SCHEDULE
14A
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
o Preliminary
Proxy
Statement
o Confidential,
for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive
Proxy
Statement
o Definitive
Additional
Materials
o Soliciting
Material Pursuant to §
240.14a-12
DISCOVERY
LABORATORIES, INC.
(Name
of
Registrant as Specified In Its Charter)
(Name
of
Person(s) Filing Proxy Statement, if other than the Registrant): not
applicable
Payment
of Filing Fee (Check the appropriate box):
x No
fee required.
o Fee
computed on table below per
Exchange Act Rules 14a-6(i)(1) and 0-11.
|
(1)
|
Title
of each class of securities to which transaction applies: not
applicable
|
|
(2)
|
Aggregate
number of securities to which transaction applies: not
applicable
|
|
(3)
|
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was determined): not
applicable
|
|
(4)
|
Proposed
maximum aggregate value of transaction: not
applicable
|
| (5) |
Total
fee paid: not
applicable
|
o Fee
paid previously with
preliminary materials.
o Check
box if any part of the fee is
offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing
for
which the offsetting fee was paid previously. Identify the previous filing
by
registration statement number, or the Form or Schedule and the date of its
filing.
(1)
Amount Previously Paid: not
applicable
(2)
Form,
Schedule or Registration Statement No.: not
applicable
(3)
Filing Party: not
applicable
(4)
Date
Filed: not
applicable
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976-3622
(215)
488-9300
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
be
held on Thursday June 21, 2007
To
the
Stockholders of Discovery Laboratories, Inc.:
The
Annual Meeting of Stockholders of Discovery Laboratories, Inc., a Delaware
corporation (the “Company”), will be held on June 21, 2007, at 9:00 a.m. Eastern
Daylight Time at The
Mercer Museum, 84 South Pine Street, Doylestown, PA 18901-4999
for the
following purposes.
|
I.
|
To
elect six members to the Board of Directors to serve for the ensuing
year
and until their respective successors have been duly elected and
qualified;
|
| II. |
To
act upon the selection of Ernst & Young LLP as the Company’s
independent auditors for the fiscal year ending December 31,
2007;
|
| III. |
To
consider and approve a new Discovery Labs 2007 Long-Term Incentive
Plan
(the “2007 Plan”) with 8.5 million shares of the Company’s common stock,
par value $.001 per share (the “Common Stock”), available for issuance
under such Plan;
|
| IV. |
To
transact such other business as may properly come before the meeting
and
any adjournments or postponements
thereof.
|
Only
stockholders of record of the Common Stock at the close of business on April
27,
2007, are entitled to notice of, and to vote at, the meeting and any adjournment
or postponements thereof. A complete list of those stockholders will be open
to
examination by any stockholder, for any purpose germane to the meeting, during
ordinary business hours at the Company’s executive offices at 2600 Kelly Road,
Suite 100, Warrington, Pennsylvania 18976-3622 for a period of 10 days prior
to
the meeting. The stock transfer books of the Company will not be
closed.
The
vote
of each stockholder is important. Whether or not you expect to attend the
Annual
Meeting, please complete, date and sign the enclosed proxy card and mail
it
promptly in the enclosed envelope in order to assure representation of your
shares of Common Stock at the Annual Meeting. If you do attend the Annual
Meeting you may revoke your proxy and vote by ballot at that time.
|
By
Order of the Board of Directors
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| |
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 |
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David
L. Lopez, Esq., CPA
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Corporate
Secretary
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||
Warrington,
Pennsylvania
April
30,
2007
[THIS
PAGE INTENTIONALLY LEFT BLANK]
DISCOVERY
LABORATORIES, INC.
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
June
21, 2007
Proxies
in the form enclosed with this Proxy Statement are solicited by the Board of
Directors of Discovery Laboratories, Inc., a Delaware corporation (“Discovery
Labs” or the “Company”), with its principal executive offices at 2600 Kelly
Road, Suite 100, Warrington PA 18976-3622, for use at the Annual Meeting of
Stockholders and any adjournment or postponement thereof (the “Annual Meeting”)
to be held on Thursday, June 21, 2007, at 9:00 a.m. Eastern Daylight Time at
The
Mercer Museum, 84 South Pine Street, Doylestown, PA 18901-4999. It is expected
that this Proxy Statement and the form of proxy will be mailed to stockholders
on or about May 11, 2007.
Only
holders of record, as of April 27, 2007 (the “Record Date”), of shares of common
stock, par value $.001 per share (the “Common Stock”), of the Company will be
entitled to vote at the Annual Meeting and any adjournments or postponements
thereof. As of the Record Date, there were 84,584,750 shares of Common Stock
outstanding. Each share of Common Stock outstanding as of the Record Date will
be entitled to one vote.
Stockholders
may vote at the Annual Meeting in person or by proxy. Execution of a proxy
will
not in any way affect a stockholder’s right to attend the Annual Meeting and
vote in person. Any stockholder giving a proxy has the right to revoke it by
written notice to the Secretary of the Company at any time before it is
exercised, by executing a proxy with a later date, or by attending and voting
at
the Annual Meeting. All properly executed proxies that are returned in time
to
be counted at the Annual Meeting and not properly revoked will be voted as
stated herewith in “Voting Procedures.” Any stockholder giving a proxy has the
right to withhold authority to vote for any individual nominee to the Board
of
Directors by striking through that nominee’s name on the proxy. In addition to
the election of directors, the stockholders will consider and vote upon
proposals approving the selection of the Company’s independent auditors,
adopting the new 2007 Plan with 8.5 million shares of Common Stock available
for
issuance by the Company, and to transact such other business as may properly
come before the meeting and any adjournments or postponements thereof. Where
a
choice has been specified on the proxy with respect to the any of foregoing
matters, the shares represented by the proxy will be voted in accordance with
such specifications. If no specification is indicated, the shares represented
by
the proxy will be voted FOR a respective matter.
The
Board
of Directors knows of no other matters to be presented at the Annual Meeting.
If
any other matter should be presented at the Annual Meeting upon which a vote
properly may be taken, shares represented by all proxies received by the Board
of Directors will be voted with respect thereto in accordance with the judgment
of the persons named as proxies in the form of proxy.
CORPORATE
GOVERNANCE
Board
of Directors and Committees
Committees
of the Board
The
Board
of Directors appoints all members of the Board committees. The Board of
Directors has an Audit Committee, a Compensation Committee, a Nominating
Committee, and a Compliance and Quality Committee.
Director
Independence
The
operation of the Board of Directors is a dynamic process and the Board of
Directors regularly reviews changing legal and regulatory requirements. The
Board of Directors presently consist of six members, one of whom is an employee
of the Company. Presently, Messrs. Amick and McDade and Drs. Link and Rosenthale
are “independent” directors within the meaning of the rules of the Securities
and Exchange Commission (“SEC”) and the qualitative listing requirements of The
Nasdaq Stock Market (“Nasdaq”). Each director who serves on the committees of
the Board is “independent” within the meaning of the SEC rules and the
qualitative listing requirements of Nasdaq.
Meetings
of the Board
The
Board
of Directors met four times in person and seven times telephonically during
the
fiscal year ended December 31, 2006. Antonio Esteve, Ph.D., a member of the
Board, attended, either in person or by telephone, five meetings of the Board
of
Directors during the fiscal year ended December 31, 2006. Each of the remaining
incumbent directors attended, in person or by telephone, 80% or more of the
meetings of the Board of Directors and committees of the Board of Directors
on
which he served during such fiscal year.
The
Company does not have a formal policy regarding director attendance at the
2007
Annual Meeting, however, it is expected, absent good reason, that all directors
will be in attendance. Three directors attended the Company’s 2006 Annual
Meeting.
Audit
Committee
The
Audit
Committee of the Board of Directors currently consists of Herbert H. McDade,
Jr., Max E. Link, Ph.D., and Marvin E. Rosenthale, Ph.D. The primary functions
of the Audit Committee include:
| · |
overseeing
the Company’s financial statements, system of internal controls, auditing,
accounting and financial reporting
processes;
|
| · |
providing
an independent, direct communication between the Board of Directors
and
internal auditors;
|
| · |
appointing,
compensating, evaluating and, when appropriate, replacing independent
auditors;
|
| · |
overseeing
the Company’s tax compliance;
|
| · |
reviewing
with management and the Company’s independent auditors the annual audit
plan;
|
| · |
reviewing
the Audit Committee Charter;
|
| · |
reviewing
and pre-approving audit and permissible non-audit services;
and
|
| · |
reviewing
and approving all related-party
transactions.
|
The
Audit
Committee is also responsible for addressing matters of accounting policy
with
the Company’s independent accountants. In discharging its role, the Audit
Committee is empowered to investigate any matter brought to its attention
and
has full access to all books, records, facilities and personnel of the Company.
The Audit Committee also has the power to retain such legal, accounting and
other advisors, as it deems necessary to carry out its duties. The Audit
Committee met formally five times during 2006.
The
Board
of Directors has adopted a written Audit Committee Charter. The composition
and
responsibilities of the Audit Committee and the attributes of its members,
as
reflected in its Charter, are intended to be in accordance with applicable
qualitative listing requirements of Nasdaq and the rules of the SEC for
corporate audit committees. The Audit Committee reviews and assesses the
adequacy of its charter on an annual basis. A current copy of the Audit
2
Committee
Charter is available on the Company’s website at http://www.discoverylabs.com
and can
also be obtained by request from the Secretary of the Company at 2600 Kelly
Road, Suite 100, Warrington, Pennsylvania 18976-3622. The Company’s website and
the information contained therein or connected thereto are not incorporated
into
this Proxy Statement.
All
members of the Company’s Audit Committee are “independent” as defined in Rule
4200(a)(15) of the Nasdaq Marketplace Rules and the financial sophistication
requirements of Nasdaq Marketplace Rule 4350. The Board of Directors has
determined that Max E. Link, Ph.D. is an “audit committee financial expert” as
defined under SEC rules.
Report
of the Audit Committee (1)
In
fulfilling its oversight responsibilities, the Audit Committee reviewed and
discussed the Company’s audited consolidated financial statements with
management and the Company’s independent auditors, who are responsible for
expressing an opinion on the conformity of such statements with generally
accepted accounting principles in the United States. This review included
a
discussion of the acceptability and quality of the accounting principles,
the
reasonableness of significant judgments and the clarity of disclosures in
the
financial statements. The independent auditors noted that their representations
addressed the matters required to be discussed with the independent auditors
by
Statement on Auditing Standards No. 61, as amended, “Communication with Audit
Committees.” The review and discussion with management addressed management’s
assessment as to the effectiveness, not just the acceptability, of the Company’s
accounting principles, internal control over financial reporting and such
other
matters as are required to be discussed with the Audit Committee under generally
accepted auditing standards. Pursuant to such dialogue, management shall
issue a
statement reporting management’s assessment of the Company’s internal control
over financial reporting, identifying the framework used by management in
assessing the effectiveness of such internal control. In addition, the Audit
Committee has discussed with the independent auditors the auditors’ independence
in relation to management and the Company, including matters outlined in
the
written disclosures and the letter required by Independence Standards Board
Standard No. 1, “Independence Discussions with Audit Committees” and considered
the compatibility of non-audit services with the auditors’
independence.
The
Audit
Committee discussed with the Company’s independent auditors the overall scope
and plans for their audit. The Audit Committee meets with the independent
auditors, with and without management present, to discuss the results of
their
examinations, their evaluations of the Company’s internal controls, and the
overall quality and efficacy of the Company’s financial reporting.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board of Directors has approved)
that the audited consolidated financial statements be included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2006 for filing
with
the SEC. The Audit Committee and the Board of Directors have also recommended
the selection of Ernst & Young LLP as the Company’s independent auditors for
the fiscal year 2007.
Submitted
by the Audit Committee
Max
E.
Link, Ph.D., Chairman
Herbert
H. McDade, Jr.
Marvin
E.
Rosenthale, Ph.D.
(1)
The
material in this report of the Audit Committee is not “soliciting material,” is
not deemed “filed” with the SEC and is not to be incorporated by reference in
any filing of the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, whether made before or after the date hereof and
irrespective of any general incorporation language in any such
filing.
3
Compensation
Committee
The
Compensation Committee currently consists of W. Thomas Amick, Max E. Link,
Ph.D., and Marvin E. Rosenthale, Ph.D. The primary functions of the Compensation
Committee include:
| · |
reviewing
and approving corporate goals and objectives related to compensation
of
executive officers;
|
| · |
reviewing
and making recommendations to the Board concerning executive and
general
compensation matters;
|
| · |
determining
the compensation of the Chief Executive
Officer;
|
| · |
reviewing
and approving compensation arrangements for executive officers, including
employment and severance agreements;
|
| · |
overseeing
significant employee benefits programs, policies and equity plans
for the
Company’s executives, and, where appropriate, other
employees;
|
| · |
reviewing
and establishing guidelines for the compensation of members of the
Company’s Board of Directors;
|
| · |
reviewing
and discussing with management disclosures in the Company's annual
report
and proxy statement related to executive compensation
matters.
|
The
Compensation Committee may also form, and delegate its authority to,
subcommittees or other committees of the Board when deemed appropriate by
the
Compensation Committee and, at its discretion, retain special legal,
compensation or other consultants to advise the Compensation Committee on
compensation matters or as it deems necessary to carry out its duties. The
Compensation Committee met formally three times during 2006. See the Report
of
the Compensation Committee on page 22, below.
The
Board
of Directors has adopted a written Compensation Committee Charter. The
composition and responsibilities of the Compensation Committee and the
attributes of its members, as reflected in its Charter, are intended to be
in
accordance with applicable qualitative listing requirements of Nasdaq and
the
rules of the SEC for corporate compensation committees. All members of the
Company’s Compensation Committee are “independent” as defined in Rule
4200(a)(15) of the Nasdaq Marketplace Rules. The Compensation Committee reviews
and assesses the adequacy of its charter on an annual basis. A current copy
of
the Compensation Committee Charter is attached as Appendix I to this proxy
statement, is also available on the Company’s website at http://www.discoverylabs.com
and can
also be obtained by request from the Secretary of the Company at 2600 Kelly
Road, Suite 100, Warrington, Pennsylvania 18976-3622. the Company’s website and
the information contained therein or connected thereto are not incorporated
into
this Proxy Statement.
Compensation
Committee Interlocks
The
Compensation Committee is composed entirely of independent directors. There
are
no “interlocks” as defined by the SEC with respect to any member of the
Compensation Committee.
Compliance
and Quality Committee
The
Compliance and Quality Committee currently consists of W. Thomas Amick and
Max
E. Link, Ph.D. The primary functions of the Compliance and Quality Committee
include:
| · |
providing
oversight for the development, implementation, performance and enforcement
of legal and regulatory compliance
programs;
|
| · |
assessing
the adequacy of legal and regulatory compliance
programs;
|
| · |
investigating
and, where appropriate, reporting compliance violations and related
issues
to the Board of Directors and applicable legal and regulatory authorities;
and
|
| · |
establishing
procedures for the receipt, retention and treatment of complaints
regarding legal and regulatory compliance
matters.
|
The
Compliance and Quality Committee met formally two times during 2006.
4
Nominating
Committee
The
Nominating Committee currently consists of W. Thomas Amick, Herbert H. McDade,
Jr., and Marvin E. Rosenthale, Ph.D. The primary functions of the Nominating
Committee include:
| · |
determining
the composition, structure of the Board and its
committees;
|
| · |
evaluating
individual members of the Board and its
committees;
|
| · |
identifying
qualified candidates for election to the Board;
|
| · |
establishing
procedures for director candidate nomination and evaluation;
and
|
| · |
monitoring
and safeguarding the independence of the
Board.
|
The
Nominating Committee considers candidates for director nominees that may
be
proposed by directors, the Chief Executive Officer and stockholders. The
Nominating Committee may retain recruiting professionals to identify and
evaluate director candidates. The Nominating Committee has the authority
to
designate the nominees to stand for election as director at each annual meeting
of the stockholders of the Company and to fill vacancies on the Board of
Directors occurring between annual meetings.
The
Nominating Committee strives to identify candidates who possess a mix of
skills
and diverse perspectives (functional, cultural and geographic). Effort is
made
to complement and supplement skills within the existing members of the Board.
In
selecting nominees, the Nominating Committee assesses the independence,
character, relevant expertise and experience of candidates and endeavors
to
collectively establish a number of areas of core competencies, such as business
judgment, management, accounting and finance, industry knowledge, leadership,
strategic vision, knowledge of international markets and marketing. The Board
of
Directors may also seek nominees who are widely recognized as leaders in
the
fields of medicine or the biological sciences, including those who may have
received prestigious awards and honors in their fields. Additional criteria
include personal and professional ethics, integrity and values, as well as
the
willingness to devote sufficient time to prepare for and attend meetings
and
participate effectively as a member of the Board of Directors. The Nominating
Committee met formally one time during 2006.
The
Nominating Committee will consider any candidate submitted by stockholders
in
compliance with applicable SEC rules and the By-Laws of the Company. The
Nominating Committee shall determine, in its sole discretion, whether such
candidates meet the Company’s qualifications for candidacy described above and
in the charter of the Nominating Committee. Stockholders should send suggestions
for candidates, accompanied by the candidate’s name, contact information,
biographical material, class or series and number of shares of capital stock
of
the Company owned beneficially or of record by the person, and qualifications,
to the Nominating Committee, c/o the Secretary of the Company at its corporate
headquarters located at 2600 Kelly Road, Suite 100, Warrington, PA 18976-3622.
From time to time, the Board may change the process through which stockholders
may recommend candidates to the Nominating Committee. Please refer to the
Company’s website at http://www.discoverylabs.com
for
changes in this process.
A
current
copy of the Nominating Committee Charter is available on the Company’s website
at http://www.discoverylabs.com
and can
also be obtained by request from the Secretary of the Company at 2600 Kelly
Road, Suite 100, Warrington, Pennsylvania 18976-3622. the Company’s website and
the information contained therein or connected thereto are not incorporated
into
this Proxy Statement.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics (the “Code”), designed
to guide directors and employees in recognizing and dealing with ethical
issues
in support of the Company’s commitment to conducting its business in compliance
with all applicable laws and the highest ethical standards. Articles I-III
and
VIII-XIII of the Code constitute the Company’s Code of Ethics for Senior
Financial Officers in accordance with Section 406 of the Sarbanes-Oxley Act
of
2002. The Code applies to all directors, officers and employees of the Company.
The Code covers topics including, but not limited to, conflicts of interest,
confidentiality of information, fair dealing with customers, suppliers and
competitors and compliance with all applicable laws, rules and regulations
including, but not limited to, the rules and regulations of applicable
self-regulating organizations such as Nasdaq. In order to help foster an
environment of honesty and accountability, the Code provides mechanisms for
reporting good faith concerns or complaints on a confidential basis to the
Company’s Chief Compliance Office.
5
A
copy of
the Code is posted on the Company’s website at http://www.discoverylabs.com
and can
also be obtained, without charge, by request from the Secretary of the Company
at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976-3622. Any
amendments to, or waivers from, a provision of the Code that applies to the
Company’s directors and executive officers must be approved by the Board of
Directors. The Company will publicly disclose any such waivers or amendments
pursuant to the rules and regulations of the SEC and Nasdaq. The Company’s
website and the information contained therein or connected thereto are not
incorporated into this Proxy Statement.
Director
Compensation
As
described more fully below, this chart summarizes the annual cash compensation
for the Company’s non-employee directors during 2006.
|
Name
|
Fees
Earned or Paid in Cash
|
Stock
Awards
|
Option
Awards (1)
|
Non-Equity
Incentive Plan Compensation
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
All
Other Compensation
|
Total
|
|||||||||||||||
|
W.
Thomas Amick
|
$
|
24,000
|
$
|
-
|
$
|
59,429
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
83,429
|
||||||||
|
Antonio
Esteve, Ph.D.
|
18,000
|
-
|
59,429
|
-
|
-
|
-
|
77,429
|
|||||||||||||||
|
Max
E. Link, Ph.D.
|
24,000
|
-
|
59,429
|
-
|
-
|
-
|
83,429
|
|||||||||||||||
|
Herbert
H. McDade, Jr.
|
30,000
|
-
|
66,356
|
-
|
-
|
-
|
96,356
|
|||||||||||||||
|
Marvin
E. Rosenthale, Ph.D.
|
24,000
|
-
|
59,429
|
-
|
-
|
-
|
83,429
|
|||||||||||||||
(1)
Represents the compensation costs of stock options for financial reporting
purposes for the year under Financial Accounting Statement 123R (“FAS 123R”),
rather than an amount paid to or realized by the Director. See
Note 8: “Stock Options and Stock-Based Employee Compensation” to the Company’s
consolidated financial statements
set
forth in the Company’s Form 10-K for the year ended December 31, 2006 for the
assumptions made in determining FAS 123R values. The FAS 123R value as
of the
grant date for the options is spread over the number of months of service
required for the grant to become non-forfeitable. In addition, ratable
amounts
expensed for grants that were granted in prior years are included, i.e.
amounts
in respect of grants made in 2005. There can be no assurance that the FAS
123R
amounts will ever be realized.
As
of
December 31, 2006, the aggregate number of option awards outstanding for
each
director was as follows: Mr. Amick - 110,000; Dr. Esteve - 115,000; Dr.
Link -
95,000; Mr. McDade - 145,000; and Dr. Rosenthale - 95,000. The per-option
FAS123R grant date value was $1.23 for options granted in
2006.
Non-employee
directors also are entitled to expense reimbursements for their travel, lodging
and other expenses incurred in connection with attendance at meetings of
the
Board of Directors, Committee meetings and related activities. Directors
who are
also employees of the Company are not compensated separately for serving
on the
Board or any of its Committees.
Pursuant
to the Amended and Restated 1998 Stock Incentive Plan (the “1998 Plan”),
non-employee directors of the Company are entitled to receive a one-time
award
of options for the purchase of 40,000 shares of Common Stock upon their initial
election to the Board of Directors of the Company and, for each individual
who
is to continue to serve as a Director, whether or not that individual is
then
standing for reelection to the Board, an annual award of options for the
purchase of 30,000 shares of Common Stock following each annual meeting of
stockholders thereafter, provided they have served for at least six months
prior
to such meeting. The exercise price of each such option shall be equal to
the
fair market value of Common Stock on the date of grant. Each such option
shall
be immediately exercisable and shall have a maximum term of 10 years, subject
to
earlier termination on the date twelve months after the optionee ceases to
serve
as a director of the Company. However, such option shares are subject to
repurchase by the Company, at the exercise price paid per share, in the event
of
the optionee’s termination of service prior to vesting in the shares. Such
options vest on the first anniversary of the date of grant. Pursuant to the
2007
Plan under consideration by the stockholders in Proposal III below, the terms
for non-employee director options would remain substantially the same. In
addition, each of the Company’s non-employee directors receives cash
compensation for their services in the amount of $4,500 per quarter, as well
as
the following additional amounts, as applicable: (i) $2,000 per quarter if
a
director serves as the Chairman of the Board of Directors; (ii) $1,000 per
quarter if the director serves on one or more of the following committees:
the
Audit Committee, the Compensation Committee, the Compliance and Quality
Committee, or the Nominating Committee; and (iii) $500 per quarter for any
member who serves as Chairman of any of the foregoing Committees.
6
The
Company has agreed pursuant to its charter documents to indemnify its directors
to the maximum extent permissible under the General Corporation Law of the
State
of Delaware. In addition, the Company has entered into indemnity agreements
with
certain of its executive officers which provide, among other things, that
the
Company will indemnify such officer, under the circumstances and to the extent
provided for therein, for expenses, damages, judgments, fines and settlements
he
or she may be required to pay in actions or proceedings to which he or she
is or
may be made a party by reason of his or her position as an officer or other
agent of the Company, and otherwise to the fullest extent permitted under
the
General Corporation Law of the State of Delaware and the Company’s
Bylaws.
COMMON
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth, as of April 23, 2007, certain information regarding
the beneficial ownership of the Common Stock of the Company (i) by each
executive officer and director of the Company listed in the chart below,
(ii) by
all executive officers and directors as a group, and (iii) by each person
known
by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock of the Company. The address of each person
is
c/o Discovery Laboratories, Inc., 2600 Kelly Road, Suite 100, Warrington,
Pennsylvania 18976-3622, unless otherwise noted.
|
Name
of Beneficial Owner (1)
|
Shares
|
Common
Stock
Equivalents
(2)
|
Total
Beneficial
Ownership
|
Percentage
of
Class
Beneficially
Owned
(1)
|
|||||||||
|
Officers
and Directors
|
|||||||||||||
|
W.
Thomas Amick
|
10,000
|
110,000
|
120,000
|
*
|
|||||||||
|
Robert
J. Capetola, Ph.D.
|
205,485
|
1,980,582
|
2,186,067
|
2.53
|
%
|
||||||||
|
John
G. Cooper
|
41,006
|
921,874
|
962,880
|
1.13
|
%
|
||||||||
|
Antonio
Esteve, Ph.D. (3)
|
3,206,689
|
166,174
|
3,372,863
|
3.84
|
%
|
||||||||
|
Max
E. Link, Ph.D.
|
166,821
|
95,000
|
261,821
|
*
|
|||||||||
|
David
L. Lopez, Esq., CPA
|
25,246
|
823,915
|
849,161
|
*
|
|||||||||
|
Herbert
H. McDade, Jr.
|
-
|
145,000
|
145,000
|
*
|
|||||||||
|
Thomas
F. Miller, Ph.D., MBA
|
9,440
|
152,084
|
161,524
|
*
|
|||||||||
|
Marvin
E. Rosenthale, Ph.D.
|
173,711
|
95,000
|
268,711
|
*
|
|||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
9,005
|
562,666
|
571,671
|
*
|
|||||||||
7
|
Name
of Beneficial Owner (1)
|
Shares
|
Common
Stock
Equivalents
(2)
|
Total
Beneficial
Ownership
|
Percentage
of ClassBeneficially
Owned (1)
|
|||||||||
|
Officers
and Directors as
a group (14 persons)
|
3,877,768
|
5,316,045
|
9,193,813
|
10.23
|
%
|
||||||||
|
5%
Security Holders
|
|||||||||||||
|
Heartland
Advisors Inc. (4)
789
North Water Street
Milwaukee,
WI 53202
|
6,151,500
|
-
|
6,151,500
|
7.27
|
%
|
||||||||
|
Morgan
Stanley (5)
FrontPoint
Partners LLC
2
Greenwich Plaza
Greenwich,
CT 06830-7153
|
6,420,316
|
-
|
6,420,316
|
7.59
|
%
|
||||||||
*
Less
than 1%
|
(1)
|
Beneficial
ownership is determined in accordance with Rule 13d-3 under
the Securities
Exchange Act of 1934 and includes voting and investment power
with respect
to shares of Common Stock. Shares of Common Stock and shares
of Common
Stock subject to options or warrants currently exercisable
or exercisable
within 60 days of April
23, 2007 held by each person or group named above,
are deemed outstanding for computing the percentage ownership
of the
person or group holding such options or warrants, but are not
deemed
outstanding for purposes of computing the percentage ownership
of any
other person or group.
|
| (2) |
Common
Stock Equivalents includes shares of Common Stock subject to options
or
warrants currently exercisable or exercisable within 60 days of
April 23,
2007 held by each person or group named
above.
|
| (3) |
Beneficial
ownership of Common Stock includes 2,884,410 shares owned by Laboratorios
Esteve, 317,164 shares owned by Laboratorios P.E.N., S.A., an affiliate
of
Laboratorios Esteve, and 5,115 shares owned directly by Dr. Esteve.
Common
Stock Equivalents includes 115,000 shares of Common Stock issuable
upon
the exercise of outstanding options held by Dr. Esteve and 51,174
shares
of Common Stock issuable on the exercise of outstanding warrants
owned by
Laboratorios Esteve. As a consequence of Dr. Esteve’s relationship with
Laboratorios Esteve, including, serving as President of Laboratorios
Esteve, he may be deemed to have beneficial ownership of the shares
owned
by Laboratorios Esteve and Laboratorios P.E.N.
|
| (4) |
Includes
shares managed by Heartland Advisors. Heartland Advisors manages
the
Heartland family of mutual funds and separate institutional
and individual
portfolios. Information in the table and this footnote is as
of April 23,
2007 and based on information that the Company directly obtained
from
Heartland Advisors.
|
| (5) |
Includes
shares managed by FrontPoint Partners LLC, an affiliate of
Morgan Stanley.
FrontPoint Partners is an integrated investment management
company that
offers a group of alternative investment strategies. Information
in the
table and this footnote is as of April 23, 2007 and based on
information
that the Company directly obtained from FrontPoint
Partners.
|
8
PROPOSAL
I
ELECTION
OF DIRECTORS
At
the
Annual Meeting, the Company’s stockholders will be asked to elect six directors
for a one-year term expiring at the next annual meeting of stockholders.
Each
director will hold office until his or her successor has been elected and
qualified or until the director’s earlier resignation or removal.
The
Board
of Directors recommends that the persons named below be elected as directors
of
the Company and it is intended that the accompanying proxy will be voted
for
their election as directors, unless the proxy contains contrary instructions.
Shares of Common Stock represented by all proxies received by the Board of
Directors and not so marked as to withhold authority to vote for any individual
nominee or for all nominees will be voted (unless one or more nominees are
unable to serve) for the election of the nominees named below. The Board
of
Directors knows of no reason why any such nominee should be unable or unwilling
to serve, but if such should be the case, proxies will be voted for the election
of some other person or the size of the Board of Directors will be fixed
at a
lower number.
The
persons nominated for election to the Company’s Board of Directors are: W.
Thomas Amick, Robert J. Capetola, Ph.D., Antonio Esteve, Ph.D., Max E. Link,
Ph.D., Herbert H. McDade, Jr. and Marvin E. Rosenthale, Ph.D.
Each
of
the nominees currently serves as a director of the Company. The directors
are
elected by a plurality of the votes cast by the stockholders present or
represented by proxy and entitled to vote at the Annual Meeting. See “Voting
Procedures” on page 31 below.
Nominees
for Election to the Board of Directors
The
names
of the nominees for election to the Board of Directors and certain information
about such nominees are set forth below. For information concerning the number
of shares of Common Stock beneficially owned by each nominee, see “Security
Ownership of Directors, Officers and Certain Beneficial Owners”
below.
|
Name
|
Age
|
Position
with the Company
|
||
|
W.
Thomas Amick
|
64
|
Director,
Chairman of the Board of Directors
|
||
|
Robert
J. Capetola, Ph.D.
|
57
|
Director,
Chief Executive Officer
|
||
|
Antonio
Esteve, Ph.D.
|
49
|
Director
|
||
|
Max
E. Link, Ph.D.
|
66
|
Director
|
||
|
Herbert
H. McDade, Jr.
|
80
|
Director
|
||
|
Marvin
E. Rosenthale, Ph.D.
|
73
|
Director
|
W.
Thomas Amick
has
served as a Director of the Company since September 2004 and as its Chairman
since March 2007. Since March 2005, Mr. Amick has served as Chairman and
CEO of
Aldagen, Inc. In 2004, Mr. Amick retired from a distinguished 30 year career
with Johnson and Johnson, having most recently served as Vice President,
Business Development at Johnson & Johnson Development Corporation, from 2003
to 2004, and President of Ortho Biotech Europe, from 2001 to 2003. Previously
at
Johnson & Johnson, he served as President of Janssen-Ortho, Inc., managing
the entire Johnson & Johnson pharmaceutical and biotechnology portfolio for
Canada, Vice President of the Oncology Franchise of Ortho Biotech, and held
various other sales and executive positions throughout his career. Mr. Amick
is
also a member of the Advisory Boards for Quaker BioVentures and Intersouth
Partners and a member of the boards of directors of several private
biotechnology companies. He holds a B.S. degree in business administration
from
Elon College and has attended executive courses at the Kellogg School of
Management, Harvard Business School and Darden School of Business.
9
Robert
J. Capetola, Ph.D. has
served as President, Chief Executive Officer and a Director of the Company
and
an affiliated entity, Acute Therapeutics, Inc., since 1996. Prior to joining
the
Company, Dr. Capetola served as President and a member of the board of directors
of Delta Biotechnology, a subsidiary of Ohmeda Pharmaceutical Products Division,
a division of The BOC Group (“Ohmeda”), from 1994 to 1996, and as Vice President
of Research and Development at Ohmeda, from 1992 to 1996. He served on Ohmeda’s
operating board and was responsible for all aspects of Ohmeda’s research and
development, including preclinical research and development, clinical
development, biometrics and regulatory affairs. From 1977 to 1992, Dr. Capetola
held a variety of positions at Johnson & Johnson Pharmaceutical Research
Institute, including Senior Worldwide Director of Experimental Therapeutics.
Dr.
Capetola received his B.S. from the Philadelphia College of Pharmacy &
Science and his Ph.D. in pharmacology from Hahnemann Medical
College.
Antonio
Esteve, Ph.D. has
served as a Director of the Company since May 2002. Dr. Esteve has been with
Laboratorios del Dr. Esteve, S.A. (“Laboratorios Esteve”) since 1984 and is
currently the President of Laboratorios Esteve. He currently serves as the
President of Farmaindustria (Spanish National Association of the Pharmaceutical
Industry) and as an elected member of the Advisory Board for research and
development of the Spanish Ministry of Science and Technology. From 1998
to 2001
he served as Chairman of the Advisory Committee on Trade and Economics of
the
International Federation of Pharmaceutical Manufacturers Association (IFPMA).
Since 1986, Dr. Esteve has served as Professor at the Autonomous University
of
Barcelona, School of Pharmacy. In 1982, Dr. Esteve was employed by McNeil
Pharmaceutical where he specialized in pharmaceutical marketing. Dr. Esteve
holds a Ph.D. in Pharmaceutical Science and a degree in Pharmacy from the
University of Barcelona, Faculty of Pharmacy.
Max
E. Link, Ph.D.
has
served as a Director of the Company since October 1996. Dr. Link has held
a
number of executive positions with pharmaceutical and health care companies.
He
currently serves on the board of directors of three other publicly-traded
life
science companies: Alexion Pharmaceuticals, Inc., Celsion Corporation, and
Human
Genome Sciences, Inc. From March 2001 until August 2003, Dr. Link served
as
Chairman and Chief Executive Officer of Centerpulse, Ltd. From May 1993 until
June 1994, Dr. Link was Chief Executive Officer of Corange Limited, the parent
company of Boehringer Mannheim, now F. Hoffmann La Roche & CIE AG, and
DePuy, Inc. Prior to that time, he served in a number of positions within
Sandoz
Pharma, Ltd., now Novartis Pharma, Ltd., including Chief Executive Officer
from
1987 until April 1992, and Chairman from April 1992 until May 1993.
Herbert
H. McDade, Jr.
has
served as a Director of the Company since June 1996 and as its Chairman from
June 2000 until March 2007. Prior to his retirement in 1996, Mr. McDade was
employed by the Upjohn Company for 20 years, served for 14 years as President
of
Revlon Health Care Pharmaceuticals and Revlon Health Care International,
and
served as Chairman and President of Armour Pharmaceutical Company from 1986
to
1990. Mr. McDade is a member of the board of directors of Access
Pharmaceuticals, Inc., and until January 5, 2003, was a member of the board
of
directors of one other publicly-held company, CytRx Corporation.
Marvin
E. Rosenthale, Ph.D. has
served as a Director of the Company since 1998. Prior to his retirement in
1999,
Dr. Rosenthale served as President and Chief Executive Officer of Allergan
Ligand Retinoid Therapeutics, Inc., having joined as Vice President in 1993.
Previously, over a period of 16 years, Dr. Rosenthale served in a variety
of
executive positions at Johnson & Johnson, including Vice President, Drug
Discovery Worldwide, at R.W. Johnson Pharmaceutical Research Institute, and
director of the divisions of pharmacology and biological research and executive
director of drug discovery research at Ortho Pharmaceutical. From 1960 to
1977,
Dr. Rosenthale served in various positions with Wyeth Laboratories. Dr.
Rosenthale currently serves on the boards of directors of several privately-held
companies. Dr. Rosenthale received a Ph.D. in pharmacology from Hahnemann
Medical College, an M.Sc. in pharmacology from Philadelphia College of Pharmacy
& Science and a B.Sc. in pharmacy from the Philadelphia College of Pharmacy
& Science.
The
Board of Directors recommends a vote “FOR” each of the nominees to the Board of
Directors set forth above.
10
PROPOSAL
II
RATIFICATION
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
The
Board
of Directors, acting upon the recommendation of the Audit Committee, has
reappointed the firm of Ernst & Young LLP as the Company’s registered
independent public accounting firm for the fiscal year ending December 31,
2007.
Although
action by the stockholders in this matter is not required under the General
Corporation Law of the State of Delaware, the Board of Directors believes
that
it is appropriate to seek stockholder action regarding this appointment in
light
of the critical role played by independent auditors in maintaining the integrity
of the Company’s financial controls and reporting. If the stockholders fail to
ratify the appointment, the Audit Committee and the Board of Directors will
reconsider whether or not to retain that firm. Even if the appointment is
ratified, the Audit Committee may engage different independent auditors at
any
time during the year if it determines that such a change would be in the
best
interests of the Company and its stockholders.
Audit
and Non-Audit Fees
The
following table presents fees for professional audit services rendered by
Ernst
& Young LLP for the audit of the Company’s annual consolidated financial
statements for the fiscal years ended December 31, 2006 and December 31,
2005,
and fees for other services rendered by Ernst & Young LLP during those
periods:
|
Fee
Category:
|
Fiscal
2006
|
%
of Total
|
Fiscal
2005
|
%
of Total
|
|||||||||
|
Audit
Fees
|
$
|
229,000
|
66
|
%
|
$
|
244,000
|
68
|
%
|
|||||
|
Audit-Related
Fees
|
89,000
|
26
|
%
|
83,000
|
23
|
%
|
|||||||
|
Tax
Fees
|
25,000
|
7
|
%
|
30,000
|
8
|
%
|
|||||||
|
All
Other Fees
|
2,000
|
1
|
%
|
2,000
|
1
|
%
|
|||||||
|
Total
Fees
|
$
|
345,000
|
100
|
%
|
$
|
359,000
|
100
|
%
|
|||||
“Audit
Fees” are fees that the Company paid to Ernst & Young LLP for: the audit of
the Company’s annual consolidated financial statements; the review of the
consolidated financial statements included in the Company’s quarterly reports on
Form 10-Q, the attestation of management’s report on the effectiveness of
internal control over financial reporting and services related to registration
statements and other offering memoranda. “Audit Related Fees” are fees related
to the audit of the Company’s internal control over financial reporting with the
objective of obtaining reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. “Tax
Fees” consisted of tax compliance/preparation and other tax services. No portion
of these tax fees related to financial information or operational system
design
or implementation services. “All other fees” are fees for any services not
included in the first three categories.
The
Audit
Committee, or a designated member thereof, pre-approved all audit and non-audit
services rendered by Ernst & Young LLP to the Company in 2006.
The
Audit
Committee has considered whether the provision of all other services by Ernst
& Young LLP is compatible with maintaining the independence of Ernst &
Young LLP and has concluded that Ernst & Young LLP is
independent.
Representatives
of Ernst & Young LLP are expected to be available at the meeting to respond
to appropriate questions and will be given the opportunity to make a statement
if they desire to do so.
11
Pre-Approval
Policies
The
Audit
Committee pre-approves all audit and non-audit services provided by the
Company’s independent auditors prior to the engagement of the independent
auditors with respect to such services. A designated member of the Audit
Committee has the authority to approve any additional audit services and
permissible non-audit services, provided the Chairman of the Audit Committee
informs the Audit Committee of such approval at its next regularly scheduled
meeting. If specific pre-approval for any services to be provided by the
Company’s independent auditors is not required, the Company’s Chief Financial
Officer has the authority to determine whether such services are included
within
the list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee must be informed on a timely basis of any
such
services provided by the Company’s independent auditors.
On
an
ongoing basis, management communicates specific projects and categories of
services for which advance approval of the Audit Committee is required. The
Audit Committee reviews these requests and advises management and the
independent auditors if the Audit Committee pre-approves the engagement of
the
independent auditors for such projects and services. On a periodic basis,
management reports to the Audit Committee the actual spending for such projects
and services compared to the approved amounts. The Audit Committee may delegate
the ability to pre-approve audit and permitted non-audit services to a
sub-committee of the Audit Committee, provided that any such pre-approvals
are
reported at the next Audit Committee meeting.
The
Board of Directors recommends a vote “FOR” this
proposal.
12
PROPOSAL
III
APPROVAL
OF THE 2007 DISCOVERY LABS LONG-TERM INCENTIVE PLAN
Introduction
The
Board
of Directors has approved the 2007 Plan in March 2007 and recommends that
the
stockholders also approve the 2007 Plan, which requires a vote of a majority
of
the votes cast. The 2007 Plan provides for the grant of long-term equity
and
cash incentive compensation awards.
If
approved by stockholders, the 2007 Plan will replace the Company’s 1998 Plan
whose ten-year term is expiring in March 2008. The Board of Directors believes
that the 2007 Plan is important for the Company’s continuing efforts to attract,
motivate and retain highly qualified and experienced employees.
The
2007
Plan continues many of the features of the Amended and Restated 1998 Stock
Incentive Plan (the “1998 Plan”), but is updated to reflect changes to Nasdaq
rules regarding equity compensation, other regulatory changes and market
and
corporate governance developments. Awards outstanding under the 1998 Plan
will
continue to be governed by the terms of that plan and the agreements under
which
they were granted.
Purpose
The
purposes of the 2007 Plan are to encourage selected employees, directors
and
consultants of the Company to acquire a proprietary interest in the growth
and
performance of the Company, to generate an increased incentive to contribute
to
the Company’s future success and prosperity, thus enhancing the value of the
Company for the benefit of its stockholders, and to enhance the ability of
the
Company and its affiliates to attract and retain exceptionally qualified
individuals upon whom, in large measure, the sustained progress, growth and
profitability of the Company depend.
If
approved by stockholders, the 2007 Plan replaces the 1998 Plan and no further
awards will be granted under the 1998 Plan. For information on outstanding
equity compensation awards under the Company’s existing plans, see the Grants of
Plan-Based Awards table on page 24. This section summarizes the 2007 Plan,
and
is qualified in its entirety by the full text of the 2007 Plan, which is
included in Appendix II to this proxy statement. Capitalized terms used in
this
Proposal are defined in the 2007 Plan.
Key
Features of the 2007 Plan
|
·
|
Limitation
on shares requested.
The maximum number of shares as to which stock options and stock
awards
may be granted under the 2007 Plan is 8,500,000 shares. This represents
approximately 10% of the Company’s outstanding shares as of April 5, 2007.
The 1998 Plan presently has only 537,790 shares available for grant
under the 1998 Plan (plus any shares that might in the future be
returned
to the 1998 Plan as a result of the reacquisition of unvested shares,
or
as a result of cancellations or expiration of
options).
|
|
·
|
Limitation
on term of stock option grants.
The term of each stock option will not exceed ten
years.
|
|
·
|
Limitation
on share counting.
Shares surrendered for the payment of the exercise price or withholding
taxes under stock options or stock appreciation rights, and shares
repurchased in the open market with the proceeds of an option exercise,
may not again be made available for issuance under the 2007
Plan.
|
|
·
|
No
repricing or grant of discounted stock options.
The 2007 Plan does not permit the repricing of options or stock
appreciation rights either by amending an existing award agreement
or by
substituting a new award at a lower price. The 2007 Plan prohibits
the
granting of stock options or stock appreciation rights with an
exercise
price less than the Fair Market Value of the Company’s stock on the date
of grant.
|
13
Description
of the 2007 Plan
Eligibility.
Any
employees, directors or consultants of the Company will be eligible to
participate in the 2007 Plan.
Administration.
The
Compensation Committee (the ”Committee”), a fully independent committee of the
Company’s Board of Directors, is responsible for the administration of the 2007
Plan. The
Committee will have the authority to establish rules and guidelines for the
administration of the 2007 Plan; select the employees, directors and consultants
to whom awards are granted; determine the types of awards to be granted and
the
number of shares covered by such awards; set the terms and conditions of
such
awards and cancel, suspend and amend awards. The Committee has the sole
discretion to make determinations and interpret the 2007 Plan. The Committee
may
delegate its authority under the 2007 Plan to one or more members of the
Committee or officers of the Company in accordance with the terms and
limitations of the 2007 Plan.
Shares
Available for Awards.
Shares
delivered pursuant to an award may consist of authorized and unissued shares
or
treasury shares. If any shares covered by an award under the 2007 Plan are
forfeited or otherwise terminated without delivery of shares, then the shares
covered by such an award shall again be available for granting awards under
the
2007 Plan. In an acquisition, any awards made and any of the shares delivered
upon the assumption of or in substitution for outstanding grants made by
the
acquired company will not be counted against shares available for granting
awards under the 2007 Plan. Dividend equivalents denominated in shares and
awards not denominated, but potentially payable in shares shall be counted
against the aggregate number of shares available for granting awards under
the
2007 Plan in such amount and at such time as the dividend equivalents and
such
awards are settled in shares. Awards that operate in tandem with (whether
granted simultaneously with or at a different time from), or that are
substituted for, other awards or awards granted under the 2007 Plan
may
only be counted once against the aggregate number of shares
available.
As
noted
above, shares surrendered for the payment of the exercise price or withholding
taxes under stock options or stock appreciation rights, and shares repurchased
in the open market with the proceeds of an option exercise, may not again
be
made available for issuance under the 2007 Plan. In addition, shares that
were
subject to an option or stock-settled stock appreciation right and were not
issued upon the net settlement or net exercise of such option or stock
appreciation right will also not be made available for issuance. The last
sales
price of the Company’s stock on April 24, 2007 was $2.83 as reported on the
Nasdaq Global Market.
Stock
Options and Stock Appreciation Rights.
The
Committee may award stock options in the form of nonqualified stock options
or
incentive stock options, or stock appreciation rights, each with a maximum
term
of ten years. The Committee will establish the vesting schedule for stock
options and the method of payment for the exercise price, which may include
cash, shares, or other awards. Stockholder approval of the class of eligible
participants under the 2007 Plan and, as described below, the limits on the
number of options and stock appreciation rights granted to any one participant
under the 2007 Plan is intended to satisfy the stockholder approval conditions
for such awards to qualify as deductible under Section 162(m) of the Internal
Revenue Code of 1986, as amended.
Restricted
Stock and Restricted Stock Units.
The
Committee may award restricted stock and restricted stock units and establish
the applicable restrictions, including any limitation on voting rights or
the
receipt of dividends. The Committee may decide to include dividends or dividend
equivalents as part of an award of restricted stock or restricted stock units
and may accrue dividends, with or without interest, until the award is paid.
The
Committee will establish the manner and timing under which restrictions may
lapse. If employment is terminated during the applicable restriction period
(other than as a result of death or disability), shares of restricted stock
and
restricted stock units still subject to restriction will be forfeited, except
as
determined otherwise by the Committee.
Performance
Awards and Other Stock-Based Awards.
The
Committee may grant performance awards, which may be denominated in cash,
shares, other securities or other awards and payable to, or exercisable by,
the
participant upon the achievement of performance goals during performance
periods, as established by the Committee. Performance criteria mean any
measures, as determined by the Committee, which may be used to measure the
level
of performance of the Company or participant during a performance period,
and
include: achieving specified milestones in the discovery, development,
commercialization or manufacturing of one or more of the Company’s product
candidates, obtaining debt or equity financing, achieving
personal management objectives, achieving sales, revenue, net income (before
or
after taxes), net earnings, earnings per share, return on total capital,
return
on equity, cash flow, operating profit and/or margin rate targets. The Committee
may grant other stock-based awards that are denominated or payable in shares,
under the terms and conditions as the Committee will determine. The Committee
may decide to include dividends or dividend equivalents as part of a performance
or other stock-based award, and may accrue dividends, with or without interest,
until the award is paid.
14
Non-Employee
Director Options.
Option
grants shall be made to non-employee directors on specified dates as follows:
(i) options to purchase 40,000 shares on the date of first election or
appointment to the board and (ii) thereafter, options to purchase 30,000
shares
on the date of each subsequent annual stockholders meeting when such person
continues to, and has served as a director for at least six months. Non-employee
director options vest on the first anniversary of the date of grant (subject
to
continued service as a director through such date) and will otherwise vest
in
full upon the termination of service as a result of death or disability.
Non-employee director options have a term of ten years (subject to earlier
termination twelve months after any termination of service) and are subject
to
the same payment and exercise terms as ordinary options.
Transferability
and Per-Person Limitations.
Awards
are not transferable other than by will or the laws of descent and distribution
unless determined otherwise by the Committee. Awards may not be pledged or
otherwise encumbered. The number of shares with respect to which stock options
and stock appreciation rights may be granted during any year to an individual
will not exceed 1.5 million shares, and the number of shares with respect
to
which restricted stock, restricted stock units, performance awards and other
stock-based awards that may be granted in any year to an individual will
not
exceed 750,000 shares, subject to adjustment as described below.
Adjustments.
In the
event of certain corporate transactions or events affecting the number or
type
of outstanding common shares of the Company, including, for example, a dividend
or other distribution (whether in cash or stock), recapitalization, stock
split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares or issuance of warrants, the
Committee will make adjustments as it deems appropriate. These adjustments
include changing the number and type of shares to be issued under the 2007
Plan
and outstanding awards; changing the per-participant limitations on awards
and
the grant, purchase or exercise price of outstanding awards; and changing
the
limit on the total amount of restricted stock, restricted stock units,
performance awards or other stock-based awards that may be granted. The
Committee may also make adjustments in the terms of awards in connection
with
certain acquisitions, and make adjustments in performance award criteria
or in
the terms and conditions of other awards in recognition of unusual or
nonrecurring events affecting the Company or its financial statements or
of
changes in applicable laws, regulations, or accounting principles.
Termination.
Unless
otherwise provided in the award agreement, in the event that a participant’s
employment or service is terminated for cause, such participant’s unvested or
unexercised awards shall immediately be forfeited or terminate, as applicable.
On the death or disability of a participant, such participant’s restricted stock
awards shall become nonforfeitable, and exercisable unexercised options or
stock
appreciation rights may, during the term of such award, be exercised within
the
first twelve (12) months after such participant’s death, and within ninety (90)
days after termination on account of disability. On termination for any other
reason, the participant’s forfeitable restricted stock awards shall be
forfeited, and the participant’s exercisable unexercised options or stock
appreciation rights may be exercised during the term of such award not later
than three (3) months after such termination. On termination for cause, or
in
the event a participant breaches post-termination covenants, the Company
may
repurchase at the lesser of the purchase price or fair market value all or
a
portion of shares acquired upon exercise of an award or require a participant
to
repay the amount of profits derived by participant upon the disposition of
shares underlying an award during the previous three years.
Plan
Term.
The 2007
Plan will become effective upon approval by the Company’s stockholders at the
Annual Meeting and will terminate on the tenth anniversary of the date of
such
Annual Meeting unless earlier terminated in accordance with the provisions
of
the 2007 Plan.
Amendments.
The
Committee will seek stockholder approval of material amendments to the 2007
Plan
as required by law, regulation or stock exchange. The Committee may waive
conditions or amend the term of awards, or otherwise amend or suspend awards
already granted subject to certain conditions.
15
Corporation
Transaction/Change in Control.
Except
as otherwise provided in a participant’s employment, consulting or other
applicable agreement, in the event of a Corporate Transaction or Change in
Control, outstanding options and stock appreciation rights shall automatically
be accelerated and become immediately exercisable, unless such awards are
assumed by the successor corporation, replaced with an equivalent cash incentive
program or the acceleration of such awards is subject to other limitations
under
the applicable award agreement. Outstanding repurchase rights on restricted
stock awards shall terminate automatically, and shares subject to such
terminated rights shall immediately vest in full, except to the extent such
repurchase rights are assigned to the successor corporation or such awards
are
subject to other limitations under the applicable award agreement. Appropriate
adjustments to options and stock appreciation rights assumed in a Corporate
Transaction shall be made immediately to the exercise price payable, the
number
of securities available for issuance, and the maximum number of securities
a
person may be granted in a year. The Committee has the discretion to provide
for
acceleration of awards whether or not the awards are to be assumed or replaced
in a Corporate Transaction or a Change in Control, or in the event of an
involuntary termination within a period not exceeding eighteen (18) months
following a Corporate Transaction or Change in Control.
Federal
Income Tax Consequences.
The
grant of an option or stock appreciation right will create no tax consequences
for the participant or the Company at the time of the grant. A participant
will
have no taxable income upon exercise of an incentive stock option except
that
the alternative minimum tax may apply. Upon exercise of an option other than
an
incentive stock option, or a stock appreciation right, a participant generally
must recognize ordinary income equal to the fair market value of the shares
acquired minus the exercise price. Upon a disposition of shares acquired
by
exercise of an incentive stock option on or before the earlier of the second
anniversary of the grant of such incentive stock option or the first anniversary
of the exercise of such option, the participant generally must recognize
ordinary income equal to the lesser of (1) the fair market value of the shares
at the date of exercise minus the exercise price or (2) the amount realized
upon
the disposition of the incentive stock option shares minus the exercise price.
Otherwise, a participant’s disposition of shares acquired upon the exercise of
an option (including an incentive stock option for which the incentive stock
option holding periods are met) generally will result in only capital gain
or
loss. Other awards under the 2007 Plan, including restricted stock and
restricted stock units will generally result in ordinary income to the
participant at the later of the time of delivery of cash, shares, or other
awards, or the time that either the risk of forfeiture or restriction on
transferability lapses on previously delivered shares or other awards. Except
as
discussed below, the Company generally will be entitled to a tax deduction
equal
to the amount recognized as ordinary income by the participant in connection
with an option, stock appreciation rights, or other award, but will be entitled
to no tax deduction relating to amounts that represent a capital gain to
a
participant. Thus, the Company will not be entitled to any tax deduction
with
respect to an incentive stock option if the participant holds the shares
for the
incentive stock option holding periods.
Section
162(m).
Section
162(m) of the Internal Revenue Code of 1986, as amended, limits the amount
of
compensation the Company may deduct with respect to its Chief Executive Officer
and each of the other Named Executive Officers to $1 million per year. However,
this limitation does not apply to certain performance-based compensation.
The
Company intends that options and stock appreciation rights, and, subject
to
shareowner approval of the performance goals described in this proxy statement,
restricted stock and restricted stock units granted under the 2007 Plan that
are
subject to such performance goals will continue to qualify as performance-based
compensation not subject to Section 162(m)’s $1 million deductibility cap. A
number of requirements must be met in order for particular compensation to
so
qualify, however, so there can be no assurance that such compensation under
the
2007 Plan will be fully deductible under all circumstances. In addition,
other
awards under the 2007 Plan, such as restricted stock and other stock-based
awards that are not subject to the specified performance goals, generally
may
not qualify, so that compensation paid to executive officers in connection
with
such awards may not be deductible.
This
general tax discussion is intended for the information of stockholders
considering how to vote with respect to this proposal and not as tax guidance
to
participants in the 2007 Plan. Different tax rules may apply to specific
participants and transactions under the 2007 Plan, particularly in jurisdictions
outside the United States.
The
Company’s Board of Directors therefore recommends a vote FOR the proposal to
approve the Discovery Labs 2007 Long-Term Incentive Plan.
16
EXECUTIVE
OFFICERS
Executive
Officers
The
following table sets forth the names and positions of the executive officers
of
the Company:
|
Name
|
Age
|
Position
with the Company
|
||
|
Robert
J. Capetola, Ph.D.
|
57
|
President,
Chief Executive Officer and Director
|
||
|
Kathryn
A. Cole
|
41
|
Senior
Vice President, Human Resources
|
||
|
John
G. Cooper
|
48
|
Executive
Vice President, Chief Financial Officer and Treasurer
|
||
|
Charles
F. Katzer
|
57
|
Senior
Vice President, Manufacturing Operations
|
||
|
David
L. Lopez, Esq., CPA
|
49
|
Executive
Vice President, General Counsel, Chief Compliance Officer and
Secretary
|
||
|
Kathleen
A. McGowan
|
46
|
Director
of Finance & Controller
|
||
|
Thomas
F. Miller, Ph.D., MBA
|
37
|
Senior
Vice President, Commercialization and Corporate
Development
|
||
|
Robert
Segal, M.D., F.A.C.P.
|
50
|
Senior
Vice President, Medical/Scientific Affairs & Chief Medical
Officer
|
||
|
Mary
B. Templeton, Esq.
|
60
|
Senior
Vice President, Deputy General
Counsel
|
Robert
J. Capetola, Ph.D.
- Please
refer to the Directors section of Proposal I for a biographical discussion
of
Dr. Capetola.
Kathryn
A. Cole has
been
with the Company since January 2006 and currently serves as Senior
Vice President, Human Resources. From 2001 through 2006, Ms. Cole served
as Vice
President, Human Resources for Savient Pharmaceuticals Inc., a publicly-traded
specialty pharmaceutical company, where she was responsible for creating
and
implementing the human resources strategy for the corporate office, commercial
operations, and its former subsidiary, Rosemont Pharmaceuticals, LTD. of
Leeds,
United Kingdom. Ms. Cole has also held various human resource management
positions with companies such as Cytogen Corporation, EpiGenesis
Pharmaceuticals, and the Prudential Insurance Company of America. Ms. Cole
received her undergraduate degree in Communication from Douglass College
and her
Master of Science degree in Industrial Relations and Human Resources from
the
Rutgers University School of Management and Labor Relations.
John
G. Cooper
has been
with the Company since December 2001 and currently serves as Executive Vice
President, Chief Financial Officer and Treasurer. Mr. Cooper has over 25
years
of extensive experience in managing emerging growth companies, including
public
and private equity financings, investor relations, strategic alliances, mergers
and acquisitions, strategic and financial planning, and development of financial
management and accounting systems. Prior to joining the Company, he served
as
Chief Financial Officer at Traffic.com, Inc., Chief Financial Officer at
Taratec
Development Corporation, a venture capital backed provider of information
technology solutions to the life sciences industry, Senior Vice President
and
Chief Financial Officer of Chrysalis International Corporation (a public
company
acquired by MDS Pharmaceuticals, Inc.), Senior Vice President and Chief
Financial Officer of DNX Corporation, a public biotechnology company, where
Mr.
Cooper managed its initial public offering in 1991, and Director, Finance
and
Controller of ENI Diagnostics (a public life sciences company acquired by
Pharmacia). Mr. Cooper is a Certified Public Accountant and received his
B.S. in
Commerce from Rider University.
Charles
F. Katzer
has been
with the Company since January 2006 and serves as Senior Vice President,
Manufacturing Operations. From 2000 through 2005, Mr. Katzer served as Vice
President, Vaccine Manufacturing at MedImmune Vaccines, Inc. Previously,
and
during his over-30 years experience in the pharmaceutical industry, he has
held
positions of increasing responsibility in Manufacturing, Quality Assurance,
Supply Chain, Engineering and Research with MedImmune, U.S. Bioscience, Rhone
Poulenc Rorer, Baxter Travenol, McGaw Laboratories and Biological Specialties.
Mr. Katzer holds a B.S. degree in Zoology from the University of
Wisconsin.
17
David
L. Lopez, Esq., CPA has
been
with the Company since April 2000 and serves as Executive Vice President,
General Counsel, Chief Compliance Officer and Secretary. Previously, Mr. Lopez
served as Senior Corporate Attorney at the Manhattan law firm of Roberts,
Sheridan & Kotel, P.C. and, in 1996, as a Legal Research Specialist with the
Securities and Exchange Commission. Prior to that time, he held increasingly
senior corporate finance, tax and accounting related positions with Drexel
Burnham Lambert, Price Waterhouse and Deloitte, Haskins & Sells. Mr. Lopez
holds a B.S. in Economics and Accounting from Fairleigh Dickinson University
and
a J.D. from St. John’s University School of Law.
Kathleen
A. McGowan
has been
with the Company since June 2004 and serves as Director of Finance and
Controller. Prior to joining the Company, from 2000, Ms. McGowan served as
Director of Financial Analysis at Claneil Enterprises, Inc., a private equity
investment firm. Previously, Ms. McGowan served as Financial Controller at
The
Liposome Company, Inc., a publicly-held biotech company acquired by Elan
Corporation, plc., and as Controller at Nelson Communications, which was
acquired by Publicis Healthcare Group, a leading U.S. healthcare communications
company. From 1983 to 1995, Ms. McGowan also held financial management positions
with Johnson & Johnson, primarily at Ortho-McNeil Pharmaceutical and Johnson
& Johnson Corporate. Ms. McGowan received her B.S. in Finance and Accounting
from Drexel University and an M.B.A. in Finance from Fairleigh Dickinson
University.
Thomas
F. Miller, Ph.D., MBA initially
joined the Company in August 2004 as Vice President, Worldwide Marketing.
Following termination of his employment in connection with the 2006 corporate
restructuring, he rejoined the Company and currently serves as Senior Vice
President, Commercialization and Corporate Development. Prior to joining the
Company, from 2003 to 2004, Dr. Miller served as the Director of Global
Biologics Strategic Marketing at Centocor, a Johnson & Johnson biotechnology
company, where he was responsible for the development of global business
strategy for emerging, niche-market products. Previously, Dr. Miller held
commercial and scientifically-related positions of increasing responsibility
at
Pharmacia, BASF Pharma, and Pfizer. Dr. Miller holds a B.S. Degree in Biology
from Fairfield University, an MBA degree from Fairleigh Dickinson University
and
a Ph.D. in Cardio-respiratory physiology from Temple University School of
Medicine.
Robert
Segal, M.D., F.A.C.P. has
been
with the Company since 2000 and serves as Senior Vice President, Medical and
Scientific Affairs and Chief Medical Officer, having previously served as Vice
President, Clinical Research. Dr. Segal has over 25 years of medical and
pharmaceutical experience in the field. Prior to joining the Company, from
1992,
Dr. Segal held the positions of Associate Director and Director, Cardiovascular
Clinical Research at Merck Research Laboratories at Merck & Co, Inc. Dr.
Segal received his medical degree from the University of Pretoria Medical
School, South Africa. Dr. Segal is a diplomat of the American Board of Internal
Medicine with sub-specialty certification in nephrology and is a Fellow of
the
American College of Physicians. He completed his internship and residency in
medicine at Sinai Hospital, Baltimore, and clinical postdoctoral fellowships
in
general medicine at The Johns Hopkins Hospital and nephrology at UCLA, as well
as a research fellowship in molecular biology at UCLA. Prior to joining Merck,
he was an Assistant Professor of Medicine in the Division of Nephrology at
UCLA
School of Medicine and served as an intern advisor to the Biotechnology Program
at Northwestern University.
Mary
B. Templeton, Esq.
has
been with the Company since March 2006 and serves as Senior Vice President
and
Deputy General Counsel. Prior to joining the Company, Ms. Templeton spent eight
years in private practice in New York City, including, from 2001, as a partner
of Taylor, Colicchio & Silverman, LLP. Previously, Ms. Templeton held senior
legal positions in the financial services industry, serving as Senior Vice
President and General Counsel to both The Charles Schwab Corporation, from
1992
to 1998 and The Sequor Group Inc., from 1984 to 1992. Prior to that time, she
served as Director of Investment Company Products at Charles Schwab & Co.,
Inc., and Trust Officer of Bradford Trust Company. Ms. Templeton holds a B.A.
from Chatham College, where she is a member of the Board of Trustees, and a
J.D.
with High Honors from Rutgers University School of Law - Camden. She is a member
of the Bar Associations of Pennsylvania and New York.
Family
Relationships
There
are
no family relationships among directors or executive officers of the
Company.
18
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
The
Company is committed to providing its employees with meaningful work and
advancement opportunities, and its stockholders with a superior rate of return.
Under the oversight of the Compensation Committee of the Board of Directors,
the
Company has developed and implemented compensation policies, plans and programs,
including those applied to its Chief Executive Officer, which provide a total
compensation package that is intended to be competitive within the industry
to
enable the Company to attract and retain high-caliber, qualified executives.
The
Company’s compensation practices are designed to motivate executives over the
long term, to align the interests of management and stockholders and to ensure
that executives are appropriately rewarded for their accomplishments and
the
benefits achieved for the Company’s stockholders.
The
primary components of executive management compensation are (i) competitive
base
salary, (ii) annual incentive bonus, and (iii) long term incentive equity
awards. Incentive compensation in each year may consist of cash incentive
bonuses, equity awards, or a combination of cash bonus and equity awards,
in
each case, based upon the achievement of corporate goals and the individual’s
success in meeting individual performance objectives. The Company often relies
on long-term incentive equity compensation (i.e., stock options) to motivate
its
officers and other employees. This practice allows the Company to retain
cash
for research and development activities and other corporate projects. In
making
long-term incentive equity awards, the Compensation Committee considers a
number
of factors to determine the size of grants to individual executives, including
the scope of an executive's job responsibilities, past performance, salary
level, the achievement of designated milestones, the size of any prior grants,
and the size and frequency of grants by comparable biopharmaceutical and
life
sciences companies.
Compensation
Program Objectives and Rewards
The
Company’s compensation philosophy is based on the following objectives and
intended rewards:
|
·
|
Attract,
engage and retain the workforce to ensure the Company’s long-term
success;
|
|
·
|
Align
employees’ interests with the Company’s short and long term strategic
goals and objectives;
|
|
·
|
Promote
the interests of the Company’s stockholders with a goal of increasing
shareholder value;
|
|
·
|
Acknowledge
and respond to changes in compensation for similar executive positions
at
comparable companies in the Company’s competitive marketplace.
Market-based data is gathered annually through participation in
salary
surveys such as the Radford Life Sciences Survey, and is reported
based
upon such criteria as company size, geographic location and title
and job
responsibilities; and
|
|
·
|
Link
compensation directly to the performance of the Company and acknowledge
and differentiate among individual contributors to the achievement
of
corporate results.
|
Executive
Compensation Structure
As
noted
above, the components of total compensation for all executives include base
salary, annual incentive bonus and long-term incentive equity awards, each
of
which is reviewed annually. The President and Chief Executive Officer has
formed
an internal management compensation committee (“Management Compensation
Committee”) consisting of himself, the Executive Vice President and Chief
Financial Officer, the Executive Vice President and General Counsel, and
the
Senior Vice President, Human Resources. The Management Compensation Committee
reviews each executive’s total compensation and performance annually, against
achievement of corporate and personal objectives and against available market
data, and makes recommendations to the Compensation Committee. The Compensation
Committee separately evaluates and determines the total compensation of the
President and Chief Executive Officer annually.
Corporate
objectives are defined and approved by the Board of Directors following internal
discussions and planning exercises held by the Company’s senior management and
are directed generally to timely achieving the goals identified from time
to
time in the Company’s public filings, advancing the Company’s proprietary
Surfactant Replacement Therapies (SRT) pipeline and managing the financial
and
fiscal health of the Company within the approved financial plan and in
accordance with any guidance that the Company may give the financial markets.
An
executive’s personal goals are defined based on the contribution such
executive’s role and expertise can bring to bear on achieving the Company’s
corporate objectives. In evaluating the individual performance of an executive,
the Management Compensation Committee and the Compensation Committee of the
Board do not adhere to a strict formulaic process to determine the components
of
compensation, or the relative mix of such components, and may, in their
discretion, consider and give weight to such additional factors as the overall
contribution of an executive, teamwork and leadership qualities.
19
Base
Salary
Base
salary and base salary adjustments are determined with reference to each
executive’s title and position, performance and individual achievements, level
of experience and comparative compensation information relative to market.
In
reviewing comparative compensation information, the Management Compensation
Committee considers compensation ranges for equivalent positions in the
Company’s marketplace, salary trends in the Company’s industry and cost of
living indexes. For this purpose, the Management Compensation Committee
will
refer to national, industry and local salary survey information. Following
its
deliberations, the Management Compensation Committee recommends base salary
adjustments to the Compensation Committee of the Board for its approval,
and at
the request of the Compensation Committee may provide additional information
prepared by an independent compensation consultant. Base salary adjustments
are
prorated for all executive new hires, based upon the executive’s start date with
the Company, and for those executives who may not have been an active employee
for the full year. Executives hired in the fourth quarter are generally
not
eligible for salary increases during the first year, as it is too early
in their
tenure to determine the executive’s performance and contribution to the
Company’s objectives. All compensation matters, once approved by the
Compensation Committee, are typically ratified by the Company’s Board of
Directors and become effective the first day of the following calendar
year.
Annual
Incentive Bonus
The
primary purpose of the annual incentive bonus is to reward executives for
the
achievement of personal and corporate objectives and “stretch” goals. Each
executive is eligible for an annual incentive bonus up to a maximum amount,
expressed as a percent of annual base salary, which varies depending on
title.
The maximum annual incentive bonus amount for the President and Chief Executive
Officer is 100% of the executive’s annual base salary; for Executive Vice
Presidents, 70% of the executive’s annual base salary; for Senior Vice
Presidents, 30% of the executive’s annual base salary; and, for Vice Presidents,
25% of the executive’s annual base salary. The Compensation Committee may, in
its discretion, approve a deviation from these percentages when it deems
appropriate.
In
assessing an executive’s performance, corporate objectives are weighted more
heavily than personal objectives to align individual performance with the
overall success of the Company and to generate increased shareholder value.
Annual incentive bonus awards may be paid out as cash, equity incentive
awards
or a combination of cash and equity incentive awards. The Management
Compensation Committee recommends individual annual incentive bonus awards
to
the Compensation Committee of the Board, which typically conducts its own
deliberations as to each executive’s contributions, overall level of
compensation relative to market, and position within the Company. Annual
incentive bonus awards are prorated in the first year for all executive
new
hires, based upon the executive’s start date with the Company, and for those
executives who may not have been an active employee for the full year.
Executives hired in the fourth quarter are not eligible for an annual incentive
bonus award during the first year, as it is too early in their tenure to
determine the executive’s performance and contribution to the Company’s
objectives.
In
addition, the Management Compensation Committee recommends to the Compensation
Committee the funding of an annual incentive bonus pool for all other employees
based upon an maximum annual incentive bonus payout ranging from zero (0%)
to
twenty (20%) percent of the covered employees’ aggregate annual base salary.
Once the Compensation Committee has approved funding the pool, the Management
Compensation Committee distributes individual employee awards in line with
individual performance relative to position, and may, in its discretion,
grant a
combination of cash, stock options, or both.
Incentive
bonus awards for executives and employees are paid during the first quarter
of
the following calendar year, allowing the Company sufficient time to reconcile
financial statements for that particular year and determine the level at
which
business, functional and personal performance objectives were
attained.
20
All
executive compensation payments and awards, once approved by the Compensation
Committee, are typically ratified by the Company’s Board of
Directors.
Long-Term
Incentive Equity Awards
The
purpose of equity based plans that provide for the issuance of awards such
as
stock options and restricted stock is generally to attract, recruit and
reward
executives and key employees for their contributions, with a focus on the
long-term success of the Company and increased shareholder value. The Company
grants long-term incentive equity awards pursuant to the 1998 Plan as approved
by the Compensation Committee of the Board, which also serves as the 1998
Plan
Administrator. Long-term incentive equity awards granted to executives
under the
1998 Plan generally have a ten-year term and vest over varying periods
as
determined by the Compensation Committee at the time of the grant.
Long-term
incentive equity awards for newly-hired employees are typically stock option
awards having an exercise price equal to the market value at the close
of market
on the date of grant. Awards for executives and key employees, other than
new-hire awards, typically vest twenty-five percent (25%) on the date of
the
grant with the remaining options vesting ratably over a three-year period,
becoming fully exercisable on the third anniversary of the date of grant.
Awards
to new hires typically vest annually in three equal installments, starting
on
the first anniversary of the grant date. The Management Compensation Committee
recommends individual long-term incentive equity awards for executives
to the
Compensation Committee of the Board, which typically conducts its own
deliberations as to each executive’s contributions, overall level of
compensation relative to market, and position within the Company. The Management
Compensation Committee also requests the Compensation Committee to approve
the
formation of a pool of long-term incentive equity awards, which, if approved,
are thereafter distributed by the Management Compensation Committee to
non-executive key employees of the Company pursuant to authority delegated
by
the Compensation Committee.
All
long-term incentive equity matters, once approved by the Compensation Committee,
are typically ratified by the Company’s Board of Directors.
Incentive
Equity Granting Practices
The
Compensation Committee reviews and approves the grant of long-term incentive
equity awards to executives at various times throughout the year. The
Compensation Committee of the Board also delegates to the Management
Compensation Committee its authority under the applicable plan to make
grants of
incentive equity awards to, among other things, newly-hired employees and
awards
to non-officer employees. Such awards are valued at the closing market
price on
the date of grant by the Management Compensation Committee. This delegation
facilitates the pricing of new employees’ equity awards at the closing market
price on the first day of their employment, the date of grant.
The
Company does not have a program or policy in place to coordinate the grant
of
equity awards in relation to the release of material, non-public
information.
Deferred
Compensation
Executives
of the Company, as well as all other employees, are eligible to defer a
portion
of their annual base salary, up to the IRS contribution limits, on a pre-tax
basis, to the Company’s qualified 401(k) Plan. At the end of each quarter, the
Company currently funds a company match in the amount of fifty (50%) percent
of
each employee’s contributions made during the quarter, paid in Company common
stock.
Severance
and Change in Control Benefits
The
Company has entered into employment agreements with all of its executive
officers, which agreements contain severance and change in control provisions.
Executive employment agreements generally provide severance in the event
of a
termination of employment, as a reduction in the work force, position
elimination, office closing, job relocation beyond a certain distance,
performance, mutually agreed resignation, or terminations within certain
periods
of time following a change in control of the Company. The Company believes
these
benefits are necessary and appropriate to remain competitive in the marketplace
to attract executive talent, retain top executive talent, and ensure that
executives act in the best interest of the stockholders.
21
Chief
Executive Officer Compensation
Dr.
Capetola’s initial base salary, annual incentive bonus award and certain
long-term incentive equity awards are determined pursuant to the terms
of the
Employment Agreement between the Company and Dr. Capetola dated as of May
3,
2006. Additional annual cash or annual incentive equity bonuses, if any,
are
determined solely at the discretion of the Compensation Committee. The
Compensation Committee has determined that Dr. Capetola’s compensation package
is consistent with the overall compensation philosophy of the Company for
other
executive officers and the Compensation Committee believes that Dr. Capetola’s
compensation arrangements are commensurate with his expertise and experience
and
necessary to retain his services for the Company in light of the Company's
current condition and prospects. The Compensation Committee has further
determined that Dr. Capetola’s compensation package is comparable to
compensation packages offered by comparable biopharmaceutical
companies.
Deductibility
of Compensation
The
Internal Revenue Code of 1986, as amended, Section 162(m), provides that
compensation in excess of $1 million paid to an executive officer is not
deductible by the Company unless it is performance based. Base salary does
not
qualify as performance-based compensation under Section 162(m). It is the
Company’s general policy to structure compensation programs that allow us to
fully deduct compensation to executives. The Compensation Committee may
make
payments that are not fully deductible to ensure competitive levels of
total
compensation for executives or, in its judgment, may make payments that
are
otherwise necessary or appropriate to achieve the Company’s compensation
objectives.
REPORT
OF THE COMPENSATION COMMITTEE(2)
In
fulfilling its oversight responsibilities, the Compensation Committee reviewed
and discussed the Compensation Discussion and Analysis section of the Proxy
Statement with the Company’s management. Based on such review and discussions,
the Compensation Committee recommended to the Board of Directors, and the
Board
approved, that the Compensation Discussion and Analysis be included in
the
Company’s Annual Report on Form 10-K for the year ended December 31, 2006, and
in this Proxy Statement for filing with the SEC.
Submitted
by the Compensation Committee
Marvin
E.
Rosenthale, Ph.D., Chairman
W.
Thomas
Amick
Max
E.
Link, Ph.D.
(2)
The
material in this report of the Compensation Committee is considered “soliciting
material,” is deemed “furnished” to the SEC and is to be incorporated by
reference in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006 for filing with the SEC.
22
SUMMARY
COMPENSATION TABLE
The
following table summarizes the compensation of the Company’s Chief Executive
Officer, Executive Vice President and Chief Financial Officer, Executive
Vice
President and General Counsel and the two other most highly-compensated
executive officers ranked by their total compensation for the fiscal year
ended
December 31, 2006 in the table below, collectively referred to as the “Named
Executive Officers”. In addition, compensation information of two additional
officers for whom disclosure would have been required but for the fact
that
their employment ended in 2006 is included.
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
(1)
|
Stock
Awards
(2)
|
Option
Awards
(3)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
All
Other
(4)
|
Total
|
|||||||||||||||||||
|
Robert
J. Capetola, Ph.D.
|
2006
|
$
|
470,000
|
$
|
150,000
|
$
|
52,358
|
$
|
1,040,563
|
$
|
-
|
$
|
-
|
$
|
27,590
|
$
|
1,740,511
|
|||||||||||
|
Chief
Executive Officer and President
|
||||||||||||||||||||||||||||
|
John
G. Cooper
|
2006
|
292,000
|
120,000
|
31,415
|
526,439
|
-
|
-
|
7,500
|
977,354
|
|||||||||||||||||||
|
Executive
Vice President, Chief Financial Officer and Treasurer
|
||||||||||||||||||||||||||||
|
David
L. Lopez, Esq., CPA
|
2006
|
290,000
|
120,000
|
31,415
|
498,107
|
-
|
-
|
7,500
|
947,022
|
|||||||||||||||||||
|
Executive
Vice President, General Counsel, Chief Compliance Officer and
Secretary
|
||||||||||||||||||||||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
2006
|
265,000
|
60,000
|
13,962
|
226,453
|
-
|
-
|
7,500
|
572,916
|
|||||||||||||||||||
|
Senior
Vice President Medical and Scientific Affairs and Chief Medical
Officer
|
||||||||||||||||||||||||||||
|
Thomas
F. Miller, Ph.D., MBA
|
2006
|
190,885
|
45,000
|
10,472
|
177,702
|
-
|
-
|
118,148
|
542,206
|
|||||||||||||||||||
|
Senior
Vice President Commercialization and Corporate Development
|
||||||||||||||||||||||||||||
|
Former
Officers of the Company
|
||||||||||||||||||||||||||||
|
Christopher
J. Schaber, Ph.D. (5)
|
2006
|
109,680
|
-
|
31,415
|
301,469
|
-
|
-
|
512,461
|
955,024
|
|||||||||||||||||||
|
Mark
G. Osterman (6)
|
2006
|
88,333
|
-
|
20,943
|
153,579
|
-
|
-
|
357,984
|
620,840
|
|||||||||||||||||||
(1)
Bonuses include 2006 related bonus paid in 2007. All bonuses were paid
in
cash.
(2)
Represents the compensation costs of RSAs for financial reporting purposes
for
the year under FAS 123R, rather than an amount paid to or realized by
the Named
Executive Officer. The FAS 123R value as of the grant date for the RSAs
is
spread over the number of months of service required for the grant to
vest There
can be no assurance that the FAS 123R amounts will ever be realized.
Upon
termination of employment, Dr. Schaber forfeited 9,000 shares under an
RSA and
Mr. Osterman forfeited 6,000 shares under an RSA.
(3)
Represents the compensation costs of stock options for financial reporting
purposes for the year under FAS 123R, rather than an amount paid to or
realized
by the Named Executive Officer. See
Note 8: “Stock Options and Stock-Based Employee Compensation” to the Company’s
consolidated financial statements
set
forth in the Company’s Form 10-K for the year ended December 31, 2006 (the
“10-K”) for the assumptions made in determining FAS 123R values. The FAS 123R
value as of the grant date for the options is spread over the number
of months
of service required for the grant to vest. In addition, ratable amounts
expensed
for grants that were granted in prior years are included - that is, amounts
in
respect of grants made in 2002, 2003, 2004 and 2005. There can be no
assurance
that the FAS 123R amounts will ever be realized. Upon termination of
employment,
Dr. Schaber held stock options to purchase 544,500 shares and Mr. Osterman
held
stock options to purchase 350,000 shares, which stock options were either
unvested and cancelled on the date of termination or, because the exercise
price
exceeded the then current market value, were forfeited as
worthless.
(4)
See
All Other Compensation chart below for amounts, which include perquisites
and
Company match on employee contributions to the Company’s 401(k)
plan.
(5)
Dr.
Schaber’s employment with the Company terminated on May 12, 2006.
(6)
Mr.
Osterman’s employment with the Company terminated on April 28,
2006.
23
ALL
OTHER COMPENSATION
The
following table describes each component of the All Other Compensation column
in
the Summary Compensation Table.
|
Named
Executive Officer
|
Severance
(1)
|
Perquisites
(2)
|
Premium
Paid for
Executive
Life Insurance (3)
|
401(k)
Match (4)
|
Total
|
|||||||||||
|
Robert
J. Capetola, Ph.D.
|
$
|
-
|
$
|
16,774
|
$
|
10,090
|
$
|
7,500
|
$
|
34,364
|
||||||
|
John
G. Cooper
|
-
|
-
|
-
|
7,500
|
7,500
|
|||||||||||
|
David
L. Lopez, Esq., CPA
|
-
|
-
|
-
|
7,500
|
7,500
|
|||||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
-
|
-
|
-
|
7,500
|
7,500
|
|||||||||||
|
Thomas
F. Miller, Ph.D., MBA
|
111,567
|
-
|
-
|
6,581
|
118,148
|
|||||||||||
|
Former
Officers of the Company
|
||||||||||||||||
|
Christopher
J. Schaber, Ph.D.
|
510,586
|
-
|
-
|
1,875
|
512,461
|
|||||||||||
|
Mark
G. Osterman
|
356,109
|
-
|
-
|
1,875
|
357,984
|
|||||||||||
|
(1)
This amount represents severance paid upon termination of employment
in
connection with the 2006 Corporate Restructuring described in Note
11: “2006 Restructuring Charge” to the Company’s consolidated financial
statements
set forth in the Company’s Form 10-K for the year ended December 31, 2006.
Following his termination in connection with the 2006 Corporate
Restructuring, Dr. Miller rejoined the Company on June 12, 2006
and
currently serves as Senior Vice President, Commercial and Corporate
Development.
|
||||||||||||||||
|
(2)
This column reports amounts paid to subsidize use of a personal
car
($10,000) and the cost to the Company of a personal disability
insurance
policy ($6,774).
|
||||||||||||||||
|
(3)
This column reports amounts paid to cover premiums for executive
life
insurance policies for the Named Executive Officers for a total
of $2.0
million in coverage in the aggregate.
|
||||||||||||||||
|
(4)
This column reports Company matching contributions equal to 50%
of the
executive’s contribution to the Named Executive Officer’s 401(k) savings
account.
|
24
GRANTS
OF PLAN-BASED AWARDS
The
following table contains information concerning the stock option and restricted
stock grants (including grants of Contingent Milestone Options) made to the
Named Executive Officers for the fiscal year ended December 31, 2006. There
can
be no assurance that the Grant Date Fair Value of Stock and Option Awards
will
ever be realized. The amount of these awards that were expensed in 2006 is
shown
in the Summary Compensation Table included on page 23. No stock appreciation
rights were granted to these individuals during such year.
|
All
Other
|
||||||||||||||||||||||||||||||||||
|
|
|
All
Other
|
Option
|
Grant Date | ||||||||||||||||||||||||||||||
|
Stock
|
Awards;
|
Fair
|
||||||||||||||||||||||||||||||||
|
Awards;
|
Number
of
|
Exercise
|
Value
of
|
|||||||||||||||||||||||||||||||
|
Estimated
Future Payouts Under Non-Equity
|
Estimated
Future Payouts Under Equity
|
Number
of
|
Securities
|
Price
|
Stock
and
|
|||||||||||||||||||||||||||||
|
Incentive
Plan Awards
|
Incentive
Plan Awards
|
Shares
of
|
Under-lying
|
of
Option
|
Option
|
|||||||||||||||||||||||||||||
|
Named
Executive Officer
|
Grant
Date
|
Threshold
|
Target
|
Max
|
Threshold
|
Target
|
Max
|
Stock
|
Options
|
Awards
|
Awards
(3)
|
|||||||||||||||||||||||
|
Robert
J. Capetola, Ph.D.
|
1/3/06
|
15,000
|
(1)
|
$
|
105,150
|
|||||||||||||||||||||||||||||
|
1/3/06
|
190,000
|
$
|
7.01
|
899,878
|
||||||||||||||||||||||||||||||
|
5/17/06
|
300,000
|
$
|
2.25
|
520,980
|
||||||||||||||||||||||||||||||
|
12/15/06
|
300,000
|
$
|
2.46
|
561,540
|
||||||||||||||||||||||||||||||
|
John
G. Cooper
|
1/3/06
|
9,000
|
(1)
|
63,090
|
||||||||||||||||||||||||||||||
|
1/3/06
|
50,000
|
$
|
7.01
|
236,810
|
||||||||||||||||||||||||||||||
|
5/17/06
|
250,000
|
$
|
2.25
|
434,150
|
||||||||||||||||||||||||||||||
|
12/15/06
|
200,000
|
$
|
2.46
|
374,360
|
||||||||||||||||||||||||||||||
|
David
L. Lopez, Esq., CPA
|
1/3/06
|
9,000
|
(1)
|
63,090
|
||||||||||||||||||||||||||||||
|
1/3/06
|
50,000
|
$
|
7.01
|
236,810
|
||||||||||||||||||||||||||||||
|
5/17/06
|
250,000
|
$
|
2.25
|
434,150
|
||||||||||||||||||||||||||||||
|
12/15/06
|
220,000
|
$
|
2.46
|
411,796
|
||||||||||||||||||||||||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
1/3/06
|
4,000
|
(1)
|
28,040
|
||||||||||||||||||||||||||||||
|
1/3/06
|
25,000
|
$
|
7.01
|
118,405
|
||||||||||||||||||||||||||||||
|
5/17/06
|
75,000
|
$
|
2.25
|
130,245
|
||||||||||||||||||||||||||||||
|
12/15/06
|
100,000
|
$
|
2.46
|
187,180
|
||||||||||||||||||||||||||||||
|
Thomas
F. Miller, Ph.D., MBA
|
1/3/06
|
3,000
|
(1)
|
21,030
|
||||||||||||||||||||||||||||||
|
1/3/06
|
35,000
|
$
|
7.01
|
165,767
|
(4)
|
|||||||||||||||||||||||||||||
|
6/12/06
|
70,000
|
$
|
1.40
|
75,642
|
||||||||||||||||||||||||||||||
|
7/6/06
|
15,000
|
$
|
1.99
|
22,280
|
||||||||||||||||||||||||||||||
|
12/15/06
|
100,000
|
$
|
2.46
|
187,180
|
||||||||||||||||||||||||||||||
|
Former
Officers of the Company
|
||||||||||||||||||||||||||||||||||
|
Christopher
J. Schaber, Ph.D.
|
1/3/06
|
9,000
|
(1)(2)
|
63,090
|
||||||||||||||||||||||||||||||
|
1/3/06
|
55,000
|
$
|
7.01
|
260,491
|
||||||||||||||||||||||||||||||
|
5/12/06
|
100,000
|
$
|
2.75
|
114,680
|
||||||||||||||||||||||||||||||
|
Mark
G. Osterman
|
1/3/06
|
6,000
|
(1)(2)
|
42,060
|
||||||||||||||||||||||||||||||
|
1/3/06
|
50,000
|
$
|
7.01
|
236,810
|
||||||||||||||||||||||||||||||
|
(1)
The issued restricted stock awards (RSAs) are phantom shares of
the
Company’s stock that vest and are payable as shares of the Company’s stock
upon achievement of commercialization the Company’s first drug product.
RSAs are forfeited upon termination of employment for any
reason.
|
25
|
(2)
The RSAs noted relate to the termination of the employment of Dr.
Schaber
and Mr. Osterman in connection with the 2006 Corporate Restructuring
described in Note
11:“2006 Restructuring Charge” to the Company’s consolidated financial
statements
set forth in the Company’s Form 10-K for the year ended December 31, 2006.
The RSAs reported were forfeited in full at the time of
termination.
|
||||||||||||
|
(3)
Grant Date Fair Value represents the aggregate FAS 123R values
of awards
and options granted during the year. See
Note 8: “Stock Options and Stock-Based Employee Compensation” to the
Company’s consolidated financial statements
set forth in the Company’s Form 10-K for the year ended December 31, 2006
(the “10-K”) for the assumptions made in determining FAS 123R values.
There can be no assurance that the value on the distribution date
of the
RSAs will equal the FAS 123R amounts and that the stock options
will ever
be exercised. Therefore, there can be no assurance that the FAS
123R
amounts will ever be realized by the executives identified on this
table.
|
||||||||||||
|
(4)
Following termination of his employment in connection with the
2006
Corporate Restructuring, Dr. Miller rejoined the Company on June
12, 2006
and, in connection therewith, the 1998 Plan Administrator agreed
to
disregard the termination provisions of the 1998 Plan that otherwise would
have applied to his stock options on the date of termination. As
a result,
Dr. Miller retained the unvested options granted to him prior to
his
termination. At the time of his re-hire, the fair market value
of these
options was less than the exercise price of the unvested options,
resulting in no additional compensation.
|
||||||||||||
26
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END 2006
The
following table shows the number of shares covered by exercisable and
unexercisable options and unvested restricted stock awards held by the Company’s
Named Executive Officers on December 31, 2006.
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||
|
Named
Executive Officer
|
No.
of Securities Underlying Unexercised Options - (#)
Exercisable
|
No.
of Securities Underlying Unexercised Options - (#)
Unexercisable
|
Equity
Incentive Plan Awards: No. of Securities Underlying Unxercised
Unearned
Options
|
Option
Exercise Price
|
Option
Expiration Date
|
No.
of Shares or Units of Stock That Have Not Vested
|
Market
Value of Shares or Units of Stock That Have Not
Vested
|
Equity
Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights
That
Have Not Vested
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested
|
|||||||||||||||||||
|
Robert
J. Capetola, Ph.D.
|
125,000
|
(1)
|
$
|
5.06
|
9/12/10
|
|||||||||||||||||||||||
|
31,250
|
(1)
|
1.72
|
6/27/12
|
|||||||||||||||||||||||||
|
20,000
|
(1)
|
1.89
|
11/5/12
|
|||||||||||||||||||||||||
|
85,000
|
(3)
|
2.75
|
12/13/12
|
|||||||||||||||||||||||||
|
165,000
|
(3)
|
2.75
|
1/3/13
|
|||||||||||||||||||||||||
|
200,000
|
(2)
|
8.08
|
9/12/13
|
|||||||||||||||||||||||||
|
450,000
|
(4)
|
9.17
|
12/15/13
|
|||||||||||||||||||||||||
|
73,333
|
(5)
|
14,667
|
(5)
|
6.47
|
8/12/14
|
|||||||||||||||||||||||
|
500,000
|
(4)
|
9.02
|
12/17/14
|
|||||||||||||||||||||||||
|
47,500
|
(1)
|
142,500
|
(1)
|
7.01
|
1/3/16
|
|||||||||||||||||||||||
|
75,000
|
(1)
|
225,000
|
(1)
|
2.25
|
5/17/16
|
|||||||||||||||||||||||
|
75,000
|
(1)
|
225,000
|
(1)
|
2.46
|
12/15/16
|
|||||||||||||||||||||||
|
15,000
|
(8)
|
$
|
35,400
|
|||||||||||||||||||||||||
|
John
G. Cooper
|
80,000
|
(1)
|
2.97
|
12/10/11
|
||||||||||||||||||||||||
|
105,000
|
(1)
|
1.72
|
6/27/12
|
|||||||||||||||||||||||||
|
30,000
|
(1)
|
1.89
|
11/5/12
|
|||||||||||||||||||||||||
|
80,000
|
(3)
|
2.75
|
12/13/12
|
|||||||||||||||||||||||||
|
80,000
|
(2)
|
8.08
|
9/12/13
|
|||||||||||||||||||||||||
|
200,000
|
(4)
|
9.17
|
12/15/13
|
|||||||||||||||||||||||||
|
62,499
|
(5)
|
12,501
|
(5)
|
6.47
|
8/12/14
|
|||||||||||||||||||||||
|
75,000
|
(4)
|
9.02
|
12/17/14
|
|||||||||||||||||||||||||
|
12,500
|
(1)
|
37,500
|
(1)
|
7.01
|
1/3/16
|
|||||||||||||||||||||||
|
62,500
|
(1)
|
187,500
|
(1)
|
2.25
|
5/17/16
|
|||||||||||||||||||||||
|
50,000
|
(1)
|
150,000
|
(1)
|
2.46
|
12/15/16
|
|||||||||||||||||||||||
|
9,000
|
(8)
|
21,240
|
||||||||||||||||||||||||||
|
David
L. Lopez, Esq., CPA
|
40,000
|
(5)
|
4.13
|
5/15/10
|
||||||||||||||||||||||||
|
26,000
|
(1)
|
5.06
|
9/16/10
|
|||||||||||||||||||||||||
|
15,000
|
(1)
|
4.09
|
5/10/11
|
|||||||||||||||||||||||||
|
45,000
|
(1)
|
2.10
|
9/21/11
|
|||||||||||||||||||||||||
|
25,000
|
(1)
|
1.72
|
6/27/12
|
|||||||||||||||||||||||||
|
30,000
|
(1)
|
1.89
|
11/5/12
|
|||||||||||||||||||||||||
|
70,000
|
(3)
|
2.75
|
12/13/12
|
|||||||||||||||||||||||||
|
100,000
|
(2)
|
8.08
|
9/12/13
|
|||||||||||||||||||||||||
|
150,000
|
(4)
|
9.17
|
12/15/13
|
|||||||||||||||||||||||||
|
41,666
|
(5)
|
8,334
|
(5)
|
6.47
|
8/12/14
|
|||||||||||||||||||||||
|
70,000
|
(4)
|
9.02
|
12/17/14
|
|||||||||||||||||||||||||
|
12,500
|
(1)
|
37,500
|
(1)
|
7.01
|
1/3/16
|
|||||||||||||||||||||||
|
62,500
|
(1)
|
187,500
|
(1)
|
2.25
|
5/17/16
|
|||||||||||||||||||||||
|
55,000
|
(1)
|
165,000
|
(1)
|
2.46
|
12/15/16
|
|||||||||||||||||||||||
|
9,000
|
(8)
|
21,240
|
||||||||||||||||||||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
75,000
|
(6)
|
4.34
|
8/1/10
|
||||||||||||||||||||||||
|
16,000
|
(1)
|
5.06
|
9/16/10
|
|||||||||||||||||||||||||
|
15,000
|
(1)
|
4.09
|
5/10/11
|
|||||||||||||||||||||||||
|
40,000
|
(1)
|
2.10
|
9/21/11
|
|||||||||||||||||||||||||
|
20,000
|
(1)
|
1.89
|
11/5/12
|
|||||||||||||||||||||||||
|
80,000
|
(3)
|
2.75
|
12/13/12
|
|||||||||||||||||||||||||
|
35,000
|
(2)
|
8.08
|
9/12/13
|
|||||||||||||||||||||||||
|
125,000
|
(4)
|
9.17
|
12/15/13
|
|||||||||||||||||||||||||
|
16,666
|
(5)
|
3,334
|
(5)
|
6.47
|
8/12/14
|
|||||||||||||||||||||||
|
50,000
|
(4)
|
9.02
|
12/17/14
|
|||||||||||||||||||||||||
|
6,250
|
(1)
|
18,750
|
(1)
|
7.01
|
1/3/16
|
|||||||||||||||||||||||
|
18,750
|
(1)
|
56,250
|
(1)
|
2.25
|
5/17/16
|
|||||||||||||||||||||||
|
25,000
|
(1)
|
75,000
|
(1)
|
2.46
|
12/15/16
|
|||||||||||||||||||||||
|
4,000
|
(8)
|
9,440
|
||||||||||||||||||||||||||
|
Thomas
F. Miller, Ph.D., MBA
|
23,334
|
(6)
|
11,666
|
(6)
|
7.90
|
8/31/14
|
||||||||||||||||||||||
|
25,000
|
(4)
|
9.02
|
12/17/14
|
|||||||||||||||||||||||||
|
15,000
|
(1)
|
15,000
|
(1)
|
6.69
|
6/10/15
|
|||||||||||||||||||||||
|
8,750
|
(1)
|
26,250
|
(1)
|
7.01
|
1/3/16
|
|||||||||||||||||||||||
|
17,500
|
(1)
|
52,500
|
(1)
|
1.40
|
6/12/16
|
|||||||||||||||||||||||
|
3,750
|
(1)
|
11,250
|
(1)
|
1.99
|
7/6/16
|
|||||||||||||||||||||||
|
25,000
|
(1)
|
75,000
|
(1)
|
2.46
|
12/15/16
|
|||||||||||||||||||||||
|
3,000
|
(8)
|
7,080
|
||||||||||||||||||||||||||
|
Former
Officers of the Company
|
||||||||||||||||||||||||||||
|
Christopher
J. Schaber, Ph.D. (7)
|
14,813
|
4.06
|
3/5/08
|
|||||||||||||||||||||||||
|
78,531
|
4.44
|
6/16/08
|
||||||||||||||||||||||||||
|
40,000
|
3.00
|
1/1/09
|
||||||||||||||||||||||||||
|
17,500
|
2.10
|
9/21/11
|
||||||||||||||||||||||||||
|
12,500
|
1.72
|
6/27/12
|
||||||||||||||||||||||||||
|
17,500
|
1.89
|
11/5/12
|
||||||||||||||||||||||||||
|
100,000
|
2.75
|
12/13/12
|
||||||||||||||||||||||||||
|
Mark
G. Osterman (7)
|
60,000
|
6.47
|
4/28/08
|
|||||||||||||||||||||||||
|
(1)
Options granted vest and become exercisable in four equal installments
on
the date of grant and the first, second and third anniversary of
the
grant, and expire as listed above, which is the tenth anniversary
of the
grant.
|
27
|
(2)
Options granted vest and become exercisable as to one fourth on
the date
of grant and in twenty-four equal installments at the close of
each month
for the following twenty-four months. The options expire, as listed
above,
on the tenth anniversary of the grant.
|
|
(3)
Options granted vest and become exercisable upon the earlier of
either New
Drug Application approval or 4 years from the date of grant (December
13,
2006). The options expire, as listed above, on the tenth anniversary
of
the grant.
|
|
(4)
As granted, options granted vest and become exercisable as to one
fourth
on the date of grant and in thirty-six equal installments at the
close of
each month for the following thirty-six months. In December 2005,
the
Compensation Committee of the Board of Directors recommended, and
the
Company agreed, to accelerate the vesting of all stock options
with an
exercise price of $9.02 or greater. As the exercise price met this
criteria, the remaining portion of the option grant that was not
vested at
that time became fully vested and exercisable subject to a written
“lock-up” agreement that the executive must refrain from selling shares
acquired upon the exercise of such accelerated options (other than
shares
needed to cover the exercise price and satisfy withholding taxes)
until
the date on which the exercise would have been permitted under
the
option’s pre-acceleration vesting terms.
|
|
(5)
Options granted vest and become exercisable as to one fourth on
the date
of grant and in thirty-six equal installments at the close of each
month
for the following thirty-six months. The options expire, as listed
above,
on the tenth anniversary of the grant.
|
|
(6)
Options granted vest and become exercisable in three equal installments
on
the first, second and third anniversary of the grant, and expire
as listed
above, which is the tenth anniversary of the grant.
|
|
(7)
Options outstanding represent vested options at the time of the
employee’s
termination of employment.
|
|
(8)
RSAs granted January 3, 2006 and to be released upon commercialization
of
the Company’s first product.
|
28
OPTION
EXERCISES AND STOCK VESTED TABLE
The
table
below shows the number of shares of the Company’s common stock acquired during
2006 upon the exercise of options.
|
Option
Awards
|
Stock
Awards
|
||||||||||||
|
Named
Executive Officer
|
Number
of Shares Acquired on Exercise (#)
|
Value
Realized on Exercise ($)
|
Number
of Shares Acquired on Vesting (#)
|
Value
Realized on Vesting ($)
|
|||||||||
|
Robert
J. Capetola, Ph.D.
|
-
|
$
|
-
|
-
|
$
|
-
|
|||||||
|
John
G. Cooper
|
-
|
-
|
-
|
-
|
|||||||||
|
David
L. Lopez, Esq., CPA
|
-
|
-
|
-
|
-
|
|||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
-
|
-
|
-
|
-
|
|||||||||
|
Thomas
F. Miller, Ph. D, MBA
|
-
|
-
|
-
|
-
|
|||||||||
|
Former
Officers of the Company
|
|||||||||||||
|
Christopher
J. Schaber, Ph.D.
|
-
|
-
|
-
|
-
|
|||||||||
|
Mark
G. Osterman
|
-
|
-
|
-
|
-
|
|||||||||
During
2006, the Named Executive Officers listed above did exercise any stock options.
In addition, no stock awards of the Named Executive Officers vested.
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The
Company has entered into employment agreements with each of its Named Executive
Officers. These agreements provide for, among other things, certain payments
and
other benefits if an executive’s employment terminates under circumstances
specified in the agreement or if there is a “change in control” of the Company.
In addition, these agreements provide for non-competition and non-solicitation
agreements of varying duration as follows: Dr. Capetola - 15 months, Messrs.
Cooper and Lopez and Drs. Segal and Miller - twelve months.
29
The
following table describes and quantifies estimated potential payments and
benefits that would become payable under the executive’s employment agreements
if the executive’s employment terminated on December 31, 2006, or if a change of
control occurred on that date. The amounts contained in the table are based
on
each executive’s compensation as of December 31, 2006 and, where applicable, the
Company’s closing stock price on December 29, 2006, the last business day prior
to December 31, 2006.
|
Name
and Type of Termination or Change in Control
|
Severance
|
Bonus
|
Equity
Acceleration (2)
|
Health
Benefits
|
Out-Placement
Counseling (14)
|
Excise
Tax & Gross-up (15)
|
TOTAL
|
|||||||||||||||
|
Robert
J. Capetola, Ph.D
|
||||||||||||||||||||||
|
Change
in Control
|
$
|
-
|
(1
|
)
|
$
|
17,700
|
(3)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
17,700
|
|||||||
|
Termination
in connection with Change in Control (5)
|
2,385,000
|
(6)
|
325,000
|
(4)
|
17,700
|
(3)
|
50,985
|
(7)
|
40,000
|
316,240
|
3,133,144
|
|||||||||||
|
Termination
by the Company for Cause or by the Executive without Good
Reason
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Death
or Disability
|
-
|
-
|
17,700
|
(3)
|
-
|
-
|
17,700
|
|||||||||||||||
|
Termination
by the Company without Cause or by the Executive with Good
Reason
|
1,590,000
|
(8)
|
325,000
|
(4)
|
17,700
|
(3)
|
33,990
|
(9)
|
40,000
|
2,004,909
|
||||||||||||
|
John
G. Cooper
|
||||||||||||||||||||||
|
Change
in Control
|
-
|
(10
|
)
|
10,620
|
(3)
|
-
|
-
|
-
|
10,620
|
|||||||||||||
|
Termination
in connection with Change in Control (13)
|
824,000
|
(8)
|
120,000
|
(4)
|
10,620
|
(3)
|
25,803
|
(9)
|
40,000
|
2,665
|
1,022,431
|
|||||||||||
|
Termination
by the Company for Cause or by the Executive without Good
Reason
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Death
or Disability
|
-
|
-
|
10,620
|
(3)
|
-
|
-
|
10,620
|
|||||||||||||||
|
Termination
by the Company without Cause or by the Executive with Good
Reason
|
412,000
|
(11)
|
120,000
|
(4)
|
10,620
|
(3)
|
12,902
|
(12)
|
40,000
|
594,864
|
||||||||||||
|
David
L. Lopez, Esq., CPA
|
||||||||||||||||||||||
|
Change
in Control
|
-
|
(10
|
)
|
10,620
|
(3)
|
-
|
-
|
-
|
10,620
|
|||||||||||||
|
Termination
in connection with Change in Control (13)
|
820,000
|
(8)
|
120,000
|
(4)
|
10,620
|
(3)
|
26,267
|
(9)
|
40,000
|
25,279
|
1,041,509
|
|||||||||||
|
Termination
by the Company for Cause or by the Executive without Good
Reason
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Death
or Disability
|
-
|
-
|
10,620
|
(3)
|
-
|
-
|
10,620
|
|||||||||||||||
|
Termination
by the Company without Cause or by the Executive with Good
Reason
|
410,000
|
(11)
|
120,000
|
(4)
|
10,620
|
(3)
|
13,134
|
(12)
|
40,000
|
593,096
|
||||||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
||||||||||||||||||||||
|
Change
in Control
|
-
|
(10
|
)
|
4,720
|
(3)
|
-
|
-
|
-
|
4,720
|
|||||||||||||
|
Termination
in connection with Change in Control (13)
|
680,000
|
(8)
|
75,000
|
(4)
|
4,720
|
(3)
|
33,990
|
(9)
|
40,000
|
-
|
833,299
|
|||||||||||
|
Termination
by the Company for Cause or by the Executive without Good
Reason
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Death
or Disability
|
-
|
-
|
4,720
|
(3)
|
-
|
-
|
4,720
|
|||||||||||||||
|
Termination
by the Company without Cause or by the Executive with Good
Reason
|
340,000
|
(11)
|
75,000
|
(4)
|
4,720
|
(3)
|
16,995
|
(12)
|
40,000
|
476,304
|
||||||||||||
|
Thomas
F. Miller, Ph. D, MBA
|
||||||||||||||||||||||
|
Change
in Control
|
-
|
(10
|
)
|
29,780
|
(3)
|
-
|
-
|
-
|
29,780
|
|||||||||||||
|
Termination
in connection with Change in Control (13)
|
530,000
|
(8)
|
45,000
|
(4)
|
29,780
|
(3)
|
25,693
|
(9)
|
40,000
|
-
|
670,226
|
|||||||||||
|
Termination
by the Company for Cause or by the Executive without Good
Reason
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Death
or Disability
|
-
|
-
|
29,780
|
(3)
|
-
|
-
|
29,780
|
|||||||||||||||
|
Termination
by the Company without Cause or by the Executive with Good
Reason
|
265,000
|
(11)
|
45,000
|
(4)
|
29,780
|
(3)
|
12,847
|
(12)
|
40,000
|
392,380
|
||||||||||||
|
(1)
Dr. Capetola's employment agreement provides that, upon a change
in
control of the Company and assuming Dr. Capetola remains employed
with the
Company, his annual bonus in each of the 3 fiscal years that end
in the 36
months following the change in control must be at least equal to
the
largest annual cash bonus received by the Dr. Capetola in the 3
years
preceding the change in control.
|
||||||||
|
(2)
Equity acceleration represents the incremental value as defined
in FAS
123(R) resulting from the acceleration of the unvested stock options
and
restricted stock held by each executive on the assumed termination
date of
December 29, 2006, the vesting of which would be accelerated upon
the
applicable triggering event to the extent provided by the terms
of the
executive’s employment agreement. In the event that the fair market value
on the termination date is less than the exercise price of the
unvested
options, the equity acceleration compensation is zero. The number
of
shares remaining unvested under each executive’s stock option and
restricted stock awards is set forth in the “Outstanding Equity Awards”
table.
|
||||||||
30
|
(3)
The noted executive's employment agreement provides that, upon
the date of
the denoted separation, the executive's outstanding unvested stock
options
and restricted stock awards will vest in full and become fully
exercisable.
|
||||||||
|
(4)
The noted executive's employment agreement provides that, upon
termination, the executive's bonus is equal to the largest annual
cash
bonus received by the executive in the 3 years preceding the change
in
control multiplied by a fraction the numerator of which is the
number of
days the executive was employed with the Company in the current
fiscal
year and the denominator of which is 365.
|
||||||||
|
(5)
Dr. Capetola's employment agreement provides that a termination
is
considered “termination in connection with a change of control” if his
employment is terminated by the Company other than for cause or
by Dr.
Capetola for Good Reason during the 36 months following the change
of
control or if he voluntarily terminates for any reason within 30
days of
the 6 month anniversary of the change of control.
|
||||||||
|
(6)
Dr. Capetola's employment agreement provides that, upon a termination
in
connection with a change in control of the Company, his severance
is equal
to three times the sum of his base salary and the largest annual
cash
bonus received by him in the 3 years preceding the change in
control.
|
||||||||
|
(7)
Dr. Capetola's employment agreement provides that health benefits
for him
and his participating family members at the time of termination
will be
maintained for 3 years following Termination in connection with
a Change
of Control.
|
||||||||
|
(8)
The noted executive's employment agreement provides that, upon
termination, the executive's severance is equal to two times the
sum of
the executive's base salary and the largest annual cash bonus received
by
the executive in the 3 years preceding the change in
control.
|
||||||||
|
(9)
The noted executive's employment agreement provides that the executive's
and the executive's participating family members at the time of
termination health benefits will be maintained for 2 years after
termination.
|
||||||||
|
(10)
The noted executive's employment agreement provides that, upon
a change in
control of the Company and assuming the executive remains employed
with
the Company, the executive's annual bonus in each of the 2 fiscal
years
that will occur in the 24 months following the change in control
must be
at least equal to the largest annual cash bonus received by the
executive
in the 3 years preceding the change in control.
|
||||||||
|
(11)
The noted executive's employment agreement provides that upon a
termination by the Company without cause or by the executive with
good
reason, the executive's severance is equal to the sum of the executive's
base salary and the largest annual cash bonus received by the executive
in
the 3 years preceding the change in control.
|
||||||||
|
(12)
The noted executive's employment agreement provides that the health
benefits of the executive and the executive's participating family
members
at the time of termination will be maintained for 1
year.
|
||||||||
|
(13)
The noted executive's employment agreement provides that the termination
is considered "termination in connection with a change of control"
if the
executive's employment is terminated by the Company other than
for cause
or by the executive for Good Reason during the 24 months following
the
change of control.
|
||||||||
|
(14)
The noted executive's employment agreement provides that the employee
is
entitled to placement counseling assistance in the form of reimbursement
for expenses incurred by the executive for counseling and related
activities in the 12 months following the date of termination,
up to a
maximum of the amount reported in this table.
|
||||||||
|
(15)
Upon a change in control, executives may be subject to certain
excise
taxes under Section 4999 of the Internal Revenue Code. The noted
executive’s employment agreements provide that the executives are eligible
for reimbursement of those excise taxes and any additional federal,
state,
local and excise tax resulting from such gross-up payments. The
Company calculated the amounts reported in this column assuming
an excise
tax rate of 20% and a federal tax rate of
35%.
|
||||||||
31
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
There
were no transactions between the Company and any related party to the Company
in
2006.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires the Company’s directors, executive officers (including a person
performing a principal policy-making function) and persons who own more than
10%
of a registered class of the Company’s equity securities (collectively,
“Reporting Persons”) to file with the SEC initial reports of ownership and
reports of changes in ownership of the Common Stock and other equity securities
of the Company. Reporting Persons are required by SEC regulations to furnish
the
Company with copies of all of the Section 16(a) reports they file. Specific
due
dates for these reports have been established and the Company is required
to
identify in this proxy statement those Reporting Persons who failed to timely
file these reports. During 2006, Thomas F. Miller, Senior Vice President,
Commercialization and Corporate Development, and Kathryn
A. Cole, Senior Vice President, Human Resources, and the non-employee directors
of the Company each failed on one occasion to timely file a Form 4.
These
late filings were attributable to an administrative failure by the Company,
which generally assists its officers and directors in complying with
the
filing requirements under Section
16(a) of the Exchange Act.
VOTING
PROCEDURES
The
presence, in person or by proxy, of at least a majority of the holders of
the
outstanding shares of Common Stock entitled to vote at the Annual Meeting
is
necessary to establish a quorum for the transaction of business. Shares
represented by proxies pursuant to which votes have been withheld from any
nominee for director, or which contain one or more abstentions or broker
“non-votes,” are counted as present for purposes of determining the presence or
absence of a quorum for the Annual Meeting. A “non-vote” occurs when a broker or
other nominee holding shares for a beneficial owner votes on one proposal,
but
does not vote on another proposal because the broker does not have discretionary
voting power and has not received instructions from the beneficial
owner.
On
each
matter properly brought before the Annual Meeting, holders of shares of Common
Stock will be entitled to one vote for each share of Common Stock held by
such
holder as of the Record Date.
Proposal
I.
Directors are elected by a plurality of the votes cast, in person or by proxy,
at the Annual Meeting. The six nominees receiving the highest number of
affirmative votes of the shares present, in person or represented by proxy,
and
voting on the election of directors at the Annual Meeting will be elected
as
directors. Shares represented by all proxies received by the Board of Directors
and not so marked as to withhold authority to vote for any individual nominee
or
for all nominees will be voted (unless one or more nominees are unable to
serve)
for the election of the nominees. Where the stockholder properly withheld
authority to vote for a particular nominee or nominees, such stockholder’s
shares will not be counted toward such nominee’s achievement of a
plurality.
Proposal
II.
Approval of the proposal to act on the reappointment of the firm of Ernst
&
Young LLP as the Company’s independent auditors for the fiscal year ending
December 31, 2006, requires the affirmative vote of a majority of the votes
cast, whether in person or by proxy.
Proposal
III.
The
proposal to approve the adoption of the 2007 Plan must be approved by the
vote
of a majority of the votes cast, whether in person or by proxy.
Abstentions
are included in the number of shares present or represented and voting on
each
matter and, therefore, with respect to votes on a specific proposal, will
have
the effect of negative votes.
Shares
subject to broker “non-votes” are not considered to have been voted for the
particular matter and are not counted as present in determining whether a
majority of the shares present and entitled to vote on a matter have approved
the matter.
32
If
any
other matter not discussed in this Proxy Statement should be presented at
the
Annual Meeting upon which a vote may be properly taken, shares represented
by
all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named in the
proxies.
OTHER
BUSINESS
The
Board
of Directors is not aware of any matters which will be brought before the
Annual
Meeting other than those specifically set forth herein. If any other matter
properly comes before the Annual Meeting, it is intended that the persons
named
in and acting under the enclosed proxy or their substitutes will vote thereon
in
accordance with their best judgment.
STOCKHOLDER
COMMUNICATIONS
Stockholders
and other interested parties may send general communications, including
stockholder proposals to the Company’s Board of Directors, Chairman of the Board
or any individual director. These communications may be sent in the form
of a
letter c/o Corporate Secretary, Discovery Laboratories, Inc., 2600
Kelly Road, Suite 100, Warrington, PA 18976-3622. All communications will
be
reviewed by the corporate secretary and, unless otherwise indicated in such
communication, submitted to the Board, Chairman or individual director, as
appropriate.
STOCKHOLDER
PROPOSALS FOR THE ANNUAL MEETING
Proposals
of stockholders intended for inclusion in the Proxy Statement to be furnished
to
all stockholders entitled to vote at the next annual meeting of stockholders
of
the Company must be received at the Company’s principal executive offices not
later than December 24, 2006. In order to curtail controversy as to the date
on
which a proposal was received by the Company, it is suggested that proponents
submit their proposals by Certified Mail, Return Receipt Requested.
HOUSEHOLDING
OF PROXY MATERIALS
The
SEC
has adopted rules that permit companies and intermediaries (e.g., brokers)
to
satisfy the delivery requirements for proxy statements and annual reports
with
respect to two or more stockholders sharing the same address by delivering
a
single proxy statement addressed to those stockholders. This process, which
is
commonly referred to as “householding”, potentially means extra convenience for
stockholders and cost savings for companies.
This
year, a number of brokers with account holders who are stockholders of the
Company will be “householding” the Company’s proxy materials. A single proxy
statement may be delivered to multiple stockholders sharing an address unless
contrary instructions have been received from the affected stockholders.
Once a
stockholder has received notice from its broker that it will be “householding”
communications to such stockholder’s address, “householding” will continue until
such stockholder is notified otherwise or until such stockholder notifies
its
broker or the Company that it no longer wishes to participate in “householding”.
If, at any time, a stockholder no longer wishes to participate in “householding”
and would prefer to receive a separate proxy statement and annual report
in the
future such stockholder may (1) notify its broker, (2) direct its written
request to: Investor Relations, Discovery Laboratories, Inc., 2600 Kelly
Road,
Suite 100, Warrington, PA 18976-3622 or (3) contact the Company’s General
Counsel, David L. Lopez, Esq., CPA, at (215) 488-9300. Stockholders who
currently receive multiple copies of the proxy statement at their address
and
would like to request “householding” of their communications should contact
their broker. In addition, the Company will promptly deliver, upon written
or
oral request to the address or telephone number above, a separate copy of
the
annual report and proxy statement to such stockholders at a shared address
to
which a single copy of the documents was delivered.
EXPENSES
AND SOLICITATION
The
cost
of solicitation of proxies will be borne by the Company. Proxies will be
solicited principally through the mail. Further solicitation of proxies from
some stockholders may be made by directors, officers and regular employees
of
the Company personally, by telephone, telegraph or special letter. No additional
compensation, except for reimbursement of reasonable out-of-pocket expenses
will
be paid for any such further solicitation. In addition, the Company may request
banks, brokers and other custodians, nominees and fiduciaries to solicit
their
customers who have stock of the Company registered in the name of a nominee.
The
Company will reimburse such persons for their reasonable out-of-pocket
costs.
33
ANNUAL
REPORT ON FORM 10-K
The
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2006, as filed with the SEC, is available to stockholders without charge
at
http://www.sec.gov
or at
http://www.discoverylabs.com,
or upon
written request addressed to Discovery Laboratories, Inc., Attn.: Legal
Department, 2600 Kelly Road, Suite 100, Warrington, Pennsylvania
18976-3622.
* * *
Your
cooperation in giving this matter your immediate attention and returning
your
proxy is appreciated.
|
By
Order of the Board of Directors,
|
||
| |
|
|
|
||
|
David
L. Lopez, Esq., CPA
|
||
|
Corporate
Secretary
|
||
Warrington,
Pennsylvania
April
30,
2007
34
Schedule
of Appendices
|
Appendices
|
Document
|
|
|
Appendix
I
|
Compensation
Committee Charter
|
|
|
Appendix
II
|
Discovery
Labs 2007 Long-Term Incentive
Plan
|
35
APPENDIX
I
CHARTER
OF THE COMPENSATION COMMITTEE
OF
THE BOARD OF DIRECTORS OF
DISCOVERY
LABORATORIES, INC.
Adopted
March 8, 2007
PURPOSE
The
Compensation Committee (“Committee”) of the Board of Directors (“Board”) of
Discovery Laboratories, Inc. (the “Company”) assists the Board in fulfilling its
oversight responsibilities by discharging the Board’s responsibilities relating
to compensation and benefits programs of the Company, including executive
compensation, stock incentive and option plans, performance incentive award
programs, and other employee plans. The Committee will fulfill these
responsibilities and duties primarily by carrying out the activities enumerated
in this Charter. The Committee produces an annual report on executive
compensation for inclusion in the Company’s proxy statement, in accordance with
applicable rules and regulations.
COMPOSITION
AND MEMBERSHIP
The
Committee shall be comprised of three directors, one of whom shall be designated
Chairman as nominated by the Nominating Committee of the Board, each of whom
shall be: (i) a "non-employee director" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended; (ii) an
"outside director" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended; (iii) "independent" under New York Stock Exchange
rules and free from any relationship that, in the opinion of the Board, would
interfere with the exercise of independent judgment as a Committee member;
and
(iv) selected and retained in compliance with all applicable rules, regulations
and statutes. The Committee members shall be appointed and serve until such
member's resignation or removal from the Board or the Committee. The members
of
the Committee may be removed from the Committee, with or without cause, by
a
majority vote of the directors other than the affected
director.
AUTHORITY
The
Committee shall have the full authority of the Board, in its place and stead,
to
discharge its obligations under this Charter and, at its option, may recommend
actions to the full Board. The Committee may form and delegate its authority
under this Charter to subcommittees or other committees of the Board in
compliance with applicable law when deemed appropriate by the Committee.
The
Committee shall have the sole authority to retain special legal, compensation
or
other consultants to advise the Committee on compensation matters and the
authority to approve their fees and other terms related to such consultants’
retention. The Committee may request any officer or employee of the corporation
or its outside counsel or consultants to attend a meeting of the Committee
or to
meet with any members of, or consultants to, the Committee.
MEETINGS
The
Compensation Committee shall meet as needed at stated times without notice,
or
on notice to all by order of the Chairman of the Board of Directors, the
Chief
Executive Officer, or by one of the members of the Compensation Committee.
The
Committee shall hold executive sessions as necessary and/or as convened by
the
Chairman of the Committee. A majority of the Committee members shall constitute
a quorum for the transaction of business. The action of a majority of those
present at a meeting, at which a quorum is present, shall be the act of the
Committee. The Committee may also take action by unanimous written consent
or by
conference communication by means of telephone or similar communications
equipment by which all persons participating in the meeting can hear each
other,
and such participation in a meeting shall constitute presence in person at
such
meeting. The Committee shall meet separately with the Chief Executive Officer
and any other corporate officer or officers as it deems appropriate as part
of
its review and in connection with establishment of the performance criteria
and
compensation of designated key executives; however, in all cases such officers
shall not be present at meetings at which their performance and compensation
are
being discussed and determined.
RESPONSIBILITIES
The
Compensation Committee shall have the following powers and duties:
|
1.
|
Review
with management the Company’s policies regarding compensation policies
relating to executive and general
compensation;
|
|
2.
|
Review
annually and approve corporate goals and objectives relating to
compensation of the Chief Executive Officer, executive officers
and other
senior officers, evaluate performance of executive officers and
other
senior officers, as determined by the Committee, in light of those
goals
and objectives, and either as a Committee or together with the
other
independent directors of the Board (as directed by the Board),
determine
the Chief Executive Officer’s and other executive officers’ compensation
level based on this evaluation;
|
|
3.
|
Review
and approve, for executive officers and other senior officers as
determined by the Committee, any employment agreements, severance
arrangements, change in control agreements or provisions, and any
special
or supplemental benefits, in each case as, when and if
appropriate;
|
|
4.
|
Oversee
the key employee benefits programs, policies and plans relating
to the
compensation, benefits and equity incentives of the Company’s executives
and, where deemed appropriate by the Committee, those programs,
policies
and plans relating to the Company’s other
employees;
|
|
5.
|
Review,
approve, and establish guidelines for the compensation of Board
directors,
including appropriate levels of compensation for service on Board
committees.
|
|
6.
|
Review
and discuss with management the Company's annual report and proxy
statement with respect to executive compensation
matters;
|
|
7.
|
Meet
separately and independently from the Company’s management as the
Committee deems necessary and appropriate to carry out the Committee’s
responsibilities;
|
|
8.
|
Meet
periodically and separately with compensation and other consultant(s)
as
the Committee deems necessary and appropriate to carry out the
Committee’s
responsibilities;
|
|
9.
|
Form
and delegate authority to subcommittees where appropriate, and
delegate
authority to executive management where appropriate for matters
not
relating to directors or executive
officers;
|
|
10.
|
Review
and reassess annually the adequacy of this Charter and recommend
to the
Board of Directors improvements to this Charter that the Committee
deems
necessary or appropriate.; and
|
11. Consider
such other matters in relation to the Company’s compensation matters as the
Compensation Committee may, in its discretion, determine to be
advisable.
2
DISCOVERY
LABORATORIES, INC.
2007
LONG-TERM INCENTIVE PLAN
SECTION
1. PURPOSE
The
purposes of this 2007 Long-Term Incentive Plan (the “Plan”) are to encourage
selected Employees, Directors and Consultants of Discovery Laboratories,
Inc.
(together with any successor thereto, the “Company”) and its Subsidiaries to
acquire a proprietary interest in the growth and performance of the Company,
to
generate an increased incentive to contribute to the Company’s future success
and prosperity, thus enhancing the value of the Company for the benefit of
its
shareholders, and to enhance the ability of the Company and its Subsidiaries
to
attract and retain exceptionally qualified individuals upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depend.
SECTION
2. DEFINITIONS
As
used
in the Plan, the following terms shall have the meanings set forth
below:
|
(a)
|
“Award”
shall mean any Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Performance Award, Dividend Equivalent,
or Other
Stock-Based Award granted under the
Plan.
|
|
(b)
|
“Award
Agreement” shall mean any written agreement, contract, or other instrument
or document, including an electronic communication, as may from
time to
time be designated by the Company as evidencing any Award granted
under
the Plan.
|
|
(c)
|
“Board”
shall mean the Board of Directors of the
Company.
|
|
(d)
|
“Cause”,
with respect to any Employee or Consultant of the Company or a
Subsidiary,
shall have the meaning set forth in such person’s employment, consulting
or other applicable agreement, or, in the absence of any such agreement
or
if such term is not defined in any such agreement, shall mean any
one or
more of the following, as determined by the
Committee:
|
|
(i)
|
willful
misconduct or gross negligence in the performance of such person’s duties;
|
|
(ii)
|
willful
and continued failure or refusal to perform satisfactorily any
duties
reasonably requested in the course of such person’s employment by, or
service to, the Company (other than a failure resulting from such
person’s
disability); or
|
|
(iii)
|
fraudulent,
dishonest or other improper conduct engaged in by such person that
causes,
or has the potential to cause, harm to the Company or any of its
Subsidiaries, or its or their business or reputation, including,
without
limitation, such person’s violation of any policies of the Company
applicable to the such person, such person’s violation of laws, rules or
regulations applicable to such person, criminal activity, habitual
drunkenness or use of illegal
drugs.
|
| (e) |
“Change
in Control” shall have the meaning, if any, set forth in a Participant’s
employment, consulting or other applicable agreement, or, if such
term is
not defined in any such agreement, shall mean the occurrence of
any of the
following events:
|
|
(i)
|
the
acquisition, directly or indirectly by any person or related group
of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Company),
of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act)
of securities possessing more than thirty-five percent (35%) of
the total
combined voting power of the Company’s outstanding
securities;
|
|
(ii)
|
a
change in the composition of the Board over a period of thirty-six
(36)
consecutive months or less such that a majority of the Board ceases
to
consist of Incumbent Members, which term means members of the Board
on the
first day of such period and any person becoming a member of the
Board
subsequent to such date whose election or nomination for election
was
approved by two-thirds of the members of the Board who then comprised
the
Incumbent Directors; or
|
|
(iii)
|
the
Company combines with another company and is the surviving corporation
but, immediately after the combination, the shareholders of the
Company
immediately prior to the combination hold, directly or indirectly,
by
reason of their being stockholders of the Company, fifty percent
(50%) or
less of the voting stock of the combined entity.
|
|
(f)
|
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time
to
time.
|
|
(g)
|
“Committee”
shall mean a committee of the Board, acting in accordance with
the
provisions of Section 3, designated by the Board to administer the
Plan and composed of not less than three Non-Employee Directors.
Each
member of the Committee shall qualify as an “outside director” as defined
under Section 162(m) of the Code and the regulations promulgated
thereunder and as a “non-employee director” under Rule 16b-3 promulgated
under the 1934 Act.
|
|
(h)
|
“Consultant”
shall mean any person, including a Director, who is not an Employee
and
who is engaged by the Company or any Subsidiary thereof, to render
services to or for the benefit of the Company or any Subsidiary
and is
compensated for such services.
|
|
(i)
|
“Corporate
Transaction” shall mean a liquidation of the Company, a sale of all or
substantially all of the Company’s assets, or a merger, consolidation or
similar transaction in which the Company is not the surviving entity
or
survives as a wholly-owned or majority-owned subsidiary of another
entity.
|
|
(j)
|
“Director”
shall mean a member of the Board.
|
|
(k)
|
“Disability”
for each respective Participant shall have the meaning set forth
in the
Participant’s employment agreement, Award Agreement or other similar
agreement with the Company; provided,
that if such term is not defined in any such agreement to which
the
Participant is a party or if Participant is not a party to any
such
agreement, then “Disability” shall mean a permanent and total disability,
within the meaning of Section 22(e)(3) of the
Code.
|
|
(l)
|
“Dividend
Equivalent” shall mean any right granted under Section 10 of the
Plan.
|
2
| (m) |
“Employee”
shall mean any person treated as an employee (including officers
and
directors) in the records of the Company or any Subsidiary and
who is
subject to the control and direction of the Company or any Subsidiary
with
regard to both the work to be performed and the manner and method
of
performance. For purposes of the Plan, the payment of a director’s fee by
the Company to a Director shall not be sufficient to constitute
“employment” of the Director by the
Company.
|
|
(n)
|
“Fair
Market Value” of
a Share on any date of reference shall be the Closing Price of
a Share on
such date, unless the Committee in its sole discretion shall determine
otherwise in a fair and uniform manner. For this purpose, the “Closing
Price” of a Share on any trading day shall be (i) if the Shares are listed
or admitted for trading on any United States national securities
exchange,
or if actual transactions are otherwise reported on a consolidated
transaction reporting system, the last reported sale price of a
Share on
such exchange or reporting system, as reported in any newspaper
of general
circulation, or (ii) if neither clause (i) nor (ii) is applicable,
the
mean of the high bid and low asked quotations for a Share as reported
by
the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for the Shares
on at
least five of the 10 preceding trading days. If the information
set forth
in clauses (i) through (iii) above is unavailable or inapplicable
to the
Company (e.g., if the Shares are not then publicly traded or quoted),
then
the “Fair Market Value” of a Share shall be the fair market value
(i.e.,
the price at which a willing seller would sell a Share to a willing
buyer
when neither is acting under compulsion and when both have reasonable
knowledge of all relevant facts) of a Share on such date as the
Committee
in its sole and absolute discretion shall determine in a fair and
uniform
manner.
|
|
(o)
|
“Incentive
Stock Option” shall mean an option granted under Section 6 of the
Plan that is intended to meet the requirements of Sections 422
of the
Code, or any successor provision
thereto.
|
|
(p)
|
“Involuntary
Termination” shall mean the termination of the Service of any individual
which occurs by reason of:
|
|
(i)
|
such
individual’s involuntary dismissal or discharge by the Company for reasons
other than Cause, or
|
|
(ii)
|
such
individual’s voluntary resignation following (A) a change in his or her
position with the Company (or Subsidiary employing such individual)
which
materially reduces such individual’s duties and responsibilities or the
level of management to which such individual reports, (B) a reduction
in
such individual’s level of compensation (including base salary, fringe
benefits and target bonus under any corporate performance-based
bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation
of such individual’s place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by
the Company without such individual’s consent.
|
|
(q)
|
“1998
Plan” shall mean the Company’s Amended and Restated 1998 Stock Incentive
Plan, as amended.
|
|
(r)
|
“1934
Act” shall mean the Securities Exchange Act of 1934, as amended.
|
|
(s)
|
“Non-Employee
Director” shall mean a Director who is not also an Employee.
|
|
(t)
|
“Non-Qualified
Stock Option” shall mean an option granted under Section 6 of the
Plan that is not intended to be an Incentive Stock
Option.
|
|
(u)
|
“Option”
shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
|
3
|
(v)
|
“Other
Stock-Based Award” shall mean any right granted under Section 11 of
the Plan.
|
| (w) |
“Participant”
shall mean an Employee, Director or Consultant designated to be
granted an
Award under the Plan.
|
|
(x)
|
“Performance
Award” shall mean any right granted under Section 9 of the
Plan.
|
|
(y)
|
“Performance
Criteria” shall mean any quantitative and/or qualitative measures, as
determined by the Committee, which may be used to measure the level
of
performance of the Company or any individual Participant during
a
Performance Period, including any Qualifying Performance
Criteria.
|
|
(z)
|
“Performance
Period” shall mean any period as determined by the Committee in its sole
discretion.
|
|
(aa)
|
“Person”
shall mean any individual, corporation, partnership, limited liability
company, association, joint-stock company, trust, unincorporated
organization, or government or political subdivision
thereof.
|
|
(bb)
|
“Qualifying
Performance Criteria” shall mean one or more of the following performance
criteria, either individually, alternatively or in any combination,
applied to either the Company as a whole or to a business unit
or related
Subsidiary, and measured either annually or cumulatively over a
period of
years, on an absolute basis or relative to a pre-established target,
to a
previous year’s results or to a designated comparison group, in each case
as specified by the Committee in the Award: achieving specified
milestones
in the discovery and development, commercialization or manufacturing
of
one or more of the Company product candidates, obtaining debt or
equity
financing, achieving personal management objectives, achieving
sales,
revenue, net income (before or after taxes), net earnings, earnings
per
share, return on total capital, return on equity, cash flow, operating
profit and/or margin rate targets, subject to adjustment by the
Committee
to remove the effect of charges for restructurings, discontinued
operations,
extraordinary items and all items of gain, loss or expense determined
to
be extraordinary or unusual in nature or infrequent in occurrence,
related
to the disposal of a segment or a business, or related to a change
in
accounting principle or otherwise.
|
|
(cc)
|
“Restricted
Securities” shall mean Awards of Restricted Stock or other Awards under
which issued and outstanding Shares are held subject to certain
restrictions.
|
|
(dd)
|
“Restricted
Stock” shall mean any award of Shares granted under Section 8 of the
Plan.
|
|
(ee)
|
“Restricted
Stock Unit” shall mean any right granted under Section 8 of the Plan
that is denominated in Shares.
|
|
(ff)
|
“Service”
shall mean the performance of services for the Company (or any
Subsidiary)
by a person in the capacity of an Employee, a Non-Employee Director
or a
Consultant.
|
|
(gg)
|
“Shares”
shall mean the common shares of the Company and such other securities
as
may become the subject of Awards, or become subject to Awards,
pursuant to
an adjustment made under Section 4(b) of the
Plan.
|
| (hh) |
“Stock
Appreciation Right” shall mean any right granted under Section 7 of
the Plan.
|
|
(ii)
|
“Subsidiary”
shall mean a subsidiary company as defined in Section 424(f) of
the Code
(with the Company being treated as the employer corporation for
purposes
of this definition).
|
4
SECTION
3. ADMINISTRATION
Except
as
otherwise provided herein, the Plan shall be administered by the Committee,
which shall have the power to interpret the Plan and to adopt such rules
and
guidelines for implementing the terms of the Plan as it may deem appropriate.
The Committee shall have the ability to modify the Plan provisions, to the
extent necessary, or delegate such authority, to accommodate any changes
in law
and regulations in jurisdictions in which Participants will receive
Awards.
|
(a)
|
Subject
to the terms of the Plan and applicable law, the Committee shall
have full
power and authority to:
|
|
(i)
|
designate
Participants;
|
|
(ii)
|
determine
the type or types of Awards to be granted to each Participant under
the
Plan;
|
|
(iii)
|
determine
the number of Shares to be covered by (or with respect to which
payments,
rights, or other matters are to be calculated in connection with)
Awards;
|
|
(iv)
|
determine
the terms and conditions of any
Award;
|
|
(v)
|
determine
whether, to what extent, and under what circumstances Awards may
be
settled or exercised in cash, Shares, other securities, or other
Awards,
or canceled, forfeited, or suspended, and the method or methods
by which
Awards may be settled, exercised, canceled, forfeited, or
suspended;
|
|
(vi)
|
determine
whether, to what extent, and under what circumstances cash, Shares,
other
securities, other Awards, and other amounts payable with respect
to an
Award under the Plan shall be deferred either automatically or
at the
election of the holder thereof or of the Committee;
|
|
(vii)
|
interpret
and administer the Plan and any instrument or agreement relating
to, or
Award made under, the Plan;
|
|
(viii)
|
establish,
amend, suspend, or waive such rules and
guidelines;
|
|
(ix)
|
appoint
such agents as it shall deem appropriate for the proper administration
of
the Plan;
|
|
(x)
|
make
any other determination and take any other action that the Committee
deems
necessary or desirable for the administration of the Plan;
and
|
|
(xi)
|
correct
any defect, supply any omission, or reconcile any inconsistency
in the
Plan or any Award in the manner and to the extent it shall deem
desirable
to carry the Plan into effect.
|
|
(b)
|
Unless
otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with
respect
to the Plan or any Award shall be within the sole discretion of
the
Committee, may be made at any time, and shall be final, conclusive,
and
binding upon all Persons, including the Company, any Subsidiary,
any
Participant, any holder or beneficiary of any Award, any shareholder,
and
any employee of the Company or of any Subsidiary. Subject to the
requirements of applicable law and regulations, actions of the
Committee
may be taken by:
|
|
(i)
|
a
subcommittee, designated in writing by the
Committee;
|
5
|
(iii)
|
one
or more officers or managers of the Company or any Subsidiary,
or a
committee of such officers or managers, whose authority is subject
to such
terms and limitations set forth by the Committee in writing, and
whose
authority shall not extend to any matter relating to Participants
who are
officers or directors of the Company for purposes of Section 16 of
the 1934 Act.
|
SECTION
4. SHARES
AVAILABLE FOR AWARDS
|
(a)
|
Shares
Available.
|
|
(i)
|
Subject
to adjustment as provided in Section 4(b), the total number of Shares
reserved and available for delivery pursuant to Awards granted
under the
Plan shall be 8,500,000. If any Shares covered by an Award granted
under
the Plan, or to which such an Award relates, are forfeited, or
if an Award
otherwise terminates without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which
such
Award relates, or the number of Shares otherwise counted against
the
aggregate number of Shares available under the Plan with respect
to such
Award, to the extent of any such forfeiture or termination, shall
again be
available for granting Awards under the Plan.
|
|
(ii)
|
For
purposes of this Section 4,
|
| (A) |
if
an Award (other than a Dividend Equivalent) is denominated in Shares,
the
number of Shares covered by such Award, or to which such Award
relates,
shall be counted on the date of grant of such Award against the
aggregate
number of Shares available for granting Awards under the Plan;
and
|
| (B) |
Dividend
Equivalents denominated in Shares and Awards not denominated, but
potentially payable, in Shares shall be counted against the aggregate
number of Shares available for granting Awards under the Plan in
such
amount and at such time as the Dividend Equivalents and such Awards
are
settled in Shares, provided,
however,
that Awards that operate in tandem with (whether granted simultaneously
with or at a different time from) other Awards shall only be counted
once
against the aggregate number of shares available, and the Committee
shall
adopt procedures, as it deems appropriate, in order to avoid double
counting. Any Shares that are delivered by the Company, and any
Awards
that are granted by, or become obligations of, the Company through
the
assumption by the Company or a Subsidiary of, or in substitution
for,
outstanding awards previously granted by an acquired company, shall
not be
counted against the Shares available for granting Awards under
this
Plan.
|
|
(C)
|
Notwithstanding
anything herein to the contrary, any Shares related to Awards which
terminate by expiration, forfeiture, cancellation, or otherwise
without
the issuance of such Shares, are settled in cash in lieu of Shares,
or are
exchanged with the Committee’s permission, prior to the issuance of
Shares, for Awards not involving Shares, shall be available again
for
grant under this Plan. Shares subject to an Award under the Plan
may not
again be made available for issuance under the Plan if such Shares
are:
(x) Shares that were subject to an Option or a stock-settled Stock
Appreciation Right and were not issued upon the net settlement
or net
exercise of such Option or Stock Appreciation Right, (y) Shares
delivered to or withheld by the Company to pay the exercise price
or any
withholding taxes under Options or Stock Appreciation Rights, or
(z) Shares repurchased on the open market with the proceeds of an
Option exercise.
|
6
|
(iii)
|
Any
Shares delivered pursuant to an Award may consist, in whole or
in part, of
authorized and unissued Shares or of treasury
Shares.
|
|
(b)
|
Adjustments.
|
|
(i)
|
In
the event that the Committee shall determine that any dividend
or other
distribution (whether in the form of cash, Shares, or other securities),
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase,
or
exchange of Shares or other
securities of the Company, issuance of warrants or other rights
to
purchase Shares or other securities of the Company, or other similar
corporate transaction or event constitutes an equity restructuring
transaction, as that term is defined in Statement of Financial
Accounting
Standards No. 123 (revised) or otherwise affects the Shares, then the
Committee shall adjust the following in a manner that is determined
by the
Committee to be appropriate in order to prevent dilution or enlargement
of
the benefits or potential benefits intended to be made available
under the
Plan:
|
|
(A)
|
the
number and type of Shares or other securities which thereafter
may be made
the subject of Awards including the limit specified in
Section 4(a)(i) regarding the number of shares that may be granted in
the form of Restricted Stock, Restricted Stock Units, Performance
Awards,
or Other Stock-Based Awards;
|
|
(B)
|
the
number and type of Shares or other securities subject to outstanding
Awards;
|
|
(C)
|
the
number and type of Shares or other securities specified as the
annual
per-participant limitation under Sections 15(e) and
15(f);
|
|
(D)
|
the
grant, purchase, or exercise price with respect to any Award, or,
if
deemed appropriate, make provision for a cash payment to the holder
of an
outstanding Award; and
|
|
(E)
|
other
value determinations applicable to outstanding
awards;
|
provided,
however,
in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to
violate Section 422(b)(1) of the Code or any successor provision thereto;
and
provided
further,
however,
that
the number of Shares subject to any Award denominated in Shares shall always
be
a whole number.
|
(ii)
|
In
the event the Company or any Subsidiary shall assume outstanding
employee
awards or the right or obligation to make future such awards in
connection
with the acquisition of another business or another corporation
or
business entity, the Committee may make such adjustments, not inconsistent
with the terms of the Plan, in the terms of Awards as it shall
deem
appropriate in order to achieve reasonable comparability or other
equitable relationship between the assumed awards and the Awards
granted
under the Plan as so adjusted.
|
|
(iii)
|
The
Committee shall be authorized to make adjustments in the terms
and
conditions of, and the criteria included in, Awards in recognition
of
unusual or nonrecurring events affecting the Company, any Subsidiary,
or
the financial statements of the Company or any Subsidiary, or of
changes
in applicable laws, regulations, or accounting principles, whenever
the
Committee determines that such adjustments are appropriate in order
to
prevent dilution or enlargement of the benefits or potential benefits
to
be made available under the Plan.
|
7
|
(c)
|
1998
Plan.
Except as otherwise provided herein, any Award made under the 1998
Plan
before the expiration of the 1998 Plan shall continue to be subject
to the
terms and conditions of the 1998 Plan and the applicable award
agreement
with respect thereto.
|
SECTION
5. ELIGIBILITY
Any
Employee, Director or Consultant shall be eligible to be designated a
Participant.
SECTION
6. OPTIONS
The
Committee is hereby authorized to grant Options to Participants with the
following terms and conditions and with such additional terms and conditions,
in
either case not inconsistent with the provisions of the Plan, as the Committee
shall determine:
|
(a)
|
Exercise
Price.
The purchase price per Share purchasable under an Option shall
be
determined by the Committee no later than the date of grant of
such
Option; provided, however, and except as provided in Section 4(b),
that such purchase price shall not be less than 100% of the Fair
Market
Value of a Share on the date of grant of such
Option.
|
|
(b)
|
Option
Term.
The term of each Option shall be specified in the applicable Award
Agreement and shall not exceed ten (10) years from its date of
grant.
|
|
(c)
|
Time
and Method of Exercise.
The Committee shall establish in the applicable Award Agreement
the time
or times at which an Option may be exercised in whole or in part,
and the
method or methods by which, and the form or forms, including, without
limitation, cash, Shares, or other Awards, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant
exercise price, in which, payment of the exercise price with respect
thereto may be made or deemed to have been made. In addition, the
Committee may allow a Participant to exercise any Option by delivering
to
the Company or its designated agent an executed irrevocable option
exercise form together with irrevocable instructions to a broker-dealer
to
sell Shares and deliver the sale proceeds directly to the Company
to the
extent required to pay the Option exercise price.
|
8
SECTION
7. STOCK
APPRECIATION RIGHTS
The
Committee is hereby authorized to grant Stock Appreciation Rights to
Participants. Subject to the terms of the Plan and any applicable Award
Agreement, a Stock Appreciation Right granted under the Plan shall confer
on the
holder thereof a right to receive, upon exercise thereof, the excess of
(i) the Fair Market Value of one Share on the date of exercise over
(ii) the grant price of the right as specified by the
Committee.
|
(a)
|
Grant
Price.
The grant price of any Stock Appreciation Right shall be determined
by the
Committee no later than the date of grant, provided, however, and
except
as provided in Section 4(b), that such price shall not be less than
100% of the Fair Market Value of one Share on the date of grant
of the
Stock Appreciation Right, except that if a Stock Appreciation Right
is at
any time granted in tandem to an Option, the grant price of the
Stock
Appreciation Right shall not be less than the exercise price of
such
Option.
|
| (b) |
Term.
The term of each Stock Appreciation Right shall be specified in
the
applicable Award Agreement and shall not exceed ten (10) years from
the date of grant.
|
|
(c)
|
Time
and Method of Exercise.
The Committee shall establish in the applicable Award Agreement
the time
or times at which a Stock Appreciation Right may be exercised in
whole or
in part.
|
SECTION
8. RESTRICTED
STOCK AND RESTRICTED STOCK UNITS
|
(a)
|
Issuance.
The Committee is hereby authorized to grant Awards of Restricted
Stock and
Restricted Stock Units to
Participants.
|
|
(b)
|
Restrictions.
Shares of Restricted Stock and Restricted Stock Units shall be
subject to
such restrictions as the Committee may establish in the applicable
Award
Agreement (including, without limitation, any limitation on the
right to
vote a Share of Restricted Stock or the right to receive any dividend
or
other right), which restrictions may lapse separately or in combination
at
such time or times, in such installments or otherwise, as the Committee
may deem appropriate. Unrestricted Shares, evidenced in such manner
as the
Committee shall deem appropriate, shall be delivered to the holder
of
Restricted Stock promptly after such restrictions have
lapsed.
|
|
(c)
|
Registration.
Any Restricted Stock or Restricted Stock Units granted under the
Plan may
be evidenced in such manner as the Committee may deem appropriate,
including, without limitation, book-entry registration or issuance
of a
stock certificate or certificates. In the event any stock certificate
is
issued in respect of Shares of Restricted Stock granted under the
Plan,
such certificate shall be registered in the name of the Participant
and
shall bear an appropriate legend referring to the terms, conditions,
and
restrictions applicable to such Restricted
Stock.
|
|
(d)
|
Forfeiture.
Upon termination of Service during the applicable restriction period,
except as set forth herein or in the applicable Award Agreement
or as
otherwise determined by the Committee, all Shares of Restricted
Stock and
all Restricted Stock Units still, in either case, subject to restriction
shall automatically be forfeited and reacquired for no additional
consideration by the Company.
|
9
SECTION
9. PERFORMANCE
AWARDS
The
Committee is hereby authorized to grant Performance Awards to Participants.
Performance Awards include arrangements under which the grant, issuance,
retention, vesting and/or transferability of any Award is subject to such
Performance Criteria and such additional conditions or terms as the Committee
may designate. Subject to the terms of the Plan and any applicable Award
Agreement, a Performance Award granted under the Plan:
|
(a)
|
may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, or other Awards;
and
|
| (b) |
shall
confer on the holder thereof rights valued as determined by the
Committee
and payable to, or exercisable by, the holder of the Performance
Award, in
whole or in part, upon the achievement of such performance goals
during
such Performance Periods as the Committee shall
establish.
|
SECTION
10. DIVIDEND
EQUIVALENTS
The
Committee is hereby authorized to grant to Participants Awards under which
the
holders thereof shall be entitled to receive payments equivalent to dividends
or
interest with respect to a
number
of Shares determined by the Committee, and the Committee may provide that
such
amounts (if any) shall be deemed to have been reinvested in additional Shares
or
otherwise reinvested. Subject to the terms of the Plan and any applicable
Award
Agreement, such Awards may have such terms and conditions as the Committee
shall
determine.
SECTION
11. OTHER
STOCK-BASED AWARDS
The
Committee is hereby authorized to grant to Participants such other Awards
that
are denominated or payable in, valued in whole or in part by reference to,
or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as are deemed by the Committee to be
consistent with the purposes of the Plan, provided, however, that such grants
must comply with applicable law. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the terms and
conditions of such Awards. Shares or other securities delivered pursuant
to a
purchase right granted under this Section 11 shall be purchased for such
consideration, which may be paid by such method or methods and in such form
or
forms, including, without limitation, cash, Shares, other securities, or
other
Awards, or any combination thereof, as the Committee shall determine, the
value
of which consideration, as established by the Committee, and except as provided
in Section 4(b), shall not be less than the Fair Market Value of such
Shares or other securities as of the date such purchase right is granted.
SECTION
12. TERMINATION
OF EMPLOYMENT OR SERVICE
|
(a)
|
For
Cause.
Except as otherwise provided by the Committee in an Award Agreement,
if a
Participant’s employment or service is terminated for Cause (i) the
Participant’s Restricted Stock or Restricted Stock Units that are then
forfeitable shall thereupon be forfeited, and (ii) any unexercised
Option,
Stock Appreciation Right, Performance Award or Other Stock-Based
Award
shall terminate effective immediately upon such termination of
employment
or service.
|
| (b) |
On
Account of Death.
Except as otherwise provided by the Committee in an Award Agreement,
if a
Participant’s employment or service terminates on account of death (or if
a Participant dies within ninety (90) days following termination
of
employment due to Disability),
then:
|
|
(i)
|
the
Participant’s Restricted Stock and Restricted Stock Units that were
forfeitable shall thereupon become
nonforfeitable;
|
10
|
(ii)
|
any
unexercised Option or Stock Appreciation Right, to the extent exercisable
on the date of such termination of employment or service, may be
exercised, in whole or in part, within the first twelve (12) months
after
such termination of employment or service (but only during the
term of
such Award) after the death of the Participant by (A) his or her
personal
representative or by the person to whom an Option or Stock Appreciation
Right, as applicable, is transferred by will or the applicable
laws of
descent and distribution or (B) the Participant’s designated beneficiary;
and, to the extent that any such Option or Stock Appreciation Right
was
not exercisable on the date of such termination of employment or
service,
it will immediately terminate; and
|
|
(iii)
|
the
Participant’s rights with respect to any unexercised Performance Shares or
Other Stock-Based Awards shall be as set forth in the applicable
Award
Agreement.
|
|
(c)
|
On
Account of Disability.
Except as otherwise provided by the Committee in an Award Agreement,
if a
Participant’s employment or service terminates on account of Disability,
then:
|
|
(i)
|
the
Participant’s Restricted Stock and Restricted Stock Units that were
forfeitable shall thereupon become
nonforfeitable;
|
|
(ii)
|
any
unexercised Option or Stock Appreciation Right, to the extent exercisable
on the date of such termination of employment or service, may be
exercised
in whole or in part, within the first ninety (90) days after such
termination of employment or service (but only during the term
of such
Award) by the Participant, or by (A) his or her personal representative
or
by the person to whom an Option or Stock Appreciation Right, as
applicable, is transferred by will or the applicable laws of descent
and
distribution or (B) the Participant’s designated beneficiary; and, to the
extent that any such Option or Stock Appreciation Right was not
exercisable on the date of such termination of employment, it will
immediately terminate; and
|
|
(iii)
|
the
Participant’s rights with respect to any unexercised Performance Shares or
Other Stock-Based Awards shall be as set forth in the applicable
Award
Agreement.
|
| (d) |
Any
Other Reason.
Except as otherwise provided by the Committee in an Award Agreement,
if a
Participant’s employment or service terminates for any reason other than
for Cause, death, or Disability,
then:
|
|
(i)
|
the
Participant’s Restricted Stock and Restricted Stock Units, to the extent
forfeitable on the date of the Participant’s termination of employment or
service, shall be forfeited on such
date;
|
|
(ii)
|
any
unexercised Option or Stock Appreciation Right, to the extent exercisable
immediately before the Participant’s termination of employment or service,
may be exercised in whole or in part, not later than three (3)
months
after such termination of employment or service (but only during
the term
of such Award); and, to the extent that any such Option or Stock
Appreciation Right was not exercisable on the date of such termination
of
employment or service, it will immediately terminate;
and
|
11
|
(iii)
|
the
Participant’s rights with respect to any unexercised Performance Shares or
Other Stock-Based Awards shall be as set forth in the applicable
Award
Agreement.
|
|
(e)
|
Repurchase
Rights.
Except
as otherwise provided by the Committee in an Award Agreement, if
at any
time a Participant’s employment or Service with the Company is terminated
for Cause or a Participant breaches any post-termination covenants
set
forth in any written agreement between the Participant and the
Company,
the Company may, in its discretion, for a period of one year after
the
termination for Cause or the actual discovery by the Company of
the
breach, as applicable, and upon 10 (ten) days’ notice to the Participant,
(i) repurchase all or any portion of any Shares acquired by the
Participant upon the Participant’s exercise of an Award, and/or (ii)
require any such Participant to repay to the Company the amount
of any
profits derived by such Participant upon the sale or other disposition
of
any Shares underlying an Award during the preceding three years.
The
purchase price for any Shares repurchased by the Company pursuant
to
clause (i) of this Section 12(e) shall be the lesser of the price
paid to
acquire such Share and the Fair Market Value thereof on the date
of such
purchase by the Company.
|
SECTION
13. CORPORATE
TRANSACTION/CHANGE IN CONTROL
Except
as
otherwise expressly provided for in a Participant’s employment, consulting or
other applicable agreement:
|
(a)
|
In
the event of any Corporate Transaction, each outstanding Option
and Stock
Appreciation Right shall automatically accelerate so that each
such Option
and Stock Appreciation Right shall, immediately prior to the effective
date of the Corporate Transaction, become fully exercisable with
respect
to the total number of Shares at the time subject to such Option
or Stock
Appreciation Right and may be exercised for any or all of those
Shares as
fully−vested Shares. However, an outstanding Option or Stock Appreciation
Right shall not so accelerate if and to the extent: (i) such Option
or
Stock Appreciation Right is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation (or parent thereof)
or
to be replaced with a comparable Option to purchase shares of the
capital
stock of the successor corporation (or parent thereof) or stock
appreciation right, (ii) such Option or Stock Appreciation Right
is to be
replaced with a cash incentive program of the successor corporation
which
preserves the spread existing on the unvested Option Shares or
Stock
Appreciation Right at the time of the Corporate Transaction and
provides
for subsequent payout in accordance with the same vesting schedule
applicable to the Option or Stock Appreciation Right or (iii) the
acceleration of such Option or Stock Appreciation Right is subject
to
other limitations under the applicable Award Agreement. The determination
of comparability under clause (i) above shall be made by the Committee,
and its determination shall be final, binding and
conclusive.
|
|
(b)
|
All
outstanding repurchase rights with respect to any Restricted Stock
or
Restricted Stock Units shall also terminate automatically, and
the Shares
subject to those terminated rights shall immediately vest in full,
in the
event of any Corporate Transaction, except to the extent: (i) those
repurchase rights are to be assigned to the successor corporation
(or
parent thereof) in connection with such Corporate Transaction or
(ii) such
accelerated vesting is precluded by other limitations imposed under
the
applicable Award Agreement.
|
| (c) |
The
Committee shall have the discretion, exercisable either at the
time an
Award is granted or at any time while the Award remains outstanding,
to
provide for the automatic acceleration of one or more outstanding
Awards
upon the occurrence of a Corporate Transaction, whether or not
those
Awards are to be assumed or replaced in the Corporate
Transaction.
|
| (d) |
Each
Option or Stock Appreciation Right which is assumed in connection
with a
Corporate Transaction shall be appropriately adjusted, immediately
after
such Corporate Transaction, to apply to the number and class of
securities
which would have been issuable to the Participant upon consummation
of
such Corporate Transaction had the Option or Stock Appreciation
Right been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be
made to
(i) the exercise price payable per Share under each outstanding
Option,
provided the aggregate exercise price payable for such securities
shall
remain the same, (ii) the maximum number and/or class of securities
available for issuance pursuant to Options and other Awards over
the
remaining term of the Plan and (iii) the maximum number and/or
class of
securities for which any one person may be granted Options and
other
Awards under the Plan per calendar
year.
|
12
| (e) |
The
Committee shall have full power and authority exercisable, either
at the
time an Option or Stock Appreciation Right is granted or at any
time while
the Option or Stock Appreciation Right remains outstanding, to
provide for
the automatic acceleration of one or more outstanding Options or
Stock
Appreciation Rights in the event the Participant's Service terminates
by
reason of an Involuntary Termination within a designated period
(not to
exceed eighteen (18) months) following the effective date of any
Corporate
Transaction in which those Options or Stock Appreciation Rights
are
assumed or replaced and do not otherwise accelerate. Unless otherwise
determined by the Committee, any Options or Stock Appreciation
Rights so
accelerated shall remain exercisable for fully−vested Shares until the
earlier of (i) the expiration of the Option term or (ii) the expiration
of
the one (1)−year period measured from the effective date of the
Involuntary Termination. In addition, the Committee may provide
that one
or more of the outstanding repurchase rights with respect to Restricted
Stock or Restricted Stock Units held by a Participant at the time
of such
Involuntary Termination shall immediately terminate, and the Shares
subject to those terminated repurchase rights shall accordingly
vest in
full.
|
| (f) |
The
Committee shall have full power and authority, exercisable either
at the
time an Option or Stock Appreciation Right is granted or at any
time while
the Option or Stock Appreciation Right remains outstanding, to
provide for
the automatic acceleration of one or more outstanding Options or
Stock
Appreciation Rights upon (i) a Change in Control or (ii) the termination
of the Participant's Service by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months)
following
the effective date of such Change in Control. Unless otherwise
determined
by the Committee, each Option or Stock Appreciation Right so accelerated
shall remain exercisable for fully−vested Shares until the earlier of (i)
the expiration of the Option term or (ii) the expiration of the
one
(1)−year period measured from the effective date of the Participant's
cessation of Service. In addition, the Committee may provide that
one or
more of the outstanding repurchase rights with respect to Restricted
Stock
or Restricted Stock Units held by a Participant at the time of
such Change
in Control or Involuntary Termination shall immediately terminate,
and the
Shares subject to those terminated repurchase rights shall accordingly
vest in full.
|
| (g) |
The
outstanding Options or other Awards shall in no way affect the
right of
the Company to adjust, reclassify, reorganize or otherwise change
its
capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or
assets.
|
SECTION
14. AUTOMATIC
GRANT OF NON-EMPLOYEE DIRECTOR OPTIONS
|
(a)
|
Grant
Dates.
Option grants shall be made to Non-Employee Directors on the dates
specified below:
|
|
(i)
|
Each
individual who is first elected or appointed as a Non−Employee Director at
any time on or after the Company’s 2007 Annual Meeting shall automatically
be granted, on the date of such initial election or appointment,
an Option
to purchase 40,000 Shares, provided that individual has not previously
been a Director or Employee.
|
13
|
(ii)
|
On
the date of the Company’s 2007 Annual Shareholders Meeting and on the date
of each Annual Shareholders Meeting held after such date, each
individual
who is to continue to serve as a Non−Employee Director, whether or not
that individual is standing for re−election to the Board at that
particular Annual Shareholders Meeting, shall automatically be
granted an
Option to purchase 30,000 Shares if such individual has then served
as a
Non−Employee Director for at least six (6) months. There shall be no
limit
on the number of such 30,000−Share Option grants any one Non−Employee
Director may receive over his or her period of Board service, and
any
Non−Employee Directors who have previously been a Director or Employee
shall be eligible to receive one or more such annual Option grants
over
their period of continued Board
service.
|
|
(b)
|
Exercise
Price.
|
|
(i)
|
The
exercise price per Share of any Options granted under this Section
14
shall be equal to the Fair Market Value of a Share on the date
of grant of
such Options.
|
|
(ii)
|
The
exercise price shall be payable in one or more of the alternative
forms
authorized by the Committee under Section
6(c).
|
|
(c)
|
Option
Term.
Each Option granted under this Section 14 shall have a term of
ten (10)
years measured from the Option grant
date.
|
|
(d)
|
Exercise
and Vesting of Options.
Each Option granted under this Section 14 shall vest and become
exercisable for any or all of the Option Shares covered by such
Option on
the first anniversary of the date of grant of such
Option.
|
(e) Termination
of Board Service.
The
following provisions shall govern the exercise of any Options granted under
this
Section 14 held by a Participant at the time the Participant ceases to serve
as
a Board member:
|
(i)
|
The
Participant (or, in the event of the Participant's death, the personal
representative of the Participant's estate or the person or persons
to
whom the Option is transferred pursuant to the Participant's will
or in
accordance with the laws of descent and distribution) shall have
a twelve
(12)−month period following the date of such cessation of Board Service
in
which to exercise each such Option.
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|
(ii)
|
During
the twelve (12)−month post−service exercise period, the Option may not be
exercised in the aggregate for more than the number of vested Shares
for
which the Option is exercisable at the time of the Participant's
cessation
of Board Service.
|
|
(iii)
|
Should
the Participant cease to serve as a Board member by reason of death
or
Disability, then all Shares at the time subject to the Option shall
immediately vest so that such Option may, during the twelve (12)−month
exercise period following such cessation of Board Service, be exercised
for all or any portion of those Shares as fully−vested
Shares.
|
|
(iv)
|
In
no event shall the Option remain exercisable after the expiration
of the
Option term. Upon the expiration of the twelve (12)−month post−service
exercise period or (if earlier) upon the expiration of the Option
term,
the Option shall terminate and cease to be outstanding for any
vested
Shares for which the Option has not been exercised. However, the
Option
shall, immediately upon the Participant's cessation of Board Service
for
any reason other than death or Disability, terminate and cease
to be
outstanding to the extent the Option is not otherwise at that time
exercisable for vested Shares.
|
14
|
(v)
|
Notwithstanding
anything contained in Subparagraphs (i) through (iv), above, of
this
Section 14(e), the Committee shall have complete discretion, exercisable
either at the time an Option is granted or at any time while the
Option
remains outstanding, to:
|
| (A) |
extend
the period of time for which the Option is to remain exercisable
following
Participant's cessation of Board Service from the limited exercise
period
otherwise in effect for that Option to such greater period of time
as the
Committee shall deem appropriate, but in no event beyond the expiration
of
the Option term, and/or
|
| (B) |
permit
the Option to be exercised, during the applicable post−Service exercise
period, not only with respect to the number of vested Shares for
which
such Option is exercisable at the time of the Participant's cessation
of
Service but also with respect to one or more additional installments
in
which the Participant would have vested had the Participant continued
in
Board Service.
|
|
(f)
|
Compliance
with SEC Regulations.
It is the Company’s interest that the provisions of this Section 14 comply
in all respects with Section 16 of the 1934 Act and any regulations
promulgated thereunder, including Rule 16b-3. If any provision
of this
Section 14 is found not to be in compliance with such rules, the
provision
shall be deemed null and void. All grants and exercises of Options
granted
under this Section 14 shall be executed in accordance with the
requirements of Section 16 of the 1934 Act and any regulations
promulgated
thereunder.
|
|
(g)
|
Tax
Status.
All Options granted pursuant to this Section 14 shall be Non-Qualified
Stock Options.
|
SECTION
15. GENERAL
|
(a)
|
No
Cash Consideration for Awards.
Awards shall be granted for no cash consideration or for such minimal
cash
consideration as may be required by applicable
law.
|
|
(b)
|
Awards
May be Granted Separately or Together.
Awards may, in the discretion of the Committee, be granted either
alone or
in addition to, in tandem with, or in substitution for any other
Award or
any award granted under any other plan of the Company or any Subsidiary.
Awards granted in addition to or in tandem with other Awards, or
in
addition to or in tandem with awards granted under any other plan
of the
Company or any Subsidiary, may be granted either at the same time
as or at
a different time from the grant of such other Awards or
awards.
|
| (c) |
Forms
of Payment Under Awards.
Subject to the terms of the Plan and of any applicable Award Agreement,
payments or transfers to be made by the Company or a Subsidiary
upon the
grant, exercise, or payment of an Award may be made in such form
or forms
as the Committee shall determine, including, without limitation,
cash,
Shares, rights in or to Shares issuable under the Award or other
Awards,
other securities, or other Awards, or any combination thereof,
and may be
made in a single payment or transfer, in installments, or on a
deferred
basis, in each case in accordance with rules and procedures established
by
the Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest
on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred
payments.
|
|
(d)
|
Limits
on Transfer of Awards.
Except as provided by the Committee, no Award and no right under
any such
Award, shall be assignable, alienable, saleable, or transferable
by a
Participant otherwise than by will or by the laws of descent and
distribution provided, however, that, if so determined by the Committee,
a
Participant may, in the manner established by the Committee, designate
a
beneficiary or beneficiaries to exercise the rights of the Participant
with respect to any Award upon the death of the Participant. Each
Award,
and each right under any Award, shall be exercisable, during the
Participant’s lifetime, only by the Participant or, if permissible under
applicable law, by the Participant’s guardian or legal representative. No
Award and no right under any such Award, may be pledged, alienated,
attached, or otherwise encumbered, and any purported pledge, alienation,
attachment, or encumbrance thereof shall be void and unenforceable
against
the Company or any Affiliate.
|
15
|
(e)
|
Per-Person
Limitation on Options and SARs.
The number of Shares with respect to which Options and Stock Appreciation
Rights may be granted under the Plan during any year to an individual
Participant shall not exceed 1,500,000 Shares, subject to adjustment
as
provided in Section 4(b).
|
|
(f)
|
Per-Person
Limitation on Certain Awards.
Other than Options and Stock Appreciation Rights, the aggregate
number of
Shares with respect to which Restricted Stock, Restricted Stock
Units,
Performance Awards and Other Stock-Based Awards may be granted
under the
Plan during any year to an individual Participant shall not exceed
750,000
Shares, subject to adjustment as provided in
Section 4(b).
|
|
(h)
|
Share
Certificates.
All Shares or other securities delivered under the Plan pursuant
to any
Award or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable
under
the Plan or the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
such
Shares or other securities are then listed, and any applicable
Federal,
state, or local securities laws, and the Committee may cause a
legend or
legends to be put on any such certificates to make appropriate
reference
to such restrictions.
|
|
(i)
|
No
Rights to Awards.
No Participant or other Person shall have any claim to be granted
any
Award under the Plan, or, having been selected to receive an Award
under
this Plan, to be selected to receive a future Award, and further
there is
no obligation for uniformity of treatment of Employees, Directors,
Consultants, Participants, or holders or beneficiaries of Awards
under the
Plan. The terms and conditions of Awards need not be the same with
respect
to each recipient.
|
16
| (j) |
Withholding.
The Company or any Subsidiary shall be authorized to withhold from
any
Award granted or any payment due or transfer made under any Award
or under
the Plan the amount (in cash, Shares, other securities, or other
Awards)
of withholding taxes due in respect of an Award, its exercise,
or any
payment or transfer under such Award or under the Plan and to take
such
other action as may be necessary in the opinion of the Company
or
Affiliate to satisfy statutory withholding obligations for the
payment of
such taxes.
|
|
(k)
|
No
Limit on Other Compensation Arrangements.
Nothing contained in the Plan shall prevent the Company or any
Subsidiary
from adopting or continuing in effect other or additional compensation
arrangements, and such arrangements may be either generally applicable
or
applicable only in specific cases.
|
|
(l)
|
No
Right to Employment.
The grant of an Award shall not constitute an employment contract
nor be
construed as giving a Participant the right to be retained in the
employ
or service of the Company or any Subsidiary. Further, the Company
or a
Subsidiary may at any time dismiss a Participant from employment,
free
from any liability, or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award
Agreement.
|
|
(m)
|
Governing
Law.
The validity, construction, and effect of the Plan and any rules
and
regulations relating to the Plan shall be determined in accordance
with
the laws of the State of Delaware and applicable Federal law without
regard to conflict of laws.
|
|
(n)
|
Severability.
If any provision of the Plan or any Award is or becomes or is deemed
to be
invalid, illegal, or unenforceable in any jurisdiction, or as to
any
Person or Award, or would disqualify the Plan or any Award under
any law
deemed applicable by the Committee, such provision shall be construed
or
deemed amended to conform to applicable laws, or if it cannot be
so
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award,
such
provision shall be stricken as to such jurisdiction, Person, or
Award, and
the remainder of the Plan and any such Award shall remain in full
force
and effect.
|
|
(o)
|
No
Trust or Fund Created.
Neither the Plan nor any Award shall create or be construed to
create a
trust or separate fund of any kind or a fiduciary relationship
between the
Company or any Subsidiary and a Participant or any other Person.
To the
extent that any Person acquires a right to receive payments from
the
Company or any Subsidiary pursuant to an Award, such right shall
be no
greater than the right of any unsecured general creditor of the
Company or
any Subsidiary.
|
| (p) |
No
Fractional Shares.
No fractional Shares shall be issued or delivered pursuant to the
Plan or
any Award, and the Committee shall determine whether cash, or other
securities shall be paid or transferred in lieu of any fractional
Shares,
or whether such fractional Shares or any rights thereto shall be
canceled,
terminated, or otherwise
eliminated.
|
|
(q)
|
Headings.
Headings are given to the Sections and subsections of the Plan
solely as a
convenience to facilitate reference. Such headings shall not be
deemed in
any way material or relevant to the construction or interpretation
of the
Plan or any provision thereof.
|
|
(r)
|
Compliance
With Section 409A of the Code.
Except to the extent specifically provided otherwise by the Committee,
Awards under the Plan are intended to satisfy the requirements
of
Section 409A of the Code (and the Treasury Department guidance and
regulations issued thereunder) so as to avoid the imposition of
any
additional taxes or penalties under Section 409A of the Code. If the
Committee determines that an Award, Award Agreement, payment,
distribution, deferral election, transaction or any other action
or
arrangement contemplated by the provisions of the Plan would, if
undertaken, cause a Participant to become subject to any additional
taxes
or other penalties under Section 409A of the Code, then unless the
Committee specifically provides otherwise, such Award, Award Agreement,
payment, distribution, deferral election, transaction or other
action or
arrangement shall not be given effect to the extent it causes such
result
and the related provisions of the Plan and/or Award Agreement will
be
deemed modified, or, if necessary, suspended in order to comply
with the
requirements of Section 409A of the Code to the extent determined
appropriate by the Committee, in each case without the consent
of or
notice to the Participant.
|
17
|
(s)
|
No
Representations or Covenants With Respect to Tax
Qualification.
Although the Company may endeavor to (i) qualify an Award for
favorable U.S. or foreign tax treatment (e.g., incentive stock
options
under Section 422 of the Code) or (ii) avoid adverse tax
treatment (e.g., under Section 409A of the Code), the Company makes
no representation to that effect and expressly disavows any covenant
to
maintain favorable or avoid unfavorable tax treatment. The Company
shall
be unconstrained in its corporate activities without regard to
the
potential negative tax impact on holders of Awards under the
Plan.
|
|
(t)
|
Compliance
With Laws.
The granting of Awards and the issuance of Shares under the Plan
shall be
subject to all applicable laws, rules, and regulations, and to
such
approvals by any governmental agencies or stock exchanges on which
the
Company is listed as may be required. The Company shall have no
obligation
to issue or deliver evidence of title for Shares issued under the
Plan
prior to:
|
|
(i)
|
obtaining
any approvals from governmental agencies that the Company determines
are
necessary or advisable; and
|
|
(ii)
|
completion
of any registration or other qualification of the Shares under
any
applicable national or foreign law or ruling of any governmental
body that
the Company determines to be necessary or advisable or at a time
when any
such registration or qualification is not current, has been suspended
or
otherwise has ceased to be
effective.
|
The
inability or impracticability of the Company to obtain or maintain authority
from any regulatory body having jurisdiction, which authority is deemed by
the
Company’s counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have
been obtained.
SECTION
16. AMENDMENT
AND TERMINATION
Except
to
the extent prohibited by applicable law and unless otherwise expressly provided
in an Award Agreement or in the Plan:
|
(a)
|
Amendments
to the Plan.
The Board of Directors of the Company may amend, alter, suspend,
discontinue, or terminate the Plan, in whole or in part; provided,
however, that without the prior approval of the Company’s shareowners, no
material amendment shall be made if shareholder approval is required
by
law, regulation, or stock exchange, and; provided,
further,
that, notwithstanding any other provision of the Plan or any Award
Agreement, no such amendment, alteration, suspension, discontinuation,
or
termination shall be made without the approval of the shareholders
of the
Company that would:
|
|
(i)
|
increase
the total number of Shares available for Awards under the Plan,
except as
provided in Section 4 hereof;
or
|
|
(ii)
|
except
as provided in Section 4(b), permit Options, Stock Appreciation
Rights, or Other Stock-Based Awards encompassing rights to purchase
Shares
to be repriced, replaced, or regranted through cancellation, or
by
lowering the exercise price of a previously granted Option or the
grant
price of a previously granted Stock Appreciation Right, or the
purchase
price of a previously granted Other Stock-Based
Award.
|
18
|
(b)
|
Amendments
to Awards.
The Committee may waive any conditions or rights under, amend any
terms
of, or amend, alter, suspend, discontinue, or terminate, any Awards
theretofore granted, prospectively or retroactively. No such amendment
or
alteration shall be made which would impair the rights of any Participant,
without such Participant’s consent, under any Award theretofore granted,
provided that no such consent shall be required with respect to
any
amendment or alteration if the Committee determines in its sole
discretion
that such amendment or alteration either (i) is required or advisable
in
order for the Company, the Plan or the Award to satisfy or conform
to any
law or regulation or to meet the requirements of any accounting
standard,
or (ii) is not reasonably likely to significantly diminish the
benefits
provided under such Award.
|
SECTION
17. EFFECTIVE
DATE OF THE PLAN
The
Plan
shall be effective as of the date of its approval by the shareholders of
the
Company.
SECTION
18. TERM
OF THE PLAN
No
Award
shall be granted under the Plan after the tenth anniversary of the date of
the
Annual Shareholders Meeting of the Company in 2007, and no incentive stock
option shall be granted under the Plan after the tenth anniversary of the
adoption of the Plan by the Board. However, unless otherwise expressly provided
in the Plan or in an applicable Award Agreement, any Award theretofore granted
may extend beyond such date, and the authority of the Committee to amend,
alter,
adjust, suspend, discontinue, or terminate any such Award, or to waive any
conditions or rights under any such Award, and the authority of the Board
of
Directors of the Company to amend the Plan, shall extend beyond such
date.
19