Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K
is
not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K
or
any amendment to this
Form 10-K. ☒
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer,
accelerated filer, smaller reporting company, and emerging growth company in
Rule 12b-2
of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the
Exchange Act). Yes ☐ No ☒
As of June 30, 2016, the
last business day of the registrants most recently completed second fiscal quarter, the aggregate market value of the registrants common stock held by
non-affiliates
was $53,968,136, based on the
last reported sale price of such stock on the NASDAQ Global Market as of such date.
As of March 31, 2017, the registrant had
22,641,651 shares of Common Stock, $0.001 par value per share, outstanding.
The purpose of this amendment, (the Amendment), is to include the information required by Items 10 through 14 of Part III of Form
10-K,
which was omitted from Tokai Pharmaceuticals, Inc.s Annual Report on Form
10-K
for the fiscal year ended December 31, 2016, (the Annual Report),
as originally filed with the Securities and Exchange Commission (the SEC), on March 3, 2017, in reliance on General Instruction G(3) to Form
10-K,
which provides for the incorporation by
reference of certain provisions of a registrants definitive proxy statement into its Form
10-K.
Unless we specify otherwise, all references in this Amendment to we, our, us, or the Company
refer to Tokai Pharmaceuticals, Inc.
PART III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Directors
Our board of directors is divided into three classes, with members of each class holding office for staggered three-year terms. There are
currently three Class I directors (Jodie P. Morrison, Cheryl L. Cohen and Joseph A. Yanchik, III), whose terms expire at the 2018 annual meeting of stockholders; one Class II director (David A. Kessler), whose term expires at the 2019
annual meeting of stockholders; and two Class III directors (Seth L. Harrison and Stephen Buckley Jr.), whose terms expire at the 2017 annual meeting of stockholders (in all cases subject to the election and qualification of their successors or
to their earlier death, resignation or removal). Dr. Harrison was elected as a director pursuant to a stockholders agreement that we entered into with the holders of our preferred stock that terminated upon the closing of our initial public
offering.
Set forth below are the ages of the directors as March 31, 2017, the positions held in our company and other information
for each member of the board. The information presented includes each directors principal occupation and business experience for the past five years, and the names of other public companies of which he or she has served as a director during
the past five years. The information presented below regarding the specific experience, qualifications, attributes and skills of each director led our nominating and corporate governance committee and our board of directors to conclude that he or
she should serve as a director. There are no family relationships among any of our directors, nominees for director, or executive officers.
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Name
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Age
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Position(s)
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Class I Directors
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Jodie P. Morrison
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41
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President and Chief Executive Officer, Director
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Cheryl L. Cohen
(1)(2)
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51
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Director
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Joseph A. Yanchik, III
(2)
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53
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Director
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Class II Director
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David A. Kessler, M.D.
(1)(3)
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65
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Director
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Class III Directors
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Seth L. Harrison, M.D.
(1)
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56
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Chair of the Board of Directors
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Stephen Buckley, Jr.
(2) (3)
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67
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Director
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(1)
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Member of the compensation committee.
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(2)
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Member of the audit committee.
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(3)
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Member of the nominating and corporate governance committee.
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Class I Directors
Jodie P. Morrison
has served as our President and Chief Executive Officer and as a member of our board of directors since March
2013. From December 2006 until March 2013, Ms. Morrison held other senior positions with us, including Chief Operating Officer, Head of Clinical Affairs and Program Operations and Vice President of Clinical Affairs and Program Operations. Prior
to joining our company, Ms. Morrison served as Director of Clinical Operations and Medical Affairs at Dyax Corporation, or Dyax. Prior to joining Dyax, Ms. Morrison held clinical management positions at both Curis, Inc. and at Diacrin,
Inc. Ms. Morrison currently serves on the board of directors of Keryx Biopharmaceuticals, Inc., a publicly traded company. Ms. Morrison received a
B.A. in neuroscience from
1
Mount Holyoke College, her clinical research certification from the Boston University School of Medicine and her business training through the Greater Boston Executive Program at the MIT Sloan
School of Management. We believe Ms. Morrison is qualified to serve on our board of directors due to her service as our President and Chief Executive Officer, her years of service as our Chief Operating Officer and her extensive knowledge of
our company and industry.
Cheryl L. Cohen
has served as a member of our board of directors since April 2015
and as a member of our compensation committee since September 2015. From September 2011 until July 2014, Ms. Cohen served as Chief Commercial Officer of Medivation, Inc. Ms. Cohen currently serves as president of CLC Consulting,
a pharmaceutical and biotechnology consulting firm specializing in new product
start-up
and commercialization, where she also served as president from September 2008 until September 2011. From November
2007 to September 2008, she served as the vice president, strategic commercial group, of Health Care Systems, Inc., a Johnson & Johnson company, and from October 1998 to November 2007, she worked at Janssen Biotech, Inc. (formerly Centocor
Biotech, Inc.), a Johnson & Johnson company, in a variety of senior sales roles including vice president, rheumatology franchise. Ms. Cohen began her career at Solvay Pharmaceuticals in a variety of sales positions. Ms. Cohen
currently serves on the boards of directors of Protein Sciences Corp., a private company, and Vital Therapies, Inc., a publicly-traded company. Ms. Cohen received her B.A. from Saint Joseph College. We believe Ms. Cohen is qualified
to serve on our board of directors due to her expertise in oncology and new drug commercialization.
Joseph A. Yanchik, III
is one of our founders and has served as a member of our board of directors since August 2005 and as a member of our audit committee since January 2012. Mr. Yanchik served as our Chief Executive Officer from June 2005 until March 2008.
Mr. Yanchik has served as the President and Chief Executive Officer, and as a director, of Aileron Therapeutics, Inc., or Aileron, since January 2006. Mr. Yanchik previously served as Venture Partner at Apple Tree Partners, or Apple Tree,
a life sciences investment firm, from June 2005 until September 2006, Vice President of Corporate Development at Mendel Biotechnology, Inc., and founder and Chief Business Officer of Poetic Genetics, Inc. Prior to that, Mr. Yanchik specialized
in corporate and securities law at Cahill Gordon & Reindel and Venture Law Group. Mr. Yanchik received a B.B.A. from Loyola College and a J.D. from the Villanova University School of Law. We believe Mr. Yanchik is qualified to
serve on our board of directors due to his extensive business, legal and investment experience, his knowledge of our company and his experience as a chief executive officer of a life sciences company.
Class II Director
David A. Kessler, M.D.
has served as a member of our board of directors since March 2009, as a member of our compensation
committee since September 2014 and as a member of our nominating and corporate governance committee since September 2014. Dr. Kessler became chair of our nominating and corporate governance committee in December 2015. Dr. Kessler has
served as Professor of Pediatrics and Epidemiology
and Biostatistics at the University of California, San Francisco, or UCSF, School of Medicine since 2003. Dr. Kessler served as the Dean of the School of Medicine and the Vice
Chancellor for Medical Affairs at UCSF from 2003 until 2007 and Dean of the Yale University School of Medicine from 1997 until 2003. Dr. Kessler served as Commissioner of the FDA from November 1990 until March 1997. He currently serves as a
senior advisor to TPG Capital. Dr. Kessler was elected a member of the Institute of Medicine in 1993. Currently, Dr. Kessler serves on the board of directors of the following private companies: Immucor, Inc. and ASOthera Pharmaceuticals,
Inc., or ASOthera. He previously served on the board of directors of Aptalis Pharma Inc. Dr. Kessler received a B.A. from Amherst College, a J.D. from The University of Chicago Law School and an M.D. from Harvard Medical School. In addition,
Dr. Kessler received an Advanced Professional Certificate from the New York University Graduate School of Business Administration. We believe Dr. Kessler is qualified to serve on our board of directors due to his extensive healthcare and
regulatory experience.
Class III Directors
Seth L. Harrison, M.D.
is one of our founders and has served as a member of our board of directors since April 2005, including as
chair of our board of directors since August 2005, and as a member of our compensation committee since January 2012. In September 1999, Dr. Harrison founded Apple Tree and since that time has served
2
as Apple Trees Managing Partner. In addition, Dr. Harrison previously served as our Chief Executive Officer from August 2008 until September 2011. Currently, Dr. Harrison serves
as a member of the boards of directors of the following private companies, ASOthera, Cure Forward Corp. and Syntimmune, Inc., and as chair of the board of directors of Braeburn Pharmaceuticals, Inc. From November 2004 to August 2016, prior to
HeartWare Internationals acquisition by Medtronic, Dr. Harrison served as a member of the board of directors of HeartWare, a publicly-traded company. From 2002 until 2010, Dr. Harrison served as a member of the board of directors of
the International Partnership for Microbicides, a Rockefeller Foundation/Gates Foundation sponsored public-private partnership engaged in the development of
anti-HIV
microbicides. Dr. Harrison received an
A.B. from Princeton University and an M.D. and M.B.A. from Columbia University, and completed a surgery internship at the Presbyterian Hospital in the City of New York. We believe Dr. Harrison is qualified to serve on our board of directors due
to his strong medical and venture capital background, his extensive experience with development-stage companies such as ours and his service on the boards of directors of a range of public and private companies.
Stephen Buckley, Jr.
has served as a member of our board of directors and as chair of our audit committee since January 2015 and
has served on our nominating and corporate governance committee since December 2015. Mr. Buckley spent 25 years as a partner of Ernst & Young LLP, where he led assurance and advisory teams serving public and private companies in life
sciences and other technologies. Mr. Buckley led Ernst & Youngs Life Sciences Industry Practice of New England from 1991 to 2006, and was Director of its New England Entrepreneurial Services Group from 1991 to 2001. He was
previously a partner in the Boston, Massachusetts office of Arthur Young until its merger into Ernst & Young in 1989. Mr. Buckley is a member of the American Institute of CPAs. Mr. Buckley serves on the board of directors of
Enanta Pharmaceuticals, Inc., a publicly-traded company. Mr. Buckley received an A.B. from Bowdoin College and a Master of Science in Accounting from Northeastern University. We believe Mr. Buckley is qualified to serve on our board of
directors due to his extensive experience evaluating financial statements and financial reporting procedures.
Otic Transaction
On December 21, 2016, we entered into a Share Purchase Agreement, or Share Purchase Agreement, with Otic Pharma, Ltd., a private limited
company organized under the laws of the State of Israel, or Otic, and the shareholders of Otic named therein, or the Selling Shareholders, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in
the Share Purchase Agreement, each Selling Shareholder agreed to sell to us, and we agreed to purchase from each Selling Shareholder, all of the ordinary and preferred shares of Otic, owned by such Selling Shareholder. We refer to our acquisition of
all the outstanding equity of Otic as the Otic Transaction. We amended and restated the Share Purchase Agreement on March 2, 2017 to update the allocation of shares of our common stock among the Selling Shareholders, to update the manner in
which Otic options and warrants are converted and to extend to May 31, 2017, the date after which we or Otic may terminate the Share Purchase Agreement.
Under the Share Purchase Agreement, effective upon the closing of the Otic Transaction, four members of our existing board of directors,
Stephen Buckley, Jr., Seth L. Harrison, David A Kessler and Joseph A. Yanchik, III, will resign as directors. Following the closing of the Otic Transaction, our board of directors which will initially be fixed at seven members, will consist of
(i) three members designated by Tokai, namely Cheryl L. Cohen, John S. McBride and Jodie P. Morrison and (ii) four members designated by Otic, namely Keith A. Katkin as Chairman, Gregory J. Flesher, Gary A. Lyons, and Erez Chimovits.
Pursuant to the terms of the Share Purchase Agreement, it is anticipated that these directors will be appointed to the three staggered director classes of the combined companys board of directors as follows:
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Class I directors (term ending 2018): Erez Chimovits, Cheryl L. Cohen and Jodie P. Morrison;
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Class II directors (term ending 2019): Keith A. Katkin and John S. McBride; and
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Class III directors (term ending 2017): Gregory J. Flesher and Gary A. Lyons.
|
Executive Officers
Set forth below is the name of our only executive officer who is not also a director, his age as of March 31, 2017, the positions
he holds in our company, his principal occupation and his business experience for the past five years.
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Name
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Age
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Position(s)
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John S. McBride
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65
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Chief Operating Officer and Chief Financial Officer
|
3
John S. McBride
. Mr. McBride has served as our Chief Operating Officer since
February 2014 and as our Chief Financial Officer since September 2016. He previously served as our interim Chief Financial Officer from April 2014 until September 2014. Prior to joining our company, Mr. McBride founded and served as President
of Alliance Life Science Advisors, Inc., a consulting firm focused on assisting life science companies with strategic planning, business development and financing projects from March 2012 until February 2014. Prior to founding Alliance Life Science
Advisors, Inc., Mr. McBride was an independent consultant from January 2009 until March 2012. In addition, Mr. McBride previously served as Executive Vice President and Chief Operating Officer of Gloucester Pharmaceuticals, Inc., Global
Head of Oncology Licensing at Pharmacia Corporation, Executive Vice President, Business Operations and Chief Financial Officer at CytoTherapeutics, Inc., Vice President, Business Development and Treasurer at Phytera, Inc., Vice President, Commercial
Development at Sparta Pharmaceuticals, Inc. and Vice President, Business Development at U.S. Bioscience, Inc. Currently, Mr. McBride serves as chairman of the board of directors of Intezyne, Inc. From August 2008 until June 2013,
Mr. McBride served as a member of the board of directors of Niiki Pharma Inc. Mr. McBride received a B.S. in biochemistry and an M.S. in chemical engineering from the University of Wisconsin and an M.B.A. from the Wharton School,
University of Pennsylvania.
Immediately following the completion of the Otic Transaction, our executive management team is expected to be
composed of the current executive team of Otic: Gregory J. Flesher, serving as President and Chief Executive Officer; Christine G. Ocampo, serving as Chief Financial and Compliance Officer; and Dr. Catherine C. Turkel, serving as Chief
Development Officer.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and officers and holders of more than 10% of our common stock to file with the
SEC initial reports of ownership of our common stock and other equity securities on a Form 3 and reports of changes in such ownership on a Form 4 or Form 5. Directors and officers and holders of 10% of our common stock are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of our records and representations made by our directors and officers regarding their filing obligations, all
Section 16(a) filing requirements were satisfied with respect to fiscal 2016.
Code of Business Ethics and Conduct
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is available on the Investors & MediaCorporate Governance section of
our website, which is located at
www.tokaipharmaceuticals.com
. We intend to disclose on our website any amendments to, or waivers from, the code of business conduct and ethics that are required to be disclosed pursuant to the disclosure
requirements of Item 5.05 of Form
8-K.
Corporate Governance Matters
Our board of directors believes that good corporate governance is important to ensure that our company is managed for the long-term benefit of
stockholders. This section describes key corporate governance guidelines and practices that our board of directors has adopted. Complete copies of our corporate governance guidelines, committee charters and code of conduct are available on the
Investors & MediaCorporate Governance section of our website, which is located at www.tokaipharmaceuticals.com. Alternatively, you can request a copy of any of these documents by writing us at Tokai Pharmaceuticals, Inc.,
255 State Street, 6th Floor, Boston, Massachusetts 02109, Attention: Investor Relations.
4
Audit Committee
We have established a standing audit committee, which operates under a charter approved by our board of directors. The current members of our
audit committee are Stephen Buckley, Jr., Cheryl L. Cohen and Joseph A. Yanchik, III. Mr. Buckley chairs the audit committee. Our board of directors has determined that Mr. Buckley qualifies as an audit committee financial
expert within the meaning of the applicable SEC rules. Each member of audit committee is independent as defined under applicable NASDAQ rules, including, in the case of all members of the audit committee, the independent requirements
contemplated by Rule
10-3A
under the Exchange Act. The audit committee held four meetings during fiscal 2016.
5
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Executive Compensation
This section discusses the material elements of our executive compensation policies for our named executive officers and the most
important factors relevant to an analysis of these policies. For 2016, our named executive officers are Jodie P. Morrison, our President and Chief Executive Officer, and our two other most highly compensated executive officers who served
during the year ended December 31, 2016, John S. McBride, our Chief Operating Officer and Chief Financial Officer, and Lee H. Kalowski, our former Chief Financial Officer. In addition, this section provides qualitative information regarding the
manner and context in which compensation is awarded to and earned by our named executive officers and is intended to place in perspective the data presented in the following tables and the corresponding narrative.
Summary Compensation Table
The
following table sets forth information regarding compensation earned by our named executive officers during the years ended December 31, 2016 and 2015.
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Name and Principal Position
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Year
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Salary ($)
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Non-Equity
Incentive Plan
Compensation ($)
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Option
Awards
($)(1)
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All Other
Compensation ($)
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Total ($)
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Jodie P. Morrison (3)
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2016
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525,000
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281
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(2)
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525,281
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President and Chief Executive Officer
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2015
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475,000
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|
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166,250
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1,199,400
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335
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(2)
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1,840,985
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John S. McBride
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2016
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407,804
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281
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(2)
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408,085
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Chief Operating Officer and Chief Financial Officer
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2015
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377,804
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124,100
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393,454
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281
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(2)
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895,639
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Lee H. Kalowski (4)
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2016
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320,000
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114,374
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(5)
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434,374
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Former Chief Financial Officer
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2015
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320,000
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46,027
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393,454
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30,936
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(6)
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790,417
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(1)
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These amounts represent the aggregate grant date fair value of awards for 2015 computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718, or FASB ASC Topic 718. See
Note 8 to the financial statements in our Annual Report on Form
10-K
for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards.
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(2)
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Represents the value of the company-paid premiums for group term life insurance.
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(3)
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Ms. Morrison also serves as a member of our board of directors but does not receive any additional compensation for her service as a director.
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(4)
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Mr. Kalowski was employed as our Chief Financial Officer until August 2016. Pursuant to Mr. Kalowskis employment agreement, he continued to receive his base salary for six months following his
termination. Mr. Kalowski entered into a consulting agreement with us in September 2016, effective until April 30, 2017.
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(5)
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This amount consists of $113,750 for consulting fees from September 2016 to December 2016 and $624 for the value of company-paid premiums for group term life insurance.
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(6)
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This amount consists of $936 for the value of company paid-premiums for group term life insurance and $30,000 for the reimbursement of relocation expenses in connection with Mr. Kalowskis employment
agreement.
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6
Narrative Disclosure to Summary Compensation Table
We review compensation for our executive officers annually. The material terms of the elements of our executive compensation program for 2016
are described below.
Our compensation committee sets base salaries and bonuses and grants equity incentive awards to our executive
officers. In setting base salaries and bonuses and granting equity incentive awards, our compensation committee considers compensation for comparable positions in the market, the historical compensation levels of our executives, individual and
corporate performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders, and a long-term commitment to our company. As part
of this process, Ms. Morrison, as our president and chief executive officer, prepares performance evaluations for the other executive officers and recommends annual salary increases, annual stock option awards and cash bonuses to the
compensation committee. The compensation committee conducts a performance evaluation of Ms. Morrison. Prior to approving compensation for our executive officers, the compensation committee consults with the board of directors.
Although our compensation committee generally consults with external advisors for annual review of compensation, in fiscal 2016, our
compensation committee did not consult with an independent compensation consultant.
Base Salary
For 2016, Ms. Morrisons annual base salary was $525,000, Mr. McBrides annual base salary was $407,804 and
Mr. Kalowskis annual base salary was $320,000. Mr. Kalowski ceased his employment with us in August 2016. No adjustments were made to the base salaries for Ms. Morrison or Mr. McBride for 2017. We use base salaries to
recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named executive officers. None of our named executive officers is currently party to an employment agreement or other agreement or
arrangement that provides for automatic or scheduled increases in base salary.
Annual Bonus
Our board of directors may, in its discretion, award bonuses to our named executive officers from time to time. We typically establish annual
bonus targets based around a set of specified corporate goals for our named executive officers and conduct an annual performance review to determine the attainment of such goals. Our management may propose bonus awards to the compensation committee
of the board or the board primarily based on such review process. Our board of directors makes the final determination of the eligibility requirements for and the amount of such bonus awards. For 2016, Ms. Morrison, Mr. McBride and
Mr. Kalowski were eligible for performance bonuses of up to 50%, 35% and 35% of their respective base salaries. We did not award bonuses to any employees for 2016, including Ms. Morrison, Mr. McBride or Mr. Kalowski.
Equity Incentives
Although we do not
have a formal policy with respect to the grant of equity incentive awards to our executive officers or any formal equity ownership guidelines applicable to them, we believe that equity grants provide our executives with a strong link to our
long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, we believe that equity grants with a time-based vesting feature promote executive retention because this feature
incentivizes our executive officers to remain in our employment during the vesting period. Accordingly our compensation committee and board of directors periodically review the equity incentive compensation of our named executive officers and from
time to time may grant equity incentive awards to them in the form of stock options or restricted stock unit awards.
In 2016, we did not
make grants of equity incentive awards to our named executive officers. For the outstanding equity awards held by our named executed officers see Outstanding Equity Awards at Fiscal Year End 2016 below.
7
Outstanding Equity Awards at Fiscal Year End 2016
The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31,
2016.
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Option Awards
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Name
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Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
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Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
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Option
Exercise
Price ($)
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Option
Expiration
Date
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Jodie P. Morrison
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37,878
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1.37
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6/28/2021
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59,008
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1.37
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9/7/2021
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477,987
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1.58
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6/26/2023
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69,861
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64,273
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(1)
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13.25
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10/15/2024
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47,250
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141,750
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(2)
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9.65
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12/14/2025
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John S. McBride
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143,106
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43,572
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(3)
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4.19
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2/25/2024
|
|
|
|
|
26,390
|
|
|
|
24,281
|
(1)
|
|
|
13.25
|
|
|
|
10/15/2024
|
|
|
|
|
15,500
|
|
|
|
46,500
|
(2)
|
|
|
9.65
|
|
|
|
12/14/2025
|
|
Lee H. Kalowski
|
|
|
104,655
|
|
|
|
|
|
|
|
15.00
|
|
|
|
5/28/2017
|
|
|
|
|
10,333
|
|
|
|
|
|
|
|
9.65
|
|
|
|
5/28/2017
|
|
(1)
|
This option vested as to 8.33% of the shares underlying the option on May 1, 2015 and vests as to an additional 2.083% of the shares underlying the option on the first day or each month thereafter through
November 1, 2018.
|
(2)
|
This option vested as to 12.5% of the shares underlying the option on June 30, 2016 and vests as to an additional 2.083% of the shares underlying the option monthly thereafter through December 31, 2019.
|
(3)
|
This option vested as to 12.5% of the shares underlying the option on April 1, 2014 and vests as to an additional 2.083% of the shares underlying the option on the first day of each month thereafter through
October 1, 2017.
|
Employment Agreements and Potential Payments upon Termination or Change in Control
Jodie P. Morrison
In June 2013, in
connection with our appointment of Ms. Morrison as our President and Chief Executive Officer, we entered into an employment agreement with Ms. Morrison. The employment agreement establishes Ms. Morrisons title, her base salary,
her eligibility for an annual bonus and her eligibility for benefits made available to employees generally and also provides for certain benefits upon termination of her employment under specified conditions. Ms. Morrisons employment is
at will. In October 2014, the compensation committee approved amendments to the employment agreement with Ms. Morrison to modify the benefits provided under that agreement upon termination of Ms. Morrisons employment.
Under the terms of the employment agreement with Ms. Morrison, if Ms. Morrisons employment is terminated by us without cause
or by Ms. Morrison for good reason prior to a change in control, each as defined in her employment agreement, and subject to Ms. Morrisons execution of a general release of potential claims against us, we have agreed to continue to
pay Ms. Morrison her then current base salary for a period of 12 months and to provide medical and dental benefits (to the extent that she was receiving them at the time she ceased to be employed by us) for a period of up to 12 months.
In lieu of receiving the benefits described above in connection with a termination of employment, if Ms. Morrisons employment is
terminated by us without cause or by Ms. Morrison for good reason upon or within one year following a change in control, and subject to Ms. Morrisons execution of a general release of potential claims against us, we have agreed to
continue to pay Ms. Morrison her then-current base salary for a period of 18 months and to provide medical and dental benefits (to the extent that she was receiving them at the time she ceased to be employed by us) for a period of up to 18
months and to pay her an amount equal to her target bonus for the year in which the termination occurs.
8
In addition, with respect to each stock option that we have granted Ms. Morrison that has
not yet vested, we have agreed that if Ms. Morrison is terminated without cause or resigns for good reason in connection with or within one year after a change in control of our company (as defined in the applicable stock option agreement),
then that stock option will vest in full.
The Otic Transaction constitutes a change in control under the employment agreement and the
stock option agreements entered into with Ms. Morrison.
John S. McBride
Mr. McBrides employment agreement establishes Mr. McBrides title, his base salary, his eligibility for an annual bonus
and his eligibility for benefits made available to employees generally and also provides for certain benefits upon termination of his employment under specified conditions. In October 2014, the compensation committee approved amendments to the
employment agreement with Mr. McBride to modify the benefits provided under that agreement upon termination of Ms. Morrisons employment.
Under the terms of Mr. McBrides employment agreement, if Mr. McBrides employment is terminated by us without cause, and
subject to Mr. McBrides execution of a general release of potential claims against us, we have agreed to continue to pay Mr. McBrides then-current base salary for a period of six months and to provide medical and dental
benefits (to the extent that he was receiving them at the time he ceased to be employed by us) for a period of up to six months.
In lieu
of receiving the benefits described above in connection with a termination of employment, if Mr. McBrides employment is terminated by us without cause or by Mr. McBride for good reason upon or within one year following a change in
control, and subject to Mr. McBrides execution of a general release of potential claims against us, we have agreed to continue to pay Mr. McBride his then-current base salary for a period of 12 months and to provide medical and
dental benefits (to the extent that he was receiving them at the time he ceased to be employed by us) for a period of up to 12 months and to pay him an amount equal to his target bonus for the year in which the termination occurs.
In addition, under each stock option agreement that we have entered into with Mr. McBride and has not yet vested, we have agreed that if
Mr. McBride is terminated without cause or resigns for good reason in connection with or within one year after a change in control of our company (as defined in the applicable stock option agreement), then that stock option will vest in full.
The Otic Transaction constitutes a change in control under the employment agreement and the stock option agreements entered into with
Mr. McBride.
Lee H. Kalowski
Mr. Kalowskis employment agreement established his title, his base salary, his eligibility for an annual bonus and his eligibility
for benefits made available to employees generally and also provides for certain benefits upon termination of his employment under specified conditions. Pursuant to Mr. Kalowskis employment agreement, in January and April 2015, we paid
Mr. Kalowski an aggregate of $30,000 as reimbursement for relocation expenses. Mr. Kalowskis employment was at will.
In
October 2014, the compensation committee of the board of directors approved amendments to the employment agreement with Mr. Kalowski to modify the benefits provided under that agreement upon termination of Mr. Kalowskis employment.
Under the terms of the revised employment agreement with Mr. Kalowski, if Mr. Kalowskis employment was terminated by us without cause or by Mr. Kalowski for good reason prior to a change in control, each as defined in his
employment agreement, and subject to Mr. Kalowskis execution of a general release of potential claims against us, we agreed to continue to pay Mr. Kalowski his then-current base salary for a period of six months and to provide
medical and dental benefits (to the extent that he was receiving them at the time he ceased to be employed by us) for a period of up to six months. Mr. Kalowski received these benefits in connection with his cessation of employment with us on
August 31, 2016.
9
In connection with Mr. Kalowski ceasing employment with us on August 31, 2016, we
entered into a consulting agreement with Mr. Kalowski, under which Mr. Kalowski agreed to perform certain consulting and other services through April 30, 2017.
Other Agreements
We have also
entered into employee confidentiality, inventions,
non-solicitation,
and
non-competition
agreements with each of our named executive officers. Under the employee
confidentiality, inventions,
non-solicitation,
and
non-competition
agreements, each named executive officer has agreed (1) not to compete with us during his or her
employment and for a period of one year after the termination of his or her employment, (2) not to solicit our employees during his or her employment and for a period of one year after the termination of his or her employment, (3) to
protect our confidential and proprietary information and (4) to assign to us related intellectual property developed during the course of his or her employment.
401(k) Retirement Plan
We
maintain a 401(k) retirement plan that is intended to be a
tax-qualified
defined contribution plan under Section 401(k) of the Internal Revenue Code. In general, all of our employees are eligible to
participate, beginning on the first day of the month following commencement of their employment. The 401(k) plan includes a salary deferral arrangement pursuant to which participants may elect to reduce their current compensation by up to the
statutorily prescribed limit, equal to $18,000 in 2016, and have the amount of the reduction contributed to the 401(k) plan. Effective January 1, 2016, we determined to make matching contributions at a rate of 100% of each employees
contribution up to a maximum matching contribution of 3% of the employees compensation and 50% of each employees contribution in excess of 3% up to a maximum of 5% of the employees contribution.
Limitation of Liability and Indemnification
As permitted by Delaware law, we have adopted provisions in our certificate of incorporation that limit or eliminate the personal liability of
our directors. Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breaches
of their fiduciary duties as directors, except liability for:
|
|
|
any breach of the directors duty of loyalty to us or our stockholders;
|
|
|
|
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
|
|
|
|
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
|
|
|
|
any transaction from which the director derived an improper personal benefit.
|
These
limitations do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission. If Delaware law is amended to authorize the further elimination or
limiting of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law as so amended.
As permitted by Delaware law, our certificate of incorporation also provides that:
|
|
|
we will indemnify our directors and officers to the fullest extent permitted by law;
|
|
|
|
we may indemnify our other employees and other agents to the same extent that we indemnify our officers and directors, unless otherwise determined by our board of directors; and
|
|
|
|
we will advance expenses to our directors and officers in connection with legal proceedings to the fullest extent permitted by law.
|
10
The indemnification provisions contained in our certificate of incorporation are not exclusive.
In addition, we have entered into indemnification agreements with each of our directors and executive officers. Each of these indemnification agreements provides, among other things, that we will indemnify such director or executive officer to the
fullest extent permitted by law for claims arising in his or her capacity as a director or executive officer, as applicable, provided that he or she acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to,
our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. Each of these indemnification agreements provides that in the event that we do not assume the defense of a
claim against a director or executive officer, as applicable, we are required to advance his or her expenses in connection with his or her defense, provided that he or she undertakes to repay all amounts advanced if it is ultimately determined that
he or she is not entitled to be indemnified by us.
We believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling our company pursuant to the
foregoing provisions, we understand that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
In addition, we maintain standard policies of insurance under which coverage is provided to our directors and officers against losses arising
from claims made by reason of breach of duty or other wrongful act, and to us with respect to payments which may be made by us to such directors and officers pursuant to the above indemnification provisions or otherwise as a matter of law.
Director Compensation
Our board of
directors has approved a compensation policy for our
non-employee
directors that is designed to provide a total compensation package that enables us to attract and retain qualified and experienced individuals
to serve as directors and to align our directors interests with those of our stockholders. Our
non-employee
directors are compensated for their services on our board of directors as follows:
|
|
|
each new
non-employee
director will receive an initial grant of an option under our 2014 Stock Incentive Plan, or the 2014 Plan, to purchase 25,000 shares of common stock upon his
or her initial election to our board of directors;
|
|
|
|
each
non-employee
director who has served on the board for at least three months will receive an annual grant of an option under our 2014 Plan to purchase 12,000 shares of common
stock on the date of the first meeting of our board of directors held after each annual meeting of our stockholders;
|
|
|
|
each
non-employee
director will receive an annual cash fee of $35,000 ($60,000 for the chair of the board of directors);
|
|
|
|
each
non-employee
director who is a member of the audit committee will receive an additional annual cash fee of $7,500 ($15,000 for the audit committee chair);
|
|
|
|
each
non-employee
director who is a member of the compensation committee will receive an additional annual cash fee of $5,000 ($10,000 for the compensation committee chair); and
|
|
|
|
each
non-employee
director who is a member of the nominating and corporate governance committee will receive an additional annual cash fee of $3,750 ($7,500 for the nominating and
corporate governance committee chair).
|
The stock options granted to our
non-employee
directors will have an exercise price equal to the fair market value of our common stock on the date of grant and will expire ten years after the date of grant. The initial stock options granted
to our future newly elected
non-employee
directors will, subject to the directors continued service on our board, vest with respect to
one-third
of the shares on
the first anniversary of the grant date and quarterly thereafter until the third anniversary of the date of grant. The annual stock options granted to our
non-employee
directors will, subject to the
directors continued service on our board, vest with respect to 100% of the shares on the first anniversary of the grant date. The initial and annual stock options granted to our
non-employee
directors
will vest in full with respect to the shares then underlying such options upon a change in control.
11
The annual cash fee will be payable quarterly in arrears on the last day of each quarter. The
amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board.
Each
non-employee
director is also entitled to reimbursement for reasonable travel and other expenses incurred in connection with attending meetings of the board of directors and any committee on which he or she serves.
The following table sets forth information regarding compensation earned by our
non-employee
directors during 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
|
Option Awards
($)(1)
|
|
|
Total ($)
|
|
Seth L. Harrison, M.D.
|
|
|
66,875
|
|
|
|
48,459
|
|
|
|
115,334
|
|
Timothy J. Barberich(2)
|
|
|
43,716
|
|
|
|
48,459
|
|
|
|
92,175
|
|
David A. Kessler, M.D.
|
|
|
47,673
|
|
|
|
48,459
|
|
|
|
96,132
|
|
Joseph A. Yanchik, III
|
|
|
42,500
|
|
|
|
48,459
|
|
|
|
90,959
|
|
Stephen Buckley, Jr.
|
|
|
53,923
|
|
|
|
48,459
|
|
|
|
102,382
|
|
Cheryl L. Cohen
|
|
|
44,164
|
|
|
|
48,459
|
|
|
|
92,623
|
|
(1)
|
These amounts represent the aggregate grant date fair value of awards computed in accordance with FASB ASB Topic 718. See Note 8 to the consolidated financial statements in our Annual Report on Form
10-K
for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards.
|
(2)
|
Mr. Barberich resigned from our board of directors on October 10, 2016.
|
As of December 31,
2016, our
non-employee
directors held the following stock options, all of which were granted under our 2007 Stock Incentive Plan, as amended, or 2007 Plan, and our 2014 Plan:
|
|
|
|
|
Name
|
|
Option Awards
|
|
Seth L. Harrison, M.D.
|
|
|
24,000
|
|
Timothy J. Barberich
|
|
|
32,873
|
|
Stephen Buckley, Jr.
|
|
|
49,000
|
|
Cheryl L. Cohen
|
|
|
37,000
|
|
David A. Kessler, M.D.
|
|
|
53,502
|
|
Joseph A. Yanchik, III
|
|
|
45,658
|
|
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other
committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee is an officer or employee
of our company, and other than Dr. Harrison, who served as our Chief Executive Officer from August 2008 until September 2011, none of the members of our compensation committee has ever been an officer or employee of our company.
12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table presents information as to the beneficial ownership of our common stock as of January 31, 2017:
|
|
|
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;
|
|
|
|
each of our current directors;
|
|
|
|
our principal executive officer, and our two other executive officers who served during the year ended December 31, 2016, whom, collectively, we refer to as our named executive officers; and
|
|
|
|
all executive officers and directors as a group.
|
Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of January 31, 2017 are deemed
to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any
other person.
The percentage of shares beneficially owned as of January 31, 2017 is based on 22,641,651 shares of our common
stock issued and outstanding as of January 31, 2017. Unless otherwise indicated, the address of each of the individuals and entities named below is c/o Tokai Pharmaceuticals, Inc., 255 State Street, 6th Floor, Boston, Massachusetts
02109. Beneficial ownership representing less than one percent of our outstanding common stock is denoted with an *.
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Number of Shares
Beneficially
Owned as of
January 31, 2017
|
|
|
%
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
Entities affiliated with Apple Tree Partners (1)
|
|
|
7,912,079
|
|
|
|
34.9
|
|
Novartis BioVentures Ltd. (2)
|
|
|
4,493,458
|
|
|
|
19.8
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Jodie P. Morrison (3)
|
|
|
772,540
|
|
|
|
3.3
|
|
John S. McBride (4)
|
|
|
210,523
|
|
|
|
*
|
|
Lee Kalowski (5)
|
|
|
114,988
|
|
|
|
*
|
|
Seth L. Harrison, M.D. (6)
|
|
|
8,136,773
|
|
|
|
35.9
|
|
Stephen Buckley, Jr. (7)
|
|
|
39,666
|
|
|
|
*
|
|
Cheryl L. Cohen (8)
|
|
|
14,583
|
|
|
|
*
|
|
David A. Kessler, M.D. (9)
|
|
|
41,070
|
|
|
|
*
|
|
Joseph A. Yanchik, III (10)
|
|
|
59,204
|
|
|
|
*
|
|
All directors and executive officers as a group (7 persons) (11)
|
|
|
9,274,359
|
|
|
|
39.1
|
|
13
1)
|
Based on information provided in a Schedule 13D filed by Apple Tree Partners II, L.P. on September 30, 2014. Consists of (i) 4,218,641 shares of common stock held by Apple Tree Partners II, L.P., (ii) 3,568,438
shares of common stock held by Apple Tree Partners IIAnnex, L.P. and (iii) 125,000 shares of common stock held by Apple Tree Partners IV, L.P. Dr. Seth L. Harrison, a member of our board of directors, is a principal of the general
partner of each of Apple Tree Partners II, L.P., Apple Tree Partners IIAnnex, L.P. and Apple Tree Partners IV, L.P., and Dr. Harrison disclaims beneficial ownership of the shares held by each of Apple Tree Partners II, L.P., Apple Tree
Partners IIAnnex, L.P. and Apple Tree Partners IV, L.P., except to the extent of his pecuniary interest therein. Dr. Harrison has sole voting and investment control and power over the shares held by Apple Tree Partners II, L.P., Apple
Tree Partners IIAnnex, L.P. and Apple Tree Partners IV, L.P. The address of Apple Tree Partners is 230 Park Avenue, Suite 2800, New York, NY 10169.
|
2)
|
Based on information provided in a Schedule 13D and Form 4 filed by Novartis BioVentures Ltd., a Bermuda corporation, on October 1, 2014 and July 17, 2015, respectively. Novartis BioVentures Ltd. is a
wholly-owned indirect subsidiary of Novartis AG, which is an indirect beneficial owner of the reported securities. The address of Novartis BioVentures Ltd. is PO Box HM 2899, Hamilton HM LX, Bermuda.
|
3)
|
Consists of (i) 57,566 shares of common stock and (ii) 714,974 shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
4)
|
Consists of shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
5)
|
Consists of shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
6)
|
Consists of (i) 212,694 shares of common stock held by Dr. Harrison, (ii) 12,000 shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days
after such date, (iii) 4,218,641 shares of common stock held by Apple Tree Partners II, L.P., (iv) 3,568,438 shares of common stock held by Apple Tree Partners IIAnnex, L.P. and (v) 125,000 shares of common stock held by Apple Tree Partners
IV, L.P. Dr. Seth L. Harrison, a member of our board of directors, is a principal of the general partner of each of Apple Tree Partners II, L.P., Apple Tree Partners IIAnnex, L.P. and Apple Tree Partners IV, L.P., and
Dr. Harrison disclaims beneficial ownership of the shares held by each of Apple Tree Partners II, L.P., Apple Tree Partners IIAnnex, L.P. and Apple Tree Partners IV, L.P., except to the extent of his pecuniary interest therein.
Dr. Harrison has sole voting and investment control and power over the shares held by Apple Tree Partners II, L.P., Apple Tree Partners IIAnnex, L.P. and Apple Tree Partners IV, L.P.
|
7)
|
Consists of (i) 11,000 shares of common stock and (ii) 28,666 shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
8)
|
Consists of shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
9)
|
Consists of shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
10)
|
Consists of (i) 25,546 shares of common stock and (ii) 33,658 shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
11)
|
Consists of (i) 8,218,885 shares of common stock and (ii) 1,055,474 shares of common stock underlying options that are exercisable as of January 31, 2017 or will become exercisable within 60 days after such date.
|
14
Securities Authorized for Issuance Under Equity Compensation Plans
The following
table contains information about our equity compensation plans as of December 31, 2016. As of December 31, 2016, we had three equity compensation plans, each of which was approved by our stockholders: our 2007 Plan, our 2014 Plan and our
2014 Employee Stock Purchase Plan, or 2014 ESPP.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights
|
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for
future issuance under
equity
compensation
plans (excluding
securities reflected in
column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
1,896,169
|
(1)
|
|
$
|
6.55
|
|
|
|
3,246,327
|
(2)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,896,169
|
|
|
$
|
6.55
|
|
|
|
3,246,327
|
(3)
|
(1)
|
Consists of (i) 1,085,600 shares to be issued upon exercise of outstanding options under our 2007 Plan as of December 31, 2016 and (ii) 810,569 shares to be issued upon exercise of outstanding options
under our 2014 Plan as of December 31, 2016.
|
(2)
|
Consists of (i) 3,021,327 shares that remained available for future issuance under our 2014 Plan as of December 31, 2016 and (ii) 225,000 shares that remained available for future issuance under our 2014
ESPP as of December 31, 2016. No shares remained available for future issuance under the 2007 Plan as of December 31, 2016.
|
(3)
|
Our 2014 Plan has an evergreen provision that allows for an annual increase in the number of shares available for issuance under the 2014 Plan to be added on the first day of each fiscal year, beginning with the fiscal
year ending December 31, 2015 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2024, equal to the least of 1,800,000 shares of our common stock, 4% of the number of shares of our common stock
outstanding on the first day of the applicable fiscal year and an amount determined by our board of directors. On January 1, 2017, 905,666 additional shares were reserved for issuance under the 2014 Plan pursuant to this provision. Our 2014
ESPP has an evergreen provision that allows for an annual increase in the number of shares available for issuance under the 2014 ESPP to be added on the first day of each fiscal year, beginning on January 1, 2015 and ending on December 31,
2024, in an amount equal to the least of 450,000 shares of our common stock, 1% of the total number of shares of our common stock outstanding on the first day of the applicable fiscal year and an amount determined by our board of directors. On
January 1, 2017, 226,416 additional shares were reserved for issuance under the 2014 ESPP pursuant to this provision.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Policies and Procedures for Related Person Transactions
Our board of directors has adopted a written related person transaction policy to set forth policies and procedures for the review and approval
or ratification of related person transactions. This policy covers any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, the amount involved
exceeds $120,000, and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material
interest, indebtedness, guarantees of indebtedness and employment by us of a related person.
Our related person transaction policy
contains exceptions for any transaction or interest that is not considered a related person transaction under SEC rules as in effect from time to time. In addition, the policy provides that an interest arising solely from a related persons
position as an executive officer of another entity that is a participant in a transaction with us will not be subject to the policy if each of the following conditions is met:
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the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity;
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the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction with us and do not receive any special benefits as a result of the transaction; and
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the amount involved in the transaction is less than the greater of $200,000 and 5% of the annual gross revenue of the company receiving payment under the transaction.
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The policy provides that any related person transaction proposed to be entered into by us must be reported to our chief executive officer or
chief financial officer and will be reviewed and approved by our audit committee in accordance with the terms of the policy, prior to effectiveness or consummation of the transaction whenever practicable. The policy provides that if our chief
executive officer or chief financial officer determines that advance approval of a related person transaction is not practicable under the circumstances, our audit committee will review and, in its discretion, may ratify the related person
transaction at the next meeting of the audit committee. The policy also provides that alternatively, our chief executive officer or chief financial officer may present a related person transaction arising in the time period between meetings of the
audit committee to the chair of the audit committee, who will review and may approve the related person transaction, subject to ratification by the audit committee at the next meeting of the audit committee.
In addition, the policy provides that any related person transaction previously approved by the audit committee or otherwise already existing
that is ongoing in nature will be reviewed by the audit committee annually to ensure that such related person transaction has been conducted in accordance with the previous approval granted by the audit committee, if any, and that all required
disclosures regarding the related person transaction are made.
The policy provides that transactions involving compensation of executive
officers will be reviewed and approved by our compensation committee in the manner to be specified in the charter of the compensation committee.
A related person transaction reviewed under this policy will be considered approved or ratified if it is authorized by the audit committee in
accordance with the standards set forth in the policy after full disclosure of the related persons interests in the transaction. As appropriate for the circumstances, the policy provides that the audit committee will review and consider:
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the related persons interest in the related person transaction;
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the approximate dollar value of the amount involved in the related person transaction;
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the approximate dollar value of the amount of the related persons interest in the transaction without regard to the amount of any profit or loss;
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whether the transaction was undertaken in the ordinary course of business of our company;
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whether the transaction with the related person is proposed to be, or was, entered into on terms no less favorable to us than the terms that could have been reached with an unrelated third party;
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the purpose of, and the potential benefits to us of, the transaction; and
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any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular
transaction.
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The policy provides that the audit committee will review all relevant information available to it about the
related person transaction. The policy provides that the audit committee may approve or ratify the related person transaction only if the audit committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent
with, our best interests. The policy provides that the audit committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the related person in connection with approval of the related person transaction.
Related Person Transactions
In September
2016, we entered into a consulting agreement, or the Apple Tree Consulting Agreement, with Apple Tree Life Sciences, Inc., or Apple Tree, under which Apple Tree agreed to provide consulting, advisory and related services to and for us from time to
time. There is no fee for these services except for reimbursement of out of pocket expenses. Affiliates of Apple Tree beneficially own approximately 35% of the Company, and Dr. Seth Harrison, a member of our board of directors, is a principal
of Apple Tree.
Other than the Apple Tree Consulting Agreement and the compensation arrangements for our named executive officers and
directors, which are described elsewhere in the Executive Compensation and Director Compensation sections of this Amendment, we have not been a party to any transaction since January 1, 2016 in which the amounts involved
exceeded or will exceed $120,000, and any of our directors, executive officers, nominees for director or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing
persons, had or will have a direct or indirect material interest.
Board Determination of Independence
Rule 5605 of the NASDAQ Listing Rules requires a majority of a listed companys board of directors to be comprised of independent
directors within one year of listing. In addition, the NASDAQ Listing Rules require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and corporate governance committees be independent
under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Audit committee members must also satisfy the independence criteria set forth in Rule
10A-3
under the Exchange Act, and compensation
committee members must also satisfy the independence criteria set forth in Rule
10C-1
under the Exchange Act. Under Rule 5605(a)(2) of the NASDAQ Listing Rules, a director will only qualify as an
independent director if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be
considered independent for purposes of Rule
10A-3,
a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or
any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.
In order to be considered independent for purposes of Rule
10C-1,
the board must consider, for each member of a compensation committee of a listed company, all factors specifically relevant to determining
whether a director has a relationship to such company which is material to that directors ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (1) the
source of compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director; and (2) whether the director is affiliated with the company or any of its subsidiaries or affiliates.
Our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each
director. In 2016, based upon information requested from and provided by each
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director concerning his or her background, employment and affiliations, including family relationships, our board of directors determined that each of our directors, with the exception of Jodie
P. Morrison, was an independent director as defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. Ms. Morrison is not an independent director under Rule 5605(a)(2) because she is our President and Chief Executive Officer. Our
board of directors also determined that Stephen Buckley, Jr., Cheryl L. Cohen and Joseph A. Yanchik, III, who were members of our audit committee during 2016, Cheryl L. Cohen, Seth L. Harrison and David A. Kessler, who were members of our
compensation committee during 2016 and David A. Kessler and Stephen Buckley, Jr., who were members of our nominating and corporate governance committee during 2016, satisfy the independence standards for such committees established by the SEC and
the NASDAQ Listing Rules, as applicable, including in the case of all members of the audit committee, the independence requirements contemplated by Rule
10A-3
under the Exchange Act and in the case of all
members of the compensation committee, the independence requirements contemplated by Rule
10C-1
under the Exchange Act. In making such determinations, our board of directors considered the relationships that
each such
non-employee
director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our capital
stock by each
non-employee
director.
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ITEM 14.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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PricewaterhouseCoopers LLP was our independent
registered public accounting firm for the years ended December 31, 2016 and December 31, 2015. The following table summarizes the fees of PricewaterhouseCoopers LLP billed to us for each of the last two fiscal years. All of such services
and fees were
pre-approved
by our audit committee in accordance with the
Pre-Approval
Policies and Procedures described below.
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Fee Category
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2016
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2015
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Audit Fees(1)
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$
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415,000
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$
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418,000
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Audit-Related Fees
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Tax Fees
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All Other Fees
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Total Fees
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$
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415,000
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$
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418,000
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(1)
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Audit Fees consist of fees for the audit of our annual 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 regulatory filings or engagements.
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Pre-Approval
Policies and Procedures
Our audit committee has adopted procedures requiring the
pre-approval
of all
non-audit
services performed by our independent registered public accounting firm in order to assure that these services do not impair the auditors independence. These procedures generally approve the
performance of specific services subject to a cost limit for all such services. This general approval is to be reviewed, and if necessary modified, at least annually. Management must obtain the specific prior approval of the audit committee for each
engagement of the independent registered public accounting firm to perform other audit-related or other
non-audit
services. The audit committee does not delegate its responsibility to approve services
performed by the independent registered public accounting firm to any member of management. Our audit committee has delegated authority to the committee chair to
pre-approve
any audit or
non-audit
service to be provided to us by our independent registered public accounting firm provided that the fees for such services do not exceed $50,000. Any approval of services by the committee chair pursuant to
this delegated authority must be reported to the audit committee at the next meeting of the committee.
The standard applied by the audit
committee, or the chair of the audit committee, in determining whether to grant approval of any type of
non-audit
service, or of any specific engagement to perform a
non-audit
service, is whether the services to be performed, the compensation to be paid therefore and other related factors are consistent with the independent registered public accounting firms
independence under guidelines of the SEC and applicable professional standards. Relevant considerations include whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of our financial statements,
whether the independent registered public accounting firm would be functioning in the role of management or in an advocacy role, whether the independent registered public accounting firms performance of the service would enhance our ability to
manage or control risk or improve audit quality, whether such performance would increase efficiency because of the independent registered public accounting firms familiarity with our business, personnel, culture, systems, risk profile and
other factors, and whether the amount of fees involved, or the
non-audit
services portion of the total fees payable to the independent registered public accounting firm in the period would tend to reduce the
independent registered public accounting firms ability to exercise independent judgment in performing the audit.
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