We use the 2013 Plan to provide meaningful equity incentives to recruit, retain and reward qualified employees, consultants and directors of appropriate experience and stature. By increasing stock ownership, we hopeaim to align the interests of qualified employees, consultants and directors with the interests of our shareholders. Our Board has unanimously approved, subject to shareholder approval, an amendment to the 2013 Plan to increase the number of shares authorized for issuance under the 2013 Planthereunder to a total of 1,100,0003,100,000 shares, while simultaneously eliminating the evergreen featurerepresenting an increase of the 2013 Plan.2,000,000 shares. If this Proposal No. 53 is approved, the text of Section 4(a) of the 2013 Plan, which sets forforth the authorized share reserve under the plan, will be amended and restated to read as follows:
The following table includes aggregated information regarding awards outstanding under our 2013 Plan, the number of shares available for future awards under our 2013 Plan as of the Record Date, and the proposed number of shares issuable under the 2013 Plan:
The Board believes that equity-based compensation is a critical part of the Company’s compensation program. Shareholder approval of the amendment to increase the shares available under the 2013 Plan would allow us to continue to attract and retain directors, executives, other employees and consultants with equity incentives. In fiscal 20122013 and 2013,2014, the Company madegranted equity awards under its existing equity incentive plans totaling 12,165,8651,836,853 shares (of which 12,052,110 were canceled in connection with the 2013 Restructuring), and 1,830,853570,492 shares, respectively. NoIn 2012, the Company granted equity awards were granted in fiscal 2011.under its existing equity incentive plans totaling 66,548 shares. The Company estimates that the availability of approximately 723,3042,000,000 additional shares for future awards would provide a sufficient number of shares to enable the Company to continue to make awards for the next one to two fiscal years, depending on clinical development programs, related personnel growth and the amount, timing and financial terms of fundraising activity, which may impact the timing and degree of overall dilution.
The Administrator, in its discretion, selects from the class of eligible persons those individuals to whom awards will be granted and determines the nature, dates, amounts, exercise prices, vesting periods and other relevant terms of such awards. The Administrator may modify the terms and conditions of an award, which shall requirerequires the consent of the recipient of such award if the modification will adversely affect the recipient’s rights under the award. However, outstanding options may not be re-priced without shareholder approval. All determinations of the Administrator are conclusive and binding on all parties.
The exercise price (or the base value from which appreciation is to be measured) of each award requiring exercise shallwill be 100% (in the case of an ISO granted to a ten-percent shareholder, within the meaning of subsection (b)(6) of Section 422, 110%) of the fair market value of the stock subject to the award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant. To the extent the Company has a class of securities listed for trading on the Nasdaq Capital Market, no award, once granted, may be re-priced other than in accordance with the applicable shareholder approval requirements of the Nasdaq Capital Market. Fair market value shallwill be determined by the Administrator consistent with the applicable requirements of Section 422 and Section 409A.
Where the exercise of an award is to be accompanied by payment, payment of the exercise price shallwill be by cash or check acceptable to the Administrator, or, if so permitted by the Administrator and if legally permissible: (i) through the delivery of unrestricted shares of stock that have a fair market value equal to the exercise price, subject to such minimum holding period requirements, if any, as the Administrator may prescribe; (ii) through a broker-assisted exercise program acceptable to the Administrator; (iii) by other means acceptable to the Administrator; or (iv) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.
Certain Material U.S. Federal Income Tax Considerations
The following summary of certain federal income tax considerations with respect to the receipt and exercise of awards granted by us is based upon the laws and regulationsfederal income tax rules in effect as of the date of this proxy statement and does not purport to be a complete statement of the law in this area. Furthermore, the discussion below does not address the tax considerations regarding the receipt and exercise of awards under foreign, state and local tax laws, and such tax laws may not correspond to the federal income tax treatment described herein. The exact federal income tax treatment of transactions under the 2013 Plan will vary depending upon the specific facts and circumstances involved and participants are advised to consult their personal tax advisors with regard to all considerations arising with respect to the grant or exercise of awards and the disposition of any acquired shares.
If the recipient of the ISO sells the shares acquired upon the exercise of the option at any time within one year after the date we issue such shares to the recipient or within two years after the date we grant the ISO to the recipient (a “disqualifying disposition”), then:
if the recipient’s sales price exceeds the purchase price paid for the shares upon exercise of the ISO, the recipient will recognize capital gain equal to the excess, if any, of the sales price over the fair market value of the shares on the date of exercise, and will recognize ordinary income equal to the excess, if any, of the lesser of the sales price or the fair market value of the shares on the date of exercise over the purchase price paid for the shares upon exercise of the ISO; or
if the recipient’s sales price is less than the purchase price paid for the shares upon exercise of the ISO, the recipient will recognize a capital loss equal to the excess of the purchase price paid for the shares upon exercise of the ISO over the sales price of the shares.
If the recipient sells shares acquired upon exercise of an ISO at any time after the recipient has held the shares for at least one year after the date we issue such shares to the recipient pursuant to the recipient’s exercise of the ISO and at least two years after the date we grant the recipient the ISO, then the recipient will recognize long-term capital gain or loss equal to the difference between the sales price and the purchase price paid for the shares upon exercise of the ISO.
The amount by which the fair market value of shares the recipient acquires upon exercise of an ISO (determined as of the date of exercise) exceeds the purchase price paid for the shares upon exercise of the ISO will be included as a positive adjustment in the calculation of the recipient’s “alternative minimum taxable income” in the year of exercise. In computing the alternative minimum taxable income, the tax basis of a share acquired on exercise of the ISO is increased by the amount of the adjustment taken into account with respect for that share for alternative minimum tax purposes in the year the ISO is exercised.
In the case of an earlya disqualifying disposition of shares by a recipient that results in the recognition of ordinary income, we will be entitled to aan income tax deduction equal to the amount of such ordinary income. income includible in income by the option holder subject to Section 162(m) of the Code, provided that the amount constitutes an ordinary and necessary business expense, and either the employee includes that amount in income or we timely satisfy our reporting requirements with respect to that amount.
If the recipient holds the shares for the requisite period described above, and therefore solely recognizes capital gain upon the sale of such shares, we will not be entitled to any income tax deduction.
Nonqualified Stock Options. The grant of aan NSO to a recipient is generally not a taxable event for the recipient.recipient if the stock option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date. Upon the exercise of aan NSO, the recipient will generally recognize ordinary income equal to the excess of the fair market value of the shares the recipient acquires upon exercise (determined as of the date of exercise) over the purchase price paid for the shares upon exercise of the NSO. WeSubject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation, we generally will be entitled to deductan income tax deduction as a compensation expense equal to the amount of such ordinary income.income realized by the option holder. Provided the shares are held as a capital asset, the recipient’s subsequent sale of the shares generally will give rise to capital gain or loss equal to the difference between the sale price and the sum of the purchase price paid for the shares plus the ordinary income recognized with respect to the shares, and such capital gain or loss will be taxable as long term or short term capital gain or loss depending upon the recipient’s holding period after exercise.
Stock Appreciation Rights. Generally,Where the stock appreciation rights are granted with a strike price equal to the fair market value of the underlying stock on the grant date, the holder of a SAR will recognize ordinary income equal to the value we pay (whether in cash, stock or a combination thereof) pursuant to the SAR on the date the holder receives payment. We will generally be entitled to aan income tax deduction in an amount equal to the ordinary income recognized by the holder.
Stock Purchase Rights - Restricted Stock. Under the 2013 Plan, we are authorized to grant rights to purchase shares of restricted Common Stock subject to a right to repurchase such stock at the price paid by the participant if the participant’s employment relationship with us terminates prior to the lapse of such repurchase right. In general, there will be no tax consequences to a participant upon the grant of a right to purchase such restricted stock or upon purchase of such restricted stock. Instead, the participant will be taxed at ordinary income rates at the time our repurchase rights expire or are removed on an amount equal to the excess of the fair market value of the stock at that time over the amount the participant paid to acquire such stock. A participant who acquires restricted stock, however, may make an election under Section 83(b) of the Internal Revenue Code with respect to such stock. If such an election is made within 30 calendar days after the participant’s acquisition of the stock, the participant is taxed at ordinary income rates in the year in which the participant acquires the restricted stock. The ordinary income the participant must recognize is equal to the excess of the fair market value of the stock at the time of the participant’s acquisition of the stock (determined without regard to the restrictions) over the amount that the participant paid to acquire such stock. If a participant makes a timely election under Section 83(b) of the Internal Revenue Code with respect to restricted stock, the participant generally will not be required to report any additional income with respect to such restricted stock until he or she disposes of such stock, at which time he or she will generally recognize capital gain or loss (provided the shares are held as a capital asset) equal to the difference between the sales price and the fair market value of the stock at the time of the participant’s acquisition of the stock (determined without regard to the restrictions). In the event that a participant forfeits (as a result of a repurchase) restricted stock with respect to which an election under Section 83(b) of the Internal Revenue Code has been made, the participant ordinarily will not be entitled to recognize any loss for federal income tax purposes (except to the extent the amount realized by the participant at the time of such forfeiture is less than the participant’s purchase price for such stock). We generally will be entitled to a deduction equal to the amount of ordinary income, if any, recognized by a participant.
Other Awards. In addition to the awards described above, the 2013 Plan authorizes certain other types of awards that may include payments in cash, our Common Stock or a combination of cash and our Common Stock. The tax consequences of such awards will depend upon the specific terms of such awards. Generally, however, a participant who receives an award payable in cash will recognize ordinary income, and we will be entitled to a deduction, with respect to such award at the earliest time at which the participant has an unrestricted right to receive the amount of the cash payment. In general, the sale or grant of stock to a participant under the 2013 Plan will be a taxable event at the time of the sale or grant if such stock at that time is not subject to a substantial risk of forfeiture or is transferable within the meaning of Section 83 of the Internal Revenue Code in the hands of the participant. For such purposes, stock is ordinarily considered to be transferable if it can be transferred to another person who takes the stock free of any substantial risk of forfeiture. In such case, the participant will recognize ordinary income, and we will be entitled to a deduction, equal to the excess of the fair market value of such stock on the date of the sale or grant over the amount, if any, that the participant paid for such stock. Stock that, at the time of receipt by a participant, is subject to restrictions that constitute a substantial risk of forfeiture and that is not transferable within the meaning of Section 83 of the Internal Revenue Code generally will be taxed under the rules applicable to restricted stock as described above.
Withholding. In the event that an optionee or other recipient of an award under the 2013 Plan is our employee, we generally will be required to withhold applicable federal income taxes with respect to any ordinary income recognized by such optionee or other award recipient in connection with stock options or other awards under the 2013 Plan.
Certain Additional Rules Applicable to Awards. The terms of awards granted under the 2013 Plan may provide for accelerated vesting in connection with a change in control. In that event, and depending upon the individual circumstances of the recipient, certain amounts with respect to such awards may constitute “excess parachute payments” under the “golden parachute” provisions of the Internal Revenue Code. Under these provisions, a participant will be subject to a 20% excise tax on any “excess parachute payments” and we will be denied any deduction with respect to such payment.
We generally are entitled to a deduction equal to the ordinary income recognized by a recipient in connection with an award. However, our deduction (including the deduction related to ordinary income recognized by a recipient) for compensation paid to our Chief Executive Officer and each of our other three most highly compensated officers (other than our Chief Financial Officer) may be limited to $1 million per person annually. Depending on the nature of the award, all or a portion of the ordinary income attributable to certain awards granted under the 2013 Plan may be included in the compensation subject to such deduction limitation.
Interest of Certain Persons in Matters to Be Acted Upon
Each of our current directors, executive officers and employees is eligible to receive awards under the 2013 Plan. The Administrator has the discretion to determine which eligible persons will receive awards under the 2013 Plan. As a result, future participation in the 2013 Plan by executive officers, directors and other employees is not determinable.determinable, except as set forth below in the following paragraph under the caption “New Plan Benefits.”
New Plan Benefits
Other than certain stock options granted contingent on approval of the amendment to the 2013 Plan by our shareholders (the “Contingent Option Grants”), the Compensation Committee will have full discretion to determine the number and amount of awards to be granted to employees under the 2013 Plan, subject to the terms of the plan. Therefore, other than the Contingent Option Grants, which are set forth in the table below, the future benefits or amounts that would be received by the executive officers and the groups named in the table below under the 2013 Plan are not determinable at this time.
|
| | | | | | | |
Name and Position | | Grant Date Fair Value | | Number of Options |
George F. Tidmarsh, M.D., Ph.D. | | $ | 5,727,969 |
| | 300,000 |
|
President, Chief Executive Officer and Secretary | | | | |
Recommendation of the Board of Directors
The Board recommends a vote “FOR” approval of the foregoing resolution. Proxies will be so voted unless shareholders specify otherwise in their proxies.
Vote Required
The affirmative vote of a majority of the votes cast at the Annual Meeting, at which a quorum is present, is required to approve this proposal. Broker non-votes and abstentions will have no effect on determining whether the affirmative vote constitutes a majority of the shares present or represented by proxy and voting at the Annual Meeting, but could prevent the approval of this proposal because they do not count as affirmative votes.
CORPORATE GOVERNANCE
Our business affairs are managed under the direction of our Board, which is currently composed of five members. Four of our directors, including Laura Douglas, Craigsix directors. Our Board has previously determined that Mr. Tang, Ms. Douglass, Mr. Johnson, RobertMr. Rosen and SaidMr. Zarrabian are independent“independent” within the meaning of NASDAQ Marketplace Rules 5605(b) and 5605(a)(2), as adopted by the listing standards of the Nasdaq Capital Market. If electedNASDAQ Stock Market, Inc. Dr. Tidmarsh was not deemed to the Board, itbe “independent” because he is currently expected that Kevin Tang would also be independent within the meaning of the listing standards of the Nasdaq Capital Market.our President and Chief Executive Officer.
During the fiscal year ended December 31, 2013,2014, the Board held five9 meetings (including regularly scheduled and special meetings), and each director attended at least 75% of the aggregate of: (i) the total number of meetings of the Board held during the period for which he or she has been a director; and (ii) the total number of meetings held by all committees of our Board on which he or she served during the periods that he or she served.
Committees of the Board of Directors
Our Board has three standing committees: an audit committee; a compensation committee; and a corporate governance and nominating committee. All committee members have been previously determined by our Board to be “independent.”independent. The committees operate under written charters that are available for viewing on our website at www.ljpc.com then, under “Investor Relations.”
Audit Committee. Committee. It is the responsibility of the audit committee to oversee our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee assists the Board in its oversight of our compliance with legal and regulatory requirements. The specific duties of the audit committee include: monitoring the integrity of our financial process and systems of internal controls regarding finance, accounting and legal compliance; selecting our independent auditor; monitoring the independence and performance of our independent auditor; and providing an avenue of communication among the independent auditor, our management and our Board. The audit committee has the authority to conduct any investigation appropriate to fulfill its responsibilities, and it has direct access to all of our employees and to the independent auditor. The audit committee also has the ability to retain, at our expense and without further approval of the Board, special legal, accounting or other consultants or experts that it deems necessary in the performance of its duties. The Audit Committee met 4 times in 2014. Craig Johnson is the chair of the audit committee and is deemed to be an “auditaudit committee financial expert.” Laura Douglass Robert Rosen and Saiid Zarrabian also sit on the audit committee. Laura Douglass will be added to the audit committee upon Saiid Zarrabian’s retirement from the Board. Each member of the audit committee meets the requirements for independence under the listing standards of the NasdaqNASDAQ Capital Market and the SEC rules and regulations, as well as meeting the requirements for financial literacy and sophistication under the applicable listing standards.
Compensation Committee. Committee. It is the responsibility of the compensation committee to assist the Board in discharging the Board'sBoard’s responsibilities regarding the compensation of our employees and directors. The specific duties of the compensation committee include: making recommendations to the Board regarding the corporate goals and objectives relevant to executive compensation; evaluating our executive officers’ performance in light of such goals and objectives; recommending compensation levels to the Board based upon such evaluations; administering our incentive compensation plans, including our equity-based incentive plans; making recommendations to the Board regarding our overall compensation structure, policies and programs; and reviewing the Company’s compensation disclosures. Additional information regarding the processes and procedures of the compensation committee is provided below under the caption “Executive Compensation.” The Compensation Committee met 4 times in 2014. Saiid Zarrabian is the chair of the compensation committee and Laura Douglass, and Craig Johnson and Kevin Tang sit on the compensation committee as well. Craig Johnson will chair the compensation committee upon Saiid Zarrabian’s retirement from the Board. Each member of the compensation committee meets the requirements for independence under the listing standards of the NasdaqNASDAQ Capital Market and the SEC rules and regulations.
Corporate Governance and Nominating Committee. Committee. It is the responsibility of the corporate governance and nominating committee to assist the Board: to identify qualified individuals to become Board members; to determine the composition of the Board and its committees; and to monitor and assess the effectiveness of the Board and its committees. The specific duties of the corporate governance and nominating committee include: identifying, screening and recommending to the Board candidates for election to the Board; reviewing director candidates recommended by our shareholders; assisting in attractingrecruiting qualified director candidates to serve on the Board; monitoring the independence of current directors and nominees; and monitoring and assessing the relationship between the Board and our management with respect to the Board’s ability to function independently of management. Laura DouglassThe Corporate Governance and Nominating Committee met 2 times in 2014. Kevin Tang is the chair of the corporate governance and nominating committee and Craig JohnsonLaura Douglass and Saiid ZarrabianRobert Rosen sit on the corporate governance and nominating committee as well. Each member of the corporate governance and nominating committee meets the requirements for independence under the listing standards of the NasdaqNASDAQ Capital Market and the SEC rules and regulations.
Board Leadership Structure
We believe that the structure of our Board and its committees provides strong overall management of the Company and that increasing the size of the Board, as proposed, will further strengthen management of the Company. The roles of Chairman of the Board and Chief Executive Officer are separate, which the Board has determined is the most appropriate leadership structure for the Company, taking into account numerous factors, including historical practice, the Board’s assessment of the Company’s leadership and the Company’s current and anticipated needs.
Corporate Governance Guidelines
We have adopted a set of Corporate Governance Guidelines that describe a number of our corporate governance practices. The Corporate Governance Guidelines are available for viewing on our website at www.ljpc.com, thenunder “Investor Relations.”
Code of ConductEthics
We have adopted a codeCode of conductBusiness Conduct and Ethics (the “Code of Ethics”) that describes the ethical and legal responsibilities ofapplies to all of our directors, officers and employees, and, to the extent applicable, members of our Board. This code includes (but is not limited to) the requirements of the Sarbanes-Oxley Act of 2002 pertaining to codes of ethics for chief executives and senior financial and accounting officers. Our Board has reviewed and approved this code. Our employees agree in writing to comply with the code at commencement of employment and periodically thereafter. Our employees are encouraged to report suspected violations of the code. Our code of conduct is available for viewing on our website at www.ljpc.com, then “Investor Relations.” If we make substantive amendments to the code or grant any waiver, including any implicit waiver, to our principal executive officer, principal financial orand accounting officer, or persons performing similar functions, we willfunctions. Our Code of Ethics is posted on our corporate governance website located at www.ljpc.com, under “Investor Relations”. We intend to disclose future amendments to certain provisions of the natureCode of suchEthics, and waivers of the Code of Ethics granted to executive officers and directors, on the website within four (4) business days following the date of the amendment or waiver on our website and/or in a current report on Form 8-K in accordance with applicable rules and regulations.waiver.
Communications with the Board of Directors
Our shareholders may communicate with our Board or a particular director by sending a letter addressed to the Board or a particular director to: c/o Corporate Secretary, La Jolla Pharmaceutical Company, 4660 La Jolla Village Drive, Suite 1070,10182 Telesis Court, 6th Floor, San Diego, California, 92122.92121. All communications will be compiled by our Corporate Secretary and forwarded to the Board or the director accordingly.
Compensation Committee Interlocks and Insider Participation
During the last completed year, Dr. Tidmarsh was an employee of the Company. None of our executive officers served as a member of the Compensation Committee (or Board of Directors) of another entity where such entity’s executive officers served on our Board.
Board Leadership Structure; Risk Management
The role of our Chairman of the Board is separate from the Chief Executive Officer. The Board has determined that its structure is appropriate at this time given the Company’s specific characteristics and circumstances, including the Board’s commitment to independent Board and Committee leadership, and to fulfill the Board’s duties effectively and efficiently so that our business receives the undivided attention of the Chief Executive Officer.
Our Board is responsible for oversight of our risk management policies and procedures. We are exposed to a number of risks, including financial risks, strategic and operational risks and risks relating to regulatory and legal compliance. The Board will regularly discuss with management our major risk exposures and the steps management has taken to monitor and control such exposures, including the guidelines and policies to govern the process by which risk assessment and risk management are undertaken, and highlighting any new risks that may have arisen since they last met.
The Board manages exposure risks within various areas including: (i) risks relating to our employment policies, executive compensation plans and arrangements; (ii) financial risks and taking appropriate actions to help ensure quality financial reporting and appropriately conservative investment practices; and (iii) risks associated with the independence of the Board and potential conflicts of interest. The Audit Committee reviews policies with respect to risk assessment and risk management and consults with outside resources as appropriate on other matters that could have a significant impact on the Company’s financial statements. The Audit Committee also reviews policies with respect to financial risk and makes recommendations to the Board. The Board’s administration of its risk oversight function has not affected the Board’s leadership structure, which separates the roles of our Chairman of the Board and our Chief Executive Officer.
Director Nominations
Our corporate governance and nominating committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the corporate governance and nominating committee utilizes a variety of methods for identifying and evaluating director candidates. Candidates may come to the attention of the corporate governance and nominating committee through current directors, professional search firms, shareholders or other persons. Once the corporate governance and nominating committee has identified a prospective nominee, the corporate governance and nominating committee will evaluate the prospective nominee in the context of the then currentthen-current constitution of the Board and will consider a variety of other factors, including the prospective nominee’snominee's business, technology,biotechnology, finance and financial reporting experience, and attributes that would be expected to contribute to an effective Board. The corporate governance and nominating committee seeks to identify nominees who possess a wide range of experience, skills and areas of expertise, knowledge and business judgment. Our corporate governance and nominating committee thus considers a broad range of factors relating to the qualifications and background of nominees, which may include diversity, which is not only limited to race, gender or national origin, but also includes diversity of experience and skills. We have no formal policy regarding boardBoard diversity. Our corporate governance and nominating committee'scommittee’s priority in selecting boardBoard members is identification of persons who will further the interests of our shareholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among boardBoard members, and professional and personal experiences and expertise relevant to our growth strategy. Successful nominees must have a history of superior performance or accomplishments in their professional undertakings and should have the highest personal and professional ethics and values. The corporate governance and nominating committee does not evaluate shareholder nominees differently than any other nominee.
Pursuant to procedures set forth in ourthe Company’s Bylaws, as amended and restated (the “Bylaws”), our corporate governance and nominating committee will consider shareholder nominations for directors if we receive timely written notice, in proper form, of the intent to make a nomination at a meeting of shareholders. To be timely, the notice must be received within the time frame discussed in our Bylaws. To be in proper form, the notice must, among other matters, include each nominee’s written consent to serve as a director if elected, a description of all arrangements or understandings between the nominating shareholder and each nominee and information about the nominating shareholder and each nominee. A copy of our Bylaws will be provided upon written request to our Corporate Secretary.
Director Attendance at Annual Meetings
Our Board has adopted a policy that encourages our directors to attend our annual shareholder meetings.meeting. We held our annual shareholder meeting for the calendar year ended December 31, 20132014 on June 6, 2013,August 27, 2014, and both George Tidmarsh, M.D., Ph.D., and Saiid Zarrabian, the two directors on theall Board at that time,members were present.
Report of the Audit Committee
The audit committee oversees our financial reporting process. Management has the primary responsibility for the financial statements and the reporting process, including our system of internal control over financial reporting. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 20132014 with management, including a discussion of the quality, not merely the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The audit committee reviewed with the independent auditor, which is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, its judgments as to the quality, not merely the acceptability, of our accounting principles and such other matters as are required to be discussed under auditing standards generally accepted in the United States. In addition, the audit committee has discussed with the independent auditor the auditor’s independence, including Statement on Auditing Standards No. 61,16, as amended (Communication with Audit Committees), from us and our management, including the matters in the written disclosures received by us required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The audit committee has also considered the compatibility of the independent auditor’s provision of non-audit services to us with the auditor’s independence.
The audit committee discussed with our independent auditor the overall scope and plan for its audit. The audit committee met with the independent auditor, with and without management present, to discuss the results of its examinations, its evaluations of our internal controls and the overall quality of our financial reporting.
Based upon the reviews and discussions referred to above, the audit committee recommended that our audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 20132014 for filing with the SEC. This report is provided by the following directors, who comprise of our directors who perform the functions of the audit committee:
Craig A. Johnson, Chair of Audit Committee
Laura DouglassRobert H. Rosen
Saiid Zarrabian
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, our directors and officers and persons who own more than 10% of our equity securities are required to report their initial ownership of our equity securities and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established, and we are required to disclose any late filings during the fiscal year ended December 31, 2013.2014. To our knowledge, based solely upon our review of the copies of such reports required to be furnished to us during the fiscal year ended December 31, 2013,2014, all of these reports were timely filed except for a Form 4 filed by Dr. Tidmarsh on October 11, 2013, a Form 4 filed by Mr. Zarrabian on each of October 11, 2013 and November 26, 2013, a Form 4 filed by Laura Douglass on November 26, 2013 and a Form 4 filed by Craig Johnson on November 26, 2013.
AUDIT FEES
Independent Registered Public Accounting Firm and Fees
The following table presents the aggregate fees agreed to by the Company for the annual audit for the fiscal year ended December 31, 2013 and 2012, and all other fees paid by us for services rendered by Squar, Milner during 2013 and 2012, as well as the aggregate fees agreed to by the Company for audit related fees and services rendered by BDO during 2013 and 2012:
|
| | | | | | | |
| 2013 | | 2012 |
Audit Fees - Squar Milner | $ | 66,500 |
| | $ | 41,000 |
|
Audit Fees - BDO | — |
| | 36,000 |
|
Audit Related Fees - Squar Milner | 22,560 |
| | — |
|
Audit Related Fees - BDO | 20,000 |
| | 11,000 |
|
Tax Fees - Squar Milner | 5,800 |
| | 5,000 |
|
Tax Fees - BDO | — |
| | — |
|
Total | $ | 114,860 |
| | $ | 93,000 |
|
BDO was our independent registered public accounting firm through January 8, 2013, at which time Squar, Milner was appointed as our new independent registered public accounting firm.
Audit Fees. The fees identified under this caption were for professional services rendered by Squar, Milner for the audit of our annual financial statements. The fees identified under this caption also include fees for professional services rendered by Squar, Milner and BDO for the review of the financial statements included in our quarterly reports on Forms 10-Q. In addition, the amounts include fees for services that are normally provided by the auditor in connection with regulatory filings and engagements for the years identified.
Audit Related Fees. Audit related fees in 2013 consist of an aggregate of $22,560 in fees paid to Squar, Milner in connection with their consent on the Company's registration statements on Forms S-1 and S-8 filed during 2013 and $20,000 in fees paid to BDO in connection with their consent on the Company's registration statements on Forms S-1 and S-8 filed during 2013 and incorporating financial statements from BDO's 2011 audit. Audit related fees in 2012 consist of an aggregate of $11,000 in fees paid to BDO in connection with their consent and the transition of the audit engagement to Squar Milner.
Tax Fees. Tax fees consist principally of assistance related to tax compliance and reporting.
Pre-approval Policy. Our audit committee approves in advance all services provided by our independent registered public accounting firms. All engagements of our independent registered public accounting firm for 2013 and 2012 were pre-approved by the audit committee.filed.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and key employees and their ages as of the Record DateJuly 1, 2015 are set forth below.
|
| | | | | |
Name | | Age | | Position |
George F. Tidmarsh, M.D., Ph.D. | | 5455 |
| | President, Chief Executive Officer, Secretary and Director |
James RolkeLakhmir S. Chawla, M.D. | | 4544 |
| | Senior Director of Research and DevelopmentChief Medical Officer |
Chester Zygmont, IIIDennis M. Mulroy | | 3460 |
| | Senior Director of FinanceChief Financial Officer |
The biography for Dr. Tidmarsh is set forth above under Proposal No. 1. Biographies of our other key employees appear below.
James RolkeDr. Lakhmir “Mink” S. Chawla joined the Company as Chief Medical Officer in July 2015. Dr. Chawla has been our Senior Director of Research and Development since February 2012. Mr. Rolke has twentymore than 20 years of medical experience in the biotechnology industry andwith particular expertise in critical care and nephrology. Previously, Dr. Chawla was an Associate Professor of Medicine at the developmentGeorge Washington University, where he had dual appointments in the Department of polymer-Anesthesiology and polysaccharide-based drugsCritical Care Medicine and products.in the Department of Medicine, Division of Renal Diseases and Hypertension. Dr. Chawla was also the Chief of the Division of Intensive Care Medicine at the Washington D.C. Veterans Affairs Medical Center. During his tenure at George Washington, Dr. Chawla was the designer and lead investigator of a pilot study called the ATHOS (Angiotensin II for the Treatment of High Output Shock) trial. Data from the ATHOS trial was published in the medical journal Critical Care during 2014 and demonstrated the utility of angiotensin II in patients with severe shock. These data were also used in support of the initiation of the Company’s ATHOS 3 trial, a Phase 3 clinical trial of LJPC-501, the Company’s proprietary formulation of angiotensin II, for the treatment of catecholamine-resistant hypotension, which was initiated in March 2015. Dr. Chawla has been an active investigator in the field of critical care nephrology since 2002. Dr. Chawla is an internationally renowned expert in the field of acute kidney injury (AKI) and was an active investigator in the fields of inflammation and AKI, AKI biomarkers, AKI risk prediction, chronic kidney disease caused by AKI and AKI therapeutics. In addition, Dr. Chawla was an active investigator in shock, inflammation and extracorporeal therapies, including: continuous renal replacement therapy, dialysis and albumin dialysis. Dr. Chawla is also the author of more than 100 peer-reviewed publications and an Associate Editor for the Clinical Journal of the American Society of Nephrology.
Dennis M. Mulroy has been the Chief Financial Officer of the Company since April 2015. Mr. Mulroy has more than 25 years of financial management experience, including leadership positions in publicly traded biotechnology, life sciences, medical service and medical device companies. Prior to joining the Company,La Jolla, Mr. Rolke held several key positions, includingMulroy served as Chief TechnologyFinancial Officer at Pluromedof Taxus Cardium Pharmaceuticals Group Inc. (acquired by Sanofi) from 2009since 2005. Prior to February 2012, Directorjoining Taxus Cardium, Mr. Mulroy served as Chief Financial Officer of Operations at Prospect Therapeutics,Molecular Imaging, Inc., Associate Director of Pharmaceutical Development at Mersana Therapeutics, Inc., Manager of Process Development at GlycoGenesys, Inc., Principal Scientist at Surgical Sealants, Inc., Scientist at GelTex, and SeraCare Life Sciences, Inc., and Associate Scientistheld financial management positions of increasing responsibility at Alpha-Beta Technology, Inc.several other companies. Mr. Rolke receivedMulroy began his Bachelor’scareer as a Certified Public Accountant with Ernst & Young LLP in San Diego and holds a degree in chemistryBusiness Administration, with an emphasis in Accounting, from Keene State College.
Chester S. Zygmont, III has been our Senior Directorthe University of Finance since January 2013 and previously served in that role as a consultant for the Company starting in June 2012. Mr. Zygmont brings 11 years of experience in finance, with a wide range of industry applications, to the Company. Previously, Mr. Zygmont served as Managing Director at Z3 Capital, LLC from March 2009 to June 2012. Z3 Capital, LLC is a privately held investment firm focused on investment acquisition and venture funding of startup real estate, medical device and biotechnology companies. Mr. Zygmont also served as vice president at Symmetry Advisors, Inc. a private equity leveraged buyout firm. While at Symmetry, he managed finance for its public sector fund, was a key team member on a $600 million buyout of a portfolio company, and subsequently led the restructuring of its manufacturing division. Mr. Zygmont earned his M.S. in Finance from Baruch College Zicklin School of Business and his B.A. from Eastern University.San Diego.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
EquityThe following Compensation Discussion and Analysis describes the material elements of compensation earned by Dr. Tidmarsh, who was the sole executive officer serving in 2014. For purposes of this discussion, Dr. Tidmarsh is sometimes referred to as the Company’s “Named Executive Officer.” As more fully described below, the Company has appointed two new executive officers in 2015, both of whom are expected to be deemed “Named Executive Officers,” along with Dr. Tidmarsh, with respect to the Company’s 2015 Summary Compensation Table and other compensation tables and disclosures and the corresponding Compensation Discussion and Analysis. References below to our “executives” or “executive officers” generally (and not specifically to Dr. Tidmarsh or the Named Executive Officer) reflect compensation practices and philosophies applied to all of the Company’s Named Executive Officers in 2015.
Compensation Philosophy and Objectives
Our goal is to provide a competitive total compensation package with significant emphasis on pay for performance. Accordingly, we favor equity and discretionary awards over guaranteed cash compensation in order to drive accomplishments that enhance shareholder value and align the interests of our executives and our shareholders. This means that our executives will not realize the total potential value of their compensation package unless performance goals, which are directly tied to our corporate performance, are achieved. The Compensation Committee believes that our executive compensation program is appropriately designed and reasonable in light of the executive compensation programs of our peer group companies and responsible in that it is designed to incentivize our management team to achieve our short-term and long-term corporate objectives, while effectively managing business risks and challenges.
Based on the foregoing objectives, executive compensation is based on three primary components: base salary, annual incentive bonuses and equity awards. The Compensation Committee believes that cash compensation in the form of base salary and an annual incentive target bonus provides our executives with short-term rewards for success in operations, and that long-term compensation through equity awards (which consists mainly of stock options) aligns the objectives of management with those of our shareholders with respect to long-term performance and success. In addition, our executives receive benefits that are generally available to all of our employees. Our compensation-setting process includes reviewing the targeted overall compensation for each executive and then allocating that compensation between base salary and incentive compensation (annual performance-based cash bonuses and equity incentive awards), based appropriately on industry and salary survey data for public companies of a similar market capitalization, size and stage of clinical development.
With respect to equity awards, these awards typically vest and become exercisable over a period of four years, consisting of an initial one-year cliff-vest for new employees, followed by monthly vesting. However, we have also used performance-based vesting conditions and the combination of performance and time-based vesting conditions for certain awards, such as the restricted stock grant that was issued to Dr. Tidmarsh in 2013. We believe that long-term value creation, contrasted with short-term gain, presents the best opportunity for employees to profit from these awards. In circumstances where performance-based equity awards have been granted, the events that trigger vesting are generally estimated to be achieved at least one year from the grant date, although shorter performance goals may be used in some cases. The Company has not historically used claw-back provisions or imposed holding periods for vested awards, although the Compensation Committee may consider whether such mechanisms might be appropriate in the future to mitigate risk.
Roles in Determining Compensation
Compensation Committee
The Compensation Committee has the responsibility of reviewing the appropriateness of the total compensation paid to our executive officers. The Compensation Committee oversaw and approved all compensation arrangements and actions for our key employees in 2014, including the Named Executive Officer. The Compensation Committee has delegated to the Chief Executive Officer certain administrative responsibilities under the Company’s equity compensation plan, allowing the Chief Executive Officer to make equity award grants, and set base salary and annual incentive targets within predetermined guidelines established by the Compensation Committee, to non-officer employees of the Company.
Compensation Consultant
In 2014, the Compensation Committee engaged the services of Barney & Barney, LLC (“B&B”), an independent insurance firm that provides compensation consulting services. The directive for B&B was to assist the Compensation Committee in its review of executive and director compensation practices, including the competitiveness of pay levels, executive compensation design and review and analysis of competitive data with respect to the Company’s peers in the industry. The Compensation Committee has the final authority to engage and terminate services for consultants it may engage. The decision to engage B&B was not made, or recommended, by the Company’s management; B&B provides insurance brokerage services to the Company outside of its services to the Compensation Committee. The Compensation Committee, after a review of the factors set forth in Section 10C-1of the Securities Exchange Act of 1934, has determined that B&B is independent and the insurance brokerage work and compensation consulting work performed by B&B did not present any conflicts of interest.
Say-on-Pay
On June 5, 2013, the Company provided shareholders a "say-on-pay" advisory vote on its executive compensation under Section 14A of the Securities Exchange Act of 1934, as amended. At the Company's 2013 annual meeting of shareholders, shareholders expressed substantial support for the compensation of our Named Executive Officer, with approximately 90% of the votes cast for approval of the "say-on-pay" advisory vote. The Compensation Committee carefully evaluated the results of the 2013 advisory vote. The Compensation Committee also considers many other factors in evaluating the Company's executive compensation programs as discussed in this Compensation Discussion and Analysis, including the Compensation Committee's assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by external consultants, and review of peer group and survey data, each of which is evaluated in the context of the Compensation Committee's fiduciary duty to act as the directors determine to be in shareholders' best interests. While each of these factors bore on the Compensation Committee's decisions regarding our Named Executive Officer’s compensation, the Compensation Committee did not make any changes to our executive compensation program and policies as a result of the 2013 "say-on-pay" advisory vote. The Company also provided shareholders a “say-on-frequency” advisory vote on June 5, 2013. As previously disclosed, in light of the results of such shareholder vote, the Board adopted a resolution to hold a “say-on-pay” vote every three years. The next “say-on-pay” vote will be held at the Company’s 2016 annual meeting of shareholders.
Base Salary
Executive base salaries are based on job responsibilities, accountability and the experience of the individual. For 2014, the Compensation Committee sought to implement a policy of targeting base salaries for executives, including the Chief Executive Officer, at or near the 50th percentile of salaries of executives with similar roles at similar organizations, based on broad comparative data. In its assessment of executive compensation levels, B&B provided information that indicated that, using the Company’s identified peer group, executive cash compensation was slightly below the 50th percentile.
During its review of base salaries for executives and other key employees, the Compensation Committee primarily considered:
market data provided by publicly available industry surveys and B&B to ensure competitive compensation;
compensation data for public companies of a similar market capitalization, size and stage of clinical development;
individual performance of the executive for the prior year, including achievements and overall contribution to the Company’s growth and business success; and
internal review of the executive’s overall compensation relative to other executives at a similar level.
The Compensation Committee considers these factors in the aggregate, without assigning weight to any specific factor, and not every factor was considered for each executive officer.
Salary levels are typically considered annually as part of our performance review process as well as upon promotion or other changes in job responsibilities. Merit increases are awarded based on the Compensation Committee’s subjective overall review of an executive’s performance of his or her job responsibilities. In addition, base salaries are reviewed annually to assure comparability with market practices. Market adjustments generally are reserved for those whose base salaries are substantially below market. In the evaluation of performance during 2014, the Compensation Committee approved an increase of 11.7% for Dr. Tidmarsh, which was effective commencing with the first pay period in 2015.
Annual Incentive Bonus
The annual performance-based cash bonus for the Named Executive Officer is determined based upon corporate performance and also individual achievements and performance, as warranted. The Compensation Committee, consistent with the overall corporate philosophy of keeping cash compensation for executives at or near the 50th percentile when compared to executives with similar roles at similar organizations, reviewed the target bonus potential payout for the Named Executive Officer together with other generally available market comparative data. The target bonus is set at an incentive level based on the executive’s accountability and potential impact on the Company’s performance. Accordingly, the more control and accountability that an executive has over the Company’s performance, the greater the percentage of that executive’s total compensation is dependent on annual performance-based cash bonus awards. The targeted bonus payout for 2014 set at the beginning of the year was 50% of base salary for Dr. Tidmarsh. In determining the annual performance-based cash bonus opportunity for executives, the executive’s annual base salary is multiplied by his target bonus percentage. The resulting amount is then multiplied by the corporate performance percentage approved by the Compensation Committee, which is dependent on the achievement of corporate performance goals, and also potentially adjusted upwards or downwards for individual executives based on their individual contribution toward the corporate results during the relevant year. For Dr. Tidmarsh in 2014, 100% of his annual incentive cash bonus was based on the Compensation Committee’s review of corporate achievement. Performance-based cash bonus payouts made to the Named Executive Officer in March 2015 for performance in 2014 are shown in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.
For annual performance-based cash bonuses for our executive officers, a minimum overall goal achievement of greater than or equal to 50% is required for an executive officer to earn any performance-based cash bonus. The target bonus can be earned if a goal achievement of 100% is obtained; for extraordinary performance in corporate goal achievement, up to 150% of the target bonus for that goal could be awarded. Accordingly for the Named Executive Officer in 2014, there was the potential to receive up to 150% of his overall bonus target. The Compensation Committee retains broad discretion to modify our target goals at any time, including the methodology for calculating the specific bonus amounts. The Compensation Committee may also, in its sole discretion, determine to either increase annual incentive bonus payouts for extraordinary achievement or to reduce payout if economic and business conditions warrant.
Based on a review of overall Company performance in 2014, Dr. Tidmarsh was awarded a cash bonus of $235,000, which was equal to 100% of the target amount. Key factors that the Compensation Committee considered in awarding this bonus included the Company’s progress in identifying and advancing clinical programs and in-licensing new programs.
Equity Compensation
The executive equity incentive compensation program is designed to promote high performance and achievement of corporate goals by employees on a long-term basis, encourage the growth of shareholder value and allow employees to participate in the long-term success of the Company. As of July 10, 2015, the Company had approximately 42 employees and five non-employee directors who are eligible to receive equity awards. Under the 2013 Equity Incentive Plan, the Board (or a committee thereof, including the Compensation Committee) may grant stock options, shares of stock, restricted stock units, stock appreciation rights and performance awards. In granting these awards, the Board (or a committee thereof, including the Compensation Committee) may establish any conditions or restrictions it deems appropriate.
To date, our Company has granted equity to our executive officers and other employees in the form of stock options and restricted stock awards. These awards will provide compensation only to the extent that the Company’s stock price appreciates over that time. The Compensation Committee has provided the management team with an equity stake in the business, which we believe aligns the long-term interests of the management team with our shareholders. Because a financial gain from stock options is only possible if the price of the Company’s Common Stock has increased, the Company believes that option grants motivate our executives and other employees to deliver superior performance and focus on behaviors and initiatives that lead to long term value creation, which benefits all of the Company’s shareholders. The Company typically grants time-based vesting options, but has also granted performance-based stock awards to each of our Chief Executive Officer and also certain other executives upon occasion.
Stock option award levels are based on option grant guidelines approved by the Board or the Compensation Committee and vary among employees based on their level within the Company and their individual performance. Annual awards of stock options to executives are made as part of the annual review of executive performance, which typically occurs around year-end. Newly hired or promoted executives receive their award of stock options on their date of hire/promotion or at the next regularly scheduled Compensation Committee or Board meeting following their hire or promotion date. For 2014, the Compensation Committee targeted stock option award levels for executives, including the Chief Executive Officer, at or near the 75th percentile of long-term incentive awards of executives with similar roles at similar organizations, based on broad comparative data. The Compensation Committee, in line with the Company’s philosophy to encourage long-term value creation, elected to emphasize the equity portion of each executive’s overall total compensation. The grant of options by the Company is unrelated to any anticipated major announcements made by the Company and is thus not influenced by any material, non-public information that may exist at the time of grant. Additionally, the Board may periodically authorize the issuance of equity awards outside of existing shareholder-approved equity plans, as described below under the caption “Employment Agreements.”
In Aprillight of 2013,these factors, Dr. Tidmarsh was granted 16,000an option in April 2014 to purchase up to 181,000 shares of restrictedcommon stock at an exercise price of $10.84. This option vests and becomes exercisable with respect to 25% of the underlying shares on the first anniversary of the date of grant, and then with respect to the remaining shares on a quarterly basis over the next three years.
Following an annual review of compensation that vested immediately. Thewas completed in the first quarter of 2015, Dr. Tidmarsh was awarded an option to purchase up to 300,000 shares of restrictedcommon stock were granted outsideat a price of $19.69, with the option grant made contingent upon the approval by the Company’s shareholders of an amendment to the 2013 Plan, but were governed in all aspects bywhich is the 2013 Plan.subject of Proposal 3 herein. If Proposal 3 is approved, the option grant will vest and become exercisable with respect to 25% of the underlying shares on the first anniversary of the date of grant, and then with respect to the remaining shares on a quarterly basis over the next three years, subject to Dr. Tidmarsh’s continued service during that time.
On September 24, 2013, in connection with the 2013 Financing and the 2013 Restructuring, Dr. Tidmarsh was granted 1,327,048 shares of restricted stock as a replacement of the option that was granted in April 2012, which was equal to 7.5% of our fully diluted, as-converted shares of common stock outstanding at such time. These shares of restricted stock vest as follows: (i) 1/14 vestingvested January 20, 2015; (ii) 1/14 vesting January 20, 2016; (iii) 2/7 vesting on the earlier of the Company’s first drug approval or the trading day following the Company’s Common Stock trading for 20 consecutive trading days at or above $10.50 per share; (iv) 1/7 vesting on the trading day following the Company’s Common Stock trading for 20 consecutive days at or above $7.00 per share; (v) 1/7 vesting on the trading day following the Company’s Common Stock trading for 20 consecutive days at or above $12.50 per share; (vi) 1/7 vesting on the trading day following the Company’s Common Stock trading for 20 consecutive days at or above $15.00 per share; and (vii) 1/7 vesting on the trading day following the Company’s Common Stock trading for 20 consecutive days at or above $17.50 per share. In the event of an involuntary termination or change of control, the shares shall fully vest and become exercisable. Any unvested shares will be forfeited if vesting conditions are not satisfied within 7 years from the date of grant. The shares of restricted stock were granted as a replacement of the option that was granted in April 2012, which was equal to 7.5% of our fully diluted, as-converted shares of Common Stock outstanding at such time. On July 22, 2014, the vesting conditions were amended with respect to the tranches numbering (iii), (v), (vi) and (vii) to add a time-based service element so that the awards will vest no sooner than January 1, 2016. On July 15, 2015 the vesting conditions for all unvested restricted stock awards were amended to provide that vesting and delivery shall be deferred until March 15, 2017, subject to Dr. Tidmarsh’s continued service with the Company through such date.
Employee Benefit Program
We have not historically provided special benefits or perquisites to our Named Executive Officers and did not do so in 2014. The Named Executive Officers are eligible to participate in all of the Company’s health, welfare, paid time-off and 401(k) retirement savings benefit programs on the same terms as are available to other employees. These benefit programs are designed to enable the Company to attract and retain its workforce in a competitive marketplace. Health, welfare and paid time-off benefits ensure that the Company has a productive and focused workforce through reliable and competitive health and other benefits. The retirement savings plan helps employees save and prepare financially for retirement.
The Company’s retirement savings plan (“401(k) Plan”) is a tax-qualified retirement savings plan, pursuant to which all employees, including the Named Executive Officers, are able to contribute the lesser of 50% of their annual compensation (as defined) or the limit prescribed by the Internal Revenue Service to the 401(k) Plan on a before-tax basis. The Company matches employee contributions to the 401(k) Plan based on each participant’s contribution during the plan year, up to a maximum amount equal to the lesser of: (a) 3.5% of each participant’s annual compensation; and (b) $7,800, $7,650, and $7,500 in 2014, 2013 and 2012, respectively.
Employment and Separation Arrangements
From time to time, we have provided executive officers with certain termination and change in control benefits. Where implemented, the Compensation Committee or Board has approved these termination and change in control benefits in order to maintain market-competitive compensation practices and to mitigate some of the risk that exists for executives working in a biopharmaceutical company at our current stage of development and where the possibility exists that we may be acquired if our business efforts succeed. These arrangements are intended to retain highly-skilled executives who have, or who may seek, alternatives that may appear to them to be less risky in terms of the potential loss of their position following a merger or sale, particularly where the services of these executive officers may not be required by the acquirer.
A summary of the terms of the arrangements we have with the Named Executive Officer and the potential value of payments upon termination or change in control is provided in this proxy under the headings “Employment Agreements” and “Payments Upon Termination or Change in Control.”
Competitive Market Review
In 2014, the Compensation Committee retained B&B to assist the committee in identifying a selected peer group of companies within the biotechnology/biopharmaceutical industry and with similar identified characteristics to our Company to be used to assess compensation levels for the top senior management positions. B&B was involved with the process of selecting an appropriate peer group for our Company and in collecting and analyzing compensation data of the companies within our peer group. In addition, for some positions, we reviewed other broader market surveys within our industry. While we do not establish compensation levels based solely on comparative data, pay practices at other companies are an important factor that is considered in assessing the reasonableness of compensation and ensuring that our compensation practices are competitive in the marketplace. In compiling the peer group for 2014, the factors that were identified as providing well-defined comparatives to the Company were market capitalization ($150 million to $300 million), current stage of clinical development or business activity (product(s) in Phase 3 studies, and/or close to potential commercialization) and number of employees ( < 100). While the Compensation Committee reviewed compensation data pertaining to these companies, it determined that elements such as the Company’s diversity of clinical development activities and the level of executive experience should be significant factors in assessing compensation levels, and certain factors such as number of employees or market capitalization might allow for easy categorization, but were not necessarily the most significant factors in determining the relative need by the Company to recruit highly skilled executives. The 20 companies in the peer group identified by B&B for 2014 are listed below.
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| AcelRX Pharmaceuticals, Inc. | Actinium Pharmaceuticals, Inc. | |
| Ambit Biosciences Corp | Ampio Pharmaceuticals, Inc. | |
| Argos Therapeutics, Inc. | Celladon Corporation | |
| ChemoCentryx, Inc. | Cytokinetics, Incorporated | |
| Endocyte, Inc. | Flexion Therapeutics, Inc. | |
| GlycoMimetics, Inc. | Idera Pharmaceuticals, Inc. | |
| Mirati Therapeutics, Inc. | Oncothyreon, Inc. | |
| Repros Therapeutics Inc. | Rigel Pharmaceuticals, Inc. | |
| Stemline Therapeutics, Inc. | Synergy Pharmaceuticals Inc. | |
| Threshold Pharmaceuticals, Inc. | Verastem, Inc. | |
Tax Considerations
Deductibility of Executive Compensation. In making compensation decisions affecting our executive officers, the Board has considered our ability to deduct under applicable federal corporate income tax law compensation payments made to executives. Specifically, the Compensation Committee or the Board considered the requirements and impact of Section 162(m) of the Internal Revenue Code, which limits the tax deductibility to us of compensation in excess of $1.0 million in any year for certain executive officers, except for qualified “performance-based compensation” under the Section 162(m) rules. Although the Compensation Committee or the Board may consider the Section 162(m) rules as a factor in determining compensation, these considerations will not necessarily limit compensation to amounts deductible under Section 162(m). In addition, the rules promulgated under Section 162(m) are complicated, and may change from time to time, sometimes with retroactive effect. As such, it cannot be guaranteed that any amounts intended to qualify as “performance based compensation” under Section 162(m) will so qualify.
Minimum Stock Ownership Requirements
There are no minimum stock ownership guidelines for our executives or employees, although senior members of our management team are encouraged and expected to have a significant direct interest in the value of our Common Stock through the receipt of equity awards, and/or open market purchases as the case may be. We strive to design our compensation program to stress long-term ownership in Company equity as the means of best aligning the interests of our executives with those of our shareholders.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on this review and discussion, the Compensation Committee recommended that the foregoing Compensation Discussion and Analysis be included in this Proxy Statement.
Submitted by the Compensation Committee
Saiid Zarrabian, Chairman
Craig A. Johnson
Laura L. Douglas
Kevin C. Tang
Summary Compensation Table
The following tables and descriptive materials set forth information concerning compensation earned for services rendered to us by our Named Executive Officer during 2014, 2013 and 2012.
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Name and Principal Position | | Year | | Salary | | Option Awards (1) | | Non-Equity Incentive Plan Compensation (2) | | All Other Compensation | | Total |
George F. Tidmarsh, M.D., Ph.D. | | 2014 | | $ | 470,000 |
| | $ | 1,936,979 |
| | $ | 235,000 |
| | $ | 63,930 |
| | $ | 2,705,909 |
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President and Chief Executive Officer | | 2013 | | $ | 420,000 |
| | $ | — |
| | $ | 105,000 |
| | $ | 70,827 |
| | $ | 595,827 |
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| | 2012 | | $ | 226,462 |
| | $ | 30,347,572 |
| | $ | — |
| | $ | — |
| | $ | 30,574,034 |
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(1) | This column represents the aggregate grant-date fair value, computed in accordance with Financial Accounting Standards Board (“FASB ”) Accounting Standard Codification (“ ASC ”) Topic 718 for stock options and awards granted to the Named Executive Officer in 2014, 2013 and 2012. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The assumptions used in calculating the fair value of the stock options and awards can be found under Note 7 to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014. For additional information on stock options awarded to the Named Executive Officer in 2014 and in prior years, see below under “Outstanding Equity Awards at Year-End.” These amounts reflect the grant date fair value for these stock options and awards and do not necessarily correspond to the actual value that will be realized by the Named Executive Officer. |
(2) | The amounts listed represent cash awards earned for the year under the Company’s bonus program. |
Grants of Plan-Based Awards Table
The following table sets forth certain information regarding grants of plan-based awards to the Named Executive Officer during year 2014.
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Name | | Grant Date | | All Other Option Awards: Number of Securities Underlying Options | | Exercise Price of Option Awards ($/Sh) | | Grant Date Fair Value of Option Awards (1) |
George F. Tidmarsh, M.D., Ph.D. | | 4/3/2014 | | 181,000 | | $10.84 | | $1,936,979 |
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(1) | This column reflects the aggregate grant date fair value of equity awards granted in 2014 and calculated in accordance with FASB ASC 718, excluding the effect of estimated forfeitures. The assumptions used in calculating the fair value of the stock options and awards can be found under Note 5 to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014. |
Outstanding Equity Awards at 2014 Year End
We effected a 1-for-50 reverse stock split on January 14, 2014. The information set forth in the table below is listed on a post-split basis.
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Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date (1) | | Number of Unearned Shares, Units or Other Rights that have not Vested (#) | | Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($) |
George F. Tidmarsh, M.D., Ph.D. | | — |
| | 181,000 |
| (2) | | $ | 10.84 |
| | 4/3/2024 | | 1,137,469 |
| (3) | | $ | 20,986,303 |
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(1) | All stock options expire ten years from the date of grant. |
(2) | The stock option vests and becomes exercisable with respect to 25% of the underlying shares on the one-year anniversary of the grant date and then vests and becomes exercisable ratably on a quarterly basis over the three years thereafter. |
(3) | See the description of the vesting conditions of the restricted stock grant described under “Equity Compensation”, above. |
Option Exercises and Stock Vested
Our Named Executive Officer did not exercise any stock options or have any shares of stock that vested in 2014.
Non-qualified Defined Contribution and Other Non-qualified Deferred Compensation Plans
We do not maintain a defined benefit pension plan or a nonqualified deferred compensation plan.
Potential Payments upon Termination or Change in Control
Employment Agreements
The Company entered into an employment agreement with Dr. Tidmarsh on January 19, 2012. The annual base salary was $240,000 for the first year of employment with the Company and was increased to $420,000 on the one-year anniversary of the employment start date. In addition,The employment agreement does not provide for any severance or other benefits upon a change of control or any termination of his employment. Under the agreement an option to purchase the number of shares of Common Stock equal to 7.5% of the Company’s fully diluted, as-converted shares of Common Stock was awarded (the “First Option”), subject to the terms and conditions of any applicable award agreements and other restrictions and limitations generally applicable to Common Stock or equity awards held by Company executives or otherwise imposed by law. Subject to applicable terms and conditions, the First Option was to vest with respect to 25% of the underlying shares on the one-year anniversary of the employment start date, with the remainder vesting monthly, in equal monthly installments, over the three years thereafter. The First Option was exercisable at a price equal to $3.00 per share of Common Stock. The First optionOption was canceled on September 24, 2013 as part of the 2013 Financing and the 2013 Restructuring.2013. As a replacement for the First Option, Dr. Tidmarsh received shares of restricted stock as described under “Equity Compensation”, above. This award accelerates upon any termination of Dr. Tidmarsh’s employment without cause or with good reason, as shown in the preceding paragraph.table below.
Summary Compensation TableThe Company entered into an employment agreement with Dr. Chawla on July 1, 2015. Dr. Chawla receives an annual salary of $380,000 and is eligible for a target bonus in an amount equal to 35% of his annual base salary. Dr. Chawla received an option to purchase a total of 60,000 shares of the Company’s Common Stock in February 2015 pursuant to a consultancy arrangement. The option was fully vested with respect to one quarter of the underlying shares on the date of grant, and the remaining shares are to vest quarterly thereafter over the next three years. The option was granted and governed in all respects under the Company’s 2013 Equity Incentive Plan.
The Company entered into an employment agreement with Mr. Mulroy on April 6, 2015. Mr. Mulroy receives an annual salary of $320,000 and is eligible for a target bonus in an amount equal to 35% of his annual base salary. In connection with his appointment as Chief Financial Officer, Mr. Mulroy was granted an option to purchase up to 60,000 shares of the Company’s Common Stock (the “Inducement Option”). The Inducement Option has an exercise price equal to the fair value of the Company’s Common Stock on the date of the grant (the “Inducement Grant Date”). The Inducement Option vests and becomes exercisable: (i) with respect to 15,000 shares, on the first anniversary of the Inducement Grant Date; and (ii) with respect to the remaining shares, ratably each month over the subsequent three years, such that the Inducement Option will be fully vested and exercisable on the fourth anniversary of the Inducement Grant Date. The Inducement Option was granted outside of the Company’s shareholder-approved equity incentive plans, but is governed in all respects as if granted under the Company’s 2013 Equity Incentive Plan.
The following table sets forth information regarding potential payments that would have been made to our Named Executive Officer upon various termination or change in control events assuming such events occurred as of December 31, 2014.
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Name and Principal Position | | Year | | Salary | | Option Awards (1) | | Stock Awards (1) | | All Other Compensation | | Total |
George Tidmarsh, M.D., Ph.D. President and Chief Executive Officer | | 2013 | | $ | 420,000 |
| | $ | — |
| | $ | 64,000 |
| | $ | — |
| | $ | 484,000 |
|
| 2012 | | $ | 226,462 |
| | $ | 30,347,572 |
| | $ | 70,826 |
| | $ | — |
| | $ | 30,574,034 |
|
| | | | | | | | | | | | | |
(1) | This column reflects the aggregate grant date fair value of equity awards granted in 2012 or 2013 and calculated in accordance with FASB ASC 718, excluding the effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financial statements included in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The restricted stock grant issued in September 2013 was awarded in connection with the surrender and termination of the First Option at the time of the 2013 Financing and the 2013 Restructuring. Accordingly, the restricted stock grant was treated as a modification of the First Option under FASB ASC 718. |
Outstanding Equity Awards at 2013 Fiscal Year End |
| | | | | | | | |
| | Without Cause or With Good Reason | | Without Cause or With Good Reason Within Three Months Before or 12 Months After a Change in Control |
George F. Tidmarsh, M.D., Ph.D. | | | | |
Severance (1) | | $ | — |
| | $ | — |
|
Benefit continuation | | — |
| | — |
|
Accelerated vesting of stock awards (2) | | 20,986,303 |
| | 20,986,303 |
|
Total | | $ | 20,986,303 |
| | $ | 20,986,303 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Name | | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date (1) | | Number of Unearned Shares, Units or Other Rights that have not Vested (#) | | Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($) |
George Tidmarsh, M.D., Ph.D. | | | — |
| | — |
| | | — |
| | — |
| | 1,137,469 |
| | $ | 8,815,385 |
| (1 | ) |
| |
(1) | Market value based on the closing stock price as of the close on December 31, 2013. |
|
| |
(1) | Dr. Tidmarsh’s employment offer letter does not provide for severance benefits upon his termination, with or without a change of control. However, pursuant to the terms of a restricted stock award, Dr. Tidmarsh is entitled to accelerated vesting of his equity award in certain circumstances, as set forth in this table. |
(2) | Represents the value of in-the-money unvested equity awards that would have accelerated if the Named Executive Officer was terminated on December 31, 2014 based on the closing price of our Common Stock of $18.45 on December 31, 2014. |
Director Compensation
Our employee directors do not receive any compensation for their service as members of our Board.
Director Compensation Table - 2014
Below is a summary ofThe table below sets forth the total compensation paid to our non-employee directors in 2013.for 2014. In 2014, Mr. Rosen is not listed in the table below as he did not serveTang elected to waive all cash compensation for his service as a director for any part of 2013. Compensation for our non-employee directors is set with reference to a peer group of biotechnology companies, with the goal of compensating our directors at or near the 50th percentile of peer compensation.director.
|
| | | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash | | Stock Awards | | Options Awarded (1) | | Total |
Saiid Zarrabian | | $ | 52,000 |
| | $ | 24,000 |
| | $ | 107,929 |
| | $ | 183,929 |
|
Craig Johnson | | $ | 12,500 |
| | $ | — |
| | $ | 107,929 |
| | $ | 120,429 |
|
Laura Douglass | | $ | 12,500 |
| | $ | — |
| | $ | 107,929 |
| | $ | 120,429 |
|
| |
(1) | This column reflects the aggregate grant date fair value of equity awards granted in 2013 and calculated in accordance with FASB ASC 718, excluding the effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financial statements included in this report. |
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| | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash | | Stock Awards | | Options Awarded (1) | | Total |
Kevin C. Tang (2) | | $ | — |
| | $ | — |
| | $ | 166,845 |
| | $ | 166,845 |
|
Laura L. Douglass (3) | | $ | 51,500 |
| | $ | — |
| | $ | 205,674 |
| | $ | 257,174 |
|
Craig A. Johnson (4) | | $ | 53,750 |
| | $ | — |
| | $ | 205,674 |
| | $ | 259,424 |
|
Robert H. Rosen (5) | | $ | 17,500 |
| | $ | — |
| | $ | 153,006 |
| | $ | 170,506 |
|
Saiid Zarrabian (6) | | $ | 70,000 |
| | $ | — |
| | $ | 205,674 |
| | $ | 275,674 |
|
|
| |
(1) | This column reflects the aggregate grant date fair value of equity awards granted in 2014 and calculated in accordance with FASB ASC 718, excluding the effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financial statements included in this report. |
(2) | As of December 31, 2014, Mr. Tang held option awards representing the right to acquire a total of 18,000 shares of common stock. Mr. Tang has elected to waive all cash compensation for his service as a director. |
(3) | As of December 31, 2014, Ms. Douglass held option awards representing the right to acquire a total of 37,000 shares of common stock. |
(4) | As of December 31, 2014, Mr. Johnson held option awards representing the right to acquire a total of 37,000 shares of common stock. |
(5) | As of December 31, 2014, Mr. Rosen held option awards representing the right to acquire a total of 18,000 shares of common stock. |
(6) | As of December 31, 2014, Mr. Zarrabian held option awards representing the right to acquire a total of 37,000 shares of common stock. |
Director Compensation
Retainers and Fees for 2014. Directors who are also our employees receive no extra compensation for their service on the Board. In 2013,2014, our non-employee directors received an annual fee of $50,000,$35,000, which is paid quarterly. In addition during the fourth quarterThe Chairman of 2013 the Board, determined it would payMr. Tang, has elected to waive all cash compensation for his service as a director. In 2014, the Chairmanchairman of the audit committee received an annual fee of $12,000, the chairman of the compensation committee received an annual fee of $10,000 and the chairman of the corporate governance and nominating committee received an annual fee of $6,000. In 2014, Laura L. Douglass also received an additional $11,000 in fees for sitting on committees, Craig A. Johnson received an additional $8,000 per yearin fees for servicessitting on committees and Saiid Zarrabian received an additional $15,000 in fees for his time spent as Chairman of the Board. In 2013, our Chairman received $2,000Board from January through April of 2014 and $9,000 in fees for his services as Chairman.sitting on committees.
Option Grants under the 2013 Planfor 2014. Each of our non-employee directors is eligible to automatically receive, upon becoming a non-employee director, a one-time grant of a non-qualified stock option under the 2013 Plan in an amount to be determined by the Board at an exercise price equal to the fair market value of a share of the Common Stock on the date of grant. These non-employee director options have a term of 10 years and vest with respect to 25%1/3rd of the underlying shares on the one-year anniversary of the grant date and with respect to an additional 25%1/12th of the underlying shares on the date of each of the first three anniversaries of such grant, but only if the director remains a non-employee directorquarterly basis for the entire period from the date of grant to such date.two years thereafter. There were two such awards were madegranted in fiscal 2013. Upon re-election to our Board, each2014. Each non-employee director automatically receives a grant of an additional grant annually of a non-qualified stock option in an amount to be determined by the Board. These additional non-employee director options have a term of 10 years and vest and become exercisable uponfully on the earlier to occur of the firstone-year anniversary of the grant date or immediately prior to the annual meeting of shareholders next following the grant date; provided that the director remains a director for the entire period from the grant date to such earlier date.grant. The exercise price for these additional non-employee director options is the fair market value of our Common Stock on the date of their grant. All outstanding non-employee director options vest in full immediately prior to any change in control. One annual grant was made in 2013. Each non-employee director is also eligible to receive additional options under the 2013 Plan inat the discretion of the Board. These options vest and become exercisable pursuant to the 2013 Plan and the terms of the option grant. No such discretionary options were granted in year 2014.
2015. For 2015, non-employee directors other than Mr. Tang will receive an annual cash retainer of $60,000. Mr. Tang has elected to waive all cash compensation for his service as a director. Additionally, in February 2015, each non-employee director was awarded an option to purchase up to 10,000 shares of Common Stock at a price per share equal to the fair value of the Common Stock on the date of grant.
Certain Relationships and Related-Party Transactions
Pursuant to our Code of Ethics, our executive officers, directors and employees must disclose transactions involving actual or apparent conflicts of interest, such as related-party transactions, to the Chairperson of the Audit Committee. Additionally, the Audit Committee is responsible for review and approval of all related-party transactions in which any officer, director or shareholder has a direct or indirect interest and would be required to be disclosed under Item 404(a) of SEC Regulation S-K, and has written policies and procedures for reviewing, approving or ratifying any transaction required to be reported under Item 404(a) of SEC Regulation S-K. In reviewing related-party transactions, the Audit Committee evaluates any transaction in which a “related person” (as defined in Item 404(a) of SEC Regulation S-K) was or is to be a participant and the amount involved exceeds $120,000, and in which the related person had or will have a direct or indirect material interest. The Audit Committee also will consider whether the proposed terms are at least as favorable to the Company as could be obtained from unaffiliated third parties and will confirm that there is a bona fide business purpose for the transaction.
No director or executive officer, nor any beneficial holder of more than five percent of our outstanding capital stock, nor any immediate family member of the foregoing, had any material interest, direct or indirect, in any reportable transaction with us during the 2013 fiscal2014 year, or any reportable business relationship with us during such time.
Equity Compensation Plan Information
The following table provides information as of December 31, 2013,2014 with respect to shares of our Common Stock that may be issued under our equity compensation plans. We effected a 1-for-50 reverse stock split on January 14, 2014. The information set forth in the table below is listed on a post-split basis.
| | Plan Category | Plan Category | | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
Equity compensation plans approved by security holders | Equity compensation plans approved by security holders | | 54,000 |
| (1) | | $ | 6.00 |
| | 375,201 |
| (2) | | 618,900 |
| (1) | | $ | 9.54 |
| | 478,304 |
|
Equity compensation plans not approved by security holders | Equity compensation plans not approved by security holders | | — |
| | | — |
| | — |
| | | — |
| | $ | — |
| | — |
|
Total | Total | | 54,000 |
| | $ | 6.00 |
| | 375,201 |
| | | 618,900 |
| | | $ | 9.54 |
| | 478,304 |
|
| | | | | | | | |
(1) | Outstanding options to purchase shares of our Common Stock under the 2013 Plan. | |
(2) | Does not give effect to either: (a) the evergreen increase under the 2013 Plan that was implemented in January 2014, or (b) subsequent awards made under the equity plans. | |
|
| |
(1) | Outstanding options to purchase shares of our Common Stock under the La Jolla Pharmaceutical Company 2013 Equity Incentive Plan. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of our Common Stock as of the Record Date,July 1, 2015, based on information available to us and filings with the SEC by:
Each of our directors and director nominees;directors;
Each of our “named executive officers” as defined by SEC rules;
All of our current directors and executive officers as a group; and
Each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our Common Stock.
Beneficial ownership of Common Stock and percentage ownership of our Common Stock areis determined in accordance with the rules of the SEC and includeincludes voting or investment power with respect to shares of Common Stock.stock. This information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, shares of Common Stock issuable under stock options and convertible preferred stock that are exercisable or convertible, within 60 days of the Record Date,July 1, 2015 are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options, or convertible preferred stock, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each shareholder named in the following table possesses sole voting and investment power over his, her or its shares of Common Stock, except for those jointly owned with that person’s spouse. Percentage of beneficial ownership of Common Stock is based on 9,838,29815,250,840 shares of Common Stock outstanding as of the Record Date.July 1, 2015. Unless otherwise noted below, the address of each person listed on the table is c/o La Jolla Pharmaceutical Company, 4660 La Jolla Village Drive, Suite 1070,10182 Telesis Court, 6th Floor, San Diego, California 92122.92121. We effected a 1-for-50 reverse stock split on January 14, 2014. The information set forth in the table below is listed on a post-split basis.
|
| | | | | | | | | | | | | |
Name and Address | | Shares of Common Stock Owned(1) | | Shares with Right to Acquire within 60 days | | Total Beneficial Ownership | | Percentage of Common Stock |
Greater than 5% Shareholders | | | | | | | | |
Baker Bros. Advisors LP (2) | | 343,361 |
| | 711,514 |
| | 1,054,875 |
| | 9.99 | % |
RTW Investments, LLC (3) | | 780,547 |
| | 225,757 |
| | 1,006,304 |
| | 9.99 | % |
Tang Capital Partners, LP (4) | | 939,061 |
| | 2,029 |
| | 941,090 |
| | 9.56 | % |
Boxer Capital, LLC (5) | | 793,561 |
| | 152,974 |
| | 946,535 |
| | 9.47 | % |
Franklin Resources, Inc. (6) | | 920,400 |
| | — |
| | 920,400 |
| | 9.36 | % |
|
Directors, Director Nominees and Executive Officers |
George Tidmarsh, M.D., Ph.D. | | 1,411,086 |
| | — |
| | 1,411,086 |
| | 14.34 | % |
Saiid Zarrabian | | 109,231 |
| | — |
| | 109,231 |
| | 1.11 | % |
Laura Douglass | | — |
| | — |
| | — |
| | — | % |
Craig Johnson | | — |
| | — |
| | — |
| | — | % |
Robert Rosen | | — |
| | — |
| | — |
| | — | % |
Kevin Tang (4) | | 981,905 |
| | 2,029 |
| | 983,934 |
| | 9.99 | % |
All current Directors and Executive Officers as a group | | 1,520,317 |
| | — |
| | 1,520,317 |
| | 15.45 | % |
| | | | | | | | | |
(1) | Shares of Common Stock Owned are based upon the Company’s review of Statement of Beneficial Ownership Filings on Schedule 13G and 13G/A, unless otherwise indicated. Shares of Common Stock Owned can vary since the date of such filings. |
|
| | | | | | | | | | | | |
Name and Address | | Shares of Common Stock Owned (1) | | Shares with Right to Acquire Within 60 Days | | Total Beneficial Ownership | | Percentage of Common Stock |
Greater than 5% Shareholders |
Tang Capital Partners, LP (2) | | 2,622,130 |
| | — |
| | 2,622,130 |
| | 17.19 | % |
FMR LLC (3) | | 1,106,641 |
| | — |
| | 1,106,641 |
| | 7.26 | % |
RTW Investments, LLC (4) | | 1,064,247 |
| | 263,014 |
| | 1,327,261 |
| | 8.56 | % |
Baker Bros. Advisors LP (5) | | 421,070 |
| | 799,392 |
| | 1,220,462 |
| | 7.60 | % |
Broadfin Capital, LLC (6) | | 1,121,370 |
| | — |
| | 1,121,370 |
| | 7.35 | % |
Franklin Resources, Inc. (7) | | 984,600 |
| | — |
| | 984,600 |
| | 6.46 | % |
| | | | | | | | | |
Directors and Executive Officers | | | | | | | | | |
Kevin C. Tang (2) | | 2,664,970 |
| | 6,000 |
| | 2,670,970 |
| | 17.51 | % |
George F. Tidmarsh, M.D., Ph.D. | | 1,445,086 |
| | 56,564 |
| | 1,501,650 |
| | 9.81 | % |
Saiid Zarrabian | | 109,919 |
| | 23,750 |
| | 133,669 |
| | 0 | % |
Laura L. Douglass | | — |
| | 23,750 |
| | 23,750 |
| | 0 | % |
Craig A. Johnson | | — |
| | 23,750 |
| | 23,750 |
| | 0 | % |
Robert H. Rosen | | — |
| | 6,500 |
| | 6,500 |
| | 0 | % |
Lakhmir S. Chawla, M.D. | | — |
| | 22,500 |
| | 22,500 |
| | 0 | % |
Dennis M. Mulroy | | — |
| | — |
| | — |
| | 0 | % |
All current Directors and Executive Officers as a group | | 4,219,975 |
| | 162,814 |
| | 4,382,789 |
| | 28.43 | % |
|
| |
(1) | | | | | | | | | | | Shares of Common Stock Owned are based upon the Company’s review of Statement of Beneficial Ownership Filings on Schedules 13D, 13D/A, 13G and 13G/A, unless otherwise indicated. Shares of Common Stock Owned can vary since the date of such filings. |
(2) | Based upon a Schedule 13D/A filed with the SEC on June 24, 2015. The Schedule 13D/A was jointly filed by Tang Capital Partners, LP, Tang Capital Management, LLC and Kevin Tang. Tang Capital Partners, LP shares voting and dispositive power over such shares with Tang Capital Management, LLC and Kevin Tang. The shares of Common Stock owned and beneficially owned by Mr. Tang include shares of Common Stock owned by Tang Capital Partners, LP, and other shares of Common Stock for which Mr. Tang shares voting and/or dispositive power. Mr. Tang has sole voting and dispositive power over 42,840 shares. Mr. Tang disclaims beneficial ownership of all shares reported herein except to the extent of his pecuniary interest therein. The address of the foregoing entities and person is 4747 Executive Drive, Suite 510, San Diego, CA 92121. Mr. Tang is the Chairman of the Board of Directors. |
(3) | Based upon a Schedule 13G filed with the SEC on February 14, 2014.13, 2015. The Schedule 13F13G was filed jointly by FMR LLC, Edward C. Johnson, 3rd, Abigail P. Johnson and Select Biotechnology Portfolio. FMR LLC has sole power to vote and dispose of all 1,106,641 shares. The address of FMR LLC, Edward C. Johnson, 3rd, Abigail P. Johnson and Select Biotechnology Portfolio is 245 Summer Street, Boston, MA 02210. |
(4) | Based upon a Schedule 13G/A filed with the SEC on February 17, 2015 and information recently provided to the Company. The Schedule 13G/A was jointly filed by RTW Investments, LLC, RTW Master Fund, Ltd. and Roderick Wong. RTW Investments, LLC, RTW Master Fund, Ltd. and Roderick Wong share voting and dispositive power over such shares. The address of the foregoing entities and person is 250 West 55th Street, 16th Floor, Suite A, New York, NY 10019. |
(5) | Based upon a Schedule 13G/A filed with the SEC on February 17, 2015 and information recently provided to the Company. The Schedule 13G/A was filed jointly by the Baker Bros. Advisors LP (the “Adviser”), Baker Bros. Advisors (GP) LLC (the “Adviser GP”), Felix J. Baker and Julian C. Baker, with respect to shares held by Baker Brothers Life Sciences, L.P. (“Life Sciences”), 14159, L.P. (“14159”), and 667, L.P. (“667”, and together with Life Sciences and 14159, the “Funds”). Pursuant to the amended and restated management agreements, as amended, among the Adviser, the Funds and their respective general partners, the Adviser has complete and unlimited discretion and authority with respect to the Funds’ investments and voting power over investments. The Adviser GP, and Felix J. Baker and Julian C. Baker as principals of the Adviser GP, and the Adviser may be deemed to be beneficial owners of securities of the IssuerCompany directly held by the Funds, and may be deemed to have the power to vote or direct the vote of and the power to dispose or direct the disposition of such securities. The address of the foregoing entities and persons is 667 Madison Avenue, 21st21st Floor, New York, NY 10065. |
(3)(6) | Based upon a Schedule 13G/A filed with the SEC on February 14, 2014 and information recently provided to the Company.17, 2015. The Schedule 13G/A was jointly filed by RTW Investments,Broadfin Capital, LLC, RTWBroadfin Healthcare Master Fund, Ltd. and Roderick Wong. The address of the foregoing entities and person is 1350 Avenue of the Americas, 28th Floor, New York, NY 10019. |
(4) | Based upon a Schedule 13G/A filed with the SEC on January 16, 2014 and information recently provided to the Company. The Schedule 13G/A was jointly filed by TangKevin Kotler. Broadfin Capital, Partners, LP, Tang Capital Management, LLC, Broadfin Healthcare Master Fund, Ltd. and Kevin Tang. Tang Capital Partners, LP sharesKotler share voting and dispositive power over such shares with Tang Capital Management, LLC and Kevin Tang. The shares of Common Stock owned and beneficially owned by Mr. Tang include shares of Common Stock owned by Tang Capital Partners, LP, and other shares of Common Stock for which Mr. Tang shares voting and/or dispositive power. Mr. Tang disclaims beneficial ownership of all shares reported herein except to the extent of his pecuniary interest therein.shares. The address of the foregoingforgoing entities and person is 4747 Executive Drive, Suite 510, San Diego, CA 92121. Mr. Tang has been nominated for election as a director at the Annual Meeting.300 Park Avenue, 25th Floor, New York, NY 10022. |
(5) | Based upon a Schedule 13G/A filed with the SEC on February 12, 2014 and information recently provided to the Company. The Schedule 13G/A was jointly filed by Boxer Capital, LLC (“Boxer Capital”), Boxer Asset Management Inc. (“Boxer Management”), Joseph Lewis, and MVA Investors, LLC (“MVA”) (together with Boxer Capital and Boxer Management, and Joseph Lewis, the “Reporting Persons”). Boxer Management is the managing member and majority owner of Boxer Capital. Joseph Lewis is the sole indirect owner and controls Boxer Management. MVA is the independent, personal investment vehicle of certain employees of Boxer Capital and Tavistock Life Sciences Company, which is a Delaware corporation and an affiliate of Boxer Capital. As such, MVA is not controlled by Boxer Capital, Boxer Management and Joseph Lewis. The principal business address of both Boxer Capital and MVA is: 440 Stevens Avenue, Suite 100, Solana Beach, CA 92075. The principal business address of both Boxer Management and Joseph Lewis is: c/o Cay House P.O. Box N-7776 E.P. Taylor Drive Lyford Cay, New Providence, Bahamas. |
(6)(7) | Based upon a Schedule 13G filed with the SEC on AprilJune 10, 2014.2015. The Schedule 13G was jointly filed jointly by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisers, Inc. The address of Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr.the forgoing entities and Franklin Advisers, Inc.persons is One Franklin Parkway, San Mateo, CA 94403-1906.94403. Franklin Advisers, Inc. has sole voting and dispositive power over such shares. |
OTHER INFORMATION
Other Business
We know of no other business to be presented at the Annual Meeting. If any other business were to properly come before the Annual Meeting, it is intended that the shares represented by proxies would be voted with respect thereto in accordance with the best judgment of the persons named in the accompanying form of proxy.
Shareholder Proposals
Shareholders who wish to have proposals considered for inclusion in the proxy statement and form of proxy for our 20152016 Annual Meeting of Shareholders, including nominees for directors, must cause their proposals to be received in writing by our Secretary at the address set forth on the first page of this proxy statement no later than March 31, 2015,22, 2016, provided that if the Company moves the date of the 20152016 Annual Meeting of Shareholders by more than 30 days from the anniversary date of the 20142015 Annual Meeting of Shareholders, then the deadline for submission of proposals will be a “reasonable time” before the Company begins to print and send its proxy materials for the 20152016 Annual Meeting of Shareholders (as defined in Rule 14a-8 under the Securities Exchange Act of 1934). Any proposal should be addressed to our Secretary and may be included in next year’s proxy materials only if such proposal complies with our Bylaws, as discussed above, and the rules and regulations promulgated by the Securities and Exchange Commission (“SEC”). Nothing in this section shall be deemed to require us to include in our proxy statement or our proxy relating to any annual meeting any shareholder proposal or nomination that does not meet all of the requirements for inclusion established by the SEC.
Further, our Bylaws require that a shareholder give our Secretary timely written notice of any proposal or nomination of a director. To be timely, such written notice must be received by our Secretary not less than 90 days nor more than 120 days prior to a scheduled annual meeting of shareholders, or if less than 95 days’ notice or prior public disclosure of the date of the scheduled annual meeting of shareholders is given or made, such written notice must be received by our Secretary not later than the close of business on the seventh day following the earlier of the date of the first public announcement of the date of such meeting or the date on which such notice of the scheduled meeting was mailed.
Any notice to our Secretary regarding a shareholder proposal must include, as to each matter the shareholder proposes to bring before the meeting: a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; the name and address, as they appear on our books, of the shareholder proposing such business and any shareholders known by such shareholder to be supporting such proposal; the class and number of shares of our stock that are beneficially owned by the shareholder and by any other shareholder known by such shareholder to be supporting such matter on the date of such shareholder notice; and any material interest of the shareholder in such business.
Any notice to our Secretary regarding a nomination for the election of a director must include: the name and address of the shareholder who intends to make the nomination; the name and address of the person or persons to be nominated; the class and number of shares of our stock that are beneficially owned by the shareholder; a representation that such shareholder intends to appear in person or by proxy at the annual meeting and nominate the person or persons specified in the notice; a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such persons) pursuant to which the nomination or nominations are to be made by the shareholder; such other information regarding each nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board; and the consent of each nominee to serve as a director if so elected.
Incorporation by Reference
The report of the audit committee shall not be deemed to be soliciting material or to be filed with the SEC under the Securities Act of 1933 or the Securities Exchange Act of 1934 or incorporated by reference in any document so filed.
Householding
The Company may satisfy SEC rules regarding delivery of proxy materials, including the proxy statement, annual report and Notice,notice to shareholders, by delivering a single Noticenotice to shareholders and, if applicable, a single set of proxy materials to an address shared by two or more Company shareholders. Some banks, brokers and other intermediaries may be participating in this practice of “householding” proxy statements and annual reports. This rule benefits both the Company and its shareholders as it reduces the volume of duplicate information received at a shareholder’s house and helps reduce the Company’s expenses. Each shareholder, however, will continue to receive individual proxy cards or voting instruction forms.
Shareholders who have previously received a single set of disclosure documents may request their own copy this year or in future years by contacting their bank, broker or other nominee record holder. The Company will also deliver a separate copy of this proxy statement to any shareholder upon written request to La Jolla Pharmaceutical Company, 4660 La Jolla Village Drive, Suite 1070,10182 Telesis Court, 6th Floor, San Diego, California 92122,92121, Attn: George Tidmarsh, or upon oral request by calling (858) 207-4264.
Similarly, shareholders who have previously received multiple copies of disclosure documents may write to the address or call the phone number listed above to request delivery of a single copy of these materials in the future.
Availability of Additional Information
Along with this proxy statement, we have provided each shareholder entitled to vote a copy of our Annual Report on Form 10-K for our year ended December 31, 2013. 2014. We will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 20122014 upon the written or oral request of any shareholder or beneficial owner of our Common Stock. Written requests should be directed to the following address: Investor Relations, La Jolla Pharmaceutical Company, 4660 La Jolla Village Drive, Suite 1070,10182 Telesis Court, 6th Floor, San Diego, California 92122.92121. Telephonic requests should be directed to (858) 207-4264.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549-2521. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may also find the materials we file with the SEC on the “Investor Relations” section of our website at www.ljpc.com. Information on our website is not incorporated by reference into, or made a part of, this proxy statement.
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BY ORDER OF THE BOARD OF DIRECTORS |
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/s/ George F. Tidmarsh |
George F. Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and Secretary |
July 29, 201420, 2015
San Diego, California
Appendix A
2013 Equity Incentive Plan
LA JOLLA PHARMACEUTICAL COMPANY
AMENDED AND RESTATED
2013 EQUITY INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.
2. PURPOSE
The Plan has been established to advance the interests of the Company by providing for the grant to Participants of Stock-based and other incentive Awards.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. In the case of any Award intended to be eligible for the performance-based compensation exception under Section 162(m), the Administrator will exercise its discretion consistent with qualifying the Award for that exception. Determinations of the Administrator made under the Plan will be conclusive and will bind all parties.
4. LIMITS ON AWARDS UNDER THE PLAN
(a) Number of Shares. The maximum number of shares of Stock that may be delivered upon satisfaction of Awards under the Plan shall be 1,100,0003,100,000 shares of Stock (the “Reserve”). The limits set forth in this Section 4(a) shall be construed to comply with Section 422. Without limiting the generality of the foregoing, no more than 1,100,0003,100,000 shares of Stock may be issued in satisfaction of the exercise or surrender of ISOs granted under the Plan. To the extent consistent with the requirements of Section 422 and with other applicable legal requirements (including applicable stock exchange requirements), Stock issued under awards of an acquired company that are converted, replaced, or adjusted in connection with the acquisition shall not reduce the number of shares available for Awards under the Plan.
(b) Type of Shares. Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under the Plan.
(c) Section 162(m) Limits. The maximum number of shares subject to Awards that may be granted to any person in any calendar year and the maximum number of shares of Stock subject to SARs granted to any person in any calendar year will each be equal to one half500,000 shares of Stock, provided that such limit is established solely for 162(m) purposes and that the initial Reserve and, commencing on January 1, 2014, one-half of the Reserve as determined as of January 1excess portion of any given year.award(s) granted above such limit shall not be deductible for purposes of Section 162(m). The maximum amount payable to any person in any year under Cash Awards will be $250,000. The foregoing provisions will be construed in a manner consistent with Section 162(m).
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees and directors of, and consultants and advisors to, the Company or its Affiliates who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company and its Affiliates; provided, that, subject to such express exceptions, if any, as the Administrator may establish, eligibility shall be further limited to those persons as to whom the use of a Form S-8 registration statement is permissible. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code.
6. RULES APPLICABLE TO AWARDS
(a) All Awards
(1) Award Provisions. The Administrator will determine the terms of all Awards, subject to the limitations provided herein. By accepting (or, under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant agrees to the terms of the Award and the Plan. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.
(2) Term of Plan. No Awards may be made after September 24, 2023, although previously granted Awards may continue beyond that date in accordance with their terms.
(3) Transferability. Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the second sentence of this Section 6(a)(3), other Awards may be transferred other than by will or by the laws of descent and distribution, and during a Participant’s lifetime ISOs (and, except as the Administrator otherwise expressly provides in accordance with the second sentence of this Section 6(a)(3), other Awards requiring exercise) may be exercised only by the Participant. The Administrator may permit Awards, other than ISOs, to be transferred by gift, subject to such limitations as the Administrator may impose.
(4) Vesting, Etc. The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply:
(A) Immediately upon the cessation of the Participant’s Employment and except as provided in (B) and (C) below, each Award requiring exercise that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate, and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not already vested will be forfeited.
(B) Subject to (C) and (D) below, all Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of three months or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon terminate.
(C) All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death, to the extent then exercisable, will remain exercisable for the lesser of (i) the one year period ending with the first anniversary of the Participant’s death or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon terminate.
(D) All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if the Administrator, in its sole discretion, determines that such cessation of Employment has resulted for reasons which cast such discredit on the Participant as to justify immediate termination of the Award.
(5) Taxes. The delivery, vesting or retention of Stock under an Award is conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Award. The Administrator will prescribe such rules for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the minimum withholding required by law).
(6) Dividend Equivalents, Etc. The Administrator may provide for the payment of amounts in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award. Any entitlement to dividend equivalents or similar entitlements shall be established and administered consistent either with exemption from, or compliance with, the requirements of Section 409A.
(7) Rights Limited. Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Company or its Affiliates, or any rights as a shareholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or any Affiliate to the Participant.
(8) Section 162(m). This Section 6(a)(8) applies to any Performance Award intended to qualify as performance-based for the purposes of Section 162(m) other than a Stock Option or SAR. In the case of any Performance Award to which this Section 6(a)(8) applies, the Plan and such Award will be construed to the maximum extent permitted by law in a manner consistent with qualifying the Award for such exception. With respect to such Performance Awards, the Administrator will pre-establish, in writing, one or more specific Performance Criteria no later than 90 days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the Award as performance-based under Section 162(m)). Prior to grant, vesting or payment of the Performance Award, as the case may be, the Administrator will certify whether the applicable Performance Criteria have been attained and such determination will be final and conclusive. No Performance Award to which this Section 6(a)(8) applies may be granted after the first meeting of the shareholders of the Company held in the fifth year following the year in which the shareholders last approved the list of possible performance measures specified in the definition of “Performance Criteria” until the listed performance measures set forth in the definition of “Performance Criteria” (as originally approved or as subsequently amended) have been resubmitted to and reapproved by the shareholders of the Company in accordance with the requirements of Section 162(m) of the Code, unless such grant is made contingent upon such approval.
(9) Coordination with Other Plans. Awards under the Plan may be granted in tandem with, or in satisfaction of or substitution for, other Awards under the Plan or awards made under other compensatory plans or programs of the Company or its Affiliates. For example, but without limiting the generality of the foregoing, awards under other compensatory plans or programs of the Company or its Affiliates may be settled in Stock (including, without limitation, Unrestricted Stock) if the Administrator so determines, in which case the shares delivered shall be treated as awarded under the Plan (and shall reduce the number of shares thereafter available under the Plan in accordance with the rules set forth in Section 4). In any case where an award is made under another plan or program of the Company or its Affiliates and such award is intended to qualify for the performance-based compensation exception under Section 162(m), and such award is settled by the delivery of Stock or another Award under the Plan, the applicable Section 162(m) limitations under both the other plan or program and under the Plan shall be applied to the Plan as necessary (as determined by the Administrator) to preserve the availability of the Section 162(m) performance-based compensation exception with respect thereto.
(10) Section 409A. Each Award shall contain such terms as the Administrator determines, and shall be construed and administered, such that the Award either (i) qualifies for an exemption from the requirements of Section 409A, or (ii) satisfies such requirements.
(11) Certain Requirements of Corporate Law. Awards shall be granted and administered consistent with the requirements of applicable California law relating to the issuance of stock and the consideration to be received therefor, and with the applicable requirements of the stock exchanges or other trading systems on which the Stock is listed or entered for trading, in each case, as determined by the Administrator.
(b) Awards Requiring Exercise
(1) Time And Manner Of Exercise. Unless the Administrator expressly provides otherwise, an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator), which may be an electronic notice, signed (including electronic signature in form acceptable to the Administrator) by the appropriate person and accompanied by any payment required under the Award. If the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so.
(2) Exercise Price. The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise shall be 100% (in the case of an ISO granted to a ten-percent shareholder within the meaning of subsection (b)(6) of Section 422, 110%) of the fair market value of the Stock subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant. To the extent the Company has a class of securities listed for trading on the NASDAQ Stock Market, no Award, once granted, may be re-priced other than in accordance with the applicable shareholder approval requirements of NASDAQ. Fair market value shall be determined by the Administrator consistent with the applicable requirements of Section 422 and Section 409A.
(3) Payment Of Exercise Price. Where the exercise of an Award is to be accompanied by payment, payment of the exercise price shall be by cash or check acceptable to the Administrator, or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of unrestricted shares of Stock that have a fair market value equal to the exercise price, subject to such minimum holding period requirements, if any, as the Administrator may prescribe, (ii) through a broker-assisted exercise program acceptable to the Administrator, (iii) by other means acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.
(4) Maximum Term. Awards requiring exercise will have a maximum term not to exceed ten (10) years from the date of grant (five (5) years from the date of grant in the case of an ISO granted to a ten-percent shareholder described in Section 6(b)(2)).
7. EFFECT OF CERTAIN TRANSACTIONS
(a) Mergers, etc. Except as otherwise provided in an Award, the following provisions shall apply in the event of a Covered Transaction:
(1) Assumption or Substitution. If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may provide for the assumption of some or all outstanding Awards or for the grant of new awards in substitution therefor by the acquiror or survivor or an affiliate of the acquiror or survivor.
(2) Cash-Out of Awards. If the Covered Transaction is one in which holders of Stock will receive a payment (whether cash, non-cash or a combination of the foregoing) upon consummation, then subject to Section 7(a)(5) the Administrator may provide for payment (a “cash-out”), with respect to some or all Awards or any portion thereof, equal in the case of each affected Award or portion thereof to the excess, if any, of (A) the fair market value of one share of Stock (as determined by the Administrator in its reasonable discretion) times the number of shares of Stock subject to the Award or such portion, over (B) the aggregate exercise or purchase price, if any, under the Award or such portion (in the case of an SAR, the aggregate base value above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment to holders of Stock) and other terms, and subject to such conditions, as the Administrator determines; provided, that the Administrator shall not exercise its discretion under this Section 7(a)(2) with respect to an Award or portion thereof providing for “nonqualified deferred compensation” subject to Section 409A in a manner that would constitute an extension or acceleration of, or other change in, payment terms if such change would be inconsistent with the applicable requirements of Section 409A.
(3) Other Actions. If the Covered Transaction (whether or not there is an acquiring or surviving entity) is one in which there is no assumption, substitution or cash-out, all outstanding Awards requiring exercise will cease to be exercisable and all Awards providing for the future delivery of Stock (including Stock Units and Performance Awards to the extent consisting of Stock Units) shall expire, in each case after such payment or other consideration, if any, as the Administrator deems equitable in the circumstances, as of the effective time of the Covered Transaction.
(4) Termination of Awards Upon Consummation of Covered Transaction. Each Award will terminate upon consummation of the Covered Transaction, other than the following: (i) Awards assumed pursuant to Section 7(a)(1) above; (ii) Awards converted pursuant to the proviso in Section 7(a)(3) into an ongoing right to receive payment other than Stock; and (iii) outstanding shares of Restricted Stock (which shall be treated in the same manner as other shares of Stock, subject to Section 7(a)(5)).
(5) Additional Limitations. Any share of Stock, cash or other property delivered pursuant to Section 7(a)(2) or Section 7(a)(3) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in connection with the Covered Transaction. For purposes of the immediately preceding sentence, a cash-out under Section 7(a)(2) above or the acceleration of exercisability of an Award under Section 7(a)(3) above shall not, in and of itself, be treated as the lapsing (or satisfaction) of a performance or other vesting condition. In the case of Restricted Stock that does not vest in connection with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.
(b) Changes in and Distributions With Respect to Stock
(1) Basic Adjustment Provisions. In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure, the Administrator shall make appropriate adjustments to the maximum number of shares specified in Section 4(a) that may be delivered under the Plan and to the maximum share limits described in Section 4(c), and shall also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.
(2) Certain Other Adjustments. The Administrator may also make adjustments of the type described in Section 7(b)(1) to take into account distributions to shareholders other than those provided for in Section 7(a) and Section 7(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder, having due regard for the qualification of ISOs under Section 422, the requirements of Section 409A, and for the performance-based compensation rules of Section 162(m), where applicable.
(3) Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.
8. LEGAL CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is, at the time of delivery, listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.
9. AMENDMENT AND TERMINATION
The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan, the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time of the Award. Any amendments to the Plan shall be conditioned upon shareholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator.
10. OTHER COMPENSATION ARRANGEMENTS
The existence of the Plan or the grant of any Award will not in any way affect the Company’s right to award a person bonuses or other compensation in addition to Awards under the Plan.
11. MISCELLANEOUS
(a) Waiver of Jury Trial. By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.
(b) Limitation of Liability. Notwithstanding anything to the contrary in the Plan, neither the Company, nor any Affiliate, nor the Administrator, nor any person acting on behalf of the Company, any Affiliate, or the Administrator, shall be liable to any Participant or to the estate or beneficiary of any Participant or to any other holder of an Award by reason of any acceleration of income, or any additional tax (including any interest and penalties), asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code, or otherwise asserted with respect to the Award; provided, that nothing in this Section 11(b) shall limit the ability of the Administrator or the Company, in its discretion, to provide by separate express written agreement with a Participant for a gross-up payment or other payment in connection with any such acceleration of income or additional tax.
12. ESTABLISHMENT OF SUB-PLANS
The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board will establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on the Administrator’s discretion under the Plan as the Board deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board deems necessary or desirable. All supplements adopted by the Board will be deemed to be part of the Plan, but each supplement will apply only to Participants within the affected jurisdiction and the Company will not be required to provide copies of any supplement to Participants in any jurisdiction that is not affected.
13. GOVERNING LAW
Except as otherwise provided by the express terms of an Award agreement or under a sub-plan described in Section 12, the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of our based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof will be governed by and construed in accordance with the domestic substantive laws of the State of California without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.
EXHIBIT A
Definition of Terms
The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:
“Administrator”: The Board, except that the Board may delegate (i) to one or more of its members (or one or more other members of the Board) such of its duties, powers and responsibilities as it may determine; and (ii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in the preceding sentence, the term “Administrator” shall include the person or persons so delegated to the extent of such delegation.
“Affiliate”: Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation or other entity being treated as one employer under Section 414(b) and Section 414(c) of the Code.
“Award”: Any or a combination of the following:
(i) Stock Options.
(ii) SARs.
(iii) Restricted Stock.
(iv) Unrestricted Stock.
(v) Stock Units, including Restricted Stock Units.
(vi) Performance Awards.
(vii) Cash Awards.
(viii) Awards (other than Awards described in (i) through (vii) above) that are convertible into or otherwise based on Stock.
“Board”: The Board of Directors of the Company.
“Cash Award”: An Award denominated in cash.
“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect.
“Company”: La Jolla Pharmaceutical Company, a California corporation.
“Covered Transaction”: Any of (i) a consolidation, merger, or similar transaction or series of related transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s assets, or (iii) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction shall be deemed to have occurred upon consummation of the tender offer.
“Employee”: Any person who is employed by the Company or an Affiliate.
“Employment”: A Participant’s employment or other service relationship with the Company and its Affiliates. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to the Company or its Affiliates. If a Participant’s employment or other service relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant’s Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates. Notwithstanding the foregoing and the definition of “Affiliate” above, in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Employment, references to termination or cessation of employment, separation from service, retirement or similar or correlative terms shall be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred. Any such written election shall be deemed a part of the Plan.
“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive stock option unless, as of the date of grant, it is expressly designated as an ISO.
“Participant”: A person who is granted an Award under the Plan.
“Performance Award”: An Award subject to Performance Criteria. The Committee in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m) and Performance Awards that are not intended so to qualify.
“Performance Criteria”: Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-based compensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; shareholder return; operating or gross margin; operating income; net income (before or after taxes); net operating income; net operating income after tax; pre-and after-tax income; pre-tax profit; cash flow, determined in the aggregate or on a per share basis); operating cash flow; sales or revenue targets; increases in revenue or product revenue; expenses and cost reduction goals; improvement in or attainment of expense or working capital levels; economic value added (or an equivalent metric); debt reduction; implementation or completion of projects or processes; sales of particular products or services; customer acquisition, retention or satisfaction; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. A Performance Criterion and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section 162(m), the Administrator may provide in the case of any Award intended to qualify for such exception that one or more of the Performance Criteria applicable to such Award will be adjusted in an objectively determinable manner to reflect events (for example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable Performance Criterion or Criteria.
“Plan”: La Jolla Pharmaceutical Company 2013 Equity Incentive Plan as from time to time amended and in effect.
“Restricted Stock”: Stock subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.
“Restricted Stock Unit”: A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions.
“SAR”: A right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Stock of equivalent value) equal to the excess of the fair market value of the shares of Stock subject to the right over the base value from which appreciation under the SAR is to be measured.
“Section 409A”: Section 409A of the Code.
“Section 422”: Section 422 of the Code.
“Section 162(m)”: Section 162(m) of the Code.
“Stock”: Common Stock of the Company, par value $0.001 per share.
“Stock Option”: An option entitling the holder to acquire shares of Stock upon payment of the exercise price.
“Stock Unit”: An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of Stock in the future.
“Unrestricted Stock”: Stock not subject to any restrictions under the terms of the Award.
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