Proxy Statement
20212022 Annual Meeting of
Stockholders
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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LANNETT COMPANY, INC.
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| Lannett Company, Inc. 1150 Northbrook Drive, Suite 155 Trevose, Pennsylvania 19053 215-333-9000
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December 7, 202010, 2021
Dear Lannett Company, Inc. Stockholders:
It is my pleasure to invite you to the 20212022 Annual Meeting of Stockholders of Lannett Company, Inc. which will be held on January 27, 202126, 2022 at 9:00 a.m. Eastern Time.
In light of the coronavirus outbreak (“COVID-19”) and to protect the health and safety of Lannett Company, Inc.’s stockholders, Board of Directors and employees, this year’s Annual Meeting will be our first time hosting a completely virtual meeting of stockholders, which will be conducted online via live webcast. You will be able to attend and participate in the Annual Meeting online, vote your shares electronically and submit your questions prior to and during the meeting by visiting: www.meetingcenter.io/251487326Time, at the meeting date and time described in the accompanying proxy statement. The password for the meeting is LCI2021. There is no physical location for the Annual Meeting. To participate in the Annual Meeting, you will need to review the information included on your proxy card.Wyndham Grand Jupiter at Harbourside Place, 122 Soundings Avenue, Jupiter, Florida 33477.
The purpose of the meeting is to (i) elect sevensix members of our Board of Directors, (ii) vote to ratify the selection of Grant Thornton, LLP as our independent auditors, (iii) obtain an advisory vote on the compensation of the Company’s executive officers, (iv) approve the Lannett Company, Inc. 2021 Long-Term Incentive2022 Employee Stock Purchase Plan, and (v) transact such other business as may properly come before the Annual Meeting.
Your vote is important. Whether you plan to attend the meeting via remote communication or not, we encourage you to read this Proxy Statement, in its entirety, and vote your shares. Please sign, date and return the enclosed proxy card as soon as possible in the postage-paid envelope provided.
We look forward to your participation should you be able to joinattend our virtual meeting of stockholders.annual meeting.
Thank you.
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| /s/ Patrick G. LePore |
December | Patrick G. LePore |
Trevose, Pennsylvania | Chairman of the Board |
LANNETT COMPANY, INC.
1150 Northbrook Drive, Suite 155
Trevose, Pennsylvania 19053
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 27, 202126, 2022
TO THE STOCKHOLDERS OF LANNETT COMPANY, INC.
The 20212022 Annual Meeting (the “Annual Meeting”) of the Stockholders of Lannett Company, Inc., a Delaware Corporation (the “Company” or “Lannett”), will be held on January 27, 202126, 2022 at 9:00 a.m. Eastern Time, at online by remote communicationThe Wyndham Grand Jupiter at Harbourside Place, 122 Soundings Avenue, Jupiter, Florida 33477, for the following purposes:
1.To elect seven (7)six (6) members of the Board of Directors (the “Board”) to serve until the next Annual Meeting of Stockholders;
2.To ratify the selection of Grant Thornton, LLP as independent auditors for the fiscal year ending June 30, 2021;
2022;
3.To obtain a non-binding advisory vote on the compensation of the Company’s executive officers;
4.To approve the Lannett Company, Inc. 2021 Long-Term Incentive2022 Employee Stock Purchase Plan; and
5.To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.
THESE MATTERS ARE MORE FULLY DESCRIBED IN THE PROXY STATEMENT ACCOMPANYING THIS NOTICE.
Only stockholders of record at the close of business on December 3, 20208, 2021 are entitled to notice and to vote at the 20212022 Annual Meeting.
It is important that your shares be represented and voted at the Annual Meeting. Please vote by following the instructions on the enclosed proxy card as promptly as possible so that, whether you intend to be present at the Annual Meeting via remote communication or not, your shares can be voted.
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| By Order of the Board of Directors |
| /s/ Patrick G. LePore |
December | Patrick G. LePore |
Trevose, Pennsylvania | Chairman of the Board |
LANNETT COMPANY, INC.
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 27, 202126, 2022
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PROPOSAL NO. 2 — RATIFICATION OF GRANT THORNTON, LLP AS INDEPENDENT AUDITORS |
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PROPOSAL NO. 3 — NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION |
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DATE, TIME, AND PLACE OF MEETING
This Proxy Statement is provided to you by the Board of Directors (the “Board”) of Lannett Company, Inc. (“Lannett” or the “Company”) in connection with the 20212022 Annual Meeting of Stockholders (the “Annual Meeting”). The Annual Meeting will be held on January 27, 202126, 2022 at 9:00 a.m. Eastern Time, at online by remote communicationThe Wyndham Grand Jupiter at Harbourside Place, 122 Soundings Avenue, Jupiter, Florida 33477, or at any adjournments or postponements of the Annual Meeting for the purposes set forth in the accompanying Notice of Annual Meeting. We intend to mail this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders on or about December 18, 202020, 2021 to all stockholders of the Company entitled to vote at the Annual Meeting.
You may vote on matters to come before the Annual Meeting in three ways:
● | You may attend the Annual Meeting and cast your vote |
● | You may vote by internet or by phone by following the instructions set forth on the proxy card; or |
● | You may vote by signing and returning the enclosed proxy card by mail. If you do so, the individual named on the card will vote your shares in the manner you indicate. You may revoke your proxy at any time prior to the Annual Meeting by sending written notice to the Secretary of the Company at 1150 Northbrook Drive, Suite 155, Trevose, Pennsylvania 19053, or by attending the |
If you attend the virtual Annual Meeting to cast your vote in person and you are holding your stock in a brokerage account (“street name”), you will need to provide a legal proxy obtained from your broker by following the instructions on the enclosed proxy card.
broker.
You are entitled to cast one vote for each share of Lannett common stock owned on the record date, December 3, 2020.8, 2021. As of the record date, there were 41,700,29743,304,152 shares of Lannett common stock outstanding. Stockholders are not entitled to cumulative voting in the election of directors.
Directors.
A quorum of stockholders is necessary to hold a valid meeting for the transaction of business. If the holders of a majority of Lannett common stock are present at the meeting, online by remote communicationin person or by proxy, a quorum will exist. Abstentions and “broker non-votes” are counted as present for purposes of establishing a quorum.
Directors are elected by a plurality vote of shares present by remote communication or by proxy at the Annual Meeting. Each other action to be considered by the stockholders will be approved by the affirmative vote of at least a majority of the shares present by remote communicationin person or by proxy at the meeting and entitled to vote on the matter. For any proposal, an abstention will have the same effect as a vote against the proposal. Broker non-votes will not be voted for or against any of these proposals and will have no effect on any of these proposals.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements. Any statements made in this Proxy Statement that are not statements of historical fact or that refer to estimated or anticipated future events are forward-looking statements. We have based our forward-looking statements on management’s beliefs and assumptions based on information available to them at this time. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” or “pursue,” or the negative other variations thereof or comparable terminology, are intended to identify forward-looking statements. Such forward-looking statements reflect our current perspective of our business, future performance, existing trends and information as of the date of this filing. These include, but are not limited to our beliefs about future revenue and expense levels, growth rates, prospects related to our strategic initiatives and business strategies, express or implied assumptions about government regulatory action or inaction, anticipated product approvals and launches, business initiatives and product development activities, assessments related to clinical trial results, product performance and competitive environment, and anticipated financial performance. The statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We caution the reader that certain important factors may affect our actual operating results and could cause such results to differ materially from those expressed or implied by forward-looking statements. Lannett is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise and other events or factors, many of which are beyond our control, including those resulting from events, or the prospect of such events, such as public health issues including health epidemics or pandemics, such as the recent outbreak of the novel coronavirus (“COVID-19”), whether occurring in the United States or elsewhere, which could disrupt our operations, disrupt the operations of our suppliers and business development or other strategic partners, disrupt the global financial markets or result in political or economic instability. We believe the risks and uncertainties discussed under “Item 1A - Risk Factors” contained in the Company’s Annual Report on Form 10-K and from time to time in our SEC filings may affect our actual results.
We disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. We also may make additional disclosures in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and in other filings that we may make from time to time with the SEC. Other factors besides those listed here could also adversely affect us.
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The Role of the Board in Setting Purpose, Values and Risk OversightStrategy
The Board of Directors sets foundational values and strategies for the Company and relies on management to implement policies that support those values and achieve corporate goals.
The Chief Executive Officer, who is the only employee member of the Board of Directors, serves as a vital communication link between the Board and the executive team by providing regular strategic overviews that describe the most significant issues, risks and opportunities facing the Company. Business and functional leaders also provide regular updates so that the Board can review and discuss the risks and opportunities associated with the Company’s financial forecasts, business plan and operations.
Corporate Governance Profile
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Board Summary | | Executive Compensation Governance Practices | |||
● Separate non-employee Chairman of the Board and CEO, with Lead Independent Director rules in place | | ● Emphasize variable incentives to align pay with performance | |||
● Fully independent Audit Committee, Compensation Committee, and Governance & Nominating Committee | | ● Tie incentive compensation to multiple performance metrics | |||
● Newly formed Environmental, Social and Governance Committee | | ● Place primary emphasis on equity compensation to align with stockholder interests | |||
● Four of six director nominees are independent (one director nominee is the CEO and another nominee is the largest stockholder) | | ● Incorporate a number of policies that mitigate against potential risk (e.g., clawback policy) | |||
Director Nominee Profile
The Company is focused on nominating a Board of Directors with a balance of functional expertise, leadership experience, high moral character, critical thinking, and a diversity of backgrounds and tenure necessary to effectively oversee the Company’s business. The Governance and Nominating Committee is responsible for developing the criteria and qualifications required for director nominations and used the Board Nominee Skills Matrix below in its nomination process. The Governance and Nominating Committee believes these six skills listed are the some of the most salient Board member qualifications for the next year – and for several years into the future. The table below displays the Board’s balance given the current nominees.
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| | Board Nominee Skills Matrix | ||||||||||
| | Generic/Brand | | Audit/Financial/ | | | | | | | | |
| | Pharmaceutical | | IT Security | | Executive | | Strategic Planning/ | | Corporate | | International |
Nominee | | Expertise | | Expertise | | Leadership | | R&D/Human Capital | | Governance | | Experience |
Patrick G. LePore | | P | | | | P | | P | | | | |
John C. Chapman | | | | P | | P | | | | | | P |
Timothy C. Crew | | P | | | | P | | P | | | | P |
David Drabik | | | | P | | | | P | | P | | |
Jeffrey Farber | | P | | | | P | | P | | | | |
Melissa Rewolinski | | P | | | | | | P | | | | P |
Annually, the Governance and Nominating Committee reviews the size of the Board and ensures that qualified candidates are included in the pool from which the Board nominees are chosen. The Committee also ensures that the pool of candidates includes diversity in regard to gender, ethnicity, tenure, skills and experience. In each new director search, the Governance and Nominating Committee instructs any search firm engaged to include candidates that identify as female and minority candidates, which is also known as the Rooney Rule. For the 2022 Annual Stockholders Meeting, the Board has reduced its director nominees to six, which is in line with the Company’s overall cost reduction effort.
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The Governance and Nominating Committee considers several metrics related to Board composition when reviewing the size of the Board and qualifications of the nominees annually. This year, the director nominees maintain a balanced tenure position with four nominees having served less than five years in their positions and two nominees having served for over 10 years. The average tenure of the nominees is approximately seven years. The average age of the Board nominees is 59 years old. The graphics below highlight additional key metrics reviewed by the Governance and Nominating Committee.
Three committees, including the Audit Committee, Compensation Committee and the Governance and Nominating Committee, will remain 100% independent if all nominees are re-elected at the stockholders meeting. With the retirement of Mr. Taveira from the Board and if all nominees are re-elected, Mr. Drabik will assume the position of Chairman of the Compensation Committee and Dr. Rewolinski will be appointed as a member of the Compensation Committee and Governance and Nominating Committee. The Environmental, Social and Governance (“ESG”) Committee will be 75% independent.
Risk Management
Assessing and managing risk is the responsibility of management; however, the Board, through the Audit Committee, provides oversight and reviews various details regarding the Company’s risk mitigation efforts (i.e., Enterprise Risk Management or “ERM”). Through the Board’s committees, the Board maintains broad oversight over various functions within the Company. The Audit Committee, under its charter, reviews and discusses risk exposures and the steps management has taken to monitor and mitigate each risk. The Board is engaged in the Company’s strategic planning efforts, which include evaluating the objectives and risks associated with these initiatives.
The Company’s ERM is a fluid process that identifies, assesses, and mitigates actual and potential risks that may affect the Company’s ability to achieve its strategic objectives. Risk and strategy issues are used to develop annual, cross-functional risk mitigation and management plans. The plans are updated by the management leadership team on an ongoing basis with a particular focus on the high-risk areas. Management updates the Audit Committee on its ERM processes at the quarterly scheduled Board meetings. The plans are approved annually by the Board of Directors after input from a multidisciplinary group of executives and various committees, including the ESG Committee.
Sustainability
As a responsible and ethical company, the Board recognizes that ESG factors may have a material impact on the long-term risk and growth of the Company. With this in mind, the ESG Committee was established by the Board of Directors in April 2021 for the purpose of overseeing the Company’s ESG activities. The Board is ultimately responsible for ESG activities and provides strategic direction based on input from outside stakeholders, management and the Board’s ESG Committee.
The ESG Committee examines and evaluates the repercussions of ESG activities including, but not limited to:
| a) | Environmental risks created by business activities which may have an impact on air, land, water, ecosystems, and human health, with a view toward avoiding or minimizing environmental liabilities, lowering costs and increasing profitability through efficiencies, and reducing regulatory, litigation and reputational risk. |
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| b) | Social risks, including promoting health and safety, creating a diverse workforce, encouraging labor-management relations, protecting human rights and focusing on product integrity, in order to increase productivity and morale, reduce turnover and absenteeism. |
| c) | Governance risks, including diversity, corporate risk management and executive compensation, through measures such as addressing diversity and accountability of the Board, protecting stockholders and their rights, and reporting and disclosing information, with an objective of aligning interests of stockholders, management and other constituencies. |
Human Capital
The Company believes that an inclusive and diverse workforce is essential to the success of our employees in reaching their highest potential and the Company in reaching our short-term and long-term goals. Employment is based upon personal capabilities and qualifications without discrimination because of gender, race, national origin, ancestry, religion, age, color, physical or mental disability, sexual orientation, gender identity, transgender status, marital status, creed, arrest record, conviction record, citizenship status, veteran status, predisposing genetic characteristics, reproductive health decisions or any other characteristic protected by law. Below is a snapshot of key inclusion and diversity metrics related to the Company’s workforce as of June 30, 2021.
Board Diversity, Equity, & Inclusion
We believe that a Board comprised of Directors from diverse backgrounds promotes the inclusion of different perspective and ideas, makes good business sense, and makes for better corporate governance. When assessing Board composition or identifying suitable candidates for appointment or reelection to the Board, the Committee will consider candidates based on merit against objective criteria having due regard to the benefits of diversity and the needs of the Board. The list of candidates will include individuals with a variety of business experiences, from different geographies and of various ages, genders, and ethnicities. Annually, the Governance and Nominating Committee will review this policy and assess its effectiveness in promoting a diverse Board.
The Board is responsible for overall corporate governance, as well as for management andwhich includes, but is not limited to, providing oversight of the strategic direction of the Company as a whole.and management’s implementation of the Company’s strategic plan. The corporate governance guidelines are available at www.lannett.com. The Board and various committees of the Board meet regularly to discuss operating and financial reports presented by the Company, including but not limited to the Chief Executive Officer, Chief Financial Officer, and other members of management.
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AssessingTable of Contents
Code of Conduct and managing risk is the responsibility of management; however, the Board, through the Audit Committee, provides oversight and reviews various details regarding the Company’s risk mitigation efforts. The Board is engaged in the Company’s strategic planning efforts, which include evaluating the objectives and risks associated with these initiatives.
Through the Board’s committees, the Board maintains broad oversight over various functions within the Company. The Audit Committee, under its charter, reviews and discusses risk exposures and the steps management has taken to monitor and mitigate each risk. The Compensation Committee and the Governance and Nominating Committee monitor risks associated with succession planning and the attraction and retention of talent, as well as risks related to the design of compensation programs within the Company.
Ethics
The Board has adopted a Code of Business Conduct and Ethics (the “code“Code of ethics”Conduct”). The codeCode of ethicsConduct applies to all employees including the Company’s Board of Directors, Chief Executive Officer, Chief Financial Officer, Corporate Controller, and other financekey employees. The codeCode of ethicsConduct is publicly available on our website at www.lannett.com. If the Company makes any substantive amendments to the codeCode of ethicsConduct or grants any waiver, including any implicit waiver, from a provision of the codeCode of ethicsConduct to our Chief Executive Officer, Chief Financial Officer, or Corporate Controller, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.
Our Code of Conduct is a guide to build on our legacy. It is designed to guide members of the Lannett family to navigate ethical situations, interact ethically, make good decisions and handle workplace situations with integrity.
All employees at Lannett and its subsidiaries, including corporate officers and members of our Board of Directors, are required to read, understand and follow our Code of Conduct. Our employees undergo periodic training on the Company’s policies and procedures and, in addition to completing a required number of annual outside training credits, the Board undergoes annual compliance training by a compliance professional. Business partners, such as vendors, consultants and temporary employees who serve as an extension of the Company are expected to follow our lead in how we conduct business.
Anti-Hedging and Anti-Pledging Policy
The Board has established effective anti-hedging and anti-pledging policies. We have an insider trading policy which among other restrictions prohibits employees, officers and Directors, including Named Executive Officers (“NEOs”), from entering into short sales, calls or any other hedging transaction involving Lannett securities. In addition, the Board has a policy that prohibits Directors and NEOs from pledging Lannett stock. None of our Directors or NEOs have pledged Lannett stock as collateral for personal loans or other obligations.
Board Attendance
The members of the Board are expected to attend all Board meetings whether in person or via teleconference. Additionally, members of the Board are expected to attend the Annual Meeting.
The Board met sixseven times during the fiscal year ended June 30, 20202021 (“Fiscal 2020”2021”). In addition to meetings of the Board, Directors attended meetings of individual Board committees. Each of the Directors attended 100%at least 85% of the Board meetings and meetings of Board committees of which they were a member during Fiscal 2020.2021. All Directors were present at the 20202021 Annual Meeting.
During the past year, the Board has prioritized providing meaningful oversight and guidance to management during the COVID-19 global pandemic. In mid-March 2020, preceded by earlier calls with management, the Board held a special Board meeting, in which management presented: 1) a business continuity plan as it related to the COVID-19 virus, which included – but was not limited to – control and decision charts that addressed corporate-wide actions to be taken at different levels of the spread and severity of the virus; 2) internal and external communication actions, which included – but was not limited to – providing Center for Disease Control (“CDC”) guidelines to employees and beginning remote work procedures; 3) the status of the Company’s supply chain, which included – but was not limited to – business partners, API and excipient suppliers, and transportation and shipment providers; and 4) an analysis of our customers’ situations and any changes in demand for product. Since the beginning of the pandemic, the Board and management have worked closely together to monitor the crisis and ascertain the Company’s success.
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As the Board and management have been busy navigating this crisis, we have been striving to better communicate our policies and goals regarding corporate stewardship and environmental, society, and corporate governance (“ESG”). The Board and the Company are – and have been - committed to a sustainable future, one that is centered on a reduced environmental footprint, effective use of natural resources and a comprehensive approach to managing carbon intensity that strengthens our quality-oriented focus of providing affordable pharmaceuticals to patients who depend on them. As part of this effort to best communicate our stewardship performance with our shareholders and stakeholders, we are annually and quarterly posting to our website (www.lannett.com/approach/sustainability/) important environmental monitoring metrics and levels such as corporate freshwater intensity, corporate energy usage, corporate climate impact, and corporate waste management. With best practices for corporate stewardship and ESG policies in mind, in this coming year we intend to communicate to our shareholders pertinent information regarding certain programs, plans and initiatives dealing with corporate risk assessment and mitigation, governance programs, long-term strategy, R&D ethics, business ethics, health and safety, government lobbying, supplier ethics, and other stakeholder and societal issues.
Along with increasing our corporate stewardship and ESG disclosure levels, the Board has been actively improving and tightening other governance affairs. This year the Board has put in place an expanded compensation recovery or “clawback” provision for all executive officers. Under the new “clawback” provision, if the Company is required to issue a material financial restatement as a result of fraud or other misconduct, the Board may, in its discretion, seek to recoup any excess performance-based short-term or long-term incentive compensation awarded during the three-year period following the originally filed financial statement(s) from any executive officer who knew about or should have known of the fraud or misconduct and took no action to prevent it. More information on this new provision can be found in the “Compensation Discussion and Analysis” on page 14 of this proxy. Moreover, as it relates to improving corporate governance, we have fortified our Audit Committee by adding Board member, Dr. Melissa Rewolinski, to its ranks, which will broaden the Committee’s skill set. With the Committee’s deepened experience and knowledge base, it has added to its duties and responsibilities oversight for the Company’s Enterprise Risk Management (“ERM”), including enterprise risk assessments, analysis and mitigation efforts. And lastly, to further encourage alignment with shareholder interest, the Board has established stock ownership and retention requirements for executive officers; that is, within five years of first being subject to the guidelines, our CEO and other executive officers are required to achieve and maintain ownership levels based on a 3.0x and 1.5x multiple of base salary, respectively. More information on these guidelines can be found in the “Compensation Discussion and Analysis” on page 14 of this proxy.
The Company’s Corporate Governance Guidelines provide that a majority of our Directors should meet New York Stock Exchange (“NYSE”) independence requirements. A director will not be considered independent unless the Board determines that the director meets the NYSE independence requirements and has no relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director.
Our Board leadership structure is one under which Patrick G. LePore serves as the non-executive, independent Chairman of the Board. We currently have six other Directors, including Timothy C. Crew, Chief Executive Officer. Five of the seven Directors currently serving on the Board of Directors are “independent” as defined by the NYSE. During Fiscal 2020,2021, the boardBoard had four permanent committees: the Audit Committee, Compensation Committee, Governance and Nominating Committee, and Strategic PlanningEnvironmental, Social and Governance Committee. In October 2020, the Board assumed the responsibilities of the Strategic PlanningThe ESG Committee including overseeing the Company’s medium and long-term business strategies, and subsequently dissolved the committee of the Board.was formed in April 2021. In addition, the non-management members of the Board of Directors meet regularly without management directorsDirectors or management personnel present.
The Board believes that the role of Chairman of the Board and Chief Executive Officer should be separate, and that the Chairman should not be an employee of the Company. The Board believes that this separation benefits the stockholders in the form of increased oversight. As further oversight, the independent Board members also meet throughout the year in executive sessions where neither management personnel nor other non-independent directorsDirectors are present. In the Company’s case, this excluded Jeffrey Farber and Timothy C. Crew, Chief Executive Officer.
Overall, we believe that the separation of the Chairmanship and Chief Executive Officer positions, our strong committee system, and regular non-management director and independent director meetings allow for effective Board oversight of management.
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Communicating with the Board of Directors
Interested persons may contact the non-management directorsDirectors by sending written comments to 1150 Northbrook Drive, Suite 155, Trevose, Pennsylvania 19053 Attn: Board of Directors. The original communication as addressed, or a summary of the submissions will be forwarded to the directorsDirectors for discussion in the next directorsDirectors meeting. If a summary of the communication is provided, the original communication will be maintained on file and available for the directors’Directors’ review upon request.
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In Fiscal 2020,2021, the Board had four permanent committees - Audit Committee, Compensation Committee, Governance and Nominating Committee and Strategic PlanningEnvironmental, Social and Governance Committee. In April 2021, the Board formed the ESG Committee to provide oversight of the Company’s ESG activities evaluation of risks that may arise from these activities. There were nine (9)twelve (12) Audit Committee meetings, four (4) Compensation Committee meetings, and four (4) Governance and Nominating Committee meetings and three (3) ESG Committee meetings held during Fiscal 2020. In October 2020,2021. The Special Committee of the Board, dissolved the Strategic Planning Committee, which held no meetingswas formed in August 2018, met two (2) times during Fiscal 2020. In August 2018, the Board formed a Special Committee to provide oversight and strategic advice following JSP’s decision not to renew the JSP contract, as well as2021, specifically to provide assistance in evaluating potential capital restructuring and cost reductionthe Company’s debt refinancing efforts. The Special Committee met four (4) times during Fiscal 2020.In February 2019, the Board also formed a Special Stockholder Demand Committee for the purpose of investigating and responding to various stockholder demands against the Company; the Special Stockholder Demand Committee met five (5) times in Fiscal 2020. In October 2020, the Board dissolved the Special Stockholder Demand Committee following the resolution of shareholder derivative lawsuits. The following table shows the directorsDirectors who are currently members of each permanent Board Committee:
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| | | | Compensation | | Governance and | | Environmental, Social and |
Name | | Audit Committee | | Committee | | Nominating Committee | | Governance Committee |
John C. Chapman | | Chairman | | Member | | — | | Member |
Timothy C. Crew | | — | | — | | — | | Chairman |
David Drabik | | Member | | Member | | Chairman | | Member |
Jeffrey Farber | | — | | — | | — | | — |
Patrick G. LePore, Chairman of the Board | | — | | — | | Member | | — |
Melissa Rewolinski | |
| | — | | — | | Member |
Paul Taveira | | Member | | Chairman | | Member | | Member |
*Dr. Rewolinski joined the Board in July 2019 and was appointed a member of the Audit Committee effective July 1, 2020.
The Audit Committee has responsibility for overseeing the Company’s financial reporting process on behalf of the Board. In addition, Audit Committee responsibilities include, but are not limited to, selection of the Company’s independent auditors, conferring with the independent auditors regarding their audit of the Company’s Consolidated Financial Statements, pre-approving and reviewing the independent auditors’ fees and considering whether non-audit services are compatible with maintaining their independence, and considering the adequacy of internal financial controls. The Company has outsourced its annual Sarbanes-Oxley compliance testing and evaluation to Pricewaterhouse Coopers, LLP (“PwC”) and will engage PwC for other risk mitigation services from time to time as needed. The Audit Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com. The charter describes the nature and scope of the Audit Committee’s responsibilities. All members of the Audit Committee are independent directorsDirectors as defined by the rules of the NYSE. See “Report of the Audit Committee.”
Financial expert on Audit Committee:Committee The Board has determined that John C. Chapman, current director and chairmanChairman of the Audit Committee, is the Audit Committee financial expert as defined in section 3(a)(58) of the Exchange Act and the related rules of the Commission.
Information Security Experience on the Audit Committee The Audit Committee is responsible for overseeing management’s controls over information security. The Audit Committee meets at least quarterly with the Company’s IT management and an outside cybersecurity consulting firm, which performs an annual assessment of our cybersecurity controls, as well as the Company’s independent auditors regarding their annual audit procedures, which include information security. John Chapman has information security experience. Pursuant to the Audit Committee charter, the Audit Committee is briefed periodically on the status of the Company’s systems and processes to ensure that the Company’s electronic information is not compromised. There have not been any breaches of Company information systems in the last three years and the Company, which maintains a cyber security insurance policy, has not paid any expenses or penalties related to any information breaches.
The Compensation Committee establishes and regularly reviews the Company’s compensation philosophy, strategy, objectives and ethics and determines the compensation of the executive officers of the Company. For a discussion on the Compensation Committee’s process and factors used in determining executive compensation refer to “Compensation Discussion and Analysis” starting on page 14.17. The Compensation Committee also administers the Company’s equity compensation plans. The Compensation Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com. All members of the Compensation Committee are independent directorsDirectors as defined by the rules of the NYSE.
8
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee during Fiscal 20202021 or as of the date of this Proxy Statement is or has been an officer or employee of the Company and no executive officer of the Company served on the compensation committee or boardBoard of any company that employed any member of the Company’s Compensation Committee or Board.
The Governance and Nominating Committee is responsible for identifying and evaluating individuals qualified to become Board members and for recommending such individuals for nomination. All candidates must possess an unquestionable commitment to high ethical standards and have a demonstrated reputation for integrity. Other factors considered in identifying and evaluating candidates include an individual’s business experience, education, civic and community activities, knowledge and experience with respect to the issues impacting the pharmaceutical industry and public companies, as well as the ability of the individual to devote the necessary time to service as a director.
6
Once a person has been identified by the Governance and Nominating Committee as a potential candidate, the Governance and Nominating Committee performs a robust review, which includes collection of outside information, to include publicly available information and all other relevant information available to determine if the person should be considered further. Once this determination has been made the person is contacted. If the person expresses a willingness and interest to be considered to serve on the Board, the Governance and Nominating Committee will request further information from the candidate including resumes, references and other relevant information. A formal interview process is then held. The Governance and Nominating Committee will then consider all information, qualifications, and accomplishments, including comparisons to other potential candidates before making its final decision.
The Governance and Nominating Committee will also consider candidates recommended by stockholders. All nominees will be evaluated in the same manner, regardless of whether they were recommended by the Governance and Nominating Committee or recommended by a stockholder. To have a candidate considered by the Governance and Nominating Committee, a stockholder must submit the recommendation in writing and must include the following information:
● | The name of the stockholder and evidence of the person’s ownership of Company stock, including the number of shares owned and the length of ownership; and |
● | The name of the candidate, the candidate’s resume or a listing of his or her qualifications to be a director of the Company and the person’s consent to be considered as a director nominee if recommended by the Governance and Nominating Committee to the Board and nominated by the Board to be included in the Proxy Statement for election at the Annual Meeting. |
The stockholder recommendation and information described above must be sent to the Company at 1150 Northbrook Drive, Suite 155, Trevose, Pennsylvania 19053, and must be received not less than 90 days prior to the anniversary date of the Company’s most recent Annual Meeting.
The Governance and Nominating Committee is responsible for overseeing the leadership development plans for succession of the CEO and other executive officers (or the “Succession Plan”). Annually, the CEO shall report to the Committee on this topic and shall provide such committee with recommendations and evaluations of potential successors. The CEO shall recommend who should assume the position of interim CEO in the event of an emergency. The Committee shall review the Succession Plan periodically, develop and evaluate potential candidates for CEO and other executive officer positions and recommend to the Board any changes to and any candidates for succession under the Succession Plan.
The Governance and Nominating Committee conducts an annual evaluation of the Board and its Committees. In the past, the Board has employed the National Association of Corporate Directors (the “NACD”) to assist with evaluations and to provide a template for best practices in Board evaluations, which the Committee currently uses. The Committee also requires that Board members complete a certain number of hours of continuing education training annually. Lastly, the Governance and Nominating Committee maintains a comprehensive, new director orientation program, which includes meetings with senior executives and other relevant personnel.
The Governance and Nominating Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com. All members of the Governance and Nominating Committee are independent directorsDirectors as defined by the rules of the NYSE.
The Environmental, Social and Governance Committee is responsible for providing oversight of the Company’s ESG activities and evaluation of risks that may arise from these activities. The ESG Committee was formed in April 2021 and the members of the ESG Committee are Timothy Crew, John Chapman, David Drabik, Melissa Rewolinski, and Paul Taveira. Timothy Crew currently serves as the Chairman of the ESG Committee. Refer to the discussion starting on page 5 for further details on the responsibilities of the ESG Committee.
9
The Environmental, Social and Governance Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.lannett.com.
Executive Sessions of Independent Directors
In accordance with the rules and regulations of the NYSE, non-management independent directorsDirectors meet at regularly scheduled executive sessions without management participation. At least once a year, an executive session is held with only independent Directors. Executive sessions are chaired by the non-executive, independent, Chairman of the Board.
710
The Audit Committee is comprised of four independent directorsDirectors (as defined in section 303(A) of the NYSE listing company manual) and maintains a written charter in accordance with rules of the NYSE.
Management is primarily responsible for the Company’s financial statements and related internal controls over financial reporting. The independent registered public accounting firm is responsible for performing an audit of the Company’s Consolidated Financial Statements and related internal controls over financial reporting. The Audit Committee’s responsibility is to monitor the Company’s financial reporting and internal control processes and to review the performance and independence of the Company’s independent registered public accounting firm.
Management has represented to the Audit Committee that the Company’s Consolidated Financial Statements were prepared, in all material respects, in accordance with accounting principles generally accepted in the United States, and the Audit Committee has reviewed and discussed the Consolidated Financial Statements with management and the independent registered public accounting firm.
The Audit Committee has received from its independent registered public accounting firm written communications regarding the matters required to be discussed with the Audit Committee. These matters included information regarding the scope and results of their audit of the Company’s financial statements, including with respect to (i) their responsibilities under generally accepted auditing standards, (ii) significant accounting policies, (iii) management judgments and estimates, (iv) critical audit matters that related to accounts or disclosures that were material to the financial statements and involved their especially challenging, subjective or complex judgment, (v) any significant accounting adjustments, (v)(vi) any disagreements with management and (vi)(vii) any difficulties encountered in performing the audit. The Committee discussed these matters with the Company’s independent registered public accounting firm, with and without management present.
The Company’s independent registered public accounting firm also provided to the Audit Committee the written disclosures required by the Public Company Accounting Oversight Board, and the Audit Committee discussed the firm’s independence with the independent registered public accounting firm. The Audit Committee also pre-approved all Fiscal 20202021 audit and non-audit services and fees and concluded that the non-audit services performed, and related fees did not impair the independence of the independent registered public accounting firm.
Based upon the Audit Committee’s discussions and reviews referred to above, the Audit Committee recommended that the audited Consolidated Financial Statements be included in Lannett’s Annual Report on Form 10-K for the fiscal year ended June 30, 20202021 as filed with the Securities and Exchange Commission.
| |
| Audit Committee: |
| |
| John C. Chapman (Chairman) |
| David Drabik |
| Paul Taveira |
| Melissa Rewolinski |
811
The following table sets forth, as of October 31, 2020,2021, information regarding the security ownership of the directorsDirectors and certain executive officers of the Company and of persons known to the Company to be beneficial owners of more than five (5%) percent of the Company’s common stock. Although some grants of restricted stock under the Company’s 20112014 and 2014 Long Term2021 Long-Term Incentive Plans (“LTIPs”) vest equally over time from the grant date, the restricted shares are included below because the voting rights with respect to such restricted stock are acquired immediately upon grant.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Address of | | | |
| | | | | | | |
| | |
| | | |
| | | | | | | |
| | |
|
Beneficial Owner / | |
| | Excluding Options (*) | | Including Options (**) |
| |
| | Excluding Options (*) | | Including Options (**) |
| ||||||||||||||||
Director / Executive |
|
|
| Shares Held |
| Shares Held |
| Total |
| Percent of |
| Number of |
| Percent of |
|
|
|
| Shares Held |
| Shares Held |
| Total |
| Percent of |
| Number of |
| Percent of |
|
Officer | | Office | | Directly | | Indirectly | | Shares | | Class | | Shares | | Class |
| | Office | | Directly | | Indirectly | | Shares | | Class | | Shares | | Class |
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
John M. Abt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | VP and Chief Quality | | | | | | | | | | | | | | | VP and Chief Quality | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | and Operations Officer | | 96,800 | | — | | 96,800 | (1) | 0.23 | % | 115,113 | (1), (2) | 0.28 | % | | and Operations Officer | | 123,814 | | — | | 123,814 | (1) | 0.29 | % | 162,172 | (1), (2) | 0.38 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maureen Cavanaugh |
| Senior VP & Chief |
| | | | | | | | | | | | |
| Senior VP & Chief |
| | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | Commercial Operations | | | | | | | | | | | | | | | Commercial Operations | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Officer | | 118,120 | | — | | 118,120 | (3) | 0.28 | % | 135,270 | (3), (4) | 0.32 | % | | Officer | | 157,378 | | — | | 157,378 | (3) | 0.37 | % | 205,755 | (3), (4) | 0.48 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Chapman |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Director |
| 85,005 | | — | | 85,005 | | 0.20 | % | 85,005 | | 0.20 | % | | Director |
| 141,824 | | — | | 141,824 | | 0.33 | % | 141,824 | | 0.33 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy Crew |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Chief Executive Officer |
| 399,963 | | — | | 399,963 | (5) | 0.96 | % | 487,799 | (5), (6) | 1.17 | % | | Chief Executive Officer |
| 564,270 | | — | | 564,270 | (5) | 1.31 | % | 770,242 | (5), (6) | 1.79 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David Drabik |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Director |
| 84,958 | | — | | 84,958 | | 0.20 | % | 84,958 | | 0.20 | % | | Director |
| 108,332 | | — | | 108,332 | | 0.25 | % | 108,332 | | 0.25 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert Ehlinger |
| |
| | | | | | | | | | | | |
| |
| | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | VP and Chief | | | | | | | | | | | | | | | VP and Chief | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Information Officer | | 70,911 | | — | | 70,911 | (7) | 0.17 | % | 112,774 | (7), (8) | 0.27 | % | | Information Officer | | 84,832 | | — | | 84,832 | (7) | 0.20 | % | 140,307 | (7), (8) | 0.33 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Jeffrey Farber |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Director |
| 1,668,510 | | 2,552,140 | | 4,220,650 | (9) | 10.14 | % | 4,220,650 | (9) | 10.08 | % | | Director |
| 2,112,454 | | 2,194,140 | | 4,306,594 | (9) | 10.01 | % | 4,306,594 | (9) | 10.01 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David Farber |
|
|
| | | | | | | | | | | | |
|
|
| | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | | | 1,885,870 | | 1,766,149 | | 3,652,019 | (10) | 8.77 | % | 3,652,019 | (10) | 8.73 | % | | | | 1,924,870 | | 1,693,149 | | 3,618,019 | (10) | 8.14 | % | 3,618,019 | (10) | 8.41 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Samuel H. Israel |
| | �� | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Chief Legal Officer and General Counsel |
| 121,620 | | — | | 121,620 | (11) | 0.29 | % | 149,631 | (11), (12) | 0.36 | % | | Chief Legal Officer and General Counsel |
| 161,751 | | — | | 161,751 | (11) | 0.38 | % | 223,700 | (11), (12) | 0.52 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Kozlowski |
| VP of Finance, | | | | | | | | | | | | | |
| VP of Finance, | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | Chief Financial Officer and | | | | | | | | | | | | | | | Chief Financial Officer and | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Principal Accounting Officer |
| 104,280 | | — | | 104,280 | (13) | 0.25 | % | 139,949 | (13), (14) | 0.33 | % | | Principal Accounting Officer |
| 141,594 | | — | | 141,594 | (13) | 0.33 | % | 204,454 | (13), (14) | 0.48 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Patrick G. Lepore |
| | | | | | | | | | | | | | | |||||||||||||||
Patrick G. LePore |
| | | | | | | | | | | | | | | |||||||||||||||
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Chairman of the Board, Director |
| 240,326 | | — | | 240,326 | | 0.58 | % | 240,326 | | 0.57 | % | | Chairman of the Board, Director |
| 337,145 | | — | | 337,145 | | 0.78 | % | 337,145 | | 0.78 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Melissa Rewolinski |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Director |
| 44,771 | | — | | 44,771 | | 0.11 | % | 44,771 | | 0.11 | % | | Director |
| 62,100 | | — | | 62,100 | | 0.14 | % | 62,100 | | 0.14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paul Taveira |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1150 Northbrook Drive, Suite 155 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trevose, Pennsylvania 19053 | | Director |
| 90,401 | | — | | 90,401 | | 0.22 | % | 90,401 | | 0.22 | % | | Director |
| 117,220 | | — | | 117,220 | | 0.27 | % | 117,220 | | 0.27 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
All directors and executive officers as a group |
|
|
| | | | | | | | | | | | |
|
|
| | | | | | | | | | | | |
(12 persons) | | | | 3,125,665 | | 2,552,140 | | 5,677,805 | | 13.63 | % | 5,906,647 | | 14.11 | % | | | | 4,112,714 | | 2,194,140 | | 6,306,854 | | 14.67 | % | 6,779,845 | | 15.77 | % |
(1) | Includes |
(2) | Includes 1,970 vested options to purchase common stock at an exercise price of $59.20 per share, 1,155 vested options to purchase common stock at an exercise price of $31.30 per share, 2,759 vested options to purchase common stock at an exercise price of $17.40 per share, |
(3)Includes 99,493111,469 unvested shares received pursuant to restricted stock awards granted in May 2018, July 2019, July 2020 and July 2020.2021.
(4)
| Includes 34,300 vested options to purchase common stock at an exercise price of $6.57 per share and 14,077 vested options to purchase common stock at an exercise price of $5.95. |
912
(5) | Includes |
(6) | Includes |
(7) | Includes |
(8) | Includes 11,667 vested options to purchase common stock at an exercise price of $13.86 per share, 10,000 vested options to purchase common stock at an exercise price of $34.77 per share, 6,300 vested options to purchase common stock at an exercise price of $59.20 per share, 968 vested options to purchase common stock at an exercise price of $31.30 per share, 2,759 vested options to purchase common stock at an exercise price of $17.40 per share |
(9) | Includes 994,412 shares held by the Jeffrey Farber Family Foundation which is managed by Jeffrey Farber. Jeffrey Farber disclaims beneficial ownership of these shares. Includes 30,000 shares held by the Jeffrey and Jennifer Farber Family Foundation which is managed by Jeffrey Farber. Jeffrey Farber disclaims beneficial ownership of these shares. Includes 528,122 shares held by Farber Family LLC (“FFLLC”) which is managed by Jeffrey and David Farber. David Farber and Jeffrey Farber each disclaim beneficial ownership of these shares. Includes 73,408 shares held by Jeffrey Farber as custodian for his children and 17,279 shares held as joint custodian with David Farber for a |
(10) | Includes |
(11) | Includes |
(12) | Includes 2,759 vested options to purchase common stock at an exercise price of $17.40 per share, |
(13) | Includes |
(14) | Includes 4,000 vested options to purchase common stock at an exercise price of $4.16 per share, 9,334 vested options to purchase common stock at an exercise price of $13.86 per share, 4,200 vested options to purchase common stock at an exercise price of $34.77 per share, |
* Percent of class calculation is based on 41,625,63643,004,072 outstanding shares of common stock at October 31, 2020.
2021.
** Assumes that all options exercisable within sixty days of October 31, 20202021 have been exercised.
1013
The following table sets forth, as of October 31, 2020,2021, information regarding the names and addresses of the stockholders known to the Company to be beneficial owners of more than five (5%) percent of the Company’s common stock.
| | | | | | | | | | |
|
| Number of |
| Percent of |
|
| Number of |
| Percent of |
|
Name and Address of Beneficial Owner | | Shares | | Class |
| | Shares | | Class |
|
| | | | | | |||||
BlackRock, Inc. |
| | | | | |||||
55 East 52nd Street | | | | | | |||||
New York, NY 10055 | | 5,227,912 | (1) | 13.0 | % | |||||
| | | | | | |||||
D.E. Shaw & Co., L.P. | | | | | | |||||
1166 Avenue of the Americas, 9th Floor, 6th Ave | | | | | | |||||
New York, NY 10036 | | 3,412,246 | (2) | 8.50 | % | |||||
| | | | | | | | | | |
JP Morgan Chase & Co. |
| | | | |
| | | | |
383 Madison Avenue | | | | | | | | | | |
New York, NY 10179 | | 2,765,513 | (3) | 6.80 | % | | 3,498,048 | (1) | 8.30 | % |
| | | | | | | | | | |
The Vanguard Group |
| | | | |
| | | | |
100 Vanguard Blvd. | | | | | | | | | | |
Malvern, PA 19355 | | 2,360,972 | (4) | 5.85 | % | | 2,306,196 | (2) | 5.53 | % |
| | | | | | | | | | |
LSV Asset Management |
| | | | | |||||
155 N Wacker Dr, Suite 4600 | | | | | | |||||
Chicago, IL 60606 | | 2,099,152 | (5) | 5.21 | % | |||||
| | | | | | |||||
Highbridge Capital Management, LLC |
| | | | |
| | | | |
277 Park Avenue, 23rd Floor | | | | | | | | | | |
New York, New York 10172 | | 2,128,841 | (6) | 5.01 | % | | 2,341,398 | (3) | 5.32 | % |
(1) | Based on a Schedule 13G/A filed by |
(2) | Based on a Schedule 13G/A filed by |
(3) | Based on Schedule 13G/A filed by Highbridge Capital Management, LLC with the SEC on February 9, 2021, Highbridge Capital Management, LLC has sole voting power over 0 shares, shared voting power over 2,341,398 shares, sole dispositive power over 0 shares and shared dispositive power over |
|
|
|
|
|
|
(6) Based on Schedule 13G filed by Highbridge Capital Management, LLC with the SEC on July 20, 2020, Highbridge Capital Management, LLC has sole voting power over 0 shares, shared voting power over 2,128,841 shares, sole dispositive power over 0 shares and shared dispositive power over 2,128,841 shares.
11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors,Directors, officers and persons who own more than 10% of a registered class of the Company’s equity securities to file with the SEC reports of ownership and changes in ownership of common stock and other equity securities of the Company. Officers, directorsDirectors and greater-than-10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the Company or written representations that no other reports were required, the Company believes that, during Fiscal 2020,2021, all filing requirements applicable to its officers, directorsDirectors and greater-than-10% beneficial owners under Section 16(a) of the Exchange Act were complied with in a timely manner, except for one Form 4 for Jeffrey FarberMelissa Rewolinski reporting a single sale of 14214,150 shares. The transaction was subsequently reported on a Form 5 and Jeffrey Farber disclaims beneficial ownership4.
14
The directorsDirectors and executive officers of the Company are set forth below:
| | | | |
|
| Age |
| Position |
Directors: |
|
|
|
|
| | | | |
Patrick G. LePore |
|
|
| Chairman of the Board |
| | | | |
John C. Chapman |
|
|
| Director |
| | | | |
Timothy C. Crew |
|
|
| Director |
| | | | |
David Drabik |
|
|
| Director |
| | | | |
Jeffrey Farber |
|
|
| Director |
| | | | |
Melissa Rewolinski |
|
|
| Director |
| | | | |
Paul Taveira |
|
|
| Director |
| | | | |
Officers: | | |
|
|
| | | | |
Timothy C. Crew |
|
|
| Chief Executive Officer |
| | | | |
John Kozlowski |
|
|
| Vice President of Finance, Chief Financial Officer |
| | | | |
John M. Abt |
|
|
| Vice President and Chief Quality and Operations Officer |
| | | | |
Maureen M. Cavanaugh |
|
|
| Senior Vice President and Chief Commercial Operations Officer |
| | | | |
|
|
| ||
|
|
|
|
|
Samuel H. Israel |
|
|
| General Counsel and Chief Legal Officer |
Patrick G. LePore — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. LePore.
John C. Chapman — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Chapman.
Timothy C. Crew — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Crew.
David Drabik — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Drabik.
Jeffrey Farber — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Farber.
12
Melissa Rewolinski — See “Proposal No. 1 - Election of Directors” for information pertaining to Dr. Rewolinski.
Paul Taveira — See “Proposal No. 1 - Election of Directors” for information pertaining to Mr. Taveira.
Timothy C. Crew was appointed as the Company’s Chief Executive Officer and a Director of the Company in January 2018.May 2012. Mr. Crew has more than 30 years of experience inTaveira was the generic and branded pharmaceutical industries. Previously, he served as Chief Executive Officer of Cipla North America,the National Response Corporation, an international firm specializing in environmental services, from June 2015 to February 2019. He previously served on the Board of Directors and as the Chief Executive Officer of A&D Environmental Services Inc., an environmental and industrial services company. From 2007 to 2009, Mr. Taveira was a global pharmaceutical company based in Mumbai, India. Before Cipla, he workedManaging Partner of Precision Source LLC, a manufacturer of precision parts for eight yearsvarious industries across the United States. From 1997 to 2007, Mr. Taveira held several positions at Teva Pharmaceuticals Industries Ltd. (“Teva”)PSC Inc., where he ultimately served as Seniora national provider of environmental services, including President, Vice President and Commercial Operating Officer of the North American Generics division, the world’s largest generic operation with multibillion dollars of annual sales. Before that, he was Teva’s Vice President, Alliances and Business Development.Regional General Manager. From 1987 to 1997, Mr. Crew was also an Executive Vice President, North America, for Dr. Reddy’s Laboratories Ltd. Mr. Crew began his pharmaceutical career at Bristol-Myers Squibb, where heTaveira held a number of seniorseveral management positions in global marketing, managed healthcare, marketing, business developmentwith Clean Harbors Inc., an international provider of environmental and strategic planning. Prior to his pharmaceutical roles,energy services. Mr. Crew served in the United States Army, where he rose to the rank of Captain. Mr. Crew earnedTaveira graduated from Worcester State University with a Bachelor of ArtsScience degree in economics from Pomona College and a MastersBiology. Mr. Taveira will not be standing for re-election to the Board for 2022.
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John Kozlowski joined the Company in 2009 and was promoted in 2010 to Corporate Controller. In 2016, Mr. Kozlowski was promoted to Vice President Financial Operations & Corporate Controller. In October 2017, Mr. Kozlowski was promoted to Chief Operating Officer. In April 2018, Mr. Kozlowski was promoted to Chief of Staff and Strategy Officer. In August 2019, Mr. Kozlowski succeeded Martin Galvanwas appointed as the Vice President of Finance and Chief Financial Officer.Officer in August 2019. In July 2020, Mr. Kozlowski was also appointed the Principal Accounting Officer. Prior to joining the Company, Mr. Kozlowski served in senior finance and accounting roles for Optium Corporation and Finisar Australia. He earned a Bachelor of Arts degree in finance from James Madison University and a Masters of Business Administration degree from Rider University.
John M. Abt joined the Company in March 2015 as Vice President of Quality and was promoted to Vice President and Chief Quality and Operations Officer in April 2018. Prior to joining the Company, Mr. Abt held senior level positions in both quality and operations and has extensive knowledge in pharmaceutical manufacturing, quality, strategy, business improvement and site transformation. Prior to joining the Company, he most recently served as Teva Pharmaceuticals’ Vice President Global Quality Strategy, overseeing the development and implementation of strategy and associated initiatives for the global quality organization. Before that, he held a number of leadership positions of increasing responsibility in operations, continuous improvement, quality systems and compliance. He earned his Doctorate in Business Administration from Temple University, Masters of Administrative Science in Business Management from Johns Hopkins University and a Bachelor of Science in Biochemistry from Niagara University.
Maureen M. Cavanaugh joined the Company in May 2018 as Senior Vice President and Chief Commercial Operations Officer. Prior to joining the Company, Ms. Cavanaugh spent the past 11 years at Teva, most recently as Senior Vice President, Chief Commercial Officer, North American Generics. Earlier at Teva, Ms. Cavanaugh served as Senior Vice President and General Manager, USU.S. Generics and before that held a variety of positions in sales, marketing and customer operations. Ms. Cavanaugh also previously served as Senior Director of Marketing at PAR Pharmaceuticals, as Director, Product Management and Marketing Research at Sandoz Inc., and held a number of finance, sales and marketing operations positions at Bristol Myers-Squibb. Ms. Cavanaugh earned a Bachelor of Science in Business Administration degree from LaSalle University and a Masters of Business Administration degree from Rider University.
Robert Ehlinger joined the Company in July 2006 as Chief Information Officer. In June 2011, Mr. Ehlinger was promoted to Vice President of Logistics and Chief Information Officer. Prior to joining Lannett, Mr. Ehlinger was the Vice President of Information Technology at MedQuist, Inc., a healthcare services provider, where his career spanned 10 years in progressive operational and technology roles. Prior to MedQuist, Mr. Ehlinger was with Kennedy Health Systems as their Corporate Director of Information Technology supporting acute care and ambulatory care health information systems and biomedical support services. Earlier on, Mr. Ehlinger was with Dowty Communications where he held various technical and operational support roles prior to assuming the role of International Distribution Sales Executive managing the Latin America sales distribution channels. Mr. Ehlinger received a Bachelor’s of Arts degree in Physics from Gettysburg College in Gettysburg, PA.
Samuel H. Israeljoined the Company in July 2017 as General Counsel and Chief Legal Officer. Prior to joining Lannett, Mr. Israel was a partner with Fox Rothschild LLP, a national, full-service law firm, with 2628 offices that provide services in more than 60 practice areas, since 1998. He served as chair of the firm’s Pharmaceutical and Biotechnology Practice and handled a variety of commercial litigation matters. Mr. Israel earned a Bachelor of Science degree in Chemical Engineering from the University of Pennsylvania and a Juris Doctor degree with honors from Rutgers University School of Law.
To the best of the Company’s knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any director, executive officer, or significant employee during the past ten years.
As part of the 2021 Restructuring Plan initiated on November 3, 2021, the Company consolidated its Information Technology function under Operations to align its infrastructure to a size consistent with current operating expectations. With this change, Robert Ehlinger departed the Company in December 2021. Mr. Ehlinger served as the Company’s Chief Information Officer since 2006.
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) describes our Fiscal 20202021 Executive Compensation Program. It provides an overview of the compensation program for the following Named Executive Officers (“NEOs”) and how the Compensation Committee of the Board of Directors (“the Committee”) made its decisions for our 20202021 Fiscal Year.
| | |
NEO | | Title/Role |
Timothy C. Crew | | Chief Executive Officer (“CEO”) |
John Kozlowski | | Vice President of Finance, Chief Financial Officer and Principal Accounting Officer* |
Maureen Cavanaugh | | Senior Vice President and Chief Commercial Operations Officer |
Samuel H. Israel | | Chief Legal Officer and General Counsel |
John Abt | | Vice President and Chief Quality and Operations Officer |
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Say on Pay Results in 20202021
At our annual stockholders meeting in January 2020,2021, our stockholders approved the “say-on-pay” proposal, with approximately 95%80% of votes cast in support of our executive compensation program.
Although this vote is non-binding, its outcome, along with stockholder feedback and the competitive business environment, plays an important role in how the Committee makes decisions about the program’s structure. To this end, the Committee periodically conducts reviews of the Executive Compensation Program, monitors industry practices and seeks feedback from some of our largest investors. Based in part on this feedback, the Committee introduced performance shares tied to the Company’s three-year total stockholder returns (“TSR”) relative to companies in the S&P Pharmaceuticals Select Industry Index as part of the long-term incentive program for NEOs in Fiscal 2018 and has increased its weighting over time from 25% initially to 33.3%35% of the target award opportunity in Fiscal 20192021. For equity grants to NEOs in Fiscal 2022, the weighting on performance shares increased to 50% of total award opportunities, with half tied to three-year relative TSR and 2020.half to strategic portfolio goals over the three-year measurement period. The Committee also added a provision for the relative TSR component capping performance share award funding at target if we outperform comparator companies and our absolute TSR is negative. The Fiscal 2022 Annual Bonus Plan for NEOs will include a component tied to the internal development and external assessment of a report outlining the Company’s Environmental, Social and Governance (“ESG”) strategy and practices. Our executive compensation program for NEOs continues to place a significant emphasis on performance-based variable pay tied to key strategic objectives. We also maintain stock ownership requirements for executive officers and non-employee directors,Directors, and in Fiscal 2021 our Board of Directors recently approved an expanded compensation recovery or “clawback” provision amending all executive officer employment contracts in the event of the need for a restatement of financial statement arising from fraud or misconduct. We believe these actions demonstrate our responsiveness to stockholder feedback and our ongoing commitment to aligning executive pay with performance and long-term value creation.
The following pages of this CD&A highlight performance results since Fiscal 20172018 that have had a direct impact on the compensation paid to our NEOs over the same period of time. It looks specifically at the performance measures used in the short- and long-term incentive awards under the Executive Compensation Program that the Committee believes drive stockholder value. It also describes recently approved changes for Fiscal 20212022 to further align our Executive Compensation Program with our objectives and best competitive practice.
COVID-19 Impact and Response
The COVID-19 pandemic poses serious health risks for all companies and the general public as well as financial challenges for many organizations. As a generic pharmaceutical company, we are considered to be an essential business and have maintained continuous operations throughout the pandemic. Over the past several years, we took a variety of actions to refocus our business on core generics, streamline our operations, strengthen our financial position and supply chain, and prioritize new product development to further diversify our portfolio and customer base. These initiatives, along with the hard work and dedication of our employees, has allowed us to successfully navigate through these challenging times. In March 2020, we implemented a variety of procedures and safeguards to help ensure the safety of employees at our manufacturing plants, distribution center, and research and development facilities, while enabling other staff to work remotely. As a result, we have continued to operate profitably (excluding impairment charges and certain non-cash and non-recurring expenses), minimize supply chain disruptions, and produce and distribute more than 100 high quality pharmaceutical products that address a wide variety of therapeutic needs. Demand for many of our products remains strong, although our profitability and sales for certain products have been adversely impacted by the pandemic.
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Due to the continued uncertainty within the current environment, the Committee decided to defer the timing of base salary merit increases, excluding certain promotional adjustments, from the first quarter to the third quarter of Fiscal 2021. Additionally, the Committee slightly increased the emphasis on restricted stock for Fiscal 2021 equity grants to NEOs and other executives to further enhance retention. Equity grants and total compensation opportunities for NEOs will continue to emphasize at-risk, variable pay. The Committee will continue to carefully monitor COVID-19’s impact on our business and may consider additional actions or modifications to our executive compensation program as needed to help ensure it continues to reinforce strategic priorities and incentivize and retain our NEOs, while also being mindful of the pandemic’s impact on all company stakeholders.
A Word About Risk
The Committee believes that incentive plans, along with the other elements of the Executive Compensation Program, provide appropriate rewards to our NEOs to keep them focused on our goals. The Committee also believes that the program’s structure, along with its oversight, continues to provide a setting that does not encourage the NEOs to take excessive risks in their business decisions.
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Business Highlights
Fiscal 2020 included various2021 was a year of significant challenges relating toas well as strategic accomplishments that we believe will position the Company for future growth and value creation. Our financial results were adversely impacted by the ongoing impact of the COVID-19 pandemic, as noted above, as well as many achievements. Most importantly,competitive pressures within the Company was ablegeneric pharmaceuticals industry, and organizational and portfolio restructuring actions. Despite these challenges, we continued to maintain and enhance our operations, producesafeguard our employees, and distribute criticalprovide safe, high quality medications to patientscustomers and customers while providing a safe working environment for our employees during an unprecedented public health pandemic and broad economic shutdown.patients. We continued to successfully execute on our strategy of growingenhancing our core business, launching new products, building our R&D pipeline, expanding strategic alliances, and reducing costs. We launched a total of 1812 new products during Fiscal 2020, most2021, several of which have limited or moderate competitors, matchingcompetitors. We also removed 23 lower margin products from our portfolio which, combined with the record number of launches in Fiscal 2019. During a very challenging environment,above-referenced macroeconomic challenges, adversely impacted near-term net sales but is expected to improve longer-term profitability. While we achieved ourdid not achieve budgeted revenue goal, with nearly 23% of sales derived from new products launched inand profitability goals for Fiscal 2019 and 2020. We also2021, we continued to operate profitably, based on adjusted metrics for Operating Income, and EPS which excludeexcludes impairments, amortization, restructuring and non-cash interest expenses, and certain other non-recurring items.items, during a very challenging operating environment. During Fiscal 2020,2021, we completed certain refinancing transactionscontinued to lower interest expense and reduceddiligently pay down our totalterm loan debt by approximately $60 million. We also continued$80 million and in April 2021, we completed a refinancing transaction that significantly extended the maturity of our debt and enhanced our capital structure. The refinance significantly improves our near-term free cash flow through a reduction in cash interest and loan amortization, providing us with increased flexibility to execute on our cost savings program, which generated net annualized cost savings of approximately $33.0 million at the end of Fiscal 2020 when compared to the Fiscal 2018 expenses.invest in additional growth opportunities. During the first quarter of Fiscal 2021, we fully implemented a new restructuring and cost savings plan with expected annual savings of more than $15 million to help address ongoing competitive pricing pressure within the generic pharmaceuticals sector. We added a new non-employee directorThese activities significantly strengthened our financial flexibility and ability to make ongoing investments in July 2019our business and product pipeline. We continue to execute on a number of key strategic initiatives as discussed below. We believe these actions will better position the Company for long-term profitable growth and stockholder value creation.
In addition, we continued to make important advances in product developmentin-licensing and mix, market share, and in our regulatory approval process, allowing us to efficiently and safely place our products that span a variety of categories on the market. As noted above, we havedevelopment. We launched a total of 1848 new products over each of the past twothree fiscal years, including 12 in Fiscal 2021, with additional launches planned in Fiscal 20212022 and beyond. As of June 30, 2020,2021, we had overabout 100 products available to the market. We also continue to capitalize on our strategic partnerships, both domestically and internationally. Since January 2018, we acquired or in-licensed approximately 60 ANDAover 75 Abbreviated New Drug Application (ANDA) products and entered into several new strategic alliance agreements which diversified and enhanced our revenue streams. In Fiscal 2020 and 2021, we entered into commercialization agreements with several leading pharmaceutical companies that have the potential to significantly increase our future annual revenues. Included among these is a revised and expanded agreement with our strategic alliance partner, HEC Group, for an insulin-based product with significant market potential to treat type 1 and type 2 diabetes, which impacts approximately 34 million Americans.Americans, as well as a new agreement for a fast-acting, biosimilar insulin aspart product candidate with significant market potential. We also entered into agreements with RespirantRespirent for additional inhalation products. We continue to make progress advancing these and other product candidates towards commercial launches over the next several years.
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OurAs noted above, our financial performance in Fiscal 20202021 was adversely impacted by the COVID-19 pandemic and ongoing competitive pressures within the generic pharmaceutical industry. Despite these challenges, our executive leadership and other employees made significant progress in executing our strategic plan and positioning the Company for future growth. ExcludingThe impact of these events and developments are reflected in our compensation decisions for Fiscal 2019 sales associated2021, consistent with a former distribution agreementour pay for performance philosophy. In response to the COVID-19 pandemic, salary increases for NEOs were delayed until January 2021, except for Mr. Kozlowski, whose market adjustment was effective in July 2020 as his salary remained well below 50th percentile market values. Short-term incentive (annual bonus) payouts to NEOs for Fiscal 2021 were well below target, with Jerome Stevens Pharmaceuticals, which expired in March 2019, our annual revenues grew by approximately 19% inno awards earned for components tied to corporate financial goals (representing 70% of total target award opportunities) due to below-threshold performance results, and awards tied to individual performance and strategic objectives earned at or above target levels. Based on overall performance results, short-term incentive payouts for NEOs for Fiscal 2021 were earned at levels ranging from 30% to 40% of total target award opportunities (averaging 34% of target), well-below payouts earned for Fiscal 2020. Our FiscalAdditionally, performance shares tied to 3-year relative TSR cycles ending in September 2020 sales mix shifted towards lower margin products dueand July 2021 were forfeited since our TSR results relative to comparator companies in the pandemic, adversely impactingS&P Pharmaceuticals Select Industry Index were below the threshold level. We believe these actions demonstrate our profitability. Our financial results for Fiscal 2020 slightly exceeded the target performance goal for net sales and were over 90% of target levels for the profitability metrics under the Annual Bonus Plan. We achieved target results for refinancing goals under the strategic objectives component. Calculated award funding levels associatedcommitment to aligning executive pay with the aforementioned targets as well as individual objectives under our Annual Bonus Plan were equal to approximately 83% of target funding for most NEOs.performance. In July 2020,2021, our NEOs received target equitylong-term incentive grants based on a target value mix of 45%30% for restricted stock, 20% for cash awards tied to changes in our absolute stock options,price over the three-year period ending June 30, 2024, and 35%50% for performance shares, with half tied to our relative TSR vs. companies in the S&P Pharmaceuticals Select Index for the three-year performance cycle running from July 1, 20202021 through June 30, 2023.2024 and half to various strategic portfolio goals over the three-year measurement period ending June 30, 2024. Many outstanding stock options held by our NEOs are currently “underwater” and the value of many other outstanding equity awards are below grant date target values. Based on our interim relative TSR results through June 30, 2020,2021, performance shares granted in Fiscal 20182020 and 2021 are tracking below threshold levels which, if sustained over the applicable three-year performance periods, would result in no awards being earned by NEOs, while Fiscal 2019 grants are tracking slightly above threshold levels (and below-target) and those granted in Fiscal 2020 are currently tracking at above-target levels.NEOs.
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Key financial performance highlights, as reported in accordance with GAAP requirements, are shown below. GAAP-based results for Fiscal 20202021 reflect asset impairments and certain other non-cash and/or non-recurring expenses that are excluded from adjusted profitability metrics. Year over year declines vs. Fiscal 20192020 results reflect continued challenging market conditions within the generic pharmaceuticals industry as well as within the broader market due to the ongoing pandemic, and for comparisons vs. Fiscal 2018 and 2019 results, the non-renewal of the former distribution agreement with Jerome Stevens Pharmaceuticals (JSP), which expired in March 2019 and had significantly contributed to our prior net sales and profitability. See the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details and discussion of Company performance.
†Peer Group average pertains to the Fiscal 20202021 peer group.
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Comparison of Target Versus Actual CEO Pay (In Year Earned)
The following chart compares actual versus target CEO pay for Mr. Crew for the past three fiscal years. To more accurately demonstrate the impact of Company performance on executive pay, comparisons include annual equity grants in the year earned, as opposed to the year granted. Fiscal 2018 values for Mr. Crew include annualized base salary and short-term incentives (STI) and new hire equity grants. Actual pay for each of Fiscal 2019 and 2020 include the applicable pro-rata portions of a one-time retention incentive earned by Mr. Crew during the period of 12/1/18 - 12/1/19. As shown below, actual pay levels earned for Fiscal 2018 were well below target opportunities, even when new hire equity grants are included. Including the value of the one-time retention incentive, Mr. Crew’s actual pay was well above target for Fiscal 2019 and slightly above target for Fiscal 2020. Excluding the retention incentive award, actual pay was slightly above target for Fiscal 2019 and below target for Fiscal 2020. Equity-based long-term incentives reflect grant-date award values, with current actual or realizable values for Fiscal 2018 awards considerably lower based on our closing stock price as of June 30, 2020.
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Comparison of Disclosed Versus Realizable CEO Pay for Mr. Crew (Based on Summary Compensation Table)
Compared with values reported in the Summary Compensation Table for Mr. Crew, current realizable values are 20%40% lower for Fiscal 20192020 and 12%54% lower for Fiscal 2020.2021. Mr. Crew’s reported compensation for Fiscal 2019 reflects actual base salary plus bonus (STI) earned plus equity awards granted in Fiscal 2019 (with stock options and restricted stock based on Fiscal 2018 performance). Fiscal 2020 reported compensation includes actual base salary plus STI earned plus the full value of a retention incentive earned in December 2019 plus equity awards granted in Fiscal 2020 (with stock options and restricted stock based on Fiscal 2019 performance). Fiscal 2021 reported compensation includes actual base salary plus STI earned plus grant date accounting values for target equity grants for Fiscal 2021. Realizable pay reflects current intrinsic values for equity grants based on our stock price as of June 30, 2020,2021, with assumed performance share award funding at 63% of target for the Fiscal 2019 grant and at 158%0% of target for the Fiscal 2020 grantand 2021 grants based on interim relative TSR results from date of grant through June 30, 2020.2021.
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Fiscal 20202021 Executive Compensation Program Changes
As our Company grows, the Committee is committed to the evolution and improvement of our Executive Compensation Program to ensure alignment with our business strategy and stockholder interests, as well as best competitive practices. The Committee made the following adjustments to the program’s core compensation elements for 2020:2021:
| | | | |
What’s Changed | | How It’s Changed | | Explanation |
Short-Term Incentives | | ●
● Increased award funding for threshold performance from 25% to 50% of | | No changes were made to the overall performance |
Long-Term Incentives | | ●
●
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To address retention concerns and encourage NEOs to focus on achieving strategic objectives following the announced non-renewal of the JSP contract, the Committee adopted a retention bonus program in December 2018. NEOs were eligible to receive cash payments equal to 100% of their Fiscal 2019 base salary if they remained employed and performed duties and responsibilities in a satisfactory manner through December 1, 2019, or if they are terminated other than for Cause (as defined in employment agreements) during the one-year retention period. Our current NEOs earned retention incentives in December 2019 upon completing the service requirements and Mr. Galvan, our former Vice President Finance & CFO, received a pro-rated portion of his incentive following his termination without Cause on August 30, 2019 per his Separation Agreement. Retention incentive awards are reported in the “Bonus” column of the Summary Compensation Table for Fiscal 2020.
Our Commitment to Sound Corporate Governance
In order to align our executive compensation program with long-term stockholder interests, we have adopted a variety of sound corporate governance practices, as illustrated in the following table:
table.
| | |
What We Do | | What We Don’t Do |
● Emphasize variable incentives to align pay with performance | | ● Provide multi-year pay guarantees within employment agreements |
● Tie incentive compensation to multiple performance metrics that reinforce key business objectives | | ● Allow stock option repricing without stockholder approval |
● Place primary emphasis on equity compensation to align executive and stockholder interests | | ● Permit stock hedging or pledging activities |
● Use stock ownership guidelines for executive officers and non-employee | | ● Provide uncapped incentive and performance share awards |
● Maintain a clawback policy allowing for the recoupment of excess compensation in the event of a material financial restatement and fraud or misconduct | | ● Pay tax gross-ups on any awards |
● Engage an independent compensation consultant to advise the Compensation Committee | | ● Provide excessive executive perquisites |
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Executive Officer Stock Ownership Guidelines
To further encourage alignment with stockholder interests, the Board has established stock ownership and retention requirements for executive officers. Within five years of first being subject to guidelines in their current role, each executive officer is required to achieve and maintain ownership levels, based on a multiple of base salary, as noted in the following table.
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Position | | Base Salary Multiple Ownership Requirement |
CEO | | 3.0X (300%) annual base salary |
All Other Executive Officers | | 1.5X (150%) annual base salary |
Until guidelines are met, executive officers must retain 50% of net after-tax shares received from equity grants, including net after-tax shares received from stock option exercise or vesting of restricted stock and performance shares, until they are in compliance. If guidelines are not met within the five-year compliance period, the holding requirement increases to 100% of net after-tax shares from equity grants until achieved. Shares owned outright by executive officers or their spouse, as well as shares held in retirement plans and unvested time-based restricted stock count towards ownership requirements. Unearned performance shares and outstanding stock options do not count towards ownership. Non-employee directorsDirectors are also subject to stock ownership and holding requirements, as described in the “Compensation of Directors” section of this proxy.
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Overview of the Executive Compensation Program
Our Philosophy
A fundamental objective of our Executive Compensation Program is to focus our executives on creating long-term stockholder value — all aspects of our program are rooted in this goal and designed around the following guiding principles:
● | Pay for performance: A significant portion of compensation should be variable and directly linked to corporate and individual performance goals and results. |
● | Competitiveness: Compensation should be sufficiently competitive to attract, motivate and retain an executive team fully capable of driving exceptional performance. |
● | Alignment: The interests of executives should be aligned with those of our stockholders through equity-based compensation and performance measures that help to drive stockholder value over the long term. |
To support these guiding principles, our program includes the following compensation elements:
| | | | |
Pay Element | | Form | | Purpose |
Base Salary | | Cash (Fixed) | | Provides a competitive level of compensation that reflects position responsibilities, strategic importance of the position and individual experience. |
Short-Term Incentives (Annual Bonus) | | Cash (Variable) | | Provides a cash-based award that recognizes the achievement of corporate goals in support of the annual business plan, as well as specific, qualitative and quantitative individual goals for the most recently completed fiscal year. |
Long-Term Incentives | | Equity and Cash (Variable) | | Provides incentives for management to execute on financial and strategic goals that drive long-term stockholder value creation and support the Company’s retention strategy. |
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Target Compensation Mix
The charts below show that most of our NEO’s target compensation for Fiscal 20202021 is variable (82% for our CEO and an average of 69% for our other current NEOs). Variable pay includes the target value of short-term cash incentives (“STI”), performance shares, stock options, and restricted stock.
Based upon Fiscal 20202021 compensation as reported in the Summary Compensation Table on page 33 of this proxy statement, variable pay represents approximately 67%82% of total pay for our CEO and 52%70% of average total pay for our other current NEOs. This mix reflects below target annualbelow-target short-term incentives earned at an average of 34% of target award levels in Fiscal 20202021 under the Annual Bonus Plan (shown as STI), the fullgrant date accounting fair value of one-time retention incentives earned in December 2019, target performance share, grants in Fiscal 2020, and slightly above-target stock option, and restricted stock grants in Fiscal 2020 based on2021, and additional restricted stock grants of 5,000 shares for Mr. Kozlowski and 10,000 shares for Mr. Abt to further recognize contributions and additional responsibilities assumed during Fiscal 2019 Company performance. Excluding one-time cash retention incentives, the weighting on variable pay increases to 80% for the CEO and averages 68% for other current NEOs.2021.
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How Compensation Decisions Are Made
● | The Role of the Compensation Committee. The Committee, composed entirely of independent |
The Committee has authority and responsibility to establish and periodically review our Executive Compensation Program and compensation philosophy. Importantly, the Committee also has the sole responsibility for approving the corporate performance goals upon which compensation for the CEO is based, evaluating the CEO’s performance and determining and approving the CEO’s compensation, including equity-based compensation, based on the achievement of his goals. The Committee also reviews and approves compensation levels for other NEOs, taking into consideration recommendations from the CEO.
In making its determinations, the Committee considers market data and advice from Pearl Meyer, as well as budgets, reports, performance assessments and other information provided by management. It also considers other factors, such as the experience, skill sets, and contributions of each NEO towards our overall success. However, the Committee is ultimately responsible for all compensation-related decisions for the NEOs and may exercise its own business judgment when evaluating performance results and making compensation decisions.
Timing of Committee Meetings and Grants; Option and Share Pricing
The Committee meets as necessary to fulfill its responsibilities, and the timing of these meetings is established during the year. The Committee holds special meetings from time to time as its workload requires. Annual equity grants occur after finalizing fiscal year end performance results, typically within the July/August time frame. Individual grants (for example, associated with the timing of a new NEO or promotion to an NEO position) and special recognition awards may occur at any time of year. The exercise price of each stock option and fair value of restricted stock awarded to our NEOs is the closing price of our common stock on the date of grant.
● | The Role of the CEO. The CEO does not play any role in the Committee’s determination of his own compensation. However, he presents the Committee with recommendations for each element of compensation including base salaries and short- and long-term incentive awards for the other NEOs, as well as non-executive employees who are eligible for equity grants. The CEO bases these recommendations upon his assessment of each individual’s performance, as well as market practice. The Committee has full discretion to modify the recommendations of the CEO in the course of its approvals. |
● | The Role of the Independent Consultant. The Committee consults, as needed, with an outside compensation consulting firm. As it makes decisions about executive compensation, the Committee reviews data and advice from its consultant about current compensation practices and trends among publicly traded companies in general and comparable generic pharmaceutical companies in particular. The Committee also periodically reviews recommendations from its outside consultant and makes recommendations to the Board about the compensation for non-employee |
In Fiscal 2019,2020, Pearl Meyer was retained by the Committee, as its independent consultant, to review the competitiveness of the Executive Compensation Program. Pearl Meyer provided the Committee with compensation data with respect to similarly sized biopharmaceutical and life sciences companies and consulted with the Committee about a variety of issues related to competitive compensation practices and incentive plan designs. Pearl Meyer was also retained by the Committee in Fiscal 20202021 to review the competitiveness of the Executive Compensation Program and to provide ongoing advice relating to the Executive Compensation Program. The Committee assessed the independence of Pearl Meyer pursuant to the SEC rules and concluded that no conflict of interest exists that would prevent Pearl Meyer from independently advising the Committee.
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Peer Group & Benchmarking
The Committee evaluates industry-specific and general market compensation practices and trends to ensure the Executive Compensation Program is appropriately competitive. When making decisions about the program for Fiscal 2020, the Committee considered publicly available data, as well as a market study conducted by Pearl Meyer in April 2019.May 2020. The Pearl Meyer study developed market values using a blend of peer group proxy pay data for the companies shown below as well as published survey data for the broader life sciences industry. Using this information, the Committee compared our program to the compensation practices of other companies which the Committee believes are comparable to the Company in terms of size, scope and business complexity (the “peer group”). As shown below, the Company ranked in the upper half of the peer group in terms of employee headcount, operating income andat the 50th percentile for net sales, and between the 25th25th and 50th50th percentiles for enterprise value.
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| | | | Enterprise | | Fiscal Year | | Fiscal | | | | | | |
| | | | Enterprise | | Fiscal Year | | Fiscal | | | | | | |
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| | Fiscal Year | | Value | | End Operating | | Year End | | Cumulative | | Cumulative | | Cumulative |
| | Fiscal Year | | Value | | End Operating | | Year End | | Cumulative | | Cumulative | | Cumulative |
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| | End # of | | 6/30/2020 | | Income | | Sales | | 1 YR TSR | | 3 YR TSR | | 5 YR TSR |
| | End # of | | 6/30/2020 | | Income | | Sales | | 1 YR TSR | | 3 YR TSR | | 5 YR TSR |
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Company Name | | Employees | | ($mm) | | ($mm) | | ($mm) | | 6/30/2020 | | 6/30/2020 | | 6/30/2020 |
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| Employees |
| ($mm) |
| ($mm) |
| ($mm) |
| 6/30/2020 | | 6/30/2020 |
| 6/30/2020 |
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Acorda Therapeutics, Inc. |
| 334 | | $ | 203 | | $ | (117) | | $ | 192 |
| (90.4) | % | (96.3) | % | (97.8) | % |
| 168 | | $ | 181 | | $ | (87) | | $ | 153 |
| (89.6) | % | (96.0) | % | (97.6) | % |
Akorn, Inc. |
| 2,227 | | $ | 843 | | $ | (61) | | $ | 682 |
| (94.6) | % | (99.2) | % | (99.4) | % | ||||||||||||||||||
Amneal Pharmaceuticals, Inc. |
| 5,500 | | $ | 3,719 | | $ | 19 | | $ | 1,626 |
| (33.6) | % | — | % | — | % |
| 6,000 | | $ | 3,319 | | $ | 146 | | $ | 1,993 |
| (28.6) | % | — | % | — | % |
Amphastar Pharmaceuticals, Inc. |
| 2,027 | | $ | 1,083 | | $ | — | | $ | 322 |
| 6.4 | % | 25.8 | % | 27.8 | % |
| 1,980 | | $ | 955 | | $ | 16 | | $ | 350 |
| (4.5) | % | 12.9 | % | 14.7 | % |
ANI Pharmaceuticals, Inc. | | 338 | | $ | 592 | | $ | 16 | | $ | 207 |
| (60.7) | % | (30.9) | % | (47.9) | % | | 369 | | $ | 588 | | $ | (5) | | $ | 208 |
| (57.4) | % | (25.1) | % | (43.5) | % |
Assertio Therapeutics, Inc. |
| 125 | | $ | 24 | | $ | (4) | | $ | 230 |
| (75.2) | % | (92.0) | % | (96.0) | % |
| 27 | | $ | 96 | | $ | (43) | | $ | 108 |
| (88.7) | % | (96.4) | % | (98.2) | % |
Cambrex Corporation |
| 1,732 | | $ | — | | $ | 11 | | $ | 531 |
| — | % | — | % | — | % | ||||||||||||||||||
Catalent, Inc. | | 12,300 | | $ | 15,216 | | $ | 314 | | $ | 2,518 |
| 35.2 | % | 108.8 | % | 149.9 | % | | 13,900 | | $ | 20,951 | | $ | 410 | | $ | 3,094 |
| 99.4 | % | 208.0 | % | 268.6 | % |
Momenta Pharmaceuticals, Inc. |
| 118 | | $ | 3,408 | | $ | (312) | | $ | 24 |
| 167.2 | % | 96.9 | % | 45.9 | % |
| 118 | | $ | N/A | | $ | (312) | | $ | 24 |
| — | % | — | % | — | % |
Prestige Consumer Healthcare Inc. |
| 520 | | $ | 3,564 | | $ | 300 | | $ | 963 |
| 18.6 | % | (28.9) | % | (18.8) | % |
| 505 | | $ | 4,093 | | $ | 297 | | $ | 943 |
| 64.5 | % | (1.3) | % | 12.7 | % |
Supernus Pharmaceuticals, Inc. |
| 464 | | $ | 1,230 | | $ | 149 | | $ | 393 |
| (28.2) | % | (44.9) | % | 39.9 | % |
| 563 | | $ | 1,247 | | $ | 188 | | $ | 520 |
| (7.0) | % | (28.6) | % | 81.3 | % |
United Therapeutics Corporation |
| 920 | | $ | 4,581 | | $ | (178) | | $ | 1,449 |
| 55.0 | % | (6.7) | % | (30.4) | % |
| 950 | | $ | 5,672 | | $ | 591 | | $ | 1,483 |
| 129.8 | % | 38.3 | % | 3.1 | % |
Lannett Company, Inc. |
| 954 | | $ | 889 | | $ | 20 | | $ | 546 |
| 19.8 | % | (64.4) | % | (87.8) | % |
| 812 | | $ | 730 | | $ | (237) | | $ | 479 |
| (22.9) | % | (77.1) | % | (92.1) | % |
Percentile Rank |
| 58 | % |
| 36 | % |
| 67 | % |
| 58 | % | 73 | % | 30 | % | 30 | % |
| 60 | % |
| 33 | % |
| 10 | % |
| 50 | % | 44 | % | 25 | % | 25 | % |
Subsequent to the 20192020 study, Akorn, Inc. filed for bankruptcy and Cambrex Corporationformer peer Momenta Pharmaceuticals was acquired. For purposes of a subsequent market pay analysis conducted by Pearl Meyer in May 2020,2021, the Committee approved a revised peer group excluding Akorn, Inc.Momenta Pharmaceuticals (acquired) and Cambrex CorporationCatalent (size outlier) and including the 108 remaining companies from the 20192020 peer group as shown above.above as well as Coherus BioSciences, Inc.. The revised peer group aligns with us in terms of company size and industry focus.
The Committee uses external market data as a reference point to ensure the Company’s executive compensation program is sufficiently competitive to attract, retain, and motivate highly experienced and talented NEOs. The Committee generally seeks to position target total direct compensation for NEOs at or near 50th percentile market values for comparable positions but does not utilize a purely formulaic benchmarking approach. Based on the April 2019May 2020 Pearl Meyer study, target total direct compensation, including the sum of base salary plus target short-term and long-term incentives, was within the competitive range (defined as +/- 15%) of 50th percentile market values for all then-current NEOs other than Mr. Kozlowski,Abt, who was slightly above the range, based on market values for his then-current role (and below the range vs. his now-current CFO role), and equal to 102%95% of the 50th percentile in the aggregate. Actual total direct compensation, which included Fiscal 2020 short-term incentives earned between threshold and target, the annualized value of one-time retention bonuses paid in Fiscal 2020, and grant date values for Fiscal 2020 equity grants, was well-belowwithin or above a competitive range of 50th percentile market values for all then-current executive officers participating inNEOs other than Mr. Kozlowski, who was below the Fiscal 2019 short-term and long-term incentive programsrange, and equal to 61%104% of the 50th percentile in the aggregate, reflecting below-target incentive awards based on actual vs. planned performance.aggregate. As previously noted, when evaluating our executive compensation program, the Committee considers a variety of other factors in addition to external market data, such as Company and individual performance, and each NEO’s qualifications, skill sets, and past and expected future contributions towards our success.
2425
20202021 Executive Compensation Program Decisions
Base Salary
We attribute much of our success to our highly experienced executive management team, and the strength of their leadership has been clearly demonstrated by our exceptional long-term performance results and growth.strategic accomplishments. In order to remain competitive among our industry peers, the Committee believes it should set compensation at market-competitive levels that reflect the executive’s experience, role and responsibilities. Based on Pearl Meyer’s 20192020 study, current salaries were below 50th50th percentile market values for 3four of our 5 currentfive NEOs and within a competitive range (+/- 10%) of the 50th50th percentile for all incumbents.incumbents other than Mr. Kozlowski, who was below the range. The Committee approved merit increases equal to 2%6.5% of base salary for Mr. CrewKozlowski and 3% base salary for all of our other current NEOs for Fiscal 2020, plus an additional 15% market adjustment2021. Due to the impact of the COVID-19 pandemic, the effective August 5, 2019date of salary increases was delayed, for all incumbents other than Mr. Kozlowski, upon his promotion of the VP, Finance and Chief Financial Officer role.to January 2021, with no retroactive adjustments provided. The following table summarizes annualized salaries for Fiscal 20192020 and 20202021 for our NEOs. Annualized salaries differ from actual values received as reported in the Summary Compensation Table for certain incumbents with less than a full yeardue to the timing of service or promotions.effective dates.
| | | | | | | | | | | | | | | | | | |
NEO |
| 2019 Base Salary |
| 2020 Base Salary | | % Change |
| 2020 Base Salary |
| 2021 Base Salary | | % Change | ||||||
Timothy C. Crew | | $ | 735,000 | | $ | 750,000 | | 2 | % | | $ | 750,000 | | $ | 772,500 | | 3 | % |
John Kozlowski | | $ | 325,000 | | $ | 385,000 | | 18 | % | | $ | 385,000 | | $ | 410,000 | | 6.5 | % |
Maureen Cavanaugh | | $ | 425,000 | | $ | 438,000 | | 3 | % | | $ | 438,000 | | $ | 451,140 | | 3 | % |
Samuel H. Israel | | $ | 400,000 | | $ | 412,000 | | 3 | % | | $ | 412,000 | | $ | 424,360 | | 3 | % |
John Abt | | $ | 344,500 | | $ | 354,500 | | 3 | % | | $ | 354,500 | | $ | 365,135 | | 3 | % |
Short-Term Incentives (Annual Bonus)
The Company’s NEOs participate in an annual bonus program, which is designed to reinforce the annual business plan and budgeted goals and to recognize yearly performance achievements focused primarily on financial and operating results. Actual payouts can range from 0% (below threshold) to 200% (superior performance) of target awards and are paid in cash. The Committee sets each NEO’s threshold, target and superior bonus opportunity as a percentage of base salary, as follows:
| | | | | | | | | | | | | | |
| | Annual Bonus Opportunity As a % of Salary |
| | Annual Bonus Opportunity As a % of Salary |
| ||||||||
| | Threshold | | Target | | Superior |
| | Threshold | | Target | | Superior |
|
NEO | | (25% of Target) | | (100% of Target) | | (200% of Target) |
|
| (50% of Target) |
| (100% of Target) |
| (200% of Target) |
|
Timothy C. Crew |
| 25 | % | 100 | % | 200 | % |
| 50 | % | 100 | % | 200 | % |
All Other NEOs |
| 15 | % | 60 | % | 120 | % |
| 30 | % | 60 | % | 120 | % |
Expressed as percentages of salary, Fiscal 20202021 target and maximum award opportunities were the same as those established in Fiscal 20192020 for all NEOs, who were employed during both years.
while threshold award funding was increased to 50% of target (vs. 25% of target in Fiscal 2020).
The overall annual bonus plan for Fiscal 20202021 was comprised of two components:
● | Corporate Financial & Operational Goals: 70% of the total target award opportunity is tied to operating results versus targets established by the Committee to promote a focus on Company-wide profitable growth and collaboration: |
| | | |
Performance Metric |
| Weighting (out of 100%) | |
Adjusted Operating Income | | 30 | % |
Adjusted Earnings Per Share (“EPS”) | | 20 | % |
Net Sales | | 20 | % |
Strategic Objectives | | 20 | % |
Individual Objectives | | 10 | % |
Fiscal 20202021 performance metrics and weightings for corporate financial and operational goals were similaridentical to those established in Fiscal 2019, except that weightings were decreased for the Adjusted Operating Income component (from 40% to 30% of the total target mix) and increased for the strategic objectives component (from 10% to 20% of the total target mix). These changes were made to allow for a more holistic assessment of performance and increased emphasis on key strategic objectives.2020.
25
Adjusted Operating Income and Adjusted EPS are defined as GAAP Operating Income and diluted EPS, respectively, excluding bonus and stock-based compensation expense, as further adjusted for certain non-recurring items.
26
● | Strategic / Individual Objectives: 30% of the total target award opportunity is based on the achievement of pre-established quantitative and qualitative strategic and individual goals, to reinforce key strategic objectives and to promote individual accountability and “line of sight.” For Fiscal |
20202021 Short-Term Incentives (Annual Bonus): Results and Payouts
● | Corporate Financial & Operational Results (Collectively Weighted 70% of Total Target Award) Fiscal |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighting | | Performance Goals | | Weighting | | Performance Goals | ||||||||||||||||||||
Performance Metric | | (Out of 70%) | | Threshold | | Target | | Superior | | Actual |
| (Out of 70%) |
| Threshold |
| Target |
| Superior |
| Actual | ||||||||
Adjusted Operating Income ($ millions) |
| 30 | % | $ | 117.2 | | $ | 137.9 | | $ | 165.4 | | $ | 125.5 |
| 30 | % | $ | 100.3 | | $ | 118.0 | | $ | 141.6 | | $ | 55.5 |
Adjusted EPS |
| 20 | % | $ | 1.26 | | $ | 1.49 | | $ | 1.78 | | $ | 1.41 |
| 20 | % | $ | 1.12 | | $ | 1.32 | | $ | 1.58 | | $ | 0.21 |
Net Sales ($ millions) |
| 20 | % | $ | 457.4 | | $ | 538.1 | | $ | 645.7 | | $ | 545.7 |
| 20 | % | $ | 505.0 | | $ | 594.1 | | $ | 712.9 | | $ | 478.8 |
Actual Fiscal 20202021 performance results were slightly abovebelow the TargetThreshold goal level for Net Salesall three Corporate financial metrics, impacted by even more challenging market conditions within the generic pharmaceuticals sector than originally anticipated, use of stretch goals, and between Threshold and Target levels for both profitability metrics.the ongoing COVID-19 pandemic. Actual Adjusted Operating Income for Fiscal 20202021 excluded pre-tax items totaling approximately $105.9$292.7 million, including restructuring expenses, impairments, and other non-recurring items. Actual Adjusted EPS excluded the same $105.9$292.7 million in pre-tax items plus $16.5$22.0 million primarily related to non-cash interest expense and a loss on extinguishment of debt as well as the related tax effects for all of these items. For Fiscal 2020,2021, the Net Sales result was the same as the GAAP-reported value, with no adjustments applied.
● | Strategic and Individual Performance Results (Collectively Weighted 30% of Total Target Award) For Fiscal |
27
Total Annual Bonus
Based on our Fiscal 20202021 performance results, calculated award funding levels were equal to approximately 83%30% of target levels for each NEO other thanMessrs. Crew, Israel, and Abt and 40% of target for Mr. Israel, who earned a maximum payout for his individual performance componentKozlowski and whose actual total award was equal to 93% of target.Ms. Cavanaugh. In evaluating these results, the Committee chose to not apply any discretion to calculated performance outcomes and award funding levels. Total Fiscal 20202021 payouts for current NEOs are summarized in the following table:
| | | | | | | | | | | | | | | | | | |
| | Corporate Financial / | | Strategic / Individual | | Total Actual Bonus for | | Corporate Financial / | | Strategic / Individual | | Total Actual Bonus for | ||||||
Current NEO | | Operational Component | | Objectives Component | | Fiscal 2020 |
| Operational Component |
| Objectives Component |
| Fiscal 2020 | ||||||
Timothy C. Crew | | $ | 394,390 | | $ | 225,000 | | $ | 619,390 | | $ | — | | $ | 231,750 | | $ | 231,750 |
John Kozlowski | | $ | 119,768 | | $ | 68,328 | | $ | 188,096 | | $ | — | | $ | 98,400 | | $ | 98,400 |
Maureen Cavanaugh | | $ | 138,194 | | $ | 78,840 | | $ | 217,034 | | $ | — | | $ | 108,274 | | $ | 108,274 |
Samuel H. Israel | | $ | 129,991 | | $ | 98,880 | | $ | 228,871 | | $ | — | | $ | 76,385 | | $ | 76,385 |
John Abt | | $ | 111,849 | | $ | 63,810 | | $ | 175,659 | | $ | — | | $ | 65,724 | | $ | 65,724 |
26
Long-Term Incentives
NEOs participate in a performance-based long-term incentive program. Target award opportunities, expressed as percentages of base salary, for Fiscal 2021 are unchanged from Fiscal 2020 levels and are summarized in the following table:
| | | |
NEO |
| Target Award as % of Base Salary |
|
Timothy C. Crew |
| 350 | % |
John Kozlowski |
| 175 | % |
Maureen Cavanaugh |
| 175 | % |
Samuel H. Israel |
| 175 | % |
John Abt |
| 150 | % |
The target value mix for our NEOs in Fiscal 20202021 is summarized below:
All equity grants made in Fiscal 2020 were tied to performance. For the stock option and restricted stock components, grant levels were tied to Company and individual performance, using the same metrics and weightings as under the Annual Bonus Plan. Actual grants could range from 0% (for below Threshold results) to 150% (for Superior performance) of target award levels, as shown in the following table:
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|
|
|
| |
|
| |
|
| |
|
|
For equity grants in Fiscal 2020 or prior years, any earned stock option and restricted stock grants were made following the end of the Fiscal Year in which performance was measured. These grants typically occurred in the first quarter of the next Fiscal Year.
27
For the performance share component, award opportunities can range from 0% to 200% of target levels, based on our three-year TSR relative to companies in the S&P Pharmaceuticals Select Industry Index, as follows:
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|
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|
Beginning in Fiscal 2021, all equity grants will beare made at target levels, to align more closely with market practice, provide for more consistent and predictable awards, and further enhance retention. Grants will continue to occur during the first quarter of each Fiscal Year, with stock options and restricted stock tied to continued service over the applicable vesting period and performance shares tied to 3-yearthree-year relative TSR vs. comparator companies.
Grants Made in Fiscal 2020 (Based on Fiscal 2019 Performance)
In Fiscal 2019, the Company achieved financial performance results between Target and Superior levels for Net Sales, Adjusted Operating Income, and Adjusted EPS. Based on Company financial and strategic / individual objective performance results, the Committee approved the following stock option and restricted stock grants, effective as of July 29, 2019:
| | | | |
| | Equity Grants Earned Based on Fiscal 2019 Performance | ||
NEO | | # of Stock Options | | # of Restricted Shares |
Timothy C. Crew |
| 208,070 |
| 129,590 |
John Kozlowski |
| 46,000 |
| 28,650 |
Maureen Cavanaugh |
| 68,600 |
| 42,720 |
Samuel H. Israel |
| 64,570 |
| 40,210 |
John Abt |
| 32,510 |
| 25,250 |
These stock options vest in four equal annual increments, beginning on the first anniversary of the grant date and expire on the tenth anniversary from the date of grant. Each stock option has an exercise price of $6.57, equal to our closing stock price on the date of grant. Restricted stock granted in Fiscal 2020 also vests in four equal annual increments, beginning on the first anniversary of grant.
Our NEOs also received the following TSR performance share grants:
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| |
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| |
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| |
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| |
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|
Grants were made on July 29, 2019 and were determined by dividing target award values by the grant date fair value of $10.71 per share, based on a Monte-Carlo binomial modeling valuation tool, as discussed in Note 14 “Share-based Compensation” of our Consolidated Financial Statements. Award vesting will be based on the Company’s TSR relative to companies in the S&P Pharmaceuticals Index for the three-year period ending July 29, 2022, with no awards earned for below-Threshold results and maximum awards of up to 200% of target grants for Superior performance. For this grant, any earned performance shares are payable after one additional year of continued service beyond the end of the three-year performance cycle.
28
Target Equity Grants Made in Fiscal 2021
Beginning in Fiscal 2021, all equity grants are made at target award levels. For Fiscal 2021 grants, the Committee approved a target value mix equal to 35% for performance shares, 20% for stock options, and 45% for service-based restricted shares. The Committee approved the following performance share, stock option and restricted stock target grants, effective as of July 31, 2020:
| | | | | | |
| | Target Equity Grants | ||||
NEO |
| # of Performance Shares |
| # of Stock Options | | # of Restricted Shares |
Timothy C. Crew |
| 158,679 |
| 144,628 | | 204,016 |
John Kozlowski |
| 40,728 |
| 37,121 | | 52,364 |
Maureen Cavanaugh |
| 46,334 |
| 42,231 | | 59,573 |
Samuel H. Israel |
| 43,584 |
| 39,725 | | 56,036 |
John Abt |
| 32,144 |
| 29,298 | | 41,328 |
These stock options vest in three equal annual increments, beginning on the first anniversary of the grant date and expire on the tenth anniversary from the date of grant. Each stock option has an exercise price of $5.95, equal to our closing stock price on the date of grant. Restricted stock granted in Fiscal 2021 also vests in three equal annual increments, beginning on the first anniversary of grant.
Target performance share grant levels were determined by dividing target award values by the grant date closing stock price of $5.95 per share, consistent with the approach used to determine restricted stock grants. For accounting expense recognition and proxy disclosure purposes, Fiscal 2021 performance shares were valued at $9.22 per share, based on a Monte Carlo binomial modeling valuation tool, as discussed in Note 15 “Share-based Compensation” of our Consolidated Financial Statements. Award vesting will be based on the Company’s TSR relative to companies in the S&P Pharmaceuticals Index for the three-year period ending June 30, 2023, as illustrated below, with no awards earned for below-Threshold results and maximum awards of up to 200% of target grants for Superior performance
| | | | | | |
| | Target Equity Grants | ||||
NEO | | # of Performance Shares | | # of Stock Options | | # of Restricted Shares |
Timothy C. Crew |
| 158,679 |
| 144,628 | | 204,016 |
John Kozlowski |
| 40,728 |
| 37,121 | | 52,364 |
Maureen Cavanaugh |
| 46,334 |
| 42,231 | | 59,573 |
Samuel H. Israel |
| 43,584 |
| 39,725 | | 56,036 |
John Abt |
| 32,144 |
| 29,298 | | 41,328 |
| | | |
Lannett Three Year Relative TSR vs. S&P | Percentage of Target Grant | ||
Pharmaceuticals Select Index | | Earned | |
Below 40th Percentile | — | % | |
40th Percentile | 50 | % | |
50th Percentile | 100 | % | |
80th Percentile or Higher | 200 | % |
The Committee also approved additional restricted stock grants of 5,000 shares to Mr. Kozlowski and 10,000 shares of Mr. Abt, effective September 7, 2020, to further recognize their contributions in Fiscal 2020 and assumption of additional responsibilities. These grants vest in three equal annual increments, beginning on the first anniversary of the grant date.
Retention Bonus Program
To address retention concerns and to further encourage NEOs to focus on achieving strategic objectives following the announced non-renewal of the JSP contract, the Committee adopted a retention bonus program in December 2018. NEOs were eligible to receive cash payments equal to 100% of their Fiscal 2019 base salary if they remained employed and performed duties and responsibilities in a satisfactory manner through December 1, 2019, or if they were terminated other than for Cause (as defined in employment agreements) during the one-year retention period. All current NEOs earned cash retention incentives in December 2019. Mr. Galvan, our former Vice President, Finance and Chief Financial Officer who retired from the Company on August 30, 2019, received a pro-rata payout of $311,250 per the terms of his Separation Agreement. Retention incentives are reported in the “Bonus” column of the Summary Compensation Table for Fiscal 2020 in this proxy.
Compensation Recoupment (Clawback) Policy for Executive Officers
In early Fiscal 2021, our Board of Directors approved an expanded compensation recovery or “clawback” provision that will be incorporated into all executive officer employment contracts. Under the revised contracts, if the Company is required to issue a material financial restatement as a result of fraud or other misconduct, the Board may, in its discretion, seek to recoup any excess performance-based short-term or long-term incentive compensation awarded during the three-year period following the originally filed financial statement(s). The recoupment provision applies to any executive officer who is found to have participated in or knew or should have known about such fraud or misconduct and took no action to prevent it. In determining the amount of any excess performance-based incentives, the Board will compare the award received based on the original financial statement(s) against the amount that would have been earned based on the restated financial results. Prior to this new policy, the Company maintained a clawback policy under the Sarbanes-Oxley Act, with incentive awards for the CEO and CFO subject to recoupment in the event of a material financial restatement triggered by fraud or misconduct. Additionally, any employee who violates the provisions of the Company’s Code of Business Conduct and Ethics is subject to disciplinary penalties that may include termination of employment. The Committee intends to comply with any regulatory requirements pertaining to clawback provisions under the Dodd-Frank Act once rules are finalized by the SEC and New York Stock Exchange.
29
Other Policies, Programs and Guidelines
NEOs, like all other employees, have retirement programs and other benefits as part of their overall compensation package. The Committee believes that these programs and benefits support our compensation philosophy, part of which is to provide compensation that is sufficiently competitive to attract, motivate and retain an executive team fully capable of driving exceptional performance. The Committee periodically reviews these programs to validate that they are reasonable and consistent with market practice. Attributed costs of the personal benefits available to the NEOs are included in column (h) of the Summary Compensation Table on page 33.
● | Retirement Benefits. Each of our NEOs is eligible to participate in a 401(k) plan that is available to all employees. |
29
● | Other Benefits. Our NEOs are eligible to participate in the same health benefits available to all other employees. They also participate in a wellness program |
● | Post-Termination Pay. The Committee believes that reasonable severance and change-in-control benefits are necessary in order to recruit and retain qualified senior executives and are generally required by the competitive recruiting environment within our industry and the marketplace in general. These severance benefits reflect the fact that it may be difficult for our NEOs to find comparable employment within a short period of time and are designed to alleviate concerns about the loss of his or her position without cause. The Committee also believes that a change-in-control arrangement will provide security that will likely reduce the reluctance of an NEO to pursue a change in control transaction that could be in the best interest of our stockholders. Lannett’s severance plan is designed to pay severance benefits to a NEO for a qualifying separation. For the CEO, the severance plan provides for payment of three times base salary, plus a pro-rated annual cash bonus for the current year calculated as if all targets and goals are achieved. For the other NEOs, the severance plan currently provides for a payment of 18-months of base salary, plus a pro-rated annual cash bonus for the current year calculated as if all targets and goals are |
● | Tax and Accounting Implications. Section 162(m) of the Internal Revenue Code of 1986, as amended, precludes the deductibility of an NEO’s compensation that exceeds $1,000,000 per year. The Tax Cuts and Jobs Act, which became effective as of January 1, 2018, modified Section 162(m) provisions, including the elimination of the “performance-based exception” that previously allowed certain performance-based compensation meeting specific requirements to qualify for full tax deductibility by the Company. The changes to Section 162(m) do not apply to certain compensation paid pursuant to a binding written contract that was in effect as of November 2, 2017. As a result of the tax law changes, compensation paid to designated “covered executives”, including current and former NEOs, in excess of $1,000,000 per individual will generally not be deductible, whether or not it is performance-based. Although the Committee has historically attempted to structure executive compensation to preserve deductibility, it also reserves the right to provide compensation that may not be fully deductible, in order to maintain flexibility in compensating NEOs in a manner consistent with our compensation philosophy, as deemed appropriate. The Committee believes that stockholder interests are best served by not restricting the Committee’s discretion in this regard, even though such compensation may result in non-deductible compensation expenses to the Company. |
30
● | Non-Qualified Deferred Compensation Plan. Effective July 1, 2019, the Company established a non-qualified deferred compensation plan that allows NEOs and a select group of other senior management and highly compensated employees to elect to defer up to 50% of base salary and up to 100% of annual bonuses. Deferral elections must be made prior to the start of each calendar plan year, with participants selecting among a variety of investment alternatives. The Committee has the discretion to periodically authorize company contributions but is under no obligation to do so, and any such company contributions may be subject to vesting requirements. Participant compensation deferrals are immediately vested and will be credited to individual participant accounts, along with any company contributions (if applicable) and any investment returns. Distribution of the participant’s accounts is triggered by the occurrence of the applicable event (i.e., separation from service, retirement, death, disability, a Change in Control, or pre-determined in-service distributions that are no earlier than three years after the year in which deferrals were made) under the terms of the plan, but the date on which payment is actually processed will be subject to timing requirements associated with Section 409A of the Internal Revenue Code (“409A”). The plan is unfunded and payouts will generally be made in one cash lump sum; however, subject to the 409A restrictions on initial and subsequent form of payment elections, participants will also be eligible to elect to receive payments in annual installments of up to five years for in-service distributions and up to ten years following retirement. |
30
Looking Ahead: Executive Compensation Program Changes for Fiscal 2021
2022
For Fiscal 2021,2022, the Committee decided to increaseonce again delay the timing of base salaries for all NEOs,salary merit increases, modify the short-term incentive (Annual Bonus) design, and to modify the long-term incentive plan design, as shown below.
● | Base Salaries. |
| | | | | | | | | | | | | | | | | | |
NEO | | 2020 Base Salary | | 2021 Base Salary* | | % Change |
|
| 2021 Base Salary |
| 2022 Base Salary* |
| % Change |
| ||||
Timothy C. Crew | | $ | 750,000 | | $ | 772,500 | | 3.0 | % | | $ | 772,500 | | $ | 772,500 | | — | % |
John Kozlowski | | $ | 385,000 | | $ | 410,000 | | 6.5 | % | | $ | 410,000 | | $ | 451,000 | | 10 | % |
Maureen Cavanaugh | | $ | 438,000 | | $ | 451,000 |
| 3.0 | % | | $ | 451,400 | | $ | 464,670 |
| 3 | % |
Samuel H. Israel | | $ | 412,000 | | $ | 424,400 | | 3.0 | % | | $ | 424,360 | | $ | 437,090 | | 3 | % |
John Abt | | $ | 354,500 | | $ | 365,000 |
| 3.0 | % | | $ | 365,135 | | $ | 425,000 |
| 16 | % |
* Reflects full-year annualized salaries; as noted above, allFiscal 2021 increases arebecame effective as of January 1, 2021 exceptand those for Mr. Kozlowski, whose increase becameFiscal 2022 are effective Julyas of October 1, 2020
2021
● | Short-Term Incentives (Annual Bonus). For Fiscal |
| | | |
|
| Weighting (out of |
|
Performance Metric | | 100%) |
|
Adjusted Operating Income |
|
| % |
Adjusted Earnings Per Share (“EPS”) |
| 20 | % |
Net Sales |
| 20 | % |
Fiscal 2022 Strategic Objectives |
| 20 | % |
|
|
| % |
31
● | Long-Term Incentives. Expressed as percentages of base salary, target long-term incentive award opportunities are the same as for grants made in Fiscal |
Stock option and restrictedRestricted stock grants were made at target award levels in July 2020,2021, vesting in three equal annual increments based on continued service.
The cash-based incentive component was also approved in July 2021, with a three-year “cliff” vesting requirement based on continued service and the award value is tied to changes in our stock price over the three-year period ending June 30, 2024.
For the performance share component tied to relative TSR, award opportunities can range from 0% to 200% of target levels, based on our three-year TSR relative to companies in the S&P Pharmaceuticals Select Industry Index, as follows:
| | | |
Lannett Three-Year Relative TSR vs. S&P | | Percentage of Target Award Opportunity |
|
Pharmaceuticals Select Index |
| Earned | |
Below 40th Percentile | | — | |
40th Percentile | | 50 | % |
50th Percentile | | 100 | % |
80th Percentile or Higher | | 200 | % |
As noted above, the other half of performance shares are tied to strategic portfolio goals to be achieved during the three-year period ending June 30, 2024. Target performance shares were granted in July 2020.2021. Any earned shares will vest following the end of the three-year performance period. As noted above, awards for the relative TSR component will be capped at target if our relative TSR is above the 50th percentile but absolute TSR is negative.
31
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee has reviewed, discussed and approved the CD&A as set forth above with management. Taking this review and discussion into account, the undersigned Committee members recommend to the Board of Directors that the CD&A be included in the annual report on Form 10-K and in this Proxy Statement.proxy statement.
Paul Taveira, Chairman
John C. Chapman
David Drabik
32
COMPENSATION OF EXECUTIVE OFFICERS
Overview
The tables and narratives set forth below provide specified information concerning the compensation of our Named Executive Officers (NEOs) for the fiscal year ended June 30, 2020.
2021.
Summary Compensation Table
This table summarizes all compensation paid to or earned by our Fiscal 20202021 NEOs for the years indicated to the extent they were serving as NEOs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| | |
| Non-equity |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| Non-equity |
| | |
| | | ||
| | | | | | | | | Restricted | | | | | incentive plan | | All Other | | | | | | | | | | | | Restricted | | | | | incentive plan | | All Other | | | | ||||||||
Name and Principal Position | | Fiscal Year | | Salary | | Bonus | | Stock Awards | | Options Awards | | compensation | | Compensation | | Total | | Fiscal Year | | Salary | | Bonus | | Stock Awards | | Options Awards | | compensation | | Compensation | | Total | ||||||||||||||
(a) |
| (b) |
| (c) |
| (d) |
| (d) |
| (e) |
| (f) |
| (g) |
| (h) |
| (b) |
| (c) |
| (d) |
| (d) |
| (e) |
| (f) |
| (g) |
| (h) | ||||||||||||||
Timothy Crew | | 2020 | | $ | 748,269 | | $ | 735,000 | | $ | 1,605,283 | | $ | 840,603 | | $ | 619,390 | | $ | 27,768 | | $ | 4,576,313 | | 2021 | | $ | 760,385 | | $ | — | | $ | 2,676,916 | | $ | 558,264 | | $ | 231,750 | | $ | 36,573 | | $ | 4,263,888 |
Chief Executive Officer | | 2019 | | | 735,000 | | | — | | | 483,359 | | | 141,002 | | | 735,000 | | | 40,635 | | | 2,134,996 | | 2020 | | | 748,269 | | | 735,000 | | | 1,605,283 | | | 840,603 | | | 619,390 | | | 27,768 | | | 4,576,313 |
| | 2018 | | | 350,539 | | | — | | | 400,016 | | | 400,003 | | | 126,252 | | | 52,971 | | | 1,329,781 | | 2019 | | | 735,000 | | | — | | | 483,359 | | | 141,002 | | | 735,000 | | | 40,635 | | | 2,134,996 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Kozlowski |
| 2020 | | $ | 378,077 | | $ | 325,000 | | $ | 354,878 | | $ | 185,840 | | $ | 188,096 | | $ | 35,582 | | $ | 1,467,473 |
| 2021 | | $ | 409,327 | | $ | — | | $ | 714,128 | | $ | 143,287 | | $ | 98,400 | | $ | 24,117 | | $ | 1,389,259 |
Vice President of Finance, Chief Financial Officer |
| 2019 | |
| 325,000 | |
| — | |
| 219,228 | |
| 64,894 | |
| 195,000 | |
| 47,199 | |
| 851,321 |
| 2020 | |
| 378,077 | |
| 325,000 | |
| 354,878 | |
| 185,840 | |
| 188,096 | |
| 35,582 | |
| 1,467,473 |
and Principal Accounting Officer |
| 2018 | |
| 325,000 | |
| — | |
| 171,624 | |
| — | |
| 67,921 | |
| 31,769 | |
| 596,314 |
| 2019 | |
| 325,000 | |
| — | |
| 219,228 | |
| 64,894 | |
| 195,000 | |
| 47,199 | |
| 851,321 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maureen Cavanaugh |
| 2020 | | $ | 436,500 | | $ | 425,000 | | $ | 534,926 | | $ | 277,144 | | $ | 217,034 | | $ | 25,206 | | $ | 1,915,810 |
| 2021 | | $ | 444,065 | | $ | — | | $ | 781,659 | | $ | 163,012 | | $ | 108,274 | | $ | 18,937 | | $ | 1,515,947 |
Senior VP and Chief Commercial |
| 2019 | |
| 425,000 | |
| — | |
| — | |
| — | |
| 255,000 | |
| 31,799 | |
| 711,799 |
| 2020 | |
| 436,500 | |
| 425,000 | |
| 534,926 | |
| 277,144 | |
| 217,034 | |
| 25,206 | |
| 1,915,810 |
Operations Officer |
| 2018 | |
| 57,212 | |
| — | |
| 368,753 | |
| — | |
| — | |
| 52,554 | |
| 478,519 |
| 2019 | |
| 425,000 | |
| — | |
| — | |
| — | |
| 255,000 | |
| 31,799 | |
| 711,799 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Samuel Israel |
| 2020 | | $ | 410,616 | | $ | 400,000 | | $ | 503,548 | | $ | 260,863 | | $ | 228,871 | | $ | 24,896 | | $ | 1,828,794 |
| 2021 | | $ | 417,705 | | $ | — | | $ | 735,259 | | $ | 153,339 | | $ | 76,385 | | $ | 27,856 | | $ | 1,410,544 |
Chief Legal Officer and |
| 2019 | |
| 400,000 | |
| — | |
| 300,969 | |
| 89,096 | |
| 240,000 | |
| 27,122 | |
| 1,057,187 |
| 2020 | |
| 410,616 | |
| 400,000 | |
| 503,548 | |
| 260,863 | |
| 228,871 | |
| 24,896 | |
| 1,828,794 |
General Counsel |
| 2018 | |
| 376,923 | |
| — | |
| 585,010 | |
| 24,997 | |
| 79,931 | |
| 16,980 | |
| 1,083,841 |
| 2019 | |
| 400,000 | |
| — | |
| 300,969 | |
| 89,096 | |
| 240,000 | |
| 27,122 | |
| 1,057,187 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Abt | | 2020 | | $ | 353,346 | | $ | 344,500 | | $ | 283,703 | | $ | 131,340 | | $ | 175,659 | | $ | 25,080 | | $ | 1,313,628 | | 2021 | | $ | 359,409 | | $ | — | | $ | 596,369 | | $ | 113,090 | | $ | 65,724 | | $ | 19,611 | | $ | 1,154,203 |
Vice President and Chief Quality | | 2019 | | | 344,500 | | | — | | | 144,249 | | | 42,080 | | | 206,700 | | | 24,221 | | | 761,750 | | 2020 | | | 353,346 | | | 344,500 | | | 283,703 | | | 131,340 | | | 175,659 | | | 25,080 | | | 1,313,628 |
Operations Officer | | 2018 | | | 299,539 | | | — | | | 153,505 | | | 24,997 | | | 67,817 | | | 19,155 | | | 565,013 | | 2019 | | | 344,500 | | | — | | | 144,249 | | | 42,080 | | | 206,700 | | | 24,221 | | | 761,750 |
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Martin P. Galvan (5) |
| 2020 | | $ | 79,808 | | $ | 311,250 | | $ | 597,073 | | $ | 309,302 | | $ | 41,500 | | $ | 428,231 | | $ | 1,767,164 | |||||||||||||||||||||||
Former Vice President of Finance and |
| 2019 | |
| 415,000 | |
| — | |
| 364,823 | |
| 104,874 | |
| 249,000 | |
| 50,477 | |
| 1,184,174 | |||||||||||||||||||||||
Chief Financial Officer |
| 2018 | |
| 415,000 | |
| — | |
| 207,505 | |
| 24,997 | |
| 86,730 | |
| 29,513 | |
| 763,745 | |||||||||||||||||||||||
| (1) | Mr. |
|
|
|
|
|
|
33
All Other Compensation
The following summarizes the components of column (g) of the Summary Compensation Table above:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| Company |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Company |
| | |
| | |
| | |
| | |
| | | ||
| | | | Match | | | | | | | | | | | | | | | | | | | | | | | | | | | | Match | | | | | | | | | | | | | | | | ||
| | | | Contributions | | Auto | | Pay in Lieu of | | Separation | | Wellness | | Excess Life | | Relocation | | Signing | | | | | | | Contributions | | Auto | | Pay in Lieu of | | Wellness | | Excess Life | | | | |||||||||||||
Name and Principal Position | | Fiscal Year | | 401(k) Plan | | Allowance | | Vacation | | Payments | | Benefit | | Insurance | | Reimbursement | | Bonus | | Total | | Fiscal Year | | 401(k) Plan | | Allowance | | Vacation | | Benefit | | Insurance | | Total | |||||||||||||||
Timothy Crew | | 2020 | | $ | 9,750 | | $ | 13,500 | | $ | — | | $ | — | | $ | 4,250 | | $ | 268 | | $ | — | | $ | — | | $ | 27,768 | | 2021 | | $ | 5,625 | | $ | 13,500 | | $ | 14,856 | | $ | 2,250 | | $ | 342 | | $ | 36,573 |
Chief Executive Officer | | 2019 | | | 5,655 | | | 13,500 | | | 16,962 | | | — | | | 4,250 | | | 268 | | | — | | | — | | | 40,635 | | 2020 | | | 9,750 | | | 13,500 | | | — | | | 4,250 | | | 268 | | | 27,768 |
| | 2018 | | | 6,463 | | | 6,439 | | | — | | | — | | | — | | | 69 | | | 40,000 | | | — | | | 52,971 | | 2019 | | | 5,655 | | | 13,500 | | | 16,962 | | | 4,250 | | | 268 | | | 40,635 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Kozlowski | | 2020 | | $ | 13,035 | | $ | 10,800 | | $ | 7,404 | | $ | — | | $ | 4,250 | | $ | 93 | | $ | — | | $ | — | | $ | 35,582 | | 2021 | | $ | 3,073 | | $ | 10,800 | | $ | 7,885 | | $ | 2,250 | | $ | 109 | | $ | 24,117 |
Vice President of Finance, Chief Financial |
| 2019 |
| | 9,556 |
| | 10,800 |
| | 22,500 |
| | — |
| | 4,250 |
| | 93 |
| | — |
| | — |
| | 47,199 |
| 2020 |
| | 13,035 | | | 10,800 | | | 7,404 | | | 4,250 | | | 93 | | | 35,582 |
Officer and Principal Accounting Officer |
| 2018 |
| | 9,770 |
| | 7,062 |
| | 14,844 |
| | — |
| | — |
| | 93 |
| | — |
| | — |
| | 31,769 |
| 2019 |
| | 9,556 |
| | 10,800 |
| | 22,500 |
| | 4,250 |
| | 93 |
| | 47,199 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maureen Cavanaugh |
| 2020 | | $ | 9,760 | | $ | 10,800 | | $ | — | | $ | — | | $ | 4,250 | | $ | 396 | | $ | — | | $ | — | | $ | 25,206 |
| 2021 | | $ | 5,491 | | $ | 10,800 | | $ | — | | $ | 2,250 | | $ | 396 | | $ | 18,937 |
Senior VP and Chief Commercial |
| 2019 | |
| 16,442 | |
| 10,800 | |
| — | |
| — | |
| 4,250 | |
| 307 | |
| — | |
| — | |
| 31,799 |
| 2020 | |
| 9,760 | |
| 10,800 | |
| — | |
| 4,250 | |
| 396 | |
| 25,206 |
Operations Officer |
| 2018 | |
| 1,308 | |
| 1,246 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 50,000 | |
| 52,554 |
| 2019 | |
| 16,442 | |
| 10,800 | |
| — | |
| 4,250 | |
| 307 | |
| 31,799 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Samuel Israel |
| 2020 | | $ | 9,588 | | $ | 10,800 | | $ | — | | $ | — | | $ | 4,250 | | $ | 258 | | $ | — | | $ | — | | $ | 24,896 |
| 2021 | | $ | 7,935 | | $ | 10,800 | | $ | 6,529 | | $ | 2,250 | | $ | 342 | | $ | 27,856 |
Chief Legal Officer and |
| 2019 | |
| 8,727 | |
| 10,800 | |
| 3,077 | |
| — | |
| 4,250 | |
| 268 | |
| — | |
| — | |
| 27,122 |
| 2020 | |
| 9,588 | |
| 10,800 | |
| — | |
| 4,250 | |
| 258 | |
| 24,896 |
General Counsel |
| 2018 | |
| 6,615 | |
| 10,177 | |
| — | |
| — | |
| — | |
| 188 | |
| — | |
| — | |
| 16,980 |
| 2019 | |
| 8,727 | |
| 10,800 | |
| 3,077 | |
| 4,250 | |
| 268 | |
| 27,122 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Abt | | 2020 | | $ | 9,832 | | $ | 10,800 | | $ | — | | $ | — | | $ | 4,250 | | $ | 198 | | $ | — | | $ | — | | $ | 25,080 | | 2021 | | $ | 6,303 | | $ | 10,800 | | $ | — | | $ | 2,250 | | $ | 258 | | $ | 19,611 |
Vice President and Chief | | 2019 | |
| 9,033 | |
| 10,800 | |
| — | |
| — | |
| 4,250 | |
| 138 | |
| — | |
| — | |
| 24,221 | | 2020 | |
| 9,832 | |
| 10,800 | |
| — | |
| 4,250 | |
| 198 | |
| 25,080 |
Quality Operations Officer | | 2018 | |
| 8,217 | |
| 10,800 | |
| — | |
| — | |
| — | |
| 138 | |
| — | |
| — | |
| 19,155 | | 2019 | |
| 9,033 | |
| 10,800 | |
| — | |
| 4,250 | |
| 138 | |
| 24,221 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Martin P. Galvan |
| 2020 | | $ | 210 | | $ | 2,077 | | $ | 20,351 | | $ | 401,167 | | $ | 4,250 | | $ | 176 | | $ | — | | $ | — | | $ | 428,231 | ||||||||||||||||||||
Former Vice President of Finance |
| 2019 | |
| 9,896 | |
| 10,800 | |
| 24,740 | |
| — | |
| 4,250 | |
| 791 | |
| — | |
| — | |
| 50,477 | ||||||||||||||||||||
and Chief Financial Officer |
| 2018 | |
| 9,343 | |
| 10,800 | |
| 8,579 | |
| — | |
| — | |
| 791 | |
| — | |
| — | |
| 29,513 | ||||||||||||||||||||
34
Grants of Plan-Based Awards in Fiscal 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts | | Estimated Future Payouts | | Awards: | | Option Awards: | | | | | Grant Date | | | | Estimated Future Payouts | | Estimated Future Payouts | | Awards: | | Option Awards: | | | | | Grant Date | ||||||||||||||||||
| | | | Under Non-Equity Incentive | | Under Equity Incentive Plan | | Number of | | Number of | | Exercise or | | Fair Value of | | | | Under Non-Equity Incentive | | Under Equity Incentive Plan | | Number of | | Number of | | Exercise or | | Fair Value of | ||||||||||||||||||||
| | | | Plan Awards | | Awards | | Shares of | | Securities | | Base Price | | Stock and | | | | Plan Awards | | Awards | | Shares of | | Securities | | Base Price | | Stock and | ||||||||||||||||||||
| | | | | | | | | | Threshold | | Target | | Maximum | | Stocks or Units | | Underlying | | of Option | | Options | | | | | | | | | | Threshold | | Target | | Maximum | | Stocks or Units | | Underlying | | of Option | | Options | ||||
Name | | Grant Date | | Threshold | | Target | | Maximum | | ($) | | ($) | | ($) | | (#) (1) (2) | | Options (#) (1) | | Awards | | Awards (4) | | Grant Date | | Threshold | | Target | | Maximum | | ($) | | ($) | | ($) | | (#) (1) (2) | | Options (#) (1) | | Awards | | Awards (4) | ||||
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | ($/sh) (3) | | (i) |
| (b) |
| (c) |
| (d) |
| (e) |
| (f) |
| (g) |
| (h) |
| (i) |
| (j) |
| ($/sh) (3) |
| (i) | ||||
Timothy Crew | | | | 187,500 | | 750,000 | | 1,500,000 | | | | | | | | | | | | | | | | | |
| | 386,250 | | 772,500 | | 1,545,000 | |
| |
| |
| |
| | | | | | |
| |
Chief Executive Officer | | 7/29/2019 | | | | | | | | 35,195 |
| 70,390 |
| 140,780 | | | | | | | | | $ | 753,877 | | 7/31/2020 | | | |
| |
| | 79,340 |
| 158,679 |
| 317,358 | |
| | | | | | | $ | 1,463,020 |
| | 7/29/2019 | | | | | | | | | | | | | | 129,590 | | | | | | | $ | 851,406 | | 7/31/2020 | | | | | | | | | | | | | | 204,016 | | | | | | | $ | 1,213,895 |
| | 7/29/2019 | | | | | | | | | | | | | | | | 208,070 | | $ | 6.57 | | $ | 840,603 | | 7/31/2020 | | | | | | | | | | | | | | | | 144,628 | | $ | 5.95 | | $ | 558,264 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Kozlowski | | | | 56,887 | | 227,548 | | 455,096 | | |
| |
| | | | | | | | | |
| | |
| | 123,000 | | 246,000 | | 492,000 | | |
| |
| | | | | | | | | |
| |
Vice President of Finance, | | 7/29/2019 | | | | | | | | 7,780 |
| 15,560 |
| 31,120 | | | | | | | | | $ | 166,648 | | 7/31/2020 | | | |
| |
| | 20,364 | | 40,728 |
| 81,456 | | | | | | | | | $ | 375,512 |
Chief Financial Officer and | | 7/29/2019 | | | | | | | | | | | | | | 28,650 | | | | | | | $ | 188,231 | | 7/31/2020 | | | | | | | | | | | | | | 52,364 | | | | | | | $ | 311,566 |
Principal Accounting Officer | | 7/29/2019 | | | | | | | | | | | | | | | | 46,000 | | $ | 6.57 | | $ | 185,840 | | 9/7/2020 | | | | | | | | | | | | | | 5,000 | | | | | | | $ | 27,050 |
| | | | | | | | | | | | | | | | | | | | | | | | | | 7/31/2020 | | | | | | | | | | | | | | | | 37,121 | | $ | 5.95 | | $ | 143,287 |
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Maureen Cavanaugh | | | | 65,700 | | 262,800 | | 525,600 | | |
| |
| | | | | | | | | |
| | |
| | 135,342 | | 270,684 | | 541,368 | | |
| |
| | | | | | | | | |
| |
Senior VP and Chief Commercial | | 7/29/2019 | | | | | | | | 11,870 |
| 23,740 |
| 47,480 | | | | | | | | | $ | 254,255 | | 7/31/2020 | | | |
| |
| | 23,167 |
| 46,334 |
| 82,668 | | | | | | | | | $ | 427,199 |
Operations Officer | | 7/29/2019 | | | | | | | | | | | | | | 42,720 | | | | | | | $ | 280,670 | | 7/31/2020 | | | | | | | | | | | | | | 59,573 | | | | | | | $ | 354,459 |
| | 7/29/2019 | | | | | | | | | | | | | | | | 68,600 | | $ | 6.57 | | $ | 277,144 | | 7/31/2020 | | | | | | | | | | | | | | | | 42,231 | | $ | 5.95 | | $ | 163,012 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Samuel Israel | | | | 61,800 | | 247,200 | | 494,400 | | |
| |
| | | | | | | | | |
| | |
| | 127,308 | | 254,616 | | 509,232 | | |
| |
| | | | | | | | | |
| |
Chief Legal Officer and | | 7/29/2019 | | | | | | | | 11,175 |
| 22,350 |
| 44,700 | | | | | | | | | $ | 239,369 | | 7/31/2020 | | | |
| |
| | 21,792 |
| 43,584 |
| 87,168 | | | | | | | | | $ | 401,844 |
General Counsel | | 7/29/2019 | | | | | | | | | | | | | | 40,210 | | | | | | | $ | 264,180 | | 7/31/2020 | | | | | | | | | | | | | | 56,036 | | | | | | | $ | 333,414 |
| | 7/29/2019 | | | | | | | | | | | | | | | | 64,570 | | $ | 6.57 | | $ | 260,863 | | 7/31/2020 | | | | | | | | | | | | | | | | 39,725 | | $ | 5.95 | | $ | 153,339 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Abt | | | | 53,175 | | 212,700 | | 425,500 | | | | | | | | | | | | | | | | | | | | 109,541 | | 219,081 | | 438,162 | | | | | | | | | | | | | | | | |
Vice President and Chief Quality | | 7/29/2019 | | | | | | | | 5,500 | | 11,000 | | 22,000 | | | | | | | | | $ | 117,810 | | 7/31/2020 | | | | | | | | 16,072 | | 32,144 | | 64,288 | | | | | | | | | $ | 296,368 |
Operations Officer | | 7/29/2019 | | | | | | | | | | | | | | 25,250 | | | | | | | $ | 165,893 | | 7/31/2020 | | | | | | | | | | | | | | 41,328 | | | | | | | $ | 245,902 |
| | 7/29/2019 | | | | | | | | | | | | | | | | 32,510 | | $ | 6.57 | | $ | 131,340 | | 9/7/2020 | | | | | | | | | | | | | | 10,000 | | | | | | | $ | 54,100 |
| | | | | | | | | | | | | | | | | | | | | | | | | | 7/31/2020 | | | | | | | | | | | | | | | | 29,298 | | $ | 5.95 | | $ | 113,090 |
Martin P. Galvan | | | | | | | | | | |
| |
| | | | | | | | | |
| | ||||||||||||||||||||||||
Former Vice President of Finance and | | 7/29/2019 | | | | | | | | 13,250 |
| 26,500 |
| 53,000 | | | | | | | | | $ | 283,815 | ||||||||||||||||||||||||
Chief Financial Officer | | 7/29/2019 | | | | | | | | | | | | | | 47,680 | | | | | | | $ | 313,258 | ||||||||||||||||||||||||
| | 7/29/2019 | | | | | | | | | | | | | | | | 76,560 | | $ | 6.57 | | $ | 309,302 | ||||||||||||||||||||||||
| (1) |
(2) | Restricted stock grants on 9/7/20 to Messrs. Kozlowski and Abt were made to further recognize their contributions in Fiscal 2020 and assumption of additional responsibilities. |
| (3) | The exercise price was equal to the Company’s closing stock price on the date of grant. |
| Stock options were valued using the Black-Scholes option pricing model. Performance shares were valued using a Monte Carlo binomial model. The assumptions used in fair value calculations are described in Note |
|
|
35
Outstanding Equity Awards at 20202021 Fiscal Year End
The following table sets forth information concerning the outstanding stock awards held at June 30, 20202021 by each of the NEOs. The options were granted ten years prior to the option expiration date and vest over three or four years from that grant date. Restricted shares vest over three or four years from the date of grant.
| | | | | | | | | | | | | | | | | | | | |
Option Awards | | | | | | | | | | | | | Stock Awards | |||||||
| | | | | | | | | | | | | | | | | | Equity | | Equity |
| | | | | | Equity | | | | | | | | | | | | Incentive Plan | | Incentive Plan |
| | | | | | Incentive Plan | | | | | | | | | | | | Awards: | | Awards: |
| | | | | | Awards: | | | | | | | | | | | | Number of | | Market or |
| | Number of | | Number of | | Number of | | | | | | | Number of | | | | | Unearned | | Payout Value |
| | Securities | | Securities | | Securities | | | | | | | Shares or | | Market Value | | Shares, Units | | of Unearned | |
| | Underlying | | Underlying | | Underlying | | | | | | | Units of | | of Shares or | | or Other | | Shares, Units | |
| | Unexercised | | Unexercised |
| Unexercised | | Option | | Option | | Stock That | | Units of Stock |
| Rights That |
| or Other | ||
| | Options (#) | | Options (#) | | Unearned | | Exercise | | Expiration | | Have Not | | That Have Not |
| Have Not |
| Rights That | ||
Name | | Exercisable | | Unexercisable | | Options (#) | | Price ($) | | Date | | Vested (#) | | Vested ($) | | Vested (#) |
| Have Not | ||
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | Vested ($) | ||
Timothy Crew |
| 21,402 |
| 10,701 |
| — | | $ | 23.65 |
| 1/1/2028 |
| |
| | |
| |
| |
Chief Executive Officer |
| 7,208 |
| 14,418 |
| — | | $ | 12.20 |
| 7/29/2028 |
| |
| | |
| |
| |
| | — | | 208,070 | | — | | $ | 6.57 | | 7/28/2029 | | | | | | | | | |
| | | | | | | | | | | |
| 146,786 | | $ | 1,065,666 | | 85,758 | $ | 622,603 |
| | | | | | | | | | | | | | | | | | | | |
John Kozlowski |
| 4,000 |
| — |
| — | | $ | 4.16 |
| 10/25/2022 |
| | |
| |
| |
| |
Vice President of Finance, |
| 9,334 |
| — |
| — | | $ | 13.86 |
| 9/4/2023 |
| | |
| |
| |
| |
Chief Financial Officer and |
| 4,200 |
| — |
| — | | $ | 34.77 |
| 8/11/2024 | | | | | | | | | |
Principal Accounting Officer |
| 3,317 |
| 6,636 |
| — | | $ | 12.20 |
| 7/29/2028 | | | | | | | | | |
|
| — |
| 46,000 |
| — | | $ | 6.57 |
| 7/28/2029 | | | | | | | | | |
|
| |
| |
| | | | |
| | | 36,585 | | $ | 265,607 | | 22,450 | $ | 162,987 |
| | | | | | | | | | | | | | | | | | | | |
Maureen Cavanaugh |
| — |
| 68,600 |
| — | | $ | 6.57 |
| 7/28/2029 |
| | |
| |
| |
| |
Senior VP and Chief Commercial |
| | | | | | | | | | |
| 50,600 | | $ | 367,356 |
| 23,740 | $ | 172,352 |
Operations Officer | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Samuel Israel |
| 1,839 |
| 920 |
| — | | $ | 17.40 |
| 9/21/2027 |
| | |
| |
| |
| |
Chief Legal Officer and |
| 4,555 |
| 9,110 |
| — | | $ | 12.20 |
| 7/29/2028 |
| | |
| |
| |
| |
General Counsel |
| — |
| 64,570 |
| — | | $ | 6.57 |
| 7/28/2029 | | | | | | | | | |
| | | | | | | | | | | |
| 53,588 | | $ | 389,049 | | 38,650 | $ | 280,599 |
| | | | | | | | | | | | | | | | | | | | |
John Abt | | 1,970 | | — | | — | | $ | 59.20 | | 7/21/2025 | | | | | | | | | |
Vice President and Chief Quality | | 1,155 | | — | | — | | $ | 31.30 | | 7/26/2026 | | | | | | | | | |
Operations Officer | | 1,839 | | 920 | | — | | $ | 17.40 | | 9/21/2027 | | | | | | | | | |
| | 2,151 | | 4,303 | | — | | $ | 12.20 | | 7/29/2028 | | | | | | | | | |
| | — | | 32,510 | | — | | $ | 6.57 | | 7/28/2029 | | | | | | | | | |
| | | | | | | | | | | | | 30,431 | | $ | 220,929 | | 18,420 | $ | 133,729 |
| | | | | | | | | | | | | | | | | | | | |
Martin P. Galvan |
| 32,000 |
| — |
| — | | $ | 4.16 |
| 8/30/2020 |
| | |
| |
| |
| |
Former Vice President of Finance and | | 50,000 |
| — |
| — | | $ | 13.86 |
| 8/30/2020 | | | | | | | | | |
Chief Financial Officer |
| 30,000 |
| — |
| — | | $ | 34.77 |
| 8/30/2020 | | | | | | | | | |
| | 8,990 | | — | | — | | $ | 59.20 | | 8/30/2020 | | | | | | | | | |
| | 1,769 | | — | | — | | $ | 31.30 | | 8/30/2020 | | | | | | | | | |
| | 2,759 | | — | | — | | $ | 17.40 | | 8/30/2020 | | | | | | | | | |
| | 16,085 | | — | | — | | $ | 12.20 | | 8/30/2020 | | | | | | | | | |
|
| 76,560 |
| — |
| — | | $ | 6.57 |
| 8/30/2020 | | | | | | | | | |
| | | | | | | | | | | |
| — | | $ | — | | — | $ | — |
| | | | | | | | | | | | | | | | | | | | |
Option Awards | | | | | | | | | | | | | Stock Awards | |||||||
| | | | | | | | | | | | | | | | | | Equity | | Equity |
| | | | | | Equity | | | | | | | | | | | | Incentive Plan | | Incentive Plan |
| | | | | | Incentive Plan | | | | | | | | | | | | Awards: | | Awards: |
| | | | | | Awards: | | | | | | | | | | | | Number of | | Market or |
| | Number of | | Number of | | Number of | | | | | | | Number of | | | | | Unearned | | Payout Value |
| | Securities | | Securities | | Securities | | | | | | | Shares or | | Market Value | | Shares, Units | | of Unearned | |
| | Underlying | | Underlying | | Underlying | | | | | | | Units of | | of Shares or | | or Other | | Shares, Units | |
| | Unexercised | | Unexercised |
| Unexercised | | Option | | Option | | Stock That | | Units of Stock |
| Rights That |
| or Other | ||
| | Options (#) | | Options (#) | | Unearned | | Exercise | | Expiration | | Have Not | | That Have Not |
| Have Not |
| Rights That | ||
Name | | Exercisable | | Unexercisable | | Options (#) | | Price ($) | | Date | | Vested (#) | | Vested ($) | | Vested (#) |
| Have Not | ||
(a) |
| (b) |
| (c) |
| (d) |
| (e) |
| (f) |
| (g) |
| (h) |
| (i) |
| Vested ($) | ||
Timothy Crew |
| 31,103 |
| — |
| — | | $ | 23.65 |
| 1/1/2028 |
| |
| | |
|
|
|
|
Chief Executive Officer |
| 14,417 |
| 7,209 |
| — | | $ | 12.20 |
| 7/29/2028 |
| |
| | |
|
|
|
|
| | 52,017 | | 156,053 | | — | | $ | 6.57 | | 7/28/2029 | | | | | | | | | |
| | — |
| 144,628 |
| — | | $ | 5.95 |
| 7/30/2030 | | | | | | | | | |
| | | | | | | | | | | |
| 306,988 | | $ | 1,433,634 | | 244,437 | $ | 114,521 |
| | | | | | | | | | | | | | | | | | | | |
John Kozlowski |
| 4,000 |
| — |
| — | | $ | 4.16 |
| 10/25/2022 |
| | |
| |
| |
| |
Vice President of Finance, |
| 9,334 |
| — |
| — | | $ | 13.86 |
| 9/4/2023 |
| | |
| |
| |
| |
Chief Financial Officer and |
| 4,200 |
| — |
| — | | $ | 34.77 |
| 8/11/2024 | | | | | | | | | |
Principal Accounting Officer |
| 6,635 |
| 3,318 |
| — | | $ | 12.20 |
| 7/29/2028 | | | | | | | | | |
|
| 11,500 |
| 34,500 |
| — | | $ | 6.57 |
| 7/28/2029 | | | | | | | | | |
| | — |
| 37,121 |
| — | | $ | 5.95 |
| 7/30/2030 | | | | | | | | | |
|
| |
| |
| | | | |
| | | 81,512 | | $ | 380,661 | | 63,178 | $ | 295,041 |
| | | | | | | | | | | | | | | | | | | | |
Maureen Cavanaugh |
| 17,150 |
| 51,450 |
| — | | $ | 6.57 |
| 7/28/2029 |
| | |
| |
| |
| |
Senior VP and Chief Commercial |
| — |
| 42,231 |
| — | | $ | 5.95 |
| 7/30/2030 |
| | |
| |
| |
| |
Operations Officer | | | | | | | | | | | | | 91,613 | | $ | 427,833 |
| 70,074 | $ | 327,246 |
| | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Samuel Israel |
| 2,759 |
| — |
| — | | $ | 17.40 |
| 9/21/2027 |
| | |
| |
| |
| |
Chief Legal Officer and |
| 9,110 |
| 4,555 |
| — | | $ | 12.20 |
| 7/29/2028 |
| | |
| |
| |
| |
General Counsel |
| 16,142 |
| 48,428 |
| — | | $ | 6.57 |
| 7/28/2029 | | | | | | | | | |
| | — |
| 39,725 |
| — | | $ | 5.95 |
| 7/30/2030 | | | | | | | | | |
| | | | | | | | | | | |
| 89,846 | | $ | 419,581 | | 75,393 | $ | 352,085 |
| | | | | | | | | | | | | | | | | | | | |
John Abt | | 1,970 | | — | | — | | $ | 59.20 | | 7/21/2025 | | | | | | | | | |
Vice President and Chief Quality | | 1,155 | | — | | — | | $ | 31.30 | | 7/26/2026 | | | | | | | | | |
Operations Officer | | 2,759 | | — | | — | | $ | 17.40 | | 9/21/2027 | | | | | | | | | |
| | 4,302 | | 2,152 | | — | | $ | 12.20 | | 7/29/2028 | | | | | | | | | |
| | 8,127 | | 24,383 | | — | | $ | 6.57 | | 7/28/2029 | | | | | | | | | |
| | — |
| 29,298 |
| — | | $ | 5.95 |
| 7/30/2030 | | | | | | | | | |
| | | | | | | | | | | | | 71,991 | | $ | 336,198 | | 47,730 | $ | 222,899 |
36
Options Exercised and Stock Vested During the Fiscal Year Ended June 30, 20202021
The following table sets forth information concerning stock options exercised and stock awards that vested during Fiscal 20202021 for each of the NEOs.
| | | | | | | | | | | | | | | | | | | | |
| | Options | | Stock Awards | | Options | | Stock Awards | ||||||||||||
| | Number of Shares | | Value | | Number of | | Value |
| Number of Shares |
| Value |
| Number of |
| Value | ||||
Name and Principal Position | | Acquired | | Realized | | Shares Acquired | | Realized | | Acquired | | Realized | | Shares Acquired | | Realized | ||||
(a) | | On Exercise | | on Exercise | | on Vesting | | on Vesting | | On Exercise | | on Exercise | | on Vesting | | on Vesting | ||||
Timothy Crew |
| — | | $ | — |
| 11,416 | | $ | 89,550 |
| — | | $ | — |
| 43,814 | | $ | 271,218 |
Chief Executive Officer |
| | |
| |
| | |
| |
|
| |
|
|
| | |
| |
| | | | | | | | | | | | | | | | | | | | |
John Kozlowski |
| — | | $ | — |
| 7,884 | | $ | 67,918 |
| — | | $ | — |
| 12,437 | | $ | 77,850 |
Vice President of Finance, Chief Financial Officer and Principal Accounting Officer |
| | |
| |
| | |
| |
|
| |
|
|
| | |
| |
| | | | | | | | | | | | | | | | | | | | |
Maureen Cavanaugh |
| — | | $ | — |
| 7,879 | | $ | 59,723 |
| — | | $ | — |
| 18,560 | | $ | 100,484 |
Senior VP and Chief Commercial Operations Officer |
| | |
| |
| | |
| |
|
| |
|
|
| | |
| |
| | | | | | | | | | | | | | | | | | | | |
Samuel Israel |
| — | | $ | — |
| 9,725 | | $ | 60,895 |
| — | | $ | — |
| 19,778 | | $ | 115,398 |
Chief Legal Officer and General Counsel |
| | |
| |
| | |
| |
|
| |
|
|
| | |
| |
| | | | | | | | | | | | | | | | | | | | |
John Abt |
| — | | $ | — |
| 4,699 | | $ | 38,823 |
| — | | $ | — |
| 9,768 | | $ | 56,929 |
Vice President and Chief Quality Operations Officer |
| | |
| |
| | |
| |
|
| |
|
|
| | |
| |
| | | | | | | | | | | ||||||||||
Martin P. Galvan |
| 40,000 | | $ | — |
| 108,348 | | $ | 1,099,701 | ||||||||||
Former Vice President of Finance and Chief Financial Officer |
| | |
| |
| | |
| | ||||||||||
Employment and Separation Agreements
The Company has entered into employment agreements with its current NEOs. Each of the agreements provides for an annual base salary and eligibility to receive a bonus. The salary and bonus amounts of these executives are determined by the review and approval of the Compensation Committee in accordance with the Committee’s charter as approved by the Board of Directors. Additionally, these executives are eligible to receive stock options and restricted stock awards. In 2018, the Company amended each of the employment agreements it has entered into with its current NEOs and with other employees to confirm and clarify that nothing in the employment agreements prohibits or limits the right of any employee from providing confidential information to or otherwise communicating with the SEC or any other governmental entity or self-regulatory organization or from accepting financial awards from the SEC or any other governmental entity or self-regulatory organization. Under the terms of the employment agreements, these executive employees may be terminated at any time with or without cause, or by reason of death or disability. In certain termination situations, the Company is liable to pay these executives severance compensation as discussed in the table below.
Effective August 30, 2019, the Company entered into a Separation Agreement and General Release with Mr. Galvan, our former Vice President of Finance and Chief Financial Officer, upon his termination of employment. The agreement provided for separation payments totaling $622,500, equal to eighteen months of Mr. Galvan’s final base salary plus a pro rata target cash bonus for Fiscal 2020 of $41,500, payable in twelve monthly installments, beginning on November 28, 2019. Mr. Galvan also received a pro rata cash retention bonus of $311,250, paid in December 2019. The agreement also provided for full vesting of all unvested stock options and all other equity awards, plus health benefits continuation (via reimbursement of COBRA premiums) for up to eighteen months from the date of termination. Mr. Galvan agreed to release the Company from any claims and to cooperate in the resolution of any issues pertaining to filings, investigations, or claims relating to events that occurred during his tenure with the Company. He also agreed to various restrictive covenants during the eighteen-month period following his termination of employment.
37
Potential Payments upon Termination or Change in Control
The following table summarizes potential payments or benefits upon various termination of employment scenarios for our current NEOs as of fiscal year end and assumes that the relevant triggering event occurred on June 30, 2020.2021. The fair market values of share-based compensation (i.e. Stock Options and Restricted Stock) were calculated using the closing price of Lannett Company, Inc. stock ($7.26)4.67) on June 30, 2020,2021, which was the last trading day of Fiscal 2020.2021. The “spread” or difference between the fair market value of Lannett Company’s stock on June 30, 2020,2021, and the option exercise price, was used for valuing stock options.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Exercisability | | Acceleration | | | | | | | | | | | | | | | | | Exercisability | | Acceleration | | | | | | | | | | ||||
| | Base | | Annual | | Of Unvested | | Of Unvested | | Insurance | | | | | | | | Base | | Annual | | Of Unvested | | Of Unvested | | Insurance | | | | | | | ||||||||||
| | Salary | | Cash | | Stock Option | | Restricted | | Benefit | | Other | | | | | Salary | | Cash | | Stock Option | | Restricted | | Benefit | | Other | | | | ||||||||||||
Name | | Continuation | | Bonus | | Awards | | Stock | | Continuation | | Benefits | | Total | | Continuation | | Bonus | | Awards | | Stock | | Continuation | | Benefits | | Total | ||||||||||||||
Timothy Crew | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Without Cause/With Good Reason (1) (2) | | $ | 2,250,000 | | $ | 619,390 | | $ | 143,568 | | $ | 1,688,269 | | $ | 26,827 | | $ | 4,008 | | $ | 4,732,062 | | $ | 2,317,500 | | $ | 231,750 | | $ | — | | $ | 2,575,155 | | $ | 26,882 | | $ | 5,100 | | $ | 5,156,387 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For Cause (3) (4) | | $ | — | | $ | 619,390 | | $ | — | | $ | — | | $ | — | | $ | 4,008 | | $ | 623,398 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Retirement / Death / Disability (3) | | $ | — | | $ | 619,390 | | $ | — | | $ | — | | $ | — | | $ | 4,008 | | $ | 623,398 | |||||||||||||||||||||
For Cause or Retirement / Death / Disability (3) (4) | | $ | — | | $ | 231,750 | | $ | — | | $ | — | | $ | — | | $ | 5,100 | | $ | 236,850 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in Control (5) | | $ | 2,250,000 | | $ | 619,390 | | $ | 143,568 | | $ | 1,688,269 | | $ | 26,827 | | $ | 4,008 | | $ | 4,732,062 | | $ | 2,317,500 | | $ | 231,750 | | $ | — | | $ | 2,575,155 | | $ | 26,882 | | $ | 5,100 | | $ | 5,156,387 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John Kozlowski | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| |
|
| |
| — | |
|
| |
|
| |
|
| |
|
|
Without Cause/With Good Reason (1) (2) | | $ | 577,500 | | $ | 188,096 | | $ | 31,740 | | $ | 428,594 | | $ | 34,542 | | $ | 6,004 | | $ | 1,266,476 | | $ | 615,000 | | $ | 98,400 | | $ | | | $ | 675,702 | | $ | 21,721 | | $ | 6,792 | | $ | 1,417,615 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | |
For Cause (3) (4) | | $ | — | | $ | 188,096 | | $ | — | | $ | — | | $ | — | | $ | 6,004 | | $ | 194,100 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Retirement / Death / Disability (3) | | $ | — | | $ | 188,096 | | $ | — | | $ | — | | $ | — | | $ | 6,004 | | $ | 194,100 | |||||||||||||||||||||
For Cause or Retirement / Death / Disability (3) (4) | | $ | — | | $ | 98,400 | | $ | | | $ | — | | $ | — | | $ | 6,792 | | $ | 105,192 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | |
Change in Control (5) | | $ | 577,500 | | $ | 188,096 | | $ | 31,740 | | $ | 428,594 | | $ | 34,542 | | $ | 6,004 | | $ | 1,266,476 | | $ | 820,000 | | $ | 98,400 | | $ | | | $ | 675,702 | | $ | 21,721 | | $ | 6,792 | | $ | 1,622,615 |
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Maureen Cavanaugh | |
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Without Cause/With Good Reason (1) (2) | | $ | 657,000 | | $ | 217,034 | | $ | 47,334 | | $ | 539,708 | | $ | 26,827 | | $ | 3,104 | | $ | 1,491,007 | | $ | 676,710 | | $ | 108,274 | | $ | — | | $ | 755,078 | | $ | 26,882 | | $ | 4,368 | | $ | 1,571,312 |
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For Cause (3) (4) | | $ | — | | $ | 217,034 | | $ | — | | $ | — | | $ | — | | $ | 3,104 | | $ | 220,138 | |||||||||||||||||||||
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Retirement / Death / Disability (3) | | $ | — | | $ | 217,034 | | $ | — | | $ | — | | $ | — | | $ | 3,104 | | $ | 220,138 | |||||||||||||||||||||
For Cause or Retirement / Death / Disability (3) (4) | | $ | — | | $ | 108,274 | | $ | — | | $ | — | | $ | — | | $ | 4,368 | | $ | 112,642 | |||||||||||||||||||||
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Change in Control (5) | | $ | 657,000 | | $ | 217,034 | | $ | 47,334 | | $ | 539,708 | | $ | 26,827 | | $ | 3,104 | | $ | 1,491,007 | | $ | 902,280 | | $ | 108,274 | | $ | — | | $ | 755,078 | | $ | 26,882 | | $ | 4,368 | | $ | 1,796,882 |
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Samuel Israel | |
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Without Cause/With Good Reason (1) (2) | | $ | 618,000 | | $ | 228,871 | | $ | 44,553 | | $ | 669,648 | | $ | 4,507 | | $ | 3,092 | | $ | 1,568,671 | | $ | 636,540 | | $ | 76,385 | | $ | | | $ | 771,666 | | $ | 3,972 | | $ | 4,176 | | $ | 1,492,739 |
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For Cause (3) (4) | | $ | — | | $ | 228,871 | | $ | — | | $ | — | | $ | — | | $ | 3,092 | | $ | 231,963 | |||||||||||||||||||||
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Retirement / Death / Disability (3) | | $ | — | | $ | 228,871 | | $ | — | | $ | — | | $ | — | | $ | 3,092 | | $ | 231,963 | |||||||||||||||||||||
For Cause or Retirement / Death / Disability (3) (4) | | $ | — | | $ | 76,385 | | $ | | | $ | — | | $ | — | | $ | 4,176 | | $ | 80,561 | |||||||||||||||||||||
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Change in Control (5) | | $ | 618,000 | | $ | 228,871 | | $ | 44,553 | | $ | 669,648 | | $ | 4,507 | | $ | 3,092 | | $ | 1,568,671 | | $ | 848,720 | | $ | 76,385 | | $ | | | $ | 771,666 | | $ | 3,972 | | $ | 4,176 | | $ | 1,704,919 |
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John Abt | |
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Without Cause/With Good Reason (1) (2) | | $ | 531,750 | | $ | 175,659 | | $ | 22,432 | | $ | 354,658 | | $ | 50,223 | | $ | 4,508 | | $ | 1,139,230 | | $ | 547,703 | | $ | 65,724 | | $ | — | | $ | 559,097 | | $ | 50,880 | | $ | 5,992 | | $ | 1,229,396 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For Cause (3) (4) | | $ | — | | $ | 175,659 | | $ | — | | $ | — | | $ | — | | $ | 4,508 | | $ | 180,167 | |||||||||||||||||||||
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Retirement / Death / Disability (3) | | $ | — | | $ | 175,659 | | $ | — | | $ | — | | $ | — | | $ | 4,508 | | $ | 180,167 | |||||||||||||||||||||
For Cause or Retirement / Death / Disability (3) (4) | | $ | — | | $ | 65,724 | | $ | — | | $ | — | | $ | — | | $ | 5,992 | | $ | 71,716 | |||||||||||||||||||||
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Change in Control (5) | | $ | 531,750 | | $ | 175,659 | | $ | 22,432 | | $ | 354,658 | | $ | 50,223 | | $ | 4,508 | | $ | 1,139,230 | | $ | 730,270 | | $ | 65,724 | | $ | — | | $ | 559,097 | | $ | 50,880 | | $ | 5,992 | | $ | 1,411,963 |
| (1) | Each employment agreement ranges from 1-3 years and is automatically renewed unless notice is given by either party. Any non-renewal of the existing employment agreements by the Company and any resignation of the Executive with Good Reason both constitute a termination without Cause. Under the current employment agreements with our NEOs, base salary continuation for a period of 18-36 months (and ranging from 24-36 months for a qualifying termination following a Change in Control ), pro-rated cash bonus as if all targets and goals were achieved subject to any applicable cap on cash payments, acceleration of exercisability of unvested stock option awards, acceleration of unvested restricted stock, and insurance benefit continuation for a period of 18 months (collectively “Severance Compensation”) will only be made if the Executive executes and delivers to the Company, in a form prepared by the Company, a release of all claims against the Company and other appropriate parties, excluding the Company’s performance obligation to pay Severance Compensation and the Executive’s vested rights under the Company sponsored retirement plans, 401(k) plans and stock ownership plans (“General Release”). Severance Compensation is paid in equal monthly installments over a 12-month period to commence on the 90th day following the Termination Date provided the Executive has not revoked the General Release prior to that date. Earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items are to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60 days following the Termination Date. |
38
(1) Each employment agreement ranges from 1-3 years and is automatically renewed unless notice is given by either party. Any non-renewal of the existing employment agreements by the Company and any resignation of the Executive with Good Reason both constitute a termination without Cause. Under the existing employment agreements base salary continuation for a period of 18-36 months, pro-rated cash bonus as if all targets and goals were achieved subject to any applicable cap on cash payments, acceleration of exercisability of unvested stock option awards, acceleration of unvested restricted stock, and insurance benefit continuation for a period of 18 months (collectively “Severance Compensation”) will only be made if the Executive executes and delivers to the Company, in a form prepared by the Company, a release of all claims against the Company and other appropriate parties, excluding the Company’s performance obligation to pay Severance Compensation and the Executive’s vested rights under the Company sponsored retirement plans, 401(k) plans and stock ownership plans (“General Release”). Severance Compensation is paid in equal monthly installments over a 12-month period to commence on the 90th day following the Termination Date provided the Executive has not revoked the General Release prior to that date. Earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items are to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60 days following the Termination Date.
| (2) | Under the existing employment agreements, Good Reason is defined as giving written notice of his resignation within thirty (30) days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the following events: (A) the assignment to Executive of duties materially and adversely inconsistent with Executive’s position or a material and adverse alteration in the nature of his duties, responsibilities and/or reporting obligations, (B) a reduction in Executive’s Base Salary or a failure to pay any such amounts when due; or (C) the relocation of Company headquarters more than 100 miles from its current location. |
(2) Under the existing employment agreements, Good Reason is defined as giving written notice of his resignation within thirty (30) days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the following events: (A) the assignment to Executive of duties materially and adversely inconsistent with Executive’s position or a material and adverse alteration in the nature of his duties, responsibilities and/or reporting obligations, (B) a reduction in Executive’s Base Salary or a failure to pay any such amounts when due; or (C) the relocation of Company headquarters more than 100 miles from its current location.
| (3) | Under the existing employment agreements, if the Executive is terminated For Cause; by death; by disability; resigns without Good Reason; or retires; earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items are to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60 days following the Termination Date. |
(3) Under the existing employment agreements, if the Executive is terminated For Cause; by death; by disability; resigns without Good Reason; or retires; earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items are to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60 days following the Termination Date.
| (4) | For Cause generally means Executive’s willful commission of an act constituting fraud, embezzlement, breach of fiduciary duty, material dishonesty with respect to the Company, gross negligence or willful misconduct in performance of Executive duties, willful violation of any law, rule or regulation relating to the operation of the Company, abuse of illegal drugs or other controlled substances or habitual intoxication, willful violation of published business conduct guidelines, code of ethics, conflict of interest or other similar policies, and Executive becoming under investigation by or subject to any disciplinary charges by any regulatory agency having jurisdiction over the Company (including but not limited to the Drug Enforcement Administration (DEA), Food and Drug Administration (FDA) or the Securities and Exchange Commission (SEC)) or if any complaint is filed against the Executive by any such regulatory agency. |
(4) For Cause generally means Executive’s willful commission of an act constituting fraud, embezzlement, breach of fiduciary duty, material dishonesty with respect to the Company, gross negligence or willful misconduct in performance of Executive duties, willful violation of any law, rule or regulation relating to the operation of the Company, abuse of illegal drugs or other controlled substances or habitual intoxication, willful violation of published business conduct guidelines, code of ethics, conflict of interest or other similar policies, and Executive becoming under investigation by or subject to any disciplinary charges by any regulatory agency having jurisdiction over the Company (including but not limited to the Drug Enforcement Administration (DEA), Food and Drug Administration (FDA) or the Securities and Exchange Commission (SEC)) or if any complaint is filed against the Executive by any such regulatory agency.
(5) Under the existing employment agreements, a Change in Control is defined as a “change in ownership of the Company”, “a change in effective control of the Company”, or “a change in ownership of a substantial portion of the Company’s assets.” If the Executive is terminated by the Company without Cause or resigns with Good Reason within 24 months of a Change in Control event, the Executive shall be entitled to earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items. These items are to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60 days following the Termination Date. Additionally, the Executive shall be entitled to Severance Compensation to be paid in equal monthly installments over a 12-month period to commence on the 90th day following the Termination Date provided the Executive has not revoked the General Release prior to that date. A written notice that the Executive’s employment term is not extended within the 24-month period after a Change in Control shall be deemed a termination without Cause, unless the Executive and the Company execute a new employment agreement.
| (5) | Under the existing employment agreements, a Change in Control is defined as a “change in ownership of the Company”, “a change in effective control of the Company”, or “a change in ownership of a substantial portion of the Company’s assets.” If the Executive is terminated by the Company without Cause or resigns with Good Reason within 24 months of a Change in Control event, the Executive shall be entitled to earned but unpaid base salary, accrued but unpaid annual bonus (if the Executive otherwise meets the eligibility requirements) and accrued but unpaid paid time off and other miscellaneous items. These items are to be paid in a single lump sum in cash no later than the earlier of: (1) the date required under applicable law; or (2) 60 days following the Termination Date. Additionally, the Executive shall be entitled to Severance Compensation to be paid in equal monthly installments over a 12-month period to commence on the 90th day following the Termination Date provided the Executive has not revoked the General Release prior to that date. A written notice that the Executive’s employment term is not extended within the 24-month period after a Change in Control shall be deemed a termination without Cause, unless the Executive and the Company execute a new employment agreement |
39
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations of the SEC, we are providing the following information about the annual total compensation of our employees and the annual total compensation of our current CEO, Timothy Crew. For the year ended June 30, 2020,2021, Mr. Crew’s total compensation, as reported in the Summary Compensation Table of this proxy, was $4,576,313$4,263,888 and total compensation for our median employee, as calculated in accordance with the requirements of Regulation S-K, was $59,289,$59,834, resulting in a ratio of 77.271.3 to 1. This pay ratio information has been calculated in a manner consistent with SEC regulations.
For purposes of determining the median employee for the fiscal year ending June 30, 2020,2021, we determined that as of May 31, 2020,2021, our employee population consisted of 951810 individuals working at our companythe Company and its consolidated subsidiaries. For each of the 950810 U.S.-based employees (other than Mr. Crew), we used their annualized base salary and target cash and equity incentive awards as of May 31, 20202021 as a consistently applied compensation measure to identify the median employee. We used target cash and equity incentives since actual awards for Fiscal 20202021 for each employee were not yet determined. We annualized values for employees hired after July 1, 2019,2020, the start of our Fiscal Year.
Because the SEC rules permit significant flexibility in terms of approaches used to calculate compensation and identify the median employee, comparisons among companies may not be very meaningful, even for companies within the same industry.
40
Our Board of Directors is actively involved in providing strategic direction and fiduciary oversight to the Company. During Fiscal 2020,2021, we had a total of eightseven Board members, (seven at fiscal year-end), which resulted in a significant workload for our directors.Directors. Our Board of Directors held numerous meetings and teleconferences in Fiscal 20202021 in carrying out its responsibilities. The Board is actively involved in transactional due diligence, management succession planning, on-going reviews of business development activities and strategic initiatives to position the Company for future growth. The Board has also beencontinued to be actively involved in addressing the COVID-19 pandemic.
For Fiscal 2020,2021, our non-employee directorsDirectors received a cash retainer of $90,000, unchanged from Fiscal 2019,2020, payable in monthly increments of $7,500, for Board and committee service. Mr. LePore also received an additional retainer of $30,000 for serving as our Independent Non-Employee Board Chairman, and Mr. Drabik received an additional retainer of $24,000 for his central role and work on the special committees and for continued boardBoard leadership work. Certain directors also received an extra $1,000 per meeting for attending special meetings during the year. No other cash retainers or meeting fees were provided during Fiscal 2020.2021. As an executive director, Mr. Crew does not participate in the non-employee director compensation program.
Board members receive annual equity grants to recognize their service during the prior fiscal year. Grant levels may vary from year to year based on Company performance. Based on the Company’s performance and the significant efforts and contributions of our directorsDirectors in Fiscal 2019,2020, in July 2019,September 2020, each then-current non-employee Board member other than Dr. Rewolinski, received an award of 33,44538,986 common shares with a grant date value of $200,001,$199,998, immediately vested at grant. Dr. Rewolinski received a grant of 5,785 common shares upon joining the Board on July 1, 2019. These grants are shown in the table below, since they occurred in Fiscal 2020.2021. Beginning with equity awards in Fiscal 2021, the Board moved the annual grant date from July to September 1, which is not during a “blackout” period, to allow directorsDirectors to immediately sell shares to fund tax liabilities.
Effective in July 2014, the Board of Directors approved stock ownership guidelines for non-employee directorsDirectors equal to three times their cash retainer. Non-employee directorsDirectors must meet required ownership levels within five years of first becoming subject to the guidelines and must hold 50% of all net after-tax shares from equity grants until ownership requirements are met (or 100% of such shares if ownership levels are not met by the end of the five-year compliance period). All directorsDirectors other than Dr. Rewolinski, who joined the boardBoard in Fiscal 2020, and Mr. Drabik, who sold some shares in Fiscal 2021 to fund tax liabilities while still in compliance with guidelines, met required ownership levels as of the end of Fiscal 2020.2021. Mr. Drabik subsequently regained compliance with ownership guidelines following the annual non-employee director equity grant in August 2021.
We maintain policies that prohibit Directors from pledging Lannett stock or engaging in activity considered hedging of our common stock, and none of our Directors has pledged Lannett stock as collateral for a personal loan or other obligations.
41
The following table shows compensation information for Fiscal 20202021 for non-employee members of our Board of Directors.
DIRECTOR COMPENSATION
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| | | | | | | | | | | | Pension Value | | | | | | | | | | | | | | | | | Pension Value | | | | | |
| | | | | | | | | | Non-Equity | | and Nonqualified | | | | | | | | | | | | | | | Non-Equity | | and Nonqualified | | | | | |
| | | | | | | | Options | | Incentive Plan | | Deferred | | All Other | | | | | | | | | | | Options | | Incentive Plan | | Deferred | | All Other | | | |
Name | | Fees Earned | | Stock Awards (1) | | Awards | | Compensation | | Compensation | | Compensation | | Total | | Fees Earned | | Stock Awards (1) | | Awards | | Compensation | | Compensation | | Compensation | | Total | ||||||
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | ||||||
Jeffrey Farber | | $ | 90,000 | | $ | 200,001 | | — | | — | | — | | — | | $ | 290,001 | | $ | 90,000 | | $ | 199,998 | | — | | — | | — | | — | | $ | 289,998 |
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David Drabik | | $ | 120,000 | | $ | 200,001 |
| — |
| — |
| — |
| — | | $ | 320,001 | | $ | 114,000 | | $ | 199,998 |
| — |
| — |
| — |
| — | | $ | 313,998 |
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Paul Taveira | | $ | 96,000 | | $ | 200,001 |
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| — |
| — |
| — | | $ | 296,001 | | $ | 90,000 | | $ | 199,998 |
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| — |
| — |
| — | | $ | 289,998 |
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Albert Paonessa III (2) | | $ | 52,500 | | $ | 200,001 |
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| — |
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| — | | $ | 252,501 | |||||||||||||||||
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Patrick LePore | | $ | 120,000 | | $ | 200,001 |
| — |
| — |
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| — | | $ | 320,001 | | $ | 120,000 | | $ | 199,998 |
| — |
| — |
| — |
| — | | $ | 319,998 |
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John Chapman | | $ | 96,000 | | $ | 200,001 |
| — |
| — |
| — |
| — | | $ | 296,001 | | $ | 90,000 | | $ | 199,998 |
| — |
| — |
| — |
| — | | $ | 289,998 |
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Melissa Rewolinski (3) | | $ | 90,000 | | $ | 34,999 |
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| — |
| — |
| — | | $ | 124,999 | |||||||||||||||||
Melissa Rewolinski | | $ | 90,000 | | $ | 199,998 |
| — |
| — |
| — |
| — | | $ | 289,998 | |||||||||||||||||
| (1) | Reflects grant date award value for equity grants received in Fiscal |
4241
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Transactions with Related Persons
The responsibility for the review of transactions with “related persons” (as defined below) has been assigned to the Audit Committee of the Board of Directors, which was comprised of threefour independent directorsDirectors during Fiscal 2020.2021. “Related persons” are defined as directorsDirectors and executive officers or their immediate family members or stockholders owning more than five percent of the Company’s common stock. The Audit Committee annually reviews related party transactions with any related person in which the amount exceeds $120,000.
The Company had net sales of $2.6 million, $3.0 million $3.8 million and $3.9$3.8 million during the fiscal years ended June 30, 2021, 2020 2019 and 2018,2019, respectively, to a generic distributor, Auburn. Jeffrey Farber, a current boardBoard member, is the owner of Auburn, which is a member of the Premier Buying Group. Accounts receivable includes amounts due from Auburn of $0.7$0.4 million and $1.2$0.7 million at June 30, 2021 and 2020, and 2019, respectively.
The Company also had net sales of $2.6 million, $2.4 million and $1.9 million during the fiscal years ended June 30, 2020, 2019 and 2018 to a generic distributor, KeySource Medical (“KeySource”), which is a member of the OptiSource Buying Group. Albert Paonessa, a board member until the date of the Company’s 2020 Annual Meeting of Stockholders, was appointed the CEO of KeySource in May 2017. Accounts receivable includes amounts due from KeySource of $0.6 million and $0.7 million as of June 30, 2020 and 2019.
As part of its review, the Audit Committee noted that the amount of net sales to Auburn approximated 0.6% of total net sales during the fiscal years ended June 30, 2021, 2020 and 2019, and 2018, respectively. The Audit Committee also noted that the amount of net sales to KeySource approximated 0.5%, 0.4% and 0.3% of total net sales during each of the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
The Audit Committee reviewed an analysis of sales prices charged to Auburn, and KeySource, which compared the average sales prices by product for Auburn and KeySource sales to the average sales prices by product to other Lannett customers during the same period. As a result of this analysis, the Audit Committee ratified the net sales made to Auburn and KeySource during the fiscal years ended June 30, 2021, 2020, 2019, and 2018.
2019.
4342
PROPOSAL NO. 1 — ELECTION OF DIRECTORS
NOMINEES
The Company’s Bylaws provide that the number of directorsDirectors of the Company may be determined by the Stockholders, or in the absence of such determination, by the Board. Currently, there are seven members of the Board. Mr. Taveira will not be standing for re-election to the Board. The Board nominates the sevensix persons named below who are currently serving on the Board, for election to the Board. As of the date of this Proxy Statement, the Board of Directors is not aware that any nominee is unable to serve or will decline to serve as a director. The sevensix nominees receiving the highest number of affirmative votes of the shares entitled to vote at the Annual Meeting will be elected directorsDirectors of the Company until the next Annual Meeting or until their earlier resignation or removal.
The following list identifies the nominees for election to the Board and sets forth certain information regarding each nominee. All nominees are currently serving as directorsDirectors of the Company. A majority of the directorsDirectors on the Board are independent, as defined by the rules of the New York Stock Exchange (“NYSE”). Those directorsDirectors are referred to as “independent” below.
Patrick G. LePore was appointed as a Director of the Company in July 2017. On July 1, 2018, Mr. LePore succeeded Mr. Farber as Chairman of the Board of Directors. Mr. LePore served as chairman, Chief Executive Officer and president of PAR Pharmaceuticals, Inc., until the company’s acquisition by private equity investor TPG in 2012. He remained as chairman of the new company through the sale of the company to Endo Pharmaceuticals. Mr. LePore began his career with Hoffmann LaRoche. Later, he founded Boron LePore and Associates, a medical communications company, which he took public and was eventually sold to Cardinal Health. Mr. LePore is the Vice Chairman of the boardBoard of Matinas BioPharm. On September 10, 2020, Mr. LePore was appointed as a director of the boardBoard of VYNE Therapeutics, Inc. Mr. LePore earned his bachelor’s degree from Villanova University and Master of Business Administration from Fairleigh Dickinson University.
The Governance and Nominating Committee concluded that Mr. LePore is well qualified to serve as a Director due, in part, to his understanding and experience as a Chief Executive Officer and Director of highly regarded companies within the pharmaceutical industry. Mr. LePore is an independent director as defined by the rules of the NYSE.
John C. Chapman was appointed as a Director of the Company in July 2018. Mr. Chapman is a retired audit partner for KPMG, having specialized in providing audit services to large complex multinational pharmaceutical and consumer market companies. During his tenure at KPMG, he served for six years as a member of the firm’s boardBoard of directorsDirectors and for several years as KPMG’s global chair of pharmaceuticals and chemicals. Mr. Chapman also served as global lead partner for some of KPMG’s largest clients, including Pfizer, Hoechst and PepsiCo, among others. Mr. Chapman, a certified public accountant, (CPA), earned a Bachelor of Business Administration in accounting practice degree from Pace University, New York.
The Governance and Nominating Committee concluded that Mr. Chapman is well qualified to serve as a Director, due to his extensive experience in the public accounting profession. Additionally, Mr. Chapman has significant experience in dealing with acquisitions, divestitures, initial public offerings and secondary offerings. Mr. Chapman is an independent director as defined by the rules of the NYSE.
Timothy C. Crew was appointed as the Company’s Chief Executive Officer and a Director of the Company in January 2018. Mr. Crew has more than 30 years of experience in the generic and branded pharmaceutical industries. Previously, he served as Chief Executive Officer of Cipla North America, a global pharmaceutical company based in Mumbai, India. Before Cipla, he worked for eight years at Teva Pharmaceuticals Industries Ltd. (“Teva”), where he ultimately served as Senior Vice President and Commercial Operating Officer of the North American Generics division, the world’s largest generic operation with multibillion dollars of annual sales. Before that, he was Teva’s Vice President, Alliances and Business Development. Mr. Crew was also an Executive Vice President, North America, for Dr. Reddy’s Laboratories Ltd. Mr. Crew began his pharmaceutical career at Bristol-Myers Squibb, where he held a number of senior management positions in global marketing, managed healthcare, marketing, business development and strategic planning. Prior to his pharmaceutical roles, Mr. Crew served in the United States Army, where he rose to the rank of Captain. Mr. Crew earned a Bachelor of Arts degree in economics from Pomona College and a Masters of Business Administration degree from Columbia Business School.
The Governance and Nominating Committee concluded that Mr. Crew is well qualified to serve as a Director due, in part, to his role as Chief Executive Officer of the Company and his understanding and experience as a Chief Executive Officer and Director of highly regarded companies within the pharmaceutical industry.
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David Drabik was elected a Director of the Company in January 2011. Mr. Drabik is a National Association of Corporate Directors Governance Fellow. Since 2002, Mr. Drabik has been President of Cranbrook & Co., LLC (“Cranbrook”), an advisory firm primarily serving the private equity and venture capital community. At Cranbrook, Mr. Drabik assists and advises its clientele on originating, structuring and executing private equity and venture capital transactions. From 1995 to 2002, Mr. Drabik served in various roles and positions with UBS Capital Americas (and its predecessor UBS Capital LLC), a New York City based private equity and venture capital firm that managed $1.5 billion of capital. From 1992 to 1995, Mr. Drabik was a banker with Union Bank of Switzerland’s Corporate and Institutional Banking division in New York City. Mr. Drabik graduated from the University of Michigan with a Bachelor of Business Administration degree.
The Governance and Nominating Committee concluded that Mr. Drabik is well qualified to serve as a Director due, in part, to his understanding and involvement in investment banking. As a global investment bank professional with extensive experience advising senior management, his skills include business analytics, financing and a strong familiarity with SEC documentation. Mr. Drabik is an independent director as defined by the rules of the NYSE.
Jeffrey Farber was appointed a Director of the Company in May 2006 and was appointed Chairman of the Board of Directors in July 2012. In July 2018, Patrick LePore succeeded Jeffrey Farber as the Chairman of the Board. Jeffrey Farber joined the Company in August 2003 as Secretary. Since 1994, Mr. Farber has been President and the owner of Auburn Pharmaceutical (“Auburn”), a national generic pharmaceutical distributor. Prior to starting Auburn, Mr. Farber served in various positions at Major Pharmaceutical (“Major”), where he was employed for over 15 years. At Major, Mr. Farber was involved in sales, purchasing and eventually served as President of the Midwest division. Mr. Farber also spent time working at Major’s manufacturing division, Vitarine Pharmaceuticals, where he served on its Board of Directors. Mr. Farber graduated from Western Michigan University with a Bachelor of Science Degree in Business Administration and participated in the Pharmacy Management Graduate Program at Long Island University.
The Governance and Nominating Committee concluded that Mr. Farber is qualified to serve, due, in part, to his significant experience in the generic drug industry and his ongoing role as the owner of a highly regarded and successful generic drug distributor. His skills include a thorough knowledge of the generic drug marketplace and drug supply chain management.
Melissa Rewolinski was appointed as a Director of the Company in July 2019. Dr. Rewolinski is a National Association of Corporate Governance Fellow. Dr. Rewolinski currently serves as principal of MVR Consulting, where she specializes in providing counsel to small and mid-size biotechnology and pharmaceutical companies. Earlier she held a number of senior level R&D positions for Intercept, rising to Senior Vice President, Head of Technical Operations, and member of the Executive Team. Previously, she served as Senior Director, Development for Amira Pharmaceuticals, and before that as a Chemical Development Group Leader and a Pharmaceutical Sciences Project Team Leader for Pfizer Global R&D. Dr. Rewolinski began her career at Pharmacia & Upjohn as a post-doctoral research scientist. She is a member of the Board of Directors of ATCC (American Type Culture Collection), a private, nonprofit, global biological resource center and standards organization that provides scientists with the biomaterials and resources they need to conduct critical life science research. Dr. Rewolinski earned a Doctorate degree in Organic Chemistry and Bachelor of Science degree in Chemistry, magna cum laude, from Rice University.
The Governance and Nominating Committee concluded that Dr. Rewolinski is well qualified to serve as a Director due, in part, to her significant experience in operational and drug development roles within the pharmaceutical industry. Dr. Rewolinski is an independent director as defined by the rules of the NYSE.
Paul Taveira was appointed a Director of the Company in May 2012. Mr. Taveira was the Chief Executive Officer of the National Response Corporation, an international firm specializing in environmental services, from June 2015 to February 2019. He previously served on the Board of Directors and as the Chief Executive Officer of A&D Environmental Services Inc., an environmental and industrial services company. From 2007 to 2009, Mr. Taveira was a Managing Partner of Precision Source LLC, a manufacturer of precision parts for various industries across the United States. From 1997 to 2007, Mr. Taveira held several positions at PSC Inc., a national provider of environmental services, including President, Vice President and Regional General Manager. From 1987 to 1997, Mr. Taveira held several management positions with Clean Harbors Inc., an international provider of environmental and energy services. Mr. Taveira graduated from Worcester State University with a Bachelor of Science degree in Biology.
The Governance and Nominating Committee concluded that Mr. Taveira is well qualified to serve as a Director due, in part, to his understanding and experience as a Chief Executive Officer and Director of various companies. Mr. Taveira is an independent director as defined by the rules of the NYSE.
Recommendation of the Board
THE BOARD RECOMMENDS THAT LANNETT STOCKHOLDERS VOTE “FOR” THESE NOMINEES. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THESE NOMINEES.
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PROPOSAL NO. 2 — RATIFICATION OF GRANT THORNTON, LLP AS INDEPENDENT AUDITORS
The Board and the Audit Committee has appointed Grant Thornton, LLP (“Grant Thornton”) as the Company’s independent auditors for the fiscal year ending June 30, 2021.2022. Under the corporate governance requirements of the Sarbanes-Oxley Act of 2002, and Section 10A — (m)(2) of the Securities Exchange Act of 1934, as amended, which states — “The audit committee of each issuer, in its capacity as a committee of the boardBoard of directors,Directors, shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by the issuer (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work, and each such registered public accounting firm shall report directly to the audit committee” — we are not required to have the stockholders ratify the selection of Grant Thornton as our independent auditors. We are doing so because we believe it is good corporate practice to do so. If the stockholders do not ratify the selection of Grant Thornton, the Board and the Audit Committee may reconsider whether or not to retain Grant Thornton. Additionally, even if the selection is ratified, the Board and the Audit Committee in their sole discretion may change independent auditors at any time throughout the fiscal year. Representatives from Grant Thornton are expected to be present at the Annual Meeting and will be available to respond to appropriate questions.
Grant Thornton LLP served as the independent auditors of the Company during Fiscal 2021, 2020 2019 and 2018.2019. No relationship exists, other than the usual relationship between independent public accountant and client. The following table identifies the fees incurred for services rendered by Grant Thornton LLP in Fiscal 2021, 2020 2019 and 2018.
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(In thousands) | | Audit Fees | | Audit-Related (1) | | Tax Fees (2) | | All Other Fees (3) | | Total Fees |
| Audit Fees |
| Tax Fees (1) |
| All Other Fees (2) |
| Total Fees | |||||||||
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Fiscal 2021 | | $ | 1,413 | | $ | 72 | | $ | — | | $ | 1,485 | |||||||||||||||
Fiscal 2020 | | $ | 1,383 | | $ | 127 | | $ | 211 | | $ | — | | $ | 1,721 | | $ | 1,510 | | $ | 211 | | $ | — | | $ | 1,721 |
Fiscal 2019 | | $ | 1,409 | | $ | — | | $ | 193 | | $ | 7 | | $ | 1,609 | | $ | 1,409 | | $ | 193 | | $ | 7 | | $ | 1,609 |
Fiscal 2018 | | $ | 1,586 | | $ | — | | $ | 180 | | $ | 26 | | $ | 1,792 | ||||||||||||
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| Tax fees include fees paid for preparation of annual federal, state and local income tax returns, quarterly estimated income tax payments and various tax planning services. |
| (2) | Other fees include paid for review of various correspondences including IRS audit assistance, miscellaneous studies, etc. |
The non-audit services provided to the Company by Grant Thornton LLP were pre-approved by the Company’s Audit Committee. Prior to engaging its auditor to perform non-audit services, the Company’s Audit Committee reviews the particular service to be provided and the fee to be paid by the Company for such service and assesses the impact of the service on the auditor’s independence.
The Audit Committee Charter provides that pre-approval may be granted by the Audit Committee Chairman. The Audit Committee Chairman must report, for informational purposes only, any pre-approval decision to the Audit Committee at its next scheduled meeting.
Recommendation of the Board
THE BOARD RECOMMENDS THAT LANNETT STOCKHOLDERS VOTE “FOR” THIS PROPOSAL. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THIS PROPOSAL.
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PROPOSAL NO. 3 — NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Act enables our stockholders to vote, on an advisory basis, on the compensation of our named executive officers as disclosed under the “Executive Compensation” section of this Proxy Statement. As described under the “Executive Compensation” section of this Proxy Statement the overall objective of our executive compensation program is to focus our executives on creating long-term stockholder value and directly linking corporate and individual performance goals with the results of the Company. Accordingly, for the reasons discussed in the “Compensation Discussion and Analysis” section of this Proxy Statement, we are asking our stockholders to vote “FOR” this proposal.
While we intend to carefully consider the voting results of this proposal, the vote is advisory and therefore not binding on the Company, the Compensation Committee or our Board of Directors. Our Board of Directors and Compensation Committee value the opinions of all our stockholders and will consider the outcome of this vote when making future compensation decisions for our named executive officers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL TO APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED UNDER THE “EXECUTIVE COMPENSATION” SECTION OF THIS PROXY STATEMENT.
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PROPOSAL NO. 4 – APPROVAL OF THE LANNETT COMPANY, INC. 2021 LONG-TERM INCENTIVE
2022 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
On December 4, 2020, upon recommendation of7, 2021, the Compensation Committee (the “Committee”), our Board of Directors (the “Board”) adoptedof the Company approved the Lannett Company, Inc. 2021 Long-Term Incentive2022 Employee Stock Purchase Plan or “2021(the “Stock Purchase Plan”). The Stock Purchase Plan” is intended to meet the requirements of Section 423 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Participants in a plan that meets the requirements of Section 423 of the Internal Revenue Code enjoy certain tax advantages, as described below. In order for the Stock Purchase Plan to be qualified, it must be approved by the Company’s stockholders.
BACKGROUND AND PURPOSE OF THE PROPOSAL
The Stock Purchase Plan allows eligible employees to purchase shares of the Company’s Common Stock at a discount without being subject to approval by our stockholders. tax until they sell the stock and without having to pay any brokerage commissions with respect to the purchases.
The purpose of the 2021Stock Purchase Plan is to advanceencourage the interestspurchase of Common Stock by the Company’s employees and the employees of the subsidiaries of the Company, and its stockholders by enablingto provide employees with a personal stake in the Company and its subsidiaries to (i) attract, motivatehelp recruit and retain a talented management team to achieve superior results, (ii) provide market competitive equity incentive opportunities that are linked to the growth and profitability of the Company and increases in stockholder value, and (iii) align the interests of key executives and Board members with those of our stockholders.
employees. The 2021 Plan permits the Committee, or a subcommittee thereof, to grant to eligible employees, non-employee directors and consultants of the Company (each a “participant”) non-statutory and incentive stock options, and restricted stock awards. Subject to adjustment, the maximum number of shares of our common stock authorized for issuancefirst offering period under the 2021Stock Purchase Plan is 3,000,000 shares.
Because our common stock is listedcommenced on January 1, 2022, subject to the New York Stock Exchange (“NYSE”), the NYSE listing rules require stockholder approval of the 2021 Plan. In addition,Company’s stockholders. If the BoardStock Purchase Plan has not been approved by the Company’s stockholders at the Company’s 2022 Annual Meeting, the Stock Purchase Plan shall be treated as having terminated, and all payroll deductions withheld from the compensation of Directors is asking our stockholders to approve the 2021 Plan in order to qualify stock options for treatment as incentive stock options for purposes of Section 422 of the Internal Revenue Code. We have a limited number of shares that remain available under our existing long-term incentive plans and, therefore, if our stockholders do not approve the 2021 Plan, weParticipants by payroll deduction will not be able to grant our employees, non-employee directors and consultants equity incentive awards, which would be highly detrimental to our ability to attract, motivate, and retain talent.
Equity Compensation Plan Information as of November 30, 2020
The following table sets forth certain information as of November 30, 2020 with respectdistributed to the Company’s long-term incentive plans:
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The Company’s 2011 Long-Term Incentive Plan expires on January 19, 2021, prior toParticipants as soon as reasonably practicable following the 20212022 Annual Meeting, after which time the Company will no longer be able to issue awards under the 2011 Long-Term Incentive Plan. The Company’s Amended and Restated 2014 Long-Term Incentive Plan expires on January 22, 2024 and the Company will be able to issue the remaining 57,986 shares available under the Amended and Restated 2014 Long-Term Incentive Plan through that date.
Meeting.
Reasons Why You Should Vote in Favor of Approval of the 2021 PlanSUMMARY OF THE STOCK PURCHASE PLAN
Our Board of Directors recommends a vote for approval of the 2021 Plan, as the Board believes the 2021 Plan is in the best interests of our Company and our stockholders for the following reasons:
The 2021 Plan will advance Company and stockholder interests by allowing us to attract, motivate, and retain key talent. Having a talented and motivated management team is essential to executing our business strategies and achieving superior results. Stock-based incentive compensation has been an important component of the total direct compensation opportunity for our management team. It ensures that we are able to maintain a market competitive compensation opportunity that is predominantly performance-based and at risk.
The 2021 Plan is consistent with our pay-for-performance compensation philosophy. We believe that stock-based incentive compensation rewards our management team for superior performance in delivering sustainable and profitable growth. A significant portion of equity award opportunities for executive participants is performance-based or only has value if the Company performance meets or exceeds pre-determined financial or stock return goals or if stockholder value increases. Beginning with grants made in Fiscal 2018, all executives receive a portion of annual equity awards in the form of performance awards, which are currently tied to our 3-year
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relative total shareholder return vs. companies in the S&P Pharmaceuticals Select Industry Index. This reinforces our pay for performance culture.
The 2021 Plan will enable us to continue aligning the interests of our executives with those of our stockholders. We have designed our stock-based incentive compensation so that our management team is motivated to achieve financial performance goals and increase stockholder value. This creates a strong alignment between our rewards and stockholder interests. Also, with our stock ownership guidelines, the ownership levels of our common stock that are maintained by our non-employee directors and executives ensure further alignment with the interests of our stockholders.
The 2021 Plan embraces sound corporate governance practices. As described in more detail below under the heading “Summary of Sound Governance Features of the 2021 Plan,” the 2021 Plan includes a number of features that are consistent with protecting the interests of our stockholders and sound corporate governance practices.
Summary of Sound Governance Features of the 2021 Plan
The Board and the Committee believe that the 2021 Plan contains several features that are consistent with protecting the interests of our stockholders and sound corporate governance practices, including the following:
No “evergreen” provision. The 2021 Plan will terminate on January 26, 2026, and no new awards may be made under the 2021 Plan beyond this date without stockholder approval. The number of shares of our common stock available for issuance under the 2021 Plan is fixed and will not be adjusted based upon the number of outstanding shares of our common stock, except for equitable adjustment as described below under the heading “Adjustments”.
No liberal share “recycling” for stock options or restricted stock awards. Shares withheld to satisfy the exercise price or tax-withholding obligations on options or restricted stock awards will be counted against the shares of common stock authorized for issuance under the 2021 Plan and will not become eligible again for grant under the 2021 Plan.
No reloads. The 2021 Plan does not authorize “reloads” of any awards.
Stock option exercise prices will not be lower than the fair market value on the grant date. The 2021 Plan prohibits granting stock options with exercise prices lower than the fair market value of a share of our common stock on the grant date.
No re-pricing or exchange of “underwater” options without stockholder approval. The 2021 Plan prohibits the re-pricing of outstanding stock options without stockholder approval, except in connection with certain corporate transactions, such as a recapitalization or stock split, as may be necessary in order to prevent dilution or enlargement of the rights of participants. The 2021 Plan defines “re-pricing” broadly to include amendments or modifications to the terms of outstanding stock options to lower the exercise price, canceling “underwater” stock options in exchange for cash, replacement awards having a lower exercise price or in the form of other awards, or repurchasing “underwater” stock options and granting new awards.
Stock options are not entitled to dividend equivalent rights. Stock option award holders have no rights as stockholders with respect to the shares underlying their awards until such awards are exercised or vested and shares are issued. As a result, stock option awards under the 2021 Plan have no dividend equivalent rights associated with them.
No dividends or dividend equivalents will be paid out on unvested awards. For any stock awards that the Committee determines are eligible for dividend equivalent rights, any dividends or dividend equivalents declared by the Company on such awards will not be paid out with respect to any unvested stock award. Such dividends or dividend equivalents may be accrued and paid out to the extent the stock award vests.
Stockholder approval is required for material revisions to the 2021 Plan. Consistent with NYSE listing rules, the 2021 Plan requires stockholder approval of material revisions to the plan. The 2021 Plan also requires stockholder approval of certain additional revisions to the plan that would not otherwise require stockholder approval under the NYSE listing rules.
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“Clawback” provisions. The 2021 Plan contains “clawback” provisions. If the Committee determines that a participant has taken any action that would constitute “cause” or an “adverse action,” as the 2021 Plan defines such terms, while providing services to the Company, or after termination of such services, all rights of the participant under the 2021 Plan and any agreements evidencing an award the participant then holds will terminate and be forfeited. The Committee may also require the participant to return to the Company any shares received, any profits or any other economic value realized by the participant in connection with any awards or any shares issued upon the exercise or vesting of any awards. In addition, the 2021 Plan incorporates the Sarbanes-Oxley Act of 2002 automatic forfeiture standard for certain participants in connection with material noncompliance, as a result of misconduct, resulting in an accounting restatement. The 2021 Plan also allows the Committee to seek to recover any award made as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other clawback, forfeiture or recoupment provision required by applicable law or under the requirements of any stock exchange or market upon which the common stock is then listed or traded. Finally, all awards under the 2021 Plan will be subject to forfeiture or other penalties pursuant to any other standalone clawback or forfeiture policy of the Company, as well as any that are included in relevant award agreements.
Summary of the 2021 Plan Features
Below is a summary of the major features of the 20212022 Plan. The summary is qualified in its entirety by reference to the full text of the 2021Stock Purchase Plan, a copy of which is attached as AppendixExhibit I. Additional copies may be obtained upon request to Investor Relations at 1150 Northbrook Drive, Suite 155, Trevose, Pennsylvania 19053 or by telephone at 215-333-9000. We have also filed a copy of the 20212022 Plan electronically with the SEC as an appendix to this Proxy Statement, available through the SEC’s website at www.sec.gov.
Purpose. The purposeDescription of the 2021Stock Purchase Plan. The Stock Purchase Plan provides employees with the right to purchase shares of Common Stock through payroll deductions. A total of 1,500,000 shares of Common Stock are available for purchase under the Stock Purchase Plan, subject to adjustment in the number and price of shares available for purchase if the number of outstanding shares of Common Stock are increased or decreased through stock dividends, recapitalizations, stock splits, reorganizations or similar changes.
Administration. The Stock Purchase Plan is administered by the Compensation Committee. Subject to advance the intereststerms of the Stock Purchase Plan, the Board of Directors and the Compensation Committee have authority to interpret the Stock Purchase Plan, prescribe, amend and rescind rules and regulations relating to it and make all other determinations deemed necessary or advisable in administering the Stock Purchase Plan.
Eligibility and Participation. Employees of the Company and its stockholders by enablingsubsidiaries are eligible to participate in the Company and its subsidiariesStock Purchase Plan. Effective as of November 30, 2021, approximately 776 employees, including the Company’s executive officers are eligible to (i) attract, retain, and motivate our management team for achievementparticipate in the Stock Purchase Plan.
Any eligible employee who, after purchasing shares of Company results and creationCommon Stock under the Stock Purchase Plan, would own 5% or more of stockholderthe total combined voting power or value (ii) provide stock-based incentive compensation opportunities that are linked to the growth and profitabilityof all classes of stock of the Company and increases in stockholder value, and (iii) provide opportunities for equity ownership that align the interests of key employees and Board members with those of our stockholders.
Plan Administration. The 2021 Plan will be administered by the Committee, or by a subcommittee thereof, or any other committee designated bysubsidiary corporation is not eligible to purchase additional stock under the BoardStock Purchase Plan. Ownership of stock is determined in accordance with the 2021 Plan. All membersprovisions of Section 424(d) of the Committee administering the 2021 Plan will be “non-employee directors” within the meaning of Rule 16b-3Internal Revenue Code. In addition, under the Exchange Act and “independent” underStock Purchase Plan, the NYSE listing rules, the rules and regulationsmaximum fair market value of the SEC and other applicable laws.
Under the terms of the 2021 Plan, subjectCommon Stock an eligible employee may purchase in a calendar year is limited to certain limitations, the Committee will have the authority to, among other things:$25,000.
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Delegation. To the extent permitted by applicable law, the Committee may delegate to one or moreShares of its members or to one or more officers of the Company such administrative duties or powers, as it may deem advisable. The Committee may authorize one or more directors or officers of the Company to designate employees, other than officers, directors, or 10% stockholders of the Company, to receive awardsCommon Stock will be available under the planStock Purchase Plan during each offering period. The offering period will generally be the quarterly periods beginning on January 1, April 1, July 1 and determineOctober 1 of each year. Eligible employees may elect to participate in the sizeStock Purchase Plan before the start of any such awards, subject to certain limitations.
No Re-pricing or Exchange. The Committee may not, except as described below under the heading “Adjustments,” without prior approvalan offering period. Shares of our stockholders, seek to effect any re-pricing of any previously granted option by: (i) amending or modifying the terms of the option to lower the exercise price; (ii) canceling an underwater option in exchange for (A) cash; (B) replacement options having a lower exercise price; or (C) other awards; or (iii) repurchasing the underwater options and granting new awards under the 2021 Plan. An optionCommon Stock will be deemed to have been purchased on the last day of the offering period. The purchase price per share will not be “underwater”less than eighty-five percent (85%) of the lesser of (i) the Market Value of the shares of Stock on the first business day in the Offering Period or (ii) the Market Value of the shares of Stock on the last business day of such Offering Period. Unless otherwise provided by the Administrative Committee, prior to the commencement of an Offering Period, the Purchase Price for the Offering Period shall be eighty five percent (85%) of the lesser of (i) the Market Value of the shares of Stock, as determined by the Administrative Committee on the first business day in the Offering Period or (ii) the Market Value of the shares of Stock, as determined by the Administrative Committee, on the last business day of such Offering Period, plus any transfer or other fees imposed on the transaction pursuant to which such share of Stock is purchased.
To become a participant in the Stock Purchase Plan (for purposes of this Proposal No. 4, a “Participant”), an eligible employee who wishes to participate in the Stock Purchase Plan must file an election form at least thirty (30) days before the beginning of an offering period. All payroll deductions will be credited to the Participant’s account under the Stock Purchase Plan.
If the total number of shares of Common Stock for which purchase rights are exercised at the end of an offering period exceeds the maximum number of shares of Common Stock available, the Board of Directors or the Compensation Committee will make a pro rata allocation of shares available for delivery and distribution. The unapplied account balances will be credited to Participants’ accounts for the next succeeding offering or, at the Participant’s election, returned to the Participant, without interest, as soon as practicable following the end of the offering period.
Termination of Participation. A Participant may discontinue his or her participation in the Stock Purchase Plan at any time, whenbut no other change can be made during an offering period. If a Participant’s employment terminates for any reason other than death, all amounts credited to such Participant’s account will be delivered to the Participant. If a Participant’s employment terminates due to death or the Participant dies after termination of employment but before the Participant’s account has been returned, all amounts credited to such Participant’s account will be delivered to the Participant’s successor-in-interest. A Participant who is on an approved leave of absence will remain eligible to participate in the Stock Purchase Plan through the end of the offering period that commenced prior to such leave, unless the approved leave of absence ends and the Participant does not return to active employment prior to the end of that offering period.
Method of Share Purchase. All funds held or received by the Company under the Stock Purchase Plan may be used for any corporate purpose until applied to the purchase of Common Stock or refunded to employees and shall not be segregated from the Company’s general assets. Shares of Common Stock purchased under the Stock Purchase Plan will be issued from the Company’s treasury shares, from authorized but unissued shares or from shares purchased by the Company on the open market. The Company will pay all fees and expenses incurred, excluding individual federal, state, local or other taxes, in connection with the Stock Purchase Plan.
Transfers of Interests. An employee’s rights under the Stock Purchase Plan belong to the employee alone and may not be transferred or assigned to any other person during the employee’s lifetime. After shares of Common Stock have been issued under the Stock Purchase Plan and credited to an employee’s brokerage account under the Stock Purchase Plan, such shares may be assigned or transferred the same as any other shares.
Federal Income Taxation. The following is a summary of the US federal income tax consequences of participation in the Stock Purchase Plan. Different rules apply to participants resident in Canada or India, or who are otherwise not citizens or permanent residents of the United States. The Stock Purchase Plan is not qualified under Section 401(a) of the Internal Revenue Code. The Company generally will not be entitled to a deduction with respect to stock purchased under the Stock Purchase Plan, unless the stock is disposed of less than one year after it is purchased by the employee, or less than two years after the start of the offering period pursuant to which the stock was purchased.
Generally, no tax consequences arise at the time the Participant purchases shares of Common Stock under the Stock Purchase Plan. In general, upon a disposition of shares, the Participant will receive compensation taxable as ordinary income for the taxable year in which the disposition occurs in an amount equal to the lesser of the excess of the fair market value over the purchase price value of the shares at the beginning of the offering period or the excess over the purchase price of (a) the amount actually received for the shares if sold or exchanged or (b) the fair market value of the common stock is less thanshares on the exercise pricedate of the option.
Shares Authorized. Subject to adjustment, the maximum numberany other termination of shares of our common stock authorized for issuance under the 2021 Plan is 3,000,000. No more than 3,000,000 shares may be granted under the 2021 Planhis or her ownership (such as incentive stock options.
If any shares subject to an award are forfeited or an award expires, then in each such case the shares subject to such award will, to the extentby gift). The amount of such forfeiture or expiration, beordinary income is then added to the Participant’s basis in his or her shares available for awards underpurposes of determining capital gain or loss on the 2021 Plan.
Limits on Non-Employee Director Awards. Awards granted during a single fiscal year to any non-employee director, taken together with any cash fees paid duringremaining sale proceeds, if any. This tax treatment only applies if the fiscal year to the non-employee director, in respectParticipant does not dispose of the director’s service as a membershares for at least one year after the date of purchase and the Participant does not dispose of the Board during such year, shall not exceed $600,000 in total value.
Minimum Vesting Requirement. Awards granted undershares for at least two years after the 2021 Plan shall vest no earlier than the first anniversarybeginning of the date onoffering period pursuant to which the award is granted; provided, that the following awards shall not be subject to the foregoing minimum vesting requirement: any (i) substitute awards granted in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its subsidiaries in accordance with Section 18 of the 2021 Plan, (ii) Non-Employee Director Awards, and (iii) any additional awards the Committee may grant, up to a maximum of 5% of the available share reserve authorized for issuance under the 2021 Plan; and, provided, further, that the foregoing restriction does not apply to the Committee’s discretion to provide for accelerated exercisability or vesting of any award in connection with a change in control.
Adjustments. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares rights offering, divestiture or extraordinary dividend (including a spin off) or other similar change in the corporate structure or shares of the Company, the Committee will make the appropriate adjustment. These adjustments may be to the number and kind of securities and property that may be available for issuance under the 2021 Plan or the terms and conditions of any outstanding awards, including any performance goals or criteria with respect thereto. In order to prevent dilution or enlargement of the rights of participants, the Committee may also adjust the number, kind, and exercise price of securities or other property subject to outstanding awards.
Participation. Awards may be granted to employees, non-employee directors and consultants of the Company or any of its subsidiaries. A “consultant” is one who renders services that are not in connection with the offer and sale of our securities in a capital raising transaction and does not directly or indirectly promote or maintain a market for our securities. As of November 30, 2020, approximately 850 employees and six non-employee directors would have been eligible to participate in the 2021 Plan had it been approved by our stockholders at such time.
Types of Awards. The 2021 Plan will permit us to grant non-statutory and incentive stock options, restricted stock awards and performance awards. Awards may be granted either alone or in addition to or in tandem with any other type of award.
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Non-Statutory and Incentive Stock Options. Stock options entitle the holder to purchaseIf a specified numberParticipant disposes of shares of our common stock at a specified price, whichCommon Stock purchased under the Stock Purchase Plan before the holding period is calledsatisfied, he or she will receive compensation taxable as ordinary income in the exercise price, subject to the terms and conditionsamount of the stock option grant. The 2021 Plan permitsdifference between the grant of both non-statutoryamount paid for the shares and incentive stock options, though incentive stock options may be granted only to employees. Each stock option granted under the 2021 Plan must be evidenced by an award agreement that specifies the exercise price, the term, the number of shares underlying the stock option, the vesting and any other conditions. Except for substitute awards granted under Section 18 of the 2021 Plan, the exercise price of each stock option granted under the 2021 Plan must be at least 100% of the fair market value of the shares at the time of purchase. If the shares are sold or exchanged, the amount of such ordinary income is added to the Participant’s basis in his or her shares for purposes of determining capital gain or loss.
If a share of our common stock asParticipant dies before disposing of the date the award is granted to a participant. Fair market value is the closing price of our common stock, as reported on the NYSE. The closing price of our common stock, as reported on the NYSE, on November 30, 2020, was $6.16 per share. The Committee will fix the terms and conditions of each stock option, subject to certain restrictions. The Committee will fix the term of each stock option, but stock options grantedshares purchased under the 2021Stock Purchase Plan, will not be exercisable more than 10 years after the date the stock option is granted. Stock options may be exercised, in wholehe or in part, by payment in full of the exercise price in cash or its equivalent. In the discretion of the Committee, payment may also be made by the delivery of common stock already owned by the participant prior to such delivery or to be issued upon the exercise of the option being exercised, by broker-assisted cashless exercise, by “net exercise,” or by a combination of such methods; or such other method as may be permitted by the Committee. In the case of a “net exercise” of a stock option, we will not require payment of the exercise price or any required tax withholding obligations related to the exercise, but will reduce the number of shares issued upon the exercise by the largest number of whole shares that has a fair market value that does not exceed the aggregate exercise price for the shares underlying the stock option and any required tax withholding obligations.
Restricted Stock Awards. Restricted stock awards may be granted under the 2021 Plan. A restricted stock award is an award of common stock that is subject to restrictions on transfer and risk of forfeiture upon certain events, typically including termination of service. The Committee shall determine, and set forth in an award agreement, the period of restriction, the number of shares of restricted stock awards granted, and other such conditions or restrictions, including, in the case of a performance award, any performance goals upon which the performance award is subject and any performance period during which any performance goals must be achieved. Participants holding shares of restricted stock awards may be granted voting rights with respect to their shares. After all conditions and restrictions applicable to restricted stock awards have been satisfied or have lapsed (including the satisfaction of any applicable tax withholding obligations), shares of restricted stock awards will become freely transferable (except as otherwise provided in the 2021 Plan). The Committee may provide that a restricted stock award is conditioned upon the participant making or refraining from making an election with respect to the award under Section 83(b) of the IRC.
Non-Employee Director Awards. The Committee at any time and from time to time may grant to non-employee directors non-statutory stock options, or restricted stock awards. Any such awards may be granted singly, in combination, or in tandem, and may be granted pursuant to such terms, conditions and limitations as the Committee may establish in its sole discretion consistent with the provisions of the 2021 Plan.
Performance Measure Elements. The performance goals upon which the payment or vesting of a performance award depends may include, without limitation, one or more of the following performance measurement elements:
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The Committee may establish additional performance metrics to use in connection with performance awards. Performance metrics may be measured on an absolute basis, relative to peers or a market index, or through other means as determined by the Committee.
The Committee may amend or modify the performance goals, performance measures or performance periods of any outstanding awards based in whole or in part on the financial performance of the Company (or any subsidiary or division, business unit or other sub-unit thereof) in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the 2021 Plan.
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Dividend Equivalents. With the exception of stock options, awards under the 2021 Plan may, in the Committee’s discretion, earn dividend equivalents with respect to the cash or stock dividends or other distributions that would have been paid on the shares of our common stock covered by such award had such shares been issued and outstanding on the dividend payment date. Such dividend equivalents will be converted to cash or additional shares of our common stock by such formula and at such time and subject to such limitations as determined by the Committee, and only paid out once the award becomes vested.
Termination of Service. Unless otherwise expressly set forth in an individual agreement, the Committee will have the sole discretion to determine and set forth in an award agreement the effect that the termination of a participant’s employment or other service with the Company and all subsidiaries may have on any award.
Modification of Rights upon Termination. Upon a participant’s termination of employment or other service with the Company or any subsidiary, the Committee may, in its sole discretion (which may be exercised at any time on or after the grant date, including following such termination) cause stock options held by such participant as of the effective date of such termination to terminate, become or continue to become exercisable or remain exercisable following such termination of employment or service, and restricted stock and performance awards held by such participant as of the effective date of such termination to terminate, vest or become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that no stock option may remain exercisable beyond its expiration date.
Determination of Termination. The change in a participant’s status from an employee to a consultant will be deemed a termination unless the Committee determines otherwise, in its sole discretion. The change in a participant’s status from a consultant to an employee or from that of an employee to that of a director will not be deemed a termination of the participant’s service as a consultant or employee, respectively. Unless the Committee determines otherwise, a participant’s termination dateshe will be deemed to be the date recorded on personnel or other records of the Company or any subsidiary. If the payment of an award that is subject to Section 409A of the IRC is triggered by termination of a participant’s employment or other service, the termination must also constitute a “separation from service” within the meaning of Section 409A of the IRC, and any change in employment status that constitutes a “separation from service” under Section 409A of the IRC will be treatedhave realized compensation income taxable as a termination of employment or service, as the case may be.
Forfeiture and Recoupment. If a participant is determined by the Committee to have taken any action while providing services to the Company or after termination of such services, that would constitute “cause” or an “adverse action,” as such terms are definedordinary income in the 2021 Plan, all rights of the participant under the 2021 Plan and any agreements evidencing an award then held by the participant will terminate and be forfeited. The Committee has the authority to rescind the exercise, vesting, issuancetaxable year closing with his or payment in respect of any awards of the participant that were exercised, vested, issued or paid, and require the participant to pay to the Company, within ten days of receipt of notice, any amount received or the amount gained as a result of any such rescinded exercise, vesting, issuance or payment. The Company may defer the exercise of any stock option for up to six months after receipt of notice of exercise in order for the Committee to determine whether “cause” or “adverse action” exists. The Company is entitled to withhold and deduct future wages to collect any amount due. In addition, if the Company is required to prepare an accounting restatement due to material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, then any participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse the Company for the amount of any award received by such individual under the 2021 Plan during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement. The Company may also seek to recover any award made as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other clawback, forfeiture or recoupment provision required by applicable law or under the requirements of any stock exchange or market upon which our common stock is then listed or traded. In addition, all awards under the 2021 Plan will be subject to forfeiture and other penalties pursuant to any standalone clawback or forfeiture policy of the Company, as in effect from time to time, and such forfeiture and/or penalty conditions or provisions as determined by the Committee and set forth in the applicable award agreement.
Change in Control and Acceleration of Vesting. Generally, a change in control means the occurrence of any one of the following events:
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Without limiting the authority of the Committee to adjust awards as discussed under the headings “Plan Administration” and “Adjustments,” if a change in control of the Company occurs, then, unless otherwise provided in the award agreement:
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However, no award that provides for a deferral of compensation within the meaning of Section 409A of the IRC will be cashed out upon the occurrence of a change in control unless the event or circumstances constituting the change in control also constitute a “change in the ownership” of the Company, a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company, in each case as determined under Section 409A of the IRC. The treatment of any other awards in the event of a change in control will be as determined by the Committee in connection with the grant thereof, as reflected in the applicable award agreement. The Committee is given the power under the 2021 Plan to alternatively provide that upon a change in control, any or all outstanding stock-based awards will be canceled and terminated and the holders will receive a payment of cash or stock equal to the difference, if any, between the consideration received by stockholders in respect of a share of common stock in connection with the change in control and the purchase price per share, if any, under the award, multiplied by the number of shares subject to such award, provided that if such product is zero or less, or the award is not exercisable, the award may be canceled and terminated without payment for such award.
Substituted Awards. The Committee may grant awards under the 2021 Plan in substitution for stock and stock-based awards held by employees of another entity who become employees of the Company or a subsidiary as a result of a merger or consolidation of the former employing entity with the Company or a subsidiary or the acquisition by the Company or a subsidiary of property or stock of the former employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances, subject to compliance with the rules under Sections 409A, 422 and 424 of the IRC, as and where applicable.
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Term, Termination and Amendment. Unless sooner terminated by the Board, the 2021 Plan will terminate on January 26, 2026. No award will be granted after termination of the 2021 Plan, but awards outstanding upon termination of the 2021 Plan will remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the 2021 Plan.
Subject to certain exceptions, the Board has the authority to terminate and the Committee has the authority to amend the 2021 Plan or any outstanding award agreement at any time and from time to time, provided that certain amendments to the 2021 Plan will not become effective without stockholder approval, as set forth below. No termination, suspension or amendment of the 2021 Plan may materially adversely affect any outstanding award without the consent of the affected participant.
No amendments to the 2021 Plan will be effective without approval of the Company’s stockholders if: (a) stockholder approval of the amendment is then required pursuant to Section 422 of the IRC, the rules of the primary stock exchange on which the common stock is then traded, applicable U.S. state and federal laws or regulations and the applicable laws of any foreign country or jurisdiction where awards are, or will be, granted under the 2021 Plan; or (b) such amendment would: (i) modify the restrictions on re-pricing; (ii) materially increase benefits accruing to participants; (iii) subject to certain adjustments, increase the aggregate number of shares of common stock issued or issuable under the 2021 Plan; (iv) modify the eligibility requirements for participants in the 2021 Plan; or (v) reduce the minimum exercise price as set forth in the 2021 Plan.
Plan Benefits. It is not presently possible to determine the benefits or amounts that will be received by or allocated to participants under the 2021 Plan or that would have been received by or allocated to participants for the last completed fiscal year if the 2021 Plan had then been in effect because awards under the 2021 Plan will be made at the discretion of the Committee.
Federal Income Tax Information
The following is a general summary, as of the date of this Proxy Statement, of the federal income tax consequences to participants and the Company of transactions under the 2021 Plan. This summary is intended for the information of stockholders considering how to vote at the 2021 Annual Meeting of Stockholders and not as tax guidance to participants in the 2021 Plan, as the consequences may vary with the types of grants made, the identity of the participant and the method of payment or settlement. The summary does not address the effects of other federal taxes or taxes imposed under state, local or foreign tax laws. Participants are encouraged to seek the advice of a qualified tax advisor regarding the tax consequences of participation in the 2021 Plan.
Incentive Stock Options. With respect to incentive stock options, generally, the participant is not taxed, and we are not entitled to a deduction, on either the grant or the exercise of an incentive stock option so long as the requirements of Section 422 of the IRC continue to be met. If the participant meets the employment requirements and does not dispose of the shares of our common stock acquired upon exercise of an incentive stock option until at least one year after date of the exercise of the stock option and at least two years after the date the stock option was granted, gain or loss realized on sale of the shares will be treated as long-term capital gain or loss. If the shares of our common stock are disposed of before those periods expire, which is called a disqualifying disposition, the participant will be required to recognize ordinary incomeher death in an amount equal to the lesser of (i) the excess, if any, of the fair market value of our common stock on the date of exercise over the exercise price, or (ii) if the disposition is a taxable sale or exchange, the amount of gain realized. Upon a disqualifying disposition, we will generally be entitled, in the same tax year, to a deduction equal to the amount of ordinary income recognized by the participant, assuming that a deduction is allowed under Section 162(m) of the IRC.
Non-Statutory Stock Options. The grant of a stock option that does not qualify for treatment as an incentive stock option, which is generally referred to as a non-statutory stock option, is generally not a taxable event for the participant. Upon exercise of the stock option, the participant will generally be required to recognize ordinary income in an amount equal to the excess of the fair market value of our common stock acquired upon exercise (determined asover the purchase price value of the dateshares at the beginning of exercise)the offering period or the excess over the exercisepurchase price of the stock option, and we will be entitled to a deduction in an equal amount in the same tax year, assuming that a deduction is allowed under Section 162(m) of the IRC. At the time of a subsequent sale or disposition of shares obtained upon exercise of a non-statutory stock option, any gain or loss will be a capital gain or loss, which will be either a long-term or short-term capital gain or loss, depending on how long the shares have been held.
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Restricted Stock. The federal income tax consequences with respect to restricted stock awards depend on the facts and circumstances of each award, including, in particular, the nature of any restrictions imposed with respect to the awards. In general, if an award granted to the participant is subject to a “substantial risk of forfeiture” (e.g., the award is conditioned upon the future performance of substantial services by the participant) and is nontransferable, a taxable event occurs when the risk of forfeiture ceases or the awards become transferable, whichever first occurs. At such time, the participant will recognize ordinary income to the extent of the excess of the fair market value of the stockshares on suchthe date over the participant’s cost for such stock (if any), and the same amountof death. The Participant is deductible by us, assuming that a deduction is allowed under Section 162(m)deemed not to have realized any capital gain or loss because of death.
Amendment or Termination of the IRC. Under certain circumstances,Plan. The Board of Directors or the participant, by making an election under Section 83(b)Compensation Committee has the right to amend, modify or terminate the Stock Purchase Plan at any time without notice, provided that, upon any termination, all shares or unapplied payroll deductions will be distributed to Participants, and provided further, that no amendment will affect the right of a Participant to receive his or her proportionate interest in the shares or unapplied payroll deductions. Upon any amendment of the IRC, can accelerate federal income tax recognition with respect to an award of stock that is subject to a substantial risk of forfeiture and transferability restrictions, in which event the ordinary income amount and our deductionStock Purchase Plan, stockholder approval will be measuredobtained if required by law and timed asno amendment may be made without stockholder approval if such amendment increases the number of shares reserved for purposes of the grant date of the award. If the award granted to the participantPlan or if such amendment allows any person who is not subjectan Eligible Employee to become a substantial risk of forfeiture or transferability restrictions,Participant.
New Plan Benefits. Because benefits under the participant will recognize ordinary income with respectStock Purchase Plan depend on employees’ elections to participate in the award to the extent of the excess ofPlan and the fair market value of the stockShares at various future dates, it is not possible to determine future benefits that will be received by executive officers and other employees under the time of grant overPlan. Non-employee Directors are not eligible to participate in the participant’s cost, if any, and the same amount is deductible by us, assuming that a deduction is allowed underStock Purchase Plan. Under Section 162(m)423 of the IRC.
Withholding Obligations. We are entitled to withhold and deduct from future wages of the participant, to make other arrangements for the collection of, or to require the recipient to pay to us,Code, an amount necessary for us to satisfy the recipient’s federal, state or local tax withholding obligations with respect to awards granted under the 2021 Plan. Withholding for taxes may be calculated based on the maximum applicable tax rate for the participant’s jurisdiction or such other rate that will not trigger a negative accounting impact on the Company. The Committee may permit a participant to satisfy a tax withholding obligation by withholding shares of common stock underlying an award, tendering previously acquired shares, delivery of a broker exercise notice or a combination of these methods.
Code Section 409A. A participant may be subject to a 20% penalty tax, in addition to ordinary income tax, at the time the grant becomes vested, plus an interest penalty tax, if the grant constitutes deferred compensation under Section 409A of the IRC and the requirements of Section 409A of the IRC are not satisfied.
Code Section 162(m). Pursuant to Section 162(m) of the IRC, the annual compensation paid to an individualeligible employee who is a “covered employee” is not deductible by us to the extent it exceeds $1 million. The Tax Cuts and Jobs Act, signed into law on December 22, 2017, amended Section 162(m), effective for tax years beginning after December 31, 2017, (i) to expand the definition of a “covered employee” to include any person who was the Chief Executive Officer or the Chief Financial Officer at any time during the year and the three most highly compensated officers (other than the Chief Executive Officer and Chief Financial Officer) who were employed at any time during the year whether or not the compensation is reportedparticipates in the Summary Compensation Table includedStock Purchase Plan may not purchase Shares in our Proxy Statement; (ii) to treat any individual who is consideredcalendar year with a covered employee at any time during a tax year beginning after December 31, 2016 as remaining a covered employee permanently; and (iii) to eliminate the performance-based compensation exception to the $1 million deduction limit (with a transition provision continuing the performance-based exception for certain compensation covered by a written binding contract in existence on November 2, 2017).maximum fair market value exceeding $25,000.
Excise Tax on Parachute Payments. Unless otherwise provided in a separate agreement between a participant and the Company, if, with respect to a participant, the acceleration of the vesting of an award or the payment of cash in exchange for all or part of an award, together with any other payments that such participant has the right to receive from the Company, would constitute a “parachute payment,” then the payments to such participant will be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the IRC. Such reduction, however, will only be made if the aggregate amount of the payments after such reduction exceeds the difference between the amount of such payments absent such reduction minus the aggregate amount of the excise tax imposed under Section 4999 of the IRC attributable to any such excess parachute payments. If such provisions are applicable and if an employee will be subject to a 20% excise tax on any “excess parachute payment” pursuant to Section 4999 of the IRC, we will be denied a deduction with respect to such excess parachute payment pursuant to Section 280G of the IRC.
Board Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL TO APPROVE THE ADOPTION OF THE LANNETT COMPANY, INC. 2021 LONG-TERM INCENTIVE2022 EMPLOYEE STOCK PURCHASE PLAN. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THIS PROPOSAL.
Approval of this proposal requires the affirmative vote of a majority of the votes cast by all stockholders entitled to vote on this proposal.
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The Board does not intend to present, and does not have any reason to believe that others intend to present, any matter of business at the meeting other than as set forth above. If any other matter should be presented properly, it is the intention of the persons named as proxies to vote on such matters in accordance with their judgment.
STOCKHOLDER PROPOSAL NOTICE REQUIREMENTS FOR 20222023 ANNUAL MEETING
Proposals received from stockholders are given careful consideration by the Company. Stockholder proposals submitted in accordance with Rule 14a-8 under the Exchange Act are eligible for consideration for inclusion in the Company’s Proxy Statement for the 20222023 Annual Meeting of Stockholders if they are received by the Company on or before August 20, 2021.22, 2022. Any proposal should be sent to the Company at Lannett Company, Inc., 1150 Northbrook Drive, Suite 155, Trevose, Pennsylvania 19053. In order for a stockholder proposal submitted outside of Rule 14a-8 to be considered at the 2022 Annual Meeting of Stockholders, such proposal must be received by the Company not later than the last date for submission of stockholder proposals under the Company’s Amended and Restated Bylaws (the “Bylaws”). In order for a proposal to be timely under the Bylaws, it must be received at least 90 calendar days before the anniversary date of the Company’s immediately preceding Annual Meeting of Stockholders (i.e., October 29, 2021)28, 2022). However, in the event that the Annual Meeting of Stockholders is called for a date that is not within 30 calendar days before or after the anniversary date of the immediately preceding Annual Meeting of Stockholders, notice of a stockholder proposal in order to be timely must be received not later than the close of business on the tenth calendar day following the day on which notice of the date of the Annual Meeting of Stockholders was mailed or public disclosure of the date of the Annual Meeting of Stockholders was made, whichever occurs first.
FISCAL YEAR 20202021 ANNUAL REPORT TO STOCKHOLDERS
The Company’s Annual Report containing audited financial statements for the fiscal year ended June 30, 20202021 accompanies this Proxy Statement. You can obtain additional copies of our Annual Report on Form 10-K for the fiscal year ended June 30, 20202021 at no charge by writing to Lannett Company, Inc., attention Chief Financial Officer, 1150 Northbrook Drive, Suite 155, Trevose, Pennsylvania 19053.
SIGNATURE
Pursuant to the requirement of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto authorized.
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Date: December | LANNETT COMPANY, INC. |
| /s/ Patrick G. LePore |
| Patrick G. LePore |
| Chairman of the Board |
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Appendix I.
LANNETT COMPANY, INC.
2021 LONG-TERM INCENTIVE2022 EMPLOYEE STOCK PURCHASE PLAN
Introduction
The purposeLannett Company, Inc. 2022 Employee Stock Purchase Plan (“Plan”) is established to provide eligible employees of thisLannett Company, Inc. (the “Corporation”), and its subsidiaries whose employees are permitted to participate in the Plan, with an opportunity through payroll deductions to purchase common stock of the Corporation and, thereby, acquire a proprietary interest in the Corporation. It is believed that the Plan will stimulate employee participation in ownership which will be to the mutual benefit of both the Corporation and its employees.
2.Definitions.
The following terms will have the meanings set forth below, unless the context clearly otherwise requires. Terms defined elsewhere in this Plan will have the same meaning throughout this Plan.
2.1“Adverse Action” means any action or conduct by a Participant that the Committee, in its sole discretion, determines to be injurious, detrimental, prejudicial or adverse to the interestssection of the Company or any Subsidiary, including: (a) disclosing confidential information ofCode.
Definitions
2.2 “Award” means, individually or collectively, an Option, Restricted Stock Award, Performance Award or Non-Employee Director Award, in each case granted to an Eligible Recipient pursuant to this Plan.
2.3“Award Agreement” means either: (a) a written or electronic (asPlan, as provided in Section 22.8) agreement entered into by8.03 hereof, or such individuals to whom authority to administer the Company and a Participant setting forth the terms and provisions applicable to an Award grantedPlan has been delegated under this Plan, including any amendment or modification thereof, or (b) a written or electronic (as provided in Section 20.8) statement issued by the Company to a Participant describing the terms and provisions8.03.
2.4“Board”Directors” means the Board of Directors of the Company.Corporation.
2.6“Cause” means, unless otherwise provided in an Award Agreement, (a) “Cause” as defined in any employment, consulting, severance or similar agreement between the Participant and the Company or one of its Subsidiaries (an “Individual Agreement”), or (b) if there is no such Individual Agreement or if it does not define Cause: (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant’s overall duties, or (iv) any material breach by a Participant of any employment, service, confidentiality, non-compete or non-solicitation agreement entered into with the Company or any Subsidiary.
2.7“Change in Control” means an event described in Section 12.1 of this Plan.
2.8“Code”Code” means the Internal Revenue Code of 1986, as amended. Any referenceamended, and any successor statute of similar nature. References to a sectionspecific sections of the Code herein willshall be deemedtaken to include abe references to corresponding sections of any successor statute.
| (a) | excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation and welfare benefits; |
| (b) | excluding bonuses, commissions and amounts which are contributed by an Employer pursuant to a salary reduction agreement under any Code Section 125 or 401(k) plan sponsored by the Employer; and |
| (c) | including overtime. |
| (a) | an Employee of an Employer; and |
| (b) | has completed with the Employer at least one (1) day of Continuous Service |
Notwithstanding the foregoing to the contrary, any individual who is deemed for purposes of Section 423 (b) (3) of the Code to own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of an Employer or of its parent or subsidiary corporation shall not be eligible to participate in the Plan.
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2.11“Company” means Lannett Company, Inc., a Delaware corporation, and any successor thereto as provided in Section 20.6 of this Plan.
2.12“Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to the Company or any Subsidiary that: (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.
2.13 “Director” means a member of the Board.
2.14“Director Fees” means any compensation payable by the Company in the form of cash to a Non-Employee Director for service as a Non-Employee Director on the Board or any committee of the Board as may be approved from time to time by the Board, excluding expense allowances, reimbursements and insurance premiums paid to or on behalf of such Non-Employee Directors.
2.15“Disability” means, unless otherwise defined in the Award Agreement or in an Individual Agreement between the Participant and the Company or a Subsidiary, the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.
2.16“Effective Date” means January 27, 2021 or such later date as this Plan is initially approved by the Company’s stockholders.
2.17“Eligible Recipients” means all Employees, all Non-Employee Directors and all Consultants.
2.18“Employee” means any individual performing services for the Company or a Subsidiary and designated as an employee of the Company or a Subsidiary on the payroll records thereof. An Employee will not include any individual during any period he or she is classified or treated by the Company or Subsidiary as an independent contractor, a consultant, or any employee of an employment, consulting or temporary agency or any other entity other than the Company or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified as a common-law employee of the Company or Subsidiary during such period. An individual will not cease to be an Employee in the case of: (a) any leave of absence approved by the Company, or (b) transfers between locations of the Company or between the Company and any Subsidiaries. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or a Subsidiary, as applicable, is not so guaranteed, then three (3) months following the ninety-first (91st) day of such leave, any Incentive Stock Option held by a Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonqualified Stock Option. Neither service as a Director nor payment of a Director’s fee by the Company will be sufficient to constitute “employment” by the Company.
2.19“Exchange Act”Act” means the Securities Exchange Act of 1934, as amended. Any reference
| (a) | Where there exists a public market for the Stock, the Market Value shall be (A) the closing price for a share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrative Committee to be the primary market for the Stock, or (B) if the Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrative Committee deems reliable; or |
| (b) | If the Stock is traded on the over-the counter market, the average of the closing bid and asked prices of a share of Stock on the day prior to the time of the determination (or if no such quotations shall have been made on such date, on the last date on which there were such quotations, provided that such quotations shall have been made within the ten (10) business days preceding the date of determination), in each case, as reported in such source as the Administrative Committee deems reliable; or |
| (c) | In the absence of an established market for the Stock of the type described in (i) or (ii), above, the Market Value thereof shall be determined by the Administrative Committee in good faith. |
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Participation
Stock Purchase
2.21“Grant Date” means the date an Award is granted to a Participant pursuant to this Plan and as determined pursuant to Section 5 of this Plan.
2.22“Incentive Stock Option” means a right to purchase Common Stock granted to an Employee pursuant to Section 6 of this Plan that is designated as and intended to meet the requirements of an “incentive stock option” within the meaning of Section 422 of the Code.
2.23“Individual Agreement” has the meaninganti-dilution provisions hereinafter set forth in Section 2.65.02, the aggregate number of thisshares that may be purchased under the Plan shall not exceed the number of shares reserved for the Plan.
2.24“Non-Statutory The shares of Stock Optionmay be (i) treasury or newly issued shares of the Corporation or (ii) purchased by the Corporation on the open market.
2.25“Non-Employee Director” means a Director who is not an Employee.
2.26“Non-Employee Director Award” means any Non-Statutory Stock Option or Restricted Stock Award granted, whether singly, in combination, or in tandem, to an Eligible Recipient who is a Non-Employee Director, pursuant to such applicable terms, conditions and limitations as the Board or Committee may establish in accordance with this Plan, including any Non-Employee Director Option.
2.27“Non-Employee Director Option” means a Non-Statutory Stock Option granted to a Non-Employee Director pursuant to Section 8.1 of this Plan.
2.28“Option” means an Incentive Stock Option or a Non-Statutory Stock Option, including a Non-Employee Director Option.
2.29 “Participant” means an Eligible Recipient who receives one or more Awards under this Plan.
2.30“Performance Award” means a right granted to an Eligible Recipient pursuant to Section 8 of this Plan to receive an amount of cash, number of shares of Common Stock or a combinationdetermined by dividing the Participant’s accumulated payroll deductions by the applicable Purchase Price; provided, however, that in no event shall any Participant purchase more than the number of both, contingent upon andshares of Stock arrived at by dividing the value of which at the time it is payable is determined as a functiontotal amount of the extentParticipant's expected payroll deductions during the Offering Period (determined by multiplying the payroll deductions withheld during the first pay period of the achievementOffering Period by the number of one or more Performance Goals during a specified Performance Period or the achievement of other objectives during a specified period.
2.31“Performance Goals” mean with respect to any applicable Award, one or more targets, goals or levels of attainment required to be achievedpay periods during the specified Performance Period, as set forth inOffering Period) by the related Award Agreement.
2.32“Performance Period” meansMarket Value of the periodshares of time,Stock on that date as determined by the Committee, during which the Performance Goals must be met in order to determine the degree of payout or vesting with respect to an Award.
2.33“Plan” means this Lannett Company, Inc. 2021 Long-Term Incentive Plan, as may be amended from time to time.
2.34“Plan Year” means the Company’s fiscal year.
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2.36 “Restricted Stock Award” means an award of Common Stock granted to an Eligible Recipient pursuant to Section 7 of this Plan that is subject to the restrictions4.03Limitation on transferability and the risk of forfeiture imposed by the provisions of such Section 8.
2.37“Securities Act” means the Securities Act of 1933, as amended. Any reference to a section of the Securities Act herein will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Securities Act.
2.38“Stock-Based Award” means any equity-based or equity-related Award made pursuant to this Plan, including Options, Restricted Stock and Performance Awards denominated or payable in shares of Common Stock.
2.39“Subsidiary” means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, an interest of more than fifty percent (50%) by reason of stock ownership or otherwise.
2.40“Tax Date” means the date any withholding tax obligation arises under the Code for a Participant with respect to an Award.
2.41“Tax Laws” has the meaning set forth in Section 19.9 of this Plan.
3.Plan Administration.
3.1The Committee.Shares Available. The Plan will be administered by the Committee. The Committee will act by majority approval of the members at a meeting or by unanimous written consent, and a majority of the members of the Committee will constitute a quorum. The Committee may exercise its duties, power and authority under this Plan in its sole discretion without the consent of any Participant or other party, unless this Plan specifically provides otherwise. The Committee will not be obligated to treat Participants or Eligible Recipients uniformly, and determinations made under this Plan may be made by the Committee selectively among Participants or Eligible Recipients, whether or not such Participants and Eligible Recipients are similarly situated. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of this Plan will be final, conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to this Plan or any Award granted under this Plan.
3.2Authority of the Committee. In accordance with and subject to the provisions of this Plan, the Committee will have full and exclusive discretionary power and authority to take such actions as it deems necessary and advisable with respect to the administration of this Plan, including the following:
(a)To designate the Eligible Recipients to be selected as Participants;
(b)To determine the nature, extent and terms of the Awards to be made to each Participant, including the amount of cash ormaximum number of shares of Common Stock that may be purchased for each Participant on an Exercise Date is the lesser of (i) the maximum number of shares which the Participant may purchase under Section 4.02, (ii) the number of shares of Stock that can be purchased by applying the full balance of the Participant's Stock Purchase Account to be subject to each Award, any exercise price,such purchase of shares at the mannerPurchase Price (as hereinafter determined) or (iii) the Participant's proportionate part of the maximum number of shares of Stock available within the limitation established by the maximum aggregate number of such shares reserved for the Plan, as stated in which Awards will vest or become exercisable and whether Awards will be granted in tandem with other Awards, andSection 4.01 hereof. Notwithstanding the form of Award Agreement,foregoing, if any evidencingperson entitled to purchase shares pursuant to any Offering hereunder would be deemed for the purposes of section 423(b)(3) of the Code to own stock (including any number of shares that such Award;
(c)To determineperson would be entitled to purchase hereunder) possessing five percent (5%) or more of the timetotal combined voting power or timesvalue of all classes of stock of an Employer, the maximum number of shares that such person shall be entitled to purchase pursuant to the Plan shall be reduced to that number which, when Awards willadded to the number of shares of Stock that such person is so deemed to own (excluding any number of shares that such person would be granted;
(d)To determineentitled to purchase hereunder), is one less than such five percent (5%). Any portion of a Participant's Stock Purchase Account that cannot be applied by reason of the durationforegoing limitation shall remain in the Participant's Stock Purchase Account for application to the purchase of each Award;
(e)To determineStock in the restrictions andnext Offering (unless properly withdrawn).
(f)To construe and interpret this Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its administration and in so doing, to correct any defect, omission, or inconsistency in this Plan or in an Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make this Plan fully effective;Stock.
| (a) | Subject to the provisions of Section 4.03 and of paragraph (b) of this Section 4.05, if on any Exercise Date there is an amount standing to the credit of the Participant in the Participant's Stock Purchase Account, there shall be purchased for the Participant at such Purchase Price the shares of Stock as can be purchased with the amount then standing to the Participant's credit in the Stock Purchase Account. Each such purchase shall be deemed to have occurred on the Exercise Date occurring at the close of the Offering Period for which the purchase was made. |
| (b) | As determined in accordance with Section 423(b)(8) of the Code, no Participant shall be granted an option which permits his or her rights to purchase shares of Stock under this Plan and any similar plans of the Employer to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of Market Value of such shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. |
| (a) | Payroll Deduction. Each Participant shall authorize payroll deductions from Compensation for the purpose of funding his Stock Purchase Account. In the Enrollment Form, each Participant shall authorize a deduction from each payment of his Compensation, which deduction shall not be less than two percent (2%) nor more than ten percent (10%) of the gross amount of such payment, rounded to the next highest whole dollar amount. Payroll deductions shall commence on the first pay day during the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in the Plan. |
| (b) | Change in Payroll Deduction Rate. A Participant may decrease (but not increase) the rate of payroll deductions during an Offering Period by filing with the Corporation a new authorization for payroll deductions, in which case the new rate shall become effective within fifteen (15) business days after the Corporation's receipt of the authorization. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one change may be made in any Offering Period. A Participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Corporation a new Enrollment Form on or prior to the Offering Date with respect to such subsequent Offering Period. |
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(h)4.07To amend this Plan or any Award Agreement, as provided in this Plan;
(i)To authorize any person to execute on behalf of the Company any Award Agreement or any other instrument required to effect the grant of an Award previously granted by the Committee;
(j)To determine whether Awards will be settled inPayment for Stock. The Purchase Price for all shares of Common Stock cash or in any combination thereof;
(k)Subject to Section 9, to determine whether Awards will be adjusted for “dividend equivalents,” meaning a credit, made at the discretion of the Committee, to the account of a Participant in an amount equal to the cash dividends paid on one share of Common Stock for each share of Common Stock represented by an Award held by such Participant; and
(l)To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resalespurchased by a Participant or other subsequent transfersunder the Plan shall be paid out of the Participant’s Stock Purchase Account. As of each Exercise Date, the amount standing to the credit of each Participant in the Stock Purchase Account on the Exercise Date for the Offering that expires on such Exercise Date shall be charged with the aggregate Purchase Price of the shares of Stock purchased by such Participant an the Exercise Date. The remaining balance standing to the Participant's credit in the Stock Purchase Account shall remain credited to such Stock Purchase Account for the next succeeding offering under the Plan, if any, and, if none, shall be refunded to the Participant of any shares of Common Stock, including restrictions under an insider trading policy, restrictions as to the use of a specified brokerage firm for such resales or other transfers and other restrictions designed to increase equity ownership by Participants or otherwise align the interests of Participants with the Company’s stockholders.
3.3Delegation. To the extent permitted by applicable law, the Committee may delegate to one or more of its members or to one or more officerswithin thirty (30) days of the CompanyExercise Date. No interest shall be paid or any Subsidiary or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advicepayable with respect to any responsibilityamount held in the Committee Participant's Stock Purchase Account.
Special Adjustments
| (a) | The number of shares that would otherwise be purchased by each Participant shall be proportionately reduced on the Exercise Date in order to eliminate such excess; |
| (b) | The Plan shall automatically terminate immediately after the Exercise Date as of which the supply of available shares is exhausted; and |
| (c) | Any amount remaining in the Stock Purchase Account of each of the Participants shall be repaid within thirty (30) days. |
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4.Shares Available for Issuance.
4.1Maximum Number of Shares Available. Subject to adjustment as provided in Section 4.5 of this Plan, the maximum number of shares of Common Stock that will be available for issuance under this Plan will be 3,000,000 shares.
4.2Restrictions on Incentive Stock Options.Participants
Subject to Short-Swing Profit Rules
Notwithstanding any other provisionsprovision of this Plan to the contrary, andwith respect to Participants subject to adjustment as providedSection 16 of the Exchange Act, all transactions in shares of Stock must be transacted in accordance with Section 4.516 of the Exchange Act and the rules promulgated thereunder. To the extent any provision of the Plan or action by the Administrative Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrative Committee. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein, such provision shall be deemed automatically to be incorporated by reference into the Plan.
Approval of Stockholders
This Plan shall be subject to approval by the holders of the common stock of the corporation at a duly called meeting of the stockholders, which approval must occur within the period ending twelve (12) months after the date on which this Plan was adopted by the maximum numberBoard of Directors.
Miscellaneous
4.3Limits on Non-Employee Director Awards. Notwithstandingin its discretion at any other provisions oftime, and any reference in this Plan to the contrary, Awards granted during a single Plan Yearrights and obligations of the Administrative Committee shall be construed to any Non-Employee Director, taken together with any cash fees paid during the Plan Yearapply equally to the Non-Employee Director, in respectBoard.
4.4Accounting for Awards. If any shares of Common Stock subject to an Award are forfeited, an Award expires or an Award is settled for cash (in whole or in part), then in each such case the shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, be added to the shares available for Awards under Section 4.1 of this Plan.
4.5Adjustments to Sharestime and Awards.
(a)In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin off) or any other similar change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to: (i) the number and kind of securities or other property (including cash) available for issuance or payment under this Plan, and (ii) in order to prevent dilution or enlargement of the rights of Participants, the number and kind of securities or other property (including cash) subject to outstanding Awards, the exercise price of outstanding Awards, and other terms and conditions of any outstanding Awards, including any Performance Goals or criteria with respect thereto. The determination of the Committee as to the foregoing adjustments, if any, will be final, conclusive and binding on Participants under this Plan.
(b)Notwithstanding anything else herein to the contrary, without affecting the number of shares of Common Stock reserved or available hereunder or the limits in Section 4.2, the Committee may authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with the rules under Sections 409A, 422 and 424 of the Code, as and where applicable.
4.6Minimum Vesting Requirement. Notwithstanding any other provision of the Plan to the contrary, Awards granted under the Plan shall vest no earlier than the first anniversary of the date on which the Award is granted; provided, that the following Awards shall not be subject to the foregoing minimum vesting requirement: any (i) substitute Awards granted in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its Subsidiaries in accordance with Section 17 of this Plan, (ii) Non-Employee Director Awards, and (iii) additional Awards the Committee may grant, up to a maximum of five percent (5%) of the available share reserve authorized for issuance under the Plan pursuant to Section 4.1 (subject to adjustment under Section 4.5); and, provided, further, that the foregoing restriction does not apply to the Committee’s discretion to provide for accelerated exercisability or vesting of any Award in connection with a Change in Control.
5.Participation.
Participants in this Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of the objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time, Awards, singly oramend the Plan in combination or in tandem with other Awards, asany respect, except that no amendment may be determined by the Committee in its sole discretion. Awards will be deemed to be granted asaccomplish any of the date specified infollowing without the grant resolutionapproval of the Committee, which date willCorporation's stockholders.
| (a) | increase the number of shares reserved for purposes of the Plan; or |
| (b) | allow any person who is not an Eligible Employee to become a Participant. |
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6.1Grant.Notice. An Eligible RecipientEnrollment Form and any notice that a Participant files pursuant to the Plan shall be on the form prescribed by the Administrative Committee and shall be effective only when received by the Administrative Committee. Delivery of such forms may be granted Optionsmade by hand or by certified mail, sent postage prepaid, to Lannett Company, Inc., Attention: Chairman of the Administrative Committee of the Lannett Company, Inc. 2022 Employee Stock Purchase Plan. Delivery by any other mechanism shall be deemed effective at the option and discretion of the Administrative Committee.
6.2Award Agreement. Each Option grant will be evidenced by an Award Agreement that will specify the exercise price of the Option, the maximum duration of the Option, the number of shares of Common Stock to which the Option pertains, the conditions upon which an Option will become vested and exercisable, and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan. The Award Agreement also will specify whether the Option is intended to be an Incentive Stock Option or a Non-Statutory Stock Option.
6.3Exercise Price. Except for Options granted pursuant to Section 17 of this Plan, the per share price to be paid by a Participant upon exercise of an Option granted pursuant to this Section 6 will be determined by the Committee in its sole discretion at the time of the Option grant; provided, however, that such price will not be less than one hundred percent (100%) of the Fair Market Value of one share of Common Stock on the Grant Dateprovision had never been included therein (or, not less than one hundred and ten percent (110%) of the Fair Market Value if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).
6.4Exercisability and Duration. An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant, including (i) the achievement of one or more of the Performance Goals; or that (ii) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period; provided, however, that no Option may be exercisable after ten (10) years from the Grant Date (five (5) years from the Grant Date in the case of a change in an Incentive Stock Option that is granted to a Participant who owns, directly or indirectly, more than ten percent (10%)applicable statute, had been deleted as of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company). Notwithstanding the foregoing, if the exercise of an “in-the-money” Option that is exercisable in accordance with its terms is prevented by the provisions of Section 14, the Option will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Option.
6.5Payment of Exercise Price.
(a)change). The total purchase pricePlan shall be governed by the laws of the sharesState of Delaware, to be purchasedthe extent such laws are not in conflict with, or superseded by, federal law.
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(b)In the case of a “net exercise” of an Option, the Company will not require a payment of the exercise price of the Option from the Participant but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value on the exercise date that does not exceed the aggregate exercise price for the shares exercised under this method. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under the “net exercise,” (ii) shares actually delivered to the Participant as a result of such exercise and (iii) any shares withheld for purposes of tax withholding pursuant to Section 12 of this Plan.
(c)For purposes of such payment, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the exercise date of the Option.
6.6Manner of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in this Plan and in the Award Agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its principal executive office (or to the Company’s designee as may be established from time to time by the Company and communicated to Participants) and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.5 of this Plan.
7.Restricted Stock Awards.
7.1Grant. An Eligible Recipient may be granted Restricted Stock Awards under this Plan, and such awards will be subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion. Any Restricted Stock Award may be granted in the form of a Performance Award subject to such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion, including the achievement of one or more Performance Goals.
7.2Award Agreement. Each Restricted Stock Award grant will be evidenced by an Award Agreement that will specify the type of Award, the period(s) of restriction, the number of shares of restricted Common Stock granted, and such other provisions as the Committee will determine which are not inconsistent with the terms of this Plan, including, in the case of a Performance Award, any Performance Goals upon which the Performance Award is subject and any Performance Period during which any Performance Goals must be achieved.
7.3Conditions and Restrictions. The Committee will impose such restrictions or conditions, not inconsistent with the provisions of this Plan, to the vesting of such Restricted Stock Awards as it deems appropriate, including (a) the achievement of one or more of the Performance Goals; or that (b) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period.
7.4Rights as a Stockholder. Except as provided in Sections 7.1, 7.5, 7.6, 9.2 and 13.3 of this Plan, upon a Participant becoming the holder of record of shares of Common Stock issued under a Restricted Stock Award pursuant to this Section 8, the Participant will have all voting, dividend, liquidation and other rights with respect to such shares (other than the right to sell or transfer such shares) as if such Participant were a holder of record of shares of unrestricted Common Stock.
7.5Enforcement of Restrictions. To enforce the restrictions referred to in this Section 8, the Committee may place a legend on the stock certificates or a notation on the book entry notation representing Restricted Stock Awards referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book entry stock account with the Company’s transfer agent. Alternatively, Restricted Stock Awards may be held in non-certificated form pursuant to such terms and conditions as the Company may establish with its registrar and transfer agent or any third-party administrator designated by the Company to hold Restricted Stock Awards on behalf of Participants.
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7.6Lapse of Restrictions; Settlement. Except as otherwise provided in this Section 7, shares of Common Stock underlying a Restricted Stock Award will become freely transferable by the Participant after all conditions and restrictions applicable to such shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations).
7.7Section 83(b) Election for Restricted Stock Award. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Stock Award, the Participant must file, within thirty (30) days following the Grant Date of the Restricted Stock Award, a copy of such election with the Company and with the Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The Committee may provide in the Award Agreement that the Restricted Stock Award is conditioned upon the Participant’s making or refraining from making an election with respect to the award under Section 83(b) of the Code.
7.8Form and Timing of Performance Award Payment. Subject to the terms of this Plan, after the applicable Performance Period (which will not be deemed to be complete until any applicable vesting restrictions based on the continuous employment or service with the Company or a Subsidiary for a certain period have been satisfied) has ended, the holder of Performance Awards will be entitled to receive payment on the value and number of Performance Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved. Payment of earned Performance Awards will be as determined by the Committee and as evidenced in the Award Agreement. Payment of any Performance Award will be made as soon as practicable after the Committee has determined the extent to which the applicable Performance Goals have been achieved. Any shares of Common Stock issued in payment of earned Performance Awards may be granted subject to any restrictions deemed appropriate by the Committee, including that the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period.
7.9Adjustment of Performance Goals and Performance Periods. The Committee may amend or modify the Performance Goals or Performance Periods of any outstanding Awards based in whole or in part on the financial performance of the Company (or any Subsidiary or division, business unit or other sub-unit thereof) in recognition of unusual or nonrecurring events (including the events described in Section 4.5(a) hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, or to address any other change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Company conducts its business, or other events or circumstances, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be final, conclusive and binding on Participants under this Plan.
8.Non-Employee Director Awards.
8.1Awards to Non-Employee Directors. The Committee at any time and from time to time may grant to Non-Employee Directors such Non-Employee Director Awards on such terms and conditions, consistent with the other provisions of this Plan, as may be determined by the Committee in its sole discretion, and set forth in an applicable Award Agreement.
9.Dividends and Dividend Equivalents.
9.1Grant of Dividend Equivalents. Any Participant selected by the Committee may be granted dividend equivalents based on the dividends declared on shares of Common Stock that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such dividend equivalents will be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. Notwithstanding the foregoing, the Committee may not grant dividend equivalents based on the dividends declared on shares of Common Stock that are subject to an Option and further, no dividend or dividend equivalents will be paid out with respect to any unvested Awards.
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9.2Restricted Stock Awards. To the extent permitted or required by applicable law, as determined by the Committee, Participants holding a Restricted Stock Award granted hereunder will have the same dividend rights as the Company’s other stockholders. Notwithstanding the foregoing, any such dividends as to a Restricted Stock Award that is subject to vesting requirements will be subject to forfeiture and termination to the same extent as the Restricted Stock Award to which such dividends relate and the Award Agreement may require that any cash dividends be reinvested in additional shares of Common Stock subject to the Restricted Stock Award and subject to the same conditions and restrictions as the Restricted Stock Award with respect to which the dividends were paid. In no event will dividends with respect to Restricted Stock Awards that are subject to vesting be paid or distributed until the vesting provisions of such Restricted Stock Award lapse.
9.3Performance Awards. Participants holding Performance Awards granted under this Plan will not receive any cash dividends or Dividend Equivalents based on the dividends declared on shares of Common Stock that are subject to such Performance Awards during the period between the date that such Performance Awards are granted and the date such Performance Awards are settled.
10.Termination of Employment or Other Service.
10.1Effect of Termination of Employment or Other Service. Unless otherwise expressly set forth in an Individual Agreement, the Committee will have the sole discretion to determine and set forth in an Award Agreement the effect that the termination of a Participant’s employment or other service with the Company and all Subsidiaries may have on any Award.
10.2Modification of Rights upon Termination. Notwithstanding the other provisions of this Section 10, upon a Participant’s termination of employment or other service with the Company or any Subsidiary, as the case may be, the Committee may, in its sole discretion (which may be exercised at any time on or after the Grant Date, including following such termination) cause Options held by such Participant as of the effective date of such termination to terminate, become or continue to become exercisable or remain exercisable following such termination of employment or service, and Restricted Stock and Performance Awards held by such Participant as of the effective date of such termination to terminate, vest or become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that no Option may remain exercisable beyond its expiration date.
10.3Determination of Termination of Employment or Other Service.
(a)The change in a Participant’s status from that of an Employee to that of a Consultant will, for purposes of this Plan, be deemed to result in a termination of such Participant’s employment with the Company and its Subsidiaries, unless the Committee otherwise determines in its sole discretion.
(b)The change in a Participant’s status from that of a Consultant or Director to that of an Employee or from that of an Employee to that of a Director will not, for purposes of this Plan, be deemed to result in a termination of such Participant’s service as a Consultant or Employee, respectively, and such Participant will thereafter be deemed to be an Employee or Director, respectively, until such Participant’s employment or service is terminated, in which event such Participant will be governed by the provisions of this Plan relating to termination of employment or service (subject to paragraph (a) above).
(c)Unless the Committee otherwise determines in its sole discretion, a Participant’s employment or other service will, for purposes of this Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, as determined by the Committee in its sole discretion based upon such records.
(d)Notwithstanding the foregoing, if payment of an Award that is subject to Section 409A of the Code is triggered by a termination of a Participant’s employment or other service, such termination must also constitute a “separation from service” within the meaning of Section 409A of the Code, and any change in employment status that constitutes a “separation from service” under Section 409A of the Code will be treated as a termination of employment or service, as the case may be.
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10.4Additional Forfeiture Events.
(a)Effect of Actions Constituting Cause or Adverse Action. Notwithstanding anything in this Plan to the contrary and in addition to the other rights of the Committee under this Section 10.4, if a Participant is determined by the Committee, acting in its sole discretion, to have taken any action that would constitute Cause or an Adverse Action during or after the termination of employment or other service with the Company or a Subsidiary, irrespective of whether such action or the Committee’s determination occurs before or after termination of such Participant’s employment or other service with the Company or any Subsidiary and irrespective of whether or not the Participant was terminated as a result of such Cause or Adverse Action, (i) all rights of the Participant under this Plan and any Award Agreements evidencing an Award then held by the Participant will terminate and be forfeited without notice of any kind, and (ii) the Committee in its sole discretion will have the authority to rescind the exercise, vesting or issuance of, or payment in respect of, any Awards of the Participant that were exercised, vested or issued, or as to which such payment was made, and to require the Participant to pay to the Company, within ten (10) days of receipt from the Company of notice of such rescission, any amount received or the amount of any gain realized as a result of such rescinded exercise, vesting, issuance or payment (including any dividends paid or other distributions made with respect to any shares subject to any Award). The Company may defer the exercise of any Option for a period of up to six (6) months after receipt of the Participant’s written notice of exercise or the issuance of share certificates upon the vesting of any Award for a period of up to six (6) months after the date of such vesting in order for the Committee to make any determination as to the existence of Cause or an Adverse Action. The Company will be entitled to withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligations. Unless otherwise provided by the Committee in an applicable Award Agreement, this Section 10.4(a) will not apply to any Participant following a Change in Control.
(b)Forfeiture or Clawback of Awards. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse the Company for the amount of any Award received by such individual under this Plan during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement. The Company also may seek to recover any Award made as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other clawback, forfeiture or recoupment provision required by applicable law or under the requirements of any stock exchange or market upon which the Common Stock is then listed or traded. In addition, all Awards under this Plan will be subject to forfeiture or other penalties pursuant to any clawback or forfeiture policy of the Company, as in effect from time to time, and such forfeiture and/or penalty conditions or provisions as determined by the Committee and set forth in the applicable Award agreement.
11.Payment of Withholding Taxes.
11.1General Rules. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all amounts the Company reasonably determines is necessary to satisfy any and all federal, foreign, state and local withholding and employment related tax requirements attributable to an Award, including the grant, exercise, vesting or settlement of, or payment of dividends with respect to, an Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Award. When withholding for taxes is effected under this Plan, it shall be withheld only up to an amount based on the maximum statutory tax rates in the Participant’s applicable tax jurisdiction or such other rate that will not trigger a negative accounting impact on the Company and is permitted under applicable withholding rules promulgated by the Internal Revenue Service or another applicable government entity.
11.2Special Rules. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment related tax obligation described in Section 11.1 of this Plan by withholding shares of Common Stock underlying an Award, by electing to tender, or by attestation as to ownership of, Previously Acquired Shares, by delivery of a Broker Exercise Notice or a combination of such methods. For purposes of satisfying a Participant’s withholding or employment-related tax obligation, shares of Common Stock withheld by the Company or Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.
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12.Change in Control.
12.1Change in Control. For purposes of this Plan, “Change in Control” means the occurrence of any one of the following events:
(a)a merger or consolidation in which the Company is not the surviving entity and which results in a greater than fifty percent (50%) change in ownership of the Company, except for a transaction the principal purpose of which is to change the state, territory, province or country in which the Company is incorporated;
(b)the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company’s subsidiary corporations);
(c)any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or
(d)acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities, not including securities held by such persons as of the effective date of this Plan.
12.2Acceleration of Vesting. Without limiting the authority of the Committee under Sections 3.2 and 4.5 of this Plan, if a Change in Control of the Company occurs, then, unless otherwise provided by the Committee in its sole discretion either in the Award Agreement evidencing an Award at the time of grant or at any time after the grant of an Award the following provisions will apply:
(a)The restrictions applicable to any Option Awards under the Plan shall lapse and such Awards shall be deemed fully vested.
(b)The restrictions applicable to any Restricted Stock Awards which are not Performance Awards shall lapse and such Awards shall be deemed fully vested.
(c)The restrictions applicable to any Restricted Stock Awards which are Performance Awards and for which the number of shares of Restricted Stock has been established because the realization of the Performance Goals have been determined shall lapse and such Awards shall be deemed fully vested.
(d)The restrictions applicable to any Restricted Stock Awards for which the number of shares of Restricted Stock has not been established because the realization of the Performance Goals has not yet been determined shall lapse as follows: (a) if the Change in Control occurs two or more years after the date of the commencement of the three year period for measuring performance, or if the period to measure performance is one year, then all restrictions shall lapse and all of the Restricted Stock shall be fully vested; (b) if the Change in Control occurs one or more years and less than two years after the date of the commencement of the three year period for measuring performance, then the restrictions shall lapse on 66 2/3% of the Restricted Stock, which shares of Restricted Stock shall be fully vested, and the restrictions on 33 1/3% of the Restricted Stock shall remain, and subject to the determination of the Committee such shares of Restricted Stock may be subject to forfeiture; and (c) if the Change in Control occurs less than one year after the date of the commencement of the three year period for measuring performance, then the restrictions shall lapse on 33 1/3% of the Restricted Stock, which shares of Restricted Stock shall be fully vested, and the restrictions on 66 2/3% of the Restricted Stock shall remain, and subject to the determination of the Committee such shares of Restricted Stock may be subject to forfeiture.
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12.3Alternative Treatment of Stock-Based Awards. In connection with a Change in Control, the Committee in its sole discretion, either in an Award Agreement at the time of grant of a Stock-Based Award or at any time after the grant of such an Award, may determine that any or all outstanding Stock-Based Awards granted under this Plan, whether or not exercisable or vested, as the case may be, will be canceled and terminated and that in connection with such cancellation and termination the holder of such Stock-Based Award will receive for each share of Common Stock subject to such Award a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities with a fair market value (as determined by the Committee in good faith) equivalent to such cash payment) equal to the difference, if any, between the consideration received by stockholders of the Company in respect of a share of Common Stock in connection with such Change in Control and the purchase price per share, if any, under the Award, multiplied by the number of shares of Common Stock subject to such Award (or in which such Award is denominated); provided that if such product is zero ($0) or less or to the extent that the Award is not then exercisable, the Award may be canceled and terminated without payment therefor; provided, however, that no Stock-Based Award that provides for a deferral of compensation within the meaning of Section 409A of the Code will be cashed out upon the occurrence of a Change in Control unless the event or circumstances constituting the Change in Control also constitute a “change in the ownership” of the Company, a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company, in each case as determined under Section 409A of the Code. The treatment of any other Stock-Based Awards in the event of a Change in Control will be as determined by the Committee in connection with the grant thereof, as reflected in the applicable Award Agreement. If any portion of the consideration pursuant to a Change in Control may be received by holders of shares of Common Stock on a contingent or delayed basis, the Committee may, in its sole discretion, determine the fair market value per share of such consideration as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. Notwithstanding the foregoing, any shares of Common Stock issued pursuant to a Stock-Based Award that immediately prior to the effectiveness of the Change in Control are subject to no further restrictions pursuant to this Plan or an Award Agreement (other than pursuant to the securities laws) will be deemed to be outstanding shares of Common Stock and receive the same consideration as other outstanding shares of Common Stock in connection with the Change in Control.
12.4Limitation on Change in Control Payments. Notwithstanding anything in Section 12.2 or 12.3 to the contrary, if, with respect to a Participant, the acceleration of the vesting of an Award as provided in Section 12.2 or the payment of cash in exchange for all or part of a Stock-Based Award as provided in Section 12.3 (which acceleration or payment could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with any other “payments” that such Participant has the right to receive from the Company or any corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such Participant pursuant to Section 12.2 or 12.3 will be reduced (or acceleration of vesting eliminated) to the largest amount as will result in no portion of such “payments” being subject to the excise tax imposed by Section 4999 of the Code; provided, that such reduction will be made only if the aggregate amount of the payments after such reduction exceeds the difference between (a) the amount of such payments absent such reduction minus (b) the aggregate amount of the excise tax imposed under Section 4999 of the Code attributable to any such excess parachute payments; and provided further that such payments will be reduced (or acceleration of vesting eliminated) in the following order: (i) options with an exercise price above fair market value that have a positive value for purposes of Section 280G of the Code, (ii) pro rata among Awards that constitute deferred compensation under Section 409A of the Code, and (iii) finally, among the Awards that are not subject to Section 409A of the Code. Notwithstanding the foregoing sentence, if a Participant is subject to a separate agreement with the Company or an Affiliate or Subsidiary that expressly addresses the potential application of Section 280G or 4999 of the Code, then this Section 12.4 will not apply and any “payments” to a Participant pursuant to Section 12.2 or 12.3 will be treated as “payments” arising under such separate agreement.
13.Rights of Eligible Recipients and Participants; Transferability.
13.1Employment. Nothing in this Plan or an Award Agreement will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue employment or other service with the Company or any Subsidiary.
13.2No Rights to Awards. No Participant or Eligible Individual will have any claim to be granted any Award under this Plan.
13.3Rights as a Stockholder. Except as otherwise provided herein, a Participant will have no rights as a stockholder with respect to shares of Common Stock covered by any Stock-Based Award unless and until the Participant becomes the holder of record of such shares.
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13.4Restrictions on Transfer.
(a)Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Award prior to the exercise (in the case of Options) or vesting, issuance or settlement of such Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.
(b)A Participant will be entitled to designate a beneficiary to receive an Award upon such Participant’s death, and in the event of such Participant’s death, payment of any amounts due under this Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 9 of this Plan) may be made by, such beneficiary. If a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated by the Participant fails to survive the Participant, payment of any amounts due under this Plan will be made to, and exercise of any Options or (to the extent permitted pursuant to Section 10 of this Plan) may be made by, the Participant’s legal representatives, heirs and legatees. If a deceased Participant has designated a beneficiary and such beneficiary survives the Participant but dies before complete payment of all amounts due under this Plan or exercise of all exercisable Options, then such payments will be made to, and the exercise of such Options may be made by, the legal representatives, heirs and legatees of the beneficiary.
(c)Upon a Participant’s request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent (50%) of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent (50%) of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including execution or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.
13.5Non-Exclusivity of this Plan. Nothing contained in this Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.
14.Securities Law and Other Restrictions.
Notwithstanding any other provision of this Plan or any Award Agreements entered into pursuant to this Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Awards granted under this Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other U.S. or foreign regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.
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15.Deferred Compensation; Compliance with Section 409A.
It is intended that all Awards issued under the Plan be in a form and administered in a manner that will comply with the requirements of Section 409A of the Code, or the requirements of an exception to Section 409A of the Code, and the Award Agreements and this Plan will be construed and administered in a manner that is consistent with and gives effect to such intent. The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify for an exception from or to comply with the requirements of Section 409A of the Code. With respect to an Award that constitutes a deferral of compensation subject to Code Section 409A: (a) if any amount is payable under such Award upon a termination of service, a termination of service will be treated as having occurred only at such time the Participant has experienced a “separation from service” within the meaning of Section 409A of the Code; (b) if any amount is payable under such Award upon a Disability, a Disability will be treated as having occurred only at such time the Participant has experienced a “disability” as such term is defined for purposes of Code Section 409A; (c) if any amount is payable under such Award on account of the occurrence of a Change in Control, a Change in Control will be treated as having occurred only at such time a “change in the ownership or effective control of the corporation or in the ownership of a substantial portion of the assets of the corporation” as such terms are defined for purposes of Code Section 409A; (d) if any amount becomes payable under such Award on account of a Participant’s a “separation from service” within the meaning of Section 409A of the Code at such time as the Participant is a “specified employee” within the meaning of Code Section 409A, then no payment will be made, except as permitted under Code Section 409A, prior to the first business day after the earlier of (i) the date that is six months after the date of the Participant’s a “separation from service” within the meaning of Section 409A of the Code or (ii) the Participant’s death; and (e) no amendment to or payment under such Award will be made except and only to the extent permitted under Code Section 409A. With respect to an Award that is exempt from the requirements of Code Section 409A as a short term deferral under Treas. Reg. Sec. 1.409A-1(b)(4) or by reason of the separation pay exception under Treas. Reg. Sec. 1.409A-1(b)(9), if any amount is payable under such Award upon a termination of service, a termination of service will be treated as having occurred only at such time the Participant has experienced a “separation from service” within the meaning of Section 409A of the Code. Notwithstanding anything in the Plan or any Award Agreement to the contrary, each Participant shall be solely responsible for the tax consequences of Awards, and in no event shall the Company have any responsibility or liability if an Award does not meet any applicable requirements of Section 409A of the Code. Although the Company intends to administer the Plan to prevent taxation under Section 409A of the Code, the Company does not represent or warrant that the Plan or any Award complies with any provision of federal, state, local or other tax law.
16.Amendment, Modification and Termination.
16.1Generally. Subject to other subsections of this Section 16 and Section 3.4, the Board at any time may suspend or terminate this Plan (or any portion thereof) or terminate any outstanding Award Agreement and the Committee, at any time and from time to time, may amend this Plan or amend or modify the terms of an outstanding Award. The Committee’s power and authority to amend or modify the terms of an outstanding Award includes the authority to modify the number of shares or other terms and conditions of an Award, extend the term of an Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Award, accept the surrender of any outstanding Award or, to the extent not previously exercised or vested, authorize the grant of new Awards in substitution for surrendered Awards; provided, however that the amended or modified terms are permitted by this Plan as then in effect and that any Participant materially adversely affected by such amended or modified terms has consented to such amendment or modification.
16.2Stockholder Approval. No amendments to this Plan will be effective without approval of the Company’s stockholders if: (a) stockholder approval of the amendment is then required pursuant to Section 422 of the Code, the rules of the primary stock exchange or stock market on which the Common Stock is then traded, applicable U.S. state corporate laws or regulations, applicable U.S. federal laws or regulations, and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under this Plan; or (b) such amendment would: (i) modify Section 3.4; (ii) materially increase benefits accruing to Participants; (iii) subject to Section 4.5, increase the aggregate number of shares of Common Stock issued or issuable under this Plan; (iv) modify the eligibility requirements for Participants in this Plan; or (v) reduce the minimum exercise price as set forth in Section 6.3.
16.3Awards Previously Granted. Notwithstanding any other provision of this Plan to the contrary, no termination, suspension or amendment of this Plan may materially adversely affect any outstanding Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 3.4, 4.5, 6.6, 9, 14, 15 or 16.4 of this Plan.
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16.4Amendments to Conform to Law. Notwithstanding any other provision of this Plan to the contrary, the Committee may amend this Plan or an Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for purposes of conforming this Plan or an Award Agreement to any present or future law relating to plans of this or similar nature, and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this Section 16.4 to any Award granted under this Plan without further consideration or action.
17.Substituted Awards.
The Committee may grant Awards under this Plan in substitution for stock-based awards held by employees of another entity who become employees of the Company or a Subsidiary as a result of a merger or consolidation of the former employing entity with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the former employing corporation. The Committee may direct that the substitute Awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances, subject to compliance with the rules under Sections 409A, 422 and 424 of the Code, as and where applicable.
18.Effective Date and Duration of this Plan.
The Plan is effective as of the Effective Date. The Plan will terminate at midnight on January 26, 2026, and may be terminated prior to such time by Board action. No Award will be granted after termination of this Plan, but Awards outstanding upon termination of this Plan will remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.
19.Miscellaneous.
19.1Usage. In this Plan, except where otherwise indicated by clear contrary intention, (a) any masculine term used herein also will include the feminine, (b) the plural will include the singular, and the singular will include the plural, (c) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term, and (d) “or” is used in the inclusive sense of “and/or”.
19.2Unfunded Plan. Participants will have no right, title or interest whatsoever in or to any investments that the Company or its Subsidiaries may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other individual. To the extent that any individual acquires a right to receive payments from the Company or any Subsidiary under this Plan, such right will be no greater than the right of an unsecured general creditor of the Company or the Subsidiary, as the case may be. All payments to be made hereunder will be paid from the general funds of the Company or the Subsidiary, as the case may be, and no special or separate fund will be established and no segregation of assets will be made to assure payment of such amounts except as expressly set forth in this Plan.
19.3Relationship to Other Benefits. No payment under this Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare, or benefit plan of the Company or any Subsidiary unless provided otherwise in such plan.
19.4Fractional Shares. No fractional shares of Common Stock will be issued or delivered under this Plan or any Award. The Committee will determine whether cash, other Awards or other property will be issued or paid in lieu of fractional shares of Common Stock or whether such fractional shares of Common Stock or any rights thereto will be forfeited or otherwise eliminated by rounding up or down.
19.5Governing Law. Except to the extent expressly provided herein or in connection with other matters of corporate governance and authority (all of which will be governed by the laws of the Company’s jurisdiction of incorporation), the validity, construction, interpretation, administration and effect of this Plan and any rules, regulations and actions relating to this Plan will be governed by and construed exclusively in accordance with the laws of the State of Delaware, notwithstanding the conflicts of laws principles of any jurisdictions. Unless otherwise provided in an Award Agreement, recipients of an Award under this Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of the State of Delaware to resolve any and all issues that may arise out of or relate to this Plan or any related Award Agreement.
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19.6Successors. All obligations of the Company under this Plan with respect to Awards granted hereunder will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.
19.7Construction. Wherever possible, each provision of this Plan and any Award Agreement will be interpreted so that it is valid under the applicable law. If any provision of this Plan or any Award Agreement is to any extent invalid under the applicable law, that provision will still be effective to the extent it remains valid. The remainder of this Plan and the Award Agreement also will continue to be valid, and the entire Plan and Award Agreement will continue to be valid in other jurisdictions.
19.8Delivery and Execution of Electronic Documents. To the extent permitted by applicable law, the Company may: (a) deliver by email or other electronic means (including posting on a Web site maintained by the Company or by a third party under contract with the Company) all documents relating to this Plan or any Award hereunder (including prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including annual reports and proxy statements), and (b) permit Participants to use electronic, internet or other non-paper means to execute applicable Plan documents (including Award Agreements) and take other actions under this Plan in a manner prescribed by the Committee.
19.9No Representations or Warranties Regarding Tax Effect. Notwithstanding any provision of this Plan to the contrary, the Company and its Subsidiaries, the Board, and the Committee neither represent nor warrant the tax treatment under any federal, state, local, or foreign laws and regulations thereunder (individually and collectively referred to as the “Tax Laws”) of any Award granted or any amounts paid to any Participant under this Plan including, but not limited to, when and to what extent such Awards or amounts may be subject to tax, penalties, and interest under the Tax Laws.
19.10Indemnification. Subject to any limitations and requirements under applicable law, each individual who is or will have been a member of the Board, or a Committee appointed by the Board, or an officer or Employee of the Company to whom authority was delegated in accordance with Section 3.3 of this Plan, will be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit or proceeding against him or her, provided he or she will give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his/her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company’s articles of incorporation or bylaws, as a matter of law, or otherwise, or pursuant to any agreement with the Company, or any power that the Company may have to indemnify them or hold them harmless.
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