in full.  Certain severance benefits provided pursuant to the Severance Plan (described below in “Change in Control and Severance Agreements”) with respect to a change of control supersede those provided pursuant to the employment agreement.

On May 30, 2008, we entered into a service agreement with Mr. Henkel in connection with his appointment as Managing Director of our subsidiary, Abaxis Europe GmbH.  The service agreement provides that Mr. Henkel will be a participant in our Severance Plan.  In addition, the service agreement provides for six months of salary payments if Mr. Henkel is preventing from working due to illness or upon his death, which will be reduced by any health insurance payments upon such events.

On April 29, 2015, we entered into an offer letter agreement with Mr. Taylor in connection with his appointment as Chief Financial Officer, effective as of August 1, 2015.  The offer letter provides for an annual base salary of $250,000, a target annual cash incentive for fiscal 2016 of $425,000, an award of 9,000 restricted stock units subject to time-based vesting and 16,000 restricted stock units subject to performance-based vesting and a relocation bonus of $25,000.  The relocation bonus must be repaid, up to the full $25,000 amount, if Mr. Taylor resigns from employment or is terminated by us for Cause (as defined in Severance Plan described below) before October 20, 2018, the four year anniversary of Mr. Taylor’s initial employment start date with the Company, with the repayment amount pro-rated based on the time of such resignation or termination.  However, if there is a change in control of the Company prior to October 20, 2018 and Mr. Taylor remains an employee of our Company through such change in control, he does not need to repay the relocation bonus.  Additionally, the offer letter agreement also provides that Mr. Taylor will be a participant in the Severance Plan, on the specific terms and adjustments described below.

On May 1, 2015, we entered into a transition agreement providing for Mr. Santa Ines’ retirement, effective as of July 31, 2015.  Pursuant to this agreement, Mr. Santa Ines will remain with the Company after his retirement as a part-time, nonexecutive employee on an hourly basis until May 15, 2016 and, subject to Mr. Santa Ines’ service through such date and the effectiveness of a release of claims, the time-based vesting of the performance restricted stock units granted to Mr. Santa Ines in April 2014 (which have already vested in full as to the Company’s performance) will be accelerated in full.  The transition agreement also provides that upon his retirement on July 31, 2015, Mr. Santa Ines will cease to be eligible for any severance of change of control benefits, including under the Severance Plan.

 

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Grants of Plan-Based Awards in Fiscal 2015

The following table sets forth the grants of plan-based awards to our Named Executive Officers during fiscal 2015.

 

			Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)												Estimated Future Payouts Under Equity Incentive Plan Awards (2)												All Other Stock Awards: Number of Shares of Stock				Grant Date Fair Value of Stock and Option
Name	Grant Date		Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)				or Units (#) (3)				Awards ($) (4)
Clinton H. Severson
Annual cash incentive bonus				175,000				700,000				1,400,000
Restricted stock units	4/28/2014																											19,000				775,580
Restricted stock units	4/28/2014															0				36,000				36,000								1,469,520
Alberto R. Santa Ines
Annual cash incentive bonus				106,250				425,000				850,000
Restricted stock units	4/28/2014																											9,000				367,380
Restricted stock units	4/28/2014															0				24,000				24,000								979,680
Kenneth P. Aron, Ph.D.
Annual cash incentive bonus				106,250				425,000				850,000
Restricted stock units	4/28/2014																											9,000				367,380
Restricted stock units	4/28/2014															0				24,000				24,000								979,680
Achim Henkel
Annual cash incentive bonus (5)				81,080				324,324				648,647
Restricted stock units	4/28/2014																											9,000				367,380
Restricted stock units	4/28/2014															0				16,000				16,000								979,680
Donald P. Wood
Annual cash incentive bonus				131,250				525,000				1,050,000
Restricted stock units	4/28/2014																											9,000				367,380
Restricted stock units	4/28/2014															0				24,000				24,000								979,680

 

(1)

Actual cash performance bonuses, which were approved by the Board of Directors (with Mr. Severson abstaining) upon recommendation by the Compensation Committee based on achievement of corporate financial performance goals for fiscal 2015, were paid for within one month following the end of the quarter upon achieving the established quarterly revenues and/or quarterly income before income tax provision goals.  Actual cash performance bonuses are shown in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” above.  “Threshold” refers to the minimum amount of annual bonus payable for a certain level of performance under the plan.

(2)

Consists of a performance-based restricted stock unit granted under, and is subject to, the terms of our 2005 Equity Incentive Plan.  Restricted stock units were subject to vesting only if both of the following criteria are satisfied:  (a) consolidated income from operations for the fiscal year ended March 31, 2015 was in excess of the applicable target amount; and (b) the recipient remained in the service of the company until the applicable vesting date set forth as follows:  (i) 25% shares issuable upon settlement of FY2015 Performance RSUs upon satisfying 90% of target of consolidated income from operations for the year ended March 31, 2015 and time-based vesting on April 28, 2017; (ii) 25% shares issuable upon settlement of FY2015 Performance RSUs upon satisfying 90% of target of consolidated income from operations for the year ended March 31, 2015 and time-based vesting on April 28, 2018; (iii) 25% shares issuable upon settlement of FY2015 Performance RSUs upon satisfying 100% of target of consolidated income from operations for the year ended March 31, 2015 and time-based vesting on April 28, 2017; and (iv) 25% shares issuable upon settlement of FY2015 Performance RSUs upon satisfying 100% of target of consolidated income from operations for the year ended March 31, 2015 and time-based vesting on April 28, 2018.  Additional information on restricted stock unit granted is described above in “Restricted Stock Units.”

(3)

Consists of a time-based restricted stock unit granted under, and is subject to, the terms of our 2005 Equity Incentive Plan.  The four-year time-based vesting terms of the restricted stock units is as follows, assuming continuous employment:  five percent of the shares vest after the first year; ten percent of the shares vest after the second year; 15 percent of the shares vest after the third year; and 70 percent of the shares vest after the fourth year.  Additional information on restricted stock unit granted is described above in “Restricted Stock Units.”

(4)

Represents the fair value of the restricted stock unit award on the date of grant, pursuant to ASC 718.  See Note 15 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on June 1, 2015 for additional information.  For restricted stock units subject to performance-based vesting, such grant date fair value is based on the probable outcome of the performance conditions as of the grant date, in accordance with ASC 718.  Assuming the highest level of performance conditions were met, the grant date fair value of such awards would be as follows:  (a) Mr. Severson, $1.5 million, (b) Mr. Santa Ines, $980,000, (c) Dr. Aron, $980,000, (d) Mr. Henkel, $980,000 and (e) Mr. Wood, $980,000.

 

(5)	Amounts have been converted to U.S. dollars based on using the exchange rate of Euros on the date that the Compensation Committee approved the fiscal 2015 compensation for executive officers.

 

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Outstanding Equity Awards at Fiscal Year End 2015

The following table shows, for the fiscal year ended March 31, 2015, certain information regarding outstanding equity awards at fiscal year end for our Named Executive Officers.

(1)	The value of the equity award is based on the closing price of our common stock of $64.11 on March 31, 2015, as reported on the NASDAQ Global Select Market.

(2)

The four-year time-based vesting terms of the restricted stock units is as follows, assuming continuous employment:  five percent of the shares vest after the first year; ten percent of the shares vest after the second year; 15 percent of the shares vest after the third year; and 70 percent of the shares vest after the fourth year.  Additional information on restricted stock units granted during fiscal 2015 is described above in “Restricted Stock Units.”

(3)

The restricted stock unit awards vest upon satisfying both performance and service criteria.  On April 28, 2015, the Compensation Committee determined that the Company’s consolidated income from operations for fiscal 2015 was above 100% of target and accordingly, because the performance criteria was achieved during fiscal 2015, the Fiscal 2015 Performance Units became eligible to vest in full, if each executive officer provides continuous employment through the vest date on the third and fourth year following the date of grant.

(4)

The restricted stock unit awards vest upon satisfying both performance and service criteria.  On April 28, 2015, we entered into a transition agreement with Mr. Santa Ines to remain with the Company after his retirement as a part-time, nonexecutive employee until May 15, 2016 and, subject to Mr. Santa Ines’ service through such date the time-based vesting of this performance restricted stock units granted to Mr. Santa Ines in April 2014 (which have already vested in full as to the Company’s performance) will be accelerated in full.

 

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Option Exercises and Stock Vested in Fiscal 2015

The following table shows all shares of common stock acquired upon all stock awards vested and value realized upon vesting, held by our Named Executive Officers during fiscal 2015.  None of our Named Executive Officers exercised any outstanding stock options during fiscal 2015 and as of the end of fiscal 2015, there were no outstanding stock options to purchase our common stock.

(1)	The value realized on vesting of restricted stock units equals the fair market value of our common stock on the settlement date, multiplied by the number of shares that vested.

Severance and Change in Control Agreements

Employment Agreements

In October 2010, we entered into an employment agreement with Mr. Severson, our Chief Executive Officer, which amended, restated and superseded Mr. Severson’s existing employment agreement, dated July 11, 2005.  The amended and restated employment agreement provides Mr. Severson with a severance payment equal to two years of salary, bonus and benefits if his employment with us is terminated for any reason other than cause.  Additionally, upon Mr. Severson’s termination without cause or resignation for good reason, all of Mr. Severson’s unvested stock options, restricted stock units and other equity awards would vest in full.  Certain severance benefits provided pursuant to the Severance Plan (described below) with respect to a change of control supersede those provided pursuant to the employment agreement.

On May 30, 2008, we entered into a service agreement with Mr. Henkel in connection with his appointment as Managing Director of our subsidiary, Abaxis Europe GmbH.  The service agreement provides that Mr. Henkel will be a participant in our Severance Plan.  In addition, the service agreement provides for six months of salary payments if Mr. Henkel is preventing from working due to illness or upon his death, which will be reduced by any health insurance payments upon such events.

On April 29, 2015, we entered into an offer letter agreement with Mr. Taylor in connection with his appointment as Chief Financial Officer, effective as of August 1, 2015.  The offer letter provides for an annual base salary of $250,000, a target annual cash incentive for fiscal 2016 of $425,000, an award of 9,000 restricted stock units subject to time-based vesting and 16,000 restricted stock units subject to performance-based vesting and a relocation bonus of $25,000.  The relocation bonus must be repaid, up to the full $25,000 amount, if Mr. Taylor resigns from employment or is terminated by us for Cause (as defined in Severance Plan described below) before October 20, 2018, the four year anniversary of Mr. Taylor’s initial employment start date with the Company, with the repayment amount pro-rated based on the time of such resignation or termination.  However, if there is a change in control of the Company prior to October 20, 2018 and Mr. Taylor remains an employee of our Company through such change in control, he does not need to repay the relocation bonus.  Additionally, the offer letter agreement also provides that Mr. Taylor will be a participant in the Severance Plan, on the specific terms and adjustments described below.

On May 1 2015, we entered into a transition agreement providing for Mr. Santa Ines’ retirement, effective as of July 31, 2015.  Pursuant to this agreement, Mr. Santa Ines will remain with the Company after his retirement as a part-time, nonexecutive employee on an hourly basis until May 15, 2016 and, subject to Mr. Santa Ines’ service through such date and the effectiveness of a release of claims, the time-based vesting of the performance restricted stock units granted to Mr. Santa Ines in April 2014 (which have already vested in full as to the Company’s performance) will be accelerated in full.  The transition agreement also provides that upon his retirement on July 31, 2015, Mr. Santa Ines will cease to be eligible for any severance of change of control benefits, including under the Severance Plan.

 

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Executive Change of Control Severance Plan

In July 2006, our Board of Directors, after considering a change of control program analysis from the peer company analysis prepared by our compensation advisor at that time and upon the recommendation of our Compensation Committee, approved and adopted the Abaxis, Inc. Executive Change of Control Severance Plan (the “Severance Plan”).  The Severance Plan was adopted by our Board of Directors to reduce the distraction of executives and potential loss of executive talent that could arise from a potential change of control.  Participants in the Severance Plan include Abaxis’ senior managers who are selected by the Board of Directors.  Each of our Named Executive Officers, as well as Mr. Taylor, are designated as participants in the Severance Plan, however Mr. Santa Ines will cease such participation as of his retirement from Chief Financial Officer on July 31, 2015.

The Board of Directors has amended the Severance Plan from time to time to ensure its compliance with Section 409A of the Code.  In May 2014, our Compensation Committee determined to discontinue the practice of providing “single-trigger” equity vesting acceleration upon a change of control and the tax “gross up” provisions in the Severance Plan, as further described below.  Accordingly, Mr. Taylor’s offer letter agreement with us provides that, notwithstanding the terms of the Severance Plan, Mr. Taylor will not be entitled to automatic vesting acceleration and the tax payment described above upon a change of control.  Instead, Mr. Taylor will be entitled to automatic equity vesting acceleration only on a “double-trigger” basis, requiring a termination in connection with a change of control, and will not be entitled to an excise tax gross up.

The Severance Plan (with respect to Mr. Taylor, as adjusted by his offer letter) provides that, if the participant’s employment is terminated by us (or any successor of Abaxis) for any reason other than cause, death, or disability within 18 months following the change of control date and such termination constitutes a separation in service, the participant is eligible to receive severance benefits as follows:

·

on the 60th day after the termination date, a lump sum cash payment equal to two times the sum of the participant’s annual base salary and the participant’s target annual bonus amount for the year in which the change of control occurs;

·

payment of up to 24 months of premiums for medical, dental and vision benefits, provided, however, that if the participant becomes eligible to receive comparable benefits under another employer’s plan, our benefits will be secondary to those provided under such other plan;

·

reimbursement, on a monthly basis, of up to 24 months of premiums for disability and life insurance benefits if the participant elects to convert his or her disability and/or life insurance benefits under our plans into individual policies following termination;

·

for a participant who joined the Severance Plan on or after May 2014, full vesting of all equity awards;

·

for a participant who joined the Severance Plan on or after May 2014, a “better after tax” provision providing that any payment or benefit the participant may receive that would be a “parachute payment” within the meaning of 280G of the Code subject to the Excise Tax will be either paid in full and subject to such Excise Tax or cut back to an amount that will not trigger the Excise Tax, whichever results in the greatest economic benefit for the participant; and

·

for a participant who joined the Severance Plan prior to May 2014  payment of an amount equal to any Excise Tax, as well as a payment in reimbursement of Excise Taxes and income taxes arising from the initial Excise Tax payment, provided, however, that payment of such amount is capped at $1,000,000 per participant.

Payment of the foregoing severance benefits is conditioned upon the participant’s execution of a valid and effective release of claims against us.

In addition, for participants who joined the Severance Plan prior to May 2014, the Severance Plan provides that upon the occurrence of a change of control, the participant’s outstanding stock option(s) and other unvested equity-based instruments will accelerate in full, and any such stock awards shall become immediately exercisable.  Under the 2005 Equity Incentive Plan, all equity awards held by executive officers accelerate upon a change in control.  This equity acceleration does not apply to Mr. Taylor.  Our 2014 Equity Incentive Plan does not contain this automatic vesting acceleration provision.

 

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Incentive Plans

Under our 2005 Equity Incentive Plan, or the 2005 Plan, in the event of a “change in control,” as such term is defined by the 2005 Plan, the surviving, continuing, successor or purchasing entity or its parent may, without the consent of any participant, either assume or continue in effect any or all outstanding options and stock appreciation rights or substitute substantially equivalent options or rights for its stock.  Any options or stock appreciation rights which are not assumed or continued in connection with a change in control or exercised prior to the change in control will terminate effective as of the time of the change in control.  Our Compensation Committee may provide for the acceleration of vesting of any or all outstanding options or stock appreciation rights upon such terms and to such extent as it determines.  The 2005 Plan also authorizes our Compensation Committee, in its discretion and without the consent of any participant, to cancel each or any outstanding option or stock appreciation right upon a change in control in exchange for a payment to the participant with respect to each vested share (and each unvested share if so determined by our Compensation Committee) subject to the cancelled award of an amount of cash, stock or other property equal to the fair market value of the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share under the award.  The Compensation Committee, in its discretion, may provide in the event of a change in control for the acceleration of vesting and/or settlement of any stock award, restricted stock unit award, performance share or performance unit, cash-based award or other share-based award held by a participant upon such conditions and to such extent as determined by our Compensation Committee.  The vesting of non-employee director awards and officer awards (including awards held by the Named Executive Officers) granted under the 2005 Plan automatically will accelerate in full upon a change in control. However, our offer letter agreements with new executive officers hired starting in fiscal 2015 (Mr. Taylor and Mr. Tockman) provide that, notwithstanding the terms of the 2005 Plan, they will not be entitled to automatic vesting acceleration upon a change of control.

Under our 2014 Equity Incentive Plan, or the 2014 Plan, in the event of certain specified significant corporate transactions, including a change in control, unless otherwise provided in a participant’s award agreement or other written agreement with us or one of our affiliates, we have the discretion to take any of the following actions with respect to stock awards: (1) arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company; (2) arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company; (3) accelerate the vesting of the stock award, in whole or in part, and provide for its termination prior to the effective time of the corporate transaction; (4) arrange for the lapse, in whole or in part, of any reacquisition or repurchase right held by us; (5) cancel or arrange for the cancellation of the stock award, to the extent not vested or not exercised prior to the effective time of the corporate transaction, in exchange for such cash consideration, if any, as the Board may deem appropriate; (6) make a payment equal to the excess of (a) the value of the property the participant would have received upon exercise of the stock award over (b) the exercise price otherwise payable in connection with the stock award.  We are not obligated to treat all stock awards, even those that are of the same type, in the same manner.  No automatic vesting acceleration occurs under the 2014 Plan upon a change of control, however we may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change of control.  Our form of restricted stock unit award agreement for non-employee directors provides that such awards will vest in full upon a change of control.

As described above, certain additional compensation is payable to a Named Executive Officer (i) if his employment was involuntarily terminated without cause or resignation for good cause, (ii) upon a change in control or (iii) if his employment was terminated involuntarily following a change in control.  The amounts shown in the table below assume that such termination was effective as of March 31, 2015, and do not include amounts in which the Named Executive Officer had already vested as of March 31, 2015.  The actual compensation to be paid can only be determined at the time of the change in control and/or a Named Executive Officer’s termination of employment.

 

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Potential Payments Upon Termination or Change in Control

 

(1)

The amounts listed for Mr. Severson are payments upon a termination without cause or upon his resignation for good reason, and are based on the aggregate of two years of salary, bonus, unvested time-based restricted stock units, unvested performance-based restricted stock units and benefits if his employment with us is terminated for any reason other than cause or if he resigns for good reason (as defined in Mr. Severson’s amended and restated employment agreement effective October 2010).  The amounts listed for Mr. Henkel are based on the aggregate of nine months of his base salary upon an involuntary termination (as defined in Mr. Henkel’s service agreement).  Mr. Henkel’s cash compensation is paid in Euros and has been converted to U.S. dollars based on the Euro to U.S. dollar exchange rate on March 31, 2015, the last day of fiscal 2015.

 

(2)	Amounts assume that the Named Executive Officer was terminated without cause or due to constructive termination during the 18-month period following a change in control.

 

(3)

The values of the time-based restricted stock unit and performance-based restricted stock unit assume that the market price per share of our common stock on the date of termination of employment was equal to the closing price of our common stock of $64.11 on March 31, 2015, as reported on the NASDAQ Global Select Market.

 

(4)	Health and welfare benefits include payment of 24 months of premiums for medical, dental, vision, disability, life insurance and long-term care benefits.

 

(5)

For purposes of computing the excise tax reimbursement and related gross up payments, base amount calculations are based on the Named Executive Officer’s taxable wages for fiscal years 2011 through 2015.  For Mr. Henkel, the amount above is based on the assumption that U.S. tax laws will not apply to Mr. Henkel, and therefore he would not receive the excise tax reimbursement or related gross up payments provided for in the Severance Plan.

 

(6)	Health and welfare benefits include payment of 24 months of premiums for medical, dental, vision, disability and life insurance benefits.

 

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(7)

Salary and bonus for Mr. Henkel was converted to U.S. dollars based on the Euro to U.S. dollar exchange rate on March 31, 2015.  Mr. Henkel’s benefits upon a termination or change in control may be adjusted as required under applicable foreign law; the amounts in the table above for Mr. Henkel assume that no such adjustments are required.

 

(8)

The amount listed for Mr. Henkel is based on the aggregate of six months of his base salary upon a termination due to his death or disability (as defined in Mr. Henkel’s service agreement).  The payment would be reduced by any health insurance payments upon such events, which are not reflected in the table above.  Mr. Henkel’s cash compensation is paid in Euros and has been converted to U.S. dollars based on the Euro to U.S. dollar exchange rate on March 31, 2015, the last day of fiscal 2015.

DIRECTOR COMPENSATION

Director Compensation Table

The table below summarizes the compensation paid to our non-employee directors for fiscal 2015.

(1)	Clinton H. Severson, our Chief Executive Officer and Director, is not included in this table as he is an employee of Abaxis and receives no compensation for his services as a director.  The compensation received by Mr. Severson as an employee is shown in the “Summary Compensation Table” above.

(2)

Each non-employee director listed in the table above was granted an award of 5,000 restricted stock units on April 28, 2014 under our 2005 Plan.  Amounts listed in this column represent the grant date fair value of the awards in accordance with ASC 718.  Amounts shown do not reflect whether the non-employee director has actually realized a financial benefit from the awards (such as by vesting in a restricted stock unit award).  For a discussion of the assumptions used in determining the fair value of awards of restricted stock units in the above table, see Note 15 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K filed with the SEC on June 1, 2015.  No stock awards were forfeited by our non-employee directors during fiscal 2015.

(3)	As of March 31, 2015, each of our non-employee directors held 5,000 shares of unvested restricted stock units.

Cash Compensation Paid to Board Members

During fiscal 2015, all non-employee directors received an annual retainer of $15,000, pro-rated based on the period of services provided by the non-employee director.  The non-employee Chairs of our Audit Committee, Compensation Committee and Nominating Committee received an annual supplement of $13,500, $7,500, and $5,000, respectively.  Our non-employee directors each received $1,250 per board meeting attended and $1,000 per committee meeting attended.  In April 2014, we designated Mr. Altman as our lead independent director and he received an annual supplement of $7,000 in connection with this appointment.  We also reimburse our non-employee directors for reasonable travel expenses incurred in connection with attending board and committee meetings.  Directors who are employees receive no compensation for their service as directors.

Equity Compensation Paid to Board Members

Non-employee directors are eligible to receive awards under the 2005 Plan, or the 2014 Plan, as applicable, but such awards are discretionary and not automatic.  In fiscal 2015, 2014 and 2013, each non-employee director received an annual equity award of 5,000, 4,000 and 4,500, respectively, restricted stock units granted under the 2005 Plan, for the services provided by the non-employee director during the respective period.  Each award of restricted stock units represents the right of the participant to receive, without payment of monetary consideration, on the vesting date, a number of shares of common stock equal to the number of units vesting on such date.  Subject to the director’s continued service with us through the applicable vesting date, each restricted stock unit award will vest in full 12 months after the grant date.  Under the terms of the 2005 Plan, and the director agreements under the 2014 Plan, the vesting of each non-employee director restricted stock unit award will also be accelerated in full in the event of a “change in control,” as defined in the 2005 Plan and the director agreements under the 2014 Plan.

 

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Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of May 29, 2015 by (i) each of the Named Executive Officers in the Summary Compensation Table; (ii) each of our directors; (iii) all of our executive officers and directors as a group and (iv) six holders of at least five percent of our common stock.  The persons named in the table have sole or shared voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table.

*	Less than one percent.

 

(1)

The percentages shown in this column are calculated based on 22,671,769 shares of common stock outstanding on May 29, 2015 and includes shares of common stock that such person or group had the right to acquire on or within sixty days after that date, including, but not limited to, upon the vesting of restricted stock units.

 

(2)	The business address of the beneficial owners listed is c/o Abaxis, Inc., 3240 Whipple Road, Union City, CA 94587.

 

(3)

Based on information set forth in a Schedule 13G/A filed with the SEC on February 5, 2015 by Brown Capital Management, LLC, reporting sole power to vote and dispose of 2,224,470 and 3,549,868 shares, respectively; and by The Brown Capital Management Small Company Fund, reporting sole power to vote and dispose of 1,833,580 shares.  The Brown Capital Management Small Company Fund is a registered investment company that is managed by Brown Capital Management, LLC, an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E).  The business address for Brown Capital Management, LLC and The Brown Capital Management Small Company Fund is 1201 North Calvert Street, Baltimore, MD 21202.

 

(4)

Based on information set forth in a Schedule 13G/A filed with the SEC on January 15, 2015 by BlackRock, Inc., a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G), reporting sole power to vote and dispose of 2,074,939 and 2,125,392 shares, respectively.  The business address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10022.

 

(5)

Based on information set forth in a Schedule 13G/A filed with the SEC on February 13, 2015 by PRIMECAP Management Company, an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E), reporting sole power to vote and dispose of 1,834,200 and 2,022,200 shares, respectively.  The business address for PRIMECAP Management Company is 225 South Lake Avenue, Suite 400, Pasadena, CA 91101.

 

(6)

Based on information set forth in a Schedule 13G/A filed with the SEC on February 5, 2015 by Kayne Anderson Rudnick Investment Management, LLC, an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E), reporting sole power to vote and dispose of 2,013,599 shares.  The business address for Kayne Anderson Rudnick Investment Management, LLC is 1800 Avenue of the Stars, Second Floor, Los Angeles, CA 90067.

 

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(7)

Based on information set forth in a Schedule 13G/A filed with the SEC on February 11, 2015 by both Neuberger Berman Group LLC and Neuberger Berman LLC, reporting shared power to vote and dispose of 1,644,473 and 1,648,973 shares, respectively; by Neuberger Berman Management LLC, reporting shared power to vote and dispose of 1,457,554 shares and by Neuberger Berman Equity Funds, reporting shared power to vote and dispose of 1,277,100 shares.  Neuberger Berman Group LLC, Neuberger Berman LLC, Neuberger Berman Management LLC and Neuberger Berman Equity Funds are a group in accordance with Rule 13d-1(b)(1)(ii)(K).  The business address for Neuberger Berman Group LLC, Neuberger Berman LLC, Neuberger Berman Management LLC and Neuberger Berman Equity Funds is 605 Third Avenue, New York, NY 10158.

 

(8)

Based on information set forth in a Schedule 13G/A filed with the SEC on February 10, 2015 by The Vanguard Group, Inc., an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E), reporting sole power to vote and dispose of 31,035 and 1,450,015 shares, respectively; and shared power to dispose of 28,535 shares.  Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 28,535 shares and Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 2,500 shares.  The business address for The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, PA 19355.

 

(9)

Includes:

·

87,139 shares held by Dr. Aron; and

·

500 shares held by Mrs. Aron’s IRA.

 

(10)

Includes:

·

51,400 shares held by Dr. Bastiani.

·

300 shares held by Dr. Bastiani’s wife.

 

(11)

Includes:

·

972,964 shares held by all executive officers and directors as a group; and

·

50 shares subject to the vesting of restricted stock units for all executive officers and directors as a group within sixty days of May 29, 2015.

Securities Authorized for Issuance Under Equity Compensation Plans

As of March 31, 2015, Abaxis had two equity incentive plans, the 2005 Plan and the 2014 Plan, under which our equity securities are authorized for issuance to our employees, directors and consultants.  Each of these plans were approved by our shareholders.

From time to time we issue warrants to purchase shares of our common stock to non-employees, such as service providers and purchasers of our preferred stock.  As of March 31, 2015, there were warrants outstanding to purchase 4,000 shares of common stock.

The following table provides aggregate information as of March 31, 2015 regarding (i) outstanding unvested restricted stock units and shares reserved under our equity compensation plans and (ii) outstanding warrants to purchase our common stock.

Equity Compensation Plan Information

(1)	The shares are available for award grant purposes under the 2014 Plan and exclude shares listed under the column “Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights.”

(2)	The 2014 Plan, which was approved by our shareholders on October 22, 2014, is the successor to and continuation of the 2005 Plan.

(3)	Represents outstanding and unvested restricted stock unit awards for which there is no exercise price.

 

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(4)

Consists of warrants issued to K-State Veterinary Diagnostic Lab and Kansas State University Institute for Commercialization (formerly known as National Institute for Strategic Technology Acquisition and Commercialization) to purchase 4,000 shares of Abaxis common stock.  In March 2015, the terms of our agreement with Kansas State University Institute for Commercialization were amended and accordingly, the vesting of these outstanding warrants was accelerated.  The exercise price of the warrants issued is $3.00 per share and have a term of five years, expiring in fiscal years 2016 through 2017.  In April 2015, 4,000 warrants were exercised.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

During the fiscal year ended March 31, 2015, there was not, nor is there any currently proposed transaction or series of similar transactions to which Abaxis was or is to be a party in which the amount involved exceeds $120,000 and in which any executive officer, director or holder of more than 5% of any class of voting securities of Abaxis and members of that person’s immediate family had or will have a direct or indirect material interest, other than as set forth in the “Executive Compensation” and “Director Compensation” above and in the paragraph immediately below.

Indemnification Agreements

We generally enter into indemnity agreements with our directors and executive officers.  These indemnity agreements require us to indemnify these individuals to the fullest extent permitted by law.

Related-Person Transactions Policy and Procedures

The Company has a written policy regarding the approval of related-party transactions.  Pursuant to the requirements set forth in this policy and the charter of our Audit Committee, our Audit Committee is responsible for reviewing and approving any related-party transactions, after reviewing each such transaction for potential conflicts of interests and other improprieties.

As required under the NASDAQ listing standards, a majority of the members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively determined by the Board of Directors.  The Board consults with our counsel to ensure that the Board’s determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in the NASDAQ listing standards, as in effect time to time.  Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and Abaxis, its senior management, and its independent registered public accounting firm, the Board has affirmatively determined that the following five directors are independent directors within the meaning of the applicable NASDAQ listing standards:  Mr. Altman, Mr. Casey, Mr. Evenhuis and Drs. Bastiani and Singh.  In making this determination, the Board found that none of the directors had a material or other disqualifying relationship with Abaxis.  Mr. Severson, our Chairman and Chief Executive Officer, is not an independent director by virtue of his employment with Abaxis.  Mr. Altman currently serves as the Board’s lead independent director.

Item 14.

Principal Accounting Fees and Services

For the fiscal years ended March 31, 2015 and 2014, our independent registered public accounting firm, Burr Pilger Mayer, Inc. billed the approximate fees set forth below.  All fees included below were approved by the Audit Committee.

 

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(1)	Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements, including attestation services related to Section 404 of the Sarbanes-Oxley Act of 2002.

(2)

Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”  In fiscal 2015 and 2014, these services include attestation services related to Abaxis’ tax deferral savings plan.

 

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Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy requiring the pre-approval of all audit and non-audit services to be performed for Abaxis by the independent registered public accounting firm.  The Audit Committee has considered the role of Burr Pilger Mayer, Inc. in providing audit and audit-related services to Abaxis and has concluded that such services are compatible with Burr Pilger Mayer, Inc.’s role as Abaxis’ independent registered public accounting firm.

 

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PART IV

Item 15.

Exhibits and Financial Statement Schedules

(a)	The following financial statements, schedules and exhibits are filed as part of this report:

1.	Financial Statements - The Financial Statements required by this item are listed on the Index to Consolidated Financial Statements in Part II, Item 8 of the original 10-K.

2.	Financial Statement Schedules –

·

Schedule II – Valuation and Qualifying Accounts and Reserves is included in the original 10-K.

·

Other financial statement schedules are not included because they are not required or the information is otherwise shown in the consolidated financial statements or notes thereto.

3.	Exhibits - The exhibits listed on the accompanying Exhibit Index are filed as part of, or are incorporated by reference into, this report.

(b)	See Item 15(a)(3) above.

(c)	See Item 15(a)(2) above.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 29, 2015.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

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