ARNA Arena Pharmaceuticals Inc

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April 29, 2020

On behalf of Arena Pharmaceuticals, Inc. and its Board of Directors, we are pleased to invite you to attend our 2020 Annual Meeting of Stockholders. The 2020 Annual Meeting of Stockholders of Arena Pharmaceuticals, Inc., or 2020 Annual Meeting, will be held on Friday, June 12, 2020, at 9:00 a.m. (Pacific Time), at our offices located at 6154 Nancy Ridge Drive, San Diego, California 92121. Details regarding admission to the meeting and the business to be conducted are more fully described in the Notice of Annual Meeting of Stockholders and proxy statement.

Whether or not you attend the 2020 Annual Meeting, it is important that your shares be represented and voted. For those who are unable to attend, there are four ways that you can cast your ballot without attending the meeting: by telephone, by Internet, by scanning or by returning your signed and completed proxy card.

As you can imagine, we continue to carefully oversee the rapidly unfolding global COVID-19 or coronavirus outbreak and, above all else, to take precautions to ensure the safety of our patients, employees, investors, and community. These precautions include planning for the possibility that the 2020 Annual Meeting may be held solely by means of remote communication if we decide an in-person meeting would pose a public health risk. If we decide to take this step, we will announce the decision to do so in advance in a press release and details on how to participate will be available at http://invest.arenapharm.com/ as soon as practicable before the 2020 Annual Meeting.

On behalf of Arena Pharmaceuticals and its Board of Directors, I would like to express our appreciation for your support and continued interest in Arena.

Sincerely,

 

 

Whether or not you expect to attend the meeting in person, we urge you to submit your proxy on the Internet or by telephone or, if applicable, complete, sign, date and return the enclosed proxy card or proxy mailed to you at your earliest convenience, in order to ensure your representation at the meeting. Promptly submitting your vote will save us the expense and work of additional solicitation. If you received a printed copy of these materials by mail, you may return your proxy card in the enclosed envelope, which does not require postage if mailed in the United States. You may also vote on the Internet or by telephone pursuant to the instructions that accompanied your proxy card or were included in the Internet Notice. Sending in your proxy card or voting on the Internet or by telephone will not prevent you from voting at the meeting if you desire to do so, as your proxy may be cancelled at your option. Please note, however, that if your shares are held of record by a bank, broker or other agent and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

As part of our precautions regarding the coronavirus or COVID-19 outbreak, we are planning for the possibility that the 2020 Annual Meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance in a press release and details on how to participate will be available at http://invest.arenapharm.com/ as soon as practicable before the 2020 Annual Meeting.

By Order of our Board of Directors

 Joan Schmidt
Executive Vice President, General Counsel and Secretary

We believe our Board of Directors is engaged, independent, and includes a diversity of backgrounds, experience, and viewpoints. It is our policy that at least two-thirds of our Board members be independent directors, and 100% of Compensation Committee members are independent directors. Director tenure varies from less than two years to more than 15 years. Each of our directors brings a wealth of experience, insight, and skills. For more information on our director candidates and the role of our Board, please see Proposal 1, beginning on page 2 of this proxy statement, and the pages immediately following Proposal 1.

During 2019 we launched a Corporate Environmental, Social and Governance (ESG) initiative, overseen at the Board level by our Corporate Governance and Nominating Committee. For more information on our ESG initiative, please see page 13 of this proxy statement.

Our Pay for Performance philosophy links our executives’ compensation with the achievement of our business objectives. For example, 92% of our CEO’s 2019 total compensation as reported in the Summary Compensation Table was comprised of equity grants that would only provide value if our stock price increases, which help align the grantee’s interests with those of stockholders, and non-equity incentive plan compensation, which is driven by achievement of corporate goals. Similarly, an average of 85% of our other named executive officers’ 2019 total compensation as reported in the Summary Compensation Table was comprised of equity grants and non-equity incentive plan compensation. For more information on our Pay for Performance philosophy and practices, please see the section of this proxy statement titled “Compensation Discussion and Analysis,” beginning on page 21.

Questions and answers about these proxy materials begin on page 56 of this proxy statement.

 

Our common stock is listed on the Nasdaq Global Select Market, which requires that a majority of a listed company’s board of directors qualify as “independent” under the applicable Nasdaq listing standards. The board of directors must affirmatively make this determination. In addition, under our Corporate Governance Guidelines, it is our policy that at least two-thirds of the members of our Board of Directors be independent directors.

Our Board of Directors consults with its legal advisors to ensure that its independence determinations, including with respect to directors, director nominees and members of its committees, comply with all applicable securities and other laws and regulations regarding the definition of “independent,” including but not limited to those set forth in pertinent listing standards of Nasdaq, as in effect from time to time. Consistent with these considerations, our Board of Directors has reviewed relevant transactions and relationships between each non-employee director and Arena, other non-employee directors, our senior management and our independent auditors and has affirmatively determined that all of our non-employee directors are independent directors under the applicable Nasdaq listing standards.

Under our Corporate Governance Guidelines, directors who have been deemed “independent directors” by our Board of Directors will inform the Chair of the Board in writing if he or she believes there has been a change in his or her status as an independent director. The Chair of the Board, in turn, will advise the Corporate Governance and Nominating Committee of such potential change of status so that the committee, with the aid of the Chair of the Board, can determine whether the director continues to qualify as an independent director and whether to recommend to our full Board of Directors to ask for the resignation of such director.

 

Our Board of Directors has adopted Corporate Governance Guidelines for the conduct and operation of our Board. The guidelines cover such topics as board composition and selection, the Board’s role, the responsibilities of the Chair of the Board, director orientation and education, director compensation, Board meetings, Board committees, Board access to management and use of outside advisors, succession planning, and the evaluation of the Board and our Chief Executive Officer.

We separate the roles of Chair of the Board and Chief Executive Officer. Our Board of Directors believes that there is no single, generally accepted approach to providing board leadership and that, given the dynamic and competitive environment in which we operate, the appropriate Board leadership structure may vary as circumstances change. As such, our Board of Directors periodically reviews its leadership structure to confirm that it is an appropriate structure for our company at such time.

On June 13, 2016, our Board appointed Dr. Nova, an independent director, the Chair of the Board. Our Board’s policy is one of the independent directors shall be appointed by a majority of the independent directors as the Chair to serve for a minimum of one year or until the earlier of when replaced by the independent directors or six years from appointment. Our Board’s policy provides that the Chief Executive Officer and Chair of the Board shall not be held by the same person. Our Chair’s responsibilities and authority include the following:

Our Board of Directors believes that this structure provides an efficient and effective leadership model for our company at this time. In considering its leadership structure, our Board of Directors has taken into account that it consists of a substantial majority of independent directors who are highly qualified and experienced, has a Chair with defined corporate governance responsibilities, the Board’s Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee are each comprised entirely of independent directors, and that it has regular interactions outside of Board and committee meetings with our management, including our Chief Executive Officer. Our Board of Directors believes that we have an appropriate balance between the authority of those who oversee our company and those who manage it on a day-to-day basis.

Our management has the primary responsibility for identifying and managing our business risks, including by overseeing and implementing our enterprise risk management program. Our Board of Directors actively oversees potential risks and our risk management activities, including by discussing with management our risks and the management of such risks at meetings of the Board and its committees. Our Board of Directors also makes use of the independent understanding and knowledge of many of such risks possessed by our directors. Our Board of Directors regularly reviews our corporate strategy in light of the evolving nature of such risks and makes adjustments to that strategy when appropriate. Our Board of Directors also regularly considers risks facing us when it approves the annual budget, plan and corporate goals and throughout the year as it monitors developments and reviews our financial and other periodic reports.

 

Our Board of Directors also delegates risk oversight to each of its standing committees within their areas of responsibility, as well as to special committees it forms from time to time. The Audit Committee assists our Board of Directors in its risk oversight function with regard to, among other things, our internal control over financial reporting, periodic filings with the SEC, investment policy, procedures relating to the receipt and treatment of complaints, and policies and procedures designed to ensure adherence to applicable laws and regulations. The Compensation Committee assists our Board of Directors in its risk oversight function with regard to, among other things, assessing risk created by current and proposed compensation policies and practices for all of our employees. The Corporate Governance and Nominating Committee assists our Board of Directors in its risk oversight function with regard to, among other things, our management succession plans, and our compliance-related policies and practices that are not within the purview of the Audit Committee or are referred to the committee by our Board.

We have assessed our compensation policies and practices on a company-wide basis to determine if such programs or practices create undesirable or unintentional risks of a material nature. Based on such assessment, we concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on our company.

Our Board of Directors, as well as each of its standing committees, conducts an annual self-evaluation, which includes a review of its performance and, in the case of each of the committees, an assessment of the adequacy and appropriateness of its charter. Our Board of Directors also reviews each of our directors. The Corporate Governance and Nominating Committee is responsible for overseeing this evaluation process, evaluating all standing committees and their charters and recommending to our Board of Directors any changes to our Board and the authority, charters, compositions and chairs of such committees.

Each director is expected to maintain the necessary level of expertise to perform his or her responsibilities as a director. Our Board of Directors regularly discusses recent developments in legal standards related to corporate governance, disclosure obligations or industry-specific issues. In addition, we may, from time to time and depending on the circumstances, pay for all or a portion of outside continuing education programs to assist our directors in maintaining such level of expertise. It is our Board of Directors’ policy for us to reimburse each director for attending one of such continuing education programs per year (and, when possible, for such cost to be shared if the director is a member of more than one board of directors).

Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our directors and employees (including our principal executive officer and our principal financial and accounting officer), and we have posted the policy on our website www.arenapharm.com under “Investors – Corporate Governance.” To facilitate compliance with this policy, we periodically conduct a program of awareness, training and review. The Code of Business Conduct and Ethics complies with the applicable Nasdaq listing standards and SEC rules and regulations, and includes procedures for (i) the filing, receipt and treatment of complaints regarding suspected improper conduct by our employees, directors, collaborators, vendors and others associated with us and (ii) the confidential, anonymous submission by employees of concerns regarding any matter covered by the policy. In addition, we intend to promptly disclose on our website in the future (i) the date and nature of any amendment (other than technical, administrative or other non-substantive amendments) to the policy that applies to our principal executive officer, our principal financial and accounting officer, or persons performing similar functions and relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals that relates to one or more of the elements of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, the name of such person who is granted the waiver and the date of the waiver.

Our independent directors meet in regularly scheduled executive sessions without management. These executive sessions occur in conjunction with regularly scheduled meetings of our Board of Directors and its standing committees and otherwise as needed.

Our Board of Directors held five meetings during the fiscal year ended December 31, 2019. Each incumbent director attended at least 75% of the aggregate of the total number of meetings of our Board of Directors and all committees of our Board on which such director served during the periods in which he or she served. In addition to regularly scheduled meetings, the directors participate in telephone interactions and other communications with each other and certain of our officers, as well as with our independent auditors and external advisors, counsel and consultants.

As stated in our Corporate Governance Guidelines, our directors are encouraged to attend our annual meetings of stockholders. All but one of our directors attended our 2019 Annual Meeting of Stockholders.

Our Board of Directors considers, among other factors, the tenure of individual directors and the Board as a whole when evaluating director nominees, but it does not believe that fixed term limit is appropriate. Directors who have served on our Board of Directors for an extended period of time are able to provide continuity and valuable insight into our company, our operations and prospects based on their experience with, and understanding of, our history, policies and objectives. Our Board of Directors believes that, as an alternative to limiting the number of terms, it can ensure that our Board continues to evolve and adopt new ideas and viewpoints through the director nomination process and through periodic rotation of committee assignments.

The standing committees of our Board of Directors are the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee. Each of these committees is comprised entirely of “independent” directors under the applicable Nasdaq listing standards. The members and chairs of our Board of Directors’ committees are appointed by our Board and may change in the future. Our Board of Directors has no set policy for rotation of committee members or chairs, but it annually reviews committee composition and chair positions, seeking the appropriate blend of continuity and new perspectives on the committees. The authority and responsibility of each of these committees are summarized below, and more detailed descriptions of their functions are included in their written charters, which are available on our website at www.arenapharm.com.

Pursuant to their charters, each of the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee is authorized to access, at our expense, such internal and external resources as the particular committee deems necessary or appropriate to fulfill its defined responsibilities. Each committee has sole authority to approve fees, costs and other terms of engagement of such outside resources.

The following chart provides membership as of December 31, 2019, and meeting information for 2019, for the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee.

The Audit Committee’s responsibilities include:

Our Board of Directors has determined that each of the Audit Committee members meets the independence and experience requirements included in the applicable Nasdaq listing standards and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our Board of Directors has also determined that each of the committee members is an “audit committee financial expert” as defined in Item 407(d) of Regulation S-K.

The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Board of Directors has adopted a written charter for the Audit Committee, which is available on our website at www.arenapharm.com. Mr. Soni is the Chair of the Audit Committee. The Audit Committee held five meetings in 2019. The Audit Committee’s report is set forth below under “Audit Committee Report.”

The Compensation Committee’s responsibilities include:

Our Board of Directors has adopted a written charter for the Compensation Committee, which is available on our website at www.arenapharm.com. Mr. Woods is the Chair of the Compensation Committee. The Compensation Committee held six meetings in 2019. The Compensation Committee’s report is set forth below under “Compensation Committee Report.”

The Corporate Governance and Nominating Committee’s responsibilities include:

The Corporate Governance and Nominating Committee uses many sources to identify potential director candidates, including the network of contacts among our directors, officers and other employees, and may engage outside consultants and search firms in this process. As set forth below under “Stockholder Director Recommendations,” the Corporate Governance and Nominating Committee will consider director candidates recommended by our stockholders.

The Corporate Governance and Nominating Committee believes that candidates for director should have certain minimum qualifications, including being able to understand basic financial statements. In considering candidates for director, the Corporate Governance and Nominating Committee will consider all relevant factors, which may include, among others, the candidate’s experience and accomplishments, the relevance of such experience to our business, the availability of the candidate to devote sufficient time and attention to our company, the candidate’s reputation for integrity and ethics and the candidate’s ability to exercise sound business judgment. Director candidates are reviewed in the context of the then-current composition of our Board of Directors, our requirements and the interests of our stockholders. In conducting this assessment, our Board of Directors considers skills, diversity and such other factors as it deems appropriate given the current needs of our Board of Directors and our company, to maintain a balance of knowledge, experience, perspective and capability. Our Board of Directors believes that its membership should reflect diversity in a broad sense that includes such things as differences of viewpoint, background, professional experience, expertise, education, skills, specialized knowledge, and other individual qualities and attributes. In the case of incumbent directors whose terms of office are set to expire, when determining whether such directors should be nominated for reelection, our Board of Directors reviews such directors’ overall service to us during their term, including the number of meetings attended, level of participation, quality of performance, and any relationships and transactions that might impair such directors’ independence. The Board will also consider the independence and other requirements of Nasdaq, the rules and regulations of the Securities and Exchange Commission and applicable law when selecting director candidates. The Corporate Governance and Nominating Committee retains the right to modify these qualifications from time to time.

The Corporate Governance and Nominating Committee recommended the nominations of each of the director nominees for election at the 2020 Annual Meeting.

Our Board of Directors has adopted a written charter for the Corporate Governance and Nominating Committee, which is available on our website at www.arenapharm.com. Dr. Dallas is the Chair of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee held three meetings in 2019.

At Arena we seek to build a sustainable, vibrant enterprise to develop best-in-disease medicines with optimized efficacy and safety for patients globally. We recognize that the sustainability of our company is inextricably linked to our ability to

understand and engage all our stakeholders in a consistent and in meaningful manner. Starting with our Board of Directors and our leadership team, we are committed to long-term value driven by the pillars of governance, social responsibility, and integrity across all we do, including employee engagement, clinical and regulatory operations, and eventual access to medicines for patients. Where necessary, we will act boldly to challenge convention within our industry where norms adversely affect the well-being of our critical stakeholders.

In order to protect and enhance value for our stakeholders, we have launched a corporate Environmental, Social & Governance (or ESG) Initiative, overseen by the Corporate Governance and Nominating Committee of our Board of Directors. This committee is responsible for overseeing ESG activities at the Board level, including significant strategies, activities and policies regarding sustainability, access to medicines, social impact and charitable activities, among other duties. These activities are managed day-to-day by a cross-functional ESG Working Team, with input from external stakeholders, and supported by respective subject matter experts. We expect that our efforts set the tone across our company.

Additional details regarding our ESG Initiative are included in our ESG Report for 2020, published on our website at http://invest.arenapharm.com/static-files/5aff52c3-5bc3-449b-8452-de379d23c0a5. The information posted on or accessible through our website is not incorporated into this proxy statement (see “No Incorporation by Reference” on page 61).

 

In addition to the traditional areas of focus for the Compensation Committee, our Board of Directors recognizes the importance of our broader human capital philosophies, practices, and risk management to create value and support our mission. Our ability to attract and retain talented team members, and create a workplace they thrive, is an integral part of our competitive strategy driving long-term value and risk mitigation. To that end, our Compensation Committee, and other Committees of the Board of Directors, have an expanded interest and engage in periodic discussions on matters such as talent pipeline, turnover, workplace culture, inclusion and engagement, and workforce risk. In addition, certain human capital metrics have been and continue to be measured, reviewed and managed as part of our short-term incentive programs and therefore are discussed by the Compensation Committee in its regular meetings. To ensure the full Board has visibility into our human capital matters, the Chair of the Compensation Committee also provides regular updates to the full Board on the status of human capital initiatives and metrics.

The Corporate Governance and Nominating Committee will consider director candidates recommended by our stockholders. A candidate must be highly qualified and be willing and expressly interested in serving on our Board of Directors. The Corporate Governance and Nominating Committee does not intend to alter the manner in which it evaluates candidates, including the minimum qualifications set forth above, based on whether or not the candidate was recommended by a stockholder. To be considered by the Corporate Governance and Nominating Committee, a stockholder recommendation for director candidates for an annual meeting of stockholders must be received by the committee by December 31 of the year before such annual meeting. A stockholder who wishes to recommend a candidate for the Corporate Governance and Nominating Committee’s consideration should forward the candidate’s name and information about the candidate’s qualifications to Corporate Secretary, Arena Pharmaceuticals, Inc., 6154 Nancy Ridge Drive, San Diego, California 92121. Submissions must include a representation that the nominating stockholder is a beneficial or record owner of our stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. This procedure does not affect the deadline for submitting other stockholder proposals for inclusion in the proxy statement, nor does it apply to questions a stockholder may wish to ask at an annual meeting. Additional information regarding submitting stockholder proposals is set forth in our Bylaws. Stockholders may request a copy of the bylaw provisions relating to stockholder proposals from our Corporate Secretary.

Our Board of Directors has a formal process by which stockholders may communicate with our Board or any of our directors or officers. Stockholders who wish to communicate with our Board of Directors or any of our directors or officers may do so by sending written communications addressed to such person or persons in care of Corporate Secretary, Arena Pharmaceuticals, Inc., 6154 Nancy Ridge Drive, San Diego, California 92121. All such communications will be compiled by our Corporate Secretary and submitted to the addressees on a periodic basis. If our Board of Directors modifies this process, we will post the revised process on our website.

Drs. Dallas and Fetzer and Mr. Woods served on the Compensation Committee during 2019. No director serving on the Compensation Committee during 2019 was, at any time during or before such fiscal year, one of our employees. None of our executive officers served during 2019 as a member of the board of directors or compensation committee of any other entity that had one or more of its executive officers serving as members of our Board of Directors or the Compensation Committee.

Except for the compensation arrangements between us and our executive officers and directors described below under “Compensation Discussion and Analysis,” since January 1, 2019, we have not been a party to any transactions involving more than $120,000 and in which any director, nominee for director, executive officer, holder of more than 5% of our common stock or any immediate family member of the foregoing has a direct or indirect material interest, nor are any such transactions currently proposed.

The Audit Committee’s charter requires the Audit Committee to review and approve any related-person transactions. In considering related-person transactions, the Audit Committee considers the relevant available facts and circumstances, including, but not limited to, (i) the risks, costs and benefits to us, (ii) the impact on a director’s independence in the event the related party is a director, immediate family member of a director or an entity with which a director is affiliated, (iii) the terms of the transaction, (iv) the availability of other sources for comparable services or products, and (v) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. In determining whether to approve, ratify or reject a related-person transaction, the Audit Committee evaluates whether, in light of known circumstances, the transaction is in, or is not inconsistent with, our best interests and those of our stockholders.

Our executive officers are appointed by our Board of Directors and serve at the discretion of our Board. The following table sets forth information regarding our executive officers.

Our executive compensation programs are designed to attract, motivate and retain qualified and talented executives, incentivize them to achieve our business objectives, and reward them for superior short- and long-term performance. This Compensation Discussion and Analysis describes the key elements of our executive compensation program and compensation decisions for our named executive officers, or NEOs, for 2019. The Compensation Committee of the Board of Directors (the “Compensation Committee”), with input from its independent compensation consultant, oversees these programs and determined compensation for our NEOs.

Our 2019 NEOs are:

We are a biopharmaceutical company focused on developing novel, transformational medicines with optimized pharmacology and pharmacokinetics for patients globally. Our proprietary, internally developed pipeline includes multiple potentially first- or best-in-class assets with broad clinical utility.

Since 2016, our new leadership team has led the turnaround and transformation of Arena, refocusing on our pipeline, delivering on key milestones, divesting historical obligations that were not aligned with our business strategy, rebuilding the organization and stockholder base, and focusing on the financial strength of the Company. As a direct result of these efforts, Arena has seen its market capitalization grow, supported by strong institutional ownership, and has secured a robust financial foundation with approximately $1.1 billion in cash, cash equivalents and investments as of December 31, 2019.

This transformation took place under the leadership of Mr. Munshi, who was hired and appointed President and Chief Executive Officer effective May 11, 2016, and has since hired an entirely new executive team and brought new perspectives to our Board of Directors. The change in our focus required not only new leadership, but also a significant buildout of our drug development capabilities and other operations, with approximately 376 employees hired since May 11, 2016. During this period we have significantly advanced etrasimod, olorinab and APD418 in clinical development and negotiated an $800 million upfront payment for the global license agreement for ralinepag with United Therapeutics.

Arena is primed for and focused on the next stage of its evolution with multiple clinical stage assets deployed across 8 diseases and 3 therapeutic areas, with additional preclinical compounds in the pipeline, and multiple ongoing global trials that are expected to yield up to 8 Phase 2 and Phase 3 data readouts between 2020 and 2021 and generate up to 1 new Investigational New Drug application (IND) per year for the next 5 years.

Key 2019 achievements reflected strong scientific, clinical, and business performance, which we believe will create long-term value for our stockholders:

The transformation of our business has created a significant amount of stockholder value. Our closing stock price (adjusted to give effect to our 2017 reverse stock split) has increased from $15.50 on May 11, 2016, the date Mr. Munshi’s appointment was effective, to $45.42 on December 31, 2019, reflecting a 193% Total Stockholder Return, or TSR, during that period, or an approximately threefold increase.

At our 2019 Annual Meeting of Stockholders, approximately 95% of the votes cast on the say-on-pay proposal voted in support of the compensation paid to our named executive officers for 2018. While this vote was only advisory and not binding, the Compensation Committee considered the results of the vote in the context of our overall compensation philosophy, as well as our compensation philosophies, policies, decisions and performance. The Compensation Committee believes that the 2019 stockholder vote generally endorsed our compensation philosophy and the decisions made for 2018. After considering this

vote, the Compensation Committee decided not to make significant changes to its fundamental compensation philosophies and policies in 2019, and that it would continue to emphasize, and even further emphasize through the introduction of performance-based restricted stock units, or PRSUs, compensation that is “at-risk” and dependent on our business objectives and overall performance.

The primary principles of our compensation strategy include:

Our overall compensation philosophy and objective is to maintain a compensation program for our NEOs that helps us attract and retain highly qualified individuals and motive them to execute on our business strategy and positively contribute to our success by aligning their interests with those of our stockholders, which we believe will result in enhancing stockholder value. The compensation programs for our NEOs are designed to provide compensation opportunities that are tied to our overall corporate performance, as well as their individual performance. NEOs’ compensation includes three key elements: (i) base salary; (ii) performance-based annual cash incentives; and (iii) equity compensation. Our compensation strategy emphasizes at-risk compensation for each NEO by using both performance-based annual incentives and performance-based long-term equity awards in the form of stock options and PRSUs in 2019. Stock options are utilized because they only provide value if the stock price increases. Our stock options have a seven-year horizon before expiration, which generally aligns with a clinical development timeline.

In 2019, to further emphasize our performance-based compensation philosophy, we added PRSUs as a component of annual equity awards for our NEOs. The PRSUs are structured to provide value only if the stock price increases to three specified price targets that represent significant appreciation over the closing price on the date the PRSUs were granted and remains at or above such prices for a sustained period of time. The threshold price required for any PRSUs to vest ($60) represents nearly a 50% increase in our stock price from the grant date price, the target price ($67.50) represents approximately a 65% increase in our stock price from the grant date price and the stretch price ($75) represents approximately an 83% increase our stock price from the grant date price. The Compensation Committee believes that the combination of stock options and PRSUs further aligns the interests of NEOs with those of our stockholders because there is no ability to realize a gain on either type of equity award without increasing the stock price and, with respect to the PRSUs, without significant and sustained stock price increases.

Consistent with our pay-for-performance philosophy, and the long product development life cycles in the pharmaceuticals industry, the Compensation Committee links the compensation of our executive officers to performance by emphasizing equity compensation opportunities for long-term performance and cash incentives for near-term goal alignment. Consistent with this philosophy, the total compensation provided to our executive officers will vary from year to year and will vary between executive officers based on corporate performance, including performance against annual goals that are pre-established by the Compensation Committee, as well as individual performance. Our NEOs are also entitled to market-competitive health and welfare benefits, and, as described below, they may be entitled to receive additional benefits if certain criteria are met at termination of employment.

As part of the process for setting the compensation of our NEOs, our Chief Executive Officer, working with our Chief Human Resources Officer, provides the Compensation Committee with his performance assessments of the Company and of the individual NEOs and recommends to the Compensation Committee base salaries, target annual cash incentive (as percentage of base salary), annual cash incentive payouts (actual incentive paid based on performance against goals), and stock-based compensation for our NEOs other than the Chief Executive Officer. The Compensation Committee considers our Chief Executive Officer’s input and can accept, reject or modify these recommendations in its discretion. The Compensation Committee may consult with compensation consultants, legal counsel and other advisors in designing our compensation program, including in evaluating the competitiveness of individual compensation packages and in relation to our performance goals. The Compensation Committee also considers peer company data and factors such as the past, current and expected contributions of each NEO, our corporate performance and strategic focus, global economic conditions, the mix of compensation that would be most appropriate for each NEO, and such officer’s particular responsibilities, experience, level of accountability and decision authority.

The Compensation Committee meets in executive session without management. Various members of management may attend committee meetings, and they and other employees, as well as outside advisors or consultants, may be invited by the

Compensation Committee to make presentations, provide financial, competitive market, or other background information or advice. None of our NEOs was present during the Compensation Committee’s determinations regarding his/her own compensation.

The Compensation Committee has retained Frederic W. Cook & Co., Inc., or FW Cook, as its compensation consultant. FW Cook reports directly to the Compensation Committee and takes its direction from the Chair of the Compensation Committee, working with management on select issues under the Compensation Committee’s oversight. The Compensation Committee retained FW Cook in 2019 to provide data, context, and advice regarding executive officer compensation and our peer group, and to assist with compensation risk assessments.

Our Compensation Committee generally does not target the amount of compensation for our NEOs relative to a peer group of companies, but it does consider peer data as context for purposes of assessing the competitiveness of the executive compensation program. An individual NEO may earn more or less than the peer group median depending on factors described below under the heading “2019 Compensation Decisions,” including the individual’s experience, role, and past and expected future performance.

In the second quarter of 2018, the Compensation Committee reviewed and updated our peer group to include the group of companies set forth below based on, among other considerations, objective size criteria, including industry, market capitalization value, headcount, pipeline, location, and commercial stage. We refer to this peer group of 17 companies as the “2018 Peer Group.” These companies had 2017 12-month average market capitalization between $978 million and $5.843 billion, with a median 12-month average market capitalization of $2.458 billion. In the second quarter of 2018 when these peer data were reviewed, our market capitalization was $2.066 billion, so we were similar in size to the trailing market capitalization exhibited by the 2018 Peer Group companies when they made the compensation decisions disclosed in their 2018 proxy statements. The 2018 Peer Group data were considered in the review of our executive compensation program for 2019, including as context during the determination of 2019 base salaries, target cash incentive compensation, and annual equity awards.

In the second quarter of 2019, the Compensation Committee reviewed and updated our peer group to include the group of companies set forth below based on, among other considerations, objective size criteria, including industry, financial size, market capitalization, headcount, pipeline, location and commercial stage. We refer to this peer group of 18 companies as the “2019 Peer Group.” These companies had 2018 12-month average market capitalizations of between $1.713 billion and $8.626 billion, with a median 12-month average market capitalization of $3.250 billion. In the second quarter of 2019 when these peer data were reviewed, our market capitalization was $2.719 billion, so we were similar in size to the trailing market capitalization of the 2019 Peer Group companies when they made the compensation decisions disclosed in their 2019 proxy statements. The 2019 Peer Group data was considered in reviewing our executive compensation program for 2020, including the determination of 2020 base salaries, target cash incentive compensation, and annual equity awards.

The Compensation Committee has determined that the work of FW Cook and the individual compensation advisors employed by FW Cook does not create any conflict of interest. In making that determination, the Compensation Committee took into consideration the following factors: (i) the provision of other services to Arena by FW Cook; (ii) the amount of fees we paid FW Cook as a percentage of FW Cook’s total revenue; (iii) FW Cook’s policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of FW Cook or the individual compensation advisors employed by FW Cook with an Arena executive officer; (v) any business or personal relationship of the individual compensation advisors with any member of the Compensation Committee; and (vi) any Arena stock owned by FW Cook or the individual compensation advisors employed by the consultant. During 2019, we paid FW Cook fees that constituted less than 1% of FW Cook’s total revenue.

For 2019, salaries for our executive officers were generally increased by about 3%; target bonuses were not increased, with the exception of the target bonus for our CEO, Mr. Munshi, whose target bonus was increased by 5% of salary so that his total cash compensation was closer to the median of our 2018 Peer Group. The base salary and target bonus decisions were based on both performance and market data and resulted in salaries and target bonuses that were near the median of the 2018 Peer Group data available at the time, with target cash compensation that was generally within 10% of the 2018 Peer Group median. Our CEO’s 2019 total compensation as reported in the Summary Compensation Table falls slightly below the median of the 2019 Peer Group and contains more equity that is contingent on our future performance than the typical peer company.

The value of the stock option grants approved at the beginning of 2019 approximated the median of the 2018 Peer Group data and, combined with the value of the 2019 PRSUs approved at the same time, were above the median of the 2018 Peer Group data. The Compensation Committee determined the aggregate grants were appropriate given the development successes already achieved under the leadership of our executive officers, the additional development opportunities in front of the Company, the significance of our agreement with United Therapeutics with respect to the funding of our near-term development plans, the increase in stockholder value we delivered in 2018 (15% TSR, which was above the 85th percentile of our 2018 Peer Group), and the share price appreciation that would be required in order for our executives to realize any significant value from such awards.

 

The purpose of base salary is to provide fixed compensation to attract, retain and motivate executives with the qualifications desired for the individual position. The base salary for our NEOs is influenced by a number of factors, including the individual’s position, scope of responsibilities, breadth and depth of experience, performance to date, expected future contribution, and the overall mix of base salary, performance-based cash incentives and equity compensation.

In early 2019, the Compensation Committee approved base pay increases from 2018 levels for our NEOs other than Mr. Lisicki, who was hired in the fall of 2018. This relatively modest increase in salaries, which followed high TSR in 2018,

were made as part of our effort to place target cash compensation near the median of the 2018 Peer Group data available at the time, with target cash compensation that was generally within 10% of the 2018 Peer Group median data available at the time. The Compensation Committee approved a base pay increase of approximately 15.5% for Dr. Klassen to bring his cash compensation closer to the median of our 2018 Peer Group. Accordingly, 2019 base salaries for our NEOs were as follows:

Annual Incentive Plan. All of our NEOs were participants in the Annual Incentive Plan for 2019. Under the Annual Incentive Plan, each participant was assigned an incentive target that was expressed as a percentage of annual base salary. Our Chief Executive Officer’s incentive target under the Annual Incentive Plan was 70% of his annual base salary, and the other participants had incentive targets of 50% of their annual base salaries. These were the same incentive targets as under the Annual Incentive Plan for 2018, except for Mr. Munshi, whose target was increased by 5% of his annual base salary so that his target total cash compensation was closer to the median of our 2018 Peer Group. No amount of incentive award was guaranteed, and the maximum potential incentive award under the Annual Incentive Plan for 2019 was 150% of the target cash incentive award amount for extraordinary goal achievement in 2019. All of the 2019 goals were established by the Compensation Committee in early 2019.

The objective of the Annual Incentive Plan was to align near-term incentives for executive officers of the Company, including our NEOs, to be consistent with stockholders and long-term corporate objectives. All participants’ potential incentive awards were based on the same 2019 corporate goals, which we believed would align the interests of our executive officers with one another and with our stockholders. Each Annual Incentive Plan participant’s actual incentive award was based on the level of achievement of pre-established corporate goals, the quality of such achievement, the participant’s role in goal achievement and the weighting of the goals, with the Compensation Committee retaining discretion to adjust or modify actual awards, subject to the cap of 150% of the targeted award amount.

In early 2020, the Compensation Committee assessed our corporate performance against the 2019 corporate goals, from both a qualitative and quantitative perspective, and determined that we had achieved our corporate goals at an overall level of 120%. The 2019 corporate goals, the weighting of such goals, and the facts the Compensation Committee considered in determining the achievement of such goals are set forth below. The categories were similar to those used for 2018, with the weightings slightly shifted in accordance with our areas of focus for 2019.

The Compensation Committee determined it was appropriate to award Mr. Munshi a bonus equivalent to our corporate performance for the year and therefore approved a bonus to Mr. Munshi equivalent to 120% of his target award. The Compensation Committee adjusted some of the other NEO’s bonuses based on its assessment of each NEO’s individual contributions towards our corporate performance. Considering the high quality of Mr. Klassen’s performance and his role in achieving our 2019 goals, the Compensation Committee approved a cash incentive award for Mr. Klassen slightly above our corporate goal achievement, representing 124%, rather than 120%, of his target award. The amount of each NEO’s earned cash incentive award and target award are reflected below:

General. We believe that equity grants provide our NEOs with the opportunity to share in increases, if any, in the value of our common stock, reinforce a long-term interest in our corporate performance, and directly motivate our NEOs to maximize long-term stockholder value. The potential realized value of certain grants depends on our stock performance and all of our equity grants utilize vesting that encourage our NEOs to continue working for us long term.

The Compensation Committee determines the size and type of equity awards after evaluating various factors applicable at the time of each such grant in their totality, which has included, among other things: the particular NEO’s role and responsibilities and the Compensation Committee’s view of the officer’s individual performance; the prior equity awards granted to such individual; retentive value of prior awards; our corporate performance; the value of equity grants; comparative peer data provided by its compensation consultant; dilution to our stockholders; and TSR.

All grants to executive officers require the approval of the Compensation Committee.

2019 Equity Grants. The Compensation Committee granted our NEOs equity compensation in 2019 in the form of stock options and PRSUs, consistent with our compensation philosophy that our NEOs should have a significant proportion of their total compensation at-risk, to encourage retention, and to align their long-term compensation with the interests of our stockholders. The Compensation Committee felt that providing equity opportunities for our NEOs with an equity mix weighted toward options, but also incorporating PRSUs, would strike the appropriate balance between aligning our executives with stockholders, promoting the achievement of long-term goals, and supporting retention. The stock options and the PRSUs, which would only provide value (or, in the case of the PRSUs, would only vest) if our stock price appreciated (substantially

and for a sustained period, in the case of the PRSUs), were to recognize their high performance in successfully transforming our business since Mr. Munshi joined us in May 2016, while motivating continued high performance and providing meaningful rewards for executing on our business strategy. The Compensation Committee determined the size of the equity grants based on several factors, including:

The stock option and RSU grants to each of our NEOs are reflected in the table below. The value of each of the stock options approximated the median of 2018 Peer Group data and, combined with the value of the PRSUs, exceeded the 2018 Peer Group data. The Compensation Committee determined it was appropriate for our NEOs to have the opportunity to receive above-median compensation if they delivered additional significant increases in value for our stockholders.

2019 Stock Options. The stock options granted to our NEOs in 2019 vest over four years, with 25% of the shares subject to the options vesting on the first anniversary of the grant date, and the remainder of the shares vesting monthly over the following three years in equal installments. The stock options have a seven-year term, which is generally consistent with the time horizon required to develop and commercialize internally discovered medicines.

2019 Performance Restricted Stock Units. For 2019, the Compensation Committee incorporated PRSUs into the equity compensation program for our NEOs. The PRSUs only vest if the closing price of a share of our common stock reaches certain price thresholds and remains at or above such thresholds for a period of time (the “Price Goal”) during the three-year performance period beginning January 4, 2019 and ending January 3, 2022 (the “Performance Period”), followed by the grantee’s subsequent satisfaction of a continuing service requirement of generally 90 calendar days. The Price Goals require our closing price to equal or exceed $60.00 (threshold), $67.50 (target) or $75.00 (stretch) for five consecutive trading days or ten non-consecutive trading days during the Performance Period, in which case, if the grantee thereafter satisfies a continuing service requirement, the PRSUs vest as to 50% (threshold), 100% (target) or 200% (stretch), respectively, of the grantee’s target PRSU amount, and the grantee will receive a number of shares equal to the achieved percentage multiplied by the grantee’s target number of PRSUs, less any PRSUs that were already earned and vested. A Price Goal would also be met if there is a change in control during the Performance Period in which the per-share consideration our stockholders receive is equal to or above a threshold, target or stretch Price Goal. The maximum number of common shares that may be issued pursuant to each PRSU grant equals 200% of the target number of PRSUs granted. These targets were established by our Compensation Committee with the goal of requiring significant share price appreciation for any payout (the threshold goal represented nearly a 50% increase in our stock price from the grant date price, with the other goals requiring an even greater increase in our stock price). The Compensation Committee believed these were rigorous and difficult objectives which, if achieved, would benefit all stockholders.

During 2019, the first Price Goal ($60.00) and subsequent continuing service requirement were achieved. Thus, the PRSUs were deemed vested at 50% of the target PRSU amount for each of our NEOs. The remaining Price Goals have not yet been met and the PRSUs therefore remain outstanding and eligible to vest in accordance with the Price Goals and vesting schedule described above.

In connection with our hiring of Mr. Lisicki in October 2018, we provided Mr. Lisicki in early 2019 with a signing bonus of $108,308, intended to offset certain amounts repayable by Mr. Lisicki to his prior employer, and a relocation allowance of $60,000. These benefits were individually negotiated with Mr. Lisicki and were provided because they were deemed necessary for his employment.

All of our current NEOs, as well as our other regular, full-time US employees, are eligible for a variety of health and welfare benefits, which are market competitive for our industry, size, and locations. We believe that competitive health and welfare benefits help ensure that we can attract, retain and maintain a productive and focused workforce.

Our regular, full-time US employees can accrue vacation time during the year, and the maximum amount of vacation time any employee may accrue is 240 hours. Employees are eligible to be paid for accrued unused vacation time at designated times during the year, subject to certain limitations. In addition, our employees, including NEOs, are eligible for statutory leaves based on the location of their employment, including but not limited to statutory paid sick leave, which varies by location.

Our US employees are eligible to participate in our Retirement Savings Plan in the form of a qualified 401(k) plan, beginning on their hire date. Employees may make pre-tax or after-tax (Roth) contributions of up to 50% of gross cash compensation into the plan, up to the annual limit under the Internal Revenue Code, as amended, or Code. Subject to limits under the Code, we match 100% of each of the employee’s contributions, up to a maximum match of 6% of the employee’s eligible gross cash compensation per pay period. This matching contribution vests over a two-year period from the individual’s original date of hire. Our Retirement Savings Plan also allows employees to make certain after-tax contributions in addition to the contributions described above.

Our employees are eligible to participate in our 2019 Employee Stock Purchase Plan, or 2019 ESPP. Under the 2019 ESPP, employees may elect to have up to 20% of their annual compensation withheld to purchase up to 2,000 shares of our common stock per six-month purchase period, subject to certain limitations. The shares of our common stock can be purchased over an offering period with a maximum duration of 12 months and at a price of not less than 85% of the lesser of the fair market value of the common stock on (i) the first trading day of the applicable offering period or (ii) the last trading day of the applicable six-month purchase period.

During 2019, we provided all regular, full-time US employees with a life insurance policy equal to two times the employee’s annual base salary, up to a maximum coverage of $500,000. Such employees are also covered by short- and long-term disability plans that coordinate with state disability insurance programs, if any.

Except for the commuting expense related reimbursement provided to Mr. Aurentz, we did not provide any of our NEOs or other senior members of management with perquisites in 2019 that exceeded $10,000 in the aggregate for any person. Mr. Aurentz’s position and duties require him to travel extensively and do not require him to be present in our San Diego headquarters all of the time. Accordingly, pursuant to the terms of his employment agreement, we provided certain limited benefits to assist with Mr. Aurentz’s travel. Through February 2019, we provided Mr. Aurentz with a monthly housing and automobile stipend in an amount up to $7,000 per month. We also reimburse Mr. Aurentz for the cost of his airfare to San Diego on an after-tax basis in order to make such airfare expenses cost neutral for Mr. Aurentz. These benefits were individually negotiated with Mr. Aurentz and were provided because they were deemed necessary for his employment.

Below is a summary of potential post-termination compensation for our NEOs. More details regarding such arrangements, including potential payouts, are provided below under “Potential Post-Employment Payments Table.” These termination benefits are intended to keep our NEOs focused on corporate interests while employed and to ease the consequences to an NEO of a termination of employment. In order to receive termination benefits the applicable NEO must execute a waiver and release of claims in our favor.

Severance Benefits. We have an Amended and Restated Severance Agreement with Mr. Munshi, or Severance Agreement, that may require us to provide compensation and benefits to him. We also have an Amended and Restated Severance Benefit Plan, or Severance Benefit Plan, that may require us to provide compensation and benefits to our NEOs other than Mr. Munshi.

We provide these benefits because we determined that it was appropriate to provide our NEOs severance compensation if their employment is terminated under certain circumstances. The Compensation Committee believes that the severance benefits are an important element of the NEOs’ competitive pay packages, that they serve important retention and motivation purposes and that such severance benefits, including generally requiring a release of claims against us as a condition to receiving any severance benefits, are best market practice and are in the best interests of the Company and its stockholders.

The Compensation Committee periodically reviews the severance benefits we offer to our NEOs to ensure that the benefits we offer remain competitive. In January 2019, the Compensation Committee amended certain terms of Mr. Munshi’s Severance Agreement and our Severance Benefit Plan to better align with the severance benefits practices of our 2018 Peer Group. Specifically, the amendments to the Severance Agreement changed the previously existing agreement by providing the calculation of any bonus amount included as severance will be based on Mr. Munshi’s target bonus in effect prior to a covered termination. Previously, any bonus amount was based on the greater of (x) the average of the three annual bonuses paid to Mr. Munshi prior to the termination (with Mr. Munshi’s target bonus amounts used for any year in which he was not an employee or was employed for less than a full year) or (y) the last annual bonus paid Mr. Munshi prior to the termination. The amendments to the Severance Benefit Plan changed the previously existing plan by: (i) changing the calculation of a participant’s bonus to be based on the participant’s target bonus in effect prior to a covered termination (previously such bonus was based on the greater of (a) average of the three bonuses paid to the participants prior to the termination or (b) the last annual bonus paid to the participant), (ii) providing that, in the event of a covered termination within 24 months following a change in control, all of participant’s outstanding stock options and other equity becomes fully vested and exercisable, except for performance-related awards such as the PRSUs (previously acceleration in the event of a change in control was provided under the circumstances specified in the equity grant agreements but not in the Severance Benefit Plan), and (iii) modifying the definition of “Good Reason” to (x) allow for a resignation for Good Reason when a participant’s authority, duties or responsibilities are materially diminished, including a change in participant’s position such that participant is no longer employed in substantially the same position and with substantially the same level of authority, responsibilities or duties at the ultimate parent corporation, and (y) delete, from the list of circumstances that would constitute “Good Reason,” the failure of the Board to nominate a participant for election to the Board.

A description of the severance benefits provided under the Severance Agreement and the Severance Benefit Plan is provided below under the heading “Potential Post-Employment Payments Table at December 31, 2019.”

Severance Benefits for Former General Counsel. In March 2020, Steven Spector, who was serving as our General Counsel and Secretary, terminated employment and was deemed by our Compensation Committee to qualify for severance.

We take into account the tax effects of various forms of compensation and the potential for excise taxes to be imposed on our executive officers. There are various provisions of the Code that we consider in determining compensation, including the following:

Section 162(m). Under Section 162(m) of the Code (“Section 162(m)”), compensation paid to any publicly held corporation’s “covered employees” that exceeds $1 million per taxable year for any covered employee is generally non-deductible. Prior to the enactment of the Tax Cuts and Jobs Act of 2017, or TCJA, Section 162(m) provided a performance-based compensation exception, pursuant to which the deduction limit under Section 162(m) did not apply to any compensation that qualified as “performance-based compensation” under Section 162(m). Pursuant to the TCJA, the performance-based compensation exception under Section 162(m) was repealed with respect to taxable years beginning after December 31, 2017, except that certain transition relief is provided for compensation paid pursuant to a written binding contract which was in effect on November 2, 2017, and which is not modified in any material respect on or after such date.

Compensation paid to each of our “covered employees” in excess of $1 million per taxable year generally will not be deductible unless it qualifies for the performance-based compensation exception under Section 162(m) pursuant to the transition relief described above. Because of certain ambiguities and uncertainties as to the application and interpretation of Section 162(m), as well as other factors beyond the control of the Compensation Committee, no assurance can be given that any compensation paid by us will be eligible for such transition relief and be deductible by us in the future. Although the Compensation Committee will continue to consider tax implications as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions and retains the flexibility to provide compensation for our NEOs in a manner consistent with the goals of our executive compensation program and the best interests of us and our stockholders, which may include providing for compensation that is not deductible by us due to the deduction limit under Section 162(m). The Compensation Committee also retains the flexibility to modify compensation that was initially intended to be exempt from the deduction limit under Section 162(m) if it determines that such modifications are consistent with our business needs.

Sections 280G and 4999. Any payment or benefit provided to executive officers in connection with a change-in-control transaction may be subject to an excise tax under Section 4999 of the Code. These payments also may not be eligible for a company tax deduction pursuant to Section 280G of the Code. If any of these payments or benefits are subject to the excise tax, they may be reduced to provide the individual with the best after-tax result. The individual will receive a reduced amount so that the excise tax is not triggered, or the individual will receive the full amount of the payments and benefits and then be liable for any excise tax.

Clawback Policy. We maintain a clawback policy that applies to current and former executive officers. Under the policy, following an accounting restatement that is required to be prepared due to material noncompliance with any financial reporting requirements under the securities laws, we will seek repayment from any current or former executive officer of any incentive-based compensation (cash or equity) that was: (i) based on the erroneous data; (ii) paid during the three-year period preceding the date on which the accounting restatement is required to be prepared; and (iii) in excess of what would have been paid under the accounting restatement. In addition, in the event that legislation is enacted or the SEC adopts rules or promulgates regulations defining the circumstances under which we are entitled to seek repayment from a current or former executive officer, such legislation, rules or regulations shall apply.

Stock Ownership Guidelines. The Compensation Committee has established ownership guidelines for our NEOs. Within five years after the date an individual becomes an executive officer, he or she will be expected to hold ownership or equivalent with an aggregate value equal to the amount (or, in the case of the Chief Executive Officer, three times the amount) of the executive officer’s annual base salary. If an executive is not in compliance after the applicable five-year period, the executive will be expected to retain at least 50% of the shares acquired upon option exercise (after payment of both the exercise cost and taxes) and 50% of the shares issued upon vesting of RSU grants (net of shares necessary to satisfy taxes).

Prohibition of Hedging and Pledging. We prohibit our NEOs (and other employees) and non-employee directors from engaging in short sales, transactions in put or call options, hedging transactions, margin accounts, pledges, or other inherently speculative transactions with respect to our securities at any time.

The table below summarizes the total compensation of our Named Executive Officers for the fiscal years indicated.

The table below provides information on estimated future payouts under non-equity and equity incentive plans, stock awards and options granted to our Named Executive Officers during the fiscal year ended December 31, 2019.

The table below provides information on all stock options held by our Named Executive Officers on December 31, 2019.