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: | |
| x | Preliminary Proxy Statement |
| o | Confidential, for Use of the |
| Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| o | 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.
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(1)
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Title
of each class of securities to which transaction applies: not
applicable
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(2)
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Aggregate
number of securities to which transaction applies: not
applicable
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(3)
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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
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(4)
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Proposed
maximum aggregate value of transaction: not
applicable
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| (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.
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(1)
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Amount
Previously Paid:not
applicable
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(2)
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Form,
Schedule or Registration Statement No.:not
applicable
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(3)
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Filing
Party:not
applicable
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(4)
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Date
Filed:not
applicable
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Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
Pennsylvania 18976-3622
(215)
488-9300
__________________________________________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To be
held on December 7, 2009
___________________________________________________
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 December 7, 2009, at 10:00 a.m. Eastern Standard Time at the New York
Athletic Club, 180 Central Park South, New York, NY 10803 for the following
purposes:
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I.
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To
elect five members to the Board of Directors to serve for the ensuing year
and until their respective successors have been duly elected and
qualified (Proposal 1);
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II.
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To
ratify the selection of Ernst & Young LLP as the Company’s independent
auditors for the fiscal year ending December 31, 2009 (Proposal
2);
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III.
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To
amend and restate the Company’s Restated Certificate of Incorporation
to:
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(a)
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increase
the number of authorized shares of Common Stock available for issuance by
the Company by 200 million shares from 180 million to 380 million
(Proposal 3); and
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(b)
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permit
stockholder action to be taken only at a duly called annual or special
meeting of stockholders and not by written consent (Proposal
4);
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IV.
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To
amend the Company’s 2007 Long-Term Incentive Plan to increase the number
of shares of the Company’s common stock, par value $.001 per share,
available for issuance under such Plan by 3.4 million shares from 8.5
million shares to 11.9 million shares (Proposal 5);
and
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To
transact such other business as may properly come before the meeting and any
adjournments or postponements thereof.
Only
stockholders of record at the close of business on October 8, 2009 (“Record Date”) 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 principal 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. If you plan to attend the Annual Meeting in
person, please bring a photo ID and evidence of your stock ownership as of the
Record Date. If your shares are not registered in your name on the
books of the Company, you will need to obtain evidence of your stock ownership
from your bank or brokerage firm.
Your vote is very
important. For your convenience, you may vote by telephone, via the
Internet, by mailing your properly executed proxy card or voting instruction, or
in person at the Annual Meeting. Whether or not you expect to
attend the Annual Meeting, please vote now to assure representation of your
shares at the Annual Meeting. Instructions for each voting option,
including how to revoke a prior vote should you decide to attend the Annual
Meeting, are provided in the attached proxy statement.
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By
Order of the Board of Directors
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David
L. Lopez, Esq., CPA
Corporate
Secretary
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Warrington,
Pennsylvania
October
21, 2009
DISCOVERY
LABORATORIES, INC.
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
December
7, 2009
Proxies
and voting instructions in the form enclosed with this Proxy Statement are
solicited by the Board of Directors of Discovery Laboratories, Inc., a Delaware
corporation (referred to as “we”, “our”, “us”, and the “Company”,), with our
principal executive offices at 2600 Kelly Road, Suite 100, Warrington,
Pennsylvania 18976-3622, for use at the Annual Meeting of Stockholders and any
adjournment or postponement thereof (the “Annual Meeting”) to
be held December 7, 2009, at 10:00 a.m. Eastern Standard Time at the New York
Athletic Club, 180 Central Park South, New York, NY 10803. It is
expected that this Proxy Statement and the form of proxy will be mailed to
stockholders on or about October 21, 2009.
What is included in these
materials?
These
materials include our proxy statement for the Annual Meeting and our 2008 Annual
Report to Stockholders, which includes our year-end audited consolidated
financial statements.
What matters will be voted
on at the Annual Meeting?
Six
proposals will be taken up at the meeting as well as such other business as may
properly come before the meeting and any adjournments or postponements
thereof. The five proposals are:
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1.
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To
elect five members to our Board of Directors (“Board”) to
serve for the ensuing year and until their respective successors have been
duly elected and qualified (Proposal
1);
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2.
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To
ratify the selection of Ernst & Young LLP as our independent auditors
for the fiscal year ending December 31, 2009 (Proposal
2);
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3.
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To
amend our Restated Certificate of Incorporation
to:
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increase
the number of our authorized shares of Common Stock available for issuance by
200 million shares, from 180 million to 380 million (Proposal 3);
and
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4.
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permit
stockholder action to be taken only at a duly called annual or special
meeting of stockholders and not by written consent (Proposal
4);
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5.
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To
amend our 2007 Long-Term Incentive Plan (the “2007 Plan”) to
increase the number of shares of our common stock, par value $.001 per
share (“Common
Stock”), available for issuance under such plan by 3.4 million
shares from 8.5 million shares to 11.9 million shares (Proposal
5); and
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To
transact such other business as may properly come before the meeting and any
adjournments or postponements thereof
Who may vote at the Annual
Meeting?
Only
stockholders of record of shares of our Common Stock, par value $.001 per share
as of October 8, 2009 (the “Record Date”) may
vote at the Annual Meeting (and any adjournments or postponements of the Annual
Meeting). As of the Record Date, the number and class of stock
outstanding and entitled to vote at the meeting was 123,223,397 shares of
Common Stock. Stockholders who attend the Annual
Meeting should bring a photo ID and evidence of stock ownership as of the
Record Date.
How may stockholders vote
their shares at the Annual Meeting?
On each
matter properly brought before the Annual Meeting, stockholders will be entitled
to one vote for each share of Common Stock held by a stockholder on the Record
Date. Stockholders whose shares are carried on the books of our
transfer agent may vote their shares by telephone, via the Internet, by mailing
a properly executed proxy card, or in person at the Annual
Meeting. Detailed instructions are provided on the proxy card
delivered with this Proxy Statement. If you vote by telephone, via
the Internet or by mailing a proxy card, you are still welcome to attend the
Annual Meeting. We encourage you to vote early to assure the
representation of your shares at the Annual Meeting.
How are stockholders’ shares
held in “Street Name” voted?
Stockholders
whose shares are held in “street name” with a brokerage firm (or banking firm or
other similar institution) may vote their shares by providing instructions to
their broker. The broker is the holder of record on the books of our
transfer agent and is required to vote the shares in accordance with
stockholders’ voting instructions. If instructions about the methods
available for voting shares held in “street name” are not described on voting
instructions delivered with this proxy statement, you should contact your broker
to obtain instructions on voting your shares. Only your broker may
vote shares held in street name.
What are broker
“non-votes”?
If
stockholders whose shares are held in “street name” do not provide voting
instructions to the broker, the broker will nevertheless be permitted to vote
the shares with respect to “discretionary” matters but will not be permitted to
vote the shares with respect to “non-discretionary” matters. The
votes cast by brokers in these circumstances are referred to as broker
“non-votes”.
How does the Board recommend
that stockholders vote their shares?
The Board
recommends that you vote as follows:
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“ FOR” the election of the
nominees for director;
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“
FOR” the
ratification of the selection of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31,
2009;
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“ FOR” the amendment to our
Restated Certificate of Incorporation, as amended, to increase the number
of our authorized shares of Common Stock available for issuance by 200
million shares from 180 million to 380 million (Proposal
3);
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•
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“ FOR” the amendment to our
Restated Certificate of Incorporation, as amended, to permit stockholder
action to be taken only at a duly called annual or special meeting of
stockholders and not by written consent (Proposal 4);
and
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•
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“ FOR” the amendment to our
2007 Long-Term Incentive Plan to increase the number of shares of
our Common Stock available for issuance under the Plan by
3.4 million shares (Proposal
5).
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2
How will a quorum be
established at the Annual Meeting?
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
required to establish a quorum for the transaction of any business at the Annual
Meeting. For purposes of determining the presence or absence of a
quorum for the Annual Meeting, the following shares are counted as
present:
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Shares
represented by stockholders attending the Annual Meeting, whether or not
they vote all their shares;
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All
shares represented by proxies which contain one or more abstentions or
which have votes withheld from any nominee for director;
and
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Shares
represented by proxies containing broker
“non-votes”.
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How are stockholder votes
counted?
All
telephone and Internet votes submitted before 7:00 p.m. (EST), December 6,
2009, and all properly executed proxies that are returned in time to be counted
at the Annual Meeting and not properly revoked will be counted. Where
a choice has been specified on the proxy with respect to any matter, the shares
represented by the proxy will be voted in accordance with such
specifications.
The
nominees for directors under Proposal 1 are elected by a plurality of the votes
cast, in person or by proxy, at the Annual Meeting. The five nominees
receiving the highest number of “FOR” votes at the meeting (a plurality of votes
cast) will be elected as directors and constitute our entire
Board. Shares represented by proxies received and not so marked or
via telephone or Internet and not so indicated will be voted for the election of
the nominees. Where a stockholder proxy or vote via telephone or
Internet indicates 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.
Approval
of Proposals 2 and 5 require the affirmative vote of a majority of the votes
cast, whether in person or by proxy. Approval of Proposals 3 and 4
require the affirmative vote of a majority of the outstanding shares entitled to
vote at the meeting, whether in person or by proxy. Shares subject to
broker “non-votes” are not considered to have been voted for proposals
designated as non-discretionary 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. It is our
understanding that Proposals 1 and 2 will be deemed discretionary matters and
Proposals 3 through 5 will be deemed non-discretionary
matters.
For each
of Proposals 2 through 5, you may determine to vote “FOR”, “AGAINST”, or
“ABSTAIN” from voting. As abstentions are included in the number of
shares present and voting on each matter, they will have the effect of negative
votes. In the election of directors, you may vote your shares “FOR”
each nominee or you may mark your vote “WITHHELD” for any one or more
nominees. If no preference on a particular matter is indicated on a
proxy card, the shares represented by the proxy will be voted FOR the
Proposals.
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 will be voted with respect thereto in
accordance with the judgment of the persons named in the proxies.
How may stockholders revoke
a vote made prior to the Annual Meeting?
Stockholders
may revoke a vote at any time prior to the Annual Meeting and thereafter attend
and vote at the Annual Meeting. To revoke a vote:
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If you voted originally by
telephone or via the Internet, enter new instructions on the same voting
system before 7:00 p.m. (EST), December 6, 2009;
or
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If
your shares are registered in your name on the books of our transfer
agent,
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Send
a written notice of revocation to us, attention Corporate Secretary, which
must be received prior to the close of voting at the Annual Meeting on
December 7, 2009; or
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o
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Attend
the Annual Meeting and vote in person (or send a personal representative
with an appropriate proxy); or
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3
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If
you hold your shares in “street name” with a broker or other similar
institution,
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o
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Contact
the broker that delivered your Proxy Statement to change your
vote. Your new vote must be received from your broker before
the close of voting at the Annual Meeting December 7, 2009;
or
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o
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If
you wish to change your vote by attending the Annual Meeting, you must
contact your broker for documentation – only your broker may change voting
instructions with respect to shares held in “street
name”.
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PROPOSAL
1
ELECTION
OF DIRECTORS
At the
Annual Meeting, stockholders will be asked to elect five
directors. Each director will hold office until his successor
has been elected and qualified or until the director’s earlier resignation or
removal from office.
In August
2009, Robert J. Capetola, Ph.D., a director and our President and Chief
Executive Officer, resigned his positions with us. On September 2,
2009, the Board adopted a resolution reducing the size of the Board from six to
five. As a result, there are currently no vacancies on our
Board.
The Board
recommends that the five nominees named below be elected as directors and it is
intended that all proxies accompanying this proxy statement 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 and not marked 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 knows of no reason why any nominee should be unable
or unwilling to serve, but if that should occur, proxies will be voted for the
election of some other person or the size of the Board will be fixed at a lower
number.
Nominees
for Election to the Board of Directors
The names
of the nominees for election to the Board and certain information about the
nominees are set forth below. Each of the nominees currently serves
as a director. For information concerning the number of shares of
Common Stock beneficially owned by each nominee, see “Common Stock Ownership of
Certain Beneficial Owners and Management on page 22.
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Name
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Age
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Position with the
Company
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W.
Thomas Amick
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66
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Director,
Chairman of the Board of Directors
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Antonio
Esteve, Ph.D.
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51
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Director
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Max
E. Link, Ph.D.
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69
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Director
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Herbert
H. McDade, Jr.
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82
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Director
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Marvin
E. Rosenthale, Ph.D.
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75
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Director
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W. Thomas Amick has served as
a member of our Board since September 2004, as our Chairman since March 2007,
and as our interim Chief Executive Officer since August 13, 2009. Mr.
Amick currently serves as Chairman of the Board and Chief Executive Officer of
Aldagen, Inc. In 2004, Mr. Amick retired from a distinguished 30-year
career with Johnson & 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. He also served as President of Janssen-Ortho, Inc., managing
the entire Johnson & Johnson pharmaceutical and biotechnology portfolio for
Canada, as Vice President of the Oncology Franchise of Ortho Biotech, and has
held various other sales and executive positions throughout his
career. Mr. Amick is 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.A. 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.
4
Antonio Esteve, Ph.D. has served as a member of our Board
since May 2002. Dr. Esteve has chaired the company that bears his
surname, Laboratorios del Dr. Esteve, S.A., since 2005, having previously held
various posts within. Since 2003, he has also chaired the Regional
Government of Catalonia Department of Health Blood and Tissue Bank
(BST). Dr. Esteve was recently appointed Chair of the Catalan
Foundation for Research and Innovation Advisory Board. From October
2006 until October 21, 2008, Dr. Esteve served as President of Farmaindustria
(National Association of the Pharmaceutical Industry in Spain). He is
a member of the IFPMA Council (International Federation of Pharmaceutical
Manufacturers & Associations) and various advisory boards in both Spain and
the United States. He specialized in pharmaceutical marketing at
McNeil Pharmaceutical (Pennsylvania, USA). Antonio Esteve is the
founder of the Pharmaceutical Marketing course and the Masters in Business
Management for the Pharmaceutical Industry at Barcelona University (Faculty of
Pharmacy). Dr. Esteve holds a Doctorate in Pharmacy and PDD
(Executive Development Program) from IESE Business School of the University of
Navarra, Barcelona, Spain.
Max E. Link, Ph.D. has served
as a member of our Board 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 CytRx Corporation. Until May 2008 he served
as a director of Human Genome Sciences, Inc. From March 2001 until October 2003,
Dr. Link was 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 member of our Board since June 1996 and as our Chairman from June
2000 until March 2007. Mr. McDade was employed by the Upjohn Company
for 20 years and served for 14 years as President of Revlon Health Care
Pharmaceuticals and Revlon Health Care International, and, from 1986 to 1989, as
Chairman, Chief Executive Officer and President of Armour Pharmaceutical
Company. Until May 2007, Mr. McDade was a member of the board of
directors of Access Pharmaceuticals, Inc., and until January 2003, he was a
member of the board of directors of CytRx Corporation.
Marvin E. Rosenthale, Ph.D.
has served as a member of our Board 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, a M.Sc. in pharmacology from Philadelphia College of
Pharmacy & Science, and a B.Sc. in pharmacy from the Philadelphia College of
Pharmacy & Science.
Required
Vote and Recommendation
The
directors are elected by a plurality of the outstanding shares of our Common
Stock present in person or represented by proxy and entitled to vote at the
Annual Meeting. See “How are stockholder
votes counted?” at page 3.
THE
BOARD RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES SET FORTH ABOVE.
5
BOARD
OF DIRECTORS AND COMMITTEES OF THE BOARD
Meetings of the
Board
The Board
held four regular meetings and three special meetings during the fiscal year
ended December 31, 2008. Antonio Esteve, Ph.D., a member of the
Board, attended two meetings of the Board in person or by teleconference during
2008. Each of the remaining incumbent directors attended, either in
person or by telephone, 75% or more of the aggregate of the total number
meetings of the Board and the total number of meetings of Standing Committees of
the Board on which he served during 2008.
We do not
have a formal policy regarding director attendance at the 2009 Annual Meeting,
however, it is expected that, absent good reason, all directors will be in
attendance. All of the directors attended the 2008 Annual
Meeting.
Director
Independence
The
operation of the Board is a dynamic process and the Board regularly reviews
changing legal and regulatory requirements. The Board presently
consists of five members, one of whom is a non-employee
executive. Presently, Messrs. McDade and Drs. Link and Rosenthale are
“independent” directors within the meaning of the rules of the Securities and
Exchange Commission (“SEC”) and the listing
requirements of The Nasdaq Stock Market (“Nasdaq”). Each
director who serves on a Standing Committee of the Board is “independent” within
the meaning of the SEC rules and the qualitative listing requirements of
Nasdaq.
Committees
of the Board
The Board
appoints all members of the Board committees. Presently, the Board
has the following committees: Audit Committee, Compensation Committee,
Nomination Committee, Compliance and Quality Committee (the foregoing,
collectively, the “Standing
Committees”), and Strategic Partnering Committee.
Audit
Committee
The Audit
Committee of the Board currently consists of Max E. Link, Ph.D., Herbert H.
McDade, Jr., and Marvin E. Rosenthale, Ph.D. The primary functions of
the Audit Committee include:
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overseeing
our financial statements, system of internal controls, auditing,
accounting and financial reporting
processes;
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providing
an independent, direct communication between the Board and internal
auditors;
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appointing,
compensating, evaluating and, when appropriate, replacing independent
auditors;
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overseeing
our tax compliance;
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reviewing
with management and our independent auditors the annual audit
plan;
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reviewing
the Audit Committee Charter;
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reviewing
and pre-approving audit and permissible non-audit services;
and
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reviewing
and approving all related-party
transactions.
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The Audit
Committee is also responsible for addressing matters of accounting policy with
our 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 that it may
require. 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 five times during the fiscal year
ended December 31, 2008.
6
Compensation
Committee
The
Compensation Committee of the Board currently consists of Marvin E. Rosenthale,
Ph.D. and Max E. Link, Ph.D. The primary functions of the
Compensation Committee include:
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reviewing
and approving corporate goals and objectives related to compensation of
executive officers;
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reviewing
and making recommendations to the Board concerning executive and general
compensation matters;
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determining
the compensation of the Chief Executive
Officer;
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reviewing
and approving compensation arrangements for executive officers, including
employment and severance
agreements;
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overseeing
significant employee benefits programs, policies and equity plans for our
executives, and, where appropriate, other
employees;
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reviewing
and establishing guidelines for the compensation of members of our Board;
and
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reviewing
and discussing with management disclosures in our annual report and proxy
statement related to executive compensation
matters.
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The
Compensation Committee may, in its discretion, confer with, and consider the
recommendations of, management in establishing compensation policies and in
determining compensation (and the form of compensation) to be paid to our
executives. The Compensation Committee generally approves aggregate
amounts to be paid to non-officer employees and management assumes
responsibility for individual non-officer employee compensation
packages. 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 two times during the fiscal
year ended December 31, 2008.
The Board
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
Compensation Committee are “independent” as defined in Rule 5605(a)(2) of the
Nasdaq Marketplace Rules. The Compensation Committee reviews and
assesses the adequacy of its charter on an annual basis.
The
Compensation Committee generally holds meetings in conjunction with the regular
meetings of the Board, though it may meet more or less
frequently. Executive compensation packages, including annual
incentive bonuses for the then-current calendar year, base salary adjustments
for the following calendar year and the grants of equity incentives, are
typically, but may not be, discussed during the last meeting of a calendar
year. See
“Compensation Discussion and Analysis” on page 24.
Compensation Committee
Interlocks and Insider Participation
During
the fiscal year ending December 31, 2008, the Compensation Committee was
composed of Marvin E. Rosenthale, Ph.D. (Chairman of the Committee), W. Thomas
Amick and Max E. Link, Ph.D., all of whom qualified throughout the year as
independent directors. Mr. Amick resigned from the committee when he
was elected our interim Chief Executive Officer. During fiscal year
2008 and currently, there were and are no “interlocks” as defined by the SEC
with respect to any member of the Compensation Committee.
Nomination
Committee
The
Nomination Committee currently consists of Herbert H. McDade, Jr. and Marvin E.
Rosenthale, Ph.D. The primary functions of the Nomination Committee
include:
|
|
·
|
determining
the composition and 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.
|
7
The
Nomination Committee considers candidates for director nominees that may be
proposed by directors, the Chief Executive Officer and
stockholders. The Nomination Committee may retain recruiting
professionals to identify and evaluate director candidates. The
Nomination Committee has the authority to designate the nominees to stand for
election as director at each annual meeting of the stockholders and to fill
vacancies on the Board occurring between annual meetings.
The
Nomination Committee strives to identify candidates who possess a mix of skills
and diverse perspectives (functional, cultural and geographic). In
selecting nominees, the Nomination Committee assesses the independence,
character, relevant expertise and experience of candidates and endeavors to
collectively establish within the Board areas of core competencies, such as
business judgment, management, accounting and finance, industry knowledge,
leadership, strategic vision, and knowledge of domestic and international
markets and marketing. The Board may also seek nominees who are
widely recognized as leaders in the fields of medicine or the biological
sciences. 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. Consideration is also given to whether the
qualifications of a potential nominee complement and supplement the skills of
existing members of the Board. The Nomination Committee met one time
during the fiscal year ended December 31, 2008.
The Board
has adopted a written Nomination Committee Charter. The composition
and responsibilities of the Nomination Committee and the attributes of its
members, as reflected in its Charter, are intended to be in accordance with
applicable qualitative listing requirements of The Nasdaq Global Market and the
rules of the SEC for corporate nominating committees. All members of
the Nomination Committee are “independent” as defined in Rule 5605(a)(2) of the
Nasdaq Marketplace Rules.
Stockholder
Nominations
The
Nomination Committee will consider any candidate timely submitted by
stockholders of record at the time of any such nomination in compliance with
applicable SEC rules and our Amended and Restated By-Laws (the “By-Laws”). Assuming
that next year’s annual meeting is held within 30 days of the anniversary of
this year’s Annual Meeting, to be considered timely, any stockholder nomination
must be in compliance with the procedure set forth in our By-laws and received
no earlier than May 25, 2010 and no later than June 24, 2010 and should be sent
to the Nomination Committee, c/o Corporate Secretary, 2600 Kelly Road, Suite
100, Warrington, Pennsylvania 18976-3622. The Nomination Committee
determines, in its sole discretion, whether any such candidate qualifies for
candidacy under the criteria described above and in the charter of the
Nomination Committee.
Stockholders’
nominations for candidates for election at 2010 Annual Meeting must be submitted
in writing to our Corporate Secretary and, to be in proper form, must include
the following information about the proposed candidate: (i) the candidate’s
name, age, business address and residence address, (ii) the candidate’s
principal occupation or employment, (iii) the class or series and number of
shares of our capital stock owned beneficially or of record by the candidate,
(iv) a representation that the candidate does not have, nor will not have, any
undisclosed voting commitments or other arrangements with respect to such
candidate’s actions as a director, (v) any other information relating to the
candidate or such stockholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of Directors pursuant to Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder, and (vi) a written consent
of the candidate to being named as a nominee and to serve as a director if
elected.
8
Stockholders’
nominations must include the following information about the nominating
stockholder: (a) the nominating stockholder’s name and record address, (b) the
class or series and number of shares of our capital stock owned beneficially or
of record by the nominating stockholder, (c) a description of all arrangements,
material relationships, or understandings between such stockholder and each
proposed candidate and any other person or persons pursuant to which the
nomination is to be made by such stockholder, (d) a representation that such
stockholder intends to appear in person or by proxy at the meeting to nominate
the candidate, (e) any option, warrant, convertible security, stock appreciation
right, or similar right with an exercise or conversion privilege or a settlement
payment or mechanism at a price related to any class or series of shares of our
capital stock or with a value derived in whole or in part from the value of any
class or series of shares of our capital stock, whether or not such instrument
or right shall be subject to settlement in the underlying class or series of our
capital stock or otherwise (a “Derivative Instrument”) directly or indirectly
owned beneficially by such stockholder and any other direct or indirect
opportunity to profit or share in any profit derived from any increase or
decrease in the value of shares of the Corporation; (f) any proxy, contract,
arrangement, understanding, or relationship pursuant to which such stockholder
has a right to vote any shares of our capital stock; (g) any short interest in
any security of ours (for this purpose, the stockholder shall be deemed to have
a short interest in a security if such stockholder directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
the opportunity to profit or share in any profit derived from any decrease in
the value of the subject security); (h) any rights to dividends on the shares of
our capital stock owned beneficially by such stockholder that are separated or
separable from the underlying shares; (i) any proportionate interest in shares
of our capital stock or Derivative Instruments held, directly or indirectly, by
a general or limited partnership in which such stockholder is a general partner
or, directly or indirectly, beneficially owns an interest in a general partner;
(j) any performance-related fees (other than an asset-based fee) that such
stockholder is entitled to based on any increase or decrease in the value of
shares of our capital stock or Derivative Instruments, if any, as of the date of
such notice, including without limitation any such interests held by members of
such stockholder’s immediate family sharing the same household (which
information shall be supplemented by such stockholder and beneficial owner, if
any, not later than 10 days after the record date for the meeting to disclose
such ownership as of the record date; and (k) any other information relating to
such stockholder that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for election of Directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. From time to time, the
Board may change the process through which stockholders may recommend candidates
to the Nomination Committee. Please refer to our website at http://www.discoverylabs.com
for changes in this process.
Compliance
and Quality Committee
The
Compliance and Quality Committee currently consists of Max E. Link, Ph.D. and
Marvin E. Rosenthale, 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 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 did not meet during the fiscal year ended
December 31, 2008.
Strategic
Partnering Committee
The Board
established the Strategic Partnering Committee in December 2007. The
Committee currently consists of W. Thomas Amick and Max E. Link,
Ph.D. The primary function of the Strategic Partnering Committee is
to work with management to seek out opportunities to partner with companies
having synergistic and complementary expertise to develop and commercialize our
Surfactant Technology pipeline. The Strategic Partnering Committee
met one time during the fiscal year ended December 31, 2008.
9
DIRECTOR
COMPENSATION
During
2008, each of our non-employee directors received cash compensation for his
services in the amount of $4,500 per quarter, as well as the following
additional amounts, as applicable: (i) $6,000 per quarter to Mr. Amick for
serving as the Chairman of the Board; (ii) $1,000 per quarter for each director
who served on one or more of the standing committees of the Board; and (iii)
$500 per quarter for each director who served as Chairman of any of the standing
committees. Directors who are also our employees are not compensated
separately for serving on the Board or any of its standing
committees. The following chart summarizes the annual cash
compensation for our non-employee directors during the fiscal year ended
December 31, 2008.
|
Name
|
Fees
Earned or Paid in Cash
|
Stock
Awards
|
Option
Awards(1)
|
Non-Equity
Incentive Plan Compen-sation
|
Change
in Pension Value and Nonqualified Deferred Compensation
|
All
Other Compen-sation
|
Total
|
|||||||||||||||||||||
|
W.
Thomas Amick(2)
|
$ | 50,000 | $ | - | $ | 69,018 | $ | - | $ | - | $ | - | $ | 119,018 | ||||||||||||||
|
Antonio
Esteve, Ph.D.
|
18,000 | - | 57,258 | - | - | - | 75,258 | |||||||||||||||||||||
|
Max
E. Link, Ph.D.
|
24,000 | - | 57,258 | - | - | - | 81,258 | |||||||||||||||||||||
|
Herbert
H. McDade, Jr.
|
22,000 | - | 57,258 | - | - | - | 79,258 | |||||||||||||||||||||
|
Marvin
E. Rosenthale, Ph.D.
|
24,000 | - | 57,258 | - | - | - | 81,258 | |||||||||||||||||||||
|
(1)
|
Represents the
compensation costs for the year under FAS 123R of outstanding stock
options, and is not an amount paid to, or realized by, the
director. There can be no assurance that these FAS 123R amounts will
ever be realized. The FAS 123R
value as of the grant date for each option is spread over the number of
months of service required for the grant to become
non-forfeitable. This amount includes ratable amounts expensed for
options granted in prior years. See Note 11 – “Stock Options and
Stock-based Employee Compensation” to our consolidated financial
statements for the year ended December 31, 2008, in the Form 10-K. As
of December 31, 2008, the aggregate number of option awards outstanding
for each director was as follows: Mr. Amick – 180,000; Dr. Esteve –
175,000; Dr. Link – 155,000; Mr. McDade – 205,000; and Dr. Rosenthale –
155,000. The FAS 123R grant date value per share for options granted
in 2008 was $1.32.
|
|
(2)
|
Mr. Amick served as a
non-employee director through 2008 and until August 13, 2009, when,
following the resignation of Dr. Capetola as our President and Chief
Executive Officer, Mr. Amick became our Chief Executive Officer on an
interim basis.
|
Directors
also are entitled to expense reimbursements for their travel, lodging and other
expenses incurred in connection with attendance at meetings of the Board, Board
Committee meetings and related activities.
Pursuant
to our 2007 Long-Term Incentive Plan (the “2007 Plan”), our
non-employee directors are entitled to receive (i) a one-time award of options
for the purchase of 40,000 shares of Common Stock on the date of their initial
election or appointment to the Board, provided that he or she has not previously
been a director, and (ii) 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 (together with the one-time award upon initial election, collectively,
“Director
Options”) on the date of each annual meeting of stockholders thereafter,
provided he or she has served for at least six months prior to such annual
meeting. The exercise price of Director Options is equal to the fair
market value of our Common Stock on the date of grant. Director
Options vest and become exercisable on the first anniversary of the date of
grant and have a term of 10 years measured from the date of
grant. Upon cessation of Board service, each director-optionee or his
or her legal representative has the right to exercise Director Options for a
period of twelve (12) months following the date of cessation of
service. Upon the death or disability of a director-optionee, all
unvested Director Options vest immediately and become immediately
exercisable. The Compensation Committee, in its capacity as 2007 Plan
Administrator, has discretion to extend the period during which Director Options
may be exercised post-cessation of service and may also provide for vesting of
Director Options that are not vested on the date of cessation of
service.
We have
agreed pursuant to our charter documents to indemnify our directors to the
maximum extent permissible under the General Corporation Law of the State of
Delaware. In addition, we have entered into indemnity agreements with
certain of our executive officers that provide, among other things, that we 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
ours, and otherwise to the fullest extent permitted under the General
Corporation Law of the State of Delaware and our By-Laws.
10
Availability
of our Audit, Compensation and Nomination Committee Charters
A current
copy of our Committee Charters (Audit Committee Charter, Compensation Committee
Charter the Nomination Committee) are available on our website at http://www.discoverylabs.com. Our
website and the information contained therein or connected thereto are not
incorporated into this Proxy Statement.
PROPOSAL
2
RATIFICATION
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
The
Board, acting upon the recommendation of the Audit Committee, has reappointed
the firm of Ernst & Young LLP as our registered independent public
accounting firm for the fiscal year ending December 31, 2009.
Although
action by the stockholders in this matter is not required under the General
Corporation Law of the State of Delaware, the Board 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
our financial controls and reporting. If the stockholders fail to
ratify the appointment, the Audit Committee and the Board 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 our best
interests and those of our stockholders.
Audit,
Audit Related, Tax and Other Accountant Fees
The
following table presents fees for professional audit services rendered by Ernst
& Young LLP for the audit of our annual consolidated financial statements
for the fiscal years ended December 31, 2008 and December 31, 2007, fees for the
review of quarterly reports on Form 10-Q during these periods and fees for other
services rendered by Ernst & Young LLP during those periods:
|
Fee
Category:
|
Fiscal
2008
|
%
of Total
|
Fiscal
2007
|
%
of Total
|
||||||||||||
|
Audit
Fees
|
$ | 222,000 | 65 | % | $ | 241,000 | 68 | % | ||||||||
|
Audit-Related
Fees
|
84,000 | 24 | % | 84,000 | 24 | % | ||||||||||
|
Tax
Fees
|
34,000 | 10 | % | 25,000 | 7 | % | ||||||||||
|
All
Other Fees
|
2,000 | 1 | % | 2,000 | 1 | % | ||||||||||
|
Total
Fees
|
$ | 342,000 | 100 | % | $ | 352,000 | 100 | % | ||||||||
Audit
Fees are fees that we paid to Ernst & Young LLP for: the audit of our annual
consolidated financial statements; the review of the consolidated financial
statements included in our quarterly reports on Form 10-Q and services related
to registration statements and other offering memoranda.
Audit
Related Fees are fees related to the audit of our 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 another category.
11
The Audit
Committee or a designated member of the Audit Committee pre-approved all audit
and non-audit services rendered by Ernst & Young LLP to us in
2008.
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.
Pre-Approval
Policies
The Audit
Committee pre-approves all audit and non-audit services provided by our
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
our independent auditors is not required, our 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 our 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.
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.
Required
Vote and Recommendation
The
affirmative vote of a majority of the shares of our Common Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to approve this Proposal 2.
THE
BOARD RECOMMENDS A VOTE “FOR” PROPOSAL 2.
PROPOSAL
3
PROPOSAL
TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED,
TO
INCREASE THE NUMBER OF AUTHORIZED SHARES TO 380 MILLION SHARES
The
Board, subject to approval of our stockholders, authorized an amendment (the
“Share
Amendment”) to our Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock available for issuance from 180
million to 380 million. The additional Common Stock to be authorized
by adoption of the Share Amendment would have rights identical to our currently
outstanding shares of Common Stock. The number of authorized shares
of our preferred stock will not be affected by the Share Amendment. The number
of shares of our authorized preferred stock will be maintained at 5
million.
12
The Board
has adopted, declared advisable and directed to be submitted to the stockholders
the proposed Share Amendment to amend the first paragraph of paragraph A. of
Article FOURTH thereof to read in its entirety as follows:
A.
Authorization.
The total
number of shares of all classes of stock which the Corporation shall have
authority to issue is 380,000,000 consisting of 375,000,000 shares of Common
Stock, par value $.001 per share (the “Common Stock”), and 5,000,000 shares of
preferred stock, par value $.001 per share (the “Preferred Stock”).
The Share
Amendment would become effective upon its approval by our stockholders and the
subsequent filing with the Secretary of State of the State of Delaware of a
Certificate of Amendment to our Certificate of Incorporation.
Purpose
of the Share Amendment
Of the
approximately 180 million shares of Common Stock that are presently authorized,
as of September 30, 2009, approximately 179.5 million shares of Common Stock are
either issued and outstanding or reserved for issuance under our equity
incentive plans, our 401(k) benefit plan, our Committed Equity Financing
Facilities, or upon exercise of outstanding warrants. As a result,
excluding our specific reserves, fewer than 500,000 shares are currently
available for future issuance.
In April
2009, although we anticipated approval of our New Drug Application (NDA) for
Surfaxin® for the
prevention of Respiratory Distress Syndrome (RDS) in premature infants, we
received a Complete Response Letter from the U.S. Food and Drug Administration
(“FDA”) that
requested additional information focused primarily on our Surfaxin biological
activity test (“BAT”). We
requested an “end-of-review” meeting with the FDA, which occurred on June 2,
2009, and a follow-up teleconference, which occurred on September 29,
2009. As a result of these meetings, we believe that we have
identified viable options to (i) address the FDA’s concerns about our BAT and
advance our development programs to potentially address a broad range of
respiratory diseases, including RDS, Acute Respiratory Failure, Acute Lung
Injury and Cystic Fibrosis, and (ii) resolve the remaining issues related
to, and potentially gaining approval of, Surfaxin. As these
developments have delayed, and may preclude, the potential launch of Surfaxin
and our achieving profitability in the near term, we have made fundamental
changes in our business strategy and have taken steps to conserve our cash
resources. We have implemented cost containment measures, including a
reduction in our workforce. Although we previously planned to
commercialize our KL4 surfactant
products to address RDS in the United States by ourselves, we are now seeking to
enter into strategic alliances in all markets, including the United
States. We seek alliances that will potentially provide for
non-dilutive capital in the form of upfront payments, milestone payments,
commercialization royalties and a sharing of research and development
expenses. We are currently engaged in discussions with certain
interested parties. Although we are hopeful that we can achieve one
or more strategic alliances, there can be no assurance that we will succeed, if
at all, on a timely basis. In addition to potential non-dilutive
strategic alternatives, we continue to consider potential additional financings
and other opportunities to meet our ongoing capital requirements, which include
our $10 million loan with Novaquest (formerly PharmaBio Development, Inc.),
currently due in April 2010, and continue our operations. (For a more
detailed discussion of these matters, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our
accompanying Consolidated Financial Statements (including the notes thereto) in
our most recent quarterly report on Form 10-Q and other filings that we make
with the SEC, including those on Forms 10-Q and 8-K.)
Our first
priority now is to maximize the inherent value in our KL4 surfactant
technology by focusing on our novel lyophilized and aerosolized KL4 surfactant
pipeline programs to address the most significant respiratory conditions
affecting pediatric populations. We also plan to continue to interact
with the FDA to finalize a path to potentially gain marketing approval for
Surfaxin. Over time, we plan to make prudent investments in
preclinical studies and our drug product and device development programs, and
focus our resources on being in a position to initiate key clinical programs
after we have secured appropriate strategic alliances and necessary
capital. We believe that this strategy has the potential to support a
robust pipeline of products that potentially will represent attractive market
opportunities and generate stockholder value.
13
The Board
believes that our strategies depend upon our ability to issue additional shares
of Common Stock from time to time and that the Share Amendment will benefit us
by providing our Board the authority and flexibility to pursue a variety of
business and financial objectives without further action of the stockholders
(except when required by law or regulation). Without limiting the
foregoing, we may be required to issue shares (i) in connection with any
potential strategic alliance, (ii) to fund our continuing research and
development programs for our pipeline candidates currently under development,
(iii) to meet our working capital needs and other capital-raising activities,
(iv) to continue to issue options pursuant to our equity incentive plans, and to
issue shares upon exercise of options, as needed to attract and retain key
management and professional personnel, (v) to continue issuing shares in
connection with our company match under our 401(k) Plan, and (vi) for general
and other strategic and corporate purposes, as well as, in the long-term, to
consider potential joint ventures, acquisitions of additional businesses, stock
dividends or distributions. The issuance of additional shares may
take the form of (a) partnering transactions involving the issuance of
securities pursuant to exemptions from the registration requirements of the
Securities Act, (b) private financings that we may seek to effect pursuant
to exemptions from the registration requirements of the Securities Act, or
(c) public offerings. In certain situations, even if the Share
Amendment is approved, we will still be required to seek stockholder approval of
significant transactions, such as any financing involving the issuance of our
Common Stock representing more than 20% of our outstanding shares at a discount
to the then-current market value of our Common Stock, or a corporate
transaction, such as a merger, acquisition or other business
combination.
Potential Effects of the
Share Amendment
The Share
Amendment will not alter the current number of issued shares or change the
relative rights and limitations of the shares of Common
Stock. However, because our stockholders have no preemptive rights to
purchase or subscribe for any of our unissued Common Stock, the issuance of
additional shares of Common Stock will reduce the current stockholders'
percentage ownership interest in the total outstanding shares of Common
Stock. In the absence of a proportionate increase in our future
earnings and book value, an increase in the number of our outstanding shares of
Common Stock would dilute our projected future earnings per share, if any, and
book value per share of all our outstanding shares of the Common
Stock. If these factors were reflected in the price per share of our
Common Stock, the potential realizable value of a stockholder’s investment could
be adversely affected. An issuance of additional shares could
therefore have an effect on the potential realizable value of a stockholder’s
investment.
The
proposed increase in the authorized number of shares of Common Stock could have
other effects on our stockholders, depending upon the exact nature and
circumstances of any actual issuances of authorized but unissued
shares. An increase in our outstanding shares could potentially deter
takeovers, including takeovers that our Board has determined are not in the best
interest of our stockholders, in that additional shares could be issued (within
the limits imposed by applicable law) in one or more transactions that could
make a change in control or takeover more difficult. For example, we
could issue additional shares so as to dilute the stock ownership or voting
rights of persons seeking to obtain control without our
agreement. Similarly, the issuance of additional shares to certain
persons allied with our management could have the effect of making it more
difficult to remove our current management by diluting the stock ownership or
voting rights of persons seeking to cause such removal.
Required
Vote and Recommendation
The
affirmative vote of at least a majority of the outstanding shares of our Common
Stock eligible to vote at the Annual Meeting will be required to approve the
Share Amendment.
THE
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE SHARE
AMENDMENT.
14
PROPOSAL
4
PROPOSAL
TO AMEND OUR RESTATED CERTIFICATE OF INCORPORATION TO PERMIT STOCKHOLDER ACTION
TO BE TAKEN ONLY AT A DULY CALLED ANNUAL OR SPECIAL MEETING AND ELIMINATE
STOCKHOLDER ACTION BY WRITTEN CONSENT
The
Board, subject to approval of our stockholders, authorized an amendment to our
Restated Certificate of Incorporation to permit stockholder action to be taken
only at a duly called annual or special meeting of stockholders and to eliminate
stockholder action by written consent.
The Board
has adopted, declared advisable and directed to be submitted to the stockholders
a proposed amendment to the Restated Certificate of Incorporation to amend
Article NINTH thereof to read in its entirety as follows:
NINTH:
Any action required or permitted to be taken by the stockholders of the
Corporation must be taken at a duly called annual or special meeting of
stockholders of the Corporation, and the power of stockholders to consent in
writing to the taking of any action, without a duly called meeting and vote, is
specifically denied. Notwithstanding the foregoing sentence, the
holders of any class or series of Preferred Stock shall be entitled to take
action by written consent to such extent, if any, as may be provided in the
terms of such class or Series of Preferred Stock.
Reasons
and Effect of the Proposed Amendment
Under the
Delaware General Corporation Law, unless otherwise provided in a corporation’s
certificate of incorporation, any action required or permitted to be taken by
stockholders at a meeting may be taken without notice, without a meeting and
without a stockholder vote if a written consent setting forth the action to be
taken is signed by the holders of outstanding shares of stock having the
requisite number of votes that would be necessary to authorize the action at a
meeting of stockholders at which all shares entitled to vote were present and
voted. Our Certificate of Incorporation does not currently address
stockholder action by written consent. Consequently, the holders of
the requisite number of shares of our Common Stock may take action without
notice, without a meeting and without a stockholder vote. If adopted,
the proposed amendment to our Restated Certificate of Incorporation will
eliminate the potential for stockholders to act by written consent and will
require that any action of stockholders be taken at a duly called annual or
special meeting of stockholders.
The Board
is proposing the amendment at this time in order to give all of our stockholders
the opportunity to participate in determining any proposed action of
stockholders and to allow our Board the opportunity to give advance
consideration to, and to give the stockholders its recommendation with respect
to, any such proposed action. The Board believes that it is
appropriate to prevent the holders of a majority of outstanding voting
securities from taking unannounced action and from using the written consent
procedure to take action affecting the rights of all of our stockholders without
such action being fully considered by all of our stockholders at a formal
meeting of stockholders. The proposed amendment is also intended to
protect us and our stockholders from unfair or coercive takeover
tactics. As part of a hostile takeover attempt, hostile bidders often
attempt to force a response by a target company through threats or attempts to
secure stockholder action without a meeting, which may not provide the board of
directors of the target company with a reasonable opportunity to consider
whether such hostile bid or stockholder proposal is in the best interests of the
stockholders of the target company. The proposed amendment is
intended to eliminate our vulnerability to such tactics and to ensure that
appropriate takeover bids can be considered in a deliberate, proper and fully
informed manner.
The
proposed amendment will prevent stockholders from taking action other than at an
annual or special meeting of stockholders. Our bylaws provide that
only the Board, the Chairman or the Chief Executive Officer may call special
meetings of our stockholders.
Consequently, if Proposal 4 is approved, our stockholders, or a group of
our stockholders, would no longer have the ability to take corporate action
between annual meetings of stockholders without the approval of our Board, our
Chairman or our Chief Executive Officer.
15
Potential
Anti-Takeover Effect and Other Provisions
This
Proposal 4 could have a potential anti-takeover effect and might render more
difficult or discourage a merger, tender offer, proxy contest or change in
control and the removal of management, which stockholders might otherwise deem
favorable. This Proposal, if adopted, may be disadvantageous to
stockholders to the extent that it has the effect of delaying or discouraging a
future takeover attempt that is not approved by the Board but which a majority
of the stockholders may deem to be in their best interests. This
Proposal 4 is not being proposed in response to any attempt to acquire control
of us, to obtain representation on our Board, or to take significant corporate
action, and we are not aware of any such plans.
Various
provisions of our Restated Certificate of Incorporation and By-laws and of
Delaware corporate law may discourage, delay or prevent a change in control or
takeover attempt of us by a third party that is opposed by our Board, including
the following: (a) authorization of “blank check” preferred stock that
could be issued by our Board to make it more difficult for a third party to
acquire, or to discourage a third party from acquiring, a majority of our
outstanding voting stock; (b) non-cumulative voting for Directors;
(c) control by our Board of the size of our Board; (e) limitations on
the ability of stockholders to call special meetings of stockholders; and (f)
advance notice requirements for nominations of candidates for election to our
Board or for proposing matters that can be acted upon by our stockholders at
stockholder meetings. We have also adopted a stockholder rights plan,
which permits holders of rights to acquire our Common Stock for effectively
one-half of the market price if a person or entity acquires 15% or more of our
Common Stock, subject to certain conditions.
In
addition, as of September 30, 2009, our directors, executive officers, principal
stockholders and affiliated entities beneficially owned, in the aggregate,
approximately 26.3% of the issued and outstanding shares of our common
stock. For the purpose of computing this amount, an affiliated entity
includes any entity that is known to us to be the beneficial owner of more than
5% of our issued and outstanding common stock. As a result, if some
or all of them acted together, they would have the ability to exert substantial
influence over the election of our Board and the outcome of issues requiring
approval by our stockholders. This concentration of ownership may
have the effect of delaying or preventing a change in control of our company
that may be favored by other stockholders. In addition, employment
agreements that we have with our executive officers contain severance and change
in control provisions. Furthermore, under our executive employment
agreements, the vesting of certain options or restricted stock may be
accelerated as result of a change in control. The potential payments
and benefits that would become payable upon termination of employment or a
change of control could thus increase the costs of a transaction and thereby act
as a deterrent to a potential takeover.
We also
are subject to Section 203 of the Delaware General Corporation
Law. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years following the date the person became an
interested stockholder, unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation and certain
transactions that would increase the interested stockholder’s proportionate
share ownership in the corporation. Generally, an interested
stockholder is a person who owns 15% or more of a corporation’s voting stock or
is an affiliate or associate of the corporation and owned 15% or more of the
corporation’s voting stock within three years prior to the determination of
interested stockholder status. The existence of this provision could
prevent a takeover of the Company with respect to transactions not approved in
advance by our Board, including takeover attempts that might result in a premium
over the market price of our Common Stock.
Required
Vote and Recommendation
The
affirmative vote of at least a majority of the outstanding shares of our Common
Stock eligible to vote at the Annual Meeting will be required to approve this
Proposal 4.
THE
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” PROPOSAL 4.
16
PROPOSAL
5
PROPOSAL
TO AMEND THE 2007 EQUITY INCENTIVE PLAN
TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
RESERVED
FOR ISSUANCE UNDER THE PLAN
The Board
has adopted, declared advisable and directed to be submitted to our
stockholders, subject to approval by our stockholders of Proposal 3, an
amendment (the “Plan
Amendment”) to the Discovery Laboratories, Inc. 2007 Long-Term Incentive
Plan (the “2007
Plan”) to increase the number of shares of Common Stock reserved for
issuance thereunder by 3.4 million shares, from 8,500,000 shares to 11,900,000
shares. If the Plan Amendment is not approved, we will have
approximately 1.9 million shares (plus any shares that might in the future be
returned to the 2007 Plan as a result of the reacquisition of unvested shares,
or as a result of cancellations or expiration of options) available for future
grant under the 2007 Plan and thereafter will not be able to grant additional
options under the 2007 Plan.
The
outstanding options under the 2007 Plan and the predecessor plan (the “1998 Plan”) total in
the aggregate 16,020,134 shares, or approximately 13.1% of our outstanding
shares. The following table sets forth an analysis of the exercise
prices of all outstanding options as of September 30, 2009:
|
Options
Exercise Price Range
|
Weighted
Average Price
|
Options
Outstanding
(shares)
|
%
of Options Outstanding
|
Options
as % of Shares Outstanding*
|
||||
|
< $2.00
|
$1.68
|
4,086,300
|
26%
|
3%
|
||||
|
$2.01
- $3.00
|
$2.48
|
5,822,334
|
36%
|
5%
|
||||
|
$3.01
- $4.00
|
$3.32
|
1,719,375
|
11%
|
1%
|
||||
|
$4.01
- $5.00
|
$4.40
|
345,500
|
2%
|
0%
|
||||
|
$5.01
- $7.50
|
$6.47
|
1,590,750
|
10%
|
1%
|
||||
|
> $7.50
|
$8.89
|
2,455,875
|
15%
|
2%
|
||||
|
16,020,134
|
13%
|
* As of September 30, 2009, 121,699,850
shares of Common Stock were issued and outstanding.
As the
table demonstrates, approximately 25% of all outstanding options are exercisable
at prices that exceed $5.00 per share. Because of the variance
between the exercise price of these options and the current market value of our
Common Stock, the Board believes that these options may be less likely to be
exercised than lower-priced options. Therefore, in evaluating the
incentives available for management and our employees generally, the Board
places less weight on the potential realization of these higher-priced
options. The outside expiration date for these higher-priced options
is March 2016 and the average remaining life of these options is 4.65
years. The Board believes that it is important to provide incentives
to our management and employees by augmenting these options with newer options
exercisable at prices that more closely reflect our current market value per
share (subject to appropriate limitations, including vesting
schedules).
In
approving the Plan Amendment and recommending it to our stockholders, the Board
also considered the following factors:
|
|
·
|
Of
the total options outstanding, approximately 10.2 million, or 63%, are
held by current management and employees. The remaining
approximately 37% are held by former employees, including Dr. Capetola,
who retains his options under a Separation Agreement, and
consultants;
|
|
|
·
|
The
outstanding options that are exercisable at prices below $5.00 per share
total approximately 12 million options and represent approximately 9.8%
of our issued outstanding shares of Common
Stock;
|
|
|
·
|
Of
the options currently outstanding, approximately 525,000 higher-priced
options are expected to expire unexercised prior to December 31,
2010;
|
17
|
|
·
|
Options
that are more likely to expire out-of-the-money are generally issued under
the 1998 Plan. Shares related to these options will not, upon
expiration, become available for re-issuance as the 1998 Plan has expired
and no further awards can be made under the 1998
Plan;
|
|
|
·
|
Without
the Plan Amendment, we will not have a sufficient share reserve to meet
our future needs and obligations, in particular with respect
to:
|
|
|
o
|
retaining
and rewarding our current management and professional employees with
long-term, non-cash incentive
awards,
|
|
|
o
|
attracting,
and providing non-cash, long-term incentives to, new executive and other
professional talent necessary to achieve our
goals,
|
|
|
o
|
issuing
automatic grants to our non-employee directors, as required by the 2007
Plan, and issuing when appropriate annual long-term incentive awards to
management and employees (see “Compensation
Discussion and Analysis”), and
|
|
|
o
|
at
the appropriate time, attracting and providing long-term incentives to a
new Chief Executive Officer.
|
The Board
believes that the Plan Amendment is necessary to ensure that we can continue to
grant equity incentives at levels deemed appropriate by the Compensation
Committee and the Board. The purposes of the 2007 Plan are to
encourage selected employees, directors and consultants to acquire a proprietary
interest in our future growth and performance, to generate an increased
incentive to contribute to our future success and prosperity, thus enhancing our
value for the benefit of our stockholders, and to enhance our ability to attract
and retain exceptionally qualified individuals upon whom, in large measure, our
sustained progress, growth and profitability depend.
Required
Vote and Recommendation
The
affirmative vote of a majority of the shares or our Common Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to approve the Plan Amendment.
THE
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE PLAN
AMENDMENT.
DESCRIPTION
OF THE 2007 PLAN
The 2007
Plan was adopted by the Board on March 8, 2007, was approved by our stockholders
on June 21, 2007, and expires on June 21, 2017. The principal
features of the 2007 Plan are summarized below, but the summary is qualified in
its entirety by reference to the 2007 Plan itself, which we filed with the SEC
as Exhibit 1.1 to our Current Report on Form 8-K dated June 28,
2007. Copies of the 2007 Plan may also be obtained by writing to us
at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976, attention
Corporate Secretary, Legal Department.
Eligibility. Any
of our employees, directors or consultants are eligible to participate in the
2007 Plan.
Administration. The
Compensation Committee (the “Committee”), a fully
independent committee of our Board, is responsible for the administration of the
2007 Plan. The Committee has 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 our officers 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.
18
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 are subject to an option or stock-settled stock appreciation right and
not issued upon the net settlement or net exercise of such option or stock
appreciation right also may not be made available for issuance.
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 may 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 our level of performance or that of
the participant during a performance period, and include: achieving specified
milestones in the discovery, development, commercialization or manufacturing of
one or more of our 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.
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.
19
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 our outstanding common shares, 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 us or our 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, we 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 became effective upon approval by our
stockholders at the 2007 Annual Meeting and will terminate on June 21, 2017, the
tenth anniversary of the effective date, 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.
Corporate 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.
20
Federal Income Tax
Consequences. The grant of an option or stock appreciation
right will create no tax consequences for the participant or us 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, we 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 right, or other
award, but will be entitled to no tax deduction relating to amounts that
represent a capital gain to a participant. Thus, we 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 we 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. We intend that options and stock
appreciation rights, and, subject to stockholder 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.
New
Plan Benefits
The
amounts of future grants under the 2007 Plan, as amended by the Plan Amendment,
are not determinable as awards under the 2007 Plan and will be granted at the
sole discretion of the Compensation Committee. We cannot determine at this time
either the persons who will receive awards under the 2007 Plan or the amount or
types of any such awards. No
additional awards would have been made during the fiscal year ending December
31, 2008 if the Share Amendment had been in effect during that
period.
On
October 7, 2009, the closing market price per share of our common stock, Nasdaq
Global Market symbol: DSCO, was $1.06.
OTHER
BUSINESS
The Board
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.
21
INTEREST
OF CERTAIN PERSONS IN THE MATTERS TO BE VOTED UPON
None of
the nominees for election as Director or our executive officers, or any
associate of a nominee or executive officer, has a substantial interest, direct
or indirect, by security holdings or otherwise, in any matter included in the
Proposals to be acted upon at the Annual Meeting. This determination
is made without regard to any interest arising from the ownership of our Common
Stock where the holder receives no extra or special benefit not shared on a pro
rata basis by all other stockholders.
COMMON
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of our Common Stock (i) as of September 30, 2009, by each of our Named
Executive Officers and directors listed in the chart below and by all executive
officers and directors as a group, and (ii) by each person or entity known by us
to be the beneficial owner of more than five percent of our outstanding shares
of Common Stock. This table does not include the shares owned
beneficially by Dr. Capetola, who ceased being an executive officer in August
2009. The address of each individual is c/o Discovery Laboratories,
Inc., 2600 Kelly Road, Suite 100, Warrington, Pennsylvania
18976-3622.
|
Name
and Address
of
Beneficial Owner (1)
|
Common
Stock
|
Common
Stock Equivalents (2)
|
Total
Beneficial
Ownership
|
Percentage
of Class
Beneficially
Owned (1)
|
||||||||||||
|
Named
Executive Officers
and
Directors
|
||||||||||||||||
|
W.
Thomas Amick
|
40,000 | 180,000 | 220,000 | * | ||||||||||||
|
John G. Cooper
|
55,322 | 1,370,000 | 1,425,322 | 1.16 | % | |||||||||||
|
Antonio Esteve,
Ph.D. (3)
|
3,206,689 | 226,174 | 3,432,863 | 2.82 | % | |||||||||||
|
Charles F. Katzer
|
26,405 | 265,000 | 291,405 | * | ||||||||||||
|
Max E. Link,
Ph.D.
|
166,821 | 155,000 | 321,821 | * | ||||||||||||
|
David
L. Lopez, Esq., CPA
|
68,562 | 1,281,000 | 1,349,562 | 1.10 | % | |||||||||||
|
Herbert H. McDade,
Jr.
|
- | 205,000 | 205,000 | * | ||||||||||||
|
Marvin E. Rosenthale,
Ph.D.(4)
|
350,000 | 155,000 | 505,000 | * | ||||||||||||
|
Robert Segal,
M.D., F.A.C.P.
|
23,319 | 791,000 | 814,319 | * | ||||||||||||
|
Directors
and Executive Officers
as
a group (13 persons)
|
4,057,242 | 5,698,174 | 9,755,416 | 7.65 | % | |||||||||||
|
5%
Security Holders
|
||||||||||||||||
|
Heartland
Advisors, Inc. (5)
789
North Water Street
Milwaukee,
WI 53202
|
7,934,900 | - | 7,934,900 | 6.52 | % | |||||||||||
|
Wellington
Management Company, LLP (6)
75
State Street
Boston,
MA 02109
|
11,656,600 | 4,454,200 | 16,110,800 | 12.77 | % | |||||||||||
* Less
than 1%
|
(1)
|
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Exchange
Act 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 that are currently exercisable, or
will become exercisable within 60 days after September 30, 2009, 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.
|
22
|
(2)
|
Common
Stock Equivalents include shares of Common Stock subject to options or
warrants that are currently exercisable, or will become exercisable within
60 days after September 30, 2009, 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 175,000 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)
|
Total
beneficial ownership shown in the table includes 125,000 shares as to
which Dr. Rosenthale disclaims beneficial ownership (shares held by
spouse).
|
|
(5)
|
This
information is based on the following: (a) on February 11, 2009, Heartland
Advisors, Inc., a registered investment advisor, and William J. Nasgovitz,
President and principal shareholder of Heartland Advisors, Inc.
(collectively, “Heartland”) filed a Schedule 13G/A with the SEC.
Heartland Advisors, Inc. and Mr. Nasgovitz each specifically disclaimed
beneficial ownership of any shares reported in the Schedule
13G/A. As of December 31, 2008, the clients of Heartland
Advisors, Inc., including an investment company registered under the
Investment Company Act of 1940 and other managed accounts, had the right
to receive or the power to direct the receipt of dividends and proceeds
from the sale of shares disclosed above. The Heartland Value
Fund, a series of the Heartland Group, Inc., a registered investment
company, owned 7,185,000 shares. The remaining shares reported
in the Schedule 13G/A were reported to be owned by various other accounts
managed by Heartland Advisors, Inc. on a discretionary
basis. To the best of Heartland Advisors' knowledge, none of
the other accounts owned more than 5% of the outstanding stock; and (b) on
August 14, 2009, Heartland filed a Form 13F indicating that, as of June
30, 2009, it held 7,934,900 shares of our Common
Stock.
|
|
(6)
|
This
information is based on the following: (a) on June 10, 2009, Wellington
Management Company, LLP (“Wellington”) filed a Schedule 13G with
the SEC indicating that, in its capacity as a registered investment
adviser, Wellington may be deemed to beneficially own 16,185,000 shares of
our Common Stock. As of May 31, 2009, the clients of Wellington
Management Company, LLP had the right to receive, or the power to direct
the receipt of, dividends from, or the proceeds from the sale of, such
securities. No such client was known to have such right or
power with respect to more than five percent of this class of securities,
except the Treasurer of the State of North Carolina Equity Investment Fund
Pooled Trust; (b) on August 14, 2009, Wellington filed a Form 13F,
indicating that, as of June 30, 2009, Wellington, Wellington Trust
Company, NA, Wellington International Management Company Pte Ltd, and
Wellington Management International, LTD held an aggregate 11,656,600
shares of our Common Stock; and (c) on May 13, 2009 , in connection
with a registered direct financing, we issued to Wellington warrants to
purchase 4,454,200 shares of our Common Stock, which warrants have not
been exercised and are currently
exercisable.
|
23
EXECUTIVE
OFFICERS
Information
about our Executive Officers, including their names and positions with us, and
their ages, work history and education, are set forth in our Form 10-K/A, which
is a part of our Annual Report to Stockholders being delivered to stockholders
together with this proxy statement. The Board approves the election
of officers annually and such officers serve until the meeting of the Board
following the next annual meeting of the stockholders and, if applicable, until
their successors are duly elected and qualified.
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
We are
committed to providing our employees with meaningful work and advancement
opportunities, and our stockholders with a superior rate of
return. Under the oversight of the Compensation Committee of the
Board, we have developed and implemented compensation policies, plans and
programs for all officers, including our Named Executive Officers (identified in
the Summary Compensation Table below). We provide a total
compensation package that is intended to be competitive within our industry to
enable us to attract and retain high-caliber, qualified
executives. Our 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 our stockholders during the
relevant fiscal year.
Compensation Program
Objectives and Rewards
Our
compensation philosophy is based on the following objectives and intended
rewards:
|
·
|
attract,
engage and retain the workforce to ensure our long-term
success;
|
|
·
|
align
our employees’ interests with our short- and long-term strategic goals and
objectives;
|
|
·
|
promote
the interests of our stockholders with a goal of increasing stockholder
value;
|
|
·
|
acknowledge
and respond to changes in compensation for similar executive positions at
comparable companies in our highly competitive marketplace;
and
|
|
·
|
link
compensation to our performance and also acknowledge the performance of
individuals who contribute to the advancement of our corporate
objectives.
|
Executive
Compensation Structure
The
primary components of executive compensation are (i) competitive base salary,
(ii) annual incentive bonus, and (iii) awards under our 2007 Plan, each of which
is reviewed annually. In deciding on total compensation packages for
executives, the Compensation Committee considers such factors as:
(i) market-based data, which is gathered annually through participation in
salary surveys such as the Radford Life Sciences Survey (the “Radford Survey”);
(ii) compensation practices of biotech and pharmaceutical companies that are
similarly situated, taking into account such factors as (x) financial condition,
(y) geographic region, and (z) size or management structure; (iii) the extent to
which our corporate goals for the calendar year have been advanced and the
degree to which an executive is positioned to influence the outcomes; and
(iv) management performance reviews and recommendations prepared by
management. The Radford Survey is a compilation of compensation
information for over 550 biotech and pharmaceutical companies, and is reported
based upon such criteria as company size, geographic location, title and job
responsibilities. The Compensation Committee does not have a policy
of adhering to a strict formulaic process to determine the weighting of
components of compensation. Rather, the Compensation Committee will
assess the totality of the circumstances, and may, in its discretion, consider
and give weight to such additional factors as an individual’s overall
contribution, teamwork skills and leadership qualities. In addition,
the Compensation Committee may weight more heavily non-cash components of
compensation during periods in which we are conserving our cash
resources.
24
Executive Employment
Agreements
We have
employment agreements with our executive officers, the terms of which for each
level (vice president, senior vice president, etc.) are generally
similar. These agreements provide for, among other things, employment
for a stated term, subject to automatic renewal, severance payments in the event
of termination of employment, whether for termination or by reason of
resignation for good reason, enhanced severance benefits in the event of a
change of control, and equity incentives in the form of stock and option
grants. These
agreements also include non-competition covenants and provide for severance
payments that are contingent upon the executive’s refraining from competition
with us. We believe that these agreements are necessary and
appropriate to remain competitive in the marketplace, to attract executive
talent, to retain key executives during periods of uncertainty and to assure
that executives will act in the best interest of the stockholders.
Management Compensation
Committee
The Chief
Executive Officer heads 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,
including against achievement of corporate goals and personal objectives and
against available market data, and presents its recommendations to the
Compensation Committee of the Board. The Compensation Committee
considers the Management Compensation Committee recommendations and separately
evaluates and determines the total compensation of all executives
annually.
Corporate
Goals
Corporate
goals are typically defined and approved by the Board following internal
discussions and planning exercises by our senior
management. Corporate goals are focused generally to timely advancing
the development of our novel proprietary technology KL4 Surfactant
Technology pipeline and managing our financial and fiscal health within our
financial plan and in accordance with any guidance that we may give the
financial markets. Corporate goals include those identified from time
to time in our public filings and also include goals concerning unannounced
activities associated with proof of concept studies and other efforts to
potentially advance our pipeline. The Board expects that our
corporate goals will be very challenging but realistically achievable with a
sustained effort. In assessing the progress towards achieving our
goals, the Board will typically take into account the total circumstances,
including events and circumstances that may be outside of our control and that
may adversely affect our ability to fully achieve our goals, and the degree to
which our goals are advanced notwithstanding such circumstances.
Our
corporate goals during 2008 included (i) taking actions intended to gain
regulatory approval to market and sell Surfaxin, (ii) preparing for the
potential approval and launch of Surfaxin for RDS in the United States,
including preparing to build our own commercial sales and marketing
organization to execute the launch of Surfaxin in the United States, if
approved, (iii) research and development activities, including new formulation
development, a Phase 2 clinical trial for children up to two years of age
suffering with Acute Respiratory Failure and the ongoing program for
Aerosurf®, our
initial aerosolized KL4 surfactant
product, (iv) seeking collaboration agreements and strategic partnerships in the
international and domestic markets for the development and potential
commercialization of our SRT product candidates, including Surfaxin and
Aerosurf, (v) continued investment in our quality systems and manufacturing
capabilities, including our recently-completed analytical laboratories in
Warrington, Pennsylvania and our manufacturing operations in Totowa, New Jersey,
and (vi) securing additional capital to support our activities, including
potentially from business alliances, commercial and development partnerships,
equity financings and other similar opportunities. In addition,
certain confidential corporate goals related to advancing our research and
development programs were not publicly announced but considered by the
Compensation Committee in its deliberations. See our Annual Report –
“Business – Business Strategy,” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
Following
receipt from the FDA of a Complete Response Letter in April 2009, the Board
changed the corporate goals for 2009 to reflect the changes in strategic
priorities. As a result, our top priority is currently focused on
securing strategic alliance partners and accessing capital to advance our
KL4
surfactant pipeline, including Surfaxin LS™ (our lyophilized formulation (dry
powder) of our KL4
surfactant), and Aerosurf®, to
potentially significantly improve the management of RDS. See our Annual Report on Form
10-K for the fiscal year ended December 31, 2008, and our most recent Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009, as well
as other reports that we file with the SEC from time to time, including on Forms
10-K, 10-Q and 8-K.
25
A
discussion of the key individual components of our compensation packages are set
forth below.
Base
Salary
Base
salary and base salary adjustments are determined for each executive based on a
review of such factors as (i) the executive’s (A) title and position, (B)
contribution to achieving our corporate goals, (C) individual performance and
achievements, and (D) level of experience; (ii) comparative compensation
information for the position; and (iii) internal equity with respect to
other members of the executive team. In reviewing comparative
compensation information such as in the Radford Survey, the Management
Compensation Committee considers compensation ranges for equivalent positions in
the marketplace, salary trends in our industry and cost of living
indexes. For this purpose, the Management Compensation Committee may
refer to national, industry and local salary survey
information. Following its deliberations, the Management Compensation
Committee recommends base salary adjustments for executives for approval by the
Compensation Committee. At the request of the Compensation Committee,
the Management Compensation Committee may also provide additional information
prepared by an independent compensation consultant. The Compensation
Committee typically will separately review, deliberate and approve annually base
salary adjustments for each executive. Base salary adjustments are
prorated for all executive new hires, based upon the executive’s start date in
the position, 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 next calendar year, as it
is too early in their tenure to determine the executive’s performance and
contribution to achieving our goals. All compensation matters, once
approved by the Compensation Committee, are typically ratified by the Board and
become effective the first day of the following calendar year.
Annual Incentive
Bonus
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 contribution to meeting
those goals as well as achieving individual performance
objectives. The primary purpose of the annual incentive bonus is to
reward executives for achieving corporate goals and personal objectives in the
relevant fiscal year. Each executive is eligible for an annual
incentive bonus, which, before adjustment, is expressed as a percent of annual
base salary, varying dependent upon title. The annual incentive bonus
target range for the President and Chief Executive Officer is 0-100% of the
annual base salary; for Executive Vice Presidents, 0-70% of the annual base
salary; for Senior Vice Presidents, 0-30% of the annual base salary; and, for
Vice Presidents, 0-25% of the annual base salary. These percentages
were selected because the Compensation Committee believes that they reflect the
custom and practice in the industry and are sufficient to attract and retain
executive talent. The Compensation Committee may, in its discretion,
approve a deviation from these percentages when it deems
appropriate.
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 title and position within the
organization. Prior to considering individual awards, the
Compensation Committee may adjust the aggregate amount available for payment of
annual incentive bonus awards to reflect its assessment of management’s success
in achieving corporate goals. For example, the Compensation Committee
may determine, based on an evaluation of corporate goals, that only 50% of the
potential bonus dollars should be awarded and reduce the dollars available for
distribution by 50%. The Compensation Committee weighs the achievement of
corporate goals more heavily for executives in senior executive
positions. As a result, the achievement of corporate goals are
primary factors in determining annual incentive bonuses for the Chief Executive
Officer and Executive Vice Presidents, who are largely responsible for
determining strategy initiatives and leadership initiatives. The
annual incentive bonuses of Senior Vice Presidents and Vice Presidents are based
on a subjective balancing of such factors as the achievement of corporate goals,
the executive’s personal contribution to the achievement of corporate goals, the
executive’s success in meeting individual performance objectives and the
executive’s total compensation in relation to other executives and the
marketplace.
26
In
addition to providing recommendations for our executives, the Management
Compensation Committee recommends to the Compensation Committee the funding of
an annual incentive bonus pool for all other employees based upon a maximum
annual incentive bonus payout ranging from zero (0%) to twenty (20%) percent of
the covered employees’ aggregate annual base salary. Again, the total
amount allocated to this pool may be adjusted to reflect the Compensation
Committee’s evaluation of how well we accomplished our corporate
goals. Once the Compensation Committee has approved funding, 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.
Annual
incentive bonus awards are typically paid in cash during the first quarter of
the following calendar year, after we have prepared our financial statements and
completed an evaluation of each employee’s success in meeting personal
performance objectives. If, however, the Compensation Committee
determines that it is in our best interests in any year not to pay annual
incentive bonus awards wholly in cash, bonuses may be paid out in the form
of equity incentive awards or a combination of cash and equity
incentive awards. Annual incentive bonus awards are prorated in the
first year for all new hires, based upon the new hire’s start date, and for
those employees who may not have been active for the full
year. Employees hired in the fourth quarter are generally not
eligible for an annual incentive bonus award during the first year, as it is too
early in their tenure to determine their performance and contribution to
achieving their personal and corporate goals.
All
executive compensation payments and awards, and the incentive bonus pool for all
other employees, once approved by the Compensation Committee, are typically
ratified by the Board.
Long-Term Incentive Equity
Awards
The
purpose of our 2007 Plan is to attract, recruit and reward executives and key
employees for their contributions, with a focus on our long-term success and
increased stockholder value. The Compensation Committee serves as the
2007 Plan Administrator and grants long-term incentive equity awards pursuant to
the 2007 Plan based on recommendations of a Plan Management Committee, which
currently consists of our President and Chief Executive Officer, the Executive
Vice President and Chief Financial Officer, the Executive Vice President and
General Counsel, and the Senior Vice President, Human
Resources. Long-term incentive equity awards granted to executives
under the 2007 Plan generally have a ten-year term and vest over varying periods
as determined by the Compensation Committee at the time of the
grant.
Although
the Compensation Committee has not adopted a formulaic policy to allocate
between annual incentive bonuses and long-term compensation, the Compensation
Committee often relies on long-term incentive equity compensation in the form of
stock options to motivate its officers and other employees. This
practice allows us to retain cash to operate our business. 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. The Compensation Committee has delegated to the
Plan Management Committee the right, in its discretion, to grant options to
newly-hired employees, effective on the first day of employment, in share
amounts that are within ranges pre-approved by the Compensation Committee for
each title and position. Such long-term incentive equity awards
typically have an exercise price equal to the market value at the close of
market on 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
Compensation Committee approves long-term incentive equity awards for individual
executives based on recommendations of the Plan Management Committee and its own
assessment of each executive’s contributions, overall level of compensation
relative to market, and title and position. At the request of the
Plan Management Committee, the Compensation Committee will also typically
approve a pool of long-term incentive equity awards, which will be distributed
to non-executive key employees by, and at the discretion of, the Plan Management
Committee. 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.
27
All
long-term incentive equity matters, once approved by the Compensation Committee,
are typically ratified by the Board.
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 Plan Management
Committee the authority to make grants of a designated number of incentive
equity awards to non-officer key employees for the purpose of rewarding and
providing incentives to employees whose performance on a particular project or
during a particular period is exemplary. Such awards are valued at
the closing market price on the date of grant. We do not have a
program or policy in place to coordinate the grant of equity awards either prior
to the public announcement of potentially positive news or after the public
announcement of potentially negative news.
401(k)
Plan
All
employees are eligible to defer a portion of their annual base salary, up to the
IRS contribution limits, on a pre-tax basis, to our qualified 401(k)
Plan. At the end of each quarter, we currently fund a company match
in the amount of fifty (50%) percent of each employee’s regular contributions
made during the quarter, which is paid in shares of our common
stock.
Severance and Change in
Control Benefits
Our
executive employment agreements contain severance and change in control
provisions. These criteria may include termination of employment as a
result of 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. We believe that these benefits are necessary and
appropriate to remain competitive in the marketplace, to attract executive
talent, to retain key executives during periods of uncertainty and to assure
that executives will act in the best interests of the
stockholders. See the “Potential Payments
upon Termination or Change in Control” table below for a summary of the
estimated potential payments and benefits that would become payable to Named
Executive Officers upon termination of employment or a change of
control.
Deductibility of
Compensation; Excise Tax Reimbursement
Section
162(m) of the Internal Revenue Code of 1986, as amended, provides that we may
not deduct compensation in excess of $1 million paid to an executive officer
unless it is performance based. Base salary does not qualify as
performance-based compensation under Section 162(m). It is our
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 our compensation
objectives. In addition, under our executive employment agreements,
if any compensation payable to any executive is subject to an excise tax under
Section 4999 of the Internal Revenue Code, we have agreed to make an additional
payment to such executive equal to the amount of such excise tax, as well as the
income tax and excise tax applicable to such payment.
2008
Compensation Reviews for Named Executive Officers
Each
Named Executive Officers’ initial base salary, annual incentive bonus award and
certain long-term incentive equity awards are determined generally as described
above and in accordance with a written employment agreement. Annual
cash and annual incentive equity bonuses, if any, are solely at the discretion
of the Compensation Committee and awarded in the manner described
above.
28
Based
primarily on the fact that we did not gain approval in the United States to
market Surfaxin in 2008, the consequential erosion of our cash position and the
extraordinary conditions in the financial markets that affected our ability to
raise capital on acceptable terms, as well as a review of the 2008 Radford
Survey, the Compensation Committee did not approve any increase in base salary
over the base salaries in effect in 2007 for any Named Executive
Officer. In addition, the Compensation Committee declined to
authorize the payment of any cash incentive bonus awards to any Named Executive
Officer, but, as referenced in Note 8 of the Notes to our consolidated financial
statements in our Annual Report on Form 10-K, the Compensation Committee
indicated that it would re-evaluate this decision should circumstances warrant
mid-year. As a consequence of not achieving approval in the United
States to market Surfaxin thus far in 2009, the Compensation Committee has
determined not to authorize any cash incentive bonuses to the Named Executive
Officers with respect to 2008
During
2008, the Compensation Committee authorized one stock option award to each Named
Executive Officer. See “Grants of Plan-Based
Awards” Table, below. In making these awards, the Compensation
Committee assessed total long-term compensation opportunities already available
to each executive, including the current value and size of prior stock option
grants, the tenure of the executive, the executive’s performance relative to
other executive’s and relevant market data in the Radford
Survey. See
“Long-Term Incentive Awards”, above.
In
addition, in determining the award made to our former Chief Executive Officer,
Dr. Capetola, the Compensation Committee considered the progress made in the
advancement of various pipeline programs, the delay in securing the potential
approval of Surfaxin and relevant market data, his leadership initiatives and
his efforts to raise capital to fund our activities. The award to Mr.
Cooper was based on his efforts to tightly manage our financial condition while
at the same time making judicious investments in activities designed to advance
our research and development programs and demonstrate proof-of-concept for our
pipeline products to potentially attract strategic development partners and
collaborators. The Compensation Committee also considered his efforts in
communicating with stockholders and potential investors to maintain awareness of
our products and capital needs. The award to Mr. Lopez was in recognition
of his efforts in managing the legal and regulatory aspects of our business,
including the high quality and timely disclosures contained in our public
filings with the SEC, as well as his work in developing a full corporate-wide
compliance program. In making the award to Dr. Segal, the Compensation
Committee considered his ability to advance our research and development
programs by executing upon carefully planned preclinical studies and experiments
while at the same time conserving cash resources. In making the award to
Mr. Katzer, the Compensation Committee acknowledged the significant progress
made in manufacturing and noted the excellent progress made by the internal
engineering team in the development of the capillary aerosolization device for
Aerosurf.
In August
2009, Dr. Capetola tendered his resignation as our President and Chief Executive
Officer. In connection therewith, the Board entered into a Separation
Agreement with Dr. Capetola that, among other things, provided for certain
benefits that are payable in lieu of any severance arrangement provided under
his then-existing employment agreement. These benefits include
(i) an upfront severance payment of $250,000, and (ii) periodic payments in
an amount equal to his base salary (calculated at a rate of $490,000 per annum),
in accordance with stated payroll practices and less required withholdings, with
such payment to end the earlier of (x) May 3, 2010 or (y) the date, if ever, a
Corporate Transaction (as defined in the Separation Agreement) takes
place. In addition, Dr. Capetola is entitled to the continuation of
medical and insurance coverage for a period of 24 or 27 months, depending upon
circumstances, and the accelerated vesting of all outstanding restricted shares
and options which shall remain exercisable to the end of
their stated terms. Further, the Separation Agreement provides that
upon the occurrence of a Corporate Transaction prior to May 4, 2010, Dr.
Capetola will receive a payment of up to $1,580,000 or, if any such Corporate
Transaction also constitutes a Change of Control (as defined in the Separation
Agreement), a payment of up to $1,777,500; provided, however, that in each
case any payment will be reduced by the sum of the amounts that may then have
been already paid under clauses (i) and (ii), above. A “Corporate
Transaction” is defined in the Separation Agreement as (1) one or more corporate
partnering or strategic alliance transactions, Business Combinations or public
or private financings that (A) are completed during the Severance Period (as
defined in the Separation Agreement) and (B) result in cash proceeds (net of
transaction costs) to us of at least $20 million received during the
Severance Period or within 90 calendar days thereafter, or (2) an acquisition,
by business combination or other similar transaction, that occurs during the
Severance Period and the consideration paid to our stockholders, in cash or
securities, is at least $20 million. For this purpose, net proceeds
will be calculated without taking into account any amounts that we receive as
reimbursement for costs of development and research activities to be performed
in connection with any such transaction. Under the Separation
Agreement, all of Dr. Capetola’s unvested options and restricted stock awards
vested immediately and will remain exercisable for their original
term. In executing the Separation Agreement, the Board took into
account Dr. Capetola’s status as our founder, his tenure of 13 years, which
included the successful conclusion of a significant pivotal, Phase 3 clinical
trial in premature infants, as well as the need to conserve cash and defer
payment of any significant severance amounts.
29
SUMMARY
COMPENSATION TABLES
Named
Executive Officers
The
following table summarizes the compensation of our Named Executive Officers,
including our President and Chief Executive Officer, Executive Vice President
and Chief Financial Officer, Executive Vice President and General Counsel and
the two other most highly-compensated executive officers ranked by their total
compensation for the fiscal year ended December 31, 2008.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
(1)
|
Stock
Awards
($)
(2)
|
Option
Award
($)
(3)
|
Non-Equity
Incentive Plan Compen-sation ($)
|
Nonqualified
Deferred Compensation Earnings ($)
|
All
Other
($)
|
Total
|
||||||||||||||||||||||||
|
Robert
J. Capetola, Ph.D.
|
2008
|
$ | 490,000 | $ | - | $ | 10,465 | $ | 1,091,132 | $ | - | $ | - | $ | 34,450 | (4) | $ | 1,626,047 | |||||||||||||||
|
President
and
|
2007
|
470,000 | 300,000 | 25,708 | 1,353,401 | - | - | 29,556 | 2,178,665 | ||||||||||||||||||||||||
|
Chief
Executive Officer
|
2006
|
470,000 | 150,000 | 52,358 | 1,040,563 | - | - | 34,364 | 1,747,285 | ||||||||||||||||||||||||
|
John
G. Cooper
|
2008
|
307,000 | - | 6,279 | 429,949 | - | - | - | (5) | 743,228 | |||||||||||||||||||||||
|
Executive
Vice President,
|
2007
|
292,000 | 150,000 | 15,425 | 535,322 | - | - | - | (5) | 992,747 | |||||||||||||||||||||||
|
Chief
Financial Officer and Treasurer
|
2006
|
292,000 | 120,000 | 31,415 | 526,439 | - | - | - | (5) | 969,854 | |||||||||||||||||||||||
|
David
L. Lopez, Esq., CPA
|
2008
|
307,000 | - | 6,279 | 437,343 | - | - | - | (5) | 750,622 | |||||||||||||||||||||||
|
Executive
Vice President,
|
2007
|
290,000 | 152,000 | 15,425 | 526,279 | - | - | (5) | 983,704 | ||||||||||||||||||||||||
|
General
Counsel, Chief Compliance Officer and Secretary
|
2006
|
290,000 | 120,000 | 31,415 | 498,107 | - | - | (5) | 939,522 | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
|
Robert
Segal, M.D., F.A.C.P.
|
2008
|
290,000 | - | 2,791 | 221,701 | - | - | - | (5) | 514,492 | |||||||||||||||||||||||
|
Senior
Vice President,
Medical
and Scientific Affairs
|
2007
|
273,000 | 70,000 | 6,855 | 281,041 | - | - | - | (5) | 630,896 | |||||||||||||||||||||||
|
and
Chief Medical Officer
|
2006
|
265,000 | 60,000 | 13,962 | 226,453 | - | - | - | (5) | 565,416 | |||||||||||||||||||||||
|
Charles
F. Katzer
|
2008
|
250,000 | - | - | 216,299 | - | - | - | (5) | 466,299 | |||||||||||||||||||||||
|
Senior
Vice President,
|
2007
|
225,000 | 70,000 | - | 246,038 | - | - | - | (5) | 541,038 | |||||||||||||||||||||||
|
Manufacturing
Operations
|
2006
|
213,484 | 80,000 | - | 149,164 | - | - | - | (5) | 442,648 | |||||||||||||||||||||||
|
(1)
|
Bonuses for 2007 include
2007-related bonus paid in 2008. Bonuses for 2006 include
2006-related bonus paid in 2007. All bonuses were paid in
cash. No bonuses related to 2008 have been paid to date in
2009, although the Compensation Committee may re-evaluate its decision not
to pay cash bonuses should our circumstances
change. See “Compensation Discussion and
Analysis – 2008 Compensation Reviews for Named Executive
Officers.”
|
|
(2)
|
Represents the ratable amount
expensed for the year under Financial Accounting Statement 123R (“FAS
123R”) for grants of restricted stock made in October 2007 (“2007
Restricted Stock”)
to Drs. Capetola and Segal and Messrs. Cooper and Lopez, and is not an
amount paid to, or realized by, the Named Executive
Officer. There can be no assurance that these FAS 123R amounts
will ever be realized. The 2007 Restricted Stock vest on the
date that our first drug product becomes widely commercially available, as
determined by the Board. Prior to vesting, the 2007 Restricted
Stock is non-transferable and subject to cancellation upon termination of
a grantee’s employment. The FAS 123R value as of the grant date
for the 2007 Restricted Stock is spread over the number of months of
service required for the grant to become
non-forfeitable.
|
|
(3)
|
Represents compensation costs for
the year under FAS 123R for stock options and is not an amount paid to, or
realized by, the Named Executive Officer. There can be no
assurance that these amounts will ever be realized. The FAS
123R value as of the grant date for each option is spread over the number
of months of service required for the grant to become
non-forfeitable. This amount includes ratable amounts expensed
for options granted in prior years (2005, 2006, and 2007). See
Note 11
– “Stock
Options and Stock-based Employee Compensation” to our consolidated financial
statements for the year ended December 31, 2008, in the Form
10-K.
|
|
(4)
|
For 2008, represents a personal
car allowance – $10,000; premiums paid for life insurance
policies with coverage of $4 million – $16,700; and the Company match
of the employee contribution to the 401(k) Plan –
$7,750.
|
|
(5)
|
Less than
$10,000.
|
30
Grants
of Plan-Based Awards
The
following table contains information concerning the stock option grants made to
the Named Executive Officers for the fiscal year ended December 31,
2008. The amount of these awards that were expensed in 2008 is shown
in the Summary Compensation Table included on page 30. No stock
appreciation rights were granted to these individuals during such
year. There can be no assurance that the Grant Date Fair Value of
Stock and Option Awards reported below will ever be realized by a
grantee.
|
Estimated
Future Payouts Under Non-equity Incentive Plan Awards
|
Estimated
Future Payouts Under Equity Incentive Plan Awards
|
||||||||||||||||||||||||||||||||||||||||
|
Named
Executive Officer
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maxi-
mum
($)
|
Threshold
($)
|
Target
($)
|
Maxi-
mum
($)
|
All
Other Stock Awards; Number of Shares of Stock
(#)
|
All
Other Option Awards; Number of Securities Under-lying Options
(#)
|
Exercise
Price of Option Awards
($/Sh) (1)
|
Grant Date Fair
Value of Stock and Option Awards (2)
|
||||||||||||||||||||||||||||||
|
Robert
J. Capetola
|
12/12/08
|
500,000 | $ | 1.93 | $ | 361,350 | |||||||||||||||||||||||||||||||||||
|
12/12/08
|
250,000 | $ | 1.21 | 205,000 | |||||||||||||||||||||||||||||||||||||
|
John
G. Cooper
|
12/12/08
|
266,667 | $ | 1.93 | 192,720 | ||||||||||||||||||||||||||||||||||||
|
12/12/08
|
133,333 | $ | 1.21 | 109,333 | |||||||||||||||||||||||||||||||||||||
|
David
L. Lopez
|
12/12/08
|
166,667 | $ | 1.93 | 120,450 | ||||||||||||||||||||||||||||||||||||
|
12/12/08
|
83,333 | $ | 1.21 | 68,333 | |||||||||||||||||||||||||||||||||||||
|
Robert
Segal
|
12/12/08
|
66,667 | $ | 1.93 | 48,180 | ||||||||||||||||||||||||||||||||||||
|
12/12/08
|
33,333 | $ | 1.21 | 27,333 | |||||||||||||||||||||||||||||||||||||
|
Charles
F. Katzer
|
12/12/08
|
66,667 | $ | 1.93 | 48,180 | ||||||||||||||||||||||||||||||||||||
|
12/12/08
|
33,333 | $ | 1.21 | 27,333 | |||||||||||||||||||||||||||||||||||||
|
(1)
|
One third of the options granted
to the Named Executive Officers on December 12, 2008 were awarded with an
exercise price of $1.21, which was the closing market price of our common
stock on the date of grant. The remaining two thirds of the
options were granted with an exercise price of $1.93, representing a
premium to the closing market price of our stock on the date of
grant. On September 26, 2008, the Plan Management Committee had
awarded options with an exercise price of $1.93 to certain non-officer key
employees. To maintain equity between the officer and non-officer options
granted in the fourth quarter, the Compensation Committee determined to
grant two-thirds of the officer options with the same exercise price as
the prior grants.
|
|
(2)
|
Grant Date Fair Value represents
the aggregate FAS 123R values of awards and options granted during the
year. See
Note 11
– “Stock
Options and Stock-based Employee Compensation” to our consolidated financial
statements for the year ended December 31, 2008, in the Form
10-K. There can be no assurance that the stock options will
ever be exercised or that the FAS 123R amounts set forth above will ever
be realized
|
31
Outstanding
Equity Awards at Fiscal Year-End 2008
The
following table shows the number of shares covered by exercisable and
unexercisable options and unvested restricted stock awards (including grants
that vest contingently upon the occurrence of a specified milestone) held by our
Named Executive Officers on December 31, 2008.
|
Option
Awards*
|
Stock
Awards**
|
||||||||||||||||||||
|
Named
Executive Officer
|
No.
of Securities Underlying Unexercised Options -Exercisable
|
No.
of Securities Underlying- Unexercised Options –
Unexercisable
|
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
|
|||||||||||||||
|
Robert
J. Capetola
|
125,000 | (1) | $ | 5.06 |
9/16/10
|
||||||||||||||||
| 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
|
||||||||||||||||||
| 88,000 | (5) | 6.47 |
8/12/14
|
||||||||||||||||||
| 500,000 | (4) | 9.02 |
12/17/14
|
||||||||||||||||||
| 142,500 | (1) | 47,500 | (1) | 7.01 |
1/3/16
|
||||||||||||||||
| 225,000 | (1) | 75,000 | (1) | 2.25 |
5/17/16
|
||||||||||||||||
| 225,000 | (1) | 75,000 | (1) | 2.46 |
12/15/16
|
||||||||||||||||
| 300,000 | (1) | 300,000 | (1) | 3.27 |
6/21/17
|
||||||||||||||||
| 250,000 | (1) | 250,000 | (1) | 2.61 |
12/11/17
|
||||||||||||||||
| 500,000 | (6) | 1.93 |
12/12/18
|
||||||||||||||||||
| 250,000 | (6) | 1.21 |
12/12/18
|
||||||||||||||||||
| 15,000 | (7) | $ | 16,800 | ||||||||||||||||||
|
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
|
||||||||||||||||||
| 75,000 | (5) | 6.47 |
8/12/14
|
||||||||||||||||||
| 75,000 | (4) | 9.02 |
12/17/14
|
||||||||||||||||||
| 37,500 | (1) | 12,500 | (1) | 7.01 |
1/3/16
|
||||||||||||||||
| 187,500 | (1) | 62,500 | (1) | 2.25 |
5/17/16
|
||||||||||||||||
| 150,000 | (1) | 50,000 | (1) | 2.46 |
12/15/16
|
||||||||||||||||
| 80,000 | (1) | 80,000 | (1) | 3.27 |
6/21/17
|
||||||||||||||||
| 75,000 | (1) | 75,000 | (1) | 2.61 |
12/11/17
|
||||||||||||||||
| 266,667 | (6) | 1.93 |
12/12/18
|
||||||||||||||||||
| 133,333 | (6) | 1.21 |
12/12/18
|
||||||||||||||||||
| 9,000 | (7) | 10,080 | |||||||||||||||||||
|
David
L. Lopez
|
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
|
||||||||||||||||||
| 50,000 | (5) | 6.47 |
8/12/14
|
||||||||||||||||||
| 70,000 | (4) | 9.02 |
12/17/14
|
||||||||||||||||||
| 37,500 | (1) | 12,500 | (1) | 7.01 |
1/3/16
|
||||||||||||||||
| 187,500 | (1) | 62,500 | (1) | 2.25 |
5/17/16
|
||||||||||||||||
| 165,000 | (1) | 55,000 | (1) | 2.46 |
12/15/16
|
||||||||||||||||
| 80,000 | (1) | 80,000 | (1) | 3.27 |
6/21/17
|
||||||||||||||||
| 75,000 | (1) | 75,000 | (1) | 2.61 |
12/11/17
|
||||||||||||||||
| 166,667 | (6) | 1.93 |
12/12/18
|
||||||||||||||||||
| 83,333 | (6) | 1.21 |
12/12/18
|
||||||||||||||||||
| 9,000 | (7) | 10,080 | |||||||||||||||||||
32
|
Option
Awards*
|
Stock
Awards**
|
||||||||||||||||||||
|
Named
Executive Officer
|
No.
of Securities Underlying Unexercised Options -Exercisable
|
No.
of Securities Underlying- Unexercised Options –
Unexercisable
|
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
|
|||||||||||||||
|
Robert
Segal
|
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
|
||||||||||||||||||
| 20,000 | (5) | 6.47 |
8/12/14
|
||||||||||||||||||
| 50,000 | (4) | 9.02 |
12/17/14
|
||||||||||||||||||
| 18,750 | (1) | 6,250 | (1) | 7.01 |
1/3/16
|
||||||||||||||||
| 56,250 | (1) | 18,750 | (1) | 2.25 |
5/17/16
|
||||||||||||||||
| 75,000 | (1) | 25,000 | (1) | 2.46 |
12/15/16
|
||||||||||||||||
| 25,000 | (1) | 25,000 | (1) | 2.66 |
1/22/17
|
||||||||||||||||
| 30,000 | (1) | 30,000 | (1) | 3.27 |
6/21/17
|
||||||||||||||||
| 57,500 | (1) | 57,500 | (1) | 2.61 |
12/11/17
|
||||||||||||||||
| 66,667 | (6) | 1.93 |
12/12/18
|
||||||||||||||||||
| 33,333 | (6) | 1.21 |
12/12/18
|
||||||||||||||||||
| 4,000 | (7) | 4,480 | |||||||||||||||||||
|
Charles
F. Katzer
|
33,334 | (6) | 16,666 | (6) | 7.01 |
1/3/16
|
|||||||||||||||
| 56,250 | (1) | 18,750 | (1) | 2.25 |
5/17/16
|
||||||||||||||||
| 15,000 | (1) | 5,000 | (1) | 1.62 |
9/8/16
|
||||||||||||||||
| 15,000 | (1) | 5,000 | (1) | 2.46 |
12/15/16
|
||||||||||||||||
| 45,000 | (1) | 45,000 | (1) | 3.27 |
6/21/17
|
||||||||||||||||
| 37,500 | (1) | 37,500 | (1) | 2.61 |
12/11/17
|
||||||||||||||||
| 66,667 | (6) | 1.93 |
12/12/18
|
||||||||||||||||||
| 33,333 | (6) | 1.21 |
12/12/18
|
||||||||||||||||||
|
*
|
For
the fiscal year ended December 31, 2008, there were no Securities
Underlying Unexercised, Unearned Options, and no Unearned Shares, Units or
Other Rights that have not vested. For readability, that column
and the columns titled “Equity Incentive Plan Awards: No. of Securities
Underlying Unexercised, Unearned Options”, “Equity Incentive Plan Awards:
number of Unearned Shares, Units or Other Rights That Have Not Vested” and
“Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or Other Rights That Have Not Vested” have been
removed.
|
|
(1)
|
These
options vest and become exercisable in four equal installments on the date
of grant and on the first, second and third anniversary of the grant, and
expire as listed above, which is the tenth anniversary of the
grant.
|
|
(2)
|
These
options vest and become exercisable as follows: one fourth on the date of
grant and thereafter in twenty-four equal installments at the close of
each of the following twenty-four months. The options expire,
as listed above, on the tenth anniversary of the
grant.
|
33
|
(3)
|
These
options vested and became exercisable upon the earlier of December 13,
2006 (4 years from the date of grant) or approval of a New Drug
Application. The options expire, as listed above, on the tenth
anniversary of the grant.
|
|
(4)
|
As
granted, options vest and become exercisable as follows: one fourth on the
date of grant and thereafter in thirty-six equal installments at the close
of each of the following thirty-six months. In December 2005,
the Compensation Committee accelerated the vesting of all stock options
that at the time had an exercise price of $9.02 or
greater. Accordingly, all unvested options became fully vested
and exercisable, subject to a written “lock-up” agreement under which any
shares acquired may not be sold (except as 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)
|
These
options vest and become exercisable as follows: one fourth on the date of
grant and thereafter in thirty-six equal installments at the close of each
of the following thirty-six months. The options expire, as
listed above, on the tenth anniversary of the
grant.
|
|
(6)
|
These
options 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)
|
2007
Restricted Stock granted October 30, 2007 under the 1998 Plan to replace
certain shares of phantom stock previously granted to each grantee and to
be released upon commercialization of first product, as determined by the
Board.
|
Option Exercises and Vested Stock Awards
During
2008, none of the Named Executive Officers exercised any stock options and none
of the 2007 Restricted Stock awarded to a Named Executive Officer
vested.
Potential
Payments upon Termination or Change in Control
Our
executive employment agreements provide for, among other things, certain
payments and other benefits in the event that an executive’s employment
terminates under circumstances specified in the agreement, including upon a
“change in control.” In addition, these agreements provide for
non-competition and non-solicitation agreements of varying duration as follows:
Dr. Capetola – 15 months, Messrs. Cooper, Lopez and Katzer and Dr. Segal –
12 months from the date of termination.
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 were terminated on December 31, 2008, or if a
change of control occurred on that date. The amounts contained in the
table are based on each executive’s compensation and, where applicable, our
closing stock price as of December 31, 2008.
The
information provided with respect to Dr. Capetola is based on his employment
agreement as in effect on December 31, 2009. In August 2009, Dr.
Capetola resigned his position as our President and Chief Executive Officer and
entered into a Separation Agreement with us that provided for benefits that
differ from the information set forth in the table. See “2008 Compensation
Reviews for Named Executive Officers” at page 28.
34
|
Name
and Type of Termination or Change in Control
|
Severance
|
Bonus
|
Equity Acceleration (1)
|
Health
Benefits
|
Out-Placement Counseling (2)
|
Excise Tax & Gross-up (3)
|
TOTAL
|
|||||||||||||||||||||
|
Robert J. Capetola,
Ph.D.
|
||||||||||||||||||||||||||||
|
Change
in Control
|
$ | – | (4) | $ | 3,360 | (5) | $ | – | $ | – | $ | – | $ | 3,360 | ||||||||||||||
|
Termination by
Company
|
||||||||||||||||||||||||||||
|
–
Change in Control(4)
|
2,370,000 | (6) | 300,000 | (7) | 3,360 | (5) | 67,527 | (8) | 40,000 | 344,913 | 3,125,800 | |||||||||||||||||
|
–
for Cause
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
without Cause
|
1,580,000 | (9) | 300,000 | (7) | 3,360 | (5) | 45,018 | (10) | 40,000 | 1,968,378 | ||||||||||||||||||
|
Termination
by Executive
|
||||||||||||||||||||||||||||
|
–
without Good Reason
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
for Good Reason
|
1,580,000 | (9) | 300,000 | (7) | 3,360 | (5) | 45,018 | (10) | 40,000 | 1,968,378 | ||||||||||||||||||
|
Death
or Disability
|
- | - | 3,360 | (5) | - | - | 3,360 | |||||||||||||||||||||
|
John G.
Cooper
|
||||||||||||||||||||||||||||
|
Change
in Control
|
– | (11) | 2,016 | (5) | – | – | – | 2,016 | ||||||||||||||||||||
|
Termination by
Company
|
||||||||||||||||||||||||||||
|
–
Change in Control (11)
|
1,142,500 | (12) | 150,000 | (7) | 2,016 | (5) | 33,258 | (13) | 40,000 | 110,728 | 1,478,502 | |||||||||||||||||
|
–
for Cause
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
without Cause
|
685,500 | (14) | 150,000 | (7) | 2,016 | (5) | 16,629 | (15) | 40,000 | 894,145 | ||||||||||||||||||
|
Termination
by Executive
|
||||||||||||||||||||||||||||
|
–
without Good Reason
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
for Good Reason
|
685,500 | (14) | 150,000 | (7) | 2,016 | (5) | 16,629 | (15) | 40,000 | 894,145 | ||||||||||||||||||
|
Death
or Disability
|
- | - | 2,016 | (5) | - | - | 2,016 | |||||||||||||||||||||
|
David L. Lopez, Esq.,
CPA
|
||||||||||||||||||||||||||||
|
Change
in Control
|
– | (11) | 2,016 | (5) | – | – | – | 2,016 | ||||||||||||||||||||
|
Termination by
Company
|
||||||||||||||||||||||||||||
|
–
Change in Control (11)
|
1,147,500 | (12) | 152,000 | (7) | 2,016 | (5) | 33,864 | (13) | 40,000 | 110,728 | 1,497, 905 | |||||||||||||||||
|
–
for Cause
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
without Cause
|
688,500 | (14) | 152,000 | (7) | 2,016 | (5) | 16,932 | (15) | 40,000 | 899,448 | ||||||||||||||||||
|
Termination
by Executive
|
||||||||||||||||||||||||||||
|
–
without Good Reason
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
for Good Reason
|
688,500 | (14) | 152,000 | (7) | 2,016 | (5) | 16,932 | (15) | 40,000 | 899,448 | ||||||||||||||||||
|
Death
or Disability
|
- | - | 2,016 | (5) | - | - | 2,016 | |||||||||||||||||||||
|
Robert Segal, M.D.,
F.A.C.P.
|
||||||||||||||||||||||||||||
|
Change
in Control
|
– | (11) | 896 | (5) | – | – | – | 896 | ||||||||||||||||||||
|
Termination by
Company
|
||||||||||||||||||||||||||||
|
–
Change in Control (11)
|
720,000 | (16) | 70,000 | (7) | 896 | (5) | 44,665 | (13) | 40,000 | - | 875,561 | |||||||||||||||||
|
–
for Cause
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
without Cause
|
360,000 | (17) | 70,000 | (7) | 896 | (5) | 22,333 | (15) | 40,000 | 493,229 | ||||||||||||||||||
|
Termination
by Executive
|
||||||||||||||||||||||||||||
|
–
without Good Reason
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
for Good Reason
|
360,000 | (17) | 70,000 | (7) | 896 | (5) | 22,333 | (15) | 40,000 | 493,229 | ||||||||||||||||||
|
Death
or Disability
|
- | - | 896 | (5) | - | - | 896 | |||||||||||||||||||||
|
Charles F.
Katzer
|
||||||||||||||||||||||||||||
|
Change
in Control
|
– | (11) | – | (5) | – | – | – | – | ||||||||||||||||||||
|
Termination by
Company
|
||||||||||||||||||||||||||||
|
–
Change in Control (11)
|
320,000 | (18) | 70,000 | (7) | – | (5) | 21,988 | (19) | 40,000 | - | 451,988 | |||||||||||||||||
|
–
for Cause
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
without Cause
|
160,000 | (20) | 70,000 | (7) | – | (5) | 10,994 | (21) | 40,000 | 280,994 | ||||||||||||||||||
|
Termination
by Executive
|
||||||||||||||||||||||||||||
|
–
without Good Reason
|
– | – | – | – | – | – | – | |||||||||||||||||||||
|
–
for Good Reason
|
160,000 | (20) | 70,000 | (7) | – | (5) | 10,994 | (21) | 40,000 | 280,994 | ||||||||||||||||||
|
Death
or Disability
|
- | - | 896 | (5) | - | - | 896 | |||||||||||||||||||||
|
(1)
|
Under
all the executive employment agreements, under certain conditions, the
vesting of unvested stock options and 2007 Restricted Stock would be
accelerated. Equity acceleration represents the incremental
value, as defined in FAS 123R, resulting from such acceleration on the
assumed termination date, December 31, 2008. In the event that
the fair market value on the assumed 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.
|
35
|
(2)
|
Under
all the executive employment agreements, upon a change of control or
termination by us without Cause or by the executive for Good Reason, the
executive is entitled to placement counseling assistance in the form of
reimbursement for reasonable expenses incurred by the executive within 12
months following the date of termination, up to a maximum amount of
$40,000.
|
|
(3)
|
Under
all the executive employment agreements, to the extent that the executives
are subject to certain excise taxes under Section 4999 of the Internal
Revenue Code, 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 amounts reported in the
table are calculated assuming an excise tax rate of 20% and a federal tax
rate of 35%.
|
|
(4)
|
Under
Dr. Capetola’s employment agreement, upon a Change in Control and assuming
that he remains employed with the acquirer, his annual bonus in each of
the three fiscal years immediately following the Change in Control must be
at least equal to the largest annual cash bonus received by him in the
three fiscal years immediately preceding the Change in
Control. In addition, a termination is considered “termination
in connection with a change of control” if his employment is terminated
other than for cause by us or by Dr. Capetola for Good Reason during the
36 months following the change of control, or if he terminates his
employment for any reason during the 30-day period commencing on the
sixth-month anniversary of a Change of
Control.
|
|
(5)
|
Under
all executive employment agreements, upon a change of control or
termination by us without Cause or by the executive for Good Reason,
outstanding unvested stock options and the 2007 Restricted Stock vest in
full and become fully exercisable. As of December 31, 2008, all
of the executives’ unvested stock options had an exercise price that was
greater than the fair market value of our common stock on that
date. Therefore, the compensation reported above relates solely
to the acceleration of unvested 2007 Restricted
Stock.
|
|
(6)
|
Under
Dr. Capetola’s employment agreement, upon termination in connection with a
change of control, he is entitled to a lump sum payment that is equal to
three times the sum of his base salary then in effect and the largest
annual cash bonus received by him in the 3 fiscal years immediately
preceding the Change in
Control.
|
|
(7)
|
Under
all executive employment agreements, upon a change of control or
termination by us without Cause or by the executive for Good Reason, the
executive is entitled to a lump sum payment that is equal to the largest
annual cash bonus received by the executive in the 3 fiscal years
immediately preceding the Change in Control or termination, multiplied by
a fraction the numerator of which is the number of days the executive was
employed with us in the current fiscal year and the denominator of which
is 365.
|
36
|
(8)
|
Under
Dr. Capetola’s employment agreement, upon termination in connection with a
change of control, he is entitled to continuation of health benefits (or
their equivalent) for himself and the members of his family who were
participating in our health and welfare plans at the time of termination,
for a period of three years following the date of termination, reduced to
the extent that a subsequent employer provides him with substantially
similar coverage (on a benefit-by-benefit
basis).
|
|
(9)
|
Under
Dr. Capetola’s employment agreement, upon termination by us without Cause
or by Dr. Capetola for Good Reason, he is entitled to a lump sum payment
that is equal to two times the sum of his base salary then in effect and
the largest annual cash bonus received by him in the 3 fiscal years
immediately preceding the date of
termination.
|
|
(10)
|
Under
Dr. Capetola’s employment agreement, upon termination by us without Cause
or by Dr. Capetola for Good Reason, he is entitled to continuation of
health benefits (or their equivalent) for himself and the members of his
family who were participating in our health and welfare plans at the time
of termination for a period of two years following the date of
termination, reduced to the extent that a subsequent employer provides him
with substantially similar coverage (on a benefit-by-benefit
basis).
|
|
(11)
|
Under
this executive’s employment agreement, upon a Change in Control and
assuming the executive remains employed with the acquirer, the executive’s
annual bonus in each of the two fiscal years immediately following the
Change in Control must be at least equal to the largest annual cash bonus
received by the executive in the three fiscal years immediately preceding
the Change in Control. In addition, a termination is considered
“termination in connection with a change of control” if the executive’s
employment is terminated by us other than for cause or by the executive
for Good Reason during the 24 months following the change of
control.
|
|
(12)
|
Under
this executive’s employment agreement, upon termination in connection with
a change of control, the executive is entitled to a lump sum payment that
is equal to two and one half times the sum of his base salary then in
effect and the largest annual cash bonus received by the executive in the
3 fiscal years immediately preceding the Change in
Control.
|
|
(13)
|
Under
this executive’s employment agreement, upon termination in connection with
a change of control, the executive is entitled to continuation of health
benefits (or their equivalent) for the executive and the members of the
executive’s family who were participating in our health and welfare plans
at the time of termination for a period of two years following the date of
termination, reduced to the extent that a subsequent employer provides the
executive with substantially similar coverage (on a benefit-by-benefit
basis).
|
|
(14)
|
Under
this executive’s employment agreement, upon termination by us without
Cause or by the executive for Good Reason, the executive is entitled to a
lump sum payment that is equal to one and one half times the sum of his
base salary then in effect and the largest annual cash bonus received by
the executive in the 3 fiscal years immediately preceding the date of
termination.
|
|
(15)
|
Under
this executive’s employment agreement, upon termination by us without
Cause or by the executive for Good Reason, the executive is entitled to
continuation of health benefits (or their equivalent) for the executive
and the members of the executive’s family who were participating in our
health and welfare plans at the time of termination for a period of one
year following the date of termination, reduced to the extent that a
subsequent employer provides the executive with substantially similar
coverage (on a benefit-by-benefit
basis).
|
|
(16)
|
Under
this executive’s employment agreement, upon termination in connection with
a change of control, the executive is entitled to a lump sum payment that
is equal to two times the sum of his base salary then in effect and the
largest annual cash bonus received by the executive in the 3 fiscal years
immediately preceding the Change in
Control.
|
|
(17)
|
Under
this executive’s employment agreement, upon termination by us without
Cause or by the executive for Good Reason, the executive is entitled to a
lump sum payment that is equal to the sum of his base salary then in
effect and the largest annual cash bonus received by the executive in the
3 fiscal years immediately preceding the Change in
Control.
|
37
|
(18)
|
Under
this executive’s employment agreement, upon termination in connection with
a change of control, the executive is entitled to a lump sum payment that
is equal to the sum of his base salary then in effect and the largest
annual cash bonus received by the executive in the 3 fiscal years
immediately preceding the Change in
Control.
|
|
(19)
|
Under
this executive’s employment agreement, upon termination in connection with
a change of control, the executive is entitled to continuation of health
benefits (or their equivalent) for the executive and the members of the
executive’s family who were participating in our health and welfare plans
at the time of termination for a period of one year following the date of
termination, reduced to the extent that a subsequent employer provides the
executive with substantially similar coverage (on a benefit-by-benefit
basis).
|
|
(20)
|
Under
this executive’s employment agreement, upon termination by us without
Cause or by the executive for Good Reason, the executive is entitled to a
lump sum payment that is equal to one-half the sum of his base salary then
in effect and the largest annual cash bonus received by the executive in
the 3 fiscal years immediately preceding the date of
termination.
|
|
(21)
|
Under
this executive’s employment agreement, upon termination by us without
Cause or by the executive for Good Reason, the executive is entitled to
continuation of health benefits (or their equivalent) for the executive
and the members of the executive’s family who were participating in our
health and welfare plans at the time of termination for a period of six
months following the date of termination, reduced to the extent that a
subsequent employer provides the executive with substantially similar
coverage (on a benefit-by-benefit
basis).
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
There
were no transactions between us and any person that is a related party to us
since the beginning of our fiscal year ended December 31, 2008, and none are
currently proposed. Any proposed transaction between us and any
related party that involves an amount in excess of $120,000 must be submitted
to, and reviewed and approved by, the Audit Committee of the
Board. The Audit Committee will make its determination based on the
particular circumstances of the proposed transaction, including whether such
transaction is in our best interest and does not involve an expense in excess of
that which would be incurred in an arms’ length transaction. In
reviewing such transactions, the Audit Committee refers to our written corporate
policies related to conflicts of interest and related party
transactions.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our directors, officers (including a person performing a principal
policy-making function) and persons who beneficially own more than 10% of a
registered class of our equity securities (collectively, “Reporting Persons”)
to file with the SEC initial reports of ownership and reports of changes in
ownership of our Common Stock and other equity securities. Reporting
Persons are required by SEC regulations to furnish us with copies of all of
filings they make under Section 16(a) and we are required to identify those
Reporting Persons who failed to make such filings timely. Based
solely on a review of the copies of any such filings made available to us and
written representations from our officers and directors, we believe that all
Reporting Persons complied with the filing requirements under Section 16(a) of
the Exchange Act during the year ended December 31, 2008, except for the
following: Marvin E. Rosenthale, Ph.D., one of our directors, inadvertently
failed to file a timely Form 4 for an acquisition of 51,289 shares that was
completed on October 3, 2008 but not filed until October 8, 2008, and an
acquisition of 10,000 shares that was completed on October 8, 2008 but not filed
until October 14, 2008.
38
STOCKHOLDER
COMMUNICATIONS
Stockholders
and other interested parties may send general communications, including
stockholder proposals, to our Board, Chairman of the Board or any individual
director. These communications may be sent in the form of a letter to
our principal executive offices as follows: c/o Corporate Secretary, Discovery
Laboratories, Inc., 2600 Kelly Road, Suite 100, Warrington, Pennsylvania
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 NEXT YEAR'S ANNUAL MEETING
Proposals
of stockholders intended for inclusion in the Proxy Statement to be furnished to
all stockholders entitled to vote at our next annual meeting of stockholders
must be submitted in writing in compliance with applicable SEC rules and our
Amended and Restated By-Laws to the Corporate Secretary at our principal
executive offices, 2600 Kelly Road, Suite 100, Warrington, Pennsylvania
18976-3622. If the 2010 Annual Meeting is held within 30 days of the anniversary
of the 2009 Annual Meeting, such proposals must be in compliance with our
By-laws and received by us no earlier than May 25, 2010 and no later than June
24, 2010. If the date of next year’s annual meeting is moved more
than 30 days before or after the anniversary date of this year’s Annual Meeting,
the deadline for inclusion of proposals in our proxy statement will instead be a
reasonable time before we begin to print and mail our proxy
materials. In that event, we will issue a statement designating the
date by which such proposals must be received. To avoid controversy
as to the date on which we receive a proposal, it is suggested that proponents
submit their proposals by Certified Mail, Return Receipt
Requested. To be in proper form, Stockholders’ proposals must include
a brief description of the proposal desired to be brought before the meeting and
the reasons for bringing such proposal at the meeting, as well as the following
information about the proposing stockholder: (a) the proposing stockholder’s
name and record address, (b) the class or series and number of shares of our
capital stock owned beneficially or of record by the proposing stockholder, (c)
a description of all arrangements, material relationships, or understandings
between such stockholder and any other person or persons (including their names)
in connection with the proposal by such proposing stockholder and any material
interest of such proposing stockholder in such business, (d) a representation
that such proposing stockholder intends to appear in person or by proxy at the
meeting to offer the proposal, (e) any option, warrant, convertible security,
stock appreciation right, or similar right with an exercise or conversion
privilege or a settlement payment or mechanism at a price related to any class
or series of shares of our capital stock or with a value derived in whole or in
part from the value of any class or series of shares of our capital stock,
whether or not such instrument or right shall be subject to settlement in the
underlying class or series of our capital stock or otherwise (a “Derivative
Instrument”) directly or indirectly owned beneficially by such proposing
stockholder and any other direct or indirect opportunity to profit or share in
any profit derived from any increase or decrease in the value of shares of the
Corporation; (f) any proxy, contract, arrangement, understanding, or
relationship pursuant to which such proposing stockholder has a right to vote
any shares of our capital stock; (g) any short interest in any security of ours
(for this purpose, the proposing stockholder shall be deemed to have a short
interest in a security if such proposing stockholder directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
the opportunity to profit or share in any profit derived from any decrease in
the value of the subject security); (h) any rights to dividends on the shares of
our capital stock owned beneficially by such proposing stockholder that are
separated or separable from the underlying shares; (i) any proportionate
interest in shares of our capital stock or Derivative Instruments held, directly
or indirectly, by a general or limited partnership in which such proposing
stockholder is a general partner or, directly or indirectly, beneficially owns
an interest in a general partner; (j) any performance-related fees (other than
an asset-based fee) that such proposing stockholder is entitled to based on any
increase or decrease in the value of shares of our capital stock or Derivative
Instruments, if any, as of the date of such notice, including without limitation
any such interests held by members of such proposing stockholder’s immediate
family sharing the same household (which information shall be supplemented by
such proposing stockholder and beneficial owner, if any, not later than 10 days
after the record date for the meeting to disclose such ownership as of the
record date; and (k) any other information relating to such proposing
stockholder that would be required to be disclosed in a proxy statement or other
filing required to be made in connection with solicitations of proxies for
election of Directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder. Stockholder nominations of
candidates for election to the Board must comply with the procedures described
above under the heading “Stockholder Nominations” on page 8.
39
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 will be
“householding” our 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
you have received notice from your broker that it will be “householding”
communications to your address, “householding” will continue until you are
notified otherwise or until you notify your broker or us that you no longer wish
to participate in “householding.” If, at any time, you no longer wish
to participate in “householding” and would prefer to receive a separate proxy
statement and annual report in the future, you may (1) if your shares are held
in street name, notify your broker, or (2) if your shares are carried on the
books of our transfer agent, (a) direct a written request to: Investor
Relations, Discovery Laboratories, Inc., 2600 Kelly Road, Suite 100, Warrington,
Pennsylvania 18976-3622 or (b) contact our Corporate Secretary at (215)
488-9300. If you currently receive multiple copies of the proxy
statement at your address and would like to request “householding” of these
communications, you should contact your broker. In addition, for
shares carried on the books of our transfer agent, we 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 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 us. Proxies will be
solicited principally through the mail. We have retained The Altman
Group to assist us with analysis and other services related to our proxy
statement, including contacting our stockholders on our behalf. We
anticipate that the costs associated with this activity will be in the range of
$10,000 to $15,000. Further solicitation of proxies from some
stockholders may be made by our directors, officers and regular employees
personally, by telephone, telegraph or special letter. In addition,
we may request banks, brokers and other custodians, nominees and fiduciaries to
solicit their customers who have our Common Stock registered in the name of a
nominee. We will reimburse such persons for their reasonable
out-of-pocket costs.
ANNUAL
REPORT ON FORM 10-K
Our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, 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.:
Investor Relations, 2600 Kelly Road, Suite 100, Warrington, Pennsylvania
18976-3622.
* * *
40
The
prompt voting of your shares will ensure a quorum and save us the expense of
further solicitation. Your cooperation in giving this matter your immediate
attention is greatly appreciated.
|
By
Order of the Board of Directors
|
|
|
David
L. Lopez, Esq., CPA
Corporate
Secretary
|
Warrington, Pennsylvania
October
21, 2009
41
APPENDIX
A
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.
|
|
(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
