NITE Nightstar Therapeutics Plc ADS

Item 11. Executive Compensation.

This section describes the material elements of compensation awarded to, earned by or paid to each of our named executive officers in 2018. This section also 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 into perspective the data presented in the tables and narrative that follow. Our “named executive officers” for 2018 were:

Summary Compensation Table

The following table sets forth information regarding compensation awarded to, earned by or paid to our named executive officers during the years ended December 31, 2018 and 2017.

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Narrative Disclosure to Summary Compensation Table

The primary elements of our executive compensation program are:

We strive to achieve an appropriate mix between the various elements of our compensation program to meet our compensation objectives and philosophy; however, we have not adopted any formal policies or guidelines for allocating compensation among these elements.

Base Salary . 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. In 2018, we paid an annual base salary of $516,990 to Mr. Fellows, $351,352 to Mr. Sundaram and $349,244 to Dr. Robinson.

Annual Target-Based Cash Bonus. In addition to base salaries, our executive officers are eligible to receive annual target-based cash bonuses based on the achievement of corporate objectives and individual performance. Bonuses are typically prorated for executive officers who commence employment after the beginning of the year. Our executive officers’ annual bonus opportunities are generally set as a specified percentage of annual base salary. The 2018 annual target bonus amount was 50% of base salary for Mr. Fellows, 40% of base salary for Mr. Sundaram and 40% of base salary for Dr. Robinson. In determining Mr. Fellows’ annual bonus, we have attributed 100% of the target bonus to the achievement of specified corporate objectives and in determining Mr. Sundaram’s and Mr. Robinson’s annual bonuses, we attributed 80% of the target bonus to the achievement of specified corporate objectives and 20% to the individual’s effectiveness in helping us achieve our corporate objectives or other individual performance criteria.  The annual corporate objectives are recommended by our chief executive officer and approved by the remuneration committee and the board of directors.

Equity Incentive Awards . Our equity award program is the primary vehicle for offering long-term incentives to our executives. We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our shareholders. To date, we have used restricted shares awards and option grants for this purpose because we believe they are an effective means by which to align the long-term interests of our executive officers with those of our shareholders. We believe that our equity awards are an important retention tool for our executive officers, as well as for our other employees.

Our employees and employee directors and employees of our subsidiaries are eligible to receive awards under the 2017 Equity Incentive Plan, or the 2017 Plan. The 2017 Plan is administered by our board of directors, which may delegate its duties and

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responsibilities to one or more committees of our directors and/or officers (referred to collectively as the plan administrator below), sub ject to the limitations imposed under the 2017 Plan, stock exchange rules and other applicable laws. The plan administrator has the authority to take all actions and make all determinations under the 2017 Plan, to interpret the 2017 Plan and award agreemen ts and to adopt, amend and repeal rules for the administration of the 2017 Plan as it deems advisable. The plan administrator also has the authority to determine which eligible service providers receive awards, grant awards, set the terms and conditions of all awards under the 2017 Plan, including any vesting and vesting acceleration provisions, and designate whether such awards will cover our ordinary shares or ADSs, subject to the conditions and limitations in the 2017 Plan.

Initial grants to our executive officers are generally set forth in their employment agreements. Initial equity grants are the product of negotiation with the executive officer, but we generally seek to establish equity ownership levels that we believe are commensurate with the equity stakes held by executive officers serving in similar roles at comparable biopharmaceutical companies. In addition, from time to time as our remuneration committee and board of directors deem appropriate, we provide subsequent equity grants to those executive officers determined to be performing well

The equity grants we have made to our executive officers generally vest over four years. However, from time to time, our board of directors may approve grants with different and sometimes shorter vesting provisions. Our historical practice has been to provide for acceleration of vesting of outstanding options, restricted share awards and restricted share units in the event of a change of control if certain other conditions are met. Additional information regarding the effect of accelerated vesting upon a change in control with respect to our named executive officers is discussed below under “— Agreements with our Named Executive Officers.”

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Agreements with our Named Executive Officers

We have entered into written employment agreements with each of our named executive officers. The agreements set forth the terms of the named executive officer’s compensation, including base salary, severance and an annual cash bonus opportunity. In addition, the agreements provide that the named executive officers are eligible to participate in company-sponsored benefit programs that are available generally to all of our employees. The agreements also subject our named executive officers to certain non-competition and non-solicitation restrictions.

We and our U.S. subsidiary, Nightstar, Inc., entered into an amended and restated employment agreement with Mr. Fellows in September 2017. In 2017, Mr. Fellows received his base salary at an annual rate of $310,000 per year through September 2017 and $500,000 per year from October 2017 through December 2017. Mr. Fellows is eligible to receive an annual bonus of up to 50% of his base salary (increased from 40% of his base salary prior to 2017), such bonus amount to be determined in the company’s sole discretion. Mr. Fellows is also entitled to the same fringe benefits as we provide to our other executives from time to time and is eligible to receive employee share incentives. If Mr. Fellows’ employment is terminated without cause, or if he resigns for good reason (as such terms are defined in the agreement), Mr. Fellows will also be entitled to receive severance equal to continuation of his base salary as then currently in effect for 12 months following his date of termination and will be eligible for reimbursement for medical coverage premiums for up to the same period. Mr. Fellows, his spouse and eligible dependents are entitled to stay on our health insurance plans for a period of 12 months following his termination for any reason. Mr. Fellows’ severance benefits are conditioned on, among other things, his execution of our standard separation agreement and a general release of claims in our favor. Further, if such termination of employment occurs within 12 months following a change in control of our company (as such term is defined in our 2017 Plan), Mr. Fellows will also be entitled to receive (i) a pro-rated cash bonus for the year of such termination and (ii) accelerated vesting of any then unvested equity awards held by Mr. Fellows that are subject to time-based vesting. The agreement provides that if payments and benefits payable to Mr. Fellows in connection with a change in control would result in adverse tax consequences under Sections 280G and 499 of the U.S. Internal Revenue Code, such payments will be cut back to the extent necessary to avoid such adverse tax consequences unless Mr. Fellows would be better off on an after-tax basis receiving the full amount of such payments and benefits.

The agreement provides that Mr. Fellows’ employment with us is at-will. If required by the company, the agreement further provides that Mr. Fellows will resign from his position on our board of directors effective as of the date of his termination for any reason. The agreement further contains a six-month non-competition covenant and a 12-month non-solicitation covenant by Mr. Fellows.

We and our U.K. subsidiary, NightstaRx Limited, incorporated under the laws of England and Wales, have entered into employment agreements with Mr. Sundaram and Dr. Robinson.  Each of Mr. Sundaram and Dr. Robinson is eligible to receive an annual performance cash bonus under his employment agreement based on the achievement of corporate objectives and the named executive officer’s individual performance, which is determined by our board of directors in its sole discretion. Their bonus opportunities are calculated as a percentage of the named executive officer’s then annual base salary. For the year ended December 31, 2018, the annual target bonus amount was 40% of base salary for Mr. Sundaram and Dr. Robinson.  Mr. Sundaram and Dr. Robinson received a base salary at an annual rate of $ 351,352 and $ 349,244 , respectively, for the year ended December 31, 2018. Mr. Sundaram and Dr. Robinson are also entitled to the same fringe benefits as we provide to our other executives from time to time and is eligible to receive employee share incentives. If Mr. Sundaram’s or Dr. Robinson’s employment with the company is terminated without cause, or if either executive resigns for good reason (as such terms are defined in the agreement), Mr. Sundaram or Dr. Robinson will also be entitled to receive severance equal to continuation of his base salary as then currently in effect for 12 months following his date of termination and will be eligible for reimbursement for medical coverage premiums for up to the same period. Mr. Sundaram and Dr. Robinson, their spouses and eligible dependents are entitled to stay on our health insurance plans for a period of 12 months following his termination for any reason. Mr. Sundaram’s and Dr. Robinson’s severance benefits are conditioned on, among other things, the execution of our standard separation agreement and a general release of claims in our favor. Further, if such termination of employment occurs within 12 months following a change in control of our company (as such term is defined in our 2017 Plan), Mr. Sundaram and Dr. Robinson will also be entitled to receive (i) a pro-rated cash bonus for the year of such termination and (ii) accelerated vesting of any then unvested equity awards held by Mr. Sundaram and Dr. Robinson that are subject to time-based vesting. If payments and benefits payable to Mr. Sundaram or Dr. Robinson in connection with a change in control would result in

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a dverse tax consequences under Sections 280G and 499 of the U.S. Internal Revenue Code, such payments will be cut back to the extent necessary to avoid such adverse tax consequences unless Mr. Sundaram or Dr. Robinson would be better off on an after-tax basis receiving the full amount of such payments and benefits.  The agreements provide that Mr. Sundaram’s and Dr. Robinson’s employment with us is at-will. The agreements further contain six-month non-competition covenants and 12-month non-solicitation co venants by Mr. Sundaram and Dr. Robinson.

2017 Equity Incentive Plan

The 2017 Plan, which was adopted by our board of directors and approved by our shareholders in September 2017, allows for the grant of equity-based incentive awards to eligible service providers. The material terms of the 2017 Plan are summarized below.

Except where the context indicates otherwise, references hereunder to our ordinary shares shall be deemed to include a number of ADSs equal to an ordinary share.

As of December 31, 2018, options to purchase 1,100,501shares of our ordinary shares, at a weighted average exercise price per share of $15.74 were outstanding under the 2017 Plan.

Eligibility and Administration

Our employees and employees of our subsidiaries are eligible to receive awards under the 2017 Plan. The 2017 Plan is administered by our board of directors, which may delegate its duties and responsibilities to one or more committees of our directors and/or officers (referred to collectively as the plan administrator), subject to the limitations imposed under the 2017 Plan, stock exchange rules and other applicable laws. The plan administrator has the authority to take all actions and make all determinations under the 2017 Plan, to interpret the 2017 Plan and award agreements and to adopt, amend and repeal rules for the administration of the 2017 Plan as it deems advisable. The plan administrator also has the authority to determine which eligible service providers receive awards, grant awards, set the terms and conditions of all awards under the 2017 Plan, including any vesting and vesting acceleration provisions, and designate whether such awards will cover our ordinary shares or ADSs, subject to the conditions and limitations in the 2017 Plan.

Shares Available for Awards

Our 2017 Plan originally provided for the issuance of up to 1,500,000 ordinary shares, which included 500,000 ordinary shares reserved for issuance under our non-employee sub-plan described below. In addition, the number of ordinary shares reserved for issuance under our 2017 Plan will automatically increase on January 1 of each year, commencing on January 1, 2018 and ending on (and including) January 1, 2027, in an amount equal to 4% of the total number of shares outstanding on December 31 of the preceding calendar year. Our board may act prior to January 1 of a given year to provide that there will be no increase for such year or that the increase for such year will be a lesser number of shares. Pursuant to this provision, 1,156,188 ordinary shares were added to the number of available shares pursuant to the 2017 Plan effective January 1, 2018 and 1,341,348 ordinary shares were added to the number of available shares pursuant to the 2017 Plan effective January 1, 2019.

No more than 2,000,000 shares may be issued under the 2017 Plan upon the exercise of incentive share options. Shares issued under the 2017 Plan may be authorized but unissued shares, shares purchased on the open market, treasury shares or ADSs.

If an award under the 2017 Plan, or any prior equity incentive plan, expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, any unused shares subject to the award will, as applicable, become or again be available for new grants under the 2017 Plan. Awards granted under the 2017 Plan in substitution for any options or other equity or equity-based awards granted by an entity before the entity’s merger or consolidation with us or our acquisition of the entity’s property or stock will not reduce the shares available for grant under the 2017 Plan, but will count against the maximum number of shares that may be issued upon the exercise of incentive options.

Awards

The 2017 Plan provides for the grant of options, share appreciation rights, or SARs, restricted shares, dividend equivalents, restricted share units, or RSUs, and other share-based awards. All awards under the 2017 Plan will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post-termination exercise limitations. A brief description of each award type follows.

Options and SARs.  Options provide for the purchase of our ordinary shares in the future at an exercise price set on the grant date. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The plan administrator will determine the number of shares covered by each option and SAR, the exercise price of each option and SAR and the conditions and limitations applicable to the exercise of each option and SAR.

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Restricted Shares and Restricted Share Units.  Restricted shares are an award of nontransferable ordinary shares that are intended to remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. RSUs are contractual promises to deliver our ordinary sha res in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on our ordinary shares prior to the delivery of the underlying shares. The plan administrator may provide that the delivery of the shares underlying RSUs will be deferred on a mandatory basis or at the election of the participant. The terms and conditions applicable to restricted shares and RSUs will be determined by the plan administrator, subject to the conditions and limitations contained in the 2017 Plan.

Other Share-Based Awards.  Other share-based awards are awards of fully vested ordinary shares and other awards valued wholly or partially by referring to, or otherwise based on, our ordinary shares or other property. Other share-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation to which a participant is otherwise entitled. The plan administrator will determine the terms and conditions of other share-based awards, which may include any purchase price, performance goal, transfer restrictions and vesting conditions.

Performance Criteria

The plan administrator may select performance criteria for an award to establish performance goals for a performance period.

Certain Transactions

In connection with certain corporate transactions and events affecting our ordinary shares, including a change in control, another similar corporate transaction or event, another unusual or nonrecurring transaction or event affecting us or our financial statements or a change in any applicable laws or accounting principles, the plan administrator has broad discretion to take action under the 2017 Plan to prevent the dilution or enlargement of intended benefits, facilitate the transaction or event or give effect to the change in applicable laws or accounting principles. This includes canceling awards for cash or property, accelerating the vesting of awards, providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares subject to outstanding awards and/or with respect to which awards may be granted under the 2017 Plan and replacing or terminating awards under the 2017 Plan. In addition, in the event of certain non-reciprocal transactions with our shareholders, the plan administrator will make equitable adjustments to the 2017 Plan and outstanding awards as it deems appropriate to reflect the transaction. Pursuant to the terms of their individual employment agreements, awards granted under the 2017 Plan to certain of our executives may become fully vested and exercisable upon a change in control.

Plan Amendment and Termination

Our board of directors may amend or terminate the 2017 Plan at any time; however, no amendment, other than an amendment that increases the number of shares available under the 2017 Plan, may materially and adversely affect an award outstanding under the 2017 Plan without the consent of the affected participant and shareholder approval will be obtained for any amendment to the extent necessary to comply with applicable laws. Further, the plan administrator cannot, without the approval of our shareholders, amend any outstanding option or SAR to reduce its price per share or cancel any outstanding option or SAR in exchange for cash or another award under the 2017 Plan with an exercise price per share that is less than the exercise price per share of the original option or SAR. The 2017 Plan will remain in effect until the tenth anniversary of its effective date unless earlier terminated by our board of directors. No awards may be granted under the 2017 Plan after its termination.

Transferability and Participant Payments

Except as the plan administrator may determine or provide in an award agreement, awards under the 2017 Plan are generally non-transferrable, except by will or the laws of descent and distribution, or, subject to the plan administrator’s consent, pursuant to a domestic relations order, and are generally exercisable only by the participant. With regard to tax withholding obligations arising in connection with awards under the 2017 Plan, and exercise price obligations arising in connection with the exercise of options under the 2017 Plan, the plan administrator may, in its discretion, accept cash, wire transfer or cheque, our ordinary shares that meet specified conditions, a promissory note, a “market sell order,” such other consideration as the plan administrator deems suitable or any combination of the foregoing.

Non-U.S. Participants

The plan administrator may modify awards granted to participants who are non-U.S. nationals or employed outside the United States or establish sub-plans or procedures to address differences in laws, rules, regulations or customs of such foreign jurisdictions.

2017 Non-Employee Sub Plan

The 2017 Non-Employee Sub Plan governs equity awards granted to our non-employee directors and service providers. The 2017 Non-Employee Sub Plan was adopted under the 2017 Plan. An overall share limit of 500,000 shares has been included in the 2017 Non-Employee Sub Plan and awards may be made under the Non-Employee Sub Plan up to that limit. If all or any part of an award granted under the Non-Employee Sub Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, cancelled

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without having been fully exercised or forfeited, any unused shares covered by the award will become or again be available for new grants under the Non-Employee Sub Plan

Director Compensation

Our non-employee director compensation program 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 shareholders. The form and amount of director compensation paid under our program is reviewed and assessed from time to time by the remuneration committee with changes, if any, recommended to the board for action. Director compensation may take the form of cash, equity, and other benefits ordinarily available to directors.

Effective as of February 28, 2018, we adopted a non-employee director compensation program, or the Director Compensation Program, which provides that non-employee directors receive an option grant of 36,400 shares upon election to the board, which option grant vests in equal amounts annually over three years so long as such person continues to serve as a director and an annual option grant of 18,200 shares, which option grant vests fully on the day before the annual general meeting of shareholders to be held in the year after the award is made so long as such person continues to serve as a director. These grants are made under the 2017 Non-Employee Sub Plan. Our program also provides for our non-employee directors to receive an annual retainer of $35,000, and an additional retainer of $27,500 for the chairman of the board. The chairperson of our audit, remuneration and nominating and governance committees receive an additional annual retainer of $15,000, $10,000 and $8,000, respectively. Non-chairperson members of the audit, remuneration and nominating and governance committees receive an additional annual retainer of $7,500, $5,000 and $4,000, respectively. These retainers are paid to each non-employee director quarterly in arrears.

We reimburse each non-employee director for reasonable travel expenses and fees incurred in connection with attendance at board and committee meetings on our behalf, and for expenses such as supplies.

As of December 31, 2018, our non-employee directors as of such date held the following numbers of stock options and share awards, all of which were granted under our 2017 Plan:

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Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member o f our board of directors or our remuneration committee. None of the members of our remuneration committee is, or has ever been, an officer or employee of our company. During 2018, the members of our compensation committee were Chris Hollowood, David Lubner and David Mott.