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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
Vanda Pharmaceuticals Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
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April 28,
2010
Dear Stockholder:
I am pleased to invite you to attend Vanda Pharmaceuticals
Inc.s 2010 Annual Meeting of Stockholders (the
Annual Meeting), to be held on June 3, 2010, at
9605 Medical Center Drive, Rockville, Maryland. The Annual
Meeting will begin promptly at 9:00 a.m., local time.
Enclosed are the following:
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our Notice of Annual Meeting of Stockholders and Proxy Statement
for 2010;
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our Annual Report for 2009 (containing our annual report on
Form 10-K
filed with the SEC); and
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a proxy card with a return envelope to record your vote.
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Details regarding the business expected to be conducted at the
Annual Meeting are more fully described in the accompanying
Notice of Annual Meeting of Stockholders and Proxy Statement.
We consider the votes of all stockholders important, no matter
how many or how few shares you own. Whether or not you expect to
attend the Annual Meeting, please date, sign, and return your
proxy card in the enclosed envelope to ensure that your shares
are voted at the Annual Meeting. You also may vote your shares
by telephone or via the Internet by following the voting
instructions on the proxy card. If you attend the Annual
Meeting, you may vote your shares in person (even if you
previously voted by proxy) by following the instructions in the
Proxy Statement.
On behalf of your Board of Directors, thank you for your
continued support and interest.
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
TABLE
OF CONTENTS
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Vanda
Pharmaceuticals Inc.
9605 Medical Center Drive, Suite 300
Rockville, Maryland 20850
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be Held On June 3,
2010
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Vanda Pharmaceuticals Inc., a Delaware
corporation (the Company). The Annual Meeting will
be held on June 3, 2010, at 9:00 a.m. local time at
9605 Medical Center Drive, Rockville, Maryland for the following
purposes:
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Proposal 1: To elect Howard Pien and H.
Thomas Watkins to serve as Class I directors until the 2013
Annual Meeting of Stockholders;
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Proposal 2: To approve the material terms
of the Vanda Pharmaceuticals Inc. 2006 Equity Incentive Plan, as
amended;
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Proposal 3: To ratify the selection by
the Audit Committee of PricewaterhouseCoopers LLP as the
independent registered public accounting firm of the Company for
the year ending December 31, 2010; and
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To conduct any other business properly brought before the Annual
Meeting.
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These items of business are more fully described in the
accompanying Proxy Statement. Please read the accompanying Proxy
Statement and vote your shares by proxy by completing, signing,
dating and returning your proxy card in the enclosed postage
pre-paid envelope. You also may vote your shares by telephone or
via the Internet by following the telephone and Internet voting
instructions on the proxy card.
Your Board of Directors unanimously recommends you vote the
proxy card FOR the Companys two
director nominees, Howard Pien and H. Thomas Watkins; and
FOR Proposal 2 and Proposal 3.
The record date for the Annual Meeting is April 16, 2010.
Only stockholders of record at the close of business on that
date may vote at the Annual Meeting or any adjournment thereof.
Electronic
Delivery of Proxy Materials
We are pleased to offer stockholders the opportunity to receive
future proxy mailings by
e-mail. To
request electronic delivery, please vote via the Internet at
www.proxyvote.com (you will be asked to enter a 12 or 14 digit
control number which can be found on the first page of your
proxy card) and, when prompted, enroll to receive proxy
materials electronically in future years.
Important Notice Regarding Internet Availability of Proxy
Materials for the Annual Meeting: The 2010 Notice and Proxy
Statement and 2009 Annual Report are also available at our
corporate website www.vandapharma.com. Additionally, in
accordance with SEC rules, you may access these materials at
http://materials.proxyvote.com/921659,
which does not have cookies that identify visitors
to the site.
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By
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Order of the Board of Directors
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Stephanie R. Irish
Acting Chief Financial Officer, Secretary and Treasurer
Rockville, Maryland
April 28, 2010
You are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting,
please complete, date, sign and return the enclosed proxy card
as promptly as possible in order to ensure your shares are voted
at the Annual Meeting. A return envelope (which is postage
prepaid if mailed in the United States) is enclosed for your
convenience. Even if you have voted by proxy, you may still
attend the Annual Meeting and vote in person. Please note,
however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the Annual
Meeting, you must obtain a proxy issued in your name from that
nominee holder.
This Proxy Statement and accompanying proxy are being
distributed on or about April 28, 2010
Vanda
Pharmaceuticals Inc.
9605 Medical Center Drive, Suite 300
Rockville, Maryland 20850
PROXY STATEMENT
FOR THE 2010 ANNUAL MEETING OF
STOCKHOLDERS
June 3, 2010
QUESTIONS
AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I
receiving these materials?
We sent you this Proxy Statement and the enclosed proxy card
because the Board of Directors of Vanda Pharmaceuticals Inc.
(sometimes referred to as the Company or
Vanda) is soliciting your proxy to vote your shares
at the 2010 Annual Meeting of Stockholders (the Annual
Meeting). You are invited to attend the Annual Meeting to
vote on the proposals described in this Proxy Statement.
However, you do not need to attend the Annual Meeting to vote
your shares. Instead, you may simply complete, sign and return
the enclosed proxy card, or follow the instructions below to
submit your proxy by telephone or via the Internet. In addition,
we are sending to our stockholders an annual report that will
accompany this Proxy Statement in accordance with Securities and
Exchange Commission (SEC) rules.
We intend to mail this Proxy Statement, the annual report and
accompanying proxy card on or about April 28, 2010 to all
stockholders of record entitled to vote at the Annual Meeting.
Who can
vote at the Annual Meeting?
Only stockholders of record at the close of business on
April 16, 2010, the record date for the Annual Meeting,
will be entitled to vote at the Annual Meeting. On the record
date, there were 27,879,548 shares of the Companys
common stock (Common Stock) outstanding. All of
these outstanding shares are entitled to vote at the Annual
Meeting (one vote per share of Common Stock) in connection with
the matters set forth in this Proxy Statement.
A list of stockholders entitled to vote at the Annual Meeting
will be available for examination at Vanda Pharmaceuticals Inc.,
9605 Medical Center Drive, Suite 300, Rockville, Maryland
20850 for ten days before the Annual Meeting and at the Annual
Meeting.
Stockholder
of Record: Shares Registered in Your Name
If on April 16, 2010, your shares were registered directly
in your name with our transfer agent, American Stock
Transfer & Trust Company, then you are a
stockholder of record. As a stockholder of record, you may vote
in person at the Annual Meeting or vote by proxy. Whether or not
you plan to attend the Annual Meeting, sign, date and return the
enclosed proxy card or vote your shares by telephone or via the
Internet as instructed below to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If on April 16, 2010, your shares were held in an account
at a broker, bank or other nominee holder, then you are the
beneficial owner of shares held in street name and these
proxy materials are being forwarded to you by that organization.
The organization holding your account is considered the
stockholder of record for purposes of voting at the Annual
Meeting. As a beneficial owner, you have the right to direct
your broker or other agent on how to vote the shares in your
account. You are also invited to attend the Annual Meeting.
However, if you are not the stockholder of record, you may not
vote those shares in person at the Annual Meeting unless you
request and obtain a valid proxy from your broker or other agent
in whose street name your shares are registered.
What am I
being asked to vote on?
At the Annual Meeting, the stockholders will vote on:
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Proposal 1: Election of Howard Pien and
H. Thomas Watkins to serve as Class I directors until the
2013 Annual Meeting of Stockholders.
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Proposal 2: Approval of the material
terms of the Vanda Pharmaceuticals Inc. 2006 Equity Incentive
Plan, as amended (the Incentive Plan).
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Proposal 3: Ratification of the selection
of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the year ending December 31,
2010.
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Such other business as is properly brought before the Annual
Meeting.
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How does
the Board of Directors of Vanda recommend that I vote on the
proposals?
The Board of Directors of Vanda unanimously recommends that you
vote FOR the election of each of Howard Pien
and H. Thomas Watkins (Proposal 1), FOR
the approval of the material terms of the Incentive Plan
(Proposal 2) and FOR the
ratification of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending
December 31, 2010 (Proposal 3).
How do I
vote?
You may vote FOR all our nominees to the
Board of Directors or you may WITHHOLD your
vote for any nominee you specify. For each other matter that may
be voted on at the Annual Meeting, you may vote
FOR or AGAINST or abstain
from voting.
Stockholder
of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at
the Annual Meeting or vote by proxy using the enclosed proxy
card or by telephone or via the Internet as described below.
Whether or not you plan to attend the Annual Meeting, we urge
you to vote using the proxy to ensure your vote is counted. You
may still attend the Annual Meeting and vote in person if you
have already voted by proxy. If you plan on attending the Annual
Meeting you must bring a form of personal picture identification
with you.
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To vote in person, come to the Annual Meeting and we will give
you a ballot when you arrive.
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To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the
postage-prepaid envelope provided. If you return your signed and
dated proxy card to us before the Annual Meeting, we will vote
your shares as you direct.
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To vote by telephone, dial toll-free
1-800-690-6903
using a touch-tone phone and follow the recorded instructions.
You will be asked to provide the company number and control
number from the enclosed proxy card. Your vote must be received
by 11:59 p.m. Eastern Time on June 2, 2010 to be
counted.
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To vote via the Internet, go to
http://www.proxyvote.com
to complete an electronic proxy card. You will be asked to
provide the company number and control number from the enclosed
proxy card. Your vote must be received by 11:59 p.m.
Eastern Time on June 2, 2010 to be counted.
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We provide Internet proxy voting to allow you to vote your
shares on-line, with procedures designed to ensure the
authenticity and correctness of your proxy vote instructions.
However, please be aware that you must bear any costs associated
with your Internet access, such as usage charges from Internet
access providers and telephone companies.
Beneficial
Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other nominee holder, you should have
received a voting instruction card with these proxy materials
from that organization rather than from Vanda. You should follow
the instructions on the voting instruction card to ensure that
your vote is counted.
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Alternatively, a number of brokers and banks participate in a
program provided through Broadridge Financial Solutions, Inc.
(formerly known as ADP Investor Communication Services), which
enables beneficial holders to grant proxies to vote shares via
telephone or the Internet. If your shares are held by a broker
or bank that participates in the Broadridge program, you may
grant a proxy to vote those shares telephonically by calling the
telephone number listed in the voting instructions received from
your broker or bank, or via the Internet at Broadridges
website at www.proxyvote.com. To vote in person at the Annual
Meeting, you must obtain a valid proxy from your broker, bank,
or other nominee holder. Follow the instructions from your
broker, bank or other organization included with these proxy
materials, or contact your broker, bank or other nominee holder
to request a proxy form.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of Common Stock you own as of April 16, 2010.
What vote
is required to approve each matter?
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Proposal 1: Directors will be elected by
a plurality of the votes cast at the Annual Meeting, meaning the
two nominees who are properly nominated in accordance with our
Bylaws, and receive the most FOR votes will
be elected. Only votes cast FOR a nominee
will be counted. An instruction to WITHHOLD
authority to vote for one or more of the nominees will result in
those nominees receiving fewer votes, but will not count as a
vote against the nominees. Abstentions and broker
non-votes (i.e., shares held by a broker or nominee that
are represented at the Annual Meeting, but with respect to which
such broker or nominee is not instructed to vote on a particular
proposal and does not have discretionary voting power) will have
no effect on the outcome of the election of directors. Because
the election of directors is not a matter on which a broker or
other nominee is generally empowered to vote, broker non-votes
are expected to exist in connection with this matter.
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Proposal 2: To approve the material terms
of the Incentive Plan, Proposal 2 must receive a
FOR vote from a majority of all those
outstanding shares that are present in person, or represented by
proxy, and cast either affirmatively or negatively at the Annual
Meeting. Abstentions and broker non-votes will not
be counted FOR or AGAINST
the proposal and will have no effect on the proposal. Because
the approval of the material terms of the Incentive Plan is a
matter on which a broker or other nominee is generally empowered
to vote, no broker non-votes are expected to exist in connection
with this matter.
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Proposal 3: To ratify the selection by
the Audit Committee of the Board of Directors of
PricewaterhouseCoopers LLP as the independent registered public
accounting firm of the Company for the year ending
December 31, 2010, the Company must receive a
FOR vote from a majority of all those
outstanding shares that are present in person, or represented by
proxy, and cast either affirmatively or negatively at the Annual
Meeting. Abstentions and broker non-votes will not
be counted FOR or AGAINST
the proposal and will have no effect on the proposal. Because
the ratification of the appointment of the independent
registered public accounting firm is a matter on which a broker
or other nominee is generally empowered to vote, no broker
non-votes are expected to exist in connection with this matter.
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What is a
broker non-vote?
Broker non-votes occur when a beneficial owner of shares held in
street name does not give instructions to the broker or
nominee holding the shares as to how to vote on matters deemed
non-routine matters. Generally, if shares are held
in street name, the beneficial owner of the shares is
entitled to give voting instructions to the broker or nominee
holding the shares. If the beneficial owner does not provide
voting instructions, the broker or nominee can still vote the
shares with respect to routine matters but not with
respect to non-routine matters. Non-routine
matters include director elections or matters that may
substantially affect the rights or privileges of stockholders,
such as mergers or stockholder proposals.
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What
effect do abstentions and broker non-votes have on the
proposals?
Abstentions and broker non-votes will have no effect on
Proposals 1, 2 or 3. However, we still urge you to please
provide voting instructions for all of your shares that are held
by your broker, bank or other nominee holder, so that your votes
will be counted at the Annual Meeting. We only count broker
non-votes in determining whether a quorum of stockholders is
present to conduct business at the Annual Meeting.
What if I
return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted:
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Proposal 1: FOR the
election of Howard Pien and H. Thomas Watkins to serve as
Class I directors;
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Proposal 2: FOR the
approval of the material terms of the Incentive Plan; and
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Proposal 3: FOR the
ratification of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for our fiscal year ending
December 31, 2010.
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If any other matter is properly presented at the Annual Meeting,
the proxyholders for shares voted on the proxy card (i.e. one of
the individuals named as proxies on your proxy card) will vote
your shares using his or her best judgment.
Who is
paying for this proxy solicitation?
The accompanying proxy is being solicited by the Board of
Directors of the Company. In addition to this solicitation by
mail, directors and employees of the Company may solicit proxies
in person, by telephone, or by other means of communication.
Directors and employees will not be paid any additional
compensation for soliciting proxies. In addition, the Company
may also retain one or more third parties to aid in the
solicitation of brokers, banks and institutional and other
stockholders. We will pay for the entire cost of soliciting
proxies. We may reimburse brokerage firms, banks and other
agents for the cost of forwarding proxy materials to beneficial
owners.
What does
it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please complete, sign and return each proxy
card to ensure that all of your shares are voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the Annual Meeting. If you are the record holder of your
shares, you may revoke your proxy in any one of three ways:
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You may submit another signed and dated proxy card with a later
date;
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You may deliver a written notice that you are revoking your
proxy to the Secretary of the Company at 9605 Medical Center
Drive, Suite 300, Rockville, Maryland 20850; or
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You may attend the Annual Meeting and vote your shares in
person. Simply attending the Annual Meeting without
affirmatively voting will not, by itself, revoke your proxy.
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What is
the quorum requirement?
A quorum of stockholders is necessary to conduct business at the
Annual Meeting. Pursuant to our Bylaws, a quorum will be present
if a majority of the voting power of outstanding shares of the
Company entitled to vote generally in the election of directors
is represented in person or by proxy at the Annual Meeting. On
the record date, there were 27,879,548 shares of Common
Stock outstanding and entitled to vote. Thus
13,939,775 shares must be represented by stockholders
present at the Annual Meeting or represented by proxy to have a
quorum.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other nominee) or if you attend the Annual
Meeting and vote in person. Abstentions and broker non-votes
will be counted for the purpose of determining whether a quorum
is present for the transaction
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of business. If a quorum is not present, the holders of a
majority of the votes present at the Annual Meeting may adjourn
the Annual Meeting to another date.
What
happens if the Annual Meeting is postponed or
adjourned?
Unless the polls have closed or you have revoked your proxy,
your proxy will still be in effect and may be voted once the
Annual Meeting is reconvened. However, you will still be able to
change or revoke your proxy with respect to any proposal until
the polls have closed for voting on such proposal.
How are
votes counted?
Votes will be counted by the inspector of elections appointed
for the Annual Meeting, who will separately count
FOR and WITHHOLD and, with
respect to proposals other than the election of directors,
AGAINST votes, abstentions and broker
non-votes. Abstentions and broker non-votes have no effect and
will not be counted towards the vote total for any proposal.
Could
other matters be decided at the Annual Meeting?
Vanda does not know of any other matters that may be presented
for action at the Annual Meeting. Should any other business come
before the Annual Meeting, the persons named on the enclosed
proxy card will have discretionary authority to vote the shares
represented by proxies in accordance with their best judgment.
If you hold shares through a broker, bank or other nominee as
described above, they will not be able to vote your shares on
any other business that comes before the Annual Meeting unless
they receive instructions from you with respect to such other
business.
How can I
find out the results of the voting at the Annual
Meeting?
Preliminary voting results are expected to be announced at the
Annual Meeting. Final voting results will be reported on a
Current Report on
Form 8-K
filed with the SEC no later than June 9, 2010.
May I
propose actions for consideration at next years annual
meeting or nominate individuals to serve as directors?
Yes. The following requirements apply to stockholder proposals,
including director nominations, for the 2011 annual meeting of
stockholders.
Requirements
for Stockholder Proposals to be Considered for Inclusion in
Proxy Materials:
Stockholders interested in submitting a proposal (other than the
nomination of directors) for inclusion in the proxy materials to
be distributed by us for the 2011 annual meeting of stockholders
may do so by following the procedures prescribed in
Rule 14a-8
of the Securities Exchange Act of 1934, as amended (the
Exchange Act). To be eligible for inclusion in
Vandas proxy materials, stockholder proposals must be
received at our principal executive offices no later than the
close of business on December 29, 2010 which is the
120th day prior to the first anniversary of the date that
we released this Proxy Statement to our stockholders for the
Annual Meeting. To be included in our proxy materials, your
proposal also must comply with the Companys Bylaws and
Rule 14a-8
promulgated under the Exchange Act regarding the inclusion of
stockholder proposals in company-sponsored proxy materials. If
we change the date of the 2011 annual meeting of stockholders by
more than 30 days from the anniversary of this years
Annual Meeting, stockholder proposals must be received a
reasonable time before we begin to print and mail our proxy
materials for the 2011 annual meeting of stockholders. Proposals
should be sent to Vanda Pharmaceuticals Inc., 9605 Medical
Center Drive, Suite 300, Rockville, MD 20850 Attn:
Secretary.
Requirements
for Stockholder Nomination of Director Candidates and
Stockholder Proposals Not Intended for Inclusion in
Vandas Proxy Materials:
Stockholders who wish to nominate persons for election to the
Board of Directors at the 2011 annual meeting of stockholders or
who wish to present a proposal at the 2011 annual meeting of
stockholders, but who do not intend
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for such proposal to be included in Vandas proxy materials
for such meeting, must deliver written notice of the nomination
or proposal to the Corporate Secretary at 9605 Medical Center
Drive, Suite 300, Rockville, Maryland 20850 no earlier than
February 3, 2011 and no later than March 5, 2011.
However, if the 2011 annual meeting of stockholders is held
earlier than May 4, 2011 or later than July 3, 2011,
nominations and proposals must be received no later than the
close of business on the later of (a) the 90th day prior to
the 2011 annual meeting of stockholders and (b) the
10th day following the day we first publicly announce the
date of the 2011 annual meeting. The stockholders written
notice must include certain information concerning the
stockholder and each nominee and proposal, as specified in
Vandas Bylaws.
Copy
of Bylaws:
You may request a copy of the Companys Bylaws at no charge
by writing to Vandas Secretary at 9605 Medical Center
Drive, Suite 300, Rockville, Maryland 20850. A current copy
of our Bylaws also is available at our corporate website at
www.vandapharma.com. To access our Bylaws from the main page of
our website, click on Investor Relations at the top
of the page, then click on Corporate Governance, and
then click on Amended and Restated Bylaws.
How can I
find Vandas proxy materials and annual report on the
Internet?
This Proxy Statement and the 2009 Annual Report are available at
our corporate website at www.vandapharma.com. You also can
obtain copies without charge at the SECs website at
www.sec.gov. Additionally, in accordance with SEC rules, you may
access these materials at
http://materials.proxyvote.com/921659
which does not have cookies that identify visitors
to the site.
How do I
obtain a separate set of Vandas proxy materials if I share
an address with other stockholders?
As permitted by applicable law, only one copy of Vandas
proxy materials, which include this Proxy Statement, the 2009
Annual Report and the proxy card, is being delivered to
stockholders with the same last name residing at the same
address, unless such stockholders have notified Vanda of their
desire to receive multiple copies of our proxy materials. Vanda
will deliver a separate copy of our proxy materials within
30 days after an oral or written request from any
stockholder residing at an address to which only one copy was
mailed. If you are a stockholder at a shared address to which we
delivered a single copy of the proxy materials and you want a
separate copy of this Proxy Statement
and/or the
2009 Annual Report, or if you want to receive a separate proxy
statement
and/or
annual report in the future, or if you are a stockholder at a
shared address to which we delivered multiple copies of the
proxy materials and you desire to receive only one copy in the
future, please submit your request by mail to Investor
Relations, Vanda Pharmaceuticals Inc., 9605 Medical Center
Drive, Suite 300, Rockville, Maryland 20850 or by telephone
at
(240) 599-4500.
If a broker, bank or other holder holds your Vanda shares for
you, please contact your broker, bank or other nominee directly
if you have questions, require additional copies of this Proxy
Statement, the 2009 Annual Report, or additional voting
instructions for the Annual Meeting or if you wish to receive
multiple copies of proxy materials in the future if you reside
at the same address as another stockholder and only one copy was
delivered to you.
May I
elect to receive Vanda stockholder communications electronically
rather than through the mail?
Yes. If you received your 2010 Annual Meeting materials by mail,
please help us conserve natural resources and significantly
reduce Vandas printing and mailing costs, by signing up to
receive future stockholder communications via
e-mail. With
electronic delivery, we will notify you via
e-mail as
soon as the annual report and our proxy materials are available
on the Internet, and you can submit your stockholder votes
online. Electronic delivery also can help reduce the number of
bulky documents in your personal files and eliminate duplicate
mailings. To sign up for electronic delivery:
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If you are a registered holder (i.e., you hold your Vanda
shares in your own name through our transfer agent, American
Stock Transfer & Trust Company, or you have stock
certificates), visit www.proxyvote.com (you
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will be asked to enter a 12 or 14 digit control number which can
be found on the first page of your proxy card) to enroll.
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If you are a beneficial holder (i.e., your shares are
held by a brokerage firm, a bank or a trustee), you may also
have the opportunity to receive copies of the proxy materials
electronically. Please check the information provided in the
proxy materials mailed to you by your bank or broker regarding
the availability of this service.
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Your electronic delivery enrollment will be effective until you
cancel it. If you have questions about electronic delivery,
please contact Investor Relations, Vanda Pharmaceuticals Inc.,
9605 Medical Center Drive, Suite 300, Rockville, Maryland
20850 or by telephone at
(240) 599-4500.
Whom
should I call if I have any questions?
If you have any questions, would like additional Vanda proxy
materials or proxy cards, or need assistance in voting your
shares, please contact Investor Relations, Vanda Pharmaceuticals
Inc., 9605 Medical Center Drive, Suite 300, Rockville,
Maryland 20850 or by telephone at
(240) 599-4500.
7
PROPOSAL 1
ELECTION
OF DIRECTORS
Under our Bylaws, our Board of Directors is divided into three
classes of equal size. The members of each class are elected to
serve a
3-year term
with the term of office of each of the three classes ending in
successive years. Pursuant to our Bylaws, the Board of Directors
has fixed the current number of directors at six (6). Howard
Pien and H. Thomas Watkins are the two Class I directors
whose terms expire at this Annual Meeting. Howard Pien and H.
Thomas Watkins have been nominated for election by our Board of
Directors to serve until the 2013 Annual Meeting or until their
successors are elected (or until their earlier death,
resignation or removal). It is our policy to encourage nominees
for director to attend the Annual Meeting. Howard Piens
and H. Thomas Watkins ages as of April 16, 2010 and
certain additional biographical information are set forth below.
Directors are elected by a plurality of the votes cast at the
Annual Meeting. The two nominees receiving the highest number of
FOR votes will be elected. Abstentions and
broker non-votes will have no effect on the outcome
of the election of directors at the Annual Meeting.
Shares represented by signed proxy cards will be voted on
Proposal 1 FOR the election of
Mr. Pien and Mr. Watkins to the Board of Directors at
the Annual Meeting, unless otherwise marked on the card. If any
Vanda director nominee becomes unavailable for election as a
result of an unexpected occurrence, shares represented by proxy
cards will be voted for the election of a substitute nominee
designated by our current Board of Directors, unless otherwise
marked on the card. Mr. Pien and Mr. Watkins,
Vandas two director nominees, have each agreed to serve as
a director if elected. We have no reason to believe that either
Vanda nominee will be unable to serve if elected.
Qualification
of Directors and Nominees
The following is a brief discussion of the specific experience,
qualifications, attributes or skills that led to the conclusion
by our Nominating/Corporate Governance Committee that each of
our directors and nominees is qualified to serve as one of our
directors:
We believe that our directors and nominees have an appropriate
balance of knowledge, experience, attributes, skills and
expertise required for our Board of Directors as a whole and
that we have sufficient independent directors to comply with
applicable law and regulations. We believe that our directors
have a broad range of personal characteristics including
leadership, management, pharmaceutical, business, marketing and
financial experience and abilities to act with integrity, with
sound judgment and collegially, to consider strategic proposals,
to assist with the development of our strategic plan and oversee
its implementation, to oversee our risk management efforts and
executive compensation and to provide leadership, to commit the
requisite time for preparation and attendance at board and
committee meetings and to provide required expertise on our
board committees.
In addition, five of our six directors are independent under The
Nasdaq Global Market (Nasdaq) standards
(Dr. Polymeropoulos, our Chief Executive Officer, being the
only exception as he is an employee) and our
Nominating/Corporate Governance Committee believes that all six
directors are independent of the influence of any particular
stockholder or group of stockholders whose interests may diverge
from the interests of our stockholders as a whole.
We believe that each director and nominee brings a strong
background and set of skills to our Board of Directors, giving
the Board of Directors, as a whole, competence and experience
from a wide variety of areas.
The following is a brief biography for Vandas two director
nominees. For further biographical information on all our
directors and executive officers see the section entitled
Executive Officers and Directors below and for
additional reasons why our directors were recommended for
election by the Nominating/Corporate Governance Committee of our
Board of Directors see the section entitled Corporate
Governance.
Howard H. Pien, age 52, has served as a Director of
Vanda since June 2007. Mr. Pien served as President and
Chief Executive Officer and a Director of Medarex, Inc from June
2007 until it was acquired by Bristol-Myers Squibb Co. in
September 2009. Prior to his tenure at Medarex, Mr. Pien
served as President and Chief Executive Officer of Chiron
Corporation until April 2006 when it was acquired by Novartis.
He joined Chiron from
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GlaxoSmithKline (formerly SmithKline Beecham), where he served
as President, Pharmaceuticals for SmithKline Beecham and later
as President of GlaxoSmithKlines International
Pharmaceuticals business. Mr. Pien has also held positions
in sales, market research, licensing and product management at
Abbott Laboratories and Merck & Co. In the past five
years Mr. Pien has served on the board of directors of
Chiron Corporation, Medarex, ViroPharma Incorporated and
ImmunoGen, Inc. Mr. Pien earned a B.S. from the
Massachusetts Institute of Technology and an M.B.A. from
Carnegie-Mellon University.
H. Thomas Watkins, age 57, has served as a
Director of Vanda since September 2006. Mr. Watkins has
served as the President and Chief Executive Officer of Human
Genome Sciences, Inc. and as a member of its board of directors
since 2005. Prior to his tenure at Human Genome Sciences Inc.,
Mr. Watkins served as President of TAP Pharmaceutical
Products, Inc. Mr. Watkins previously held a series of
executive positions over the course of nearly twenty years with
Abbott Laboratories. Mr. Watkins also serves on the board
of directors of the Biotechnology Industry Organization (BIO).
He holds a B.B.A. from the College of William and Mary and an
M.B.A from the University of Chicago Graduate School of Business.
YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE THE
PROXY CARD FOR THE ELECTION OF HOWARD PIEN AND H.
THOMAS WATKINS.
9
CORPORATE
GOVERNANCE
Independence
of the Board of Directors
As required under Nasdaq listing standards, a majority of the
members of a listed companys Board of Directors must
qualify as independent, as affirmatively determined
by the Board of Directors. Consistent with these regulations,
after review of all relevant transactions or relationships
between each director, or any of his or her family members, and
the Company, its senior management and its independent
registered public accounting firm, the Board of Directors has
determined that all of our directors are independent directors
within the meaning of applicable Nasdaq listing standards,
except for Dr. Mihael H. Polymeropoulos, our Chief
Executive Officer.
Information
Regarding the Board of Directors and its Committees
As required under Nasdaq listing standards, our independent
directors meet in regularly scheduled executive sessions at
which only independent directors are present. Dr. Argeris
N. Karabelas, Chairman of the Board of Directors, presides over
these executive sessions. Stockholders interested in
communicating with the independent directors regarding their
concerns or issues may address correspondence to a particular
director, or to the independent directors generally, in care of
Vanda Pharmaceuticals Inc. at 9605 Medical Center Drive,
Suite 300, Rockville, Maryland 20850, Attn: Secretary. The
Secretary has the authority to disregard any inappropriate
communications or to take other appropriate actions with respect
to any inappropriate communications. If deemed an appropriate
communication, the Secretary will forward it, depending on the
subject matter, to the chairman of a committee of the Board of
Directors or a particular director, as appropriate.
The Board of Directors has an Audit Committee, a Compensation
Committee and a Nominating/Corporate Governance Committee. The
following table provides membership and meeting information for
each of the Board committees during 2009:
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Nominating/Corporate
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Name
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Audit
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Compensation
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Governance
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Dr. Argeris N. Karabelas
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X(1
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X
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Richard W. Dugan
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X(1
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Brian K. Halak, Ph.D.(2)
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X
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X(1
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Howard H. Pien
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X
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Mihael H. Polymeropoulos, M.D.
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David Ramsay(3)
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X
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H. Thomas Watkins
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X
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X
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Total meetings in 2009
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11
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12
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3
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(1) |
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Committee Chairman. |
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Resigned as a member of the Board of Directors, Audit Committee
and Nominating/Corporate Governance Committee effective as of
April 21, 2010. |
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Resigned as a member of the Board of Directors and Audit
Committee effective as of January 7, 2010. |
Following the resignation of Mr. Ramsay as a member of the
Board of Directors and Audit Committee as of January 7,
2010, Mr. Pien was appointed to serve as a member of the
Audit Committee. Effective upon the resignation of
Dr. Halak as a member of the Board of Directors, Audit
Committee and Nominating/Corporate Governance Committee as of
April 21, 2010, Vincent J. Milano was elected to the Board
of Directors and appointed to serve as a member of the Audit
Committee and Mr. Dugan was appointed to serve as the
Chairman of the Nominating/Corporate Governance Committee.
Below is a description of each committee of the Board of
Directors. The Board of Directors has determined that each
member of the Audit, Compensation and Nominating/Corporate
Governance Committees meets applicable rules and regulations
regarding independence and that each such member is
free of any relationship that would interfere with his
individual exercise of independent judgment with regard to the
Company.
10
Audit
Committee
The Audit Committee of the Board of Directors oversees the
quality and integrity of the Companys financial statements
and other financial information provided to the Companys
stockholders, the retention and performance of the
Companys independent accountants, the effectiveness of the
Companys internal controls and disclosure controls, and
the Companys compliance with ethics policies and SEC and
related regulatory requirements. For these purposes, the Audit
Committee, among other duties and powers, (1) approves
audit fees for, and appoints and reviews the performance of, the
Companys independent accountants, (2) reviews reports
prepared by management, and attested by the Companys
independent accountants with respect to the financial statements
contained therein, assessing the adequacy and effectiveness of
the Companys internal controls and procedures, prior to
the inclusion of such reports in the Companys periodic
filings as required under the rules of the SEC, (3) reviews
the Companys annual and quarterly reports, and associated
consolidated financial statements, with management and the
independent accountants prior to the first public release of the
Companys financial results for such year or quarter,
(4) reviews with external counsel any legal matters that
could have a significant impact on the Companys financial
statements, (5) establishes and maintains procedures for
the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls
and auditing matters and business conduct or ethics violations,
and (6) reviews the Companys compliance with its Code
of Business Conduct and Ethics. Our Audit Committee charter can
be found in the corporate governance section of our corporate
website at www.vandapharma.com. Three directors comprised the
Audit Committee in 2009: Mr. Dugan (the Chairman of the
Audit Committee), Dr. Halak and Mr. Ramsay. The Audit
Committee met eleven times during 2009. Following the
resignation of Mr. Ramsay as a member of the Board of
Directors and Audit Committee as of January 7, 2010,
Mr. Pien was appointed to serve as a member of the Audit
Committee. Effective upon the resignation of Dr. Halak as a
member of the Board of Directors and Audit Committee as of
April 21, 2010, Vincent J. Milano was elected to the Board
of Directors and appointed to serve as a member of the Audit
Committee.
The Board of Directors annually reviews the Nasdaq listing
standards definition of independence for Audit Committee members
and has determined that all members of our Audit Committee are
independent (as independence is currently defined in applicable
Nasdaq listing standards and
Rule 10A-3
promulgated under the Exchange Act).
Compensation
Committee
The Compensation Committee of the Board of Directors reviews and
approves the design of, assesses the effectiveness of, and
administers executive compensation programs, including the
Incentive Plan. For these purposes, the Compensation Committee,
among other duties and powers, (1) reviews and approves
corporate goals and objectives relevant to the compensation of
our Chief Executive Officer and other Company executives,
(2) reviews and approves the terms of offer letters,
employment agreements, severance agreements,
change-in-control
agreements, and other material agreements between the Company
and its executive officers, (3) approves material changes
to the Companys 401(k) plan and oversees its
implementation, (4) reviews and approves the Compensation
Discussion and Analysis included in this Proxy Statement, and
(5) conducts reviews of executive officer succession
planning. Our Compensation Committee charter can be found in the
corporate governance section of our website at
www.vandapharma.com. Three directors comprise the Compensation
Committee of the Board of Directors: Dr. Karabelas (the
Chairman of the Compensation Committee), Mr. Pien and
Mr. Watkins. The Compensation Committee met twelve times
during 2009.
The Board of Directors has determined that all members of the
Compensation Committee are independent (as independence is
currently defined in the Nasdaq listing standards). In addition
each member of this committee is a non-employee director, as
defined pursuant to
Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as
amended, and an outside director, as defined pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code).
Dr. Polymeropoulos, our Chief Executive Officer, does not
participate in the determination of his own compensation or the
compensation of directors. However, Dr. Polymeropoulos does
make recommendations to the Compensation Committee regarding the
amount and form of the compensation of the other executive
officers and key employees, and he often participates in the
Compensation Committees deliberations about their
compensation.
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No other executive officers participate in the determination of
the amount or form of the compensation of executive officers or
directors.
The Compensation Committee retained Towers Perrin, a well-known
consulting firm specializing in executive compensation, as its
independent compensation consultant in November 2006 and
continued to use the firms services through 2009. The
firms 2007 report was used as the basis for determining
2008 executive compensation. In light of the developments that
occurred during 2008, most notably the receipt by the Company in
July 2008 of a not-approvable letter issued by the
U.S. Food and Drug Administration (the FDA)
with respect to our New Drug Application (the NDA)
for
Fanapttm,
the Compensation Committee decided in December 2008 not to
implement any significant changes to executive compensation for
2009, pending the outcome of the FDAs review of our
complete response to its not-approvable letter (the
Complete Response). In December 2009, Towers Perrin
presented a new executive compensation report to the
Compensation Committee. Towers Perrin provided the Compensation
Committee with data about the compensation paid by our peer
group of companies and other employers who compete with the
Company for executives, updated the Compensation Committee on
new developments in areas that fall within the Compensation
Committees jurisdiction and was available to advise the
Compensation Committee regarding all of its responsibilities.
The consultant serves at the pleasure of the Compensation
Committee rather than the Company, and the consultants
fees are approved by the Compensation Committee.
Compensation
Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has ever
been an officer or employee of the Company. No executive officer
of the Company serves as a member of the board of directors or
compensation committee of any other entity that has one or more
executive officers serving as a member of our Board of Directors
or our Compensation Committee.
Nominating/Corporate
Governance Committee
Our Nominating/Corporate Governance Committee identifies,
evaluates and recommends nominees to our Board of Directors and
committees of our Board of Directors, conducts searches for
appropriate directors, and evaluates the performance of our
Board of Directors and of individual directors. Our
Nominating/Corporate Governance Committee is also responsible
for reviewing developments in corporate governance practices,
evaluating the adequacy of our corporate governance practices
and reporting and making recommendations to the Board of
Directors concerning corporate governance matters. Our
Nominating/Corporate Governance Committee charter can be found
in the corporate governance section of our corporate website at
www.vandapharma.com. Three directors comprised the
Nominating/Corporate Governance Committee in 2009:
Dr. Halak (the Chairman of the Nominating/Governance
Committee), Dr. Karabelas and Mr. Watkins. The
Nominating/Corporate Governance Committee met three times during
2009. Effective upon the resignation of Dr. Halak as a
member of the Board of Directors and Nominating/Corporate
Governance Committee as of April 21, 2010, Mr. Dugan
was appointed to serve as the Chairman of the
Nominating/Corporate Governance Committee.
The Board of Directors has determined that all members of the
Nominating/Corporate Governance Committee are independent (as
independence is currently defined in the Nasdaq listing
standards).
The Nominating/Corporate Governance Committee believes that
candidates for director should have certain minimum
qualifications, including being able to read and understand
basic financial statements and having a general understanding of
the Companys industry. The Nominating/Corporate Governance
Committee also considers other factors it deems appropriate,
including, but not limited to:
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the candidates relevant expertise and experience upon
which to offer advice and guidance to management,
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the candidate having sufficient time to devote to the affairs of
the Company;
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the candidate having a proven track record in his or her field;
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the candidates ability to exercise sound business judgment;
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the candidates commitment to vigorously represent the
long-term interests of our stockholders;
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whether or not a conflict of interest exists between the
candidate and our business;
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whether the candidate would be considered independent under
applicable Nasdaq and SEC standards;
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the current composition of the Board of Directors; and
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the operating requirements of the Company.
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In conducting this assessment, the committee considers
diversity, age, skills, and such other factors as it deems
appropriate given the then-current needs of the Board of
Directors and the Company, to maintain a balance of knowledge,
experience and capability. While diversity and variety of
experiences and viewpoints represented on the Board of Directors
should always be considered, the Nominating/Corporate Governance
Committee believes that a director nominee should not be chosen
nor excluded solely or largely because of race, color, gender,
national origin or sexual orientation or identity.
In the case of incumbent directors whose terms of office are set
to expire, the Nominating/Corporate Governance Committee reviews
such directors overall service to the Company during their
term, including the number of meetings attended, level of
participation, quality of performance, and any other
relationships and transactions that might impair such
directors independence.
When there is a vacancy on the Board of Directors, the
Nominating/Corporate Governance committee uses its network of
contacts to compile a list of potential candidates, but may also
engage, if it deems it appropriate, a professional search firm.
The Nominating/Corporate Governance Committee conducts any
appropriate and necessary inquiries into the backgrounds and
qualifications of possible candidates after considering the
function and needs of the Board of Directors. The
Nominating/Corporate Governance Committee meets to discuss and
consider such candidates qualifications and then selects a
nominee for recommendation to the Board of Directors by majority
vote.
The Nominating/Corporate Governance Committee will consider
director candidates recommended by stockholders and evaluate
them using the same criteria as candidates identified by the
Board of Directors or the Nominating/Corporate Governance
Committee for consideration. If a stockholder of the Company
wishes to recommend a director candidate for consideration by
the Nominating/Corporate Governance Committee, the stockholder
recommendation should be delivered to the Secretary of the
Company at the principal executive offices of the Company
pursuant to the terms and conditions of our Bylaws. The
stockholder recommendation must, among other things, set forth
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for each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to
such person as would be required to be disclosed in
solicitations of proxies for the election of such nominees as
directors pursuant to Regulation 14A under the Exchange
Act, and such persons written consent to serve as a
director if elected;
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as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is
made (1) the name and address of such stockholder, as they
appear on the Companys books, and of such beneficial
owner, (2) the class and number of shares of the Company
that are owned beneficially and of record by such stockholder
and such beneficial owner and a representation that the
stockholder will notify the Company in writing of the class and
number of such shares owned beneficially and of record as of the
record date for the meeting promptly following the later of the
record date or the date notice of the record date is first
publicly disclosed, (3) whether either such stockholder or
beneficial owner intends to deliver a proxy statement and form
of proxy to holders of, in the case of a proposal, at least the
percentage of the Companys voting shares required under
applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the
Companys voting shares to elect such nominee or nominees
and (4) whether and the extent to which any derivative
instrument, swap, option, warrant, short interest, hedge or
profit interest or other transaction has been entered into by or
on behalf of such stockholder with respect to stock of the
Company and whether any other agreement, arrangement or
understanding (including any short position or any borrowing or
lending of shares of stock) has been made by or on behalf of
such stockholder, the effect or intent of any of the foregoing
being to mitigate loss to, or to manage risk of
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stock price changes for, such stockholder or to increase or
decrease the voting power or pecuniary or economic interest of
such stockholder with respect to stock of the Company;
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any option, warrant, convertible security, stock appreciation
right, or similar right with an exercise or conversion privilege
or a settlement payment or mechanism at a price related to any
class or series of shares of the Company or with a value derived
in whole or in part from the value of any class or series of
shares of the Company, whether or not such instrument or right
shall be subject to settlement in the underlying class or series
of capital stock of the Company or otherwise (a Derivative
Instrument) directly or indirectly owned beneficially by
such stockholder and any other direct or indirect opportunity to
profit or share in any profit derived from any increase or
decrease in the value of shares of the Company and a
representation that the stockholder will notify the Company in
writing of any such Derivative Instrument in effect as of the
record date for the meeting promptly following the later of the
record date or the date notice of the record date is first
publicly disclosed;
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a description of any agreement, arrangement or understanding
with respect to the proposal of business between or among such
stockholder and the beneficial owner, if any, on whose behalf
the proposal is made, any of their respective affiliates or
associates, and any others acting in concert with any of the
foregoing and a representation that the stockholder will notify
the Company in writing of any such agreements, arrangements or
understandings in effect as of the record date for the meeting
promptly following the later of the record date or the date
notice of the record date is first publicly disclosed;
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a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
propose such business; and
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any other information that is required to be provided by the
stockholder pursuant to Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder in such
stockholders capacity as a proponent of a stockholder
proposal.
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In addition, our Bylaws require that the stockholder
recommendation shall set forth as to each person whom the
stockholder proposes to nominate for election or reelection as a
director (1) the name, age, business address and residence
address of the person; (2) the principal occupation or
employment of the person; (3) the class, series and number
of shares of capital stock of the Company that are owned
beneficially and of record by the person; (4) a statement
as to the persons citizenship; (5) the completed and
signed representation and agreement described above;
(6) any other information relating to the person that is
required to be disclosed in solicitations for proxies for
election of directors pursuant to Section 14 of the
Exchange Act; (7) such persons written consent to
being named in the proxy statement as a nominee and to serving
as a director if elected; and (8) whether and the extent to
which any derivative instrument, swap, option, warrant, short
interest, hedge or profit interest or other transaction has been
entered into by or on behalf of such person with respect to
stock of the Company and whether any other agreement,
arrangement or understanding (including any short position or
any borrowing or lending of shares of stock) has been made by or
on behalf of such person, the effect or intent of any of the
foregoing being to mitigate loss to, or to manage risk of stock
price changes for, such person or to increase or decrease the
voting power or pecuniary or economic interest of such person
with respect to stock of the Company.
As described above, the Nominating/Corporate Governance
Committee has recommended the members of our Board of Directors
for their directorships. In evaluating such directors, our
Nominating/Corporate Governance Committee has reviewed the
experience, qualifications, attributes and skills identified in
the biographical information contained below under
Executive Officers and Directors. The
Nominating/Corporate Governance Committee believes that the
members of our Board of Directors offer insightful and creative
views and solutions with respect to issues facing the Company.
In addition, the Nominating/Corporate Governance Committee also
believes that the members of our Board of Directors function
well together as a group.
The Nominating/Corporate Governance Committee believes that the
above-mentioned attributes and qualifications, along with the
leadership skills and other experiences of the members of the
Board of Directors described in further detail below under the
section entitled Executive Officers and Directors,
provide the Company with the perspectives and judgment necessary
to guide the Companys strategies and monitor their
execution.
14
Separation
of CEO and Chairman Roles
Our Board of Directors separates the positions of Chairman of
the Board and Chief Executive Officer. Separating these
positions allows our Chief Executive Officer to focus on our
day-to-day
business, while allowing the Chairman of the Board to lead the
Board of Directors in its fundamental role of providing advice
to and independent oversight of management. The Board of
Directors recognizes the time, effort, and energy that the Chief
Executive Officer is required to devote to his position in the
current business environment, as well as the commitment required
to serve as our Chairman, particularly as the Board of
Directors oversight responsibilities continue to grow. We
believe that having separate positions and having an independent
outside director serve as Chairman is the appropriate leadership
structure for the Company at this time.
Meetings
of the Board of Directors
The Board of Directors met twenty-six times during 2009. Each
director attended 75% or more of the aggregate of the meetings
of the Board of Directors and of the committees on which he
served, held during the period for which he was a director or
committee member.
Stockholder
Communications with the Board of Directors
Stockholders may communicate with the Board of Directors by
sending a letter to the Secretary, Vanda Pharmaceuticals Inc.,
9605 Medical Center Drive, Suite 300, Rockville, Maryland
20850. Each such communication should set forth (1) the
name and address of such stockholder, as they appear on the
Companys books and, if the shares of the Companys
stock are held by a nominee, the name and address of the
beneficial owner of such shares, and (2) the number of
shares of the Companys stock that are owned of record by
such record holder and beneficially by such beneficial owner.
The Secretary will review all communications from stockholders,
but may, in her sole discretion, disregard any communication
that she believes is not related to the duties and
responsibilities of the Board of Directors. If deemed an
appropriate communication, the Secretary will submit a
stockholder communication to a chairman of a committee of the
Board of Directors, or a particular director, as appropriate.
Code of
Business Conduct and Ethics
The Company has adopted the Vanda Pharmaceuticals Inc. Code of
Business Conduct and Ethics that applies to all directors,
officers and employees. The Company has also adopted an
additional Code of Ethics for its Chief Executive Officer and
Senior Financial Officers. Both of these codes are available at
our website at www.vandapharma.com. If the Company makes any
substantive amendments to either of these codes or grants any
waiver from a provision of either code to any applicable
executive officer or director, the Company will promptly
disclose the nature of the amendment or waiver on its website.
Risk
Oversight
Our Board of Directors oversees the management of risks inherent
in the operation of our business and the implementation of our
business strategies. Our Board of Directors performs this
oversight role by using several different levels of review. In
connection with its reviews of the operations and corporate
functions of our Company, our Board of Directors provides
oversight to address the primary risks associated with those
operations and corporate functions. In addition, our Board of
Directors reviews the risks associated with the Companys
business strategies periodically throughout the year as part of
its consideration of undertaking any such business strategies.
Each committee of our Board of Directors also oversees the
management of the Companys risk that falls within the
committees areas of responsibility. In performing this
function, each committee has full access to management, as well
as the ability to engage advisors. Our Acting Chief Financial
Officer reports to the Audit Committee and is responsible for
identifying, evaluating and implementing risk management
controls and methodologies to address any identified risks. In
connection with its risk management role, our Audit Committee
meets privately with representatives from our independent
registered public accounting firm and our Acting Chief Financial
Officer.
15
The oversight of risk within the Company is an evolving process
requiring the Company to continually look for opportunities to
further embed systematic enterprise risk management into ongoing
business processes within the Company. The Board of Directors
encourages management to continue to drive this evolution.
As part of its oversight of the Companys executive
compensation program, the Compensation Committee considers the
impact of the Companys executive compensation program, and
the incentives created by the compensation awards that it
administers, on the Companys risk profile. In addition,
the Compensation Committee reviews all of its compensation
policies and procedures, including the incentives that they
create and factors that may reduce the likelihood of excessive
risk taking, to determine whether they present a significant
risk to the Company. The Compensation Committee determined that,
for all employees, the Companys compensation programs do
not encourage excessive risk and instead encourage behaviors
that support sustainable value creation.
Compensation
of Directors
On December 19, 2005, our Board of Directors adopted a
compensation program for outside directors. Pursuant to this
program, each member of our Board of Directors who is not our
employee receives a $25,000 annual fee as well as $2,500 for
each board meeting attended in person ($1,250 for meetings
attended by telephone). The Chairman of the Board of Directors
receives an additional annual fee of $10,000, and the chairman
of each committee of the Board of Directors receives an
additional annual fee of $2,000. Each director receives $1,000
for each meeting of any committee of the Board of Directors
attended in person or by telephone other than committee meetings
that are held concurrently with a board meeting.
Under the director compensation program adopted on
December 19, 2005, each member of our Board of Directors
who is not our employee and who is elected after
December 19, 2005 initially receives an option to purchase
35,000 shares of our Common Stock upon election, and each
member of our Board of Directors who is not our employee will
also receive, upon the conclusion of each annual meeting of our
stockholders, an option to purchase 15,000 shares of our
Common Stock. The stock option granted upon election vests and
becomes exercisable in equal monthly installments over a period
of four years from the date of the grant, except that in the
event of a change in control or a directors death or
disability, the option will accelerate and become immediately
exercisable. Each annual stock option vests and becomes
exercisable in equal monthly installments over a period of one
year from the date of grant, except that in the event of a
change in control or a directors death or disability, the
option will accelerate and become immediately exercisable. All
of these options have an exercise price equal to the fair market
value of our Common Stock on the date of the grant.
In November 2007, Towers Perrin reviewed our director
compensation program and did not recommend any changes to the
program. The Board has not made any changes to our director
compensation program since its adoption.
2009 Director
Compensation
The following table shows the compensation earned by each of our
non-officer directors for the year ended December 31, 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Fees earned or paid
|
|
|
|
|
|
|
|
Name
|
|
in cash ($)
|
|
|
Option awards ($)(1)
|
|
|
Total ($)
|
|
|
Argeris N. Karabelas, Ph.D. (Chairman)(2)
|
|
$
|
73,500
|
|
|
$
|
139,800
|
|
|
$
|
213,300
|
|
Richard W. Dugan
|
|
$
|
75,500
|
|
|
$
|
139,800
|
|
|
$
|
215,300
|
|
Brian K. Halak, Ph.D.(2)(3)
|
|
$
|
74,250
|
|
|
$
|
139,800
|
|
|
$
|
214,050
|
|
Howard H. Pien
|
|
$
|
55,500
|
|
|
$
|
139,800
|
|
|
$
|
195,300
|
|
David Ramsay(2)(4)
|
|
$
|
65,000
|
|
|
$
|
139,800
|
|
|
$
|
204,800
|
|
H. Thomas Watkins
|
|
$
|
55,750
|
|
|
$
|
139,800
|
|
|
$
|
195,550
|
|
|
|
|
(1) |
|
Reflects the aggregate grant date fair value of stock awards
granted during a year calculated in accordance with FASB ASC
Topic 718. For a discussion of valuation assumptions, see
Note 2 to our audited financial statements included in our
Annual Report on
Form 10-K
for the year ended December 31, 2009. |
16
|
|
|
(2) |
|
Fees earned by Dr. Karabelas, Dr. Halak and
Mr. Ramsay were paid to the management companies of the
venture capital funds affiliated with these directors. |
|
(3) |
|
Dr. Halak resigned as a member of the Board of Directors
effective as of April 21, 2010. |
|
(4) |
|
Mr. Ramsay resigned as a member of the Board of Directors
effective as of January 7, 2010. |
The following table describes the options that we granted to our
non-employee directors and that were outstanding as of
December 31, 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Aggregate
|
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|
|
|
|
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|
|
|
|
|
|
|
|
Number of
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|
|
|
|
Number of
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|
|
Exercise
|
|
|
Grant Date
|
|
|
Options
|
|
|
|
Date of
|
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Options
|
|
|
Price
|
|
|
Fair Value
|
|
|
Outstanding
|
|
Name
|
|
Grant
|
|
Granted
|
|
|
per Share
|
|
|
per share(1)
|
|
|
on 12/31/09
|
|
|
Argeris N. Karabelas, Ph.D.
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|
May 16, 2007
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|
|
15,000
|
|
|
$
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19.59
|
|
|
$
|
13.50
|
|
|
|
|
|
|
|
May 8, 2008
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|
|
15,000
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|
|
$
|
4.98
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
August 27, 2009
|
|
|
15,000
|
|
|
$
|
14.78
|
|
|
$
|
9.32
|
|
|
|
45,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Dugan
|
|
December 28, 2005
|
|
|
10,574
|
|
|
$
|
4.7329
|
|
|
$
|
14.23
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
15,000
|
|
|
$
|
19.59
|
|
|
$
|
13.50
|
|
|
|
|
|
|
|
May 8, 2008
|
|
|
15,000
|
|
|
$
|
4.98
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
August 27, 2009
|
|
|
15,000
|
|
|
$
|
14.78
|
|
|
$
|
9.32
|
|
|
|
55,574
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian K. Halak, Ph.D.(4)
|
|
May 16, 2007
|
|
|
15,000
|
|
|
$
|
19.59
|
|
|
$
|
13.50
|
|
|
|
|
|
|
|
May 8, 2008
|
|
|
15,000
|
|
|
$
|
4.98
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
August 27, 2009
|
|
|
15,000
|
|
|
$
|
14.78
|
|
|
$
|
9.32
|
|
|
|
45,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard H. Pien
|
|
December 5, 2006
|
|
|
2,500
|
|
|
$
|
15.35
|
|
|
$
|
14.57
|
|
|
|
|
|
|
|
June 5, 2007
|
|
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35,000
|
|
|
$
|
21.39
|
|
|
$
|
14.57
|
|
|
|
|
|
|
|
May 8, 2008
|
|
|
15,000
|
|
|
$
|
4.98
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
August 27, 2009
|
|
|
15,000
|
|
|
$
|
14.78
|
|
|
$
|
9.32
|
|
|
|
67,500
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(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Ramsay(7)
|
|
May 16, 2007
|
|
|
15,000
|
|
|
$
|
19.59
|
|
|
$
|
13.50
|
|
|
|
|
|
|
|
May 8, 2008
|
|
|
15,000
|
|
|
$
|
4.98
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
August 27, 2009
|
|
|
15,000
|
|
|
$
|
14.78
|
|
|
$
|
9.32
|
|
|
|
45,000
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. Thomas Watkins
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|
September 8, 2006
|
|
|
35,000
|
|
|
$
|
9.40
|
|
|
$
|
6.08
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
15,000
|
|
|
$
|
19.59
|
|
|
$
|
13.50
|
|
|
|
|
|
|
|
May 8, 2008
|
|
|
15,000
|
|
|
$
|
4.98
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
August 27, 2009
|
|
|
15,000
|
|
|
$
|
14.78
|
|
|
$
|
9.32
|
|
|
|
80,000
|
(9)
|
|
|
|
(1) |
|
This column reflects the grant date fair value for options
awarded to each director during the year ended December 31,
2009 and outstanding as of December 31, 2009, calculated in
accordance with stock-based compensation accounting rules (FASB
ASC Topic 718). See the note to our consolidated financial
statements under the caption Accounting for stock-based
compensation included in our annual report on
Form 10-K
for a discussion of assumptions made by the Company in
determining the grant date fair value and compensation costs of
our equity awards. |
|
(2) |
|
34,999 options were vested as of December 31, 2009. |
|
(3) |
|
45,573 options were vested as of December 31, 2009. |
|
(4) |
|
Dr. Halak resigned from the Board of Directors effective as
of April 21, 2010. |
|
(5) |
|
34,999 options were vested as of December 31, 2009. |
|
(6) |
|
43,747 options were vested as of December 31, 2009. |
|
(7) |
|
Mr. Ramsay resigned from the Board of Directors effective
as of January 7, 2010. |
|
(8) |
|
34,999 options were vested as of December 31, 2009. |
|
(9) |
|
63,436 options were vested as of December 31, 2009. |
17
PROPOSAL 2
APPROVAL OF THE MATERIAL TERMS OF THE VANDA PHARMACEUTICALS
INC. 2006
EQUITY INCENTIVE PLAN
We are asking stockholders to approve the material terms of the
Vanda Pharmaceuticals Inc. 2006 Equity Incentive Plan, as
amended (the Incentive Plan), as adopted in
connection with our initial public offering in 2006 and as
amended in certain respects since then, solely to satisfy a
requirement of Federal tax law that enhances our ability to
deduct compensation deemed paid to certain of our executive
officers in connection with awards granted under the Incentive
Plan.
Under the Federal tax laws, a publicly-held company such as
Vanda will not be allowed a federal income tax deduction for
compensation paid to certain executive officers to the extent
that the compensation exceeds $1 million per officer in any
year. An exception to this loss deduction rule is available for
compensation that qualifies as performance-based
compensation under these tax laws. Among the conditions
imposed on performance-based compensation is the requirement
that such compensation be paid under a plan of which certain of
its terms have received approval by the public companys
stockholders. To continue our ability to grant equity awards
that qualify as performance-based compensation and preserve our
ability to deduct compensation amounts with respect to certain
awards granted under the Incentive Plan to our executive
officers, we are asking our stockholders to approve the material
terms of the Incentive Plan. Our stockholders previously
approved the Incentive Plan in March 2006. Since that date, our
Board has approved an amendment to the Incentive Plan that adds
two additional categories of performance goals that may be
applied to performance-based awards granted under the Incentive
Plan. The complete list of all such performance goals is set
forth below under Performance-Based
Compensation. See also Section 162(m)
Considerations below for additional details about
these Federal tax laws.
Approval of this Proposal 2 will constitute approval of
this revised list of performance goals, the annual share
limitations under the Incentive Plan for purposes of
Section 162(m) under the Code and the other material terms
of the Incentive Plan.
If our stockholders do not approve this Proposal 2, we will
not have obtained the approval necessary to fully deduct
compensation amounts that may be paid in connection with certain
plan awards granted under the Incentive Plan to certain of our
executive officers.
We established the Incentive Plan in April 2006 to provide a
means whereby the Company could operate an executive
compensation program following our initial public offering. This
enables us to provide eligible individuals with an opportunity
to acquire shares of our Common Stock and to benefit from
increases in value of our Common Stock. We believe that equity
awards under the Incentive Plan play an important role in our
efforts to attract, employ and retain employees, directors and
consultants.
The materials terms and provisions of the Incentive Plan are
summarized below. The summary, however, is not intended to be a
complete description of all the terms of the Incentive Plan.
This summary is qualified in its entirety by reference to the
complete text of the Incentive Plan. A copy of the Incentive
Plan has been filed with our Proxy Statement, as filed with the
SEC, and is available through the SEC website at www.sec.gov. A
copy of the Incentive Plan will also be provided to any
stockholder upon written request to: Corporate Secretary at 9605
Medical Center Drive, Suite 300, Rockville, Maryland 20850.
To the extent there is a conflict between this summary and the
Incentive Plan, the terms of the Incentive Plan will govern.
Share Reserve. We have reserved
5,619,924 shares of our Common Stock for issuance under the
Incentive Plan. As of April 16, 2010,
3,195,497 shares were subject to outstanding options
having a weighted average exercise price equal to $16.05 per
share, 248,250 shares were subject to outstanding
restricted stock units (RSUs), 830,971 shares
have been issued upon exercise or settlement of awards granted
under the Incentive Plan, and 1,345,206 shares remain
available for grant. These share numbers, as well as the annual
limits on the number of shares that may be granted subject to
each type of plan award, the number of shares subject to
outstanding awards and the exercise price that applies to
outstanding awards will be proportionately adjusted in the event
we experience a stock split, stock dividend or certain other
types of corporate transactions. In addition, the Compensation
Committee has the authority in the event of certain
extraordinary dividends, spin-offs and other corporate events to
adjust one or more of these features as it determines
appropriate in its discretion.
18
On January 1 of each year over the term of the Incentive Plan,
the number of shares reserved under the Incentive Plan
automatically increases by 4% of the total number of shares of
Common Stock that are outstanding at that time, or, if less, by
1,500,000 shares (or such lesser number as may be approved
by the Companys Board of Directors). As of January 1,
2010, the number of shares of Common Stock that may be issued
under the Incentive Plan was automatically increased by
1,102,535 shares, representing 4% of the total number of
shares of Common Stock outstanding on January 1, 2010,
increasing the total number of shares of Common Stock available
for issuance under the Incentive Plan to 5,619,924 shares.
If a stock award granted under the Incentive Plan expires or
otherwise terminates without being exercised in full, the shares
of our Common Stock not acquired pursuant to the stock award
again become available for subsequent issuance under the
Incentive Plan. In addition, shares not delivered under an award
as a result of a net exercise provision or otherwise and shares
repurchased by the Company upon forfeiture of the shares, shall
again become available for issuance under the Incentive Plan.
Administration. The Compensation Committee of
our Board of Directors administers the Incentive Plan. The
Compensation Committee has complete discretion to make all
decisions relating to the interpretation and operation of the
Incentive Plan, including the discretion to determine who will
receive an award, what type of award it will be, how many shares
will be covered by the award, what the vesting requirements will
be, if any, and what the other features and conditions of each
award will be. The Compensation Committee has the ability to
reprice outstanding options and stock appreciation rights
(SARs) without first obtaining stockholder approval,
and modify outstanding awards with the consent of any adversely
affected option holder.
Eligibility. The following groups of
individuals are eligible to participate in the Incentive Plan:
|
|
|
|
|
employees
|
|
|
|
members of our Board of Directors who are not employees
|
|
|
|
consultants
|
The Compensation Committee determines which eligible persons
will be granted awards under the Incentive Plan.
Types of Awards. The Incentive Plan provides
for the following types of awards:
|
|
|
|
|
options to purchase shares of our Common Stock
|
|
|
|
SARs
|
|
|
|
restricted shares of our Common Stock (restricted
stock)
|
|
|
|
RSUs
|
Stock Options. Both incentive stock options
and nonstatutory stock options are available for grant under the
Incentive Plan. An optionee who exercises an incentive stock
option may qualify for favorable tax treatment under
section 422 of the Code. On the other hand, nonstatutory
stock options do not qualify for such favorable tax treatment.
Since our initial public offering in 2006, only nonstatutory
stock options have been granted under the Incentive Plan. The
exercise price of options granted under the Incentive Plan may
not be less than 100% of the fair market value of our Common
Stock on the grant date. Optionees may pay the exercise price by
using:
|
|
|
|
|
cash
|
|
|
|
shares of Common Stock that the optionee already owns
|
|
|
|
an immediate sale of the option shares through a broker
designated by us
|
|
|
|
other forms of payment approved by the Compensation Committee
|
Options granted under the Incentive Plan are subject to the
terms and conditions of option agreements approved by the
Compensation Committee. They vest at the time or times, and upon
such conditions, as determined by the Compensation Committee. In
most cases, our options, other than annual grants to our
non-employee directors, vest over the four-year period following
the date of grant, subject to continued service by the optionee
during that period. Options generally expire 10 years after
they are granted, except that they generally expire earlier
19
if the optionees service terminates earlier. The Incentive
Plan provides that no participant may receive options covering
more than 500,000 shares in the same year, except that a
newly hired employee may receive options covering up to
1,000,000 shares in the first year of employment.
Stock Appreciation Rights. A SAR allows a
recipient to benefit from increases in the value of our Common
Stock, but does not provide any ownership interest in our Common
Stock. SARs are granted pursuant to SAR agreements adopted by
the Compensation Committee. The Compensation Committee
determines the strike price of each SAR, which can not be less
than 100% of the fair market value of our Common Stock on the
date of grant. Upon exercise of a SAR, we will pay the
participant an amount equal to the product of (a) the
excess of the per share fair market value of our Common Stock on
the date of exercise over the strike price, multiplied by
(b) the number of shares of our Common Stock with respect
to which the SAR is exercised. This amount may be paid in cash,
shares of our Common Stock, or any combination thereof. Each SAR
may or may not be subject to vesting, and vesting, if any, shall
occur upon satisfaction of the conditions specified by the
Compensation Committee. SARs generally expire 10 years
after they are granted, except that they generally expire
earlier if the recipients service terminates earlier. SARs
vest at the time or times determined by the Compensation
Committee. To date, the Company has not granted SARs under the
Incentive Plan.
The Incentive Plan provides that no participant may receive SARs
covering more than 500,000 shares in the same year, except
that a newly hired employee may receive SARs covering up to
1,000,000 shares in the first year of employment. The
Incentive Plan also provides for automatic annual option grants
to members of our Board of Directors who are not our employees.
See Corporate Governance Compensation of
Directors.
Restricted Stock. Restricted stock awards are
granted pursuant to restricted stock agreements adopted by the
Compensation Committee which include provisions regarding the
number of shares the participant may be issued, the purchase
price, if any, and the restrictions to which the shares will be
subject. Awards of restricted stock may be granted in
consideration for (a) cash, (b) property,
(c) past or future services rendered to us or our
affiliates, or (d) any other form of legal consideration
approved by the Compensation Committee. The issued shares may
either be immediately vested upon issuance or subject to a
vesting schedule tied to length of service or attainment of
performance goals. Upon termination of the participants
service, the shares issued pursuant to a restricted stock award
may be subject to forfeiture to, or repurchase by, the Company.
The Incentive Plan provides that no participant may receive more
than 500,000 restricted shares that are subject to
performance-based vesting conditions in a single fiscal year of
the Company.
RSUs. RSU awards represent the right to
receive the value of shares of our Common Stock at a specified
date in the future. RSU awards are granted pursuant to RSU
agreements approved by the Compensation Committee. Upon
settlement, the shares, their cash equivalent, or any
combination thereof are delivered to the recipient. No cash
consideration is required in connection with a RSU award. Each
award of RSUs may or may not be subject to vesting tied to
length of service or attainment of performance goals and may be
settled immediately upon vesting or on a deferred basis. In no
event shall more than 500,000 RSUs that are subject to
performance-based vesting conditions be granted to any
participant in a single fiscal year of the Company. Dividend
equivalents may be credited in respect of shares covered by a
RSU award.
Performance-Based Compensation. The Incentive
Plan is designed to allow the Compensation Committee to issue
restricted stock and RSUs that qualify as
performance-based compensation within the meaning of
Section 162(m) of the Code, if certain conditions are met.
Accordingly, the Compensation Committee may structure restricted
stock and RSUs so that they are only granted or vest upon the
attainment of certain pre-established objective performance
goals. The performance goals that may be used by the
Compensation Committee for awards of restricted stock or RSUs
consist of: (a) operating profits (including EBITDA);
(b) net profits; (c) earnings per share;
(d) profit returns and margins; (e) revenues;
(f) stockholder return
and/or
value; (g) stock price; (h) working capital;
(i) regulatory achievements (including submitting or filing
applications or other documents with regulatory authorities or
receiving approval of any such applications or other documents
and passing pre-approval inspections (whether of the Company or
the Companys third-party manufacturer) and validation of
manufacturing processes (whether of the Company or the
Companys third-party manufacturer)); and (j) clinical
achievements (including initiating clinical studies, initiating
enrollment, completing enrollment or enrolling particular
numbers of subjects in clinical studies, completing phases of a
clinical study (including the
20
treatment phase), or announcing or presenting preliminary or
final data from clinical studies in each case, whether on
particular timelines or generally). The Board recently amended
the Incentive Plan to add, subject to approval of this
Proposal 2, the last two goals set forth above. Performance
goals may be measured solely on a corporate, subsidiary or
business unit basis, or a combination thereof.
Performance criteria may reflect absolute entity performance or
a relative comparison of entity performance to the performance
of a peer group of entities or other external measure of the
selected performance criteria. Profit, earnings and revenues
used for any performance goal may exclude: (a) gains or
losses on operating asset sales or dispositions; (b) asset
write-downs; (c) litigation or claim judgments or
settlements; (d) accruals for historic environmental
obligations; (e) effect of changes in tax law or rate on
deferred tax liabilities; (f) accruals for reorganization
and restructuring programs; (g) uninsured catastrophic
property losses; (h) the cumulative effect of changes in
accounting principles; and (i) any extraordinary and
unusual items in Accounting Standards Codification
No. 225-20
and/or in
managements discussion and analysis of financial
performance appearing in the Companys annual report to
stockholders for the applicable year.
Corporate Transactions. In the event that the
Company is a party to a merger or reorganization, outstanding
awards will be subject to the agreement of such transaction.
Such agreements will provide for one or more of the following
(a) continuation of the outstanding awards by the Company,
if the Company is a surviving corporation; (b) the
assumption of the outstanding awards by the surviving
corporation; (c) the substitution by the surviving
corporation of its own awards for the outstanding awards;
(d) full vesting and exercisability followed by
cancellation of the outstanding awards; or (e) settlement
of the full value of the outstanding awards in cash, cash
equivalents, or securities of the surviving corporation followed
by cancellation of such awards.
Amendments or Termination. Our Board of
Directors may amend or terminate the Incentive Plan at any time.
If our Board of Directors were to amend the Incentive Plan, it
would not need to ask for stockholder approval of the amendment
unless applicable law or Nasdaq rules require such approval. The
Incentive Plan will automatically terminate on April 12,
2016.
Federal
Income Tax Consequences of Awards Granted under the Incentive
Plan
The following is a general summary as of the date of this Proxy
Statement of the U.S. Federal income tax consequences to
participants and the Company with respect to stock awards
granted under the Incentive Plan. This summary does not address
state, local or foreign tax treatment, which may vary from the
U.S. Federal income tax treatment. In any event, each
participant should consult his or her own tax advisor as to the
tax consequences of particular transactions under the Incentive
Plan.
Incentive Stock Options. No taxable income is
recognized by an optionee upon the grant of an incentive stock
option as described in Section 422(b) of the Code (ISO),
and no taxable income is recognized at the time an ISO is
exercised unless the optionee is subject to the alternative
minimum tax. The excess of the fair market value of the
purchased shares on the exercise date over the exercise price
paid for the shares is includable in alternative minimum taxable
income.
If the optionee holds the purchased shares for more than one
year after the date the ISO was exercised and more than two
years after the ISO was granted (the required ISO holding
periods), then the optionee will generally recognize
long-term capital gain or loss upon disposition of such shares.
The gain or loss will equal the difference between the amount
realized upon the disposition of the shares and the exercise
price paid for such shares. If the optionee disposes of the
purchased shares before satisfying either of the required ISO
holding periods, then the optionee will recognize ordinary
income equal to the fair market value of the shares on the date
the ISO was exercised over the exercise price paid for the
shares (or, if less, the amount realized on a sale of such
shares). Any additional gain will be a capital gain and will be
treated as short-term or long-term capital gain depending on how
long the shares were held by the optionee.
Nonstatutory Stock Options. No taxable income
is recognized by an optionee upon the grant of a stock option
not described in Sections 422 or 423 of the Code (NSO). The
optionee will generally recognize ordinary income in the year in
which the option is exercised equal to the excess of the fair
market value of the purchased shares on the exercise date over
the exercise price paid for the shares. If the optionee is an
employee or former employee, the
21
optionee will be required to satisfy the tax withholding
requirements applicable to such income. Upon resale of the
purchased shares, any subsequent appreciation or depreciation in
the value of the shares will be treated as short-term or
long-term capital gain depending on how long the shares were
held by the optionee.
Restricted Stock. A participant who receives
an award of restricted stock does not generally recognize
taxable income at the time of the award. Instead, the
participant recognizes ordinary income when the shares vest,
subject to withholding if the participant is an employee or
former employee. The amount of taxable income is equal to the
fair market value of the shares on the vesting date(s) less the
cash, if any, paid for the shares. A participant may make a
one-time election to recognize income at the time the
participant receives restricted stock in an amount equal to the
fair market value of the restricted stock (less any cash paid
for the shares) on the date of the award by making an election
under Section 83(b) of the Code.
RSUs. In general, no taxable income results
upon the grant of an RSU. The recipient will generally recognize
ordinary income (subject to withholding if the recipient is an
employee or former employee) equal to the fair market value of
the shares that are delivered to the recipient upon settlement
of the RSU award.
Stock Appreciation Rights. In general, no
taxable income results upon the grant of a SAR. A participant
will generally recognize ordinary income in the year of exercise
equal to the value of the shares or other consideration
received. In the case of a current or former employee, this
amount is subject to withholding.
Section 409A. The foregoing description
assumes that Section 409A of the Code does not apply to an
award. In general, options and SARs are exempt from
Section 409A if the exercise price per share is at least
equal to the fair market value per share of our Common Stock at
the time the option or SAR was granted. RSUs are subject to
Section 409A unless they are settled within two and one
half months after the end of the later of (i) the end of
our fiscal year in which vesting occurs or (ii) the end of
the calendar year in which vesting occurs. Restricted stock
awards are not generally subject to Section 409A. If an
award is subject to Section 409A and the provisions for the
exercise or settlement of that award do not comply with
Section 409A, then the participant would be required to
recognize ordinary income whenever a portion of the award vested
(regardless of whether it had been exercised or settled). This
amount would also be subject to a 20% federal tax in addition
to the federal income tax at the participants usual
marginal rate for ordinary income.
Tax Treatment of Vanda. The Company will
generally be entitled to an income tax deduction at the time and
to the extent a participant recognizes ordinary income as a
result of an award granted under the Incentive Plan. As
described herein, Section 162(m) of the Code may limit the
deductibility of awards granted under the Incentive Plan.
Section 162(m)
Considerations. Section 162(m) of the Code
generally disallows a tax deduction to public companies for
compensation in excess of $1 million paid to a
companys chief executive officer and three other highest
compensated executive officers (other than the chief financial
officer under current rules). Stock options and SARs are exempt
from this limitation if (a) the exercise price is at least
100% of the fair market value of the underlying stock on the
date the option or SAR is granted and (b) the plan under
which the options are granted is approved by the stockholders
and contains a limit on the number of options or SARs granted to
any one individual under the plan during a specified period.
Various other rules apply with regard to compensation committee
independence and the procedures that must be followed by the
committee in connection with performance-based awards that may
be fully deducted under Section 162(m). Other stock awards,
such as restricted stock and RSUs, must vest only upon the
achievement of objective performance goals established in
writing by the Compensation Committee while the outcome is
substantially uncertain, the material terms of which have been
approved by the stockholders, in order to qualify as
performance-based compensation and be exempt from this
limitation, as well as be granted under a plan and by a
compensation committee that complies with these rules. The
Incentive Plan includes certain annual limits, as described
above, on the number of shares that may be granted to an
individual under options, SARs, restricted stock, and RSU awards
in order to comply with the Section 162(m) requirements. As
described above, the Incentive Plan permits the grant of stock
performance awards based on several different performance
criteria. The approval sought by this Proposal 2 is to
continue qualification of the Incentive Plan as a plan under
which
Section 162(m)-qualified
performance-based compensation awards may be granted. The
Compensation Committee reserves the right to grant awards under
the Incentive Plan that do not qualify as performance-based
compensation.
22
New Plan
Benefits and Option Grant Table
Except as described above under Corporate
Governance Compensation of Directors, future
awards to our directors, executive officers, employees and other
eligible participants under the Incentive Plan are discretionary
and therefore are not determinable at this time. Further, since
automatic awards to our non-employee directors depend on the
non-employee directors continued service and the Board of
Directors discretion to vary the type and terms of those
awards, it is not possible to determine the exact number of
shares that will be subject to such awards. However, on the date
of the annual meeting, each person then continuing to serve as a
non-employee director will receive an option to purchase
15,000 shares of our Common Stock with an exercise price
equal to the fair market value of our Common Stock on that date.
The table below shows the number of shares of Common Stock for
which options, restricted stock and RSUs have been granted under
the Incentive Plan from its inception through April 16,
2010, as to each of the executive officers named in the Summary
Compensation Table contained in this Proxy Statement in the
section entitled Executive Compensation, each
nominee for election as a director and the various indicated
groups. To date, only stock options, restricted stock and RSUs
have been granted under the Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Number of Option
|
|
|
Shares of
|
|
|
Number of RSU
|
|
Name and Position
|
|
Shares
|
|
|
Restricted Stock
|
|
|
Awards
|
|
|
Mihael H. Polymeropoulos, M.D.,
President and Chief Executive Officer
|
|
|
1,175,000
|
|
|
|
0
|
|
|
|
225,000
|
|
Stephanie R. Irish
Acting Chief Financial Officer and Treasurer(1)
|
|
|
220,810
|
|
|
|
0
|
|
|
|
70,000
|
|
William D. Chip Clark
Senior Vice President, Chief Business Officer and Secretary(2)
|
|
|
515,000
|
|
|
|
0
|
|
|
|
80,000
|
|
John J. Feeney III, M.D.
Acting Chief Medical Officer(3)
|
|
|
201,250
|
|
|
|
0
|
|
|
|
70,000
|
|
Steven A. Shallcross
former Senior Vice President, Chief Financial Officer and
Treasurer(4)
|
|
|
215,000
|
|
|
|
0
|
|
|
|
0
|
|
Paolo Baroldi, M.D., Ph.D.
former Senior Vice President and Chief Medical Officer(5)
|
|
|
290,427
|
|
|
|
0
|
|
|
|
0
|
|
All current executive officers as a group(6)
|
|
|
1,597,060
|
|
|
|
0
|
|
|
|
365,000
|
|
Howard Pien
Director
|
|
|
67,500
|
|
|
|
0
|
|
|
|
0
|
|
H. Thomas Watkins
Director
|
|
|
80,000
|
|
|
|
0
|
|
|
|
0
|
|
All current directors who are not executive officers as a
group(7)
|
|
|
282,500
|
|
|
|
0
|
|
|
|
0
|
|
All current employees, including current officers who are not
executive officers, as a group
|
|
|
1,017,202
|
|
|
|
0
|
|
|
|
363,750
|
|
|
|
|
(1) |
|
As of March 26, 2010, Ms. Irish is serving as Acting
Chief Financial Officer, Secretary and Treasurer. |
|
(2) |
|
Mr. Clark resigned as an officer and employee of the
Company as of March 26, 2010. |
|
(3) |
|
As of March 26, 2010, Dr. Feeney is serving as Chief
Medical Officer. |
|
(4) |
|
Mr. Shallcross employment with the Company terminated
on January 9, 2009. |
|
(5) |
|
Dr. Baroldis employment with the Company terminated
on January 9, 2009. |
|
(6) |
|
Excludes options and RSUs granted to Steven A. Shallcross, Paolo
Baroldi, M.D., Ph.D. and William D. Chip
Clark. |
23
|
|
|
(7) |
|
Includes options granted to Richard Dugan, Argeris
Karebelas, Ph.D., Howard Pien and H. Thomas Watkins.
Includes options to purchase 45,000 shares granted to Brian
Halak, Ph.D., who resigned from the Board of Directors
effective as of April 21, 2010. Excludes an option to
purchase 35,000 shares granted to Vincent Milano upon his
election to the Board of Directors as of April 21, 2010. |
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table provides certain information regarding our
equity compensation plans in effect as of April 16, 2010:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Issuance Under Equity
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,175,349
|
(1)
|
|
$
|
13.43
|
(2)
|
|
|
1,345,206
|
(3)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,175,349
|
(1)
|
|
$
|
13.43
|
(2)
|
|
|
1,345,206
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 3,927,099 shares issuable upon exercise of
outstanding options and 248,250 shares issuable upon
settlement of RSUs under the 2006 Equity Incentive Plan and
Second Amended and Restated Management Equity Plan. |
|
(2) |
|
Does not take into account RSUs, which have no exercise price. |
|
(3) |
|
On January 1 of each year, the number of shares reserved under
the Incentive Plan is automatically increased by 4% of the total
number of shares of Common Stock that are outstanding at that
time, or, if less, by 1,500,000 shares (or such lesser
number as may be approved by the Companys Board of
Directors). |
The Board
Of Directors Recommends
A
FOR
Vote In Favor Of Proposal 2.
24
PROPOSAL 3
RATIFICATION
OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee of our Board of Directors has selected
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as our independent auditors for the year ending
December 31, 2010, and has further directed that management
submit the selection of independent auditors for ratification by
the stockholders at the Annual Meeting. PricewaterhouseCoopers
LLP has audited our financial statements and has attested to the
effectiveness of our internal control over financial reporting
since we commenced operations in March 2003. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to
appropriate questions.
Neither our Bylaws nor other governing documents or laws require
stockholder ratification of the selection of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm. However, the Audit Committee of the Board of
Directors is submitting the selection of PricewaterhouseCoopers
LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the
selection, the Audit Committee of the Board of Directors will
reconsider whether or not to retain PricewaterhouseCoopers LLP.
Even if the selection is ratified, the Audit Committee of our
Board of Directors in its discretion may direct the appointment
of different independent auditors at any time during the year if
it determines that such a change would be in the best interests
of the Company and our stockholders.
In order for Proposal 3 to pass, holders of a majority of
all those outstanding shares present in person, or represented
by proxy, and cast either affirmatively or negatively at the
Annual Meeting must vote FOR Proposal 3.
Abstentions and broker non-votes will be counted towards a
quorum, however, they will not be counted either
FOR or AGAINST the
proposal and will have no effect on the proposal. Because the
ratification of the appointment of the independent registered
public accounting firm is a matter on which a broker or other
nominee is generally empowered to vote, no broker non-votes are
expected to exist in connection with this matter.
Independent
Registered Public Accounting Firms Fees
The following table represents aggregate fees billed to the
Company for the years ended December 31, 2009, and
December 31, 2008, by PricewaterhouseCoopers LLP, our
principal accountant.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit fees(1)
|
|
$
|
281,371
|
|
|
$
|
384,112
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
Tax fees(2)
|
|
|
85,364
|
|
|
|
55,133
|
|
All other fees(3)
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
369,735
|
|
|
$
|
442,245
|
|
|
|
|
(1) |
|
The fees billed or incurred by PricewaterhouseCoopers LLP for
professional services rendered in connection with the annual
audit of our consolidated financial statements and the
effectiveness of internal control over financial reporting for
the years ending December 31, 2009 and 2008 include the
review of quarterly financial statements included in our
quarterly reports on
Form 10-Q
and the review and consent issued for the
Form S-8. |
|
(2) |
|
Tax fees for 2009 include $47,590 for an analysis of our net
operating loss limitations under Section 382 of the Code,
$20,000 for the preparation of federal and state tax returns and
$17,774 other tax matters. Tax fees for 2008 include $39,265 for
an analysis of our net operating loss limitations under
Section 382 of the Code, $13,500 for the preparation of
federal and state tax returns and $2,368 other tax matters. |
|
(3) |
|
All other fees of $3,000 include the subscription fee for two
users for access to PricewaterhouseCoopers Comperio (an
on-line tool for authoritative financial reporting and assurance
literature). |
All fees described above were pre-approved by the Audit
Committee in accordance with the requirements of
Regulation S-X
under the Exchange Act.
25
Pre-Approval
Policies and Procedures
The Audit Committees policy is to pre-approve all audit
and permissible non-audit services rendered by
PricewaterhouseCoopers LLP, our independent registered public
accounting firm. The Audit Committee can pre-approve specified
services in defined categories of audit services, audit-related
services and tax services up to specified amounts, as part of
the Audit Committees approval of the scope of the
engagement of PricewaterhouseCoopers LLP or on an individual
case-by-case
basis before PricewaterhouseCoopers LLP is engaged to provide a
service. The Audit Committee has determined that the rendering
of tax-related services by PricewaterhouseCoopers LLP is
compatible with maintaining the principal accountants
independence for audit purposes. PricewaterhouseCoopers LLP has
not been engaged to perform any non-audit services other than
tax-related services.
YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
YOU VOTE THE PROXY CARD FOR PROPOSAL 3
26
REPORT OF
THE AUDIT
COMMITTEE1
The Audit Committee of the Board of Directors consisted in 2009
of the three non-employee directors named below. The Board of
Directors annually reviews the Nasdaq listing standards
definition of independence for Audit Committee members
(including the requirements of Exchange Act
Rule 10A-3)
and has determined that each member of the Audit Committee meets
that standard. Mr. Dugan serves as an audit committee
financial expert in accordance with applicable SEC regulations.
The principal purpose of the Audit Committee is to assist the
Board of Directors in its general oversight of our accounting
and financial reporting processes and audits of our consolidated
financial statements. The Audit Committee is responsible for
selecting and engaging our independent auditor and approving the
audit and non-audit services to be provided by the independent
auditor. The Audit Committees function is more fully
described in its charter, which the Board of Directors has
adopted and which the Audit Committee reviews and approves on an
annual basis.
Our management is responsible for preparing our consolidated
financial statements and our financial reporting process.
PricewaterhouseCoopers LLP, our independent registered public
accounting firm, is responsible for performing an independent
integrated audit of our consolidated financial statements and
expressing an opinion on the conformity of those consolidated
financial statements with accounting principles generally
accepted in the United States and attesting to the effectiveness
of our internal control over financial reporting.
The Audit Committee has reviewed and discussed with our
management the audited consolidated financial statements of the
Company and Managements Report on Internal Control
over Financial Reporting in Item 9A included in our
Annual Report on
Form 10-K
for the year ended December 31, 2009 (the
10-K).
The Audit Committee has also reviewed and discussed with
PricewaterhouseCoopers LLP the audited consolidated financial
statements in the
10-K,
including the report issued by PricewaterhouseCoopers LLP on the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2009. In addition,
the Audit Committee discussed with PricewaterhouseCoopers LLP
those matters required to be discussed by Statement on Auditing
Standards No. 61, as amended. Additionally,
PricewaterhouseCoopers LLP provided to the Audit Committee the
written disclosures and the letter required by PCAOB
rule 3526 Communication with Audit Committees
concerning independence as adopted by the Public Company
Accounting Oversight Board. The Audit Committee also discussed
with PricewaterhouseCoopers LLP its independence from the
Company.
Based upon the review and discussions described above, the Audit
Committee recommended to the Board of Directors that the audited
consolidated financial statements be included in the
Companys Annual Report on
Form 10-K
for year ended December 31, 2009 for filing with the United
States Securities and Exchange Commission. We have selected
PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm for the year ended
December 31, 2010, and have approved submitting the
selection of the independent registered public accounting firm
for ratification by the stockholders.
Submitted by the following members of the Audit Committee:
Richard W. Dugan, Chairman
Brian K.
Halak, Ph.D.2
Howard H. Pien
1 The
material in this report is not soliciting material,
is not deemed filed with the SEC and is not to be
incorporated by reference in any filing of Vanda under the
Securities Act of 1933 or the Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
2 Dr. Halak
resigned as a member of the Board of Directors and the Audit
Committee as of April 21, 2010. Effective upon
Dr. Halaks resignation, Vincent J. Milano was elected
to the Board of Directors and appointed to serve as a member of
the Audit Committee.
27
EXECUTIVE
OFFICERS AND DIRECTORS
The names of the executive officers and directors of Vanda and
certain information about each of them as of April 16,
2010, are set forth below:
Mihael H. Polymeropoulos, M.D., age 50, has
served as President, Chief Executive Officer and a Director of
Vanda since May of 2003. Prior to joining Vanda,
Dr. Polymeropoulos was Vice President and Head of the
Pharmacogenetics Department at Novartis AG from 1998 to 2003.
Prior to his tenure at Novartis, he served as Chief of the Gene
Mapping Section, Laboratory of Genetic Disease Research,
National Human Genome Research Institute, from 1992 to 1998.
Dr. Polymeropoulos is the co-founder of the Integrated
Molecular Analysis of Genome Expression (IMAGE) Consortium.
Dr. Polymeropoulos holds a degree in Medicine from the
University of Patras. We believe that
Dr. Polymeropoulos qualifications to sit on our Board
of Directors include his executive experience at Novartis, his
expertise in the fields of psychology and pharmacogenetics, his
extensive knowledge of central nervous system disorders and his
long history with the Company.
John J. Feeney III, M.D., age 55, has served as
Vandas Senior Medical Officer since November of 2007 and
served as Vandas Acting Chief Medical Officer since
January of 2009. In March of 2010, Dr. Feeney was appointed
as our Chief Medical Officer. Prior to joining Vanda,
Dr. Feeney was the Acting Deputy Director in the Division
of Neurology Products at the FDA. During his 16 years at
the FDA, Dr. Feeney served in various roles, including
Medical Officer in the Division of Neuropharmacological Drug
Products and Neurology Team Leader. Prior to joining the FDA,
Dr. Feeney practiced general neurology in both military and
civilian settings. Dr. Feeney holds a B.S. in biology from
the University of California at San Diego and an M.D. from
Georgetown Medical School. Dr. Feeney is board certified in
neurology.
Stephanie R. Irish, age 39, has served as
Vandas Acting Chief Financial Officer and Treasurer since
January of 2009 and served as Vandas Controller since
February of 2005. In March of 2010, Ms. Irish was appointed
as our Secretary. Prior to joining Vanda, Ms. Irish was
Controller at Avalon Pharmaceuticals, Inc. from 2000 to February
2005. Ms. Irish was the Chicago Cluster Controller for
Marriott International, Senior Living Services Division from
1999 to 2000. From 1995 to 1999, Ms. Irish held several
accounting positions at The Institute for Genomic Research. From
1993 to 1995, Ms. Irish was an auditor at Beers &
Cutler, Certified Public Accountants. Ms. Irish holds a
B.S. in accounting from the University of Maryland and is
licensed in Maryland as a certified public accountant.
Argeris N. Karabelas, Ph.D., age 57, has served
as a Director and Chairman of the Board since 2003, when he
co-founded Vanda with Dr. Polymeropoulos.
Dr. Karabelas has served as a Partner of Care Capital, LLC
since 2001. Prior to his tenure at Care Capital,
Dr. Karabelas was the Founder and Chairman of the Novartis
BioVenture Fund, from July 2000 to December 2001. From 1998 to
2000, he served as Head of Healthcare and CEO of Worldwide
Pharmaceuticals for Novartis. Prior to joining Novartis,
Dr. Karabelas was Executive Vice President of SmithKline
Beecham (now part of GlaxoSmithKline) responsible for
U.S. operations, European operations, Regulatory, and
Strategic Marketing, from 1981 to 1998. In addition to the
public directorships held by Dr. Karabelas as set forth
below, he is a director of Inotek Pharmaceuticals Corporation
and Chairman of Cyreniac, Inc. Dr. Karabelas holds a Ph.D.
in Pharmacokinetics from the Massachusetts College of Pharmacy.
We believe that Dr. Karabelas qualifications to sit
on our Board of Directors include his experience as a venture
capitalist investing in and advising pharmaceutical companies,
his executive experience in the pharmaceutical business, his
knowledge of regulatory matters, his long history with the
Company and his experience on other public company boards.
Public directorships held by Dr. Karabelas within the
past five years: Skye Pharma, plc, Human Genome Sciences,
Inc. (Chairman), NitroMed, Inc. and Minster, plc.
Richard W. Dugan, age 68, has served as a Director
of Vanda since December of 2005. From 1976 to September 2002,
Mr. Dugan served as a Partner with Ernst & Young,
LLP, where he served in a variety of managing and senior partner
positions, including Mid-Atlantic Area Senior Partner from 2001
to 2002, Mid-Atlantic Area Managing Partner from 1989 to 2001
and Pittsburgh Office Managing Partner from 1979 to 1989.
Mr. Dugan retired from Ernst & Young, LLP in
September 2002. Mr. Dugan holds a B.S.B.A. from
Pennsylvania State University. We believe that
Mr. Dugans qualifications to sit on our Board of
Directors include his more than 25 years as a Partner
28
with Ernst & Young, LLP, his long history with the
Company, his status as a financial expert under The
Sarbanes-Oxley Act of 2002 and his experience on other public
company boards.
Public directorships held by Mr. Dugan within the past
five years: Middlebrook Pharmaceuticals, Inc. (formerly
known as Advancis Pharmaceutical Corporation) and Critical
Therapeutics, Inc.
Vincent J. Milano, age 46, has served as a Director
of Vanda since April 2010. Mr. Milano has served as
President and Chief Executive Officer of ViroPharma Incorporated
since March 2008. Mr. Milano served as Chief Operating
Officer from January 2006 to March 2008, and as Vice President,
Chief Financial Officer of ViroPharma from November 1997 to
March 2008. Mr. Milano also previously served as Vice
President, Finance & Administration, Treasurer, and as
Executive Director, Finance & Administration of
ViroPharma. Prior to joining ViroPharma, Mr. Milano was
with KPMG LLP, independent certified public accountants, where
he was a Senior Manager from 1991 to 1996. Mr. Milano
received his Bachelor of Science degree in Accounting from Rider
College. We believe that Mr. Milanos qualifications
to sit on our Board of Directors include his executive
experience in the pharmaceutical business, his knowledge of
finance and accounting, and his experience on other public
company boards.
Public directorships held by Mr. Milano within the past
five years: ViroPharma Incorporated, VerticalNet, Inc.
Howard H. Pien, age 52, has served as a Director of
Vanda since June 2007. Mr. Pien served as President and
Chief Executive Officer and a Director of Medarex, Inc from June
2007 until it was acquired by Bristol-Myers Squibb Co. in
September, 2009. Prior to his tenure at Medarex, Mr. Pien
served as President and Chief Executive Officer of Chiron
Corporation until April 2006 when it was acquired by Novartis.
He joined Chiron from GlaxoSmithKline (formerly SmithKline
Beecham), where he served as President, Pharmaceuticals for
SmithKline Beecham and later as President of
GlaxoSmithKlines International Pharmaceuticals business.
Mr. Pien has also held positions in sales, market research,
licensing and product management at Abbott Laboratories and
Merck & Co. Mr. Pien earned a B.S. from the
Massachusetts Institute of Technology and an M.B.A. from
Carnegie-Mellon University. We believe that Mr. Piens
qualifications to sit on our Board of Directors include his
executive experience in the pharmaceutical business, his
knowledge of product licensing and management, his business
degree and his experience on other public company boards.
Public directorships held by Mr. Pien within the past
five years: Chiron Corporation, Medarex, ViroPharma
Incorporated and ImmunoGen, Inc.
H. Thomas Watkins, age 57, has served as a
Director of Vanda since September 2006. Mr. Watkins has
served as the President and Chief Executive Officer of Human
Genome Sciences, Inc. and as a member of its board of directors
since 2005. Prior to his tenure at Human Genome Sciences Inc.,
Mr. Watkins served as President of TAP Pharmaceutical
Products, Inc. Mr. Watkins previously held a series of
executive positions over the course of nearly twenty years with
Abbott Laboratories. Mr. Watkins also serves on the Board
of Directors of the Biotechnology Industry Organization (BIO).
He holds a B.B.A. from the College of William and Mary and an
M.B.A from the University of Chicago Graduate School of
Business. We believe that Mr. Watkins qualifications
to sit on our Board of Directors include his executive
experience in the pharmaceutical business, his experience with
late-stage product development, his knowledge of in-licensing
and other partnering strategies, his business degree and his
experience on other public company boards.
Public directorships held by Mr. Watkins within the past
five years: Human Genome Sciences, Inc.
29
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us
regarding beneficial ownership of our Common Stock as of
April 16, 2010, by:
|
|
|
|
|
each person known by us to be the beneficial owner of more than
5% of any class of our voting securities;
|
|
|
|
our named executive officers;
|
|
|
|
each of our directors; and
|
|
|
|
all current executive officers and directors as a group.
|
Unless otherwise indicated, to our knowledge, each stockholder
possesses sole voting and investment power over the shares
listed, except for shares owned jointly with that persons
spouse. The table below is based upon information supplied by
officers, directors and principal stockholders and Schedules
13Gs and 13Ds filed with the SEC through April 16, 2010.
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Except as noted by footnote, and
subject to community property laws where applicable, the persons
named in the table below have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially
owned by them.
Percentage of shares beneficially owned is based on
27,879,548 shares of Common Stock outstanding as of
April 16, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Number of shares
|
|
|
shares beneficially
|
|
Name and address of beneficial owner(1)
|
|
beneficially owned
|
|
|
owned
|
|
|
5% Stockholders (other than our executive officers and
directors)
|
|
|
|
|
|
|
|
|
BlackRock, Inc.(2)
40 East
52nd
Street
New York, NY 10022
|
|
|
2,571,395
|
|
|
|
9.22
|
%
|
TIAA CREF Investment Management, LLC(3)
730 Third Avenue
New York, NY
10017-3206
|
|
|
1,876,533
|
|
|
|
6.73
|
%
|
Wells Fargo and Company(4)
420 Montgomery Street
San Francisco, CA 94104
|
|
|
1,806,425
|
|
|
|
6.48
|
%
|
Kevin C. Tang(5)
Tang Capital Management, LLC
Tang Capital Partners, L.P.
4401 Eastgate Mall
San Diego, CA 92121
|
|
|
1,702,852
|
|
|
|
6.11
|
%
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
Mihael H. Polymeropoulos, M.D.(6)
|
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|
1,762,587
|
|
|
|
6.32
|
%
|
William D. Chip Clark(7)
|
|
|
485,894
|
|
|
|
1.74
|
%
|
Stephanie R. Irish(8)
|
|
|
78,962
|
|
|
|
*
|
|
H. Thomas Watkins(9)
|
|
|
74,061
|
|
|
|
*
|
|
Howard H. Pien(10)
|
|
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54,685
|
|
|
|
*
|
|
Richard W. Dugan(11)
|
|
|
51,823
|
|
|
|
*
|
|
Argeris N. Karabelas, Ph.D.(12)
|
|
|
41,249
|
|
|
|
*
|
|
John J. Feeney III(13)
|
|
|
36,744
|
|
|
|
*
|
|
Steven A. Shallcross(14)
|
|
|
|
|
|
|
*
|
|
Paolo Baroldi, M.D., Ph.D.(15)
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|
|
|
|
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*
|
|
All current directors and executive officers as a group
(8 persons) (16)
|
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2,100,111
|
|
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7.53
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%
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|
|
|
* |
|
Represents beneficial ownership of less than one percent of our
outstanding Common Stock. |
30
|
|
|
(1) |
|
Unless otherwise indicated, the address for each beneficial
owner is
c/o Vanda
Pharmaceuticals Inc., 9605 Medical Center Drive,
Suite 300, Rockville, Maryland 20850. |
|
(2) |
|
Based on Schedule 13G/A filed on April 9, 2010 by
BlackRock, Inc., this represents 2,571,395 shares held of
record by BlackRock, Inc., including such shares held by
BlackRock, Inc. subsidiaries BlackRock Advisors, LLC, BlackRock
Japan Co. Limited, BlackRock Capital Management, Inc., BlackRock
Fund Advisors, BlackRock Institutional Trust Company,
N.A., BlackRock Investment Management, LLC and State Street
Research & Management Co. |
|
(3) |
|
Based on Schedule 13G/A filed on April 9, 2010 by TIAA
CREF Investment Management, LLC, this amount. TIAA-CREF
Investment Management, LLC (Investment Management)
is the investment adviser to the College Retirement Equities
Fund (CREF), a registered investment company, and
may be deemed to be a beneficial owner of 1,876,533 shares
of Issuers common stock owned by CREF. Teachers Advisors,
Inc. (Advisors) is the investment adviser to three
registered investment companies, TIAA-CREF Funds
(Funds), TIAA-CREF Life Funds (Life
Funds), and TIAA Separate Account VA-1 (VA-1),
as well as the TIAA-CREF Asset Management Commingled Funds
Trust I (TCAM Funds), and may be deemed to be a
beneficial owner of 997,766 shares of Issuers common
stock owned separately by Funds, Life Funds, VA-1 and TCAM
Funds. Each of Investment Management and Advisors expressly
disclaims beneficial ownership of the others securities
holdings and each disclaims that it is a member of a
group with the other. |
|
(4) |
|
Based on Schedule 13G filed on January 20, 2010 by
Wells Fargo and Company, this amount represents
1,806,425 shares beneficially owned by Wells Fargo and
Company and includes and is filed on behalf of the following
subsidiaries of Wells Fargo and Company: Wells Capital
Management Incorporated, Evergreen Investment Management
Company, LLC, Wells Fargo Bank, N.A., Wachovia Bank, National
Association and Wells Fargo Funds Management, LLC. |
|
(5) |
|
Based on Schedule 13G/A filed on March 8, 2010 by Tang
Capital Partners, L.P., this amount represents
1,620,552 shares held of record by Tang Capital Partners,
L.P. and 82,300 shares over which Kevin C. Tang has voting
and/or dispositive power. Voting and/or dispositive decisions
with respect to the shares held by Tang Capital Partners L.P.
are made by Kevin C. Tang, the manager of its general partner,
Tang Capital Management, LLC. Kevin C. Tang disclaims beneficial
ownership of all shares reported herein except to the extent of
his pecuniary interest therein, the amount of which cannot
currently be determined. |
|
(6) |
|
Includes 1,282,587 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes
526,561 shares subject to options that are not exercisable
within 60 days of April 16, 2010 and 75,000 RSUs that
shall not vest within 60 days of April 16, 2010. |
|
(7) |
|
Includes 317,615 shares subject to options exercisable as
of March 26, 2010, which may be exercised on or before
June 26, 2010. Mr. Clark resigned as an officer and
employee of the Company as of March 26, 2010. |
|
(8) |
|
Includes 76,713 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes
154,295 shares subject to options that are not exercisable
within 60 days of April 16, 2010 and 30,000 RSUs that
shall not vest within 60 days of April 16, 2010. |
|
(9) |
|
Includes 74,061 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes
5,939 shares subject to options that are not exercisable
within 60 days of April 16, 2010. |
|
(10) |
|
Includes 54,685 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes
12,815 shares subject to options that are not exercisable
within 60 days of April 16, 2010. |
|
(11) |
|
Includes 51,823 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes 3,751shares
subject to options that are not exercisable within 60 days
of April 16, 2010. |
|
(12) |
|
Includes 41,249 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes
3,751 shares subject to options that are not exercisable
within 60 days of April 16, 2010. |
|
(13) |
|
Includes 36,744 shares subject to options exercisable
within 60 days of April 16, 2010. Excludes
150,289 shares subject to options that are not exercisable
within 60 days of April 16, 2010 and 30,000 RSUs that
shall not vest within 60 days of April 16, 2010. |
31
|
|
|
(14) |
|
Mr. Shallcross employment with the Company terminated
on January 9, 2009. |
|
(15) |
|
Dr. Baroldis employment with the Company terminated
on January 9, 2009. |
|
(16) |
|
Includes 2,005,893 shares subject to options exercisable
within 60 days of April 16, 2010 held by our current
executive officers and directors. Excludes 729 shares
subject to options to be granted to Vincent J. Milano in
connection with his election to the Board of Directors effective
as of April 21, 2010 which will be exercisable within
60 days of April 16, 2010 and excludes
34,271 shares subject to options to be granted to Vincent
J. Milano in connection with his election to the Board of
Directors effective as of April 21, 2010 which are not
exercisable within 60 days of April 16, 2010. Excludes
1,103,548 shares subject to options that are not
exercisable within 60 days of April 16, 2010 and
165,000 RSUs that shall not vest within 60 days of
April 16, 2010. Excludes shares subject to options held by
Steven Shallcross, Paolo Baroldi and William D. Chip
Clark as a result of the termination of employment of
Mr. Shallcross and Dr. Baroldi on January 9, 2009
and the resignation of Mr. Clark as of March 26, 2010. |
32
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors,
executive officers, and certain holders of more than 10% of our
Common Stock to file reports regarding their ownership and
changes in ownership of our securities with the SEC, and to
furnish us with copies of all Section 16(a) reports that
they file.
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to us and written representations provided to
us by all of our directors and officers and certain of our
greater than 10% stockholders, we believe that during the year
ended December 31, 2009, our directors, executive officers,
and greater than 10% stockholders complied with all applicable
Section 16(a) filing requirements.
COMPENSATION
OF EXECUTIVE OFFICERS
Compensation
Discussion and Analysis
This section discusses the principles underlying our executive
compensation decisions related to fiscal year 2009 and the most
important factors relevant to an analysis of these decisions. It
provides qualitative information regarding the manner and
context in which compensation is awarded to and earned by our
executive officers and places in perspective the data presented
in the tables and other quantitative information that follows
this section. As a result of the constant evolution and highly
competitive nature of the biopharmaceutical industry, we have
designed a compensation program that is focused on attracting,
motivating and retaining the industry leaders and experts
necessary to achieve and implement our goal of establishing a
leading biopharmaceutical company focused on developing and
commercializing clinical-stage products for central nervous
system disorders.
Summary
Compensation for our executive officers during 2009 was largely
driven by our performance, particularly with respect to the
attainment of a number of significant regulatory and commercial
milestones. The first of these 2009 milestones was achieved
in May, when the FDA granted U.S. marketing approval of
Fanapttm,
our compound for the acute treatment of schizophrenia in adults.
This approval was of particular significance to the Company, in
that we had suspended our further development activities, as
well as non-essential business activities, and had been
operating under a reduced spending plan, following the
Companys receipt in July 2008 of a not-approvable letter
issue by the FDA with respect to our NDA for
Fanapttm.
We achieved the second of these milestones in October, with the
execution of an amended and restated sublicense agreement with
Novartis, which provided Novartis with exclusive
commercialization rights to all formulations of
Fanapttm
in the U.S. and Canada. In January 2010, Novartis launched
Fanapttm
in the U.S.
In addition to the factors and criteria set forth below, these
recent developments involving
Fanapttm
were considered by our Compensation Committee in determining the
compensation paid to our executive officers in 2009 and
evaluating the overall effectiveness of our compensation program
in attracting, motivating and retaining highly qualified and
experienced individuals. For example, although salaries remained
relatively constant in 2009 from their 2008 levels as we
continued to operate under a reduced spending plan pending the
outcome of the FDAs review of our Complete Response to the
FDAs not-approvable letter, following the FDAs
approval of
Fanapttm
in May 2009, the Compensation Committee granted equity awards to
our executive officers, as well as to all of our other
employees, both in recognition of the significant effort
required to achieve this critical milestone and to provide
incentives to achieve additional milestones, including the
completion of a commercial partnership for
Fanapttm.
In December 2009, following regulatory clearance under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 of our amended and restated
sublicense agreement with Novartis, the Compensation Committee
granted additional equity awards and paid 2009 annual incentive
cash bonuses to our executive officers and other employees both
in recognition of the significant effort involved in securing a
partner for the commercialization of
Fanapttm
in the U.S. and Canada and to incentivize them to support
the commercial launch of
Fanapttm
in the U.S. by Novartis, to pursue foreign regulatory
approvals and commercial partnerships for
Fanapttm
and to further the development of tasimelteon, our product for
the treatment of sleep and mood disorders, including Circadian
Rhythm Sleep Disorders.
33
Objectives
of Compensation Program
Our executive compensation program is designed to attract, as
needed, individuals with the skills necessary for us to achieve
our business plan, to reward those individuals fairly over time,
and to retain those individuals who continue to perform at or
above our expectations.
Compensation
Components
As is the case with most companies of our size in the
biopharmaceutical industry, our executive compensation program
has four primary components salary, a yearly cash
incentive bonus, stock awards and certain cash and equity award
vesting acceleration benefits in the event of an
executives involuntary termination without cause.
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Base Salary. We fix the base salary of each of
our executives at a level we believe enables us to hire and
retain individuals in a competitive environment and rewards
satisfactory individual performance and a satisfactory level of
contribution to our overall business goals. We also take into
account the base salaries paid by similarly situated companies
in the field of biotechnology and the base salaries of other
public companies with which we believe we compete for talent.
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Cash Incentive Bonus. We provide an annual
cash incentive bonus that is based upon the achievement of
performance goals established by our Compensation Committee.
This cash bonus program is designed to focus our executives on
achieving key clinical, regulatory, operational, strategic
and/or
financial objectives within a yearly time horizon, as described
in more detail below.
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Stock Options and Restricted Stock Units. We
use stock options and RSUs to reward long-term performance;
these options and RSUs are intended to produce significant value
for each executive if the Companys performance is
outstanding and if the executive has an extended tenure and
align executive pay with long-term stockholder interests.
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Termination-Related Benefits. We have entered
into agreements with each of our executives under which they are
provided with certain benefits in event their employment is
terminated without cause, including following a change in
control of the Company. We provide these benefits to help keep
members of our management focused on the Companys business
and strategic plan even when faced with the distraction of
potential employment termination or acquisition of the Company.
|
We view our four primary components of our executive
compensation as related but distinct. Although our Compensation
Committee does review total compensation, we do not believe that
significant compensation derived from one component of
compensation should negate or reduce compensation from other
components. We determine the appropriate level for each
compensation component based in part on our view of internal
equity and consistency, individual performance and other
information we deem relevant. We believe that, as is common in
the biotechnology sector, stock awards are the primary motivator
in attracting and retaining executives, and that salary and cash
incentive bonuses are secondary considerations. Except as
described below, our Compensation Committee has not adopted any
formal or informal policies or guidelines for allocating
compensation between long-term and currently paid out
compensation, between cash and non-cash compensation, or among
different forms of compensation. This is due to the small size
of our executive team and the need to tailor each
executives award to retain and motivate that executive.
In addition to the primary components of compensation described
above, we provide our executives with benefits that are
generally available to our salaried employees. These benefits
include health and medical benefits, flexible spending plans,
matching 401(k) contributions and group life and disability
insurance.
Compensation
Procedures
Our Compensation Committees current intent is to perform
annually a strategic review of our executive officers cash
compensation and share and option holdings to determine whether
they provide adequate incentives and motivation to our executive
officers and whether they adequately compensate our executive
officers relative to comparable officers in other companies. Our
Compensation Committees most recent review occurred in
December 2009. This review is described in more detail below.
Compensation Committee meetings typically have included,
34
for all or a portion of each meeting, not only the committee
members but also our President and Chief Executive Officer, our
Chief Business Officer and, from time to time, our Acting Chief
Financial Officer. The Compensation Committee also regularly
meets in executive session without any of our officers or other
employees present. For compensation decisions, including
decisions regarding the grant of equity compensation relating to
executive officers (other than our President and Chief Executive
Officer), the Compensation Committee typically considers the
recommendations of our President and Chief Executive Officer.
We do not have any program, plan or obligation that requires us
to grant equity compensation to any executive on specified
dates. The authority to make equity grants to executive officers
rests with our Compensation Committee, although, as noted above,
the Compensation Committee does consider the recommendations of
our President and Chief Executive Officer in setting the
compensation of our other executives, as well as the
recommendations of the other members of our Board of Directors.
Benchmarking
of Base Compensation and Equity Holding
In December 2008, as the Company continued to operate under a
reduced spending plan, our Compensation Committee determined not
to make any significant changes to the overall compensation of
our executive officers for 2009, pending the outcome of the
FDAs review of our Complete Response. Our 2009 executive
compensation was, therefore, originally determined with
reference to the executive compensation report prepared by
Towers Perrin and delivered to the Compensation Committee in
November 2007, which served as the basis for our determination
of 2008 executive compensation. At its November 2007 meeting,
the Compensation Committee determined that our executive
officers salaries, cash incentive bonuses and equity
holdings were at or near the median of executives with similar
roles at comparable companies and that no material changes
should be made to the compensation levels of our executive
officers at that time.
In December 2009, the Compensation Committee received a new
executive compensation report from Towers Perrin for the
purposes of reviewing our 2009 executive compensation relative
to comparable companies and establishing our 2010 executive
compensation. In identifying a peer group for us, Towers Perrin
considers such factors as stage of product development and
commercialization, market capitalization, revenue, cash balance,
product pipeline, employee headcount, strength of commercial
partnerships and competition for executive talent. In December
2009, Towers Perrin recommended that our current peer group
should consist of the following 16 companies:
|
|
|
Acorda Therapeutics, Inc.
|
|
Oncothyreon Inc.
|
Acura Pharmaceuticals, Inc.
|
|
Onyx Pharmaceuticals, Inc.
|
BioCryst Pharmaceuticals, Inc.
|
|
Progenics Pharmaceuticals, Inc.
|
Cubist Pharmaceuticals, Inc.
|
|
SciClone Pharmaceuticals, Inc.
|
Cypress Bioscience Inc.
|
|
Targacept, Inc.
|
Immunomedics, Inc.
|
|
Theravance, Inc.
|
InterMune, Inc.
|
|
ViroPharma Incorporated
|
Medivation, Inc.
|
|
XenoPort, Inc.
|
Of these companies, only Acorda, Cyprus, InterMune, Targacept
and XenoPort were also part of the 2007 peer group whose data
the Compensation Committee had previously considered. Towers
Perrin determined that this was the appropriate current peer
group for us due to a variety of factors, including the
significant developments that occurred during 2009, in
particular, the Companys transition from a
development-stage company to a company with an approved product,
a commercial partner and a strong cash position.
Following its review of the compensation data included in the
2009 peer group report, the Compensation Committee observed that
our executive officers total cash compensation (i.e.,
salary and cash incentive bonuses) was at or below the
25th percentile of executives with similar roles at the
peer group companies, a result largely due to the fact that the
Company did not pay any cash incentive bonuses in 2009 for 2008
performance, and that, with the exception of our Chief Business
Officer, the expected value of our executives equity
holdings were generally above the 75th percentile, partly
due to the RSU grants made in late 2008 that were subject to
performance vesting conditions tied to FDA approval of
Fanapttm.
The expected equity holdings of our Chief Business Officer was
near
35
the median of the peer group data. The peer group data indicated
that our executive officers total direct compensation was
at or near the 75th percentile, except in the case of our
Chief Business Officer, whose total direct compensation fell
between the 25th and 50th percentiles of the data.
While the Compensation Committee had not targeted these
particular results, it considered them to be generally
consistent with the Companys philosophy of conserving cash
pending achievement of significant product-related milestones
while providing long-term equity incentives with significant
upside potential.
As it makes decisions with respect to compensation for
individual executive officers and for the Companys
compensation programs in general, the Compensation Committee
relies upon the peer group data to understand where the
Companys compensation practices fall relative to its
competitors, to identify individual officers whose compensation
seems out of step with other Company officers or similar
officers at peer group companies, and as a way of staying
current with market practices. To date, the Compensation
Committee has not specifically benchmarked or targeted a
particular level of compensation with respect to total
compensation or to any individual component of compensation.
Base
Salary
Given the uncertainties of the economic climate and our
workforce reduction at the end of 2008, we did not increase the
salaries payable to our President and Chief Executive Officer,
Mihael H. Polymeropoulos, M.D., and our Senior Vice
President, Chief Business Officer and Secretary, William D.
Chip Clark, for the year ended December 31,
2009 from their 2008 levels. As a result, their base salaries
for 2009 remained at $442,000 and $312,000, respectively.
Following the workforce reduction, pursuant to which the
employment of each of our former Chief Medical Officer and Chief
Financial Officer was terminated, we promoted John J. Feeney
III, M.D. to the position of Acting Chief Medical Officer,
and Stephanie R. Irish to the position of Acting Chief Financial
Officer, increasing their base salaries to $270,000 and
$200,000, respectively, effective as of the execution of their
employment agreements in May 2009. In December 2009, in
consultation with Towers Perrin, the Compensation Committee
determined to increase by 3.5% to 4.0% the base salaries of our
executive officers for 2010, as a result of which,
Dr. Polymeropoulos salary increased to $460,000,
Mr. Clarks salary increased to $323,000,
Dr. Feeneys salary increased to $280,000 and
Ms. Irishs salary increased to $207,000. The
Compensation Committee chose to apply an increase percentage
that was slightly higher than a typical cost of living
adjustment because it concluded that allowing total cash
compensation to remain at a level at or below the
25th percentile of the peer group was not appropriate in
light of the milestones achieved during 2009.
Cash
Incentive Bonuses
The target levels of annual cash incentive bonuses for our
executives were initially established as part of their
respective individual employment agreements. For 2009, these
targets were set at 40% of base salary for our Chief Executive
Officer and 25% of base salary for our other named executive
officers. Each of these employment agreements provides that the
executive will receive a cash incentive bonus determined in the
discretion of our Board of Directors, with a target bonus amount
specified for that executive based on individualized objective
and subjective criteria. These criteria are established by the
Compensation Committee on an annual basis, and include specific
objectives relating to the achievement of clinical, regulatory,
business
and/or
financial milestones. For 2009, these criteria included FDA
approval of
Fanapttm,
preparing for the commercial launch of
Fanapttm
and the completion of one or more strategic partnerships.
At the end or following the conclusion of each fiscal year, the
Compensation Committee evaluates the performance of each of our
executives with respect to the attainment of their objectives to
determine the actual amount of their cash incentive bonuses.
Each executives target bonus amount is then multiplied by
a factor between 0 and 1.5, depending upon his or her level of
performance. For 2009 performance, given the significance of the
Companys accomplishments during the year, the Compensation
Committee applied the highest percentage available for each
officer and applied an additional multiplier of 2 to the
resulting bonus amounts. These multipliers were applied to each
of our non-executive employees as well. As a result, and as
further described in the Summary Compensation Table that follows
this Compensation Discussion and Analysis, in December 2009 our
Chief Executive Officer received a cash bonus equal to 120% of
his 2009 base salary, and our Chief Business Officer, our Acting
Chief Financial Officer and our Acting Chief Medical Officer
received cash bonuses equal to 60% of their respective 2009 base
salaries.
36
Also in December 2009 when it undertook its review of our
executive compensation arrangements, the Compensation Committee
decided to increase the target bonus percentage for each named
executive officer by 10% of their respective base salaries so
that for 2010 our Chief Executive Officers target bonus
percentage will be 50% of base salary and each of our other
named executive officers will have a target bonus percentage
equal to 35% of base salary. This decision, along with the
modest increases in base salary described above, was driven in
part by a desire to push total cash compensation above the
25th percentile for 2010.
Equity
Compensation
Since our initial public offering on April 12, 2006, we
have made option grants based on the closing market value of our
stock as reported on Nasdaq on the date of grant. To date, we
have granted additional equity compensation awards to executive
officers when the Compensation Committee determines it
appropriate to do so and do not have a practice of making
routine periodic award grants.
On December 16, 2008, the Compensation Committee granted
RSUs to certain of the Companys executives as set forth in
the table below. 50% of the these RSUs vested on May 6,
2009 following approval by the FDA of the NDA for
Fanapttm
and 50% vested on December 31, 2009. These RSUs were
granted to provide significant incentives for these executives
to continue the Companys pursuit of FDA approval for
Fanapttm
and to achieve additional Company milestones.
|
|
|
|
|
|
|
Total RSUs vested
|
|
|
|
during fiscal year
|
|
Name
|
|
December 31, 2009
|
|
|
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
|
|
|
150,000
|
|
Stephanie R. Irish
Acting Chief Financial Officer and Treasurer
|
|
|
40,000
|
|
William D. Chip Clark
Senior Vice President, Chief Business Officer and Secretary
|
|
|
50,000
|
|
John J. Feeney III, M.D.
Acting Chief Medical Officer
|
|
|
40,000
|
|
We made two rounds of equity award grants to our executive
officer during 2009, the value of which are reflected in the
2009 Grants of Plan-Based Awards table below. The
first of these grants, made on May 22, 2009, was of options
with an exercise price of $12.55, the closing price of the
Companys Common Stock on the grant date. Each option
becomes exercisable in equal monthly installments over four
years, as the executive completes each additional month of
continuous service with the Company after May 22, 2009.
These options were granted both in recognition of the
significant efforts required to achieve FDA approval for
Fanapttm
and to provide incentives for these executives to achieve
additional Company milestones, including, among other things,
completing a commercial partnership for
Fanapttm.
The number of shares subject to these options granted to each
named executive officer is set forth below:
|
|
|
|
|
|
|
Number of shares
|
|
|
|
underlying May 22,
|
|
Name
|
|
2009 option grant
|
|
|
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
|
|
|
250,000
|
|
Stephanie R. Irish
Acting Chief Financial Officer and Treasurer
|
|
|
95,000
|
|
William D. Chip Clark
Senior Vice President, Chief Business Officer and Secretary
|
|
|
75,000
|
|
John J. Feeney III, M.D.
Acting Chief Medical Officer
|
|
|
95,000
|
|
On December 17, 2009, the Compensation Committee granted
options to the Companys executives as set forth in the
table below. Each of these options had an exercise price of
$10.65, the closing price of the Companys Common Stock on
the grant date. Each option becomes exercisable in equal monthly
installments over four years, as the executive completes each
additional month of continuous service with the Company after
December 17,
37
2009. These options were granted both in recognition of the
significant effort involved in securing a partner for the
commercialization of
Fanapttm
in the U.S. and Canada and to provide incentives for these
executives to achieve additional Company milestones, including,
among other things, supporting the commercial launch of
Fanapttm
in the U.S. by Novartis, pursuing foreign regulatory
approvals and commercial partnerships for
Fanapttm
and the further the development of tasimelteon.
|
|
|
|
|
|
|
Number of shares
|
|
|
|
underlying
|
|
|
|
December 17, 2009
|
|
Name
|
|
option grant
|
|
|
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
|
|
|
175,000
|
|
Stephanie R. Irish
Acting Chief Financial Officer and Treasurer
|
|
|
70,000
|
|
William D. Chip Clark
Senior Vice President, Chief Business Officer and Secretary
|
|
|
70,000
|
|
John J. Feeney III, M.D.
Acting Chief Medical Officer
|
|
|
70,000
|
|
With respect to each round of options granted during the course
of 2009, the Compensation Committee determined the number of
option shares to grant based upon its conclusion in the judgment
of its members of the appropriate number of shares that were
commensurate with the level of corporate achievements in 2009,
the individual contributions made in connection with these
achievements and the level of additional long-term incentives
required to retain and motivate our executive team. The
Compensation Committee did not use the peer group data in any
particular way in reaching these determinations.
Severance
and Change in Control Benefits
Each of our executives has a provision in his or her employment
agreement with the Company providing for certain severance
benefits in the event of termination without cause, as well as a
provision that provides for the acceleration of his or her then
unvested options in the event of termination without cause
following a change in control of the Company. In addition,
Dr. Polymeropoulos is entitled to certain tax benefits upon
a change in control of the Company pursuant to a tax indemnity
agreement entered into in 2007. These severance and acceleration
provisions are described in the Employment
Agreements section below, and certain estimates of these
severance and change in control benefits are provided in
Estimated Payments and Benefits Upon
Termination below. No changes were made to these benefits
in 2009 with respect to Dr. Polymeropoulos and
Mr. Clark. Dr. Feeney and Ms. Irish were provided
with these benefits upon execution of their employment
agreements in May 2009.
Other
Benefits
Our executives are eligible to participate in all of our
employee benefit plans, such as medical, dental, vision, group
life and disability insurance and our 401(k) plan, in each case
on the same basis as our other employees. There were no special
benefits or perquisites provided to any executive officer in
2009. The Company provides matching contributions of up to 50%
to the first 6% contribution of each employees 401(k)
contribution per pay period.
Tax
and Accounting Matters
We account for the equity compensation expense for our employees
under FASB ASC Topic 718, which requires us to estimate and
record an expense for each award of equity compensation over the
service period of the award. Accounting rules also require us to
record cash compensation as an expense at the time the
obligation is accrued. Until we achieve sustained profitability,
the availability to us of a tax deduction for compensation
expense is not material to our financial position. We structure
cash incentive bonus compensation so that it is taxable to our
employees at the time it becomes available to them. In 2009 the
annual non-performance based compensation of
Dr. Polymeropoulos, our President and Chief Executive
Officer, exceeded $1 million and the amount exceeding
$1 million was not deductible by the Company. In addition
to the total cash compensation in the amount of $973,045
received by Dr. Polymeropoulos in 2009,
Dr. Polymeropoulos had income of $765,000 related to the
settlement of
38
RSUs granted to him 2008. Our option grants are designed to be
exempt from the $1 million limit. While the deductibility
of executive compensation by the Company is a factor considered
by the Compensation Committee in designing our compensation
programs and making individual compensation decisions, it is
only one of several factors that are considered and the
Compensation Committee reserves the right to award from time to
time compensation amounts that are or may not be fully
deductible. For further information on the Section 162(m)
requirements and considerations, see Proposal 2.
Recent
Developments
On December 17, 2009, the Compensation Committee approved
RSUs for the Companys executives as set forth in the table
below to be granted on January 1, 2010. Each RSU vests in
equal annual installments over four years beginning
January 1, 2011, provided that the executive remains
employed with us. These awards were granted to provide
significant incentives for these executives to achieve
additional Company milestones, including, among other things,
the further development of tasimelteon, supporting the
commercial launch of
Fanapttm
in the U.S. by Novartis and the pursuit of foreign
regulatory approvals for
Fanapttm.
|
|
|
|
|
|
|
Number of shares
|
|
|
|
underlying
|
|
|
|
January 1, 2010
|
|
|
|
Restricted
|
|
Name
|
|
Stock Units
|
|
|
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
|
|
|
75,000
|
|
Stephanie R. Irish
Acting Chief Financial Officer and Treasurer
|
|
|
30,000
|
|
William D. Chip Clark
Senior Vice President, Chief Business Officer and Secretary
|
|
|
30,000
|
|
John J. Feeney III, M.D.
Acting Chief Medical Officer
|
|
|
30,000
|
|
William D. Chip Clark resigned as the Companys
Senior Vice President, Chief Business Officer and Secretary,
effective as of March 26, 2010. Effective upon
Mr. Clarks resignation, Stephanie R. Irish was
appointed as Secretary of the Company. On March 24, 2010,
Dr. John J. Feeney IIIs title changed from Acting
Chief Medical Officer to Chief Medical Officer. No changes to
the compensation of Ms. Irish or Dr. Feeney resulted
from these events.
Policies
Regarding Recovery of Incentive Awards
Because the Company has only recently started to generate
revenue, the Compensation Committee has not yet considered
whether the Company would attempt to recover cash incentive
bonuses to the extent that they were paid based on our financial
performance and one or more measures of our financial
performance are subsequently restated in a downward direction.
Compensation
Committee
Report3
The Compensation Committee has reviewed and discussed the
foregoing Compensation Discussion and Analysis with management
and, based on such review and discussions, the Compensation
Committee has recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
Submitted by the following members of the Compensation Committee:
Argeris N. Karabelas, M.D. (Chairman)
Howard H. Pien
H. Thomas Watkins
3 The
material in this report is not soliciting material,
is not deemed filed with the SEC and is not to be
incorporated by reference in any filing of Vanda under the
Securities Act or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation
language in any such filing.
39
2009
Summary Compensation Table
The following table sets forth all of the compensation awarded
to, earned by, or paid to the Companys principal
executive officer, principal financial
officer, the two other highest paid executive officers and
two additional individuals whom but for the fact that such
individuals were not serving as our executive officers as of
December 31, 2009 would have been one of our three most
highly compensated executive officers (together, our named
executive officers) for the years ended December 31,
2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Non-equity
|
|
|
All other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
awards
|
|
|
awards
|
|
|
incentive plan
|
|
|
compensation
|
|
|
Total
|
|
Name and principal position
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(3)
|
|
|
($)(3)
|
|
|
compensation ($)(4)
|
|
|
($)
|
|
|
($)
|
|
|
Mihael H. Polymeropoulos, M.D.
|
|
|
2009
|
|
|
|
442,645
|
|
|
|
|
|
|
|
|
|
|
|
3,150,785
|
|
|
|
530,400
|
|
|
|
7,350
|
(10)
|
|
|
4,131,180
|
|
President and Chief Executive
|
|
|
2008
|
|
|
|
442,000
|
|
|
|
|
|
|
|
42,700
|
(2)
|
|
|
927,100
|
|
|
|
|
|
|
|
6,900
|
(10)
|
|
|
1,418,700
|
|
Officer
|
|
|
2007
|
|
|
|
420,978
|
|
|
|
|
|
|
|
|
|
|
|
10,598,050
|
|
|
|
135,000
|
|
|
|
6,750
|
(10)
|
|
|
11,160,778
|
|
Stephanie R. Irish(5)
|
|
|
2009
|
|
|
|
182,974
|
|
|
|
|
|
|
|
|
|
|
|
1,220,676
|
|
|
|
120,000
|
|
|
|
5,391
|
(10)
|
|
|
1,529,041
|
|
Acting Chief Financial
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer and Treasurer
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William D. Chip Clark(6)
|
|
|
2009
|
|
|
|
312,455
|
|
|
|
|
|
|
|
|
|
|
|
1,062,122
|
|
|
|
187,200
|
|
|
|
7,350
|
(10)
|
|
|
1,569,127
|
|
Senior Vice President, Chief
|
|
|
2008
|
|
|
|
312,000
|
|
|
|
|
|
|
|
14,250
|
(2)
|
|
|
445,008
|
|
|
|
|
|
|
|
6,900
|
(10)
|
|
|
778,158
|
|
Business Officer and Secretary
|
|
|
2007
|
|
|
|
294,728
|
|
|
|
|
|
|
|
|
|
|
|
5,299,025
|
|
|
|
70,000
|
|
|
|
10,311
|
(10)
|
|
|
5,674,064
|
|
John J. Feeney III, M.D.(7)
|
|
|
2009
|
|
|
|
250,714
|
|
|
|
|
|
|
|
|
|
|
|
1,220,676
|
|
|
|
162,000
|
|
|
|
7,350
|
(10)
|
|
|
1,640,740
|
|
Acting Chief Medical Officer
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven A. Shallcross(8)
|
|
|
2009
|
|
|
|
6,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,720
|
|
Former Senior Vice President,
|
|
|
2008
|
|
|
|
291,200
|
|
|
|
|
|
|
|
|
|
|
|
445,008
|
|
|
|
|
|
|
|
412,604
|
(11)
|
|
|
1,148,812
|
|
Chief Financial Officer and Treasurer
|
|
|
2007
|
|
|
|
277,500
|
|
|
|
|
|
|
|
|
|
|
|
2,013,630
|
|
|
|
70,000
|
|
|
|
6,750
|
(10)
|
|
|
2,367,880
|
|
Paolo Baroldi, M.D., Ph.D.(9)
|
|
|
2009
|
|
|
|
6,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,152
|
|
Former Senior Vice President
|
|
|
2008
|
|
|
|
320,000
|
|
|
|
|
|
|
|
|
|
|
|
463,550
|
|
|
|
|
|
|
|
436,396
|
(12)
|
|
|
1,219,946
|
|
and Chief Medical Officer
|
|
|
2007
|
|
|
|
277,500
|
|
|
|
|
|
|
|
|
|
|
|
1,428,727
|
|
|
|
72,000
|
|
|
|
7,063
|
(10)
|
|
|
1,785,290
|
|
|
|
|
(1) |
|
Performance-based bonuses are generally paid under our cash
incentive bonus program and reported as Non-Equity Incentive
Plan Compensation. Except as otherwise noted, amounts reported
as Bonus represent discretionary bonuses awarded by the
Compensation Committee in addition to any amounts earned under
the cash incentive bonus program. |
|
(2) |
|
Reflects the aggregate grant date fair value of stock awards
granted during a year calculated in accordance with FASB ASC
Topic 718. For a discussion of valuation assumptions, see
Note 2 to our audited financial statements included in our
Annual Report on
Form 10-K
for the year ended December 31, 2009. The restricted stock
units granted in 2008 had two components: a performance
condition pursuant to which 50% of the RSUs vested on
May 6, 2009 following approval by the FDA of the NDA for
Fanapttm,
and a service condition pursuant to which the remaining 50%
vested on December 31, 2009. The value disclosed in the
table above reflects the most probable condition of the award,
which was the service condition. The maximum value of the award
at the grant date assuming the highest level of performance was
$85,500 for Dr. Polymeropoulos and $28,500 for
Mr. Clark. The 2007 and 2008 award values were recalculated
from amounts shown in prior Proxy Statements to reflect their
grant date fair values, as required by SEC rules effective for
2010. |
|
(3) |
|
Reflects the aggregate grant date fair value of stock awards
granted during a year calculated in accordance with FASB ASC
Topic 718. For a discussion of valuation assumptions, see
Note 2 to our audited financial statements included in our
Annual Report on
Form 10-K
for the year ended December 31, 2009. The 2007 and 2008
award values were recalculated from amounts shown in prior Proxy
Statements to reflect their grant date fair values, as required
by SEC rules effective for 2010. |
|
(4) |
|
Represents bonuses paid under our cash incentive bonus program. |
|
(5) |
|
Ms. Irish was appointed the Acting Chief Financial Officer
and Treasurer on January 9, 2009 and as Secretary on
March 26, 2010. |
|
(6) |
|
Mr. Clark resigned as an officer and employee of the
Company as of March 26, 2010. |
|
(7) |
|
Dr. Feeney was appointed the Acting Chief Medical Officer
on January 9, 2009 and as Chief Medical Officer on
March 26, 2010. |
40
|
|
|
(8) |
|
Mr. Shallcross employment with the Company terminated
on January 9, 2009. |
|
(9) |
|
Dr. Baroldis employment with the Company terminated
on January 9, 2009. |
|
(10) |
|
Includes contributions made by the Company to match
executives respective 401(k) plan contributions. |
|
(11) |
|
Includes $6,900 in 401(k) matching contributions made by the
Company and $405,704 paid or accrued on account of severance
benefits payable pursuant to an Employment Agreement between
Mr. Shallcross and the Company in connection with the
termination of his employment. |
|
(12) |
|
Includes $6,900 in 401(k) matching contributions made by the
Company and $429,496 paid or accrued on account of severance
benefits payable pursuant to an Employment Agreement between
Dr. Baroldi and the Company in connection with the
termination of his employment. |
2009
Grants of Plan-Based Awards
The following table sets forth each plan-based award granted to
the Companys named executive officers during the year
ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
option awards:
|
|
|
|
|
|
Grant date
|
|
|
|
|
|
|
stock awards:
|
|
|
number of
|
|
|
Exercise or
|
|
|
fair value of
|
|
|
|
|
|
|
number of
|
|
|
securities
|
|
|
base price
|
|
|
stock and
|
|
|
|
Grant
|
|
|
shares of
|
|
|
underlying
|
|
|
of option
|
|
|
option
|
|
Name
|
|
date
|
|
|
stock (#)
|
|
|
options (#)
|
|
|
awards ($/Sh)
|
|
|
awards ($)(1)
|
|
|
Mihael H. Polymeropoulos, M.D.
|
|
|
5/22/09
|
|
|
|
|
|
|
|
250,000
|
|
|
$
|
12.55
|
|
|
|
1,981,925
|
|
|
|
|
12/17/09
|
|
|
|
|
|
|
|
175,000
|
|
|
$
|
10.65
|
|
|
|
1,168,860
|
|
Stephanie R. Irish
|
|
|
5/22/09
|
|
|
|
|
|
|
|
95,000
|
|
|
$
|
12.55
|
|
|
|
753,132
|
|
|
|
|
12/17/09
|
|
|
|
|
|
|
|
70,000
|
|
|
$
|
10.65
|
|
|
|
467,544
|
|
William D. Chip Clark(2)
|
|
|
5/22/09
|
|
|
|
|
|
|
|
75,000
|
|
|
$
|
12.55
|
|
|
|
594,578
|
|
|
|
|
12/17/09
|
|
|
|
|
|
|
|
70,000
|
|
|
$
|
10.65
|
|
|
|
467,544
|
|
John J. Feeney III, M.D.
|
|
|
5/22/09
|
|
|
|
|
|
|
|
95,000
|
|
|
$
|
12.55
|
|
|
|
753,132
|
|
|
|
|
12/17/09
|
|
|
|
|
|
|
|
70,000
|
|
|
$
|
10.65
|
|
|
|
467,544
|
|
Steven A. Shallcross(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paolo Baroldi, M.D., Ph.D.(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the fair value of each stock option or restricted
stock grant as of the date it was granted, in accordance with
FASB ASC Topic 718 and using a Black-Scholes-Merton valuation
model. |
|
(2) |
|
Mr. Clark resigned as an officer and employee of the
Company as of March 26, 2010. |
|
(3) |
|
Mr. Shallcross employment with the Company terminated
on January 9, 2009. |
|
(4) |
|
Dr. Baroldis employment with the Company terminated
on January 9, 2009. |
Description
of Certain Awards Granted in 2009
On May 22, 2009, we granted an option to Dr. Mihael
Polymeropoulos to purchase a total of 250,000 shares of our
Common Stock. The option vests with respect to 5,208 shares
each month after May 22, 2009, that Dr. Polymeropoulos
remains employed with us.
On May 22, 2009, we granted an option to Ms. Stephanie
Irish to purchase a total of 95,000 shares of our Common
Stock. The option vests with respect to 1,979 shares each
month after May 22, 2009, that Ms. Irish remains
employed with us.
On May 22, 2009, we granted an option to Mr. William
Chip Clark to purchase a total of 75,000 shares
of our Common Stock. The option vested with respect to
1,562 shares each month after May 22, 2009, that
Mr. Clark remained employed with us. Mr. Clark
resigned as an officer and employee of the Company as of
March 26, 2010. This option will expire on June 26,
2010.
41
On May 22, 2009, we granted an option to Dr. John
Feeney III to purchase a total of 95,000 shares of our
Common Stock. The option vests with respect to 1,979 shares
each month after May 22, 2009, that Dr. Feeney remains
employed with us.
On December 17, 2009, we granted an option to
Dr. Mihael Polymeropoulos to purchase a total of
175,000 shares of our Common Stock. The option vests with
respect to 3,646 shares each month after December 17,
2009, that Dr. Polymeropoulos remains employed with us. On
the same date, we approved an RSU award for
Dr. Polymeropoulos, to be granted on January 1, 2010,
representing 75,000 shares of our Common Stock. The RSUs
vest in four equal annual installments beginning on
January 1, 2011, provided that Dr. Polymeropoulos
remains employed with us.
On December 17, 2009, we granted an option to
Ms. Stephanie Irish to purchase a total of
70,000 shares of our Common Stock. The option vests with
respect to 1,458 shares each month after December 17,
2009, that Ms. Irish remains employed with us. On the same
date, we approved an RSU award for Ms. Irish, to be granted
on January 1, 2010, representing 30,000 shares of our
Common Stock. The RSUs vest in four equal annual installments
beginning on January 1, 2011, provided that Ms. Irish
remains employed with us.
On December 17, 2009, we granted an option to
Mr. William Chip Clark to purchase a total of
70,000 shares of our Common Stock. The option vested with
respect to 1,458 shares each month after December 17,
2009, that Mr. Clark remained employed with us. On the same
date, we approved an RSU award for Mr. Clark, to be granted
on January 1, 2010, representing 30,000 shares of our
Common Stock. The RSUs vest in four equal annual installments
beginning on January 1, 2011, provided that Mr. Clark
remained employed with us. Mr. Clark resigned as an officer
and employee of the Company as of March 26, 2010. The
option will expire on June 26, 2010 and none of the RSUs
vested prior to his resignation.
On December 17, 2009, we granted an option to Dr. John
Feeney III to purchase a total of 70,000 shares of our
Common Stock. The option vests with respect to 1,458 shares
each month after December 17, 2009, that Dr. Feeney
remains employed with us. On the same date, we approved an RSU
award for Dr. Feeney, to be granted on January 1,
2010, representing 30,000 shares of our Common Stock. The
RSUs vest in four equal annual installments beginning on
January 1, 2011, provided that Dr. Feeney remains
employed with us.
42
Outstanding
Equity Awards at 2009 Year-End
The following table sets forth information regarding each
unexercised option and unvested stock grant and RSUs that have
vested but did not settle held by each of our named executive
officers as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option awards
|
|
|
Stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
of shares
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
shares or
|
|
|
or units
|
|
|
|
securities
|
|
|
securities
|
|
|
|
|
|
|
|
|
units of
|
|
|
of stock
|
|
|
|
underlying
|
|
|
underlying
|
|
|
|
|
|
|
|
|
stock that
|
|
|
that have
|
|
|
|
unexercised
|
|
|
unexercised
|
|
|
Option
|
|
|
Option
|
|
|
have not
|
|
|
not vested
|
|
|
|
options (#)
|
|
|
options (#)
|
|
|
exercise
|
|
|
expiration
|
|
|
vested or
|
|
|
or settled
|
|
Name
|
|
exercisable
|
|
|
unexercisable
|
|
|
price ($)
|
|
|
date
|
|
|
settled (#)
|
|
|
($)
|
|
|
Mihael H. Polymeropoulos, M.D.
|
|
|
48,154
|
|
|
|
|
(1)
|
|
|
0.33
|
|
|
|
02/10/15
|
|
|
|
|
|
|
|
|
|
|
|
|
395,621
|
|
|
|
|
(2)
|
|
|
0.33
|
|
|
|
09/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
190,373
|
|
|
|
|
(3)
|
|
|
4.73
|
|
|
|
12/29/15
|
|
|
|
|
|
|
|
|
|
|
|
|
364,584
|
|
|
|
135,416
|
(4)
|
|
|
30.65
|
|
|
|
01/30/17
|
|
|
|
|
|
|
|
|
|
|
|
|
119,792
|
|
|
|
130,208
|
(5)
|
|
|
5.76
|
|
|
|
01/03/18
|
|
|
|
|
|
|
|
|
|
|
|
|
36,458
|
|
|
|
213,542
|
(6)
|
|
|
12.55
|
|
|
|
05/21/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
(7)
|
|
|
10.65
|
|
|
|
12/16/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
843,750
|
|
Stephanie R. Irish
|
|
|
960
|
|
|
|
|
(8)
|
|
|
0.33
|
|
|
|
02/01/15
|
|
|
|
|
|
|
|
|
|
|
|
|
9,238
|
|
|
|
|
(9)
|
|
|
4.73
|
|
|
|
12/29/15
|
|
|
|
|
|
|
|
|
|
|
|
|
7,499
|
|
|
|
2,501
|
(10)
|
|
|
25.50
|
|
|
|
12/18/16
|
|
|
|
|
|
|
|
|
|
|
|
|
8,020
|
|
|
|
2,980
|
(11)
|
|
|
30.65
|
|
|
|
01/30/17
|
|
|
|
|
|
|
|
|
|
|
|
|
8,339
|
|
|
|
9,066
|
(12)
|
|
|
5.76
|
|
|
|
01/03/18
|
|
|
|
|
|
|
|
|
|
|
|
|
5,439
|
|
|
|
11,966
|
(13)
|
|
|
1.02
|
|
|
|
09/18/18
|
|
|
|
|
|
|
|
|
|
|
|
|
13,854
|
|
|
|
81,146
|
(14)
|
|
|
12.55
|
|
|
|
05/21/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000
|
(15)
|
|
|
10.65
|
|
|
|
12/16/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
225,000
|
|
William D. Chip Clark(16)
|
|
|
39,907
|
|
|
|
|
(17)
|
|
|
4.73
|
|
|
|
06/26/10
|
|
|
|
|
|
|
|
|
|
|
|
|
182,292
|
|
|
|
67,708
|
(18)
|
|
|
30.65
|
|
|
|
06/26/10
|
|
|
|
|
|
|
|
|
|
|
|
|
57,750
|
|
|
|
62,500
|
(19)
|
|
|
5.76
|
|
|
|
06/26/10
|
|
|
|
|
|
|
|
|
|
|
|
|
10,937
|
|
|
|
64,063
|
(20)
|
|
|
12.55
|
|
|
|
06/26/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000
|
(21)
|
|
|
10.65
|
|
|
|
06/26/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
281,250
|
|
John J. Feeney III, M.D.
|
|
|
833
|
|
|
|
9,584
|
(22)
|
|
|
8.73
|
|
|
|
11/28/17
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
652
|
(23)
|
|
|
5.76
|
|
|
|
01/03/18
|
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
10,313
|
(24)
|
|
|
1.02
|
|
|
|
09/18/18
|
|
|
|
|
|
|
|
|
|
|
|
|
13,854
|
|
|
|
81,146
|
(25)
|
|
|
12.55
|
|
|
|
05/21/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000
|
(26)
|
|
|
10.65
|
|
|
|
12/16/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
225,000
|
|
Steven A. Shallcross(27)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paolo Baroldi, M.D., Ph.D.(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Dr. Polymeropoulos is fully vested with respect to this
grant. |
|
(2) |
|
Dr. Polymeropoulos is fully vested with respect to this
grant. |
|
(3) |
|
Dr. Polymeropoulos is fully vested with respect to this
grant. |
|
(4) |
|
The option vests with respect to 10,416 additional shares each
month after December 2009, provided that Dr. Polymeropoulos
remains employed with us. |
43
|
|
|
(5) |
|
The option vests with respect to 5,208 additional shares each
month after December 2009, provided that Dr. Polymeropoulos
remains employed with us. |
|
(6) |
|
The option vests with respect to 5,208 additional shares each
month after December 2009, provided that Dr. Polymeropoulos
remains employed with us. |
|
(7) |
|
The option vests with respect to 3,645 additional shares each
month after December 2009, provided that Dr. Polymeropoulos
remains employed with us. |
|
(8) |
|
Ms. Irish is fully vested with respect to this grant. |
|
(9) |
|
Ms. Irish is fully vested with respect to this grant. |
|
(10) |
|
The option vests with respect to 208 additional shares each
month after December 2009, provided that Ms. Irish remains
employed with us. |
|
(11) |
|
The option vests with respect to 229 additional shares each
month after December 2009, provided that Ms. Irish remains
employed with us. |
|
(12) |
|
The option vests with respect to 362 additional shares each
month after December 2009, provided that Ms. Irish remains
employed with us. |
|
(13) |
|
The option vests with respect to 362 additional shares each
month after December 2009, provided that Ms. Irish remains
employed with us. |
|
(14) |
|
The option vests with respect to 1,979 additional shares each
month after December 2009, provided that Ms. Irish remains
employed with us. |
|
(15) |
|
The option vests with respect to 1,458 additional shares each
month after December 2009, provided that Ms. Irish remains
employed with us. |
|
(16) |
|
Mr. Clark resigned as an officer and employee of the
Company as of March 26, 2010. |
|
(17) |
|
Mr. Clark is fully vested with respect to this grant. |
|
(18) |
|
The option vested with respect to 5,208 additional shares each
month after December 2009 through February 2010. |
|
(19) |
|
The option vested with respect to 2,500 additional shares each
month after December 2009 through March 2010. |
|
(20) |
|
The option vested with respect to 1,562 additional shares each
month after December 2009 through March 2010. |
|
(21) |
|
The option vested with respect to 1,458 additional shares each
month after December 2009 through March 2010. |
|
(22) |
|
The option vests with respect to 416 additional shares each
month after December 2009, provided that Dr. Feeney remains
employed with us. |
|
(23) |
|
The option vests with respect to 26 additional shares each month
after December 2009, provided that Dr. Feeney remains
employed with us. |
|
(24) |
|
The option vests with respect to 312 additional shares each
month after December 2009, provided that Dr. Feeney remains
employed with us. |
|
(25) |
|
The option vests with respect to 1,979 additional shares each
month after December 2009, provided that Dr. Feeney remains
employed with us. |
|
(26) |
|
The option vests with respect to 1,458 additional shares each
month after December 2009, provided that Dr. Feeney remains
employed with us. |
|
(27) |
|
Mr. Shallcross employment with the Company terminated
on January 9, 2009. |
|
(28) |
|
Dr. Baroldis employment with the Company terminated
on January 9, 2009. |
44
2009
Option Exercises and Stock Vested
The following table shows the number of shares acquired upon
option exercise and RSU settlement for each named executive
officer during the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
shares
|
|
|
|
|
|
shares
|
|
|
|
|
|
|
acquired on
|
|
|
|
|
|
acquired on
|
|
|
Value
|
|
|
|
exercise of
|
|
|
Value realized
|
|
|
settlement
|
|
|
realized on
|
|
|
|
options
|
|
|
on exercise
|
|
|
of RSUs
|
|
|
Vesting
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)(1)
|
|
|
($)(2)
|
|
|
Mihael H. Polymeropoulos, M.D.
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
765,000
|
|
Stephanie R. Irish
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
204,000
|
|
William D. Chip Clark(3)
|
|
|
295,550
|
|
|
|
3,164,507
|
|
|
|
25,000
|
|
|
|
255,000
|
|
John J. Feeney III, M.D.
|
|
|
14,217
|
|
|
|
55,711
|
|
|
|
20,000
|
|
|
|
204,000
|
|
Steven A. Shallcross(4)
|
|
|
115,671
|
|
|
|
635,742
|
|
|
|
|
|
|
|
|
|
Paolo Baroldi, M.D., Ph.D.(5)
|
|
|
80,605
|
|
|
|
304,230
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents RSUs granted to executive on December 16, 2008.
50% of the these RSUs vested on May 6, 2009 following
approval by the FDA of the NDA for
Fanapttm
and 50% vested on December 31, 2009. The shares which
vested on December 31, 2009 did not settle until 2010. |
|
(2) |
|
Although these RSUs vested as to 50% of the shares on
May 6, 2009, and 50% of the shares on December 31,
2009, the actual settlement of the RSU shares occurs on a
delayed basis pursuant to their terms with the first 50% having
settled on May 11, 2009 (when the closing price of our
stock was $10.20 per share) and the other 50% on
February 18, 2010 (when the closing price of our stock was
$10.87 per share). The value reported in the table above
reflects the applicable vesting date values. The respective
settlement date values for each individuals awards were,
for each of the 50% portions respectively, as follows:
Dr. Polymeropoulos $765,000 and $815,250; Ms. Irish
$204,000 and $217,400; Mr. Clark $255,000 and $271,750; and
Dr. Feeney $204,000 and $217,400. |
|
(3) |
|
Mr. Clark resigned as an officer and employee of the
Company as of March 26, 2010. |
|
(4) |
|
Mr. Shallcross employment with the Company terminated
on January 9, 2009. |
|
(5) |
|
Dr. Baroldis employment with the Company terminated
on January 9, 2009. |
Employment
Agreements
We entered into offer letters or employment agreements with each
of Mihael H. Polymeropoulos, M.D., our President and Chief
Executive Officer, Stephanie R. Irish, our Acting Chief
Financial Officer, Secretary and Treasurer, William D.
Chip Clark, our former Senior Vice President, Chief
Business Officer and Secretary and John J. Feeney
III, M.D., our Chief Medical Officer.
Mihael Polymeropoulos, M.D. We entered
into an employment agreement in February 2005, which was amended
effective December 16, 2008, with Dr. Polymeropoulos,
which provides for an annual base salary of not less than
$362,250 and the possibility of an annual target cash incentive
bonus amount equal to 40% of his annual base salary upon
achievement of certain performance goals
(Dr. Polymeropoulos current base salary for 2010 is
$460,000 and his target bonus amount has been increased to 50%
of his annual base salary in 2010 by the Compensation
Committee). If Dr. Polymeropoulos employment is
terminated without cause, he becomes permanently disabled, or he
terminates his employment for good reason, he will receive the
following severance benefits following his employment
termination: (1) a cash payment of his monthly base salary
for 12 months; (2) payment of his monthly COBRA health
insurance premiums; and (3) a bonus in an amount determined
as follows: if he is terminated on or following the third
anniversary of this agreement, the amount will be equal to the
greater of the most recent target cash incentive bonus or the
average target cash incentive bonus awarded for the prior three
years. In addition, if, following a change in control,
Dr. Polymeropoulos is terminated without cause, or he
terminates his employment for good reason, he will become vested
in 100% of his then unvested shares and options. In addition to
the benefits provided in his employment agreement, the Company
45
entered into a tax indemnity agreement with
Dr. Polymeropoulos in November of 2007 that provides
certain benefits to him in the event of a change in control of
the Company, as described below in Severance
and change in control arrangements. The employment
agreement provides that, other than in connection with a change
in control, in the event that Dr. Polymeropouloss
employment is terminated by the Company for any reason other
than Cause or Permanent Disability (each as defined therein) the
vested portion of his options is determined by adding three
months to his service and his stock options will be exercisable
for six months after such termination.
Stephanie R. Irish. We entered into an
employment agreement in May 2009 with Ms. Irish, which
provides for an annual base salary of not less than $200,000 and
the possibility of an annual target cash incentive bonus amount
equal to 25% of her annual base salary upon achievement of
certain performance criteria (Ms. Irishs current base
salary for 2010 is $207,000 and her target bonus amount has been
increased to 35% of her annual base salary in 2010 by the
Compensation Committee). If Ms. Irishs employment is
terminated without cause, she becomes permanently disabled, or
she terminates her employment for good reason, she will receive
the following severance benefits following her employment
termination: (1) a cash payment of her monthly base salary
for 12 months; (2) payment of her monthly COBRA health
insurance premiums; and (3) an amount equal to her annual
target bonus at the rate in effect at the time of the
termination. In addition, if, following a change in control,
Ms. Irish is terminated without cause, or she terminates
her employment for good reason, within 24 months of such
change in control, she will become vested in
24 months worth of her then unvested shares and
options granted pursuant to the terms of her employment
agreement. The employment agreement also provides that, other
than in connection with a change in control, in the event that
Ms. Irishs employment is terminated by the Company
for any reason other than Cause or Permanent Disability (each as
defined therein) the vested portion of her options is determined
by adding three months to her service and her stock options will
be exercisable for six months after such termination.
William D. Chip Clark. We entered
into an employment agreement in February 2005 with
Mr. Clark, which was amended and restated as of
November 4, 2008 and further amended and restated as of
December 16, 2008, which contained terms substantially
similar to those included in the employment agreements of our
other executive officers. Mr. Clark resigned as an officer
and employee of the Company as of March 26, 2010.
John J. Feeney III, M.D. We entered
into an employment agreement in May 2009 with Dr. Feeney,
which provides for an annual base salary of not less than
$270,000 and the possibility of an annual target cash incentive
bonus amount equal to 25% of his annual base salary upon
achievement of certain performance criteria
(Dr. Feeneys current base salary for 2010 is $280,000
and his target bonus amount has been increased to 35% of his
annual base salary in 2010 by the Compensation Committee). If
Dr. Feeneys employment is terminated without cause,
he becomes permanently disabled, or he terminates his employment
for good reason, he will receive the following severance
benefits following his employment termination: (1) a cash
payment of his monthly base salary for 12 months;
(2) payment of his monthly COBRA health insurance premiums;
and (3) an amount equal to her annual target bonus at the
rate in effect at the time of the termination. In addition, if,
following a change in control, Dr. Feeney is terminated
without cause, or he terminates his employment for good reason,
within 24 months of such change in control, he will become
vested in all of the shares underlying his options granted
pursuant to his employment agreement. The employment agreement
also provides that, other than in connection with a change in
control, in the event that Dr. Feeneys employment is
terminated by the Company for any reason other than Cause or
Permanent Disability (each as defined therein) the vested
portion of his options is determined by adding three months to
his service and his stock options will be exercisable for six
months after such termination.
Severance
and Change in Control Arrangements
See Employment Agreements and
Compensation Discussion and Analysis Severance
and Change in Control Benefits above for a description of
the severance and change in control arrangements for
Drs. Polymeropoulos and Feeney and Ms. Irish.
Drs. Polymeropoulos and Feeney and Ms. Irish will only
be eligible to receive severance payments if each officer signs
a general release of claims.
Our Compensation Committee, as plan administrator of our Second
Amended and Restated Management Equity Plan and our 2006 Equity
Incentive Plan, has the authority to provide for accelerated
vesting of the shares of Common Stock subject to outstanding
options held by our named executive officers and any other
person in connection with certain changes in control of Vanda.
46
In each employment agreement, a change in control is defined as
(1) the consummation of a merger or consolidation of the
Company with or into another entity, if persons who were not
stockholders of the Company immediately prior to such merger or
consolidation own immediately after such merger or consolidation
50% or more of the voting power of the outstanding securities of
each of (a) the continuing or surviving entity and
(b) any direct or indirect parent corporation of such
continuing or surviving entity; or (2) the sale, transfer
or other disposition of all or substantially all of the
Companys assets. A transaction shall not constitute a
change in control if its sole purpose is to change the state of
the Companys incorporation or to create a holding company
that will be owned in substantially the same proportions by the
persons who held the Companys securities immediately
before such transaction.
Estimated
Payments and Benefits Upon Termination
The following table describes the potential payments and
benefits upon employment termination for each named executive
officer, as if the executives employment terminated as of
December 31, 2009, the last business day of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination
|
|
|
|
Executive
|
|
Voluntary
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
in connection
|
|
|
|
benefits and
|
|
resignation
|
|
|
resignation
|
|
|
Termination
|
|
|
Termination
|
|
|
with or
|
|
|
|
payments upon
|
|
not for good
|
|
|
for good
|
|
|
by company
|
|
|
by company
|
|
|
following change
|
|
|
|
termination*
|
|
reason
|
|
|
reason
|
|
|
not for cause
|
|
|
for cause
|
|
|
in control
|
|
|
Mihael H
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polymeropoulos, M.D., President and Chief Executive
Officer
|
|
Base salary
|
|
$
|
|
|
|
$
|
460,000
|
(1)
|
|
$
|
460,000
|
(1)
|
|
$
|
|
|
|
$
|
460,000
|
(1)
|
|
|
Highest target cash
incentive bonus
|
|
|
|
|
|
|
530,400
|
(2)
|
|
|
530,400
|
(2)
|
|
|
|
|
|
|
530,400
|
(2)
|
|
|
Stock options and
restricted stock
units unvested and
accelerated
|
|
|
|
|
|
|
92,338
|
(4)
|
|
|
92,338
|
(4)
|
|
|
|
|
|
|
819,842
|
(5)
|
|
|
Benefits and
perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care
|
|
|
|
|
|
|
34,606
|
(8)
|
|
|
34,606
|
(8)
|
|
|
|
|
|
|
34,606
|
(8)
|
|
|
Accrued vacation
pay
|
|
|
|
|
|
|
8,846
|
(9)
|
|
|
8,846
|
(9)
|
|
|
|
|
|
|
8,846
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
1,126,190
|
|
|
$
|
1,126,190
|
|
|
$
|
|
|
|
$
|
1,853,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephanie R. Irish,
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acting Chief
Financial Officer
and Treasurer
|
|
Base salary
|
|
$
|
|
|
|
$
|
207,000
|
(1)
|
|
$
|
207,000
|
(1)
|
|
$
|
|
|
|
$
|
207,000
|
(1)
|
|
|
Highest target cash
incentive bonus
|
|
|
|
|
|
|
51,750
|
(3)
|
|
|
51,750
|
(3)
|
|
|
|
|
|
|
51,750
|
(3)
|
|
|
Stock options
unvested and
accelerated
|
|
|
|
|
|
|
19,697
|
(4)
|
|
|
19,697
|
(4)
|
|
|
|
|
|
|
38,072
|
(6)
|
|
|
Benefits and
perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care
|
|
|
|
|
|
|
34,606
|
(8)
|
|
|
34,606
|
(8)
|
|
|
|
|
|
|
34,606
|
(8)
|
|
|
Accrued vacation
pay
|
|
|
|
|
|
|
3,981
|
(9)
|
|
|
3,981
|
(9)
|
|
|
|
|
|
|
3,981
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
317,034
|
|
|
$
|
317,034
|
|
|
$
|
|
|
|
$
|
335,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination
|
|
|
|
Executive
|
|
Voluntary
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
in connection
|
|
|
|
benefits and
|
|
resignation
|
|
|
resignation
|
|
|
Termination
|
|
|
Termination
|
|
|
with or
|
|
|
|
payments upon
|
|
not for good
|
|
|
for good
|
|
|
by company
|
|
|
by company
|
|
|
following change
|
|
|
|
termination*
|
|
reason
|
|
|
reason
|
|
|
not for cause
|
|
|
for cause
|
|
|
in control
|
|
|
John J. Feeney III, M.D.,
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acting Chief Medical Officer
|
|
Base salary
|
|
$
|
|
|
|
$
|
280,000
|
(1)
|
|
$
|
280,000
|
(1)
|
|
$
|
|
|
|
$
|
280,000
|
(1)
|
|
|
Highest target cash
incentive bonus
|
|
|
|
|
|
|
70,000
|
(3)
|
|
|
70,000
|
(3)
|
|
|
|
|
|
|
70,000
|
(3)
|
|
|
Stock options
unvested and
accelerated
|
|
|
|
|
|
|
12,967
|
(4)
|
|
|
12,967
|
(4)
|
|
|
|
|
|
|
31,342
|
(7)
|
|
|
Benefits and
perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care
|
|
|
|
|
|
|
32,398
|
(8)
|
|
|
32,398
|
(8)
|
|
|
|
|
|
|
32,398
|
(8)
|
|
|
Accrued vacation
pay
|
|
|
|
|
|
|
3,231
|
(9)
|
|
|
3,231
|
(9)
|
|
|
|
|
|
|
3,231
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
398,596
|
|
|
$
|
398,596
|
|
|
$
|
|
|
|
$
|
416,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William D. Chip Clark,
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President, Chief Business Officer and Secretary
(10)
|
|
Base salary
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Highest target cash
incentive bonus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
unvested and
accelerated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and
perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued vacation
pay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
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Includes benefits payable to Dr. Polymeropoulos in
connection with the tax indemnity agreement described above in
Severance and change in control
benefits, which was approved by our Compensation Committee
on March 16, 2007. |
|
(1) |
|
Last monthly base salary prior to the termination for a period
of 12 months following the date of the termination. |
|
(2) |
|
Greater of the most recent target cash incentive bonus awarded
prior to termination or the average of the prior three years
cash incentive bonuses. |
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(3) |
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An amount equal to the executives annual target bonus at
the rate in effect at the time of the executives
termination. |
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(4) |
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In the event that the executives employment is terminated
by the Company for any reason other than Cause or Permanent
Disability the vested portion of the executives options is
determined by adding three months to the executives
service. |
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(5) |
|
All options held by Dr. Polymeropoulos will become fully
vested in the event of an involuntary termination following a
change of control. All restricted stock units held by
Dr. Polymeropoulos will become fully vested in the event of
an involuntary termination following a change of control. |
48
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|
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(6) |
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Acceleration of 24 months worth of
Ms. Irishs then unvested options granted in 2009 will
occur in the event of an involuntary termination following a
change of control and an acceleration of 3 months for all
other awards. All restricted stock units held by Ms. Irish
will become fully vested in the event of an involuntary
termination following a change of control. |
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(7) |
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Full acceleration of Dr. Feeneys then unvested
options grants in May 2009, acceleration of 24 months
worth of Dr. Feeneys then unvested options granted in
December 2009 and an acceleration of 3 months for all other
awards will occur in the event of an involuntary termination
following a change of control. All restricted stock units held
by Dr. Feeney will become fully vested in the event of an
involuntary termination following a change of control. |
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(8) |
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Payment of the COBRA health insurance premiums up to
18 months or until the executive begins employment with
another company that offers comparable benefits. |
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(9) |
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Based on accrued but unused vacation days available to executive
at December 31, 2009. |
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(10) |
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Mr. Clark resigned as an officer and employee of the
Company as of March 26, 2010 and did not receive any
severance payments. |
49
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
2004
Securityholder Agreement
We have entered into a 2004 Securityholder Agreement with
certain holders of our Common Stock, including significant
holders that are affiliates of certain of our directors. Under
the Securityholder Agreement, these holders have the right to
demand the registration of our Common Stock and to participate
in other public offerings of our Common Stock.
Indemnification
Agreements
We have entered into indemnification agreements with each of our
directors and officers. These agreements, among other things,
require us to indemnify each director and officer to the fullest
extent permitted by Delaware law, including indemnification of
expenses such as attorneys fees, judgments, fines and
settlement amounts incurred by the director or officer in any
action or proceeding, including any action or proceeding by or
in right of us, arising out of the persons services as a
director or officer.
In addition, the Company is a party to tax indemnity agreements
with certain of its executive officers. Under these tax
indemnity agreements, the Company or its successor will
reimburse the executive officers for any excise tax that they
are required to pay under Section 4999 of the Code of 1986,
as amended, as well as the income and excise taxes imposed on
the reimbursement. Section 4999 imposes a 20% excise tax on
payments and distributions that are made or accelerated (or the
vesting of which is accelerated) as a result of a change in
control of the Company. The excise tax applies only if the
aggregate value of those payments and distributions equals or
exceeds 300% of the executive officers average annual
compensation from the Company for the last five completed
calendar years or, if less, all years of his employment with the
Company. If the tax applies, it attaches to the excess of the
aggregate value of the payments and distributions over 100% of
the executive officers average annual compensation. In the
Companys case, the payments and distributions consist of
the continuation of salary, incentive bonus and health insurance
coverage for varying periods of time and accelerated vesting of
stock options to varying degrees.
NO
INCORPORATION BY REFERENCE
In Vandas filings with the SEC, information is sometimes
incorporated by reference. This means that we are
referring you to information that has previously been filed with
the SEC and the information should be considered as part of the
particular filing. As provided under SEC regulations, the
Audit Committee Report and the Compensation
Committee Report contained in this Proxy Statement
specifically are not incorporated by reference into any other
filings with the SEC and shall not be deemed to be
soliciting material. In addition, this Proxy
Statement includes several website addresses. These website
addresses are intended to provide inactive, textual references
only. The information on these websites is not part of this
Proxy Statement.
HOUSEHOLDING
OF PROXY MATERIALS
In December 2000, the SEC adopted new rules that permit
companies and intermediaries (e.g., brokers) to satisfy the
delivery requirements for proxy statements with respect to two
or more security holders sharing the same address by delivering
a single proxy statement addressed to those security holders.
This process, which is commonly referred to as
householding, potentially means extra convenience
for security holders and cost savings for companies.
As in the past few years, a number of brokers with
accountholders who are Vanda stockholders may be
householding our proxy materials. As indicated in
the notice previously provided by these brokers to Vanda
stockholders, a single proxy statement will be delivered to
multiple stockholders sharing an address unless contrary
instructions have been received from an affected stockholder.
Once you have received notice from your broker that it will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
50
would prefer to receive a separate proxy statement, please
notify your broker or write us at Vanda Pharmaceuticals Inc.,
9605 Medical Center Drive, Suite 300, Rockville, Maryland
20850. You may also call us at
(240) 599-4500.
Stockholders who currently receive multiple copies of this Proxy
Statement at their address and would like to request
householding of their communications should contact
their broker.
OTHER
MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters are properly brought before the Annual Meeting, it is
the intention of the persons named in the accompanying proxy to
vote on such matters in accordance with their best judgment.
It is important that your proxies be returned promptly and that
your shares are represented at the Annual Meeting. Whether or
not you plan to attend the Annual Meeting, please complete,
date, sign and promptly return the enclosed proxy card in the
enclosed postage pre-paid envelope or vote your shares before
the Annual Meeting by telephone or over the Internet so your
shares will be represented at the Annual Meeting.
The form of proxy and this Proxy Statement have been approved by
the Board of Directors and are being mailed and delivered to
stockholders by its authority.
ELECTRONIC
DELIVERY OF PROXY MATERIALS
We are pleased to offer stockholders the opportunity to receive
future proxy mailings by
e-mail. To
request electronic delivery, please vote via the Internet at
www.proxyvote.com and, when prompted, enroll to receive proxy
materials electronically in future years.
Important Notice Regarding Internet Availability of Proxy
Materials for the Annual Meeting: Vandas 2010 Notice
and Proxy Statement and 2009 Annual Report also are available at
our corporate website at www.vandapharma.com. Additionally, in
accordance with SEC rules, you may access these materials at
http://materials.proxyvote.com/921659,
which does not have cookies that identify visitors
to the site.
CONTACT
FOR QUESTIONS AND ASSISTANCE WITH VOTING
If you have any questions or require any assistance with voting
your shares, please contact:
Investor
Relations
Vanda Pharmaceuticals Inc.
9650 Medical
Center Drive
Suite 300, Rockville, Maryland, 20850
or
Call
(240) 599-4500
If you need additional copies of this Proxy Statement or voting
materials, you should contact Investor Relations as described
above.
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By
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Order of the Board
of Directors
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Stephanie R. Irish
Acting Chief Financial Officer,
Secretary and Treasurer
April 28, 2010
51
Vanda Pharmaceuticals Inc.
2006 Equity Incentive Plan
(As Amended and Restated Effective as of June 3, 2010)
TABLE OF CONTENTS
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ARTICLE 1. INTRODUCTION |
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ARTICLE 2. ADMINISTRATION |
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2.1 Committee Composition |
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2.2 Committee Responsibilities |
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2.3 Committee for Non-Officer Grants |
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ARTICLE 3. SHARES AVAILABLE FOR GRANTS |
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3.1 Basic Limitation |
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3.2 Annual Increase in Shares |
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3.3 Shares Returned to Reserve |
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2 |
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ARTICLE 4. ELIGIBILITY |
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3 |
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4.1 Incentive Stock Options |
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4.2 Other Grants |
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3 |
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ARTICLE 5. OPTIONS |
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3 |
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5.1 Stock Option Agreement |
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5.2 Number of Shares |
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5.3 Exercise Price |
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3 |
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5.4 Exercisability and Term |
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3 |
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5.5 Effect of Change in Control |
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4 |
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5.6 Modification or Assumption of Options |
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5.7 Buyout Provisions |
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4 |
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ARTICLE 6. PAYMENT FOR OPTION SHARES |
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6.1 General Rule |
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6.2 Surrender of Stock |
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6.3 Exercise/Sale |
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6.4 Promissory Note |
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6.5 Other Forms of Payment |
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5 |
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ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS |
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5 |
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7.1 Initial Grants |
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7.2 Annual Grants |
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5 |
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7.3 Accelerated Exercisability |
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5 |
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7.4 Exercise Price |
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7.5 Term |
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5 |
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ARTICLE 8. STOCK APPRECIATION RIGHTS |
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6 |
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8.1 SAR Agreement |
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8.2 Number of Shares |
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6 |
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8.3 Exercise Price |
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6 |
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8.4 Exercisability and Term |
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6 |
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8.5 Effect of Change in Control |
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6 |
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8.6 Exercise of SARs |
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6 |
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8.7 Modification or Assumption of SARs |
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7 |
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ARTICLE 9. RESTRICTED SHARES |
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9.1 Restricted Stock Agreement |
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9.2 Payment for Awards |
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9.3 Vesting Conditions |
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9.4 Voting and Dividend Rights |
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7 |
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ARTICLE 10. STOCK UNITS |
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10.1 Stock Unit Agreement |
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8 |
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10.2 Payment for Awards |
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10.3 Vesting Conditions |
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8 |
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10.4 Voting and Dividend Rights |
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8 |
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10.5 Form and Time of Settlement of Stock Units |
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8 |
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10.6 Death of Recipient |
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9 |
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10.7 Creditors Rights |
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9 |
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ARTICLE 11. PROTECTION AGAINST DILUTION |
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11.1 Adjustments |
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11.2 Dissolution or Liquidation |
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10 |
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11.3 Reorganizations |
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10 |
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ARTICLE 12. AWARDS UNDER OTHER PLANS |
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11 |
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ARTICLE 13. PAYMENT OF DIRECTORS FEES IN SECURITIES |
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11 |
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13.1 Effective Date |
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13.2 Elections to Receive NSOs, Restricted Shares or Stock Units |
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13.3 Number and Terms of NSOs, Restricted Shares or Stock Units |
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12 |
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ARTICLE 14. LIMITATION ON RIGHTS |
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14.1 Retention Rights |
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14.2 Stockholders Rights |
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14.3 Regulatory Requirements |
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12 |
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ARTICLE 15. WITHHOLDING TAXES |
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15.1 General |
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15.2 Share Withholding |
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15.3 Code Section 409A Matters |
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12 |
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ARTICLE 16. LIMITATION ON PAYMENTS |
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13 |
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16.1 Scope of Limitation |
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16.2 Basic Rule |
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16.3 Reduction of Payments |
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16.4 Overpayments and Underpayments |
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14 |
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16.5 Related Corporations |
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ii
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ARTICLE 17. FUTURE OF THE PLAN |
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17.1 Term of the Plan |
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17.2 Amendment or Termination |
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17.3 Stockholder Approval |
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15 |
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ARTICLE 18. DEFINITIONS |
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iii
Vanda Pharmaceuticals Inc.
2006 Equity Incentive Plan
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective April 12, 2006. The amendment and restatement of
the Plan was approved by the Board on April 20, 2010, with such amendment to be effective on the
date of the Companys 2010 Annual Meeting of Stockholders assuming the Plan is approved by the
Companys stockholders at such meeting. The purpose of the Plan is to promote the long-term
success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with exceptional
qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder
interests through increased stock ownership. The Plan seeks to achieve this purpose by providing
for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute ISOs or
NSOs) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws of the State of
Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Committee shall administer the Plan. The Committee shall
consist exclusively of two or more directors of the Company, who shall be appointed by the Board.
In addition, each member of the Committee shall meet the following requirements:
(a) Any listing standards prescribed by the principal securities market on
which the Companys equity securities are traded;
(b) Such requirements as the Internal Revenue Service may establish for outside
directors acting under plans intended to qualify for exemption under
section 162(m)(4)(C) of the Code;
(c) Such requirements as the Securities and Exchange Commission may establish
for administrators acting under plans intended to qualify for exemption under
Rule 16b-3 (or its successor) under the Exchange Act; and
(d) Any other requirements imposed by applicable law, regulations or rules.
2.2 Committee Responsibilities. The Committee shall (a) select the Employees, Outside
Directors and Consultants who are to receive Awards under the Plan,
(b) determine the type, number, vesting requirements and other features and conditions of such
Awards, (c) interpret the Plan, (d) make all other decisions relating to the operation of the Plan
and (e) carry out any other duties delegated to it by the Board. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The Committees determinations
under the Plan shall be final and binding on all persons.
2.3 Committee for Non-Officer Grants. The Board may also appoint a secondary committee of the
Board, which shall be composed of one or more directors of the Company who need not satisfy the
requirements of Section 2.1. Such secondary committee may administer the Plan with respect to
Employees and Consultants who are not Outside Directors and are not considered executive officers
of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such Awards. Within the
limitations of this Section 2.3, any reference in the Plan to the Committee shall include such
secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but
unissued shares or treasury shares. The aggregate number of Common Shares issued under the Plan
shall not exceed (a) 5,619,924 plus (b) the additional Common Shares described in
Sections 3.2 and 3.3. The number of Common Shares that are subject to Awards outstanding at any
time under the Plan shall not exceed the number of Common Shares that then remain available for
issuance under the Plan. All Common Shares available under the Plan may be issued upon the
exercise of ISOs. The limitations of this Section 3.1 and Section 3.2 shall be subject to
adjustment pursuant to Article 11.
3.2 Annual Increase in Shares. As of the first day of each fiscal year of the Company over
the remaining term of the Plan, commencing on January 1, 2011, the aggregate number of Common
Shares that may be issued under the Plan shall automatically increase by a number equal to the
lowest of (a) 4% of the total number of Common Shares then outstanding, (b) 1,500,000 Common Shares
or (c) the number determined by the Board.
3.3 Shares Returned to Reserve. If Options, SARs or Stock Units are forfeited, settled in
cash (in whole or in part), or terminate for any other reason before being exercised or settled,
then the Common Shares subject to such Options, SARs or Stock Units shall again become available
for issuance under the Plan. If SARs are exercised, then only the number of Common Shares (if any)
actually issued in settlement of such SARs shall reduce the number available under Section 3.1 and
the balance shall again become available for issuance under the Plan. If Stock Units are settled,
then only the number of Common Shares (if any) actually issued in settlement of such Stock Units
shall reduce the number available under Section 3.1 and the balance shall again become available
for issuance under the Plan. If Restricted Shares or Common Shares issued upon the exercise of
Awards are reacquired by the Company pursuant to a forfeiture provision or for any other reason,
then such Common Shares shall again become
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Such number consists of (i) 1,500,000 shares
initially reserved for issuance under the Plan; (ii) 885,141 shares added on
January 1, 2007 pursuant to Section 3.2 of the Plan; (iii) 1,066,109 shares
added on January 1, 2008 pursuant to Section 3.2 of the Plan; (iv) 1,066,139
shares added on January 1, 2009 pursuant to Section 3.2 of the Plan; and (v)
1,102,535 shares added on January 1, 2010 pursuant to Section 3.2 of the Plan. |
2
available for issuance under the Plan. If Common Shares are tendered by a Participant or
withheld by the Company in payment of the exercise price of an Option or in satisfaction of any tax
withholding obligation with respect to an Award, then such Common Shares shall again become
available for issuance under the Plan.
ARTICLE 4. ELIGIBILITY.
4.1 Incentive Stock Options. Only Employees who are common-law employees of the Company, a
Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns
more than 10% of the total combined voting power of all classes of outstanding stock of the Company
or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(5) of the Code are satisfied.
4.2 Other Grants. Only Employees, Outside Directors and Consultants shall be eligible for the
grant of Restricted Shares, Stock Units, NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a
Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan need not be
identical. Options may be granted in consideration of a reduction in the Optionees other
compensation. A Stock Option Agreement may provide that a new Option will be granted automatically
to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares
subject to the Option and shall provide for the adjustment of such number in accordance with
Article 11. Options granted to any Optionee in a single fiscal year of the Company shall not cover
more than 500,000 Common Shares, except that Options granted to a new Employee in the fiscal year
of the Company in which his or her Service as an Employee first commences shall not cover more than
1,000,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.
5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided
that the Exercise Price shall in no event be less than 100% of the Fair Market Value of a Common
Share on the date of grant. This Section 5.3 shall not apply to an Option granted pursuant to the
assumption of, or substitution for, another option in a manner that complies with section 424(a) of
the Code (whether or not the Option is an ISO).
5.4 Exercisability and Term. Each Stock Option Agreement shall specify the date or event when
all or any installment of the Option is to become exercisable. The Stock Option Agreement shall
also specify the term of the Option; provided that the term of an ISO shall in no event exceed
10 years from the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionees death, disability or
3
retirement or other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionees Service. Options may be awarded in combination with
SARs, and such an Award may provide that the Options will not be exercisable unless the related
SARs are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the time of granting an
Option or thereafter, that such Option shall become exercisable as to all or part of the Common
Shares subject to such Option in the event that a Change in Control occurs with respect to the
Company or in the event that the Optionee is subject to an Involuntary Termination after a Change
in Control. However, in the case of an ISO, the acceleration of exercisability shall not occur
without the Optionees written consent. In addition, acceleration of exercisability may be
required under Section 11.3.
5.6 Modification or Assumption of Options. Within the limitations of the Plan, the Committee
may modify, reprice, extend or assume outstanding options or may accept the cancellation of
outstanding options (whether granted by the Company or by another issuer) in return for the grant
of new options for the same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall, without the consent of
the Optionee, alter or impair his or her rights or obligations under such Option.
5.7 Buyout Provisions. The Committee may at any time (a) offer to buy out for a payment in
cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash
out an Option previously granted, in either case at such time and based upon such terms and
conditions as the Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options
shall be payable in cash or cash equivalents at the time when such Common Shares are purchased,
except that the Committee at its sole discretion may accept payment of the Exercise Price in any
other form(s) described in this Article 6. However, if the Optionee is an Outside Director or
executive officer of the Company, he or she may pay the Exercise Price in a form other than cash or
cash equivalents only to the extent permitted by section 13(k) of the Exchange Act.
6.2 Surrender of Stock. With the Committees consent, all or any part of the Exercise Price
may be paid by surrendering, or attesting to the ownership of, Common Shares that are already owned
by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when
the new Common Shares are purchased under the Plan.
6.3 Exercise/Sale. With the Committees consent, all or any part of the Exercise Price and
any withholding taxes may be paid by delivering (on a form prescribed by the Company) an
irrevocable direction to a securities broker approved by the Company to sell all or part of the
Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to
the Company.
4
6.4 Promissory Note. To the extent permitted by section 13(k) of the Exchange Act, with the
Committees consent, all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory note.
6.5 Other Forms of Payment. With the Committees consent, all or any part of the Exercise
Price and any withholding taxes may be paid in any other form that is consistent with applicable
laws, regulations and rules.
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 Initial Grants. Each Outside Director who first becomes a member of the Board after the
date of the Companys initial public offering shall receive a one-time grant of an NSO covering
35,000 Common Shares. Such NSO shall be granted on the date when such Outside Director first joins
the Board and shall become exercisable in 48 equal monthly installments over the four-year period
commencing on the date of grant. An Outside Director who previously was an Employee shall not
receive a grant under this Section 7.1.
7.2 Annual Grants. Upon the conclusion of each regular annual meeting of the Companys
stockholders held in the year 2007 or thereafter, each Outside Director who will continue serving
as a member of the Board thereafter shall receive an NSO covering 15,000 Common Shares. NSOs
granted under this Section 7.2 shall become exercisable in 12 equal monthly installments over the
one-year period commencing on the date of grant. An Outside Director who previously was an
Employee shall be eligible to receive grants under this Section 7.2.
7.3 Accelerated Exercisability. All NSOs granted to an Outside Director under this Article 7
shall also become exercisable in full in the event that:
(a) Such Outside Directors Service terminates because of death or total and
permanent disability; or
(b) The Company is subject to a Change in Control before such Outside
Directors Service terminates.
Acceleration of exercisability may also be required by Section 11.3.
7.4 Exercise Price. The Exercise Price under all NSOs granted to an Outside Director under
this Article 7 shall be equal to 100% of the Fair Market Value of a Common Share on the date of
grant, payable in one of the forms described in Sections 6.1, 6.2 and 6.3.
7.5 Term. All NSOs granted to an Outside Director under this Article 7 shall terminate on the
earliest of (a) the date 10 years after the date of grant, (b) the date 12 months after the
termination of such Outside Directors Service for any reason.
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ARTICLE 8. STOCK APPRECIATION RIGHTS.
8.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced by an SAR Agreement
between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions
of the various SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionees other compensation.
8.2 Number of Shares. Each SAR Agreement shall specify the number of Common Shares to which
the SAR pertains and shall provide for the adjustment of such number in accordance with Article 11.
SARs granted to any Optionee in a single fiscal year shall in no event pertain to more than
500,000 Common Shares, except that SARs granted to a new Employee in the fiscal year of the Company
in which his or her Service as an Employee first commences shall not pertain to more than 1,000,000
Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
8.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price; provided that the
Exercise Price shall in no event be less than 100% of the Fair Market Value of a Common Share on
the date of grant.
8.4 Exercisability and Term. Each SAR Agreement shall specify the date when all or any
installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of
the SAR. An SAR Agreement may provide for accelerated exercisability in the event of the
Optionees death, disability or retirement or other events and may provide for expiration prior to
the end of its term in the event of the termination of the Optionees Service. SARs may be awarded
in combination with Options, and such an Award may provide that the SARs will not be exercisable
unless the related Options are forfeited. An SAR may be included in an ISO only at the time of
grant but may be included in an NSO at the time of grant or thereafter. An SAR granted under the
Plan may provide that it will be exercisable only in the event of a Change in Control.
8.5 Effect of Change in Control. The Committee may determine, at the time of granting an SAR
or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such
SAR in the event that the Company is subject to a Change in Control or in the event that the
Optionee is subject to an Involuntary Termination after a Change in Control. In addition,
acceleration of exercisability may be required under Section 11.3.
8.6 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any person having the right
to exercise the SAR after his or her death) shall receive from the Company (a) Common Shares,
(b) cash or (c) a combination of Common Shares and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARs shall,
in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender)
of the Common Shares subject to the SARs exceeds the Exercise Price. If, on the date when an SAR
expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any
portion of such SAR has not been
6
exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.
8.7 Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may
modify, reprice, extend or assume outstanding SARs or may accept the cancellation of outstanding
SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for
the same or a different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee,
alter or impair his or her rights or obligations under such SAR.
ARTICLE 9. RESTRICTED SHARES.
9.1 Restricted Stock Agreement. Each grant of Restricted Shares under the Plan shall be
evidenced by a Restricted Stock Agreement between the recipient and the Company. Such Restricted
Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms
that are not inconsistent with the Plan. The provisions of the various Restricted Stock Agreements
entered into under the Plan need not be identical.
9.2 Payment for Awards. Restricted Shares may be sold or awarded under the Plan for such
consideration as the Committee may determine, including (without limitation) cash, cash
equivalents, property, full-recourse promissory notes, past services and future services. If the
Participant is an Outside Director or executive officer of the Company, he or she may pay for
Restricted Shares with a promissory note only to the extent permitted by section 13(k) of the
Exchange Act. Within the limitations of the Plan, the Committee may accept the cancellation of
outstanding options in return for the grant of Restricted Shares.
9.3 Vesting Conditions. Each Award of Restricted Shares may or may not be subject to vesting.
Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in
the Restricted Stock Agreement. The Committee may include among such conditions the requirement
that the performance of the Company or a business unit of the Company for a specified period of one
or more fiscal years equal or exceed a target determined in advance by the Committee. The
Companys independent auditors shall determine such performance. Such target shall be based on one
or more of the criteria set forth in Appendix A. The Committee shall identify such target not
later than the 90th day of such period. In no event shall more than 500,000 Restricted
Shares that are subject to performance-based vesting conditions be granted to any Participant in a
single fiscal year of the Company, subject to adjustment in accordance with Article 11. A
Restricted Stock Agreement may provide for accelerated vesting in the event of the Participants
death or disability or other events. The Committee may determine, at the time of granting
Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in
the event that a Change in Control occurs with respect to the Company or in the event that the
Participant is subject to an Involuntary Termination after a Change in Control.
9.4 Voting and Dividend Rights. The holders of Restricted Shares awarded under the Plan shall
have the same voting, dividend and other rights as the Companys other stockholders. A Restricted
Stock Agreement, however, may require that the holders of
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Restricted Shares invest any cash dividends received in additional Restricted Shares. Such
additional Restricted Shares shall be subject to the same conditions and restrictions as the Award
with respect to which the dividends were paid.
ARTICLE 10. STOCK UNITS.
10.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced by a
Stock Unit Agreement between the recipient and the Company. Such Stock Units shall be subject to
all applicable terms of the Plan and may be subject to any other terms that are not inconsistent
with the Plan. The provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a reduction in the
recipients other compensation.
10.2 Payment for Awards. To the extent that an Award is granted in the form of Stock Units,
no cash consideration shall be required of the Award recipients.
10.3 Vesting Conditions. Each Award of Stock Units may or may not be subject to vesting.
Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in
the Stock Unit Agreement. The Committee may include among such conditions the requirement that the
performance of the Company or a business unit of the Company for a specified period of one or more
fiscal years equal or exceed a target determined in advance by the Committee. The Companys
independent auditors shall determine such performance. Such target shall be based on one or more
of the criteria set forth in Appendix A. The Committee shall identify such target not later than
the 90th day of such period. In no event shall more than 500,000 Stock Units that are
subject to performance-based vesting conditions be granted to any Participant in a single fiscal
year of the Company, subject to adjustment in accordance with Article 11. A Stock Unit Agreement
may provide for accelerated vesting in the event of the Participants death, disability or other
events. The Committee may determine, at the time of granting Stock Units or thereafter, that all
or part of such Stock Units shall become vested in the event that the Company is subject to a
Change in Control or in the event that the Participant is subject to an Involuntary Termination
after a Change in Control. In addition, acceleration of vesting may be required under
Section 11.3.
10.4 Voting and Dividend Rights. The holders of Stock Units shall have no voting rights.
Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committees
discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be
credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit
is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of
dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a
combination of both. Prior to distribution, any dividend equivalents that are not paid shall be
subject to the same conditions and restrictions as the Stock Units to which they attach.
10.5 Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made
in the form of (a) cash, (b) Common Shares or (c) any combination of both, as determined by the
Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than
the number included in the original Award, based on
8
predetermined performance factors. Methods of converting Stock Units into cash may include
(without limitation) a method based on the average Fair Market Value of Common Shares over a series
of trading days. Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the Stock Units have
been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to
Article 11.
10.6 Death of Recipient. Any Stock Units Award that becomes payable after the recipients
death shall be distributed to the recipients beneficiary or beneficiaries. Each recipient of a
Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by
filing the prescribed form with the Company. A beneficiary designation may be changed by filing
the prescribed form with the Company at any time before the Award recipients death. If no
beneficiary was designated or if no designated beneficiary survives the Award recipient, then any
Stock Units Award that becomes payable after the recipients death shall be distributed to the
recipients estate.
10.7 Creditors Rights. A holder of Stock Units shall have no rights other than those of a
general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the
Company, subject to the terms and conditions of the applicable Stock Unit Agreement.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 Adjustments. In the event of a subdivision of the outstanding Common Shares, a
declaration of a dividend payable in Common Shares or a combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares,
corresponding proportionate adjustments shall automatically be made in each of the following:
(a) The number of Common Shares available for grant subject to Awards under
Article 3;
(b) The limitations set forth in Sections 5.2, 8.2, 9.3 and 10.3;
(c) The number of Common Shares covered by each outstanding Option and SAR;
(d) The Exercise Price under each outstanding Option and SAR; or
(e) The number of Stock Units included in any prior Award that has not yet been
settled.
In the event of a declaration of an extraordinary dividend payable in a form other than Common
Shares in an amount that has a material effect on the price of Common Shares, a recapitalization, a
spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole
9
discretion, deems appropriate in one or more of the foregoing. Except as provided in this
Article 11, a Participant shall have no rights by reason of any issuance by the Company of stock of
any class or securities convertible into stock of any class, any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class.
11.2 Dissolution or Liquidation. To the extent not previously exercised or settled, Options,
SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the
Company.
11.3 Reorganizations. In the event that the Company is a party to a merger or consolidation,
all outstanding Awards shall be subject to the agreement of merger or consolidation. Such
agreement shall provide for one or more of the following:
(a) The continuation of such outstanding Awards by the Company (if the Company
is the surviving corporation).
(b) The assumption of such outstanding Awards by the surviving corporation or
its parent, provided that the assumption of Options or SARs shall comply with
section 424(a) of the Code (whether or not the Options are ISOs).
(c) The substitution by the surviving corporation or its parent of new awards
for such outstanding Awards, provided that the substitution of Options or SARs shall
comply with section 424(a) of the Code (whether or not the Options are ISOs).
(d) Full exercisability of outstanding Options and SARs and full vesting of the
Common Shares subject to such Options and SARs, followed by the cancellation of such
Options and SARs. The full exercisability of such Options and SARs and full vesting
of such Common Shares may be contingent on the closing of such merger or
consolidation. The Optionees shall be able to exercise such Options and SARs during
a period of not less than five full business days preceding the closing date of such
merger or consolidation, unless (i) a shorter period is required to permit a timely
closing of such merger or consolidation and (ii) such shorter period still offers
the Optionees a reasonable opportunity to exercise such Options and SARs. Any
exercise of such Options and SARs during such period may be contingent on the
closing of such merger or consolidation.
(e) The cancellation of outstanding Options and SARs and a payment to the
Optionees equal to the excess of (i) the Fair Market Value of the Common Shares
subject to such Options and SARs (whether or not such Options and SARs are then
exercisable or such Common Shares are then vested) as of the closing date of such
merger or consolidation over (ii) their Exercise Price. Such payment shall be made
in the form of cash, cash equivalents, or securities of the surviving corporation or
its parent with a Fair Market Value equal to the required
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amount. Except to the extent it would cause the Award to become subject to
additional tax under Code Section 409A, such payment may be made in installments,
may be deferred until the date or dates when such Options and SARs would have become
exercisable or such Common Shares would have vested, and/or may be subject to
vesting based on the Optionees continuing Service, provided that the vesting
schedule shall not be less favorable to the Optionee than the schedule under which
such Options and SARs would have become exercisable or such Common Shares would have
vested. If the Exercise Price of the Common Shares subject to such Options and SARs
exceeds the Fair Market Value of such Common Shares, then such Options and SARs may
be cancelled without making a payment to the Optionees. For purposes of this
Subsection (e), the Fair Market Value of any security shall be determined without
regard to any vesting conditions that may apply to such security.
(f) The cancellation of outstanding Stock Units and a payment to the
Participants equal to the Fair Market Value of the Common Shares subject to such
Stock Units (whether or not such Stock Units are then vested) as of the closing date
of such merger or consolidation. Such payment shall be made in the form of cash,
cash equivalents, or securities of the surviving corporation or its parent with a
Fair Market Value equal to the required amount. Except to the extent it would cause
the Award to become subject to additional tax under Code Section 409A, such payment
may be made in installments, may be deferred until the date or dates when such Stock
Units would have vested, and/or may be subject to vesting based on the Participants
continuing Service, provided that the vesting schedule shall not be less favorable
to the Participant than the schedule under which such Stock Units would have vested.
For purposes of this Subsection (f), the Fair Market Value of any security shall be
determined without regard to any vesting conditions that may apply to such security.
ARTICLE 12. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may be settled in the
form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes
under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued,
reduce the number of Common Shares available under Article 3.
ARTICLE 13. PAYMENT OF DIRECTORS FEES IN SECURITIES.
13.1 Effective Date. No provision of this Article 13 shall be effective unless and until the
Board has determined to implement such provision.
13.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside Director may
elect to receive his or her annual retainer payments and/or meeting fees from the Company in the
form of cash, NSOs, Restricted Shares or Stock Units, or a combination thereof, as determined by
the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 13 shall be filed with the Company on the prescribed form.
11
13.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The number of NSOs,
Restricted Shares or Stock Units to be granted to Outside Directors in lieu of annual retainers and
meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the
Board. The Board shall also determine the terms of such NSOs, Restricted Shares or Stock Units.
ARTICLE 14. LIMITATION ON RIGHTS.
14.1 Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed
to give any individual a right to remain an Employee, Outside Director or Consultant. The Company
and its Parents, Subsidiaries and Affiliates reserve the right to terminate the Service of any
Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable
laws, the Companys certificate of incorporation and by-laws and a written employment agreement (if
any).
14.2 Stockholders Rights. A Participant shall have no dividend rights, voting rights or
other rights as a stockholder with respect to any Common Shares covered by his or her Award prior
to the time when a stock certificate for such Common Shares is issued or, if applicable, the time
when he or she becomes entitled to receive such Common Shares by filing any required notice of
exercise and paying any required Exercise Price. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to such time, except as expressly provided in the
Plan.
14.3 Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation
of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules
and regulations and such approval by any regulatory body as may be required. The Company reserves
the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award
prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares,
to their registration, qualification or listing or to an exemption from registration, qualification
or listing.
ARTICLE 15. TAXES.
15.1 General Withholding Obligations. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to
the Company for the satisfaction of any withholding tax obligations that arise in connection with
the Plan. The Company shall not be required to issue any Common Shares or make any cash payment
under the Plan until such obligations are satisfied.
15.2 Share Withholding. To the extent that applicable law subjects a Participant to tax
withholding obligations, the Committee may permit such Participant to satisfy all or part of such
obligations by having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common Shares that he or
she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date
when they are withheld or surrendered.
15.3 Code Section 409A Matters. To the fullest extent applicable and unless otherwise
expressly indicated in an applicable Award agreement, Awards granted under this Plan
12
are intended to be exempt from the definition of nonqualified deferred compensation under
Code Section 409A in accordance with one or more of the exemptions available under the final
Treasury regulations promulgated under Code Section 409A and the terms of the Plan and the
applicable Award agreement shall be interpreted and administered in a manner consistent with that
intent. To the extent that an Award is, or becomes subject to, Code Section 409A either
intentionally or due to a failure of an individual Award to qualify for an exemption from the
definition of nonqualified deferred compensation in accordance with Code Section 409A, such Award
is intended to comply with the applicable requirements of Code Section 409A to the maximum extent
possible and with respect to any such Award, the terms of the Plan and the applicable Award
agreement shall be interpreted and administered in a manner consistent with that intent. In no
event will the Company be liable for any taxes, penalties or interest that may be imposed with
respect to an Award under Code Section 409A or under any other similar provision of state tax law,
or for any damages for an Awards failing to comply with Code Section 409A, any other similar
provision of state tax law, or the provisions of this Section 15.3.
ARTICLE 16. LIMITATION ON PAYMENTS.
16.1 Scope of Limitation. This Article 16 shall apply to an Award only if:
(a) The independent auditors selected for this purpose by the Committee (the
Auditors) determine that the after-tax value of such Award to the Participant,
taking into account the effect of all federal, state and local income taxes,
employment taxes and excise taxes applicable to the Participant (including the
excise tax under section 4999 of the Code), will be greater after the application of
this Article 16 than it was before the application of this Article 16; or
(b) The Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall be subject to this Article 16
(regardless of the after-tax value of such Award to the Participant).
If this Article 16 applies to an Award, it shall supersede any contrary provision of the Plan or of
any Award granted under the Plan.
16.2 Basic Rule. In the event that the Auditors determine that any payment or transfer by the
Company under the Plan to or for the benefit of a Participant (a Payment) would be nondeductible
by the Company for federal income tax purposes because of the provisions concerning excess
parachute payments in section 280G of the Code, then the aggregate present value of all Payments
shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Article 16, the
Reduced Amount shall be the amount of the Payment, expressed as a present value, which provides
the greatest economic benefit to the Participant without causing any of the Payments to be
nondeductible by the Company because of section 280G of the Code, provided that if more than one
manner of reduction of the Payments necessary to arrive at the Reduced Amount yields the greatest
economic benefit to the Participant, the Payments shall be reduced pro rata. Neither the
Participant nor the Company shall have the authority to specify the order of reduction of the
Payments.
13
16.3 Reduction of Payments. If the Auditors determine that any Payment would be nondeductible
by the Company because of section 280G of the Code, then the Company shall promptly provide the
Participant appropriate notice to that effect, including a copy of the detailed calculation thereof
and of the Reduced Amount, and details regarding the manner in which the reduction provided for
under Section 16.2 shall be effected. For purposes of this Article 16, present value shall be
determined in accordance with section 280G(d)(4) of the Code. All determinations made by the
Auditors under this Article 16 shall be binding upon the Company and the Participant and shall be
made within 60 days of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the Company shall pay or
transfer to or for the benefit of the Participant such amounts as are then due to him or her under
the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future
such amounts as become due to him or her under the Plan.
16.4 Overpayments and Underpayments. As a result of uncertainty in the application of
section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is
possible that Payments will have been made by the Company which should not have been made (an
Overpayment) or that additional Payments which will not have been made by the Company could have
been made (an Underpayment), consistent in each case with the calculation of the Reduced Amount
hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the
Internal Revenue Service against the Company or the Participant that the Auditors believe has a
high probability of success, determine that an Overpayment has been made, such Overpayment shall be
treated for all purposes as a loan to the Participant that he or she shall repay to the Company,
together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Participant to the Company if and to the
extent that such payment would not reduce the amount that is subject to taxation under section 4999
of the Code. In the event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the
Participant, together with interest at the applicable federal rate provided in section 7872(f)(2)
of the Code.
16.5 Related Corporations. For purposes of this Article 16, the term Company shall include
affiliated corporations to the extent determined by the Auditors in accordance with
section 280G(d)(5) of the Code.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, shall become effective on the date of
the Companys initial public offering. The Plan shall remain in effect until the earlier of
(a) the date when the Plan is terminated under Section 17.2 or (b) the 10th anniversary
of the date when the Board adopted the Plan.
17.2 Amendment or Termination. The Board may, at any time and for any reason, amend or
terminate the Plan. No Awards shall be granted under the Plan after the termination thereof. The
termination of the Plan, or any amendment thereof, shall not affect any Award previously granted
under the Plan.
14
17.3 Stockholder Approval. An amendment of the Plan shall be subject to the approval of the
Companys stockholders only to the extent required by applicable laws, regulations or rules,
including the listing requirements of the primary securities exchange or over-the-counter market
where the Common Shares are listed for trading. However, section 162(m) of the Code may require
that the Companys stockholders approve the performance criteria set forth in Appendix A not later
than the first meeting of stockholders that occurs in the fifth year following the year in which
the Companys stockholders previously approved such criteria.
ARTICLE 18. DEFINITIONS.
18.1 Affiliate means any entity other than a Subsidiary, if the Company and/or one or more
Subsidiaries own not less than 50% of such entity.
18.2 Award means any award of an Option, an SAR, a Restricted Share or a Stock Unit under
the Plan.
18.3 Board means the Companys Board of Directors, as constituted from time to time.
18.4 Cause means:
(a) An unauthorized use or disclosure by the Participant of the Companys
confidential information or trade secrets, which use or disclosure causes material
harm to the Company;
(b) A material breach by the Participant of any agreement between the
Participant and the Company;
(c) A material failure by the Participant to comply with the Companys written
policies or rules;
(d) The Participants conviction of, or plea of guilty or no contest to, a
felony under the laws of the United States or any State thereof;
(e) The Participants gross negligence or willful misconduct;
(f) A continuing failure by the Participant to perform assigned duties after
receiving written notification of such failure from the Board; or
(g) A failure by the Participant to cooperate in good faith with a governmental
or internal investigation of the Company or its directors, officers or employees, if
the Company has requested the Participants cooperation.
18.5 Change in Control means:
(a) The consummation of a merger or consolidation of the Company with or into
another entity or any other corporate reorganization, if
15
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or surviving entity and
(ii) any direct or indirect parent corporation of such continuing or surviving
entity;
(b) The sale, transfer or other disposition of all or substantially all of the
Companys assets;
(c) A change in the composition of the Board, as a result of which fewer than
50% of the incumbent directors are directors who either:
(i) Had been directors of the Company on the date 24 months
prior to the date of such change in the composition of the Board
(the Original Directors); or
(ii) Were appointed to the Board, or nominated for election to
the Board, with the affirmative votes of at least a majority of the
aggregate of (A) the Original Directors who were in office at the
time of their appointment or nomination and (B) the directors whose
appointment or nomination was previously approved in a manner
consistent with this Paragraph (ii); or
(d) Any transaction as a result of which any person is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing at least 50% of the total voting power
represented by the Companys then outstanding voting securities. For purposes of
this Subsection (d), the term person shall have the same meaning as when used in
sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company or
of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their ownership
of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to change the state
of the Companys incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Companys securities immediately before such
transaction.
18.6 Code means the Internal Revenue Code of 1986, as amended.
18.7 Committee means a committee of the Board, as described in Article 2.
18.8 Common Share means one share of the common stock of the Company.
18.9 Company means Vanda Pharmaceuticals Inc., a Delaware corporation.
16
18.10 Consultant means a consultant or adviser who provides bona fide services to the
Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a
Consultant shall be considered employment for all purposes of the Plan, except as provided in
Section 4.1.
18.11 Employee means a common-law employee of the Company, a Parent, a Subsidiary or an
Affiliate.
18.12 Exchange Act means the Securities Exchange Act of 1934, as amended.
18.13 Exercise Price, in the case of an Option, means the amount for which one Common Share
may be purchased upon exercise of such Option, as specified in the applicable Stock Option
Agreement. Exercise Price, in the case of an SAR, means an amount, as specified in the
applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
18.14 Fair Market Value means the market price of one Common Share as determined by the
Committee in good faith on such basis as it deems appropriate. Whenever possible, the
determination of Fair Market Value by the Committee shall be based on the prices reported in
The Wall Street Journal. Such determination shall be conclusive and binding on all
persons.
18.15 Involuntary Termination means the termination of the Participants Service by reason
of:
(a) The involuntary discharge of the Participant by the Company (or the Parent,
Subsidiary or Affiliate employing him or her) for reasons other than Cause; or
(b) The voluntary resignation of the Participant following (i) a material
adverse change in his or her title, stature, authority or responsibilities with the
Company (or the Parent, Subsidiary or Affiliate employing him or her), (ii) a
material reduction in his or her base salary or (iii) receipt of notice that his or
her principal workplace will be relocated by more than 30 miles.
18.16 ISO means an incentive stock option described in section 422(b) of the Code.
18.17 NSO means a stock option not described in sections 422 or 423 of the Code.
18.18 Option means an ISO or NSO granted under the Plan and entitling the holder to purchase
Common Shares.
18.19 Optionee means an individual or estate who holds an Option or SAR.
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18.20 Outside Director means a member of the Board who is not an Employee. Service as an
Outside Director shall be considered employment for all purposes of the Plan, except as provided in
Section 4.1.
18.21 Parent means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a Parent on a date
after the adoption of the Plan shall be considered a Parent commencing as of such date.
18.22 Participant means an individual or estate who holds an Award.
18.23 Plan means this Vanda Pharmaceuticals Inc. 2006 Equity Incentive Plan, as amended from
time to time.
18.24 Restricted Share means a Common Share awarded under the Plan.
18.25 Restricted Stock Agreement means the agreement between the Company and the recipient
of a Restricted Share that contains the terms, conditions and restrictions pertaining to such
Restricted Share.
18.26 SAR means a stock appreciation right granted under the Plan.
18.27 SAR Agreement means the agreement between the Company and an Optionee that contains
the terms, conditions and restrictions pertaining to his or her SAR.
18.28 Service means service as an Employee, Outside Director or Consultant.
18.29 Stock Option Agreement means the agreement between the Company and an Optionee that
contains the terms, conditions and restrictions pertaining to his or her Option.
18.30 Stock Unit means a bookkeeping entry representing the equivalent of one Common Share,
as awarded under the Plan.
18.31 Stock Unit Agreement means the agreement between the Company and the recipient of a
Stock Unit that contains the terms, conditions and restrictions pertaining to such Stock Unit.
18.32 Subsidiary means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.
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Appendix A
Performance Criteria for Restricted Shares and Stock Units
The performance goals that may be used by the Committee for such awards may consist of: (a)
operating profits (including EBITDA); (b) net profits; (c) earnings per share; (d) profit returns
and margins; (e) revenues; (f) stockholder return and/or value; (g) stock price; (h) working
capital; (i) regulatory achievements (including submitting or filing applications or other
documents with regulatory authorities or receiving approval of any such applications or other
documents and passing pre-approval inspections (whether of the Company or the Companys third-party
manufacturer) and validation of manufacturing processes (whether the Companys or the Companys
third-party manufacturers)); and (j) clinical achievements (including initiating clinical studies,
initiating enrollment, completing enrollment or enrolling particular numbers of subjects in
clinical studies, completing phases of a clinical study (including the treatment phase), or
announcing or presenting preliminary or final data from clinical studies in each case, whether on
particular timelines or generally).
Performance goals may be measured solely on a corporate, subsidiary or business unit basis, or a
combination thereof. Further, performance criteria may reflect absolute entity performance or a
relative comparison of entity performance to the performance of a peer group of entities or other
external measure of the selected performance criteria.
Profit, earnings and revenues used for any performance goal measurement may exclude: gains or
losses on operating asset sales or dispositions; asset write-downs; litigation or claim judgments
or settlements; accruals for historic environmental obligations; effect of changes in tax law or
rate on deferred tax liabilities; accruals for reorganization and restructuring programs; uninsured
catastrophic property losses; the cumulative effect of changes in accounting principles; and any
extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or
in managements discussion and analysis of financial performance appearing in the Companys annual
report to stockholders for the applicable year.
VANDA PHARMACEUTICALS INC.
9605 MEDICAL CENTER DRIVE, SUITE 300
ROCKVILLE, MD 20850
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up
until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card
in hand when you access the web site and follow the instructions to obtain your records and to
create an electronic voting instruction form.
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can
consent to receiving all future proxy statements, proxy cards and annual reports electronically via
e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to
vote using the Internet and, when prompted, indicate that you agree to receive or access proxy
materials electronically in future years. |
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VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time
the day before the cut-off date or meeting date. Have your proxy card in hand when you call and
then follow the instructions. |
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VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or
return it to Vote Processing, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M24843-P95260
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KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY
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VANDA PHARMACEUTICALS INC. |
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For All |
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To withhold
authority to vote
for any individual
nominee(s), mark
For All Except
and write the
number(s) of the
nominee(s) on the
line below. |
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All |
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Except |
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The Board of Directors recommends that you vote FOR the nominees for directors
listed below: |
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TO ELECT TWO DIRECTORS TO HOLD OFFICE UNTIL THE 2013 ANNUAL
MEETING OF THE STOCKHOLDERS. |
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Nominees:
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01) Howard
H. Pien |
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02) H.
Thomas Watkins |
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The Board of Directors recommends that you vote FOR the following proposal: |
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TO APPROVE THE MATERIAL TERMS OF THE VANDA PHARMACEUTICALS INC. 2006 EQUITY INCENTIVE PLAN, AS AMENDED. |
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The Board of Directors recommends that you vote FOR the following proposal: |
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3. |
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TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010. |
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NOTE: In his or her discretion, the proxy holder is authorized to vote upon such other business as may properly come before the Annual Meeting. |
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PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE |
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Please sign exactly as your name(s)
appear(s) hereon. When signing as attorney,
executor, administrator, or other
fiduciary, please give full title as such.
Joint owners should each sign personally.
All holders must sign. If a corporation or
partnership, please sign in full corporate
or partnership name, by authorized officer. |
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Important Notice Regarding the Availability of Proxy Materials for the Annual
Meeting:
The Notice and Proxy Statement, Form 10-K and Shareholder Letter are available at
www.proxyvote.com.
VANDA PHARMACEUTICALS INC.
Annual Meeting of Stockholders
June 3, 2010 9:00 AM
This Proxy is solicited on behalf of the Board of
Directors
for the Annual Meeting of Stockholders to be
held on June 3, 2010
The undersigned appoints Mihael H. Polymeropoulos, M.D. and Ms. Stephanie R. Irish, or any of
them as shall be in attendance at the 2010 Annual Meeting of Stockholders, as proxy or proxies,
with full power of substitution, to represent the undersigned at the Annual Meeting of Stockholders
of Vanda Pharmaceuticals Inc. (the Company), to be held on June 3, 2010, at 9:00 a.m. local time,
at 9605 Medical Center Drive, Rockville, Maryland, and at any adjournments or postponements of the
Annual Meeting, and to vote on behalf of the undersigned as specified in this Proxy all the Common
Stock of the Company that the undersigned would be entitled to vote if personally present, upon the
matters referred to on the reverse side hereof, and, in their sole discretion, upon any other
business as may properly come before the Annual Meeting. The undersigned acknowledges receipt
of the Notice of the Annual Meeting of Stockholders and of the accompanying proxy statement and
revokes any proxy heretofore given with respect to such Annual Meeting. The votes entitled to
be cast by the undersigned will be cast as instructed.
If this Proxy is executed, but no instruction is given, the votes entitled to be cast by the undersigned will be cast FOR each of the Board of Directors nominees for director in Proposal 1,
FOR Proposal 2 and FOR Proposal 3, each of which is set forth on the reverse side hereof. The
votes entitled to be cast by the undersigned will be cast in the discretion of the Proxy holders on
any other matter that may properly come before the Annual Meeting and any adjournment or
postponement thereof.
Continued and to be signed on reverse side