PROPOSAL ON
E
ELECTION OF DIRECTORS
General Informatio
n
Our board of directors is divided into three classes and currently consists of three Class I directors: Vincent J. Milano, Kelvin M. Neu, M.D. and William S. Reardon, C.P.A.; three Class II directors: Julian C. Baker, James A. Geraghty and Maxine Gowen, Ph.D.; and four Class III directors: Sudhir Agrawal, D. Phil., Youssef El Zein, Mark Goldberg, M.D. and Eve E. Slater, M.D. Each member of a class is elected for a three-year term, with the terms staggered so that approximately one-third of our directors stand for election at each annual meeting of stockholders. The Class I, Class II and Class III directors were elected to serve until the annual meeting of stockholders to be held in 2017, 2018 and 2016, respectively, and until their respective successors are elected and qualified.
Our board of directors, on the recommendation of our nominating and corporate governance committee, has nominated Dr. Agrawal, Mr. El Zein and Dr. Goldberg for election as Class III directors at the 2016 annual meeting. At the 2016 annual meeting, stockholders will be asked to consider the election of Dr. Agrawal, Mr. El Zein and Dr. Goldberg. Dr. Goldberg has been nominated for election as a director at a meeting of our stockholders for the first time. In January 2014, Dr. Goldberg was elected to our board of directors as a Class III director by action of our board of directors with a term expiring at our 2016 annual meeting. Dr. Goldberg was recommended for initial election to our board of directors by our nominating and corporate governance committee. Dr. Slater has not been nominated and will not be standing for re-election to our board of directors at the 2016 annual meeting.
The persons named in the enclosed proxy card will vote to elect Dr. Agrawal, Mr. El Zein and Dr. Goldberg to our board of directors unless you indicate that you withhold authority to vote for the election of any or all nominees. You may not vote for more than three directors. Each Class III director will be elected to hold office until our 2019 annual meeting of stockholders and until his or her successor is elected and qualified or until his or her earlier resignation, death or removal. Each of the nominees is presently a director and each has indicated a willingness to serve as a director, if elected. If a nominee becomes unable or unwilling to serve, however, the persons acting under the proxy may vote for substitute nominees selected by the board of directors.
Information about our Directors
Set forth below are the names of each of the nominees for election to our board of directors, the names of each of our other continuing directors, the years in which each first became a director, their ages as of April 15, 2016, their positions and offices with our company, their principal occupations and business experience during at least the past five years and the names of other public companies for which they currently serve, or have served within the past five years, as a director. We have also included information about each director’s specific experience, qualifications, attributes or skills that led our board of directors to conclude that such individual should serve as one of our directors. We also believe that all of our directors, including our nominees, have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Idera and our board of directors.
Recommendation of the Board of Directors
Our board of directors unanimously recommends that the stockholders vote FOR the election of
Dr. Agrawal, Mr. El Zein and Dr. Goldberg
as Class III directors.
Class III Nominees — Terms to Expire in 2019
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Sudhir Agrawal, D. Phil.
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Director since 1993
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Dr. Agrawal, age 62, has been our President of Research since December 2014. Prior to this, he served as our President from February 2000 to October 2005 and again from September 2008 to November 2014 and our Chief Executive Officer from August 2004 to November 2014. He served as the chairman of our board of directors from September 2010 until July 2013. He also served as our Chief Scientific Officer from January 1993 until September 2010 and as Acting Chief Executive Officer from February 2000 until September 2001. Dr. Agrawal joined us in 1990 and
served in various capacities before his appointment as Chief Scientific Officer, including Scientific Founder, Vice President of Discovery and Senior Vice President of Discovery. Prior to joining us, Dr. Agrawal served as a Foundation Scholar at the Worcester Foundation for Experimental Biology in Massachusetts, and conducted post-doctoral research at the Medical Research Council’s Laboratory of Molecular Biology in Cambridge, England and obtained his D. Phil. from Allahabad University in India. We believe that Dr. Agrawal’s qualifications to sit on our board of directors include his unique insights into our challenges, opportunities and operations that he has as a result of the various roles he has played with us since our founding, including Scientific Founder, Chief Scientific Officer, Chief Executive Officer, Chairman and President of Research.
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Youssef El Zein
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Director since 1992
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Mr. El Zein, age 67, has been the Managing Partner of Pillar Invest Corporation, a Cayman Island company that he founded, and the General Partner of a family of funds, including Pillar Pharmaceuticals I, L.P. and Pillar Pharmaceuticals II, L.P., since 2011. Mr. El Zein has been the chairman and Chief Executive Officer of Pillar Invest (offshore) SAL since 2009. Mr. El Zein has been managing partner of Pillar Investment Limited, a private investment firm, since 1991. Mr. El Zein holds a Bachelor of Arts in Economics from the American University of
Beirut in 1970 and a post-graduate degree in Economics from St. Catherine’s College, Oxford University in 1973. We believe that Mr. El Zein’s qualifications to sit on our board of directors include his knowledge of our industry, his financial experience, his affiliation with one of our significant stockholders and his significant role in various financings we have conducted and during his 23 years of service on our board of directors.
Mark Goldberg, M.D.
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Director since 2014
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Dr. Goldberg, age 61, served as a medical and regulatory strategist for Synageva BioPharma Corp., a biopharmaceutical company, from October 2014 until June, 2015. Prior to that, he served as the Executive Vice President for Medical and Regulatory Strategy of Synageva from January 2014 to October 2014 and as the Senior Vice President of Medical and Regulatory Affairs of Synageva from September 2011 to January 2014. Dr. Goldberg served in a variety of senior management positions at Genzyme Corporation, a biotechnology company, from 1996 to July 2011, including most recently as Senior Vice President and Therapeutic Group Head for Oncology, Genetic and Neurodegenerative Diseases Clinical Development from 2009 to July 2011. Prior to working at Genzyme Corporation, he was a full time staff physician at Brigham and Women’s Hospital and Dana Farber Cancer Institute, where he still holds appointments. He has also been an Associate Professor of Medicine at Harvard Medical School since 1996. Dr. Goldberg is a board-certified medical oncologist and hematologist and has more than 50 published papers. Dr. Goldberg currently serves on the board of directors of ImmunoGen, Inc., GlycoMimetics, Inc., Blueprint Medicines Corporation, and aTyr Pharma, Inc., all publicly traded companies. Dr. Goldberg also served on the board of directors of Synageva from October 2008 to December 2011. Dr. Goldberg holds an A.B. from Harvard College and an M.D. from Harvard Medical School. We believe that Dr. Goldberg’s qualifications to sit on our board of directors include his extensive scientific and medical background, public company board experience and extensive experience in the management and operations of pharmaceutical companies.
Continuing Members of the Board of Directors
Class I Directors — Terms to Expire in 2017
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Vincent J. Milano
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Director since 2014
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Vincent Milano, age 52, has been our President and Chief Executive Officer, and a member of our board of directors, since December 2014. Prior to joining us, Mr. Milano served as Chairman, President and Chief Executive Officer of ViroPharma Inc., a pharmaceutical company that was acquired by Shire Plc in January 2014, from March 2008 to January 2014, as its Vice President, Chief Financial Officer and Chief Operating Officer from January 2006 to March 2008 and as its Vice President, Chief Financial Officer and Treasurer from April 1996 to December 2005. Mr. Milano also served on the board of directors of ViroPharma from March 2008 to January 2014. Prior to joining ViroPharma, Mr. Milano served in increasingly senior roles, most recently senior manager, at KPMG LLP, an independent registered public accounting firm, from July 1985 to March 1996. Mr. Milano currently serves on the board of directors of Spark Therapeutics, Inc. and Vanda Pharmaceuticals Inc., each a publicly traded company, and VenatoRx
Pharmaceuticals, Inc. Mr. Milano holds a Bachelor of Science degree in Accounting from Rider College. We believe Mr. Milano’s qualifications to sit on our board of directors include his knowledge of our company as our President and Chief Executive Officer, knowledge of our industry, including over 19 years of experience serving in a variety of roles of increasing responsibility in the finance department, corporate administration and operations of a multinational biopharmaceutical company, and understanding of pharmaceutical research and development, sales and marketing, strategy, and operations in both the United States and overseas. He also has corporate governance experience through service on other public company boards.
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Kelvin M. Neu, M.D.
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Director since 2014
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Dr. Neu, age 42, is a Managing Director of Baker Bros. Advisors LP and has been with the firm since 2004. The firm primarily manages long-term investment funds focused on publicly traded life sciences companies. Dr. Neu previously served on the board of directors of XOMA Corporation, a publicly traded company. Dr. Neu also served as a director of AnorMED Inc. and diaDexus, Inc. Dr. Neu holds an A.B. in Molecular Biology from Princeton University and an M.D. from Harvard Medical School and the Harvard-MIT Division of Health Sciences and Technology. He also trained for three years in the Immunology Ph.D. program at Stanford University. We believe that Dr. Neu’s qualifications to sit on our board of directors include his scientific background, affiliation with one of our significant stockholders and knowledge of our industry.
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William S. Reardon, C.P.A.
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Director since 2002
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Mr. Reardon, age 69, has been a director since 2002 and served as lead independent director of our board of directors from September 2010 to July 2013. He served as an audit partner at PricewaterhouseCoopers LLP, where he led the Life Science Industry Practice for New England and the Eastern United States from 1986 until his retirement from the firm in July 2002. Mr. Reardon currently serves as a director of Synta Pharmaceuticals, Inc., a publicly traded company. Mr. Reardon has also served as a trustee of closed-end mutual funds H&Q Healthcare Investors and H&Q Life Sciences Investors since April 2010. We believe that Mr. Reardon’s qualifications to sit on our board of directors include his accounting and financial experience, including as a partner at a leading accounting firm leading its life science practice, his role in keeping the board of directors and senior management team abreast of current accounting regulations and his experience as a member of several boards of directors of biotechnology companies. Additionally, we value Mr. Reardon’s role in leading the board on matters of corporate governance, before, during and after his service as lead independent director.
Class II Directors — Terms to Expire in 2018
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Julian C. Baker
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Director since 2014
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Mr. Baker, age 49, is a Managing Partner of Baker Brothers Investments, which he founded in 2000 with his brother, Dr. Felix J. Baker. The firm primarily manages long-term investment funds focused on publicly traded life sciences companies. Mr. Baker’s career as a fund manager began in 1994 when he co-founded a biotechnology investing partnership with his brother and the Tisch Family. Previously, Mr. Baker was employed from 1988 to 1993 by the private equity investment arm of Credit Suisse First Boston Corporation. He also serves on the boards of directors of Acadia Pharmaceuticals, Inc., Incyte Corporation and Genomic Health, Inc. and previously served on the board of directors of Trimeris, Inc. Mr. Baker holds an A.B. from Harvard University. We believe that Mr. Baker’s qualifications to sit on our board of directors include his financial expertise, affiliation with one of our significant stockholders, knowledge of our industry and significant public company board experience.
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James A. Geraghty
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Director since 2013
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Mr. Geraghty, age 61, has served as chairman of our board of directors since July 2013. He has been an Entrepreneur in Residence at Third Rock Ventures since May 2013. Mr. Geraghty served as a Senior Vice President of Sanofi, a global healthcare company, from April 2011 to December 2012. Prior to that, he served in various senior management roles at Genzyme Corporation, a biotechnology company, from 1992 to April 2011, including as Senior Vice President, International Development from January 2007 to April 2011. Mr. Geraghty has served as a director of Voyager Therapeutics, Inc., a publicly traded company, since 2014. He has also served as a director of Juniper Pharmaceuticals, Inc., a publicly traded company, since May 2015 and as its chairman of the board since July 2015. Mr.
CORPORATE GOVERNANCE INFORMATIO
N
Board of Director
s
Our board of directors is responsible for establishing our broad corporate policies and overseeing the management of our company. Our chief executive officer and our other executive officers are responsible for our day-to-day operations. Our board evaluates our corporate performance and approves, among other things, our corporate strategies and objectives, operating plans, major commitments of corporate resources and significant policies. Our board also evaluates and appoints our executive officers.
Our board of directors met six times during 2015, including regular, special and telephonic meetings. Each director who served as a director during 2015 attended at least 75% of the total number of board meetings held during 2015 while he or she was a director and of the total number of meetings held by all board committees on which he or she served during 2015.
Directors are responsible for attending our annual meetings of stockholders. Four of our directors attended the 2015 annual meeting of stockholders in person.
Board Leadership Structure
Our board does not have a policy on whether the offices of chairman of the board and chief executive officer should be separate and, if they are to be separate, whether the chairman of the board should be selected from among the independent directors or should be an employee of our company. Our board believes that it should have the flexibility to make these determinations at any given point in time in the way that it believes best to provide appropriate leadership for our company at that time. Currently, Mr. Geraghty serves as chairman of our board and Mr. Milano serves as chief executive officer. Our board believes that this separation allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the board to lead the board in its fundamental role of providing advice to and independent oversight of management.
Our board recognizes that no single leadership model is right for all companies and at all times and that depending on the circumstances, other leadership models, such as a combined chairman and chief executive officer, might be appropriate. Accordingly, the board periodically reviews its leadership structure. Pursuant to our corporate governance guidelines, if the chairman is not an independent director, the board may elect a lead director from its independent directors. In such case, the chairman and chief executive officer would consult periodically with the lead director on board matters and on issues facing our company. In addition, the lead director would serve as the principal liaison between the chairman of the board and the independent directors and would preside at any executive session of independent directors.
Board’s Rol
e in Risk Oversight
Our board of directors, as a whole, has responsibility for risk oversight, with reviews of certain areas being conducted by relevant committees that report directly to the board of directors. The oversight responsibility of the board of directors and its committees is enabled by management reporting processes that are designed to provide visibility to the board of directors about the identification, assessment and management of critical risks and management’s risk mitigation strategies. These areas of focus include competitive, economic, operational, financial (accounting, credit, liquidity and tax), legal, regulatory, compliance, health, safety, environmental, political and reputational risks. Our board of directors regularly reviews information regarding our strategy, operations, credit and liquidity, as well as the risks associated with each. Our compensation committee is responsible for overseeing risks relating to our executive compensation plans and arrangements. Our audit committee is responsible for overseeing financial risks and risks associated with related party transactions. Our nominating and corporate governance committee is responsible for overseeing risks associated with the independence of the board of directors. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed through committee reports about such risks.
Board Committees
Our board of directors has established three standing committees: audit, compensation and nominating and corporate governance. Each of our audit, compensation and nominating and corporate governance committees operates
Executive Officers
of Idera
The following table sets forth the names, ages and positions of our executive officers as of April 15, 2016:
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Name
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Age
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Position
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Vincent J. Milano*
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52
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President and Chief Executive Officer
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Sudhir Agrawal, D. Phil.**
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62
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President of Research
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Louis J. Arcudi, III, M.B.A.
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55
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Senior Vice President of Operations, Chief Financial Officer, Treasurer and Assistant Secretary
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Mark J. Casey, Esq.
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53
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Senior Vice President, General Counsel and Secretary
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R. Clayton Fletcher
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53
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Senior Vice President, Business Development and Strategy
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Joanna Horobin, M.B., Ch.B
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61
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Senior Vice President, Chief Medical Officer
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* Mr. Milano is a continuing member of our board of directors. See “Proposal One — Election of Directors” for more information about Mr. Milano.
** Dr. Agrawal is a continuing member of our board of directors. See “Proposal One — Election of Directors” for more information about Dr. Agrawal.
Louis J. Arcudi, III, M.B.A.
, has been our Senior Vice President of Operations since April 2011 and our Chief Financial Officer and Treasurer since he joined us in December 2007. Mr. Arcudi served as our Secretary from December 2007 until June 2015 and has been our Assistant Secretary since June 2015. Prior to joining us, Mr. Arcudi served as Vice President of Finance and Administration and Treasurer for Peptimmune, Inc., a biotechnology company, from 2003 to 2007. From 2000 to 2003, Mr. Arcudi was Senior Director of Finance and Administration at Genzyme Molecular Oncology Corporation, a division of Genzyme Corporation. He was Director of Finance Business Planning and Operations International at Genzyme from 1998 to 2000. Prior to joining Genzyme, he held finance positions with increasing levels of responsibility at Cognex Corporation, a supplier of machine vision systems, Millipore Corporation, a provider of technologies, tools and services for bioscience, research and biopharmaceutical manufacturing, and General Motors Corporation, an automobile manufacturer. Mr. Arcudi holds an M.B.A. from Bryant College and a B.S. in accounting and information systems from the University of Southern New Hampshire
.
Mark J. Casey, Esq.
, has been our as Senior Vice President, General Counsel, and Secretary since June 2015. Previously, he served as Senior Vice President, General Counsel, and Secretary at Hologic, Inc., a global healthcare and diagnostics company, from October 2007 to December 2014 and as Chief Administrative Officer from March 2012 to December 2014, following Hologic’s acquisition of Cytyc Corporation. Prior to the acquisition, Mr. Casey served as Vice President, Deputy General Counsel, and Chief Patent Counsel of Cytyc from 2002 to 2007. Prior to joining Cytyc, Mr. Casey held roles of increasing responsibility at Boston Scientific Corporation and EMC Corporation. Mr. Casey holds a B.S. in electrical engineering from Syracuse University and a J.D. from Suffolk University Law School
.
R. Clayton Fletcher
, has been our Senior Vice President, Business Development and Strategic Planning since January 2015. Prior to joining us, Mr. Fletcher served in increasingly senior positions at ViroPharma Inc., which was acquired by Shire Plc in January 2014, from April 2001 until January 2014, including as Vice President, Business Development and Project Management from 2005 until January 2014. Mr. Fletcher served as Senior Project Manager at SmithKline Beecham plc, a pharmaceutical company, which was purchased by Glaxo Wellcome plc in December 2000, from 1997 until 2001. Prior to working at SmithKline Beecham, he served as Project Scientist, at Becton, Dickinson and Company, a medical devices company and as Principal Scientist at Intracel Corporation, a biopharmaceutical company. Prior to working at Intracel, he served as Senior Associate Scientist at Centocor Biotech, Inc., a biotechnology company from 1991 until 1993. Mr. Fletcher holds a B.S. and a M.S. in biology from Wake Forest University
.
Joanna Horobin, M.B., Ch.B
, has been our Senior Vice President and Chief Medical Officer since November 2015. Prior to joining us, Dr. Horobin served as the Chief Medical Officer of Verastem, Inc., a biopharmaceutical company, from October 2012 to June 2015. Prior to joining Verastem, she served as President of Syndax Pharmaceuticals, a biopharmaceutical company, from September 2006 to October 2012 and as Chief Executive Officer from September 2006 until April 2012. Prior to that, Dr. Horobin held several roles of increasing responsibility at global
pharmaceutical corporations such as Rhône-Poulenc Rorer (now Sanofi) and Chugai
-Rhône-Poulenc
. Dr. Horobin received her medical degree from the University of Manchester, England.
EXECUTIVE COMPENSATIO
N
Compensation Discussion and Analysi
s
Executive Summary
The compensation committee of our board of directors is responsible for establishing compensation policies with respect to our executive officers, including our chief executive officer and our other executive officers who are listed in the Summary Compensation table on page 36 and who we refer to as “named executive officers.” Our “named executive officers” include Vincent J. Milano, our President and Chief Executive Officer, Sudhir Agrawal, D. Phil., our President of Research, Louis J. Arcudi, III, our Chief Financial Officer, Mark J. Casey, our Senior Vice President, General Counsel and Secretary, and R. Clayton Fletcher, our Senior Vice President of Business Development and Strategy. Our compensation committee makes compensation decisions relating to our executive officers after consultation with our board of directors.
This section discusses the principles underlying our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by our named executive officers. As further discussed in this section, we design our compensation and benefit programs to attract, retain, and motivate individuals who will maximize our business results by working to meet or exceed established company and individual objectives. In addition, we use our programs to reward our executive officers for corporate and individual performance.
The following items represent key compensation-related events and actions during or related to 2015:
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At our 2015 annual meeting of stockholders, 99% of votes cast approved our 2014 executive compensation program.
The board of directors and compensation committee considered the results of this advisory vote, together
with the
other factors and data discussed in this proxy statement, in determining executive compensation decisions and will continue to consider the outcome of our
say on pay
votes when making future compensation decisions
for our
named executive officers
.
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In 2015, the essential components of our executives’ compensation remained the same, including base salary; annual cash bonuses to reflect achievement of company and individual objectives; and stock option awards to align the long-term incentives of our executives with the long-term performance of the company and interests of our stockholders.
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We continued our practice of
targeting overall compensation towards
the 50
th
percentile of
the market data.
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We provided salary increases to select named executive offers in early 2016, but did not increase the salaries of our President and Chief Executive Officer and President of Research due to their current above-median positioning among our benchmark data.
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We made changes to add more rigor and structure to our assessment of company performance against objectives
for purposes of the annual cash bonus determination
. Our assessment resulted in a corporate performance score of 98%, reflecting strong company performance overall (see pages 27-29 for a description of how the corporate performance score factors into cash bonus payouts).
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Compensation Philosophy and Objectives
The compensation committee seeks to achieve the following broad goals in connection with our executive compensation programs and decisions regarding individual compensation:
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attract, retain and motivate the best possible executive talent;
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ensure executive compensation is aligned with our corporate strategies and business objectives, including our short-term operating goals and longer-term strategic objectives;
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promote the achievement of key strategic and financial performance measures by linking short- and long-
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term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and
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align executives’ incentives with the creation of stockholder value.
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To achieve these objectives, the compensation committee:
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sets short- and long-term compensation at levels the compensation committee believes are competitive with those of other companies in our industry and our region that compete with us for executive talent;
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ties a substantial portion of each executive officer’s overall cash compensation to key strategic, financial, research, and operational goals such as clinical trial and regulatory progress, intellectual property portfolio development, establishment and maintenance of key strategic relationships, and exploration of business development opportunities, as well as our financial and operational performance; and
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provides a portion of our executive compensation in the form of stock options or other stock awards that vest over time from the date of grant of the option awards and from the time of achievement of performance milestones when applicable, which we believe helps to retain our executives and align their interests with those of our stockholders by allowing them to participate in the longer term success of our company as reflected in stock price appreciation.
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Compensation Benchmarking
During 2014 and until September 2015, our compensation committee engaged Radford
Survey + Consulting, or Radford,
and in October 2015, our compensation committee engaged Pearl Meyer & Partners, LLC or Pearl Meyer, in each case, to provide advice and recommendations regarding the amount and form of executive compensation, equity incentive programs, and compensation generally. During 2014, our compensation committee also engaged Radford to provide advice and recommendations regarding our director compensation program, which is discussed above under “Proposal One — Election of Directors — Director Compensation.” Neither Radford nor Pearl Meyer provided any services to our company during 2014 or 2015 other than pursuant to their respective engagement by the compensation committee. Our compensation committee considered the relationship that each firm has with us, the members of our compensation committee and our executive officers, as well as the policies that each has in place to maintain its independence and objectivity. Based on the compensation committee’s evaluation, as well as the consideration by our executive officers of the policies that each firm has in place to maintain its independence and objectivity, the compensation committee has determined that neither Radford’s nor Pearl Meyer’s work for the compensation committee raised any conflicts of interest. In reaching these conclusions, the compensation committee considered the factors set forth in Exchange Act Rule 10C-1.
As part of its engagement, in February 2014, in connection with the compensation committee’s review of our director compensation program, Radford worked with the compensation committee to select a peer group of publicly traded companies. In working with Radford to develop the peer group, the compensation committee and Radford generally targeted mid- to late-development stage companies conducting Phase 2 or Phase 3 clinical trials, with approximately 15 to 60 employees and valuations ranging from one-half to one and one-half times our size in terms of market capitalization. In its assessment of companies with comparable market capitalizations, the compensation committee assumed that all outstanding preferred stock and warrants to purchase common stock were converted into or exercised for shares of our common stock. The companies included in the 2014 peer group were:
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AcelRx Pharmaceuticals Inc.
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Achillion Pharmaceuticals, Inc.
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BioCryst Pharmaceuticals, Inc.
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bluebird bio Inc.
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Cempra, Inc.
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Chelsea Therapeutics International, Ltd.
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Chimerix, Inc.
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Corcept Therapeutics Incorporated
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CytRx Corporation
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Durata Therapeutics, Inc.
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Enanta Pharmaceuticals, Inc.
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Endocyte Inc.
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Inovio Pharmaceuticals, Inc.
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Insmed Incorporated
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Intra-Cellular Therapies, Inc.
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Neuralstem, Inc.
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Orexigen Therapeutics, Inc.
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Repros Therapeutics Inc.
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Verastem, Inc.
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In connection with the compensation committee’s annual performance and compensation review in November 2014 and December 2014, Radford provided the compensation committee with a blend of the data from the 2014 peer group and compensation survey data from the Radford 2014 Global Life Sciences Survey, a survey of U.S. biotech companies. We refer to this blended data as the “2014 market compensation data.” Our compensation committee considered this 2014 market compensation data in
making its compensation determinations in December 2014, including its determinations with respect to base salaries for 2015,
bonus targets and option awards. The compensation committee also used this data in setting Messrs. Milano’s, Fletcher’s and Casey’s compensation arrangements upon their hiring.
As part of its engagement, in November and December 2015, in connection with its review of our executive compensation program, Pearl Meyer worked with the compensation committee to select an updated peer group. In working with Pearl Meyer to develop the updated peer group, the compensation committee and Pearl Meyer generally targeted mid- to late-development stage companies in the Pharmaceuticals, Biotechnology and Life Sciences sectors that met the following screening criteria:
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Company Size: revenue less than or equal to $150M
; o
perating expense less than or equal to four times our operating expense (i.e., less than or equal to $187M); employees between 20-200;
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Business Operations: conducting Phase 2 or Phase 3 clinical trials in at least one of oncology, rare diseases, or leveraging a ‘technology platform’ model; and
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Other: exclude, subsidiaries; companies with business challenges; companies having market valuations below $50M; and companies that have recently conducted an initial public offering (i.e., in 2015).
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The following table lists the 18 companies included in the 2015 peer group:
rgos
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Argos Therapeutics, Inc.
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Arrowhead Research Corp.
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BIND Therapeutics, Inc.
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bluebird bio Inc.
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Celldex Therapeutics, Inc.
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Concert Pharmaceuticals, Inc.
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Dicerna Pharmaceuticals, Inc.
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Dynavax Technologies Corp.
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Endocyte, Inc.
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GlycoMimetics, Inc.
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Immune Design Corp.
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Immunomedics, Inc.
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Inovio Pharmaceuticals, Inc.
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Kite Pharma, Inc.
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OncoMed Pharmaceuticals, Inc.
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Regulus Therapeutics, Inc.
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Xencor, Inc.
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ZIOPHARM Oncology, Inc.
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Executive Compensation Process
Our compensation committee intends that if we achieve our corporate goals and the executive performs at the level expected, the executive should have the opportunity to receive compensation that is competitive with industry norms. Accordingly, our compensation committee generally targets overall compensation for executives towards the 50th percentile of the market data. However, the compensation committee does not apply those targets formulaically and allows for individuals to be positioned at different percentiles based on experience, performance levels and potential performance levels of the executive, and changes in duties and responsibilities.
In order to accomplish its objectives consistent with its philosophy for executive compensation, our compensation committee typically takes the following actions annually:
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reviews chief executive officer performance;
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seeks input from our chief executive officer on the performance of all other executive officers;
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reviews all components of executive officer compensation, including base salary, cash bonus targets and awards, equity compensation, the dollar value to the executive and cost to us of all health and life insurance and other employee benefits, and the estimated payout obligations under severance and change in control scenarios;
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consults with an independent compensation consultant;
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holds executive sessions (without our management present);
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reviews information regarding the performance and executive compensation of other companies; and
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reviews all of the foregoing with the board of directors.
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Under our annual performance review program for our executives, annual performance goals are determined for our company as a whole and for each executive individually. Annual corporate goals are proposed by management and approved by the board of directors. These corporate goals target the achievement of specific research, clinical, operational, and financial milestones. The compensation committee determines how the components of our annual company goals will contribute to the overall performance evaluation. In connection with the compensation committee’s annual performance and compensation review in December 2015, Pearl Myer provided the compensation committee with a blend of the data from the 2015 peer group supplemented by compensation survey data from the Radford 2015 Global Life Sciences Survey, a survey of U.S. biotech companies, where the peer group data did not yield a sufficient sample pool. We refer to this blended data as the “2015 market compensation data.”
Annual individual goals focus on contributions that facilitate the achievement of the corporate goals and are closely aligned with the corporate goals. Individual goals are proposed at the start of each year by each executive and approved by the chief executive officer and, as appropriate, the compensation committee. Typically, the compensation committee sets the chief executive officer’s goals and reviews and discusses with the chief executive officer the goals for all other executive officers. The individual performance goals of each named executive officer consist primarily of the key objectives and goals from our annual business plan that relate to the functional area for which the named executive officer is responsible. The individual performance goals for the chief executive officer are largely coextensive with the corporate goals.
At the end of each year, the compensation committee evaluates corporate and individual performance. The compensation committee considers the achievement of the corporate goals and individual performance as factors in determining annual salary increases, annual bonuses and annual stock option awards granted to our executives. In assessing corporate performance, the compensation committee evaluates corporate performance alongside the approved corporate goals for the year and also evaluates other aspects of corporate performance, including achievements and progress made by us outside of the corporate goals. In assessing individual performance, the compensation committee evaluates corporate performance in the areas of each officer’s responsibility and relies on the chief executive officer’s evaluation of each officer. The chief executive officer prepares evaluations of the other executives and in doing so compares individual performance to the individual performance goals. The chief executive officer recommends annual executive salary increases, annual stock option awards and bonuses, if any, for the other executives, which are then reviewed and approved by the compensation committee. In the case of the chief executive officer, the compensation committee conducts his individual performance evaluation. During this process, the compensation committee consults with its compensation consultant and, prior to approving compensation for executive officers, consults with the board of directors.
For all executives, annual base salary increases, if any, are implemented during the first calendar quarter of the year. Annual stock option awards and bonuses, if any, are granted as determined by the compensation committee. For 2014, these were granted in the fourth quarter of 2014, and for 2015, these were granted in the first quarter of 2016.
The compensation committee generally does not plan to approve annual equity grants to employees, including named executive officers, at a time when our company is in possession of material non-public information. We do not award stock options to named executive officers concurrently with the release of material non-public information.
Elements of Executive Compensation
The compensation program for our executives generally consists of five elements based upon the foregoing objectives:
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health insurance, life insurance, and other employee benefits; and
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severance and change in control benefits.
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The value of our variable, performance-based compensation is allocated between short-term compensation in the form of a cash bonus and long-term compensation in the form of stock option awards that vest over time from the date of grant of the option awards or from the time of achievement of performance milestones. The annual cash bonus is intended to provide an incentive to our executives to achieve short-term operational objectives. The stock option awards provide an incentive for our executives to achieve longer-term strategic business goals, which should lead to higher stock prices and increased stockholder value. We have not had any formal or informal policy or target for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation, or among the different forms of non-cash compensation. Instead, the compensation committee, after reviewing industry information and our cash resources, determines subjectively what it believes to be the appropriate level and mix of the various compensation components.
We do not have any defined benefit pension plans or any non-qualified deferred compensation plans.
We are party to employment agreements and employment offer letters with each of our named executive officers. Other than our employment agreement with Dr. Agrawal, none of these employment agreements and employment offer letters include provisions providing for tax gross-ups and our compensation committee does not intend to include such provisions in employment related agreements in the future. Employment agreements and employment offer letters with our named executive officers are described below under the caption “Agreements with our Named Executive Officers.”
Base Salary
In establishing base salaries for our named executive officers, our compensation committee typically reviews the market compensation data presented by the committee’s independent compensation consultant, considers historic salary levels of the executive officer and the nature of the executive officer’s responsibilities, compares the executive officer’s base salary with those of our other executives, and considers the executive officer’s experience, performance and contributions. The compensation committee also typically considers the challenges involved in hiring and retaining experienced leaders and scientific personnel with extensive experience in the pharmaceutical industry. In assessing the executive officer’s performance, the compensation committee considers the executive officer’s role in the achievement of the annual corporate goals, as well as the performance evaluation prepared by our chief executive officer with respect to such executive officer. The compensation committee considers such evaluation as a means of informing the compensation committee’s decision as to whether the executive officer’s performance was generally consistent with our expectations.
As part of our 2014 annual performance and compensation review, the compensation committee approved new annual base salaries for our executive officers for 2015. In setting these annual base salaries, the compensation committee reviewed the 2014 market compensation data presented by Radford. After reviewing such data, the compensation committee approved increases in the annual base salaries of each of our named executive officers by 3.0%, yielding new annual base salaries of $588,100 for Dr. Agrawal and $337,400 for Mr. Arcudi, effective as of January 1, 2015.
As part of our December 2015 annual performance and compensation review, the compensation committee approved new annual base salaries for our executive officers to be effective January 1, 2016. In setting these annual base
salaries, the compensation committee reviewed the 2015 market compensation data presented by Pearl Meyer. After considering each executive’s current salary, performance, and experience in the context of the market compensation data as well as relative to one another, the compensation committee approved the following salary increases and resulting base salaries:
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2015 Base Salary
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2016 Base Salary
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% Increase
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Mr. Milano
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$600,000
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$600,000
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0.0
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Dr. Agrawal
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$588,100
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$588,100
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0.0
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Mr. Arcudi
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$337,400
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$347,500
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3.0
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Mr. Casey
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$360,000
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$371,000
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3.1
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Mr. Fletcher
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$360,000
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$375,000
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4.2
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Cash Bonuses
The compensation committee generally structures cash bonuses by linking them to the achievement of the annual corporate goals, corporate performance outside of the corporate goals, and individual performance. The amount of the bonus paid, if any, varies among the executive officers depending on individual performance and their contribution to the achievement of our annual corporate goals and corporate performance generally. The compensation committee reviews and assesses corporate goals and individual performance by executive officers and considers the reasons why specific goals have been achieved or have not been achieved. While achievement against the applicable corporate goals is given substantial weight in connection with the determination of annual bonuses, we also factor in an evaluation of our named executive officers’ individual performance based on analysis of achievement of individual performance goals as well as the following subjective criteria:
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judgment and decision making skills;
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results orientation; and
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The compensation committee set the following individual bonus target percentages for each of our named executive officers for 2015. In determining the target bonus percentages to be used, the compensation committee concluded that the
target bonus percentages should be competitive with the 50
th
percentile of the 2015 market compensation data and that there be no difference in the target bonus percentages of our named executive officers, other than Mr. Milano and Dr. Agrawal
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2015 Target Cash Bonus (% of base salary)
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Mr. Milano
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50%
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Dr. Agrawal
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50%
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Mr. Arcudi
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40%
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Mr. Casey
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40%
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Mr. Fletcher
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40%
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Consistent with a company-wide annual incentive plan approved by the compensation committee in April 2015 and applicable to all employees including our named executive officers, both a corporate performance score and individual performance score factored into the determination of each executive officer’s cash bonus award for 2015.
Under the terms of our incentive plan, the corporate performance score is based on the degree to which corporate performance objectives have been achieved. This score is determined by the compensation committee and may range from 0-125%. The individual performance score is based on the degree to which individual performance objectives have been achieved, the competencies and behaviors demonstrated in achieving results, the technical skills required by the position, and the completion of the ongoing responsibilities required by the position. The individual performance score may range from 0-125% and is approved by the compensation committee. The individual’s actual award is then calculated as follows:
Individual Target Bonus %
x Annual Base Salary
x Corporate Performance Score (0-125%)
x Individual Performance Score (0-125%)
= Individual Bonus Payout
In setting company goals in the first quarter of 2015, the committee agreed that the business objectives would be grouped into one of three primary categories, each of which would contribute one-third weighting toward the overall assessment of the company’s performance. In assessing the company’s performance against its 2015 corporate goals, and determining the corporate performance score, the compensation committee considered the extent to which the company
achieved the business objectives in each of the categories, and assigned a score for each category, as summarized in the following table:
P
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Primary Goals
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Contribution toward Corporate Performance Score
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Committee’s Assessment of Performance
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Highlights of Performance on Key Objectives
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Deliver data to support our targeted approach in both B-cell lymphoma and immuno-oncology, and built momentum for our approach in rare diseases
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1/3
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90%
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Met an aggressive timetable in taking IMO-2125 program from conceptual design to first patient dosing within 2015
Delivered IMO-8400 clinical trial data for Waldenström’s macroglobulemia
Initiated our trial of IMO-8400 in Dermatomyositis as scheduled
Fell short of internal expectations for IMO-8400 in DLBCL
Paused efforts to advance IMO-8400 into clinical development in Duchenne’s Muscular Dystrophy
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Position our third-generation antisense platform for success
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1/3
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110%
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Completed pre-clinical data packages and evaluated local delivery for multiple targets identified under our third-generation antisense platform
Established a strategic research collaboration with GlaxoSmithKline, as discussed in our annual report on Form 10-K for the year ended December 31, 2015
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Enhance our ability to be successful through relevant foundational objectives
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1/3
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95%
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Met our first quarter fundraising goal
Established and achieved
ongoing but incomplete assimilation to our new company values and desired culture
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Based on these achievements and resulting category scores, the compensation committee determined to use a corporate performance score of 98% for the 2015 bonus calculation.
In assessing each executive officer’s individual performance score, the compensation committee further agreed:
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Dr. Agrawal’s individual performance score, recognizing his achievement against his personal objectives, in particular his exceeding expectations in the progress of our third-generation antisense platform would be 105%, resulting in an overall bonus equal to 103% of his bonus target;
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Mr. Arcudi’s individual performance score, recognizing his achievement against his personal objectives, including successful completion of our fundraising and instituting a new long-range financial planning process, would be 100%, resulting in an overall bonus equal to 98% of his bonus target;
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Mr. Casey’s individual performance score, recognizing his achievement against his personal objectives, including eliminating the company’s reliance on costly external legal consultants, assuming board secretary role and responsibilities, and overall leadership contributions, would be 100%, resulting in an overall bonus equal to 98% of his bonus target, which was pro-rated based on his 2015 start date;
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Mr. Fletcher’s individual performance score, recognizing his achievement against his personal objectives, including instituting a new long-range strategic planning process and introducing commercial input into research and development decision making, as well as his contribution to the establishment of our collaboration with GSK, would be 100%, resulting in an overall bonus equal to 98% of his bonus target, which was pro-rated based on his 2015 start date; and
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Mr. Milano’s individual performance score should be held to a maximum of the corporate performance score, and that for 2015 this would be 98%, resulting in an overall bonus equal to 96% of his bonus target.
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Equity Compensation
Our equity award program is the primary vehicle for offering long-term incentives to our executive officers, including our named executive officers. We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our named executive officers and our stockholders. Equity grants are intended as both a reward for contributing to the long-term success of our company and an incentive for future performance. The vesting feature of our equity awards is intended to further our goal of executive retention by providing an incentive to our named executive officers to remain in our employ during the vesting period. In determining the size of equity awards to our executives, our compensation committee considers the achievement of our annual corporate goals, individual performance, the applicable executive officer’s previous awards, including the exercise price of such previous awards, the recommendations of management and the market compensation data presented by the committee’s independent compensation consultant.
Our equity awards have typically taken the form of stock options. However, under the terms of our stock incentive plans, we may grant equity awards other than stock options, such as restricted stock awards, stock appreciation rights, and restricted stock units.
The compensation committee approves all equity awards to our executive officers. The compensation committee reviews all components of the executive officer’s compensation when determining annual equity awards to ensure that an executive officer’s total compensation conforms to our overall philosophy and objectives.
The compensation committee typically makes initial stock option awards to new executive officers upon commencement of their employment and annual stock option awards thereafter. Equity awards to our named executive officers after the initial grants are typically granted annually after the annual performance review. For 2014, this review occurred at the regularly scheduled meeting of the compensation committee held in the fourth quarter of 2014, and for 2015, this review occurred at the regularly scheduled meeting of the compensation committee held in the first quarter of 2016. In general, these option grants vest with respect to 25% of the shares subject to the option on the first anniversary of the date of grant and with respect to the balance of the shares subject to the option in 12 equal quarterly installments over the three-year period thereafter. The exercise price of stock options equals the fair market value of our common stock on the date of grant, which is typically equal to the closing price of our common stock on NASDAQ on the date of compensation committee approval except in the case of new-hire grants, which are approved in advance by the compensation committee with the grant occurring at an exercise price established at the closing price of our common stock on the first day of employment
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In 2015, the compensation committee granted to each of Mr. Fletcher and Mr. Casey a stock option to purchase 600,000 shares of our common stock, effective upon their respective commencement of employment with us. In determining the size of this initial stock option award, the compensation committee considered the size of the initial stock option awards granted in 2014 to other executive officers and determined to award Mr. Fletcher and Mr. Casey their new hire options in the same amounts. The committee determined that these stock option awards would vest with respect to 25% of the shares subject to the option on the first anniversary of the date of grant and with respect to the balance of the shares subject to the option in 12 equal quarterly installments over the three year period thereafter, subject to continued employment with us on each vesting date. No other named executive officers received stock option awards in 2015
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In December 2015, as part of its annual compensation and performance review, the compensation committee reviewed the 2015 market compensation data regarding annual option grants. The committee then reconvened in January, 2016 to review and approve specific proposals regarding stock option grants. In evaluating the size of the proposed annual option awards for our executive officers other than Mr. Milano, the compensation committee factored in the 50
th
percentile of the 2015 market compensation data provided by Pearl Meyer. The compensation committee also considered Mr. Milano’s overall evaluations with respect to the awards to be made to the other executive officers. In determining the size of the annual option award to Mr. Milano, the compensation committee considered what multiple of the other named executive officers’ option awards was appropriate for Mr. Milano
as chief executive officer, the market data regarding competitive stock option award levels for peer chief executive officers and his performance
. In addition, in comparing the percentage ownership in our company that an option grant would represent to the
percentage of ownership set forth in the 2015
market compensation data that had been provided by Pearl Meyer, the compensation committee also considered the impact of outstanding warrants to purchase shares of our common stock. On this basis, the compensation committee granted our named executive officers options to purchase shares of our common stock as follows:
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2016 Option Award
(# options)
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Mr. Milano
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300,000
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Dr. Agrawal
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231,250
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Mr. Arcudi
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185,000
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Mr. Casey
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185,000
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Mr. Fletcher
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185,000
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These option awards vest with respect to 25% of the shares subject to the option on the first anniversary of the date of grant and with respect to the balance of the shares subject to the option in 12 equal quarterly installments over the three year period thereafter, subject to continued employment with us on each vesting date.
Benefits and Other Compensation
We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance, and a 401(k) plan. During 2015, consistent with our prior practice, we matched 50% of the employee contributions to our 401(k) plan up to a maximum of 6% of the participating employee’s annual salary, resulting in a maximum company match of 3% of the participating employee’s annual salary, and subject to certain additional statutory dollar limitations. Named executive officers are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees and subject to any limitations in such plans. Each of our named executive officers except for Mr. Fletcher contributed to our 401(k) plan and their contributions were matched by us.
Our board of directors has adopted a retirement policy to address the treatment of options in the event of an employee’s retirement that applies to all employees, including all officers. For purposes of this policy, an employee will be deemed to have retired if the employee terminates his or her employment with us, has been an employee of ours for more than 10 years and is older than 65 upon termination of employment. Under the policy, if an employee retires, then:
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all outstanding options held by the employee will automatically vest in full; and
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the period during which the employee may exercise the options will be extended to the expiration of the term of the option under the applicable option agreement.
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Our board adopted this policy for our employees in recognition of the importance of stock options to the compensation of employees and in order to provide each of our employees with the opportunity to get the full benefit of the options held by the employee in the event of his or her retirement after making 10 years of contributions to our company.
We occasionally pay relocation expenses for newly-hired executive officers who we require to relocate as a condition to their employment by us. We also occasionally pay local housing expenses and travel costs for executives who maintain a primary residence outside of a reasonable daily commuting range to our headquarters. We believe that these are typical benefits offered by comparable companies to executives who are asked to relocate and that we would be at a competitive disadvantage in trying to attract executives who would need to relocate in order to work for us if we did not offer such assistance. Neither Mr. Fletcher nor Mr. Casey, both of whom were hired in 2015, received any relocation benefits.
Our named executive officers may also participate in our employee stock purchase plan, which is generally available to all employees who work over 20 hours per week, so long as they own less than 5% of our common stock, including for this purpose vested and unvested stock options. None of our named executive officers participated in the employee stock purchase plan during 2015.
Severance and Change in Control Benefits
Under our employment agreements and employment offer letters with our named executive officers, we have agreed to provide severance and other benefits in the event of the termination of their employment under specified circumstances. We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the captions “Agreements with our Named Executive Officers” and “Potential Payments Upon Termination or Change in Control” below.
We believe providing severance and/or change in control benefits as a component of our compensation structure can help us compete for executive talent and attract and retain highly talented executive officers whose contributions are critical to our long-term success. After reviewing the practices of companies in general industry surveys published by Radford, we believe that our severance and change in control benefits are appropriate.
Deductibility of Executive Compensation/Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to each of our chief executive officer and our three other most highly compensated officers (other than the chief financial officer). Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if specified requirements are met. The compensation committee reserves the right to use its judgment to authorize compensation payments that may be subject to the limit when the compensation committee believes such payments are appropriate and in the best interests of our company and our stockholders. There can be no assurance that compensation awarded to our executive officers will be treated as qualified performance-based compensation under Section 162(m).
Agreements with our Named Executive Officers
We have entered into agreements with our named executive officers, as discussed below, that provide benefits to the executives upon their termination of employment in certain circumstances or under which we have agreed to specific compensation elements. Other than as discussed below, our named executive officers do not have employment agreements with us, other than standard employee confidentiality agreements, and are at-will employees.
Vincent J. Milano
We are a party to an employment offer letter with Mr. Milano, our President and Chief Executive Officer. Under the employment offer letter, Mr. Milano is entitled to receive an annual base salary of $600,000 or such higher amount as our compensation committee or our board of directors may determine. In addition, under the employment offer letter, Mr. Milano is eligible to receive an annual bonus of up to 50% of his base salary based on the achievement of both individual and company performance objectives as developed and determined by our board of directors.
Under the employment offer letter, if we terminate Mr. Milano’s employment without cause, prior to a change-in-control, as such terms are defined in the agreement, he will be entitled to severance payments for 24 months equivalent
to his then-current base salary, payable in accordance with our then-current payroll practices, and benefits continuation for the shorter of 24 months or the date his COBRA continuation coverage expires and to receive any bonus that he earned and that our board of directors approved prior to the termination to the extent not then paid. If we terminate Mr. Milano’s employment without cause or Mr. Milano terminates his employment with us for good reason, as such terms are defined in the agreement, upon or within one year after a change in control, he will be entitled to severance payments for 24 months equivalent to his then-current base salary, payable in accordance with our then-current payroll practices, and benefits continuation for the shorter of 24 months or the date his COBRA continuation coverage expires and to receive any bonus that he earned and that our board of directors approved prior to the termination to the extent not then paid and the inducement option award that he received upon his commencement of employment with us will vest in full and become immediately exercisable. Our obligation to provide severance and benefits continuation to Mr. Milano following termination of his employment is subject to Mr. Milano’s entering into a separation and release agreement.
Sudhir Agrawal, D. Phil.
We are a party to an employment agreement, as amended, with Dr. Agrawal, our President of Research. The agreement had an initial three-year term that is automatically extended for an additional year on October 19th of each year during the term of the agreement unless either party provides prior written notice to the other that the term of the agreement is not to be extended. As a result, on each October 19th, the term of the agreement, as extended, will be three years. On October 19, 2015, the term was extended from October 19, 2017 to October 19, 2018.
Under the agreement, Dr. Agrawal is currently entitled to receive an annual base salary of $588,100 or such higher amount as our compensation committee or our board of directors may determine. In addition, under the agreement, as modified in December 2014, Dr. Agrawal is eligible to receive an annual bonus in an amount equal to 50% of his base salary, as determined by the compensation committee or our board of directors.
If we terminate Dr. Agrawal’s employment without cause or if he terminates his employment for good reason, as such terms are defined in the agreement, we have agreed to:
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continue to pay Dr. Agrawal his base salary as severance for a period ending on the earlier of the final day of the term of the agreement in effect immediately prior to such termination and the second anniversary of his termination date;
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pay Dr. Agrawal a lump sum cash payment equal to the pro rata portion of the annual bonus that he earned in the year preceding the year in which his termination occurs;
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continue to provide Dr. Agrawal with healthcare, disability and life insurance benefits for a period ending on the earlier of the final day of the term of the agreement in effect immediately prior to the termination date and the second anniversary of the termination date, except to the extent another employer provides Dr. Agrawal with comparable benefits;
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accelerate the vesting of any stock options or other equity incentive awards previously granted to Dr. Agrawal as of the termination date to the extent such options or equity incentive awards would have vested had he continued to be an employee until the final day of the term of the agreement in effect immediately prior to such termination; and
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permit Dr. Agrawal to exercise any vested stock options until the second anniversary of the termination date.
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If Dr. Agrawal’s employment is terminated by him for good reason or by us without cause in connection with, or within one year after, a change in control, as such terms are defined in the agreement, we have agreed to provide Dr. Agrawal with all of the items listed above, except that in lieu of the severance amount described above, we will pay Dr. Agrawal a lump sum cash payment equal to his base salary multiplied by the lesser of the aggregate number of years or portion thereof remaining in his employment term and two years. We have also agreed that if we execute an agreement that provides for our company to be acquired or liquidated, or otherwise upon a change in control, all unvested stock options held by Dr. Agrawal will vest in full.
Our employment agreement with Dr. Agrawal provides that if all or a portion of the payments made under the agreement are subject to the excise tax imposed by Section 4999 of the Code, or a similar state tax or assessment, we will pay him an amount necessary to place him in the same after-tax position as he would have been had no excise tax or assessment been imposed. Any amounts paid pursuant to the preceding sentence will also be increased to the extent necessary to pay income and excise tax on those additional amounts.
In the event of Dr. Agrawal’s death or the termination of his employment due to disability, we have agreed to pay Dr. Agrawal or his beneficiary a lump sum cash payment equal to the pro rata portion of the annual bonus that he earned in the year preceding his death or termination due to disability. Additionally, any stock options or other equity incentive awards previously granted to Dr. Agrawal and held by him on the date of his death or termination due to disability will vest as of such date to the extent such options or equity incentive awards would have vested had he continued to be an employee until the final day of the term of the employment agreement in effect immediately prior to his death or termination due to disability. Dr. Agrawal or his beneficiary will be permitted to exercise such stock options until the second anniversary of his death or termination of employment due to disability.
Dr. Agrawal has agreed that during his employment with us and for a one-year period thereafter, he will not hire or attempt to hire any of our employees or compete with us.
In connection with his transition to his new role of President of Research in December 2014, we and Dr. Agrawal agreed that his employment would continue to be subject to and on the terms and conditions set forth in his employment agreement but for the change in position and the modification of Dr. Agrawal’s target bonus to be a fixed at 50% of base salary rather than the 20% to 70% of base salary range set forth in the employment agreement. In addition, Dr. Agrawal acknowledged and agreed that, notwithstanding anything to the contrary set forth in his employment agreement, the transition of his employment from President and Chief Executive Officer to President of Research, and the changes in his authority, duties, responsibilities and reporting structure associated with such event, would not constitute good reason, as defined in the employment agreement, and that he would not and could not terminate his employment for good reason on the basis of such event and changes.
In consideration of the foregoing agreements, we agreed that the vesting of any and all stock options then held by Dr. Agrawal would be accelerated such that, as of that date, such options would be deemed vested to the extent such options would have been vested had Dr. Agrawal continued to be employed by us on October 19, 2017, and any portion of such options that remained unvested after giving effect to such acceleration would continue to vest in accordance with their respective terms. This acceleration did not apply to the options granted to Dr. Agrawal in December 2014 or January 2016.
Louis J. Arcudi, III
We are a party to an employment letter, as amended, with Mr. Arcudi, our Senior Vice President of Operations, Chief Financial Officer, Treasurer and Assistant Secretary. Under the employment letter, Mr. Arcudi was initially entitled to receive an annual base salary of $315,000, which amount is subject to adjustment from time to time in accordance with normal business practices. In addition, under the employment letter, Mr. Arcudi is entitled to receive an annual bonus in an amount approved by our board or the compensation committee based on the achievement of both individual and company performance objectives as developed and determined by our board of directors.
Under the employment letter, if we terminate Mr. Arcudi’s employment without cause at any time, or if he terminates his employment for good reason upon a change in control or within one year after a change of control, as such terms are defined in the agreement, we have agreed to:
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continue to pay Mr. Arcudi his base salary as severance for 12 months following such termination payable in accordance with our then current payroll practices; and
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continue to provide Mr. Arcudi with health and dental benefits for 12 months following such termination, except to the extent another employer provides Mr. Arcudi with comparable benefits.
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Our agreement to pay severance and benefits is subject to Mr. Arcudi’s entering into a separation and release agreement.
R. Clayton Fletcher
We are a party to an employment offer letter with Mr. Fletcher, who joined us in January 2015 as our Senior Vice President of Business Development and Strategic Planning. Under the terms of the employment offer letter, Mr. Fletcher is entitled to receive an annual base salary of $360,000 or such higher amount as our compensation committee or our board of directors may determine. In addition, under the employment offer letter, Mr. Fletcher is eligible to receive an annual bonus of up to 35% of his base salary based on the achievement of both individual and company performance objectives as established by our board of directors. Under the employment offer letter, if we terminate Mr. Fletcher’s employment without cause at any time, or if he terminates his employment for good reason upon a change in control or within one year after a change in control, as such terms are defined in the agreement, we have agreed to:
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continue to pay Mr. Fletcher his base salary as severance for 12 months following such termination payable in accordance with our then current payroll practices plus any bonus earned and approved by the board of directors but unpaid at the time of termination;
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continue to provide Mr. Fletcher with health and dental benefits for 12 months following such termination, except to the extent another employer provides Mr. Fletcher with comparable benefits; and
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only in the event of a termination described above that occurs upon or within one year after a change in control, fully vest all options granted to Mr. Fletcher upon the commencement of his employment.
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Our agreement to pay severance and benefits is subject to Mr. Fletcher’s entering into a separation and release agreement.
Mark J. Casey
We are a party to an employment offer letter with Mr. Casey, who joined us in June 2015 as our Senior Vice President, General Counsel, and Secretary. Under the terms of the employment offer letter, Mr. Casey is entitled to receive an annual base salary of $360,000 or such higher amount as our compensation committee or our board of directors may determine. In addition, under the employment offer letter, Mr. Casey is eligible to receive an annual bonus of up to 40% of his base salary based on the achievement of both individual and company performance objectives as established by our board of directors. Under the employment offer letter, if we terminate Mr. Casey’s employment without cause at any time, or if he terminates his employment for good reason upon a change in control or within one year after a change in control, as such terms are defined in the agreement, we have agreed to:
|
·
|
|
continue to pay Mr. Casey his base salary as severance for 12 months following such termination payable in accordance with our then current payroll practices plus bonus earned and approved by the board of directors but unpaid at the time of termination;
|
|
·
|
|
continue to provide Mr. Casey with health and dental benefits for 12 months following such termination, except to the extent another employer provides Mr. Casey with comparable benefits; and
|
|
·
|
|
only in the event of a termination described above that occurs upon or within one year after a change in control, fully vest all options granted to Mr. Casey upon the commencement of his employment.
|
Our agreement to pay severance and benefits is subject to Mr. Casey’s entering into a separation and release agreement.
Formal Clawback Policy
In April 2015, ahead of any such requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act, our compensation committee adopted a formal clawback policy, which will apply in the event we are required to prepare an accounting restatement after the adoption of the clawback policy due to any material noncompliance with any financial reporting requirement under the U.S. federal securities laws. This policy requires us to use reasonable efforts to recover from any of our current or former executive officers who receive incentive-based compensation (including stock
options awarded as compensation) during the three-year period preceding the date on which we are required to prepare an accounting restatement based on erroneous data, the excess of what would have been paid to such executive officer under the accounting restatement.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management. Based on this review and discussion, the compensation committee
recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
By the compensation committee of the board of directors,
Kelvin Neu, Chairman
Youssef El Zein
Maxine Gowen
Eve E. Slater
Summary Compensation
Table
The table below summarizes compensation paid to or earned by our named executive officers for 2015, 2014 and 2013.
Summary Compensation Table for Fiscal Year 2015
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|
|
|
|
|
|
|
|
|
|
|
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Non-Equity Incentive Plan Compensation
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Option Awards
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All Other Compensation
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Total
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Name and Principal Position
|
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Year
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Salary ($)
|
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Bonus ($)
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($)(1)
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($)
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($)(2)
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($)
|
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Vincent J. Milano
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2015
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600,000
|
|
—
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—
(3)
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288,120
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32,950
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921,070
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President and Chief
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2014
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50,000
|
|
—
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3,977,400
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2,138
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4,029,538
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Executive Officer
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|
|
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|
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Sudhir Agrawal, D. Phil.
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2015
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588,100
|
|
—
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—
(3)
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302,577
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33,172
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923,849
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|
President of Research(4)
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2014
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570,960
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285,480
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2,153,475
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32,681
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3,042,596
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2013
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549,000
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274,500
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1,875,425
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|
|
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31,589
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2,730,514
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Louis J. Arcudi, III
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2015
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337,400
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|
—
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—
(3)
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132,261
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26,989
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496,650
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|
Senior Vice President of Operations, Chief Financial Officer, Treasurer and Assistant Secretary
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2014
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327,600
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98,300
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506,700
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|
|
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29,690
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|
962,290
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|
|
|
2013
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315,000
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|
94,500
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|
581,957
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|
|
|
31,033
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1,022,490
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Mark J. Casey(5)
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2015
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182,727
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|
—
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1,381,380(3)
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71,629
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17,614
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1,653,350
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|
Senior Vice President, General Counsel and Secretary
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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R. Clayton Fletcher(6)
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2015
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336,818
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—
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1,857,180(3)
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132,032
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22,794
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2,348,824
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|
Senior Vice President, Business Development and Strategy
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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(1)
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Represents the aggregate grant date fair value of options granted to each of the named executive officers as computed in accordance with ASC 718. These amounts do not represent the actual amounts paid to or realized by the named executive officers. See Note 2(j) to the financial statements in our annual report on Form 10-K for the year ended December 31, 2015 regarding assumptions we made in determining the fair value of option awards.
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(2)
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“All Other Compensation” for 2015 for each of the named executive officers includes the following:
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Premiums paid by us
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for all insurance plans
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Company match
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|
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($)
|
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on 401(k) ($)
|
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Mr. Milano
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25,000
|
|
7,950
|
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Dr. Agrawal
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25,222
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|
7,950
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|
Mr. Arcudi
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19,039
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7,950
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Mr. Casey
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12,132
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|
5,482
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|
Mr. Fletcher
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22,794
|
|
—
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(3)
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None of our executive officers received an annual equity grant during 2015. Each of Mr. Casey and Mr. Fletcher received a grant of 600,000 options upon commencement of their employment in 2015.
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(4)
|
|
D
r. Agrawal served as our
President and Chief Executive Officer
throughout 2013 and from January 2014 until November 2014.
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(5)
|
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Mr. Casey joined our company and became our Senior Vice President, General Counsel and Secretary effective as of June 29, 2015.
|
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(6)
|
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Mr. Fletcher joined our company and became our Senior Vice President, Business Development and Strategy effective as of January 26, 2015.
|
See “Compensation Discussion and Analysis” above for a discussion of annual cash bonuses and the amount of salary and bonus in proportion to total compensation.
Grants of Pla
n-Based Awards
The following table sets forth information regarding stock options granted to our named executive officers during 2015.
Grants of Plan-Based Awards for Fiscal Year 2015
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|
|
|
|
|
|
|
|
|
|
|
|
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All Other
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
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Date of
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|
|
|
|
|
|
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Awards:
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Exercise
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|
|
|
|
|
|
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Approval of
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|
|
|
|
|
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Number of
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or Base
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Grant Date
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|
|
|
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Grant if
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Estimated Possible Payouts Under
|
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Securities
|
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Price of
|
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Fair Value
|
|
|
|
|
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Different
|
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Non-Equity Incentive Plan Awards
|
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Underlying
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Option
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of Option
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|
|
|
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from Grant
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Threshold
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Target
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Maximum
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Options
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Awards
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Awards
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Name
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Grant Date
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Date
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($)
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($)
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($)
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(#)(1)
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($/Sh)
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($)(2)
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Vincent J. Milano
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(3)
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|
|
|
—
|
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300,000
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|
468,750
|
|
—
|
|
—
|
|
—
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|
Sudhir Agrawal, D. Phil.
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(3)
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|
|
|
—
|
|
294,050
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|
459,453
|
|
—
|
|
—
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|
—
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Louis J. Arcudi, III
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|
(3)
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|
|
|
—
|
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134,960
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|
210,875
|
|
—
|
|
—
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|
—
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Mark J. Casey
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(3)
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|
|
|
—
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|
144,000
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|
225,000
|
|
—
|
|
—
|
|
—
|
|
|
|
6/29/2015 (4)
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|
6/9/2015
|
|
|
|
|
|
|
|
275,000
|
|
3.44
|
|
633,133
|
|
|
|
6/29/2015 (5)
|
|
6/9/2015
|
|
|
|
|
|
|
|
325,000
|
|
3.44
|
|
748,247
|
|
R. Clayton Fletcher
|
|
(3)
|
|
|
|
—
|
|
144,000
|
|
225,000
|
|
—
|
|
—
|
|
—
|
|
|
|
1/26/2015 (4)
|
|
12/9/2014
|
|
|
|
|
|
|
|
600,000
|
|
4.67
|
|
1,857,180
|
|
|
(1)
|
|
The term of these options is ten years. The vesting of these stock options is time-based. See “Compensation Discussion and Analysis — Elements of Executive Compensation — Equity Compensation” for a full description of the vesting terms for these options. See “Agreements with our Named Executive Officers” for further information about acceleration of vesting of options in the event of the termination of employment and/or a change of control.
|
|
(2)
|
|
Represents the aggregate grant date fair value of option awards made to the named executive officers in 2015 as computed in accordance with ASC 718. These amounts do not represent the actual amounts paid to or realized by the named executive officers during 2015. See Note 2(j) to the financial statements in our annual report on Form 10-K for the year ended December 31, 2015 regarding assumptions we made in determining the fair value of option awards.
|
|
(3)
|
|
None of our executive officers received an annual equity grant during 2015. Each of Mr. Casey and Mr. Fletcher received a grant of 600,000 options upon commencement of their employment in 2015.
|
|
(4)
|
|
Granted as an inducement grant pursuant to Nasdaq Listing Rule 5635(c)(4).
|
|
(5)
|
|
Granted pursuant to our 2013 Stock Incentive Plan.
|
Outstanding Equity
Awards at Fiscal Year-End
The following table sets forth information regarding the outstanding stock options held by our named executive officers as of December 31, 2015. None of our named executive officers held shares of unvested restricted stock as of December 31, 2015.
Outstanding Equity Awards at Fiscal Year-End for 2015
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|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
|
|
Options (#)
|
|
Options (#)
|
|
Price
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
Vincent J. Milano
|
|
500,000
|
(1)
|
1,500,000
|
(1)
|
3.12
|
|
12/1/2024
|
|
Sudhir Agrawal, D. Phil.(2)
|
|
125,000
|
|
—
|
|
5.1
|
|
12/14/2016
|
|
|
|
62,500
|
|
—
|
|
7.05
|
|
6/25/2017
|
|
|
|
125,000
|
|
—
|
|
13.28
|
|
1/2/2018
|
|
|
|
200,000
|
|
—
|
|
8.7
|
|
12/16/2018
|
|
|
|
300,000
|
|
—
|
|
5.24
|
|
12/23/2019
|
|
|
|
231,000
|
|
—
|
|
2.74
|
|
12/27/2020
|
|
|
|
365,000
|
|
—
|
|
1.157
|
|
11/28/2021
|
|
|
|
25,551
|
|
—
|
|
1.16
|
|
11/28/2021
|
|
|
|
500,000
|
|
—
|
|
0.69
|
|
5/22/2023
|
|
|
|
500,000
|
|
—
|
|
1.5
|
|
8/16/2023
|
|
|
|
796,875
|
(3)
|
53,125
|
(3)
|
2.56
|
|
12/10/2023
|
|
|
|
212,500
|
(4)
|
637,500
|
(4)
|
3.97
|
|
12/10/2024
|
|
Louis J. Arcudi, III
|
|
80,000
|
|
—
|
|
12.25
|
|
12/3/2017
|
|
|
|
40,000
|
|
—
|
|
8.7
|
|
12/16/2018
|
|
|
|
110,000
|
|
—
|
|
5.24
|
|
12/23/2019
|
|
|
|
95,000
|
|
—
|
|
2.74
|
|
12/27/2020
|
|
|
|
146,000
|
|
—
|
|
1.157
|
|
11/28/2021
|
|
|
|
209,000
|
(5)
|
139,333
|
(5)
|
0.69
|
|
5/22/2023
|
|
|
|
150,000
|
(3)
|
150,000
|
(3)
|
2.56
|
|
12/10/2023
|
|
|
|
50,000
|
(4)
|
150,000
|
(4)
|
3.97
|
|
12/10/2024
|
|
Mark J. Casey
|
|
|
|
600,000
|
(6)
|
3.44
|
|
6/29/2025
|
|
R. Clayton Fletcher
|
|
|
|
600,000
|
(7)
|
4.67
|
|
1/26/2025
|
|
|
(1)
|
|
The shares subject to this option vest as follows:
|
|
·
|
|
25% of the shares subject to the option vest on the first anniversary of the date of grant; and
|
|
·
|
|
6.25% of the shares subject to the option vest quarterly from the first anniversary of the date of grant until December 1, 2018 when all shares will be vested.
|
|
(2)
|
|
Pursuant to our December 2014 letter agreement with Dr. Agrawal, the vesting of all stock options held by Dr. Agrawal as of the letter agreement date was accelerated to the extent that such options would have been vested had Dr. Agrawal continued to be employed by us on October 19, 2017. Stock options that remained unvested after giving effect to this acceleration continue to vest in accordance with the terms of the underlying stock option agreement. See “Agreements with our Named Executive Officers” for further information about acceleration of vesting of Dr. Agrawal’s options in the event of the termination of his employment and/or a change of control.
|
|
(3)
|
|
6.25% of the shares subject to this option vest quarterly from the date of grant until December 10, 2017 when all shares will be vested. The total number of shares subject to the option equals the sum of the figures in the exercisable and unexercisable columns.
|
|
(4)
|
|
6.25% of the shares subject to this option vest quarterly from the date of grant until December 10, 2018 when all shares will be vested. The total number of shares subject to the option equals the sum of the figures in the exercisable and unexercisable columns.
|
|
(5)
|
|
The shares subject to this option vest as follows:
|
|
·
|
|
40% of the shares subject to the option vest on the first anniversary of the date of grant; and
|
|
·
|
|
20% of the shares subject to the option vest on each of the second, third and fourth anniversaries of the date of grant.
|
The total number of shares subject to the option equals the sum of the figures in the exercisable and unexercisable columns.
|
(6)
|
|
The shares subject to this option vest as follows:
|
|
·
|
|
25% of the shares subject to the option vest on the first anniversary of the date of grant; and
|
|
·
|
|
6.25% of the shares subject to the option vest quarterly from the first anniversary of the date of grant until June 29, 2019 when all shares will be vested.
|
|
(7)
|
|
The shares subject to this option vest as follows:
|
|
·
|
|
25% of the shares subject to the option vest on the first anniversary of the date of grant; and
|
|
·
|
|
6.25% of the shares subject to the option vest quarterly from the first anniversary of the date of grant until January 26, 2019 when all shares will be vested.
|
Option Exercises
and Stock Vested
None of our named executive officers exercised any options during the year ended December 31, 2015.
Potential Payments
Upon Termination or Change in Control
Under our employment agreement and employment offer letters with our executive officers, we have agreed to provide severance and other benefits in the event of the termination of their employment under specified circumstances. These agreements are described above under the caption “Agreements with our Named Executive Officers.” Certain of our named executive officers are entitled to acceleration of vesting in connection with a termination of employment upon or within one year after a change in control for the options the compensation committee granted in November 2011, effective December 5, 2011 and January 3, 2012.
Termination of Employment Not In Connection With or Following a Change in Control
The following table sets forth the estimated potential benefits that our named executive officers would be entitled to receive upon their termination of employment with our company (other than a termination in connection with or
following a change in control of our company) if the named executive officers’ employment terminated on December 31, 2015. This table represents estimates only and does not necessarily reflect the actual amounts that would be paid to our named executive officers, which would only be known at the time that they become eligible for payment following their termination.
Termination of Employment Not In Connection With or Following a Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
Value of
|
|
|
|
|
|
Severance
|
|
Bonus
|
|
Vesting of
|
|
Continuation
|
|
|
|
|
|
Payments
|
|
Amount
|
|
Stock Options
|
|
of Benefits
|
|
Total
|
|
Name
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
Vincent J. Milano(2)
|
|
1,200,000
|
|
—
|
|
—
|
|
31,188
|
(3)
|
1,231,188
|
|
Sudhir Agrawal, D. Phil.(4)
|
|
1,176,200
|
|
285,480
|
|
28,156
|
|
49,213
|
(5)
|
1,539,049
|
|
Louis J. Arcudi, III(6)
|
|
337,400
|
|
—
|
|
—
|
|
15,608
|
(3)
|
353,008
|
|
Mark J. Casey(6)
|
|
360,000
|
|
—
|
|
—
|
|
20,792
|
(3)
|
380,792
|
|
R. Clayton Fletcher(6)
|
|
360,000
|
|
—
|
|
—
|
|
20,792
|
(3)
|
380,792
|
|
|
(1)
|
|
Calculated by multiplying the number of shares subject to in-the-money options for which vesting would be accelerated by the excess of $3.09, the closing price of our common stock on December 31, 2015, over the per share exercise prices for such options.
|
|
(2)
|
|
Following the termination of Mr. Milano’s employment without cause, Mr. Milano will be entitled to severance payments for 24 months equivalent to his then-current base salary and benefits continuation for the shorter of 24 months or the date his COBRA continuation coverage expires and to receive any bonus that he earned and that our board of directors approved prior to the termination to the extent not then paid. See “Agreements with our Named Executive Officers” for further information about acceleration of vesting and severance payments.
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|
(3)
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|
This amount represents the estimated cost to us of continuing the named executive officer’s healthcare and dental insurance benefits for the shorter of the severance period applicable to such named executive officer or the date his COBRA continuation coverage expires, in each case based on our costs for such benefits at December 31, 2015.
|
|
(4)
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|
Following the termination of Dr. Agrawal’s employment by him for good reason or by us other than for death, disability or cause, Dr. Agrawal will be entitled to severance payments, a pro rata portion of his bonus for the prior year, if any, benefits continuation and acceleration of vesting of his equity awards to the
extent such options or equity incentive awards would have vested had he continued to be an employee until the final day of the term of the agreement in effect immediately prior to such termination. Upon termination of Dr. Agrawal’s employment due to death or disability, we have agreed to pay a pro rata portion of his bonus for the prior year and to accelerate the vesting of his equity awards to the extent such options or equity incentive awards would have vested had he continued to be an employee until the final day of the term of the agreement in effect immediately prior to such termination. See “Agreements with our Named Executive Officers” for further information about acceleration of vesting and severance payments in such circumstances.
|
|
(5)
|
|
This amount represents the estimated cost to us of continuing the named executive officer’s healthcare, disability, life and dental insurance benefits for the full severance period applicable to such named executive officer based on our costs for such benefits at December 31, 2015.
|
|
(6)
|
|
Severance payments and benefits continuation will only be paid following termination by us of the named executive officer without cause. See “Agreements with our Named Executive Officers” for further information.
|
Termination of Employment In Connection With or Following a Change in Control
The following table sets forth the estimated potential benefits that our named executive officers would be entitled to receive upon their termination of employment with our company in connection with or following a change in control of our company if the change of control occurred on December 31, 2015 and the named executive officer’s employment was immediately terminated and an estimate regarding any gross-up payments for certain taxes in the event that any payments made in connection with a change in control of our company would be subject to excise tax imposed by Section 4999 of the Code. This table represents estimates only and does not necessarily reflect the actual amounts that
would be paid to our named executive officers, which would only be known at the time that they become eligible for payment following their termination.
Termination of Employment In Connection With or Following a Change in Control
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|
|
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|
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|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
Value of
|
|
Tax
|
|
|
|
|
|
Severance
|
|
Bonus
|
|
Vesting of
|
|
Continuation
|
|
Gross-Up
|
|
|
|
|
|
Payments
|
|
Amount
|
|
Stock Options
|
|
of Benefits
|
|
Payments
|
|
Total
|
|
Name
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)
|
|
($)
|
|
Vincent J. Milano(2)
|
|
1,200,000
|
|
—
|
|
—
|
|
31,188
|
(3)
|
—
|
|
1,231,188
|
|
Sudhir Agrawal, D. Phil.(4)
|
|
1,176,200
|
|
285,480
|
|
28,156
|
|
49,213
|
(5)
|
—
|
|
1,539,049
|
|
Louis J. Arcudi, III(6)
|
|
337,400
|
|
—
|
|
—
|
|
15,608
|
(3)
|
—
|
|
353,008
|
|
Mark J. Casey(7)
|
|
360,000
|
|
|
|
—
|
|
20,792
|
(3)
|
—
|
|
380,792
|
|
R. Clayton Fletcher(8)
|
|
360,000
|
|
—
|
|
—
|
|
20,792
|
(3)
|
—
|
|
380,792
|
|
|
(1)
|
|
Calculated by multiplying the number of shares subject to in-the-money options for which vesting would be accelerated by the excess of $3.09, the closing price of our common stock on December 31, 2015, and the per share exercise prices for such options.
|
|
(2)
|
|
Following the termination of Mr. Milano’s employment without cause or if Mr. Milano terminates his employment with us for good reason, upon or within one year after a change in control, he will be entitled to severance payments for 24 months equivalent to his then-current base salary and benefits continuation for the shorter of 24 months or the date his COBRA continuation coverage expires and to receive any bonus that he earned and that our board of directors approved prior to the termination to the extent not then paid and the inducement option award that he received upon his commencement of employment with us will vest in full and become immediately exercisable. See “Agreements with our Named Executive Officers” for further information about acceleration of vesting and severance payments.
|
|
(3)
|
|
Represents the estimated cost to us of continuing the named executive officers’ healthcare and dental insurance benefits for the shorter of the severance period applicable to such named executive officer or the date his COBRA continuation coverage expires, in each case based on our costs for such benefits at December 31, 2015.
|
|
(4)
|
|
Following the termination of Dr. Agrawal’s employment in connection with or following a change in control by him for good reason or by us other than for death, disability or cause, Dr. Agrawal will be entitled to a lump sum severance payment, a pro rata portion of his bonus for the prior year, benefits continuation and full acceleration of vesting of his option awards. See “Agreements with our Named Executive Officers” for further information about acceleration of vesting and severance payments in such circumstances.
|
|
(5)
|
|
Represents the estimated cost to us of continuing the named executive officers’ healthcare, disability, life and dental insurance benefits for the applicable severance period based on our costs for such benefits at December 31, 2015.
|
|
(6)
|
|
Following the termination of Mr. Arcudi’s employment in connection with or following a change in control by him for good reason or by us other than for death, disability or cause, Mr. Arcudi will be entitled to severance payments of his then current base salary and benefits continuation for a twelve-month period, payable in accordance with and at the times contemplated by our then current payroll practices.
|
|
(7)
|
|
Following the termination of Mr. Casey’s employment without cause or if Mr. Casey terminated his employment with us for good reason, upon or within one year after a change in control, he will be entitled to 12 months’ severance and benefits continuation and to receive any bonus that he earned and that our board of directors approved prior to the termination to the extent not then paid and the option and inducement awards that he received upon his commencement of employment with us would have vested in full and become immediately exercisable.
|
|
(8)
|
|
Following the termination of Mr. Fletcher’s employment without cause or if Mr. Fletcher terminated his employment with us for good reason, upon or within one year after a change in control, he will be entitled to 12 months’ severance and benefits continuation and to receive any bonus that he earned and that our board of directors approved prior to the termination to the extent not then paid and the inducement award that he received upon his commencement of employment with us would have vested in full and become immediately exercisable.
|
EQUITY COMPENSATION
PLAN INFORMATION
The following table provides information about our common stock that may be issued upon exercise of options and warrants under all of our equity compensation plans as of December 31, 2015. In addition, from time to time, we grant “inducement grants” pursuant to Nasdaq Listing Rule 5635(c)(4).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
Weighted-
|
|
Remaining Available
|
|
|
|
|
|
Average
|
|
For Future Issuance
|
|
|
|
Number of Securities
|
|
Exercise
|
|
Under Equity
|
|
|
|
to be Issued Upon
|
|
Price of
|
|
Compensation
|
|
|
|
Exercise of
|
|
Outstanding
|
|
Plans (Excluding
|
|
|
|
Outstanding Options
|
|
Options and
|
|
Securities Reflected
|
|
|
|
and Warrants
|
|
Warrants
|
|
in Column (a))
|
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by stockholders(1)
|
|
13,134,741
|
|
$
|
3.43
|
|
8,356,669
|
|
Equity compensation plans not approved by stockholders(2)
|
|
3,150,000
|
|
$
|
3.51
|
|
—
|
|
Total
|
|
16,284,741
|
|
$
|
3.45
|
|
8,356,669
|
|
|
·
|
|
1995 Employee Stock Purchase Plan;
|
|
·
|
|
1995 Director Stock Option Plan;
|
|
·
|
|
1997 Stock Incentive Plan;
|
|
·
|
|
2005 Stock Incentive Plan;
|
|
·
|
|
2008 Stock Incentive Plan; and
|
|
·
|
|
2013 Stock Incentive Plan.
|
Shares are available for future issuance only under our 1995 Employee Stock Purchase Plan and our 2013 Stock Incentive Plan.
|
(2)
|
|
Consists of stock options issued as inducement grants as of December 31, 2015. These stock options are generally subject to the same terms and conditions as those awarded pursuant to the plans approved by our stockholders.
|
PROPOSAL TWO
APPROVAL, BY NON-BINDING VOTE, OF EXECUTIVE COMPENSATION
We are providing our stockholders the opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules. This proposal, which is commonly referred to as “say-on-pay,” is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 14A to the Exchange Act. Consistent with the preference expressed by our stockholders at our 2011 annual meeting of stockholders, we have determined to hold an advisory vote on executive compensation annually.
The compensation committee of our board of directors seeks to achieve the following broad goals in connection with our executive compensation programs and decisions regarding individual compensation:
|
·
|
|
attract, retain and motivate the best possible executive talent;
|
|
·
|
|
ensure executive compensation is aligned with our corporate strategies and business objectives, including our short-term operating goals and longer-term strategic objectives;
|
|
·
|
|
promote the achievement of key strategic and financial performance measures by linking short- and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and
|
|
·
|
|
align executives’ incentives with the creation of stockholder value.
|
Our compensation program for our executives generally consists of five elements based upon the foregoing objectives:
|
·
|
|
health care, life insurance and other employee benefits; and
|
|
·
|
|
severance and change in control benefits.
|
The value of our variable, performance-based compensation is split between short-term compensation in the form of a cash bonus and long-term compensation in the form of stock option awards that vest over time from the date of grant of the option awards and from the time of achievement of performance milestones. The annual cash bonus is intended to provide an incentive to our executives to achieve short-term operational objectives. The stock option awards provide an incentive for our executives to achieve longer-term strategic business goals, which should lead to higher stock prices and increased stockholder value.
The “Executive Compensation” section set forth elsewhere in this proxy statement, including the “Compensation Discussion and Analysis,” describes in detail our executive compensation programs and the decisions made by the compensation committee and the board of directors with respect to the fiscal year ended December 31, 2015.
Our board of directors is asking stockholders to approve a non-binding advisory vote on the following resolution:
RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is hereby approved.
As an advisory vote, this proposal is not binding. The outcome of this advisory vote will not overrule any decision by us or our board of directors (or any committee thereof), create or imply any change to our fiduciary duties or the fiduciary duties of our board of directors (or any committee thereof), or create or imply any additional fiduciary duties on us or our board of directors (or any committee thereof). However, our compensation committee and board of directors value the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for named executive officers.
Recommendation of the Board of Directors
Our board of directors recommends that stockholders vote to approve the compensation of our named executive officers by voting FOR this proposal.
PROPOSAL THREE
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our board of directors has selected the firm of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016. Ernst & Young LLP has served as our independent registered public accounting firm since 2002. Although stockholder approval of the audit committee’s selection of Ernst & Young LLP is not required by law, our board of directors believes that it is advisable to give stockholders an opportunity to ratify this selection. If this proposal is not approved at the 2016 annual meeting, the audit committee of our board of directors may reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the 2016 annual meeting. They will have the opportunity to make a statement if they desire to do so and will also be available to respond to appropriate questions from stockholders.
Recommendation of the Board of Directors
Our board of directors recommends that you vote FOR the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016.
ACCOUNTING MATTER
S
Report of the Audit Committee
The audit committee has reviewed our audited financial statements for the fiscal year ended December 31, 2015 and discussed them with our management and our independent registered public accounting firm.
The audit committee has also received from, and discussed with, our independent registered public accounting firm various communications that our independent registered public accounting firm is required to provide to the audit committee, including the matters required to be discussed by the Auditing Standard No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board.
The audit committee has received from Ernst & Young LLP the letter and other written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding its communication with the audit committee concerning independence, and has discussed with Ernst & Young LLP its independence from the Company. The audit committee has also considered whether the provision of other non-audit services by Ernst & Young LLP is compatible with maintaining their independence.
Based on the review and discussions referred to above, the audit committee recommended to our board of directors that the audited financial statements be included in our annual report on Form 10-K for the year ended December 31, 2015.
By the audit committee of the board of directors,
William S. Reardon, Chairman
James Geraghty
Mark Goldberg, M.D.
Independent Registered Public Accounting Firm Fees
We paid Ernst & Young LLP a total of $710,150 for professional services rendered for the year ended December 31, 2015 and $628,650 for professional services rendered for the year ended December 31, 2014. The following table provides information about these fees.
|
|
|
|
|
|
|
|
Fee Category
|
|
2015
|
|
2014
|
|
Audit Fees
|
|
$
|
550,000
|
|
$
|
458,000
|
|
Audit-Related Fees
|
|
|
120,000
|
|
|
50,000
|
|
Tax Fees
|
|
|
38,155
|
|
|
120,650
|
|
All Other Fees
|
|
|
1,995
|
|
|
—
|
|
Total Fees
|
|
$
|
710,150
|
|
$
|
628,650
|
|
Audit Fees
Audit fees consist of fees for the audit of our financial statements, the review of the interim financial statements included in our quarterly reports on Form 10-Q and other professional services provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees
Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of audits and reviews of our financial statements that are not reported under “Audit Fees.” These services include consultations regarding internal controls, financial accounting and reporting standards and assistance with financings.
Tax Fees
Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services, which relate to preparation of tax returns, accounted for $25,000 and $22,000 of the total tax fees billed in 2015 and 2014,
respectively. Tax advice and tax planning services primarily relate to consultations on our net operating loss carry forwards and payroll taxes.
All Other Fees
During 2015, all other fees related to our subscription to Ernst & Young’s online accounting research tool. Ernst & Young LLP did not collect fees for any other services for 2014.
Our audit committee believes that the non-audit services described above did not compromise Ernst & Young LLP’s independence. Our audit committee charter, which you can find by clicking “Investors” and “Corporate Governance” on our website, www.iderapharma.com, requires that all proposals to engage Ernst & Young LLP for services, and all proposed fees for these services, be submitted to the audit committee for approval before Ernst & Young LLP may provide the services.
Pre-Approval
Policies and Procedures
Our audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the audit committee or the engagement is entered into pursuant to the pre-approval procedures described below.
From time to time, the audit committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. All of the services described above under the headings “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and “All Other Fees” were pre-approved by our audit committee.
TRANSACTIONS
WITH RELATED PERSONS
Since January 1, 2015, except as discussed below regarding transactions with 667, L.P., Baker Brothers Life Sciences, L.P. and 14159, L.P., which we refer to collectively as the Funds, which are affiliated with Mr. Baker and Dr. Neu, who are currently members of our board of directors, we have not entered into or engaged in any related party transactions, as defined by the SEC, with our directors, officers and stockholders who beneficially owned more than 5% of our outstanding common stock, as well as affiliates or immediate family members of those directors, officers and stockholders. We believe that the terms of our transactions described below were no less favorable than those that we could have obtained from unaffiliated third parties.
Public Offering
On February 19, 2015, we consummated an underwritten public offering of 23,000,000 shares of our common stock, which we refer to as the February 2015 Offering. The gross proceeds to us from this offering were approximately $86.25 million, before deducting underwriting discounts and commissions and other offering expenses payable by us.
Certain affiliates of the Funds participated in the February 2015 Offering and purchased in the aggregate 5,333,333 shares of our common stock for an aggregate purchase price of $19,999,999.
Registration Rights Agreement
On February 9, 2015, we entered into a registration rights agreement with the Funds relating to the registration for resale of the shares of our common stock held by the Funds, including the shares of our common stock that may be issued upon the exercise of warrants. We refer to these securities collectively as the Registrable Shares.
Under the registration rights agreement, we agreed to file a registration statement on Form S-3 with the SEC within 60 days after demand by any of the Funds, to register for resale the Registrable Shares. We also agreed to use our reasonable best efforts to cause the registration statement to become effective as promptly as practicable after filing, and to remain effective until the shares being registered thereunder have been sold or may be sold freely without limitations or restrictions as to volume or manner of sale pursuant to Rule 144. We filed this registration statement with the SEC in March 2016.
The registration rights agreement contains customary covenants and agreements by us, customary indemnification obligations of us and the Funds, including for liabilities under the Securities Act of 1933, as amended. The registration rights agreement terminates upon the occurrence of certain events, including when all Registrable Shares have been sold pursuant to an effective registration statement or when all Registrable Shares have been or may be sold without limitations as to volume or manner of sale pursuant to Rule 144.
Policies and Procedures
for Related Person Transactions
Our board of directors is committed to upholding the highest legal and ethical conduct in fulfilling its responsibilities and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. Accordingly, as a general matter, it is our preference to avoid related party transactions.
In accordance with our audit committee charter, members of the audit committee, all of whom are independent directors, review and approve all related party transactions for which approval is required under applicable laws or regulations, including SEC and the Nasdaq Listing Rules. Current SEC rules define a related party transaction to include any transaction, arrangement or relationship in which we are a participant and the amount involved exceeds $120,000, and in which any of the following persons has or will have a direct or indirect interest:
|
·
|
|
our executive officers, directors or director nominees;
|
|
·
|
|
any person who is known to be the beneficial owner of more than 5% of our common stock;
|
|
·
|
|
any person who is an immediate family member, as defined under Item 404 of Regulation S-K, of any of our executive officers, directors or director nominees or beneficial owners of more than 5% of our common stock; or
|
|
·
|
|
any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person, together with any other of the foregoing persons, has a 5% or greater beneficial ownership interest.
|
In addition, the audit committee reviews and investigates any matters pertaining to the integrity of management, including conflicts of interest and adherence to our code of business conduct and ethics. Under our code of business conduct and ethics, our directors, officers and employees are expected to avoid any relationship, influence or activity that would cause or even appear to cause a conflict of interest. Under our code of business conduct and ethics, a director is required to promptly disclose to our board of directors any potential or actual conflict of interest involving him or her. In accordance with our code of business conduct and ethics, the board of directors will determine an appropriate resolution on a case-by-case basis. All directors must recuse themselves from any discussion or decision affecting their personal, business or professional interests.
SECTION 16(a
) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on our review of copies of reports filed by individuals and entities required to make filings pursuant to Section 16(a) of the Exchange Act or written representations from such individuals or entities, we believe that during 2015 all filings required to be made by such individuals or entities were timely made in accordance with the Exchange Act, with the exception of one late Form 4 filed by Mr. Geraghty on April 6, 2015 to report the issuance of stock under our director compensation program in lieu of cash and one late Form 4 filed by Dr. Slater on June 11, 2015 to report the grant of an option, which filings were filed late due to administrative error.
|
|
By order of the board of directors,
|
|
/s/ Mark J. Casey
|
|
Mark J. Casey, Secretary
|
|
April 25, 2016
|
|
|
MMMMMMMMMMMM . MMMMMMMMMMMMMMM C123456789 Idera Pharmaceuticals, Inc. 000004 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on June 12, 2016. MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 Vote by Internet • Go to www.investorvote.com/IDRA • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone • Follow the instructions provided by the recorded message Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 3. + 1. Election of Directors: For Withhold For Withhold For Withhold 01 - Dr. Sudhir Agrawal 02 - Mr. Youssef El Zein 03 - Dr. Mark Goldberg For Against Abstain ForAgainst Abstain 2. Approval, by non-binding vote, of executive compensation. 3. Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016. Non-Voting Items Change of Address — Please print new address below. Comments — Please print your comments below. Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign this proxy exactly as your name appears hereon. Joint owners should each sign personally. Trustees and other fiduciaries should indicate the capacity in which they sign. If a corporation or partnership, this signature should be that of an authorized officer who should state his or her title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. MMMMMMMC 1234567890 J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + 1 U P X2 7 8 0 8 4 1 02C5AB MMMMMMMMM C B A Annual Meeting Proxy Card1234 5678 9012 345 X IMPORTANT ANNUAL MEETING INFORMATION
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. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proxy — IDERA PHARMACEUTICALS, INC. PROXY SOLICITED BY THE BOARD OF DIRECTORS Annual Meeting of Stockholders — June 13, 2016 Those signing on the reverse side, revoking all prior proxies, hereby appoint(s) Mr. Vincent J. Milano, Mr. Louis J. Arcudi, III and Mr. Mark J. Casey, or each or any of them with full power of substitution, as proxies for those signing on the reverse side to act and vote all shares of stock of Idera Pharmaceuticals, Inc. which the undersigned would be entitled to vote if personally present at the 2016 Annual Meeting of Stockholders of Idera Pharmaceuticals, Inc. (the “Meeting”) and at any adjournment or postponement thereof as indicated upon all matters referred to on the reverse side and described in the Proxy Statement for the Meeting, and, in their discretion, upon any other matters which may properly come before the Meeting. Attendance of the undersigned at the Meeting or at any adjournment or postponement thereof will not be deemed to revoke this proxy unless those signing on the reverse side shall revoke this proxy in writing. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE STOCKHOLDER(S) SIGNING THE REVERSE SIDE AND IN THE DISCRETION OF THE PROXIES UPON ANY OTHER MATTERS WHICH PROPERLY COME BEFORE THE MEETING. IF NO INDICATION IS MADE, THE PROXIES SHALL VOTE “FOR” THE DIRECTOR NOMINEES AND “FOR” PROPOSALS NUMBERED 2 AND 3. PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE. YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
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