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Filing
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Filed by a Party other than the Registrant o
Check the appropriate box:
o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
þ | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material Pursuant to §240.14a-12 |
ADVENTRX PHARMACEUTICALS, INC.
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
(1) | Title of each class of securities to which transaction applies: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: | ||
o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: | ||
(2) | Form, Schedule or Registration Statement No.: | ||
(3) | Filing Party: | ||
(4) | Date Filed: | ||
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ADVENTRX PHARMACEUTICALS, INC.
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
San Diego, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 23, 2007
The Annual Meeting of Stockholders of ADVENTRX Pharmaceuticals, Inc. (the Company) will be
held on May 23, 2007 at 10:00 a.m. local time at the Hyatt Regency La Jolla at Aventine located at
3777 La Jolla Village Drive, San Diego, California, USA 92122. The Annual Meeting is being held for
the following purposes, as more fully described in the accompanying Proxy Statement:
1. To elect six directors to hold office until the next Annual Meeting of Stockholders and
until their successors are elected and qualified.
2. To ratify the appointment of J.H. Cohn LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31, 2007.
3. To transact such other business as may properly come before the meeting or any
adjournments or postponements thereof.
Only stockholders of record at the close of business on April 6, 2007 (the Record Date) will
be entitled to notice of, and to vote at, such meeting or any adjournments or postponements
thereof. A list of stockholders entitled to vote at the meeting will be available for inspection
during ordinary business hours at the Companys corporate offices located at 6725 Mesa Ridge Road,
Suite 100, San Diego, CA 92121 for at least 10 days prior to the meeting, and will also be
available for inspection at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
![-s- Evan M. Levine](https://cdn.kscope.io/2940df5e74da33ff8dbad60c007db2e5-a29054a2905401.gif)
Evan M. Levine
Chief Executive Officer and Director
Chief Executive Officer and Director
San Diego, CA
April 23, 2007
April 23, 2007
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YOUR VOTE IS IMPORTANT!
You are cordially invited to attend the Annual Meeting. However, to ensure that your shares
are represented at the meeting, please submit your proxy or voting instructions by mail, using the
return envelope provided. Please see the instructions on the proxy and voting instruction card.
Submitting a proxy or voting instructions will not prevent you from attending the Annual Meeting
and voting in person, if you so desire, but will help the Company secure a quorum and reduce the
expense of additional proxy solicitation.
ADVENTRX Pharmaceuticals, Inc.
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
(858) 552-0866
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
(858) 552-0866
PROXY STATEMENT
2007 ANNUAL MEETING OF STOCKHOLDERS
ADVENTRX Pharmaceuticals, Inc. (the Company) is furnishing this Proxy Statement and the
enclosed proxy in connection with the solicitation of proxies by the Board of Directors of the
Company (the Board) for use at the Annual Meeting of Stockholders to be held on May 23, 2007, at
10:00 a.m. local time, at the Hyatt Regency La Jolla at Aventine located at 3777 La Jolla Village
Drive, San Diego, California, USA 92122, and at any adjournments thereof (the Annual Meeting).
These materials are being mailed to stockholders on or about April 23, 2007.
Only holders of the Companys common stock as of the close of business on April 6, 2007 (the
Record Date) are entitled to vote at the Annual Meeting. Stockholders who hold shares of the
Company in street name may vote at the Annual Meeting only if they hold a valid proxy from their
broker. As of the Record Date, there were 89,676,739 shares of common stock outstanding.
A majority of the outstanding shares of common stock entitled to vote at the Annual Meeting
must be present in person or by proxy in order for there to be a quorum at the meeting.
Stockholders of record who are present at the meeting in person or by proxy and who abstain from
voting, including brokers holding customers shares of record who cause abstentions to be recorded
at the meeting, will be included in the number of stockholders present at the meeting for purposes
of determining whether a quorum is present.
Each stockholder of record is entitled to one vote at the Annual Meeting for each share of
common stock held by such stockholder on the Record Date. Stockholders do not have cumulative
voting rights. Stockholders may vote their shares by using the proxy card enclosed with this Proxy
Statement. All proxy cards received by the Company that are properly signed and have not been
revoked will be voted in accordance with the instructions contained in the proxy cards. If a signed
proxy card is received which does not specify a vote or an abstention, the shares represented by
that proxy card will be voted for the nominees to the Board listed on the proxy card and in this
Proxy Statement and for the ratification of the appointment of J.H. Cohn LLP as the Companys
independent auditors for the fiscal year ending December 31, 2007. The Company is not aware, as of
the date hereof, of any matters to be voted upon at the Annual Meeting other than those stated in
this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders. If any other
matters are properly brought before the Annual Meeting, the enclosed proxy card gives discretionary
authority to the persons named as proxies to vote the shares represented by the proxy card in their
discretion.
Under the Companys bylaws, if a quorum exists at the meeting, the affirmative vote of a
majority of the votes cast at the meeting is required for the election of directors. A properly
executed proxy marked withhold authority with respect to the election of one or more directors
will not be voted with respect to the director or directors indicated, although it will be counted
for purposes of determining whether there is a quorum. For each other item, the affirmative vote
of the holders of a majority of the shares represented in person or by proxy and
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entitled to vote on the item will be required for approval. A properly executed proxy marked
Abstain with respect to any such matter will not be voted, although it will be counted for
purposes of determining whether there is a quorum. Accordingly, a withhold of authority or an
abstention will have the effect of a negative vote.
For shares held in street name through a broker or other nominee, the broker or nominee may
not be permitted to exercise voting discretion with respect to some of the matters to be acted
upon. Thus, if stockholders do not give their broker or nominee specific instructions, their shares
may not be voted on those matters and will not be counted in determining the number of shares
necessary for approval. Shares represented by such broker non-votes will, however, be counted in
determining whether there is a quorum.
A stockholder of record may revoke a proxy at any time before it is voted at the Annual
Meeting by (a) delivering a proxy revocation or another duly executed proxy bearing a later date to
ADVENTRX Pharmaceuticals, Attn: Secretary, 6725 Mesa Ridge Road, Suite 100, San Diego, CA 92121 or
(b) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not
revoke a proxy unless the stockholder actually votes in person at the meeting.
The proxy card accompanying this Proxy Statement is solicited by the Board. The Company will
pay all of the costs of soliciting proxies. In addition to solicitation by mail, officers,
directors and employees of the Company may solicit proxies personally, or by telephone, without
receiving additional compensation. Although the Company has not yet done so, it may retain a firm
to assist in the solicitation of proxies in connection with the Annual Meeting. The Company would
pay such firm, if any, customary fees, expected to be no more than $10,000, plus expenses. The
Company, if requested, will also pay brokers, banks and other fiduciaries who hold shares for
beneficial owners for their reasonable out-of-pocket expenses of forwarding these materials to
stockholders.
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BOARD OF DIRECTORS
The name, age and year in which the term expires of each member of the Board is set forth
below:
Term Expires | ||||||||||
on the | ||||||||||
Annual Meeting | ||||||||||
Name |
Age | Position | held in the Year | |||||||
Evan M. Levine
|
41 | Chief Executive Officer | 2007 | |||||||
Mark N.K. Bagnall
|
50 | Audit Committee (chair), Compensation Committee and Nominating & Governance Committee | 2007 | |||||||
Alexander J. Denner
|
37 | Compensation Committee | 2007 | |||||||
Michael M. Goldberg
|
48 | Audit Committee, Compensation Committee (chair) and Nominating & Governance Committee | 2007 | |||||||
Jack Lief
|
61 | Audit Committee, Compensation Committee and Nominating & Governance Committee | 2007 | |||||||
Mark J. Pykett
|
43 | Audit Committee, Compensation Committee and Nominating & Governance Committee (chair) | 2007 |
At the Annual Meeting, the stockholders will vote on the election of six directors to serve
until the annual meeting of stockholders in 2008 and until their successors are elected and
qualified. The Companys bylaws allow the authorized number of directors to be not less than three
or more than nine; currently, the size of the Board is set at seven. In March 2007, the Company
announced that M. Ross Johnson, Ph.D., currently the Companys chairman, would retire from the
Board effective May 23, 2007, the date of the Annual Meeting, at which time the Company anticipates
the size of the Board will be set at six. Proxies may not be voted for a greater number of persons
than the number of nominees named.
NOMINEES FOR ELECTION TO THE BOARD
The following individuals have been nominated for election to the Board:
Mark N.K. Bagnall, C.P.A. Mr. Bagnall has served as a director since February 2004. Mr.
Bagnall currently is senior vice president and chief finance and operations officer of Metabolex,
Inc., a privately held pharmaceutical company focused on the development of drugs to treat diabetes
and related metabolic disorders, positions he has held since June 2000. Mr. Bagnall has been in the
biotechnology industry for over 17 years. In the 12 years prior to joining Metabolex, Mr. Bagnall
held the top financial position at four life science companies: Metrika, Inc., a privately held
diagnostics company, and three public biotechnology companies, Progenitor, Inc., Somatix Therapy
Corporation, and Hana Biologics, Inc. During his career in biotechnology, he has managed several
private and public financings, merger and acquisition transactions and corporate licensing
agreements. Mr. Bagnall received his B.S. in Business Administration from the University of
California at Berkeley, Haas School of Business and is a Certified Public Accountant.
Alexander J. Denner, Ph.D. Dr. Denner has served as a director since October 2006. Dr. Denner
currently serves as a managing director of entities affiliated with Carl C. Icahn, including Icahn
Partners LP and Icahn Partners Master Fund LP, both private investment funds. From April 2005 to
May 2006, Dr. Denner served as a portfolio manager specializing in healthcare investments for
Viking Global Investors. Prior to Viking, he served in a
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variety of roles at Morgan Stanley, beginning in 1996, including as portfolio manager of healthcare
and biotechnology mutual funds. Dr. Denner currently serves as a director of ImClone Systems
Incorporated and HyperMed, Inc., a privately held company specializing in imaging platforms for
medical and surgical applications. Dr. Denner received a B.S. from the Massachusetts Institute of
Technology and a M.S., M.Phil. and Ph.D. from Yale University. Dr. Denner was nominated by, among
others, entities affiliated with Mr. Icahn. Information regarding the arrangement by which Dr.
Denner was selected as a director is located under the caption Director Nominations, below.
Michael M. Goldberg, M.D. Dr. Goldberg has served as a director since January 2004. Dr.
Goldberg currently is a managing partner of Montaur Capital Partners, an investment firm, a
position he has held since January 2007, and a director of Emisphere Technologies, Inc., a
biopharmaceutical company specializing in the oral delivery of therapeutic macromolecules and other
compounds, a position he has held since August 1990. From August 1990 to January 2007, Dr. Goldberg
was chairman and chief executive officer of Emisphere Technologies. Prior to this, Dr. Goldberg was
a vice president for The First Boston Corporation, where he was a founding member of the Healthcare
Banking Group. He received a B.S. from Rensselaer Polytechnic Institute, an M.D. from Albany
Medical College of Union University and an M.B.A. from Columbia University Graduate School of
Business.
Evan M. Levine. Mr. Levine currently is the Companys chief executive officer, a position he
has held since September 2004, and a director, a position he has held since October 2002. Mr.
Levine served as the Companys president and chief executive officer from September 2004 through
September 2006. From January 2004 until August 2005, Mr. Levine served as the Companys vice
chairman and, from October 2002 until August 2005, Mr. Levine served as chief operating officer and
secretary of the Company. From March 2002 to June 2002, Mr. Levine served as the interim chief
executive officer of Digital Courier Technologies, Inc., a provider of advanced e-payment services
for businesses, merchants and financial institutions. From 1997 to 2001, he served as managing
principal and portfolio manager of Brown Simpson Asset Management, a private equity fund,
specializing in structured finance for public companies. From 1996 to 1997, he served as senior
vice president of convertible sales and trading at Dillon Read & Company, a financial services
company, managing a proprietary convertible portfolio and supervising all institutional sales and
trading activity. From 1993 to 1996, he served as vice president of convertible sales and trading
at Hambrecht & Quist, a financial services company, where he handled all convertible operations and
augmented investment banking and corporate finance revenues through his involvement in the
placement of convertible products. From 1992 to 1993, he served as a global arbitrage trader at
Spectrum Trading Partners, a financial derivatives trading company, where he was responsible for
maintaining market neutral and currency neutral hedges for an international convertible securities
portfolio. Mr. Levine has over 18 years of investment banking, venture capital, institutional
trading, arbitrage dealing, and senior corporate management experience. He played key roles in the
deployment of over $1 billion of investment capital into the health care and technology sectors.
Mr. Levine received his B.A. in Economics and Finance from Rutgers University and has completed
graduate coursework for an M.B.A. at New York Universitys Stern School of Business.
Jack Lief. Mr. Lief has served as a director since September 2006. Mr. Lief is a co-founder
and since April 1997 has served as president, chief executive officer and a director of Arena
Pharmaceuticals, Inc., a clinical-stage biopharmaceutical company focused on the discovery,
development and commercialization of small molecule drugs targeting G protein-coupled receptors.
From 1995 to April 1997, Mr. Lief served as an advisor and consultant to numerous biopharmaceutical
organizations. From 1989 to 1994, Mr. Lief served as senior vice president, corporate development
and secretary of Cephalon, Inc., a biopharmaceutical company. From 1983 to 1989, Mr. Lief served as
director of business development and strategic planning for Alpha Therapeutic Corporation, a
manufacturer of biological products. Mr. Lief joined Abbott Laboratories, a pharmaceutical company,
in 1972, where he served until 1983, most recently as the head of international marketing research.
Mr. Lief is a director of Accumetrics, Inc., a developer and marketer of diagnostic tests, ReqMed
Company, Ltd., a provider of partnering opportunities, R&D strategies and bio-venture funding, and
TaiGen Biotechnology Co., Ltd., a biotechnology company. Mr. Lief is also an executive board member
of BIOCOM, a life science industry association representing more than 450 member companies in San
Diego and Southern California, and he was the chairman of BIOCOM from March 2005 to March 2006. Mr.
Lief holds a B.A. from Rutgers University and an M.S. in Psychology (Experimental and Neurobiology)
from Lehigh University.
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Mark J. Pykett, Ph.D., M.B.A., V.M.D. Dr. Pykett has served as a director since February 2004.
Dr. Pykett currently is president and chief operating officer of Boston Life Sciences, Inc.,
positions he has held since
November 2004. From May 1996 until April 2003, Dr. Pykett served as president and chief executive
officer and a director of Cytomatrix, LLC, a private biotechnology company focused on the research,
development and commercialization of novel cell-based therapies that Dr. Pykett co-founded.
Cytomatrix was acquired by Cordlife, Pte. Ltd., a subsidiary of CyGenics Ltd., a public
biotechnology company listed on the Australian Stock Exchange. From April 2003 to February 2004,
Dr. Pykett served as president of Cordlife and then as president and director of CyGenics from
February 2004 until November 2004. In addition, Dr. Pykett served as a director of Cordlife from
April 2003 through November 2005 and a director of Oramax, LLC, development stage dental implant
company developing biomaterials for dental prostheses, from 2000 through 2006. Dr. Pykett graduated
Phi Beta Kappa, Summa Cum Laude from Amherst College, holds a veterinary degree, Phi Zeta, Summa
Cum Laude, and doctorate in molecular biology from the University of Pennsylvania, and received an
M.B.A. Beta Gamma Sigma from Northeastern University. He completed post-doctoral fellowships at the
University of Pennsylvania and Harvard University. Dr. Pykett held an adjunct faculty position at
the Harvard School of Public Health from 1997 to 2004.
There are no family relationships among any of the Companys directors or executive officers.
CORPORATE GOVERNANCE
The Board met ten times during 2006 and action was taken via unanimous written consent seven
times. During 2006, the audit committee met eight times, the compensation committee met twice and
action was taken by the compensation committee via unanimous written consent six times and the
nominating and governance committee met five times and action was taken by the nominating and
governance committee via unanimous written consent twice. Each member of the Board nominated for
re-election attended 75% or more of the aggregate of (i) the total number of Board meetings held
during the period of such members service and (ii) the total number of meetings of committees on
which such member served, during the period of such members service.
Board Independence
The Board has determined that Mr. Bagnall, Dr. Denner, Dr. Goldberg, Mr. Lief and Dr. Pykett
are independent under the rules of the American Stock Exchange. Under applicable rules of the
American Stock Exchange and the Securities and Exchange Commission (the SEC), the existence of
certain related party transactions above certain thresholds between a director and the Company
are required to be disclosed and preclude a finding by the Board that the director is independent.
In addition to transactions required to be disclosed under these American Stock Exchange and SEC
rules, the Board considered certain other relationships in making its independence determinations
and determined in each case that such other relationships did not impair the directors ability to
exercise independent judgment on behalf of the Company. In particular, with respect to Dr. Denner,
the Board considered Dr. Denners position with entities affiliated with Mr. Icahn and such
entities (a) ownership position in the Company, (b) rights under that certain Rights Agreement,
dated July 27, 2005 (the Rights Agreement), pursuant to which such entities, along with others,
are, among other things, entitled to participate in future sales by the Company of additional
securities and cause the Board to nominate a Board nominee selected by them and (c) execution of an
agreement with Mr. Levine, the Companys chief executive officer, pursuant to which, among other
things, Mr. Levine may be prohibited from (without the prior written consent of a majority of the Board,
including the director designated by such entities) accepting or
requesting any increase in, or causing the
Company to increase, the amount of compensation payable by or on behalf of the Company to Mr.
Levine (including his base compensation, bonus compensation, benefits or otherwise).
Board Committees
The Board currently has standing audit, compensation and nominating and governance committees.
Audit Committee. The audit committee currently consists of Mr. Bagnall (chair), Dr. Goldberg,
Mr. Lief and Dr. Pykett. The Board has determined that all members of the audit committee are
independent directors and meet the eligibility standards for audit committee service under the
rules of the American Stock Exchange. The Board has determined that Mr. Bagnall qualifies as an
audit committee financial expert as defined by the rules of the SEC. The purpose of the audit
committee is to oversee the accounting and financial reporting processes of the Company and audits
of its financial statements. The responsibilities of the audit committee include appointing and
providing the compensation of the independent accountants to conduct the annual audit of the
Companys accounts,
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reviewing the scope and results of the independent audits, reviewing and evaluating internal
accounting policies, and approving all professional services to be provided to the Company by its
independent accountants. The audit committee is governed by a written charter approved by the
Board.
Compensation Committee. The compensation committee currently consists of Dr. Goldberg (chair),
Mr. Bagnall, Dr. Denner, Mr. Lief and Dr Pykett. The Board has determined that all members of the
compensation committee are independent directors under the rules of the American Stock Exchange.
The compensation committee administers the Companys benefit plans, reviews and administers all
compensation arrangements for executives, and establishes and reviews general policies relating to
the compensation and benefits of the Companys executives and employees. The compensation committee
meets several times a year and consults with independent compensation consultants, as it deems
appropriate, to review, analyze and set compensation packages for the Companys executives. The
compensation committee is governed by a written charter approved by the Board.
Under its charter, the compensation committee has authority to determine the amount and form
of compensation paid to the Companys chief executive officer, and to take such action, and to
direct the Company to take such action, as is necessary and advisable to compensate the Companys
chief executive officer in a manner consistent with its determinations, and shall deliberate and
vote on all such actions outside the presence of the Companys chief executive officer. In
addition, under its charter, the compensation committee will review at least annually the
performance of the Companys chief executive officer, including in light of goals and objectives
established for such performance, and in light of such review determine his or her compensation.
Since becoming the Companys chief executive officer in September 2004 and through 2006, other than
changes in benefits available to all employees, the compensation of Mr. Levine, the Companys
current chief executive officer, has not been changed. In March 2007, the Board reviewed Mr.
Levines performance in 2006 and approved aspects of a compensation package for Mr. Levine for
2007.
The compensation committee has authority to determine the amount and form of compensation paid
to the Companys executives, employees, consultants and advisors and to review the performance of
such persons in order to determine appropriate compensation. The compensation committee has
authority to take such action, and to direct the Company to take such action, as is necessary and
advisable to compensate such persons and to implement such policies and practices in a manner
consistent with its determinations. It is expected that the Committee may delegate its authority
on these matters with regard to non-executive employees of the Company to officers and other
appropriate supervisory personnel of the Company.
Except with respect to its responsibilities regarding setting compensation for the Companys
chief executive officer and the Companys other executives, the compensation committee may delegate
its authority to individual members of the compensation committee or other members of the Board.
In addition, to the extent permitted by applicable law, the compensation committee may delegate to
one or more officers of the Company (or other appropriate supervisory personnel) the authority to
grant stock options and other stock awards to employees or consultants (who are not executives or
members of the Board) of the Company or of any subsidiary of the Company; provided, however
that (a) the number of shares of the Companys common stock underlying such options and other
awards are consistent with guidelines previously approved by the compensation committee; (b) the
per-share exercise or purchase price of such awards equals the fair market value of the Companys
common stock on the date of grant; and (c) the vesting and other terms that apply to such awards
are the same terms as apply under the Companys standard form of agreement under the applicable
equity compensation plan, provided that such officer(s) may, in such officer(s) discretion, grant
awards that are fully vested on the date of grant of the award or grant awards with more
restrictive vesting requirements.
Information regarding the process by which the compensation committee makes its determinations
regarding executive compensation, as well as its use of compensation consultants, is located under
the caption Compensation Discussion and Analysis, below.
Nominating and Governance Committee. The nominating and governance committee currently
consists of Dr. Pykett (chair), Mr. Bagnall, Dr. Goldberg and Mr. Lief, each of whom the Board has
determined is an independent director under the rules of the American Stock Exchange. The
nominating and governance committees responsibilities include recommending to the Board nominees
for possible election to the Board and providing
oversight with respect to corporate governance and succession planning matters. The nominating and
governance committee is governed by a written charter approved by the Board.
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Charters for the Boards audit, compensation and nominating and governance committees, as well
as the Companys corporate governance guidelines, are posted on the Companys corporate website at:
www.adventrx.com.
DIRECTOR NOMINATIONS
Criteria for Board Membership. In selecting candidates for appointment or re-election to the
Board, the nominating and governance committee considers the appropriate balance of experience,
skills and characteristics required of the Board, and seeks to insure that at least a majority of
the directors are independent under the rules of the American Stock Exchange, and that members of
the audit committee meet the financial literacy and sophistication requirements under the rules of
the American Stock Exchange (including that at least one of them qualifies as an audit committee
financial expert under the rules of the SEC. Nominees for director are selected on the basis of
their depth and breadth of experience, wisdom, integrity, ability to make independent analytical
inquiries, understanding of the Companys business environment, willingness to devote adequate time
to Board duties, the interplay of the nominees experience and skills with those of other directors
and the extent to which the nominee would be a desirable addition to the Board and any committees
of the Board.
Stockholder Nominees. Other than under the Rights Agreement, the Company has never received a
proposal from a stockholder of the Company to nominate a director. The nominating and governance
committee will consider qualified candidates for director suggested by stockholders applying the
criteria located under the caption Criteria for Board Membership, above. Any such nominations
should be submitted to the nominating and governance committee c/o the secretary of the Company and
must include the following information: a statement that the writer is a stockholder of the Company
and is proposing a candidate for consideration by the nominating and governance committee; the
name, age, business address and residence address of the nominee; a statement of the nominees
business and educational experience; the principal occupation or employment of the nominee; the
class and number of shares of the Company that are beneficially owned by the nominee; a detailed
description of all relationships, arrangements or understandings between the proposing stockholder
and the nominee and any other person or persons (naming such person or persons) pursuant to which
the nominations are to be made by the stockholder; a detailed description of all relationships,
arrangements or understandings between the nominee and any service-provider, supplier or competitor
of the Company; information regarding each of the criteria located under the caption Criteria for
Board Membership, above, in sufficient detail to allow the nominating and governance committee to
evaluate the nominee; and a statement from the nominee that the nominee is willing to be considered
and willing to serve as a director if nominated and elected. In addition, stockholders of the
Company wishing to propose business to be conducted at an annual meeting of stockholders must
comply with the requirements set forth in the bylaws of the Company.
Process for Identifying and Evaluating Nominees. The nominating and governance committee
believes the Company is well-served by its current directors. In the ordinary course, absent
special circumstances or a material change in the criteria for Board membership, the nominating and
governance committee will re-nominate incumbent directors who continue to be qualified for Board
service and are willing to continue as directors. If an incumbent director is not standing for
re-election, or if a vacancy on the Board occurs between annual stockholder meetings, the
nominating and governance committee will seek out potential candidates for Board appointment who
meet the criteria for selection as a nominee and have the specific qualities or skills being
sought. Director candidates will be selected based on input from members of the Board, senior
management of the Company and, if the nominating and governance committee deems appropriate, a
third-party search firm. The nominating and governance committee will evaluate each candidates
qualifications and check relevant references; in addition, such candidates will be interviewed by
at least one member of the nominating and governance committee. Based on this input, the nominating
and governance committee will evaluate which of the prospective candidates is qualified to serve as
a director and whether the nominating and governance committee should recommend to the Board that
this candidate be appointed to fill a current vacancy on the Board, or presented for the approval
of the stockholders, as appropriate.
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Board Nominees for the 2007 Annual Meeting. Each of the nominees listed in this Proxy
Statement are current directors standing for re-election. Two of the nominees standing for
re-election at the Annual Meeting, Mr. Lief and Dr. Denner, were first elected by the Board in
September and October, respectively, of 2006.
Mr. Lief was recommended as a nominee by the Companys chief executive officer. Dr. Denner is
the successor to Keith Meister and is the Purchaser Designee (as defined in the Rights Agreement,
to which the Company is a party). As a result of its obligations under the Rights Agreement, in
August 2005, the Company set the authorized number of Board directors at six and appointed Mr.
Meister to the Board. Under the Rights Agreement, until such time as designated in the Rights
Agreement, the Company is required to cause the Board to nominate a Board nominee (the Purchaser
Designee) selected by the Purchasers (as defined in the Rights Agreement) who at the time own a
majority of the Purchased Shares (as defined in the Rights Agreement).
Pursuant to that certain First Amendment to Rights Agreement, dated September 22, 2006, the
Rights Agreement was amended to allow the Board to set the authorized number of directors at seven
if the vacancy created by such action was filled by Jack Lief; provided that, if at any time there
are then seven members of the Board and one of such members is removed or resigns, retires or dies
and the Purchaser Designee, if any, does not approve a successor, the Company will do those things
reasonably necessary and within its control to, as soon as reasonably practicable after the
effective date of such removal, resignation, retirement or death, set the authorized number of
Board directors at six.
COMMUNICATIONS WITH DIRECTORS
Stockholders who wish to communicate with the Companys directors to report complaints or
concerns related to accounting, internal accounting controls or auditing may do so using the audit
committees procedures for the receipt of such communications. These procedures allow submitting
the complaint or concern telephonically as set forth in the Companys Code of Business Conduct and
Ethics, which is available on the Companys website at www.adventrx.com.
If any stockholder of the Company wishes to address questions regarding the business affairs
of the Company directly to the Board, or any individual director, the stockholder must submit the
inquiry in writing to: ADVENTRX Pharmaceuticals, Inc., Attn: Investor Relations, 6725 Mesa Ridge
Road, Suite 100, San Diego, CA 92121. Stockholders of the Company should indicate they are a
stockholder of the Company. Depending on the subject matter, investor relations will (alone or in
concert with other personnel of the Company, as appropriate): forward the inquiry to the chair of
the Board, who may forward the inquiry to a particular director if the inquiry is directed towards
a particular director; forward the inquiry to the appropriate personnel within the Company (for
instance, if it is primarily commercial in nature); attempt to handle the inquiry directly (for
instance, if it is a request for information about the Company or a stock-related matter); or not
forward the inquiry, if it relates to an improper or inappropriate topic or is otherwise
irrelevant.
The Company has a policy of encouraging all directors to attend annual stockholder meetings,
though none of the Companys directors attended the Companys 2006 annual meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists, or in the past fiscal year has existed, between any
member of the Companys compensation committee and any member of any other companys board of
directors or compensation committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth information regarding ownership of the Companys common stock
as of March 31, 2007 (the Evaluation Date), or an earlier date for information based on filings
with the SEC, by (a) each person known to the Company to own more than 5% of the outstanding shares
of the Common Stock, (b) each director and nominee for director of the Company, (c) the Companys
Chief Executive Officer, Chief Financial Officer and each other executive officer named in the
compensation tables appearing later in this Proxy Statement and (d) all directors and executive
officers as a group. The information in this table is based solely on statements in filings with
the SEC or other reliable information.
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Amount and Nature of | ||||||||
Beneficial | Percent | |||||||
Name and Address of Beneficial Owner(1) |
Ownership(2) | of Class | ||||||
Principal Stockholders |
||||||||
Funds affiliated with Carl C. Icahn (3) c/o Icahn Associates Corp. 767 Fifth Avenue New York, NY 10153 |
8,648,648 | 9.2 | % | |||||
Evan M. Levine (4) |
4,570,000 | 5.0 | % | |||||
Directors and Named Executive Officers |
||||||||
M. Ross Johnson (5) |
2,217,612 | 2.5 | % | |||||
Mark N.K. Bagnall (6) |
145,833 | * | ||||||
Alexander J. Denner. (7) |
8,648,648 | 9.2 | % | |||||
Michael M. Goldberg (8) |
221,833 | * | ||||||
Evan M. Levine (4) |
4,570,000 | 5.0 | % | |||||
Jack Lief (9) |
33,333 | * | ||||||
Mark J. Pykett (10) |
153,833 | * | ||||||
James A. Merritt (11) |
55,000 | * | ||||||
Gregory P. Hanson |
0 | * | ||||||
Joan M. Robbins (12) |
554,166 | * | ||||||
Brian M. Culley (13) |
107,221 | * | ||||||
Carrie E. Carlander |
0 | * | ||||||
Robert A. Daniel (14) |
53,124 | * | ||||||
All directors and executive officers
as a group (13 persons) (15) |
16,760,603 | 17.5 | % |
*Less than 1%. | ||
(1) | Unless otherwise indicated, the address of each of the named individuals is c/o ADVENTRX Pharmaceuticals, Inc., 6725 Mesa Ridge Road, Suite 100, San Diego, CA 92121. | |
(2) | Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power, or of which a person has the right to acquire ownership within 60 days after the Evaluation Date. Except as otherwise noted, each person or entity has sole voting and investment power with respect to the shares shown. Unless otherwise noted, none of the shares shown as beneficially owned on this table are subject to pledge. | |
(3) | Consists of (a) 864,865 shares of common stock held by High River Limited Partnership (High River); (b) 1,660,540 shares of common stock held by Icahn Partners LP (Icahn Partners); (c) 1,798,919 shares of common stock held by Icahn Partners Master Fund LP (Icahn Master); (d) 864,865 shares of common stock issuable upon exercise of warrants held by High River; (e) 1,660,540 shares of common stock issuable upon exercise of warrants held by Icahn Partners and (f) 1,798,919 shares of common stock issuable upon exercise of warrants held by Icahn Master. Based on the Companys review of a Schedule 13D filed with the SEC on August 5, 2005 (the Icahn 13D) by High River, Hopper Investments, LLC (Hopper), Barberry Corp. (Barberry), Icahn Master, Icahn Offshore LP (Icahn Offshore), CCI Offshore Corp. (CCI Offshore), Icahn Partners, Icahn Onshore LP (Icahn Onshore), CCI Onshore Corp. (CCI Onshore) and Mr. Carl C. |
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Icahn, the Company believes that (a) Barberry, Hopper and Mr. Icahn may be deemed to beneficially own (as that term is defined in Rule 13d-3 under the Exchange Act) the shares (including warrant shares) held by High River; (b) CCI Onshore, Icahn Onshore and Mr. Icahn may be deemed to beneficially own (as that term is defined in Rule 13d-3 under the Exchange Act) the shares (including warrant shares) directly held by Icahn Partners; and (c) CCI Offshore, Icahn Offshore and Mr. Icahn may be deemed to beneficially own (as that term is defined in Rule 13d-3 under the Exchange Act) the shares (including warrant shares) directly held by Icahn Master because, in each of the foregoing cases, such referenced persons are in a position to directly or indirectly determine the investment and voting decisions of the holder referenced. Barberry, Hopper, CCI Onshore, Icahn Onshore, CCI Offshore, Icahn Offshore and Mr. Icahn each disclaim beneficial ownership of such shares they may be deemed the beneficial owner of for all other purposes. | ||
(4) | Consists of (a) 4,320,000 shares of common stock held by Mark Capital LLC and (b) 250,000 shares of common stock issuable upon exercise of an option. Mr. Levine is the managing member of Mark Capital LLC. | |
(5) | Includes 595,833 shares of common stock issuable upon exercise of options currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(6) | Consists of 145,833 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(7) | Consists of (a) 864,865 shares of common stock held by High River, (b) 1,660,540 shares of common stock held by Icahn Partners, (c) 1,798,919 shares of common stock held by Icahn Master, (d) 864,865 shares of common stock issuable upon exercise of warrants held by High River, (e) 1,660,540 shares of common stock issuable upon exercise of warrants held by Icahn Partners and (f) 1,798,919 shares of common stock issuable upon exercise of warrants held by Icahn Master. Dr. Denner is a Managing Director of entities affiliated with Mr. Icahn, including Icahn Partners and Icahn Master. Dr. Denner disclaims beneficial ownership of the shares owned by High River, Icahn Partners and Icahn Master except to the extent of his pecuniary interest therein. | |
(8) | Includes (a) 145,833 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date and (b) 50,000 shares of common stock issubable upon exercise of a warrant held by Emisphere Technologies, Inc. Dr. Goldberg is a director of Emisphere Technologies, Inc. Dr. Goldberg disclaims beneficial ownership of the shares held by Emisphere Technologies, Inc. | |
(9) | Consists of 33,333 shares of common stock subject to an option currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(10) | Includes 145,833 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(11) | Includes 50,000 shares of common stock subject to an option currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(12) | Consists of (a) 391,666 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date and (b) 162,500 shares of common stock held by Dr. Robbins husband. | |
(13) | Consists of 107,221 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(14) | Consists of 53,124 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date. | |
(15) | Includes 1,918,676 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date. |
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EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Set forth below is the name, age, position and a brief account of the business experience of
each of the Companys executive officers and significant employees:
Name | Age | Position | ||||
Evan M. Levine
|
41 | Chief Executive Officer and Director | ||||
James A. Merritt
|
55 | President and Chief Medical Officer | ||||
Gregory P. Hanson
|
60 | Chief Financial Officer, Treasurer and Senior Vice President | ||||
Joan M. Robbins
|
46 | Chief Scientific Officer and Senior Vice President | ||||
Brian M. Culley
|
35 | Chief Business Officer and Senior Vice President | ||||
Patrick L. Keran
|
35 | General Counsel, Secretary and Vice President, Legal | ||||
Joachim P.H. Schupp
|
54 | Vice President, Medical Affairs | ||||
Michele L. Yelmene
|
43 | Vice President, Regulatory Affairs | ||||
Mark J. Cantwell
|
37 | Vice President, Research and Development |
Evan M. Levine. Mr. Levine currently is the Companys chief executive officer, a position he
has held since September 2004, and a director, a position he has held since October 2002. Mr.
Levine served as the Companys President and Chief Executive Officer from September 2004 through
September 2006. From January 2004 until August 2005, Mr. Levine served as the Companys vice
chairman and from October 2002 until August 2005 Mr. Levine served as chief operating officer and
secretary of the Company. From March 2002 to June 2002, Mr. Levine served as the interim chief
executive officer of Digital Courier Technologies, Inc., a provider of advanced e-payment services
for businesses, merchants and financial institutions. From 1997 to 2001, he served as managing
principal and portfolio manager of Brown Simpson Asset Management, a private equity fund,
specializing in structured finance for public companies. From 1996 to 1997, he served as senior
vice president of convertible sales and trading at Dillon Read & Company, a financial services
company, managing a proprietary convertible portfolio and supervising all institutional sales and
trading activity. From 1993 to 1996, he served as vice president of convertible sales and trading
at Hambrecht & Quist, a financial services company, where he handled all convertible operations and
augmented investment banking and corporate finance revenues through his involvement in the
placement of convertible products. From 1992 to 1993, he served as a global arbitrage trader at
Spectrum Trading Partners, a financial derivatives trading company, where he was responsible for
maintaining market neutral and currency neutral hedges for an international convertible securities
portfolio. Mr. Levine has over 18 years of investment banking, venture capital, institutional
trading, arbitrage dealing, and senior corporate management experience. He played key roles in the
deployment of over $1 billion of investment capital into the health care and technology sectors.
Mr. Levine received his B.A. in Economics and Finance from Rutgers University and has completed
graduate coursework for an M.B.A. at New York Universitys Stern School of Business.
James A. Merritt, M.D. Dr. Merritt currently is the Companys president and chief medical
officer, positions he has held since September 2006. From July 2005 through September 2006, Dr.
Merritt consulted for the Company acting as chief medical advisor on various clinical matters.
From 2003 to September 2006, Dr. Merritt had been chief executive officer and a member of the board
of directors of Imagine Pharmaceuticals, a privately-held venture-backed biotechnology company
focused on the development of small molecules that enable the delivery of cancer therapeutics to
metastatic and primary brain tumors. From February 1996 to 2003, Dr. Merritt held various positions
at Introgen Therapeutics, a biopharmaceutical company focused on the discovery, development and
commercialization of targeted molecular therapies for the treatment of cancer and other diseases,
most recently as its chief medical officer. Dr. Merritt has more than 20 years experience in drug
development and
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has held senior positions, including at Introgen Therapeutics, Viagene and IDEC Pharmaceuticals.
Dr. Merritt holds an M.D. from the University of Vermont and a B.A. from Johns Hopkins University.
Dr. Merritt completed a research fellowship in viral oncology and a clinical fellowship at the
University of Wisconsin, Madison, Department of Human Oncology, and holds board certifications in
internal medicine and medical oncology.
Gregory P. Hanson, M.B.A., C.M.A. Mr. Hanson currently is the Companys chief financial
officer and treasurer and a senior vice president, positions he has held since December 2006. Prior
to this appointment, Mr. Hanson served as vice president and chief accounting officer of Avanir
Pharmaceuticals, Inc., a publicly traded drug discovery and development company, from May 2006 to
December 2006 and as vice president and chief financial officer of Avanir from July 1998 to May
2006. Also during Mr. Hansons tenure at Avanir, he simultaneously served in other executive
capacities, including corporate compliance officer since 2002 and corporate secretary since July
1998. From September 1995 to July 1998, Mr. Hanson served as chief financial officer of XXsys
Technologies, Inc., a publicly-traded company focused on the commercialization of advanced
composite technologies; and from May 1993 to September 1995, he held a number of financial
positions with The Titan Corporation, a diversified telecommunications and information systems
company, including acting chief financial officer and acting controller for its subsidiary, Titan
Information Systems. Earlier in his career, Mr. Hanson held various management positions with Ford
Motor Company over a 14-year span and Solar Turbines Incorporated, a subsidiary of Caterpillar
Inc., over a 3-year span. Mr. Hanson received a B.S. in mechanical engineering from Kansas State
University and an M.B.A. with honors from the University of Michigan. He is a certified management
accountant and has passed the examination for certified public accountants. Mr. Hanson has been a
member of the Financial Accounting Standards Boards Small Business Advisory Committee since April
2004 and serves on its agenda committee.
Joan M. Robbins, Ph.D. Dr. Robbins currently is the Companys chief scientific officer and a
senior vice president, positions she has held since January 2007. Dr. Robbins served as the
Companys chief technical officer from March 2003 to January 2006, and was appointed executive vice
president and chief science officer in February 2006. From 1996 to 2003, Dr. Robbins was employed
by Immusol, Inc., a biopharmaceutical company specializing in anticancer and antiviral therapeutics
in addition to certain dermatologic and ophthalmic disorders. At Immusol, she held several
positions, including vice president, product development, senior director, product development, and
director, therapeutics. Dr. Robbins has directed drug discovery and development resulting in the
advancement of drug candidates into Phase 1, 2 and 3 human trials, including the development of
clinical protocols with the U.S. Food and Drug Administration. She has also led programs for
formulation, manufacturing, toxicology and pharmacology development. From 1994 to 1995, she was
research scientist and project leader for cancer research at Chiron where she led development of
gamma-IFN recombinant retroviral immuno-gene therapy for cancer, and tk-recombinant retroviral gene
therapy for brain tumors. From 1992 to 1993, Dr. Robbins was a post graduate researcher at
University of California, San Diego, where she assisted in the development of a novel DNA-based
immunotherapeutic for treatment of Her2/neu expressing tumors. From 1990 to 1991, she was a
research fellow at the Garvin Institute for Medical Research, Centre for Immunology in Sydney,
Australia, and from 1981 to 1989, Dr. Robbins was a microbiologist at the Laboratory of Tumor
Immunology and Biology at the National Cancer Institute in Bethesda, Maryland. Dr. Robbins received
her B.S. in genetics from the University of California, Davis, and a Ph.D. in genetics from George
Washington University, Washington D.C.
Brian M. Culley, M.S., M.B.A. Mr. Culley currently is the Companys chief business officer and
a senior vice president, positions he has held since January 2007. Mr. Culley served as vice
president, business development since joining us in December 2004, and was appointed senior vice
president, business development in February 2006. From 2002 until 2004, Mr. Culley managed all
strategic collaborations and licensing agreements for Immusol, Inc. in San Diego, where his most
recent title was director of business development and marketing. From 1999 until 2000, he was a
licensing and marketing associate at the University of California, San Diego, department of
technology transfer & intellectual property services and from 1996 to 1999, he was a research
associate for Neurocrine Biosciences, Inc., where he performed drug discovery research. Mr. Culley
has over 12 years of experience in the biotechnology industry, including deal structure and
negotiation, licensing, due diligence, market and competitive research, and venture funding. He
received an M.S. in biochemistry from the University of California Santa Barbara and an M.B.A, from
The Johnson School of Business at Cornell University with an emphasis on private equity and
entrepreneurship.
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Patrick L. Keran, J.D. Mr. Keran currently is the Companys general counsel, a position he has
held since August 2006, secretary, a position he has held since September 2006, and vice president,
legal, a position he has held since January 2007. From April 2004 to August 2006, Mr. Keran was
associate general counsel at Isis Pharmaceuticals, a publicly traded drug discovery and development
company. From February 2003 to April 2004, Mr. Keran practiced corporate law at the law firm of
Heller Ehrman LLP, specializing in public and private financings, licensing arrangements, mergers
and acquisitions and corporate governance matters. From September 1999 to February 2003, Mr. Keran
practiced law at the law firm of Brobeck Phleger & Harrison LLP where he had a similar corporate
practice. Mr. Keran is licensed to practice law in the State of California. Mr. Keran received a
B.A. from the University of California at San Diego and a J.D. from the University of California at
Berkeley, Boalt Hall School of Law.
Joachim P.H. Schupp, M.D. Dr. Schupp currently is the Companys vice president, medical
affairs, a position he has held since August 2006. From October 2004 to August 2006, Dr. Schupp
served as vice president of clinical business solutions and clinical data services at ProSanos
Corporation, a company specialized in the capture, integration and analysis of healthcare related
data with a focus on post-approval and pharmacovigilance studies. From 1985 to October 2004, Dr.
Schupp held various positions at Novartis AG and Ciba Geigy (which merged with Sandoz to form
Novartis in 1996), most recently as executive director of project management. Dr. Schupp has more
than 20 years experience in the global pharmaceutical industry. As global project leader at
Novartis, he was responsible for life cycle management of numerous projects and compounds in
oncology, dermatology and wound healing, including several first-of-kind therapeutics. In this
executive director position within project management, his team leadership is credited for the
market approval of several drugs, including Femara® in the United States and European Union for
breast cancer and Apligraf® in the United States for venous and diabetic ulcers, and for the
international development of Exjade,® recently approved for transfusional hemosiderosis. Dr. Schupp
was a clinical research physician at Ciba Geigy where he directed international teams in the
therapeutic area of inflammation. He received his M.D. from the Free University of Berlin and
served for several years on the faculty at the University of Pretoria, South Africa prior to
joining Ciba Geigy.
Michele L. Yelmene. Ms. Yelmene currently is the Companys vice president, regulatory affairs,
a position she has held since March 2007. From October 2006 to March 2007, she consulted for the
Company regarding various regulatory matters. From April 2002 through March 2006, Ms. Yelmene was
executive director, clinical and regulatory affairs and corporate secretary for Perlan
Therapeutics, a privately-held company focused on development of recombinant protein-based drugs.
From 1998 until 2002, Ms. Yelmene was director in biomedical operations for Genzyme Corporation, a
leading biotechnology company focused on rare inherited disorders, kidney disease, orthopaedics,
cancer, transplant and immune diseases, and diagnostic testing, and from 1996 through 1998 she was
manager of medical and regulatory affairs for Mallinckrodt, a publicly-traded pharmaceutical
company acquired by Tyco Healthcare. Ms. Yelemene brings over 25 years of operational and project
management, clinical and scientific research and regulatory affairs experience in the biotechnology
and pharmaceutical industries. During her career, Ms. Yelmene was responsible for clinical
development, preparation, and presentation of 14 FDA-approved products and over 25 investigational
new drug applications (INDs) for both pharmaceutical and biologics-based therapies in the areas of
viral infections, respiratory, CNS, metabolic and endocrine diseases, and lysosomal storage
disorders. She has participated in meetings with the FDA at all phases (pre-IND through advisory
committee) of clinical development. Ms. Yelmene is a member of the Regulatory Affairs Professional
Society, Drug Information Association and Co-Chair of the FDA Committee at BIOCOM in San Diego. She
received a B.S. in biology and B.A. in English writing, both from Rider University.
Mark J. Cantwell, Ph.D. Dr. Cantwell currently is the Companys vice president, research and
development, a position he has held since January 2006. Dr. Cantwell joined the Company as director
of preclinical programs in November 2003. From 1998 to 2003, Dr. Cantwell was employed at Tragen
Pharmaceuticals, formerly Immunogenex Inc., a company specializing in immune therapies for cancer
and autoimmune diseases. While at Tragen, Dr. Cantwell was a staff scientist involved in the
preclinical development of Tragens drug candidates. Dr. Cantwell received a Ph.D. from the
University of California, San Diego and a B.S. in applied biology from the Georgia Institute of
Technology.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has incorporated into its written review and approval policies certain procedures
designed to ensure that transactions between the Company and any of its directors, executive
officers, holders of more than 5% of its common stock, or any member of the immediate family of any
of the foregoing, is reviewed by individuals within the Company (including its general counsel)
familiar with the requirements of Item 404 of Regulation S-K promulgated by the SEC. In the event
any such transaction is proposed, the Companys policies are designed to ensure these individuals
are involved in the review of the transaction. If the transaction would require disclosure pursuant
to Item 404(a), the transaction will be presented to the audit committee for review and, if
appropriate, approval.
In the last fiscal year, there has not been nor currently are there proposed any transactions
or series of similar transactions to which the Company was or is to be a party in which the amount
involved exceeds $120,000 and in which any director, executive officer, holder of more than 5% of
the Companys common stock or any member of the immediate family of any of the foregoing persons
had or will have a direct or indirect material interest, other than the following transactions:
Issuances of Stock Awards
In 2006, the Company granted options to purchase an aggregate of 1,335,000 shares of the
Companys common stock to its directors and executive officers at a weighted average exercise price
of $3.56 per share. The exercise price per share of underlying common stock for each of the options
issued to such parties was equal to the fair market value per share of the Companys common stock
on the date of grant.
In April 2006, the Company issued Dr. Merritt 5,000 shares of the Companys common stock.
Information regarding this issuance is located under the caption Grants of Plan-Based Awards,
below.
Employment Agreements
In September and December 2006, the Company entered into employment agreements with,
respectively, Dr. Merritt, its president and chief medical officer, and Mr. Hanson, its chief
financial officer and treasurer and a senior vice president. Information regarding these employment
agreements is located under the caption Potential Payments Upon Termination or Change In Control,
below.
Separation Agreements
In September 2006, the Company entered into a separation agreement and release of all claims
and a consulting agreement with Carrie E. Carlander, its former chief financial officer.
Information regarding these agreements is located under the caption Narrative Disclosure to
Summary Compensation Table and Grants of Plan-Based Awards Table, below.
In February 2007, the Company entered into a separation agreement and release of claims and a
consulting agreement with Robert A. Daniel, its former acting chief financial officer. Information
regarding these agreements is located under the caption Potential Payments Upon Termination or
Change in Control, below.
Indemnification of Officers and Directors
The Companys amended and restated certificate of incorporation and its bylaws provide that
the Company will indemnify each of its directors and officers to the fullest extent permitted by
the Delaware General Corporation Law. Further, the Company has entered into indemnification
agreements with each of its directors and officers, and has purchased a policy of directors and
officers liability insurance that insures its directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
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Other Transactions
In September 2006, the Company entered into a First Amendment to Rights Agreement with certain
entities affiliated with Mr. Icahn. The amendment amended certain terms of the underlying agreement
in connection with the appointment of Mr. Lief to the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act) and SEC rules,
the Companys directors, executive officers and beneficial owners of more than 10% of any class of
equity security are required to file periodic reports of their ownership, and changes in that
ownership, with the SEC. Based solely on its review of copies of these reports and representations
of such reporting persons, the Company believes that during fiscal year 2007, such SEC filing
requirements were satisfied, except for late filings made by Dr. Merritt, the Companys president
and chief medical officer, and Mr. Daniel, the Companys former acting chief financial officer, who
each inadvertently filed a late Form 3 on September 19, 2006 reporting their status as reporting
persons on September 7, 2006.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2006 regarding equity compensation
plans approved by the Companys stockholders. The Company does not have any equity compensation
plans that have not been approved by its stockholders.
Number of | ||||||||||||
securities | ||||||||||||
available for | ||||||||||||
Number of | future issuance | |||||||||||
securities to be | under equity | |||||||||||
issued upon | Weighted-average | compensation plans | ||||||||||
exercise of | exercise price of | (excluding | ||||||||||
outstanding | outstanding | securities | ||||||||||
options, warrants | options, warrants | reflected in second | ||||||||||
Plan | and rights | and rights | column) | |||||||||
2005 Equity
Incentive Plan |
3,733,769 | $ | 2.37 | 2,487,220 | (1) | |||||||
2005 Employee Stock
Purchase Plan |
0 | $ | 0 | 1,673,634 | (2) |
(1) | The 2005 Equity Incentive Plan contains a provision for an automatic annual increase in the number of shares available for grant on the first day of the Companys fiscal year beginning in 2006 equal to the lesser of (i) one percent of the number of outstanding shares of the Companys common stock on such day, (ii) 750,000 and (iii) such other amount as the Board may specify prior to the date such annual increase is to take effect. | |
(2) | The 2005 Employee Stock Purchase Plan contains a provision for an automatic increase in the number of shares available for grant on the first day of the Companys fiscal year beginning in 2006 and on each anniversary of that date thereafter equal to the lesser of (i) one percent of the number of outstanding shares of the Companys common stock on such day, (ii) 750,000 and (iii) such other amount as the Board may specify prior to the date such annual increase is to take effect. |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
General Philosophy, Overview and Objectives
The Companys compensation programs are intended to attract, motivate and retain highly
qualified executives and to be competitive with those companies the Company considers its peers.
The Company competes for executive talent with a number of large, well established pharmaceutical
and biotechnology companies who, among other things, enjoy significantly greater name recognition,
superior resources and deeper industry connections. The Companys executive compensation programs
are meant to assist in creating stockholder value by attracting highly qualified talent, promoting
achievement of individual and company wide performance goals and retaining the Companys executives
by rewarding achievement of superior performance.
The Companys process for evaluating and determining the competitiveness of its compensation
packages for executives has evolved as the Companys operations have grown increasingly
sophisticated and the caliber of executive it seeks has risen. Historically, the Company relied on
generally-available surveys and data-compilations to assess the competitiveness of its compensation
practices. The Company is now at a stage where it believes it is appropriate to seek advice from
qualified professionals that is both more comprehensive and current and tailored specifically to
the Company and its industry. Accordingly, in February 2007, the compensation committee retained
Frederic W. Cook & Co., Inc., a nationally-recognized compensation consulting firm, to assist in
evaluating the Companys compensation practices.
F.W. Cooks analysis revealed that the Company historically has paid its executives below the
median with respect to its peer group of similarly situated biotechnology companies identified by
F.W. Cook and the metrics F.W. Cook uses to assess the competitiveness of executive compensation,
such as base salary, cash bonus and stock options. The Company believes the median level of
compensation for a particular executive does not by itself determine the appropriate level of
compensation for that particular executive. Overall, the Company believes its executives are fairly
compensated. The Company will carefully evaluate whether continuing to pay below the median
identified by F.W. Cook may impede its ability to attract, motivate and retain highly qualified
executives and otherwise remain competitive in the market.
Compensation Program and Process
The compensation committee establishes and oversees the Companys executive compensation
programs. The compensation committee meets several times a year to review, analyze and set
compensation packages for the Companys executives.
The Companys executives currently are compensated primarily through salary and long term
incentive awards in the form of stock options. Executives also participate in the Companys other
benefit programs, such as health and welfare benefits, group term life and short and long term
disability insurance and matching contributions under the Companys tax-qualified 401(k) program,
at the same level as other employees. In addition, beginning in 2007, the Company purchased
individual long term disability insurance policies for each of its executives to supplement the
benefit provided by its group long term disability insurance. Typically, shortly following the
beginning of each calendar year, the Companys chief executive officer will evaluate performance of
both the Company and its individual executives during the preceding year and make recommendations
to the compensation committee with respect to compensation of the Companys executives, other than
himself, which recommendations the compensation committee analyzes in the process of determining
appropriate compensation packages for individual executives.
The starting point in determining base salary compensation of the Companys executives is the
comparable median salary of executives at those companies the Company considers its peers. The
Companys chief executive officer will adjust the comparable median salary to reflect the skills,
experience, knowledge and responsibilities of the applicable Company executive, the executives
performance against corporate and individual objectives for the prior year, expected contributions
in achieving future corporate goals and performance (including changes in
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responsibility, title or position), contributions as a member of the executive management
team, current compensation and any recently granted stock options, compensation equality within
peer groups and the Company generally, corporate performance and the overall condition of the
Company, all of which is considered in the context of general industry and economic conditions.
Historically, including in 2006 and (other than with respect to the Companys chief executive
officer) 2007, in assessing comparable median salaries, the Company relied on the annual survey
conducted by The Biotech Employee Development Coalition (which focuses primarily on biotechnology
companies located in Southern California). The compensation committee carefully considers the
analysis of the Companys executives as provided by its chief executive officer, as well as his
ultimate recommendation, in determining pay packages and makes any adjustments based on its
interpretation of the same criteria.
In establishing the elements and levels at which the Company compensates its executives, the
Company does not base its decisions on the short term performance of the Companys stock, whether
favorable or unfavorable; rather, the Company believes that the price of its stock will, in the
long-term, reflect the success the Company achieves in its pre-clinical and clinical programs. The
Company believes its long term incentive award compensation in the form of stock options promotes
achieving specific annual and long term strategic goals with respect to the Companys pre-clinical
and clinical programs, with the ultimate objective of increasing stockholder value over the long
term.
In determining long term incentive award compensation, the initial stock option award to an
executive is based on the size of awards made to comparable executives within the Company (based on
title, responsibility, salary and other similar factors). Annual refresher stock option awards
are based on the criteria described above that the Companys chief executive officer and the
compensation committee consider in adjusting median salaries, as well as the mix of vested verses
unvested and in-the-money verses underwater stock options held by the executive. Consideration
may also be given to whether stock options expired unexercised (including as a result of being
out-of-the-money for substantial periods during the term of the option or upon its expiration).
Under this process, compensation of the Companys executives, other than its chief executive
officer, was established for 2006 and 2007.
Since becoming the Companys chief executive officer in September 2004 and until March 2007,
other than changes in benefits available to all employees, Mr. Levines compensation had not been
changed. In November 2005, Mr. Levine entered into an agreement with certain entities affiliated
with Mr. Icahn (the Icahn Entities). Under the agreement, Mr. Levine is prohibited from, among
other things, except with the consent of a majority of the Board (including the director designated
by the Icahn Entities), accepting or requesting any increase in the amount of compensation payable
by the Company to Mr. Levine. The Company is not a party to the agreement and has no rights or
obligations thereunder. Neither the Company nor the Board approved, authorized or ratified the
agreement.
In February 2007, the compensation committee retained F.W. Cook, a compensation consultant
that had not previously conducted any business directly with the Company. F.W. Cook was charged
with, among other things, conducting a competitive assessment of the Companys executive
compensation, in particular that of the Companys chief executive officer. In addition to talking
with members of the compensation committee, F.W. Cook contacted certain of the Companys executives
and employees in the Companys human resources, finance, business development and investor
relations departments to obtain historical data and insight into previous compensation practices
and to establish the Companys peer group.
In February 2007, F.W. Cook presented to the compensation committee its analysis of the
Companys chief executive officers compensation, which it found to be below the median of a chief
executive officer within the Companys peer group based on the metrics F.W. Cook uses to assess the
competitiveness of executive compensation.
In March 2007, the Board (including the director designated by the Icahn Entities) reviewed
Mr. Levines performance in 2006 and approved certain aspects of a compensation package for Mr.
Levine for 2007. In particular, Mr. Levines annual base salary was increased from $250,000 to
$450,000 (which represents the median salary of a chief executive officer within the Companys peer
group established by F.W. Cook), which salary increase was made retroactive to January 1, 2007. In
addition, Mr. Levine was awarded a cash bonus of $100,000 (which
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represents approximately the 25th percentile of actual bonus paid to a chief
executive officer within the Companys peer group established by F.W. Cook) in recognition of his
performance in 2006. This bonus was not pursuant to any plan or program and, immediately prior to
awarding such bonus, the Company had no obligation to pay Mr. Levine this or any other bonus. The
Board also authorized the chair of the compensation committee to, with the advice and assistance of
F.W. Cook, negotiate additional terms of Mr. Levines continued employment, including a 2007 cash
bonus target of $250,000 (which represents approximately the 75th percentile of actual
bonus paid to a chief executive officer within the Companys peer group established by F.W. Cook)
based on achieving pre-established objectives to be determined by the compensation committee and
such other terms as the compensation committee, in consultation with F.W. Cook, determines are
reasonable. Mr. Levines ability to accept any future increase in the amount of compensation
payable by the Company to him may require the consent of a majority of the Board (including the
director designated by the Icahn Entities).
In assessing the appropriate level of compensation for Mr. Levine, a majority of the Board
believed it was inappropriate to consider Mr. Levines beneficial ownership of the Companys
shares, which was acquired by him through a personal investment (through an investment vehicle he
controls) and, as of the Evaluation Date, is equal to 5.0% of the Companys outstanding shares. The
Board applied the same general criteria described above in determining Mr. Levines compensation as
is applied to other executives in determining their respective compensation. The Board considered
the fact that Mr. Levines ownership stake in the Company resulted from an arms-length investment,
for which Mr. Levine bore the investment risk, made prior to his appointment to his current
position with the Company. In negotiating the terms of the grant of a stock option, if any, to Mr.
Levine, the Company may consider that Mr. Levines ownership position in the Company is not
dependent on his providing on-going services to the Company. A member of the Board believed it was
appropriate to consider Mr. Levines ownership stake in the Company in determining the appropriate
level of compensation for Mr. Levine and assessing whether he has adequate incentives and is
properly motivated both to continue in his role as the Companys chief executive officer and
maximize stockholder value, but determined that the compensation package ultimately approved by the
Board was appropriate in light of the overall circumstances.
In March 2007, F.W. Cook completed its analysis of the Companys executives compensation
generally. F.W. Cooks analysis revealed that, relative to its peer group, the Company generally
pays its executives below the median with respect to the metrics F.W. Cook uses to assess the
competitiveness of executive compensation.
The Company believes, however, that its executives, taking into consideration the adjustments
it has made and is contemplating with respect to its chief executive officer, generally are fairly
compensated and provided with adequate incentives and properly motivated to maximize stockholder
value. Many of its executives are recent hires with limited tenure. Many are in their first
executive position. Overall, the Company believes its executives are satisfied with their
respective compensation packages and that current compensation is sufficient to ensure their
continued services as motivated employees. The Company is aware, however, that a consistent
practice to compensate executives below the median may impede its ability to attract and retain
qualified executives. As the Companys current executives gain experience and tenure and
demonstrate their value over an extended period, it may be difficult to retain their services if
the Company does not compensate them in a manner consistent with the compensation of executives
within the Companys peer group.
In addition, in recent years, the Company has undergone significant growth and development,
which has affected the make-up of those companies it considers its peers. As the Company matures,
its peer group evolves and the compensation practices of its peer group changes. The Company
intends periodically to review and reassess the appropriateness of its compensation practices and
the level at which it compensates its executives to ensure it continues to attract, motivate and
retain highly qualified employees. For instance, the compensation committee is considering the
implementation of plans under which it may grant short term awards consisting of annual cash
bonuses and severance and change in control benefits, as well as the appropriate benchmark against
which to assesses the competitiveness of its compensation.
Elements of Compensation
Currently, the elements of the Companys overall executive compensation packages consist of
base salary and long term incentive awards in the form of stock options, as well as other benefits
available generally to employees and typical of companies at the Companys stage of development,
such as health and welfare benefits,
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group term life and short and long term disability insurance and matching contributions under
the Companys tax-qualified 401(k) program. In addition, beginning in 2007, the Company purchased
individual long term disability insurance policies for each of its executives to supplement the
benefit provided by its group long term disability insurance. The Company structures the elements
of its executives overall compensation to compensate them for their day-to-day activities as
executives and provide incentive for increasing long term stockholder value.
Peer Group
In February 2007, the compensation committee, in concert with F.W. Cook and with feedback from
the Companys management, established a peer group consisting of 19 biotechnology companies of
similar size and nature of operations. In determining its peer group and the competitiveness of the
various elements of compensation it offers executives, the Company considered not only those
companies comparable in terms of market capitalization, stage of development and employee base, but
also those companies against which it competes for talent. Though streamlined in terms of number of
employees and certain other quantitative metrics, the Company has a complex drug development cycle
that requires executives to possess a detailed and comprehensive understanding of and the
interdynamics among numerous disciplines. Under the provisions of Section 505(b)(2) of the Federal
Food, Drug and Cosmetic Act, certain of the Companys product candidates may move from preclinical
development to approved product on timelines substantially faster than those associated with
traditional drug development. In addition, the Company has numerous active preclinical and clinical
development programs, and is evaluating several other of its assets in various other programs.
Demand is high for individuals with the experience to effectively manage and finance an
organization reflecting the Companys breadth and depth, and this experience is often found only
among executives and other high-ranking employees at companies with significantly greater market
capitalization, numbers of employees and other quantifiable metrics than the Companys current
comparable metrics. In addition, the Company seeks to retain executives capable of guiding the
Company through its next several stages of growth and development, when many of its quantitative
metrics will be substantially greater.
The market from which the Company draws and anticipates continuing to draw executive talent is
national in scope (and, in certain instances, international). Accordingly, the Company does not
focus on the geographical location of companies in establishing its peer group and, specifically,
does not limit its focus to companies in San Diego, California. To the extent the Company does
incorporate competitive market data from specific geographical locations, it focuses in part on the
San Francisco Bay Area and the Boston, Seattle and Raleigh-Durham metropolitan areas, areas that
typically have compensation levels higher than the national average.
Over time, the composition of the Companys peer group is likely to evolve to reflect changes
in the Companys development and prospects.
Base Salary
The Company provides base salary to its executives to compensate them for day-to-day services
rendered throughout the year. Historically, in assessing the competitiveness of the salaries it
offers, the Company relied primarily on the annual survey conducted by The Biotech Employee
Development Coalition (which focuses primarily on biotechnology companies located in Southern
California). In the near term, the Company anticipates assessing the baseline competitiveness of
each of its executives salaries by comparing it against the peer group established by the
compensation committee in cooperation with F.W. Cook. From this starting point, the Company will
determine the appropriate level of base salary for particular executives applying the factors and
considerations described above.
At least annually, the compensation committee will review and assess the performance of the
Companys chief executive officer outside of his or her presence and determine appropriate changes,
if any, to base salary compensation. Mr. Levine may be prohibited from accepting any increase in
the amount of compensation payable by the Company to him, except with the consent of a majority of
the Board (including the director designated by the Icahn Entities).
In addition, shortly following the Companys internal assessment of individual performance for
a particular year, the Companys chief executive officer will make base salary recommendations to
the compensation committee with respect to all other executives, which recommendations the
compensation committee will discuss outside the
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presence of the affected executives and ultimately accept or adjust (including reject). In
January 2007, the compensation committee approved base salary adjustments for certain of the
Companys executives, including three of the Named Executive Officers Dr. Merritt, the Companys
president and chief medical officer, received a 11.5% increase; Dr. Robbins, the Companys chief
scientific officer, received a 6% increase; and Mr. Culley, the Companys chief business officer,
received a 25% increase. Based in part on generally-available surveys and data compilations, the
Companys chief executive officer typically sets base salaries for all non-executive employees in
his or her discretion based on recommendations and with input from other executives, subject to the
compensation committees approval of the aggregate increase in the Companys compensation to its
employees.
Short Term Incentive Awards
Short term incentive awards are designed to encourage the achievement of key near-term
corporate goals that will enhance long term performance and reward corporate and individual
performance in a particular year. Corporate goals typically are milestone-based and tied to events
that a company determines will drive overall stockholder value, such as initiating, enrolling
patients in and completing clinical trials; submitting, filing and obtaining approval of regulatory
documents; partnering and other commercialization activities; and developing and expanding a
companys portfolio of products and product candidates. Corporate goals may also reflect
appropriate financial metrics, such as levels of operating cash at year-end and successfully
closing capital-raising transactions, and other near term objectives the achievement of which a
company wishes to encourage. Individual goals typically are designed to foster attaining near term
corporate goals and other desired objectives.
Under a typical program, payment of short term incentive awards will depend on the level of
achievement of these pre-established corporate and individual goals, calculated as a percentage of
the participants salary, with higher-ranking participants compensated at a higher percentage of
salary.
The Company does not have a formal short term incentive plan and, to date, the payment of any
cash bonuses to the Companys executives has been at the discretion of the compensation committee.
From 2003 through 2006, the Company did not award cash bonus compensation to any of its employees,
including its executives, other than a signing bonus of $20,000 paid in September 2006 to its vice
president, medical affairs. In January 2007, the Company awarded a one-time payment of $37,500 to
its president and chief medical officer and, in March 2007, the Company awarded a one-time payment
of $100,000 to its chief executive officer. The 2007 awards were not pursuant to any plan or
program and, immediately prior to awarding such bonus, the Company had no obligation to pay these
or any other bonuses to these individuals.
According to F.W. Cooks analysis, total annual compensation (i.e., base salary plus bonus
actually paid) to the Companys executives (not including its chief executive officer) is, in the
aggregate, 25% below the median total annual compensation of executives of companies within the
Companys peer group. In light of F.W. Cooks analysis, the compensation committee has discussed
the payment of cash bonuses based on the achievement of corporate and individual goals, and the
Board has formally approved a target bonus of $250,000 for the Companys chief executive officer,
subject to negotiating the specific goals related to the achievement of such bonus. Neither the
compensation committee nor the Board has approved any bonus target (whether as a percentage of base
salary or a dollar amount) for any of the Companys other executives. The Company believes,
however, that the combination of continued base salary compensation and long term incentive
compensation it provides its executives currently is adequate to provide incentive to the Companys
executives to achieve short term corporate goals. However, as the Company continues to mature, the
Company believes the need for a formal short term incentive plan that rewards performance and
provides incentive to executives to achieve specific, tailored goals may evolve.
The Company anticipates that any corporate goals underlying short term incentive awards and,
if applicable, individual goals of the Companys chief executive officer will be proposed to the
compensation committee by the Companys chief executive officer, which proposal the compensation
committee may choose to accept or adjust (including reject). Corporate goals likely will be
specific and measurable and individually weighted with respect to all corporate goals. Individual
goals, if applicable, for the Companys other executives likely will be proposed by individual
executives and recommended to the compensation committee by the Companys chief executive officer.
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The Company anticipates that, during the first quarter of each year, the compensation
committee will assess the Companys performance during the course of the prior year and the level
of achievement of established corporate and, if applicable, individual goals of the Companys
executives based on recommendations proposed to the compensation committee by the Companys chief
executive officer, which recommendations the compensation committee may choose to accept or adjust
(including reject). In assessing achievement of corporate and individual goals, the compensation
committee likely will consider not only whether or not the specific corporate goal was achieved,
but also the degree to which the goal was achieved, the quality of achievement, the difficulty and
likelihood of achieving specific goals, the performance by the Companys executives in light of
unexpected and adverse conditions and other factors it determines are appropriate to consider.
Long Term Incentive Awards
The Company provides long term incentive awards to executives as a form of compensation, to
align their respective interests with those of stockholders, as a means to retain personnel and to
fulfill expectations regarding overall compensation. These awards provide, among other things,
incentive to recipients to appropriately balance short and long term goals, thereby maximizing long
term value for the Company and its stockholders.
The compensation committee periodically evaluates the form of long term incentive awards to
ensure it is an appropriate vehicle to achieve the underlying purpose of long term incentive
awards. Historically, the compensation committee determined that stock options, as opposed to stock
appreciation rights, performance units, restricted stock, restricted stock units, stock issuances
or combinations thereof, currently provide an appropriate and effective means to achieve the
multi-faceted purposes underlying long term incentive awards. The Company is a growth-oriented
company and stock options, whose entire value resides in the appreciation in value of the
underlying stock, align well with the Companys corporate stage of development, as well as the
longer timelines associated with drug development. Several companies, including some within the
Companys peer group, are shifting the form of their long term incentive awards towards restricted
stock, which typically provide the recipient immediate value on vesting. As a result of the
immediately-realized value typical of restricted stock awards, the size of restricted stock awards
typically are smaller than comparable stock option awards. Relative to stock options, restricted
stock places greater emphasis on maintaining or steadily growing market value and is, therefore, a
less appropriate and less effective means of effecting the Companys purposes in providing long
term incentive awards. The compensation committee will continue to evaluate the appropriateness and
effectiveness of stock options as the vehicle to implement the Companys goals in providing long
term incentive awards.
Beginning in 2006 the accounting treatment for stock options changed as a result of Revised
Statement of Financial Accounting Standards No. 123, making the accounting treatment of stock
options less attractive. As a result, the Company assessed the desirability of utilizing other
forms of equity compensation. Based on the Companys internal assessment of the motivational power
of stock options, its financial position and the growth-oriented stage of its development and
advice from outside experts, the Company determined to continue relying on stock options as the
Companys primary form of equity incentive for 2007.
The Company typically grants an initial stock option to new employees and provides deserving
employees (including, if applicable, the Companys executives) annual refresher grants to reward
superior corporate and individual performance. Currently, the Company grants stock options under
its 2005 Equity Incentive Plan, which options typically vest and become exercisable monthly over 48
months from the vesting start date except that no shares vest or become exercisable for the first
12 months and, on the 12-month anniversary of the vesting start date, 25% of the shares vest and
become exercisable; however, the Companys 2005 Equity Incentive Plan allows for
other vesting periods and the Company has granted employees stock options that are structured in
this general manner but vest and become exercisable over 36, rather than 48, months, and the
Company has granted its directors stock options that vest and become exercisable over 12, rather
than 48, months.
To assess the competitiveness of the Companys past stock option awards to its executives,
F.W. Cook analyzed the carried interest of the Companys executives as a result of
Company-provided awards. With respect to a company, carried interest is the sum of the number of
shares underlying stock options held by an executive, the number of shares of the companys common
stock held by such executive and the number of shares of common stock sold by such executive during
the prior 3 years, in each case as a result of company-provided awards, expressed as a percentage
of the number of shares of the company currently outstanding. F.W. Cook determined that
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the carried interest of each of the Companys executives is below that of comparable
executives of companies within the Companys peer group. F.W. Cook did note that part of this
discrepancy could be attributed to the fact that several of the Companys executives were recently
hired.
To assess the competitiveness of the Companys annual refresher stock option awards to its
executives, F.W. Cook calculated the median number of shares that each company within the Companys
peer group makes available for awards to employees on an annual basis, as a percentage of the
number of shares of the company currently outstanding, and the median allocation (reflected as a
percentage) of that amount to comparable executives of companies within the Companys peer group.
Based on this analysis, F.W. Cook determined the annual refresher stock option award to the
Companys executives (other than its chief executive officer) in January 2007 is, in the aggregate,
below the median. F.W. Cooks analysis indicated, however, that the Companys small employee base
relative to the companies in its peer group may warrant reserving a smaller number of shares for
awards to employees. In this case, the median allocation would be tied to a smaller number and,
accordingly, the annual refresher stock option award to the Companys executives may be closer to
the median.
F.W. Cook noted that many of the Companys stock option awards appear large in an absolute
sense but should be viewed in context and relative to the number of shares currently outstanding.
Relative to the companies within the Companys peer group, the Company has approximately three
times the number of shares outstanding. Accordingly, to reflect comparable value, a stock option
award provided to the Companys executives must be three times as large as that provided to a
comparable executive of companies with the Companys peer group. The compensation committee
believes, however, that the stock options granted to the Companys executives are sufficient to
adequately link their interests to the long term success of the Company and to create the
appropriate motivation for achieving such long term success.
The Companys ability to grant stock options currently is subject to the Rights Agreement. The
parties to the Rights Agreement have, among other things, the right to participate in future
issuances by the Company of certain of its securities, including stock options. This right,
however, does not apply to, among other things, 4,500,000 shares (including shares underlying stock
options) issued or issuable to officers, employees directors or consultants of the Company under
incentive plans, provided no more than 900,000 of such shares are issued in any 12-month period
beginning July 27, 2005. Since July 27, 2005 through March 31, 2007, including stock options
granted after July 27, 2005 as replacements for stock options granted prior to July 27, 2005, the
Company granted options to purchase an aggregate of 3,883,333, and issued 75,145, shares of the
Companys common stock under its incentive plans. Historically, the Company has requested and
received waivers with respect to the annual limitation. However, if the Company is unable to obtain
in a timely manner on-going waivers of, or an amendment to, the annual and, if applicable,
aggregate limitation, its ability to attract new and retain existing employees and to properly
motivate them may be impaired.
Other Compensation
The Company provides health and welfare benefits, group term life and short and long term
disability insurance and a tax-qualified 401(k) program generally to all eligible employees, and
the executive officers may participate in these programs in the same fashion as all other eligible
employees. In addition, beginning in 2007, the Company purchased individual long term disability
insurance policies for each of its executives to supplement the benefit provided by its group long
term disability insurance.
The Company also offers assistance to all employees, including its executives (a) in
connection with their obligations under Sections 13 and 16 of the Exchange Act and the rules and
regulations promulgated thereunder and (b) in establishing stock trading plans designed to comply
with Rule 10b5-1 promulgated by the SEC.
The Company also provides vacation benefits to its executives, which typically are greater
than provided generally to employees. The Companys employees generally accrue 10 vacation days
per year. The Named Executive Officers accrue the following number of vacation days per year: the
chief executive officer: 23 days; the president and chief medical officer: 30 days; the chief
financial officer: 20 days; the chief scientific officer: 23 days; and the chief business officer:
22 days.
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Severance and Change in Control
The Company believes it is in its and its stockholders interest to provide certain executives
certain benefits in the event the Company terminates them without cause or its executives voluntary
resign with good reason. During reductions-in-force (a not infrequent event in the industry in
which the Company competes) severance benefits provide executives a degree of financial security
that enhances their ability to remain focused on the Company and its operations, as opposed to
seeking other employment. Severance benefits, which typically are conditioned on the departing
executive executing a release of the executives claims against the company, help protect the
company and facilitate the separation process by negotiating the terms of separation at a time when
the underlying issues resulting in the separation likely have not materialized. Significant
management distraction and legal expense can be avoided by establishing in advance the terms of
separation.
In the context of a change in control, the Company believes executives are best motivated to
consummate the transaction the Board determines to be in the best interest of the Company and its
stockholders by ensuring their interests are closely aligned with those of the Companys
stockholders in the specific context of the transaction. The Company believes that accelerating the
vesting and exercisability of stock options in an acquisition context is an appropriate means to
achieve such alignment. If a transaction would otherwise likely have an adverse impact on an
executive, the Company believes it is unrealistic to expect the executive to work against his or
her personal, including financial, interest and inappropriate to require or request an executive to
do so.
In addition, providing severance and change in control benefits is an increasingly common
component of competitive offers to high-quality, high-demand candidates the Company is increasingly
seeking. F.W. Cooks analysis indicated every company within the Companys peer group provides its
chief executive officer some form of severance for non-change in control, as well as change in
control-related, terminations without cause. Importantly, individuals with a proven record of
success often times are less likely to leave existing employers and known environments without some
level of commitment by a company to the individual and the offered position.
The Company does not have a plan or program regarding severance and change in control benefits
that covers all of its executives. Two executives (Dr. Merritt and Mr. Hanson) negotiated
individual severance and change in control benefits in connection with their employment.
Information regarding these severance and change in control benefits is located under the caption
Potential Payments Upon Termination or Change of Control, below. In addition, in March 2007, the
Board authorized the chair of the compensation committee to, with the advice and assistance of F.W.
Cook, negotiate additional terms of Mr. Levines continued employment, which may include severance
in the event of the termination of Mr. Levines employment with the Company.
The Company believes the mix of immediate and contingent benefits provided to Dr. Merritt and
Mr. Hanson strikes an appropriate balance in achieving the objectives in providing change in
control benefits. Accelerating the vesting and exercisability of a substantial portion of the
shares underlying stock options held by executives provides a direct financial incentive to
consummate the transaction the Board wishes to pursue; ensuring a meaningful portion of the shares
underlying such stock options remains unvested upon the closing of such transaction provides a
direct financial incentive to executives to provide transition assistance to the acquiring entity.
The Company believes that, after a reasonable transition period, it is incumbent on the acquirer to
adequately incentivize the Companys employees.
Stock Option Grant Practices
The Company does not intentionally time the grant of stock options to benefit the recipient of
the option, whether by granting options when the Companys stock price appears low or granting
options when the Company knows of material non-public information that is likely, when announced,
to result in an increase in the Companys stock price, a practice commonly referred to as
spring-loading.
The Companys practice has been for the compensation committee or the full Board to approve
the grant of stock options, typically at telephonic meetings or by written consent. During 2006,
the compensation committee met once telephonically and acted by written consent six times to
approve the grant of stock options. In addition, during 2006, the Board met once in-person, once
telephonically and acted by written consent once to approve the grant of
stock options. The Board also met once telephonically to approve the issuance of stock in
connection with a severance agreement and release of all claims entered into with the Companys
former chief financial officer.
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The one telephonic compensation committee meeting was held in January in response to the
Companys chief executive officers compensation recommendations to the compensation committee with
respect to all of the Companys employees, including its executives, other than himself (as
described under the caption Compensation Program and Process, above). At this meeting, the
compensation committee, among other things, approved the grant of stock options to various
employees of the Company, including its executives other than its chief executive officer. The
exercise price of the stock options approved at this meeting was the closing price of the Companys
common stock, as reported on the American Stock Exchange, on the date of the meeting.
The six written consents were to approve the grant of stock options to new employees.
Historically, shortly following a new employees first day of employment, the Company typically
drafts and distributes to the compensation committee written consents reflecting managements
proposal regarding the terms of a stock option for such employee, including the number of shares
underlying the option. The compensation committee is asked to return executed consents as soon as
possible. The date the last executed consent is received by the Company is the effective date of
the consent, and the exercise price of any stock options approved pursuant to such consent is the
closing price of the Companys common stock, as reported on the American Stock Exchange, on the
effective date of the consent.
The one telephonic Board meeting at which stock options were approved occurred in June 2006 in
connection with the automatic grant of options to non-employee directors under the Companys 2005
Equity Incentive Plan. The one in-person Board meeting at which stock options were approved was
held in late September 2006 and scheduled in mid August 2006. At this meeting, the Board approved
the grant of stock options to a recently elected director of the Company and the Companys recently
appointed president and chief medical officer. The exercise prices of the stock options approved at
this meeting were the closing price of the Companys common stock, as reported on the American
Stock Exchange, on the date of the meeting.
The one written consent of the Board by which stock options were approved was to approve the
grant of a stock option to Mr. Hanson, the Companys then-prospective chief financial officer. The
same process of drafting and distributing written consents described above with respect to the
compensation committee applied with respect to this written consent of the Board except that, as a
result of negotiations with Mr. Hanson, the Board approved the grant of a stock option to Mr.
Hanson on December 15, 2006, but with the option to be granted on December 20, 2006, Mr. Hansons
start date; provided that (a) the Company did not rescind its offer of employment to Mr. Hanson, or
terminate an accepted offer, prior to December 20, 2006 and (b) Mr. Hanson accepting the Companys
offer of employment and commencing employment on December 20, 2006. The exercise price of the stock
options was the closing price of the Companys common stock, as reported on the American Stock
Exchange, on December 20, 2006, Mr. Hansons start date.
Following approval of options, the Companys administrative personnel informs the recipient of
the option grant and drafts and executes documentation evidencing the option.
The Company will continue to examine its stock option grant practices (including with respect
to the timing of notifying recipients of options of the fact and terms of options that have been
approved and the execution of documentation evidencing the options). The Company will employ those
practices it determines best prevent intentional wrongdoing, back-dating or fraud in connection
with the grant of stock options, or the perception thereof.
No Pension Benefits or Nonqualified Deferred Compensation
The Company does not offer any plans that provide for specified retirement payments and
benefits or deferred compensation other than a tax-qualified 401(k) plan generally available to
eligible employees.
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Tax and Accounting Considerations
The Company attempts to provide compensation that is structured, to the extent possible, to
maximize favorable accounting, tax and similar benefits for the Company.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the
deductibility of certain compensation in excess of $1,000,000 paid in any one year to the chief
executive officer and the other four highest paid executives. Qualifying performance-based
compensation will not be subject to this deduction limit if certain requirements are met.
In designing the Companys compensation programs and arrangements, the compensation committee
periodically reviews and considers the deductibility of executive compensation under Section
162(m). The Companys 2005 Equity Incentive Plan is designed to provide the compensation committee
the ability to qualify awards under the plan as performance-based compensation under Section
162(m) of the code.
While the Company will continue to monitor its compensation programs in light of Section
162(m), the compensation committee considers it important to retain the flexibility to design
compensation programs that are in the best long term interests of the Company and its stockholders.
As a result, the compensation committee may conclude that paying compensation at levels that are
not deductible under Section 162(m) is nevertheless in the best interests of the Company and its
stockholders.
Summary Compensation Table
The following table sets forth information concerning compensation earned for services
rendered to the Company during the year ended December 31, 2006 by its principal executive officer,
all individuals serving as its principal financial officer, and the Companys three most highly
compensated executive officers, other than the principal executive officer and the principal
financial officer, who were serving as executive officers of the Company as of December 31, 2006.
In 2006, three individuals served as the Companys principal financial officer. Collectively, these
are the Named Executive Officers.
Change in Pension | ||||||||||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | All Other | ||||||||||||||||||||||||||||||||||
Name and |
Stock Awards | Option Awards | Incentive Plan | Compensation | Compensation | |||||||||||||||||||||||||||||||
Principal Position |
Year | Salary | Bonus | (1) | (1) | Compensation | Earnings | (2) | Total | |||||||||||||||||||||||||||
Evan M. Levine, Chief Executive Officer |
2006 | $ | 250,000 | $ | 100,000 | (3) | | | | | $ | 10,211 | (4) | $ | 360,211 | |||||||||||||||||||||
James A. Merritt, President & Chief Medical Officer (5) |
2006 | $ | 102,500 | $ | 37,500 | (6) | $ | 24,050 | (7) | $ | 66,477 | | | $ | 271,159 | (8) | $ | 501,686 | ||||||||||||||||||
Gregory P. Hanson, Chief Financial Officer (9) |
2006 | $ | 7,692 | | | $ | 12,458 | | | | $ | 20,150 | ||||||||||||||||||||||||
Carrie E.
Carlander, former Chief Financial Officer (10) |
2006 | $ | 138,462 | | $ | 196,674 | (11) | $ | 170,397 | | | $ | 139,502 | (12) | $ | 645,035 | ||||||||||||||||||||
Robert A. Daniel, former acting Chief Financial Officer (13) |
2006 | $ | 130,854 | | | $ | 80,953 | | | $ | 36 | $ | 211,843 | |||||||||||||||||||||||
Joan M. Robbins, Chief Scientific Officer |
2006 | $ | 250,000 | | | $ | 144,630 | | | $ | 6,365 | $ | 400,995 | |||||||||||||||||||||||
Brian M. Culley, Chief Business Officer |
2006 | $ | 200,000 | | | $ | 147,559 | | | $ | 8,211 | $ | 355,770 |
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(1) | The value of the stock and option awards has been computed in accordance with Statement of Financial Standards (SFAS) No. 123R, Share-Based Payment (FAS 123R), which requires that the Company recognizes as compensation expense the value (excluding the effect of assumed forfeiture rates) of all stock-based awards, including stock options, granted to employees in exchange for services over the requisite service period, which is typically the vesting period. For more information, see Note 10 in the Notes to Financial Statements contained in the Companys Annual Report on Form 10-K filed with the SEC on March 15, 2007. | |
(2) | Includes matching contributions made pursuant to the Companys tax-qualified 401(k) plan and premiums paid for term life insurance policies for the benefit of the Companys executives. | |
(3) | This one-time cash bonus was approved by the Board and paid to Mr. Levine in March 2007 in recognition of his performance in 2006. This bonus was not pursuant to any plan or program and, immediately prior to awarding such bonus, the Company had no obligation to pay Mr. Levine this or any other bonus. This bonus was awarded and paid following the filing of the Companys Annual Report on Form 10-K and, accordingly, is not reflected in the financial statements included therein. | |
(4) | Represents $10,000 in matching contributions made pursuant to the Companys tax-qualified 401(k) plan and $211 in premiums paid for term life insurance for the benefit of Mr. Levine. | |
(5) | Dr. Merritts employment with the Company commenced on September 8, 2006. From July 2005 through September 2006, Dr. Merritt consulted for the Company, acting as chief medical advisor on various clinical matters. | |
(6) | This one-time cash bonus was approved by the compensation committee in January 2007 and paid to Dr. Merritt in February 2007 in recognition of his performance since September 2006. This bonus was not pursuant to any plan or program and, immediately prior to awarding such bonus, the Company had no obligation to pay Dr. Merritt this or any other bonus. | |
(7) | The stock award was granted in consideration of services rendered as a consultant prior to commencement of Dr. Merritts employment with the Company. As of December 31, 2006, the risk of forfeiture with respect to this award had lapsed entirely. | |
(8) | Includes (a) $263,560 earned by Dr. Merritt in 2006 for services as a consultant to the Company prior to commencement of employment with the Company and (b) reimbursement of $3,528 in legal expenses incurred by Dr. Merritt in connection with negotiating the terms of his employment with the Company. | |
(9) | Mr. Hansons employment with the Company commenced on December 20, 2006. His current base salary is $250,000 | |
(10) | Ms. Carlanders employment with the Company terminated on September 7, 2006. |
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(11) | The stock award was granted in connection with Ms. Carlanders resignation; all of the underlying shares were fully vested upon grant. | |
(12) | Includes (a) $109,434 for the payment of taxes on Ms. Carlanders behalf, (b) $6,892 of accrued vacation benefits and (c) $18,710 earned by Ms. Carlander in 2006 as a consultant to the Company following the termination of her employment on September 7, 2006. | |
(13) | Mr. Daniel served as the Companys acting chief financial officer from September 8, 2006 through December 20, 2006. On December 20, 2006, he resumed his prior role as the Companys controller. |
Grants of Plan-Based Awards
The following table sets forth information regarding grants of stock and option awards made to
the Named Executive Officers during fiscal 2006:
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
Estimated Future Payouts Under Equity Incentive Plan Awards |
All Other Stock Awards: Number of Shares of Stock or |
All Other Option Awards: Number of Securities Underlying |
Exercise or Base Price of Option |
Grant Date Fair Value of Stock and |
|||||||||||||||||||||||||||||||||||||||
Grant | Approval | Threshold | Target | Maximum | Threshold | Target | Maximum | Units | Options | Awards | Option Awards | |||||||||||||||||||||||||||||||||
Name | Date(1) | Date(1) | ($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Sh) | (2) | ||||||||||||||||||||||||||||||||
Evan M. Levine |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||
James A. Merritt |
4/5/2006 | 1/31/2006 | | | | | | | 5,000 | (3) | | | $ | 24,050 | ||||||||||||||||||||||||||||||
9/27/2006 | | | | | | | | | 300,000 | (4) | $ | 2.86 | $ | 797,719 | ||||||||||||||||||||||||||||||
Gregory P. Hanson |
12/20/2006 | 12/15/2006 | | | | | | | | 250,000 | (5) | $ | 2.57 | $ | 597,993 | |||||||||||||||||||||||||||||
Carrie E. Carlander |
1/31/2006 | | | | | | | | | 80,000 | (6) | $ | 4.75 | $ | 271,689 | |||||||||||||||||||||||||||||
9/07/2006 | | | | | | | | 60,145 | (7) | | | $ | 196,674 | |||||||||||||||||||||||||||||||
Robert A. Daniel |
1/31/2006 | | | | | | | | | 25,000 | (8) | $ | 4.75 | $ | 84,903 | |||||||||||||||||||||||||||||
Joan M. Robbins |
1/31/2006 | | | | | | | | | 100,000 | (8) | $ | 4.75 | $ | 339,611 | |||||||||||||||||||||||||||||
Brian M. Culley |
1/31/2006 | | | | | | | | | 80,000 | (8) | $ | 4.75 | $ | 271,689 |
(1) | Unless otherwise indicated, the approval date of each stock and option award is the grant date of such award. | |
(2) | The grant date fair value of each award is determined in accordance with FAS 123R. The assumptions used to calculate the value of an option award are set forth under Note 10 of the Notes to Financial Statements contained in the Companys Annual Report on Form 10-K filed with the SEC on March 15, 2007 (excluding the effect of assumed forfeiture rates). The exercise price for all options granted to the executive officers is equal to the closing price of the Companys common stock, as reported on the American Stock Exchange, on the date of grant. Regardless of the value placed on an option award at its grant date, the actual value to the executive officer will depend on the excess of the market value of the Companys common stock at such future date when the option is exercised over the exercise price of the option. | |
(3) | This stock award was granted in April 2006 in consideration of Dr. Merritts consulting services. All the shares underlying this award were initially subject to a risk of forfeiture. At the end of each calendar month after January 1, 2006, subject to Dr. Merritts continuous service to the Company, the risk of forfeiture lapsed with respect to 1/12th of the shares and that portion vested and became free of contractual restrictions. |
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(4) | This option was granted in connection with commencement of Dr. Merritts employment in September 2006. The option vests and becomes exercisable monthly over 48 months. The exercise price of the stock option was the closing price of the Companys common stock, as reported on the American Stock Exchange, on the date of grant. | |
(5) | This option was granted in connection with commencement of Mr. Hansons employment in December 2006. The option vests and becomes exercisable monthly over 48 months from Mr. Hansons employment start date except that no shares vest or become exercisable for the first 12 months and, on the 12-month anniversary of such date, 25% of the shares vest and become exercisable. The Board approved the grant of this stock option to Mr. Hanson on December 15, 2006, but with the option to be granted on December 20, 2006, Mr. Hansons start date. The exercise price of this stock option was the closing price of the Companys common stock, as reported on the American Stock Exchange, on Mr. Hansons start date. | |
(6) | This option was terminated in September 2006 in connection with Ms. Carlanders resignation and none of the shares underlying the option vested before the option was terminated. | |
(7) | This stock award was granted in connection with Ms. Carlanders resignation; all of the underlying shares were fully vested upon grant. | |
(8) | This option vests and becomes exercisable monthly over 48 months from the vesting start date except that no shares vest or become exercisable for the first 12 months and, on the 12-month anniversary of the vesting start date, 25% of the shares vest and become exercisable. The exercise price of the stock option was the closing price of the Companys common stock, as reported on the American Stock Exchange, on the date of grant. |
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
Each of Mr. Levines, Dr. Robbins and Mr. Culleys employment with the Company is at-will and
the Company currently has no obligation to pay such officer any severance or other benefits, other
than as may be required by law, in connection with a termination of employment. The Company has
entered into employment agreements with Dr. Merritt and Mr. Hanson pursuant to which certain
payments may be due upon termination or change in control. Information regarding these agreements
is located under the caption Potential Payments Upon Termination or Change in Control, below.
Other Compensation Arrangements
Under the terms of an offer letter, dated March 5, 2003, the Company agreed to pay Dr. Robbins
a bonus, payable in stock options, equal to 5% of all government grants received by the Company.
In addition, the Company agreed to pay Dr. Robbins a bonus, payable in stock options, equal to 5%
of capital received by the Company that is a direct result of Dr. Robbins introduction. To date,
the Company has not issued any stock options to Dr. Robbins as a result of these provisions.
Separation Arrangements with Former Chief Financial Officer
In September 2006, Ms. Carlander resigned from her positions as the Companys chief financial
officer, vice president, finance, treasurer and secretary. In connection with Ms. Carlanders
resignation, she and the Company entered into a severance agreement and release of all claims and a
consulting agreement. Under the severance agreement, in exchange for a mutual release and the
termination of outstanding stock options held by Ms. Carlander, the Company issued to Ms. Carlander
a stock award of 60,145 fully-vested shares of the Companys common stock with a fair value of
$196,674 and paid employment taxes totaling $109,434. Under the consulting
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Table of Contents
agreement, in consideration of $16,666.67 per calendar month plus the actual amount paid by
Ms. Carlander for COBRA continuation coverage, Ms. Carlander agreed to consult for the Company on
an as-needed basis. In October 2006, the Company exercised its right to terminate the consulting
agreement. During 2006, the Company paid Ms. Carlander $18,710 for her consulting services.
Under the severance agreement, Ms. Carlander and the Company agreed not to disparage one
another in any manner likely to be harmful to them or their respective businesses or reputations
(whether personal or professional). In addition, Ms. Carlander agreed to return to the Company all
Company documents, information and property that Ms. Carlander had in her possession or control and
acknowledged her continuing obligations to the Company, including those regarding non-solicitation
of the Companys employees, client and customers.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by the
Named Executive Officers at the end of fiscal 2006:
Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||
Equity Incentive | |||||||||||||||||||||||||||||||||||||
Number | Number of | Equity Incentive | Equity Incentive | Plan Awards: Market | |||||||||||||||||||||||||||||||||
of | Securities | Plan Awards: Number | Plan Awards: Number | or Payout Value of | |||||||||||||||||||||||||||||||||
Securities | Underlying | of Securities | Market Value of | of Unearned Shares, | Unearned Shares, | ||||||||||||||||||||||||||||||||
Underlying | Unexercised Options | Underlying | Number of Shares or | Shares or Units of | Units or Other | Units or Other | |||||||||||||||||||||||||||||||
Unexercised Options | (#) | Unexercised | Option Exercise | Units of Stock That | Stock That Have Not | Rights That Have | Rights That Have | ||||||||||||||||||||||||||||||
(#) | Unexercisable | Unearned Options | Price | Option Expiration | Have Not Vested | Vested | Not Vested | Not Vested | |||||||||||||||||||||||||||||
Name | Exercisable | (1) | (#) | ($) | Date | (#) | ($) | (#) | ($) | ||||||||||||||||||||||||||||
Evan M. Levine |
250,000 | | | $ | 0.50 | 12/30/2008 | | | | | |||||||||||||||||||||||||||
James A. Merritt(2) |
18,750 | 281,250 | | $ | 2.86 | 9/27/2016 | | | | | |||||||||||||||||||||||||||
Gregory P. Hanson |
| 250,000 | | $ | 2.57 | 12/20/2016 | | | | | |||||||||||||||||||||||||||
Carrie E. Carlander |
| | | | | | | | | ||||||||||||||||||||||||||||
Robert A. Daniel |
39,583 | 60,417 | | $ | 2.30 | 7/14/2015 | | | | | |||||||||||||||||||||||||||
| 25,000 | | $ | 4.75 | 1/31/2016 | | | | |
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Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||
Equity Incentive | |||||||||||||||||||||||||||||||||||||||||||
Number | Number of | Equity Incentive | Equity Incentive | Plan Awards: Market | |||||||||||||||||||||||||||||||||||||||
of | Securities | Plan Awards: Number | Plan Awards: Number | or Payout Value of | |||||||||||||||||||||||||||||||||||||||
Securities | Underlying | of Securities | Market Value of | of Unearned Shares, | Unearned Shares, | ||||||||||||||||||||||||||||||||||||||
Underlying | Unexercised Options | Underlying | Number of Shares or | Shares or Units of | Units or Other | Units or Other | |||||||||||||||||||||||||||||||||||||
Unexercised Options | (#) | Unexercised | Option Exercise | Units of Stock That | Stock That Have Not | Rights That Have | Rights That Have | ||||||||||||||||||||||||||||||||||||
(#) | Unexercisable | Unearned Options | Price | Option Expiration | Have Not Vested | Vested | Not Vested | Not Vested | |||||||||||||||||||||||||||||||||||
Name | Exercisable | (1) | (#) | ($) | Date | (#) | ($) | (#) | ($) | ||||||||||||||||||||||||||||||||||
Joan M. Robbins |
47,916 | 52,084 | | $ | 2.30 | 7/14/2015 | | | | | |||||||||||||||||||||||||||||||||
| 100,000 | | $ | 4.75 | 1/31/2016 | | | | | ||||||||||||||||||||||||||||||||||
300,000 | | | $ | 0.50 | 12/30/2008 | | | | | ||||||||||||||||||||||||||||||||||
Brian M. Culley |
66,666 | 33,334 | | $ | 2.30 | 7/14/2015 | | | | | |||||||||||||||||||||||||||||||||
| 80,000 | | $ | 4.75 | 1/31/2016 | | | | |
(1) | Unless otherwise noted, all such options vest and become exercisable monthly over 48 months from the vesting start date except that no shares vest or become exercisable for the first 12 months and, on the 12-month anniversary of the vesting start date, 25% of the shares vest and become exercisable. | |
(2) | Dr. Merritts option vests and becomes exercisable monthly over 48 months from the vesting start date. |
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Option Exercises and Stock Vested
The following table sets forth information regarding options exercised and shares of common
stock acquired upon vesting by the Named Executive Officers during fiscal 2006:
Option Awards | Stock Awards | |||||||||||||||
Number of | Number of | |||||||||||||||
Shares | Shares | |||||||||||||||
Acquired | Value Realized | Acquired | Value Realized | |||||||||||||
on Exercise | on Exercise | on Vesting | on Vesting | |||||||||||||
Name |
(#) | ($) | (#) | ($) | ||||||||||||
Evan M. Levine |
| | | | ||||||||||||
James A. Merritt |
| | 5,000 | $ | 18,417 | |||||||||||
Gregory P. Hanson |
| | | | ||||||||||||
Carrie E. Carlander |
| | 60,145 | $ | 196,674 | |||||||||||
Robert A. Daniel |
| | | | ||||||||||||
Joan M. Robbins |
| | | | ||||||||||||
Brian M. Culley |
| | | |
Potential Payments Upon Termination or Change In Control
Acceleration of Vesting of Outstanding Stock Options
Stock options granted under the Companys 2005 Equity Incentive Plan typically are evidenced
by the Companys standard stock option agreement. The Company may elect to incorporate into its
standard stock option agreement one or more alternatives regarding the effect of a change in
control on the underlying option, including its vesting and exercisability.
The Company generally provides in stock option agreements (actually entered into with
recipients of stock option awards) that the underlying option will accelerate in full in the event
of an acquisition constituting a change of control (as such terms are defined in the Companys
standard form of stock option agreement) if the recipient remains employed by the Company as of the
closing date of such acquisition and the option is not assumed or replaced by the successor or
acquiring entity or the entity in control of such successor or acquiring entity; otherwise the
option will not accelerate in the event of such an acquisition.
In addition, the Company has incorporated into certain recent stock option awards a provision
providing that, if following a change of control in which an option is assumed as described above,
in the event of the recipients involuntary termination (as such term is defined in the Companys
standard form of stock option agreement) within a period of time, not to exceed 24 months, after
the closing date of such change of control, the vesting of the assumed option will be accelerated
such that the option will vest as of the effective date of such involuntary termination with
respect to all shares that would have vested during such period. The Company anticipates including
this provision in most stock option awards made in the future.
Cash Payments
Except as described below or as may be required by law, none of the Named Executive Officers
are entitled to cash payments in connection with their termination, whether in connection with a
change in control of the Company or otherwise.
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As of December 31, 2006, the Company had the following accrued vacation benefits liability for
the Named Executive Officers who were employed by the Company at December 31, 2006: Mr. Levine:
$60,487; Dr. Merritt: $11,918; Mr. Hanson: $632; Mr. Daniel: $9,721; Dr. Robbins: $51,338; and Mr.
Culley: $32,976.
Employment and Separation Agreements
It is the Companys policy that, at the beginning of their employment, all employees sign the
Companys standard confidential information, non-solicitation and invention assignment agreement for
employees. Under the current version of this agreement, employees agree that, during the period of
the employees service to the Company and for one year thereafter, the employee will not (a)
solicit any employee or consultant of the Company to leave the employ of or terminate any
relationship with the Company or (b) solicit the business of any client or customer of the Company
using its confidential information.
President and Chief Medical Officer
Dr. Merritts employment with the Company is at-will but, in the event of Dr. Merritts
involuntary termination, subject to Dr. Merritts execution of a mutual release, Dr. Merritt will
receive an amount equal to his base salary for the 6-month period immediately prior to the
effective date of such involuntary termination, payable in 6 substantially equal installments over
the 6-month period following such effective date, and the Company will pay all costs the Company
would otherwise have incurred to maintain Dr. Merritts health, welfare and retirement benefits if
Dr. Merritt had continued to render services to the Company for 6 months after such effective date.
Dr. Merritts current base salary is $362,500 per year and the current incremental cost to the
Company of Dr. Merritts health, welfare and retirement benefits are $892 per month.
In connection with his employment, the Company granted to Dr. Merritt a stock option to
purchase up to 300,000 shares of the Companys common stock, which option vests and becomes
exercisable monthly over 48 months. As of December 31, 2006, 18,750 shares underlying this option
had vested and become exercisable. Despite the foregoing vesting schedule, in the event of Dr.
Merritts involuntary termination, and subject to Dr. Merritts execution of a mutual release, that
number of shares underlying this stock option will vest and become exercisable, effective
immediately prior to the effective date of such involuntary termination, that would have vested and
become exercisable had Dr. Merritt remained in continuous service (i.e., the absence of any
interruption or termination of services as an employee, director or consultant of the Company, or
any subsidiary) for 6 months following such effective date, and Dr. Merritt will have 180 days
following the effective date of such involuntary termination to exercise this stock option. In
addition, despite the foregoing vesting schedule, in the event of an acquisition, 50% of any
unvested shares underlying this stock option will vest and become exercisable as of the closing
date of such acquisition and the remaining unvested shares underlying this stock option will vest
ratably by month over the 12-month period beginning on the closing of such acquisition, subject to
Dr. Merritts continuous service. In addition, in the event of Dr. Merritts involuntary
termination within 24 months of an acquisition constituting a change in control, that number of
unvested shares underlying this stock option will vest and become exercisable, as of the effective
date of such involuntary termination, that would have vested and become exercisable had Dr. Merritt
remained in continuous service for 24 months following such effective date.
With respect to Dr. Merritt, an involuntary termination is one that occurs by reason of
dismissal for any reason other than misconduct or of voluntary resignation following: (i) a
change in position that materially reduces the level of Dr. Merritts responsibility, (ii) a
material reduction in Dr. Merritts base salary, or (iii) relocation by more than 50 miles;
provided that (ii) and (iii) will apply only if Dr. Merritt has not consented to the change or
relocation. Misconduct means the commission of any act of fraud, embezzlement or dishonesty by
Dr. Merritt, any unauthorized use or disclosure by Dr. Merritt of confidential information or trade
secrets of the Company (or any parent or subsidiary), or any other intentional misconduct by Dr.
Merritt adversely affecting the business affairs of the Company (or any parent or subsidiary) in a
material manner. The foregoing definition will not, however, be deemed to be inclusive of all the
acts or omissions which the Company (or any parent or subsidiary) may consider as grounds for the
dismissal or discharge of Dr. Merritt.
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Chief Financial Officer
Mr. Hansons employment with the Company is at-will, but in the event of Mr. Hansons
involuntary termination, and subject to his execution of a general release of claims (which
includes a nondisparagement provision and a covenant not to sue the Company), Mr. Hanson will
receive an amount equal to his base salary for the six-month period immediately prior to the
effective date of such involuntary termination, payable in six substantially equal installments
over the six-month period following such effective date, and the Company will pay in cash all costs
the Company would otherwise have incurred to maintain Mr. Hansons health, welfare and retirement
benefits if Mr. Hanson had continued to render services to the Company for 6 months after such
effective date. Mr. Hansons current base salary is $250,000 per year and the current incremental
cost to the Company of Mr. Hansons health, welfare and retirement benefits are $2,255 per month.
In connection with his employment, the Company granted to Mr. Hanson a stock option to
purchase up to 250,000 shares of the Companys common stock, which option vests and becomes
exercisable monthly over 48 months from the vesting start date except that no shares vest or become
exercisable for the first 12 months and, on the 12-month anniversary of the vesting start date,
which is December 20, 2007, 25% of the shares vest and become exercisable. Despite the foregoing
vesting schedule, in the event of Mr. Hansons involuntary termination, and subject to Mr. Hansons
execution of a release of claims, that number of shares underlying this stock option will vest and
become exercisable, effective immediately prior to the effective date of such involuntary
termination, that would have vested and become exercisable had Mr. Hanson remained in continuous
service (i.e., the absence of any interruption or termination of services as an employee, director
or consultant of the Company, or any subsidiary) for 6 months following such effective date, and
Mr. Hanson will have 180 days following the effective date of such involuntary termination to
exercise this stock option. In addition, despite the foregoing vesting schedule, in the event of an
acquisition, 50% of any unvested shares underlying this stock option will vest and become
exercisable as of the closing date of such acquisition and the remaining unvested shares underlying
this stock option will vest ratably by month over the 12-month period beginning on the closing of
such acquisition, subject to Mr. Hansons continuous service. In addition, in the event of Mr.
Hansons involuntary termination within 12 months of an acquisition constituting a change in
control, that number of unvested shares underlying this stock option will vest and become
exercisable, as of the effective date of such involuntary termination, that would have vested and
become exercisable had Mr. Hanson remained in continuous service for 12 months following such
effective date.
With respect to Mr. Hanson, an involuntary termination is one that occurs by reason of
dismissal for any reason other than misconduct or of voluntary resignation following: (i) a
change in position that materially reduces the level of Mr. Hansons responsibility, (ii) a
material reduction in Mr. Hansons base salary, or (iii) relocation by more than 50 miles; provided
that (ii) and (iii) will apply only if Mr. Hanson has not consented to the change or relocation.
Misconduct means the commission of any act of fraud, embezzlement or dishonesty by Mr. Hanson,
any unauthorized use or disclosure by Mr. Hanson of confidential information or trade secrets of
the Company (or any parent or subsidiary), or any other intentional misconduct by Mr. Hanson
adversely affecting the business affairs of the Company (or any parent or subsidiary) in a material
manner. The foregoing definition will not, however, be deemed to be inclusive of all the acts or
omissions which the Company (or any parent or subsidiary) may consider as grounds for the dismissal
or discharge of Mr. Hanson.
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Quantification of Severance and Change in Control Benefits
The following table describes the potential severance payments and benefits to which Dr.
Merritt and Mr. Hanson would be entitled in connection with specified events, as if the specified
event occurred as of December 29, 2006, the last day of the Companys last fiscal year.
Involuntary Termination Prior to a | Involuntary Termination Immediately | |||||||||||||||||||||||
Change in Control | Change in Control | Following a Change in Control | ||||||||||||||||||||||
Increase in Expense | Increase in Expense | Increase in Expense | ||||||||||||||||||||||
Recognized by the | Recognized by the | Recognized by the | ||||||||||||||||||||||
Name | Benefit | Payment | Company in 2006 (1) | Company in 2006 (1) | Payment | Company in 2006 (1)(2) | ||||||||||||||||||
James A. Merritt |
Base Salary | $ | 162,500 | | | $ | 162,500 | | ||||||||||||||||
Vesting Acceleration | | $ | 83,095 | $ | 457,026 | | $ | 731,242 | ||||||||||||||||
COBRA Premiums (3) | 5,349 | | | 5,349 | | |||||||||||||||||||
Total |
$ | 167,849 | $ | 83,095 | $ | 457,026 | $ | 167,849 | $ | 731,242 | ||||||||||||||
Gregory P. Hanson |
Base Salary | $ | 125,000 | | | $ | 125,000 | $ | 585,535 | |||||||||||||||
Vesting Acceleration | | $ | (12,458 | ) | $ | 286,539 | | | ||||||||||||||||
COBRA Premiums (3) | 13,531 | | | 13,531 | | |||||||||||||||||||
Total |
$ | 138,531 | $ | (12,458 | ) | $ | 286,539 | $ | 138,531 | $ | 585,535 | |||||||||||||
(1) | Amounts shown in this column reflect the increase in expense as determined pursuant to FAS 123R for option awards that would be accelerated in connection with the specified event. The assumptions used to calculate the value of an option award are set forth under Note 10 of the Notes to Financial Statements contained in the Companys Annual Report on Form 10-K filed with the SEC on March 15, 2007 (excluding the effect of assumed forfeiture rates). There can be no assurance that options will ever be exercised (in which case no value will be actually realized by the executive) or that the value on exercise will be equal to the FAS 123R value shown in this column. | |
(2) | Assumes the executive remains employed by the Company on the closing date of a change in control and immediately thereafter is subject to an involuntary termination. | |
(3) | Includes a 2% administration fee charged to the Company by the Companys third party service provider. |
Former Acting Chief Financial Officer
In September 2006 and in connection with the resignation of Ms. Carlander as the Companys
chief financial officer, Robert A. Daniel was appointed as the Companys acting chief financial
officer. In December 2006 and in connection with Mr. Hansons appointment as the Companys chief
financial officer, Mr. Daniel resumed his prior role as the Companys controller.
In February 2007, Mr. Daniel resigned from his position as the Companys controller. In
connection with Mr. Daniels resignation, he and the Company entered into a separation agreement
and release of claims and a consulting agreement. Under the separation agreement, in exchange for
a mutual release of claims, the Company agreed to the following: (a) to pay Mr. Daniel an amount
equal to six months of his then-current base salary, less all the required withholdings and taxes,
payable in a lump sum on March 30, 2007, provided that both (i) Mr. Daniel had not terminated the
consulting agreement prior to March 30, 2007 and (ii) the Company had not terminated the consulting
agreement prior to March 30, 2007 as a result of Mr. Daniels material breach of the consulting
agreement and (b) if Mr. Daniel elects continuation of coverage under the federal law known as
COBRA, to continue to pay Mr. Daniels medical, dental and vision premiums through September 30,
2007, unless he becomes eligible for coverage under another group insurance plan before that date.
In accordance with the separation agreement, in March 2007, the Company paid Mr. Daniel $72,500 and
anticipates paying Mr. Daniel an
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additional $9,602 in connection with paying Mr. Daniels medical and dental premiums from
April 1, 2007 through September 30, 2007, assuming Mr. Daniel does not become eligible for coverage
under another group insurance plan before September 30, 2007.
Under the separation agreement, Mr. Daniel and the Company agreed not to make any voluntary
statements that defame, disparage or in any way criticize the other. In addition, Mr. Daniel
agreed to return to the Company all Company documents, information and property that Mr. Daniel had
in his possession or control and acknowledged his continuing obligations to the Company, including
those regarding non-solicitation of the Companys employees, consultants, client and customers.
Director Compensation
Directors who are employees of the Company do not receive any additional compensation for
their services as directors. The Companys non-employee directors are compensated as described
below.
Retainer and Meeting Fees
During 2006, the Company paid its non-employee directors an annual retainer, which was paid
quarterly, and Board and committee meeting fees. On June 21, 2006, the Board approved changes to
the cash compensation to be paid to its non-employee directors effective as of May 15, 2006. Prior
to May 15, 2006, the Company paid each of its non-employee directors, other than Dr. Johnson, the
Companys chairman, an annual retainer of $20,000. In consideration of his services as chairman,
the Company paid Dr. Johnson an annual retainer of $25,000. Effective May 15, 2006, the cash
compensation the Company pays its non-employee directors is as set forth in the table below:
Annual Retainers | Chairperson | Member | ||||||
Board of Directors |
$ | 25,000 | $ | 10,000 | ||||
Audit Committee |
$ | 20,000 | $ | 10,000 | ||||
Compensation Committee |
$ | 10,000 | $ | 5,000 | ||||
Nominating and Governance Committee |
$ | 10,000 | $ | 5,000 |
In addition to the annual retainers, as of May 15, 2006, the Company pays the following per
meeting fees with respect to each meeting of the Board or any committee of the Board with a
duration of more than 15 minutes, other than (i) the first four meetings of the Board held during
each calendar year, (ii) the first four meetings of the audit committee held during each calendar
year, (iii) the first two meetings of the compensation committee held during each calendar year and
(iv) the first meeting of the nominating and governance committee held during each calendar year:
| $1,000 to each director for each such meeting attended in person; and | ||
| $500 to each director for each such meeting attended via telephone conference call. |
In addition to the retainer and meeting fees, the Company reimburses its non-employee
directors for travel and other reasonable out-of-pocket expenses related to attendance at Board and
committee meetings.
Equity Compensation
Pursuant to the terms of the Companys 2005 Equity Incentive Plan, each non-employee director
is automatically granted a nonstatutory option to purchase 50,000 shares of the Companys common
stock at the first meeting of the Board following each annual meeting of stockholders, provided
that such non-employee director shall have served on the Board for at least the preceding six
months. The exercise price per share of each automatically granted option is equal to 105% of the
fair market value of the shares on the grant date. Each such option becomes exercisable as to
1/12th of the shares underlying the option at the end of each calendar month after
its date of grant, provided that the director remains in continuous service. The options
expire no later than ten years after the date of grant.
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In addition, at the discretion of the Board, the Company may award stock options to new
directors in connection with their appointment to the Board. In September 2006, at the
recommendation of the Companys chief executive officer, the Company granted to Mr. Lief a stock
option to purchase up to 50,000 shares of the Companys common stock. The exercise price of the
stock option was the closing price of the Companys common stock, as reported on the American Stock
Exchange, on the date the stock option was approved.
The following table shows compensation information for the Companys current and former
non-employee directors for the year ended December 31, 2006:
Change in | ||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||
Fees Earned or | Non-Equity | Deferred | ||||||||||||||||||||||||||
Paid in | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
Name |
Cash | Awards | Awards (1) | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||
Mark N.K. Bagnall |
$ | 32,500 | | $ | 134,548 | (2) | | | | $ | 167,048 | |||||||||||||||||
Alexander J. Denner
(3) |
| | | | | | | |||||||||||||||||||||
Michael M. Goldberg |
$ | 29,875 | | $ | 129,254 | (4) | | | | $ | 159,129 | |||||||||||||||||
M. Ross Johnson |
$ | 25,900 | | $ | 208,345 | (5) | | | | $ | 234,245 | |||||||||||||||||
Jack Lief(6) |
$ | 8,333 | | $ | 43,350 | (7) | | | | $ | 51,683 | |||||||||||||||||
Keith Meister(8) |
| | $ | 88,593 | (9) | | | | $ | 88,593 | ||||||||||||||||||
Mark J. Pykett |
$ | 30,875 | | $ | 129,254 | (10) | | | | $ | 160,129 |
(1) | The assumptions used to calculate the value of an option award are set forth under Note 10 of the Notes to Financial Statements contained in the Companys Annual Report on Form 10-K filed with the SEC on March 15, 2007 (excluding the effect of assumed forfeiture rates). | |
(2) | Reflects the share-based compensation costs recognized in 2006 for financial statement reporting purposes for options granted on June 2, 2006, December 23, 2005 and July 14, 2005. Mr. Bagnall had no other outstanding stock options at the end of fiscal 2006. The grant date fair value of the stock option granted in 2006, computed in accordance with FAS 123R, was $151,873. | |
(3) | Dr. Denner commenced service as a director on October 26, 2006. Dr. Denner has declined fees associated with his participation on the Board and its committees. | |
(4) | Reflects the share-based compensation costs recognized in 2006 for financial statement reporting purposes for options granted on June 2, 2006, December 23, 2005 and July 14, 2005. Dr. Goldberg had no other |
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outstanding stock options at the end of fiscal 2006. The grant date fair value of the stock option granted in 2006, computed in accordance with FAS 123R, was $151,873. | ||
(5) | Reflects the share-based compensation costs recognized in 2006 for financial statement reporting purposes for options granted on June 2, 2006, December 23, 2005 and July 14, 2005. Dr. Johnson had no other outstanding stock options at the end of fiscal 2006. The grant date fair value of the stock option granted in 2006, computed in accordance with FAS 123R, was $151,873. | |
(6) | Mr. Lief commenced service as a director on September 22, 2006. | |
(7) | Reflects the share-based compensation costs recognized for financial statement reporting purposes for an option granted on September 27, 2006. Mr. Lief had no other outstanding stock options at the end of fiscal 2006. The grant date fair value of this stock option, computed in accordance with FAS 123R, was $130,050. | |
(8) | Mr. Meister resigned from the Board effective October 26, 2006. Mr. Meister did not accept any fees for his participation on the Board and its committees. | |
(9) | Reflects the share-based compensation costs recognized in 2006 for financial statement reporting purposes for an option granted on June 2, 2006. Mr. Meister had no other outstanding stock options at the end of fiscal 2006. The grant date fair value of the stock option granted in 2006, computed in accordance with FAS 123R, was $151,873. The right to exercise this option expired in January 2007 without being exercised. | |
(10) | Reflects the share-based compensation costs recognized in 2006 for financial statement reporting purposes for options granted on June 2, 2006, December 23, 2005 and July 14, 2005. Dr. Pykett had no other outstanding stock options at the end of fiscal 2006. The grant date fair value of the stock option granted in 2006, computed in accordance with FAS 123R, was $151,873. |
REPORT OF THE COMPENSATION COMMITTEE
The purposes of the compensation committee are to assist the Board in the discharge of its
responsibilities with respect to compensation for the Companys executive officers and independent
directors, report annually to the Companys stockholders on executive compensation matters,
administer the Companys equity-based compensation plans, and take or cause to be taken such other
actions and address such other matters as the Board may from time to time authorize the Committee
to undertake or assume.
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management. Based on these reviews and discussions,
the compensation committee recommended to the Board that the Compensation Discussion and Analysis
be included in the Companys Annual Report on Form 10-K or the annual meeting proxy statement on
Schedule 14A.
COMPENSATION COMMITTEE
Michael M. Goldberg
Mark N.K. Bagnall
Alexander J. Denner
Jack Lief
Mark J. Pykett
Mark N.K. Bagnall
Alexander J. Denner
Jack Lief
Mark J. Pykett
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REPORT OF THE AUDIT COMMITTEE
Under the guidance of a written charter adopted by the Board, the purpose of the audit
committee is to oversee the accounting and financial reporting processes of the Company and audits
of its financial statements and the effectiveness of the Companys internal control over financial
reporting. The responsibilities of the audit committee include appointing and providing for the
compensation of the independent registered public accounting firm. Each of the members of the audit
committee meets the independence and qualification requirements of the American Stock Exchange.
Management has primary responsibility for the system of internal controls and the financial
reporting process. The independent registered public accounting firm has the responsibility to
express an opinion on the financial statements based on an audit conducted in accordance with
generally accepted auditing standards. The independent registered public accounting firm also is
responsible for auditing the Companys internal control over financial reporting and managements
assessment thereof.
In this context and in connection with the audited financial statements contained in the
Companys Annual Report on Form 10-K, the audit committee:
| reviewed and discussed the audited financial statements as of and for the fiscal year ended December 31, 2006 with the Companys management; |
| discussed with J.H. Cohn, LLP, the Companys independent registered public accounting firm, the matters required to be discussed by Statement of Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T; |
| reviewed the written disclosures and the letter from J.H. Cohn, LLP required by the Independence Standards Board Standard No. 1, as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed with J.H. Cohn, LLP their independence; and |
| based on the foregoing reviews and discussions, recommended to the Board that the audited financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the Securities and Exchange Commission. |
AUDIT COMMITTEE
Mark N.K. Bagnall
Michael M. Goldberg
Jack Lief
Mark J. Pykett
Michael M. Goldberg
Jack Lief
Mark J. Pykett
Principal Accountant Fees and Services
The audit committee has appointed J.H. Cohn LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31, 2007. The Company is asking the
stockholders to ratify this appointment.
The following table shows the fees paid or accrued by the Company for the audit and other
services provided by J.H. Cohn LLP for fiscal 2005 and 2006.
2005 | 2006 | |||||||
Audit Fees(1) |
$ | 317,903 | $ | 328,393 | ||||
Audit-Related Fees(2) |
| 36,300 | ||||||
Tax Fees |
| | ||||||
All Other Fees |
| | ||||||
Total |
$ | 317,903 | $ | 364,693 | ||||
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The audit committee has delegated to the chair of the audit committee the authority to
pre-approve audit-related and non-audit services not prohibited by law to be performed by the
Companys independent registered public accounting firm and associated fees, provided that the
chair is required to report any decision to pre-approve such audit-related or non-audit services
and fees to the full audit committee at its next regular meeting.
(1) | Audit Fees represent fees for professional services provided in connection with the audit of the Companys financial statements (including the audit of internal controls over financial reporting under Section 404 of the Sarbanes Oxley Act) and review of the Companys quarterly financial statements and services normally provided in connection with statutory and regulatory filings and engagements. | |
(2) | Audit-Related Fees consist primarily of assurance and related services related to the performance of the annual audit or review of the Companys financial statements. |
PROPOSAL 1 ELECTION OF DIRECTORS
At the Annual Meeting, the stockholders will vote on the election of six directors to serve
for one-year terms until the next annual meeting of stockholders in and until their successors are
elected and qualified, or until their earlier death, retirement, resignation or removal. The Board
has unanimously nominated Evan M. Levine, Mark N.K. Bagnall, Alexander J. Denner, Michael M.
Goldberg, Jack Lief and Mark J. Pykett for election to the Board as directors. The nominees have
indicated that they are willing and able to serve as directors. If any of the nominees becomes
unable or unwilling to serve, the accompanying proxy may be voted for the election of such other
person as shall be designated by the Board. The proxies being solicited will be voted for no more
than six nominees at the Annual Meeting. The directors will be elected by the vote of the holders
of a majority of votes cast, in person or by proxy, at the Annual Meeting, assuming a quorum is
present. Stockholders do not have cumulative voting rights in the election of directors.
The Board recommends a vote for the election of Evan M. Levine, Mark N.K. Bagnall, Alexander
J. Denner, Michael M. Goldberg, Jack Lief and Mark J. Pykett as directors.
Unless otherwise instructed, it is the intention of the persons named in the accompanying
proxy card to vote shares represented by properly executed proxy cards for the election of Evan M.
Levine, Mark N.K. Bagnall, Alexander J. Denner, Michael M. Goldberg, Jack Lief and Mark J. Pykett.
PROPOSAL 2 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
At the Annual Meeting, the stockholders will be asked to ratify the appointment of J.H. Cohn
LLP as the Companys independent registered public accounting firm for the fiscal year ending
December 31, 2007. Representatives of J.H. Cohn LLP are expected to be present at the Annual
Meeting and will have the opportunity to make statements if they desire to do so. Such
representatives are also expected to be available to respond to appropriate questions.
The Board recommends a vote for the ratification of the appointment of J.H. Cohn LLP as the
Companys independent auditors for the fiscal year ending December 31, 2007.
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OTHER MATTERS
As of the time of preparation of this Proxy Statement, neither the Board nor management
intends to bring before the meeting any business other than the matters referred to in the Notice
of Annual Meeting and this Proxy Statement. If any other business should properly come before the
meeting, or any adjournment thereof, the persons named in the proxy will vote on such matters
according to their best judgment.
STOCKHOLDER PROPOSALS FOR 2008 ANNUAL MEETING
The Companys bylaws provide that advance notice of a stockholders proposal must be delivered
to the secretary of the Company at the Companys principal executive offices not later than one
hundred twenty (120) days prior to the anniversary of the mailing date of the proxy materials for
the previous years annual meeting. However, the Companys bylaws also provide that in the event
that no annual meeting was held in the previous year or the date of the annual meeting is changed
by more than 30 days from the date contemplated at the time of the previous years proxy statement,
this advance notice must be received not later than the later of one hundred twenty (120) days
prior to such annual meeting or 10 days following the day on which public announcement of the date
of such meeting is first made.
Each stockholders notice must contain the following information as to each matter the
stockholder proposes to bring before the annual meeting: (a) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director: (i) the name, age,
business address and residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of the Company that are beneficially owned by
such person, (iv) a description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, (v) any other information relating to such person
that is required to be disclosed in solicitations of proxies for elections of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including,
without limitation, such persons written consent to being named in the proxy statement, if any, as
a nominee and to serving as a director if elected) and (vi) as to such stockholder giving notice,
the information required to be provided pursuant to paragraph (b) below; and (b) as to any other
business that the stockholder proposes to bring before the meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the Companys books,
of the stockholder proposing such business, (iii) the class and number of shares of the Company
which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in
such business and (v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Exchange Act, in such stockholders capacity as a proponent to
a stockholder proposal.
A copy of the full text of the provisions of the Companys bylaws dealing with stockholder
nominations and proposals is available to stockholders from the secretary of the Company upon
written request.
Under the rules of the SEC and assuming the date of the annual meeting is not changed by more
than 30 days from the date contemplated at the time of the previous years proxy statement,
stockholders who wish to submit proposals for inclusion in the Proxy Statement of the Board for the
2008 Annual Meeting of Stockholders must submit such proposals so as to be received by the Company,
at 6725 Mesa Ridge Road, Suite 100, San Diego, CA 92121, on or before December 24, 2007. In
addition, if the Company is not notified by December 24, 2007 of a proposal to be brought before
the 2008 Annual Meeting of Stockholders by a stockholder, then proxies held by management may
provide the discretion to vote against such proposal even though it is not discussed in the proxy
statement for such meeting.
By Order of the Board of Directors | ||
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||
Chief Executive Officer and Director |
San Diego, California
April 23, 2007
April 23, 2007
YOUR VOTE IS IMPORTANT!
You are cordially invited to attend the Annual Meeting. However, to ensure that your shares
are represented at the meeting, please submit your proxy or voting instructions by mail, using the
return envelope provided. Please see the instructions on the proxy and voting instruction card.
Submitting a proxy or voting instructions will not prevent you from attending the Annual Meeting
and voting in person, if you so desire, but will help the Company secure a quorum and reduce the
expense of additional proxy solicitation.
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ADVENTRX PHARMACEUTICALS, INC.
Proxy Solicited by the Board of Directors
for the Annual Meeting of Stockholders
to be Held May 23, 2007
for the Annual Meeting of Stockholders
to be Held May 23, 2007
The undersigned hereby appoints Evan M. Levine and Gregory P. Hanson or any one of them with
full power of substitution, proxies to vote at the Annual Meeting of Stockholders of ADVENTRX
Pharmaceuticals, Inc. (the Company) to be held on May 23, 2007 at 10:00 a.m., local time, and at
any adjournment thereof, hereby revoking any proxies heretofore given, to vote all shares of Common
Stock of the Company held or owned by the undersigned as directed on the reverse side of this proxy
card, and in their discretion upon such other matters as may come before the meeting.
1. To elect as directors, to hold office until the 2008 Annual Meeting of Stockholders and
until their successors are elected and qualified, the nominees listed below:
Mark N.K. Bagnall
Alexander J. Denner
Michael M. Goldberg
Evan M. Levine
Jack Lief
Mark J. Pykett
FOR | WITHHOLD AUTHORITY TO VOTE | ||||||
all nominees listed (except as indicated below) |
(as to all nominees) |
To withhold authority to vote for any individual nominee, write the nominees name on the line
provided below.
2. To ratify the appointment of J.H. Cohn LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31, 2007.
For
Against
Abstain
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The Board recommends that you vote FOR the above proposals. This proxy, when properly executed,
will be voted in the manner directed above. WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED
FOR THE ABOVE PROPOSALS. This proxy may be revoked by the undersigned at any time, prior to the
time it is voted by any of the means described in the accompanying Proxy Statement.
Signature(s) of Stockholder(s) | ||
Date and sign exactly as name(s) appear(s) on this proxy. If signing for estates, trusts, corporations or other entities, title or capacity should be stated. If shares are held jointly, each holder should sign. | ||
Date: , |
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.