The Audit Committee has prepared the following report on its activities with respect to our audited consolidated financial statements for the fiscal year ended December 31, 2012.2019.
Our management is responsible for the preparation, presentation and integrity of our consolidated financial statements. Management is also responsible for maintaining appropriate accounting and financial reporting practices and policies as well as internal controls and procedures designed to provide reasonable assurance that the Company is in compliance with accounting standards and applicable laws and regulations.
The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. Ernst & YoungPricewaterhouseCoopers LLP has provided the Audit Committee with the written disclosures and letter required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees concerning Independence, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence.
The independent registered public accounting firm is responsible for planning and performing an independent audit of our consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United States) and for auditing the effectiveness of our internal control over financial reporting. The independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited consolidated financial statements with accounting principles generally accepted in the United States. In this context, the Audit Committee has reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2012,2019, with management and the independent registered public accounting firm, Ernst & YoungPricewaterhouseCoopers LLP.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.Report.
Paul W. Sandman
The Litigation Committee has adopted a written charter that is available on the Company’s website at www.pdl.com.
providing oversight in the evaluation of ourthe Board and each committee of ourthe Board.
OurThe Nominating and Governance Committee has adopted a written charter that is available on the Company’s website at www.pdl.com.
Evaluation of Director Nominations
In fulfilling its responsibilities to select and recommend to ourthe Board director nominees for each election of directors, ourthe Nominating and Governance Committee considers the following factors:
the appropriate size of ourthe Board and its committees;
the perceived needs of ourthe Board for particular skills, diversity, background and business experience;
the skills, background, reputation and business experience of nominees compared to the skills, background, reputation and business experience already possessed by other Board members;
the nominees’ independence from management;
the applicable regulatory and listing requirements, including independence requirements and legal considerations, such as antitrust compliance;
the benefits of a constructive working relationship among directors; and
the desire to balance the considerable benefit of continuity with the periodic injection of thea fresh perspective provided by new members.
OurThe Nominating and Governance Committee’s goal is to assemble a board of directors that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the best interests of our stockholders. They must also have an inquisitive and objective perspective and mature judgment. Director candidates, in the judgment of ourthe Nominating and Governance Committee, must also have sufficient time available to perform all Board and committee responsibilities. Board members are expected to prepare for, attend and participate in all Board and applicable committee meetings.
The Nominating and Governance Committee has defined “diversity” for purposes of evaluating director candidates. Under the Nominating and Governance Committee’s selection criteria, diversity means experience, professional skill, geographic representation and educational and professional background necessary to assist the Board in the discharge of its responsibilities. The Nominating and Governance Committee looks at the composition of the Board as a whole Board when considering diversity and seeks nominees whose experience, professions, skills, geographic representation and backgrounds complement and create diversity among the directors. The Nominating and Governance Committee does not assign specific weights to any criteria and no particular criterion is necessarily applicable to all prospective nominees.
The same standards apply to any nominee, regardless of whether recommended internally or by stockholders.
Other than the foregoing, there are no stated minimum criteria for director nominees, although ourthe Nominating and Governance Committee may also consider such other factors as it may deem to be in the best interests of the Company and our stockholders. OurThe Nominating and Governance Committee annually evaluates all Board members and the Board as a whole. It also evaluates those directors whose terms expire that year and who are willing to continue in service against the criteria set forth above in determining whether to recommend those directors for reelection. The Nominating and Governance Committee has determined that the Board and its members meet such criteria in 2013.criteria.
Candidates for Nomination
Candidates for nomination as director come to the attention of ourthe Nominating and Governance Committee from time to time through incumbent directors, management, stockholders or third parties. These candidates may be considered at meetings of ourthe Nominating and Governance Committee at any point during the year. Such candidates are evaluated against the criteria set forth above. If ourthe Nominating and Governance Committee determines at any time that it is desirable that ourfor the Board to consider additional candidates for nomination, the Nominating and Governance Committee may poll directors and management for suggestions or conduct research to identify possible candidates and may, if ourthe Nominating and Governance Committee thinksdeems it is appropriate, engage a third-party search firm to assist in identifying qualified candidates.
OurThe Nominating and Governance Committee has adopted a policy to evaluate any recommendation for director nominee proposed by a stockholder, and our Bylaws also permit stockholders to nominate directors for consideration at an annual meeting, subject to certain conditions. Any recommendation for a director nomination must be submitted in writing to:
PDL BioPharma, Inc.
Attention: Corporate Secretary
932 Southwood Boulevard
Incline Village, Nevada 89451
Our Bylaws require that any director nomination made by a stockholder for consideration at an Annual Meetingannual meeting must meet the requirements set forth in the Bylaws and be received in writing not less than ninety (90)90 calendar days nor more than one hundred twenty (120)120 calendar days in advance of the date of the one-year anniversary of the Company’s (or the Company’s predecessor’s) previous year’s annual meeting of stockholders. However, if no annual meeting was held in the previous year or the date of the annual meeting is more than 30 calendar days before or more than 60 calendar days after such anniversary date, such notice by the stockholder to be timely must be received by the Secretary of the Company not later than the close of business on the 90th calendar day prior to such annual meeting or, if later, the 10th calendar day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.
Each written notice containing a stockholder nomination of a director at an annual meeting must include as to the stockholder submitting the nomination:
the name and address, as they appear on the Company’s books, of such stockholder and the name and address of the beneficial owner, if any, on whose behalf a proposal of nomination to election of directors is made;
the class, series and number of shares of capital stock of the Company whichthat are owned beneficially and of record by such stockholder and such beneficial owner;
a representation that such stockholder will notify the Company in writing of the class and number of such shares owned beneficially and of record by such stockholder and such beneficial owner as of the record date for the meeting (or action, as applicable) promptly following the later of the record date or the date notice of the record date is first publicly disclosed;
any option, warrant, convertible security, stock appreciation right, derivative, swap or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Company or with a value derived in whole or in part from the value or volatility of any class or series of shares of the Company, whether or not such instrument or right shall convey any voting rights in such shares or shall be subject to settlement in the underlying class or series of capital stock of the Company or otherwise (a Derivative Instrument), directly or indirectly owned beneficially by such stockholder or beneficial owner and any other direct or indirect opportunity of such stockholder or beneficial owner to profit or share in any profit derived from any increase or decrease in the value of shares of the Company and a representation that such stockholder will notify the Company in writing of any such Derivative Instrument or other direct or indirect opportunity to profit or share in any profit in effect as of the record date for the meeting (or action, as applicable) promptly following the later of the record date or the date notice of the record date is first publicly disclosed;
any proxy, contract, arrangement, understanding or relationship pursuant to which such stockholder or beneficial owner has a right to vote any shares of any security of the Company;
any rights to dividends on the shares of the Company owned beneficially by such stockholder or beneficial owner that are separated or separable from the underlying shares of the Company;
any proportionate interest in shares of capital stock of the Company or Derivative Instruments or other direct or indirect opportunity to profit or share in any profit held, directly or indirectly, by a general or limited partnership in which such stockholder or beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;
any performance related fees (other than an asset based fee) that such stockholder or beneficial owner is entitled to base on any increase or decrease in the price or value of shares of any class or series of the Company, or any Derivative Instruments or other direct or indirect opportunity to profit or share in any profit, if any;
a description of any agreement, arrangement or understanding with respect to the proposal of nomination between or among such stockholder and such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, and a representation that such stockholder will notify the Company in writing of any such agreements, arrangements or understandings in effect as of the record date for the meeting (or action, as applicable) promptly following the later of the record date or the date notice of the record date is first publicly disclosed;
a description of any material interest of such stockholder and such beneficial owner, if any, on whose behalf the proposal is made and of any material benefit that such stockholder and such beneficial owner, if any, on whose behalf the proposal is made expects or intends to derive from such business or action, as applicable;
a representation that such stockholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination or a representation that such stockholder is a holder of record of stock of the Company entitled to consent to corporate action in writing without a meeting, as applicable;
a representation whether such stockholder or such beneficial owner, if any, intends or is part of a group which intends (i) to deliver a proxy statement and/or form of proxy (or consent, as applicable) to holders of at least the percentage of the Company’s outstanding capital stock required to elect the nominee and/or (ii) otherwise to solicit proxies (or consents, as applicable) from stockholders in support of such nomination; and
any other information that is required to be provided by such stockholder pursuant to Section 14 of the Securities Exchange Act, of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder (or any successor provision of the Exchange Act or the rules or regulations promulgated thereunder), in such stockholder’s capacity as a proponent of a stockholder nomination.
Each written notice containing a stockholder nomination of a director at an annual meeting must include for each person whom the stockholder proposes to nominate for election or reelection as a director:
the name, age, business address and residence address of the person,
person;
the principal occupation or employment of the person,person;
the class, series and number of shares of capital stock of the CorporationCompany that are owned beneficially and of record by the person,person;
a statement as to the person’s citizenship,citizenship;
the completed and signed representation and agreement described in the Bylaws,Bylaws;
a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and the person, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the person were a director or executive officer of such registrant,registrant;
any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Exchange Act,Act; and
such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected.
All director nominees must also complete a customary form of director’s questionnaire as part of the nomination process. The evaluation process may also include interviews and additional background and reference checks for non-incumbent nominees, at the discretion of ourthe Nominating and Governance Committee.
Code of Ethics
The Company has adopted a Code of Business Conduct (the Conduct Code) that applies to all officers, directors and employees. The Conduct Code is available on our website at www.pdl.com. IfIn the event we ever were to amend any provision of the Conduct Code, we intend towill satisfy our disclosure obligations with respect to any such amendment by posting such information on our Internet website set forth above rather than by filing a Current Report on Form 8-K. Any waiver of the Conduct Code will be disclosed by filing a Current Report on Form 8-K.
Board Leadership Structure
The Board does not have a policy regarding the separation of the roles of chief executive officer and chairperson ofFrom March 2009 to April 2019, the Board as the Board has determined that it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. Since March 2009, the Board has beenwas led by a Lead Director insteadDirector. However, in April 2019, the Board changed this role to Chairperson, while retaining the independence requirements that had previously applied to the role of a Chairperson.Lead Director. Under our corporate governance principles, the Lead DirectorChairperson of the Board is responsible for coordinating the Board’s activities, including the scheduling of meetings of the full Board, scheduling executive sessions of the non-employee directors and setting relevant items on the agenda (in consultation with the chief executive officer as necessary or appropriate). The Chairperson must be an independent member of the Board. The Board thinksbelieves that this leadership structure, consisting of an independent member of the Board as the Lead Director, has enhancedChairperson, enhances the Board’s oversight of, and independence from, Company management and our overall corporate governance. Dr. Selick,Ms. O’Farrell, an independent member of the Board, currently serves as our Lead Director.the Chairperson.
Risk Oversight by the Board
Companies face a variety of risks, including credit risk, market risk, liquidity risk and operational risk. The Board thinksbelieves that an effective risk management system will: (i) timely identify the material risks that the Company faces, (ii) communicate necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant Board committee, (iii) implement appropriate and responsive risk management strategies consistent with the Company’s risk profile and (iv) integrate risk management into Company decision-making.
The Board has designated the Audit Committee to take the lead in overseeing risk management. The Company’s management prepares periodic reports to the Audit Committee and the Board discussing in detail the known and anticipated risks to the Company and the Company’s approach to mitigating such risks. Based on such reports, the Audit Committee makes periodic reports to the Board as well as the Audit Committee’s own analysis and conclusions regarding the adequacy of the Company’s risk management processes.
In addition to the formal compliance program, the Board encouragesand management to promote a corporate culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations.
Risk Assessment of Compensation Policies
In January 2013,Most recently in April 2020, the Board, with the assistance of management,Board Advisory, conducted a risk assessment of the Company’s compensation policies and practices. The Company’s compensation policies and practices were evaluated to ensure that they do not foster risk taking above the level of risk associated with the Company’s business model. For this purpose, the Compensation Committee worked closely with Board considered the Company’s long-term strategyAdvisory to ensure that pay levels and compared it to the performance metrics were reasonable from an external competitive perspective and time horizonaffordable and reasonable within the context of the Company’s compensation policiescurrent and practicesprojected long-term financial performance. The Compensation Committee assessed the Company’s mix of pay (cash versus equity and short- versus long-term) from a competitive and strategic perspective, and found it reasonable and supportive of the business strategy.
Based on the Compensation Committee’s work and the Company’s useassessment conducted with the assistance of cash and restricted stock as the primary means of compensation. Based on this assessment,Board Advisory, the Board concluded that its pay and performancecompensation program does not promote excessive risk taking. In this regard, the Company notes that:
the Company’s annual incentive compensation is based on balanced performance metrics set by the Compensation Committee that promote disciplined progress towards Company goals;
uses third-party corporate governance reviews of the Company’s long-term incentives do not drive high-risk investments atpublic filings to assess the expensereasonableness of long-term Company value;
pay levels, CEO pay-for-performance alignment and risk profile;the Compensation Committee uses an independent compensation consultant who (i) assesses the competitiveness of each component of the Company’s compensation programspackage in relation to its peers in the healthcare industry and (ii) provides the Compensation Committee with a risk assessment report no less than annually;
the Company uses explicit and discrete goals in its design of incentive plans and such plans are weighted towards cash, and the equity component does not promote unnecessary risk taking and encourages sensible income generating asset investments; and
reasonable in relation to the Company’s compensation awards are capped at reasonable and sustainable levels, as determined by a review of the Company’s economicsize, financial position and prospects, as well as business objectives; and
the compensation offered by comparable companies.
Company uses reasonable maximum caps in its incentive plan design.
PROPOSAL NO. 2:
RATIFICATION OF SELECTION OF ERNST & YOUNGPRICEWATERHOUSE COOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee, which is comprised entirely of the Boardindependent directors, has selected Ernst & YoungPricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013,2020, and the Board has directed that management submit the selection of its independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. Ernst & YoungPricewaterhouseCoopers LLP has audited the Company’s consolidated financial statements since 1986.for the fiscal year ended December 31, 2019. Representatives of Ernst & YoungPricewaterhouseCoopers LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
NeitherNone of the Bylaws, nor other governing documents or law requirerequires stockholder ratification of the selection of Ernst & YoungPricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm. However, the Audit Committee of the Board is submitting the selection of Ernst & YoungPricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate governance practice. If the stockholders fail to ratify the selection, the Audit Committee of the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee of the Board of Directors in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.
The affirmative voteratification of the holdersselection of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2020 will be approved if a majority of the shares present in person or represented by proxy and entitled to votevotes cast at the Annual Meeting will be required to ratifyvote “FOR” the selection of Ernst & Young LLP.ratification. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Brokerbroker non-votes are counted towardstoward a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Principal Independent Registered Public Accounting Firm Fees and Services
The aggregate fees billed to the Company for the fiscal years ended December 31, 20122019 and 2011,2018, by Ernst & YoungPricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm are set forth in the table below:
| ($ in thousands) | | 2012 | | | % of Total | | | 2011 | | | % of Total | |
| Fee Category | | | | | | | | | | | | |
Audit Fees(1) | | $ | 316 | | | | 85.9 | % | | $ | 339 | | | | 75.9 | % |
Audit-related Fees(2) | | | 50 | | | | 13.6 | % | | | 106 | | | | 23.7 | % |
Tax Fees(3) | | | — | | | | — | | | | — | | | | — | |
All Other Fees(4) | | | 2 | | | | 0.5 | % | | | 2 | | | | 0.4 | % |
Total Fees | | $ | 368 | | | | 100.0 | % | | $ | 447 | | | | 100.0 | % |
|
| | | | | | | | |
| ($ in thousands) | | 2019 | | 2018 |
| Fee Category | | | | |
Audit Fees(1) | | $ | 2,812 |
| | $ | 2,582 |
|
Audit-related Fees(2) | | — |
| | — |
|
Tax Fees(3) | | — |
| | — |
|
All Other Fees(4) | | 2 |
| | 4 |
|
| Total Fees | | $ | 2,814 |
| | $ | 2,586 |
|
|
| | | |
| (1) | | Audit fees consist of fees billed for professional services rendered for the audit of our consolidated financial statements, attestation services surrounding the effectiveness of our internal control environment and review of the interim condensed consolidated financial statements included in quarterly reports, the audit of our subsidiary, QHP Royalty Sub LLC, andreports. It also includes services that are normally would be provided by Ernst & Young LLP in connection with statutory and regulatory filings or engagements and services that generally only the principal auditor reasonably can provide to a client, such as comfort letters, attestation services except(except those not required by statute or regulation.regulation), procedures related to audit of income tax provisions and related reserves, consents and assistance with and review of documents filed with the SEC. |
| (2) | | Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” In 2012 and 2011, these services included accounting consultations for income generating assets, debt modifications and cash flow hedge agreements. |
| (3) | | Tax fees consist of fees for tax compliance, tax advice and tax planning. No such services were incurred in 2012 or 2011. |
| (4) | | All other fees include any fees billed that are not audit, audit related or tax fees. In 20122019 and 2011,2018, these fees included a license to an accounting research database.database and an accounting disclosure checklist. |
OurThe Audit Committee pre-approves all audit services provided by the independent registered public accounting firm and permissible non-audit services in excess of a certain de minimis amount provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. OurThe Audit Committee has a policy for the pre-approval of services provided by the independent registered public accounting firm. Under the policy, any pre-approval is detailed as to the particular service or category of services and includes an estimate of the related fees. OurThe Audit Committee may delegate pre-approval authority to one or more of its members. Such a member must report any decisions to ourthe Audit Committee at the next scheduled meeting. During fiscal years 20122019 and 2011, our2018, the Audit Committee approved all of the Audit Fees, Audit-Related Fees and All Other Fees.fees described above.
THE BOARD RECOMMENDS A VOTE “FOR” PROPOSAL NO. 2.
PROPOSAL NO. 3:
APPROVAL OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATIONApproval of the dissolution pursuant to the plan of DISSOLUTION
General
Proposal No. 3 concerns the approval of the Dissolution Proposal. The Board has determined that the Dissolution is advisable and in the best interests of the Company and its stockholders, has approved the Dissolution and has adopted the Plan of Dissolution. A copy of the Plan of Dissolution is attached as Annex A to this proxy statement and incorporated herein by reference. As discussed below, the Board has determined to seek approval for the Dissolution in the event that a sale of the Company is not consummated or the Board determines that a sale of the Company will not maximize value to our stockholders. Certain material features of the Plan of Dissolution are summarized below. Stockholders are urged to carefully read the Plan of Dissolution in its entirety.
The Dissolution is subject to the condition that the holders of a majority of our outstanding shares of common stock authorize the Dissolution at the Annual Meeting. The Board recommends a vote “FOR” the approval of the Dissolution pursuant to the Plan of Dissolution.
In general terms, when we dissolve pursuant to the Dissolution, we will cease conducting our business, wind up our affairs, dispose of our non-cash assets, pay or otherwise provide for our obligations, and distribute our remaining assets, if any, during a post-dissolution period of at least three years, as required by the DGCL. The effective time of the Dissolution will be when the Certificate of Dissolution is filed with the office of the Secretary of State of the State of Delaware or such later date and time that is stated in the Certificate of Dissolution. With respect to the Dissolution, we will follow the dissolution and winding up procedures prescribed by the DGCL, as described in further detail under the heading “Delaware Law Applicable to Our Dissolution” beginning on page 35. If the stockholders approve the Dissolution Proposal, the Company currently plans to target the end of 2020 to file the Certificate of Dissolution with the Secretary of State of the State of Delaware, but recognizes this may be delayed given the uncertainties related to the COVID-19 pandemic. In addition, such filing may be delayed as determined by the Board in its sole discretion, as described in more detail below.
Following the filing of the Certificate of Dissolution, in accordance with the applicable provisions of the DGCL, the Board will proceed to wind up the Company’s affairs. Authorization of the Dissolution by the holders of a majority of the outstanding stock of the Company shall constitute the authorization of the sale, exchange or other disposition in liquidation of all of the remaining property and assets of the Company after the effective time of the Dissolution, whether the sale, exchange or other disposition occurs in one transaction or a series of transactions, and shall constitute ratification of any and all contracts for sale, exchange or other disposition that are conditioned on stockholder approval. The Company intends to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL to, among other things, obtain an order from the Delaware Court of Chancery establishing the amount and form of security for contested known, contingent and potential future claims that are likely to arise or become known within five years filing of the Certificate of Dissolution (or such longer period of time as the Delaware Court of Chancery may determine not to exceed ten years) (the Court Order). We will pay or make reasonable provision for our uncontested known claims and expenses and establish reserves for other claims as required by the Court Order. The remaining assets or cash of the Company will be used to make liquidating distributions to stockholders.
If stockholders do not approve the Dissolution Proposal, we will continue our corporate existence and the Board will continue to explore alternatives for returning capital to stockholders in a manner intended to maximize value and in accordance with our monetization strategy.
Our liquidation, winding up and distribution procedures will be further guided by our Plan of Dissolution, as described in further detail under the heading “Description of our Plan of Dissolution” beginning on page 6. You should carefully consider the risk factors relating to our complete liquidation and dissolution and described under the heading “Risks Related to The Dissolution” beginning on page 11.
The description of the Dissolution contained in this introductory section is general in nature and is subject to various other factors and requirements, as described in greater detail below.
Background of the Proposed Dissolution and Plan of Dissolution
In September 2019, we engaged financial and legal advisors and initiated a review of our strategy. In December 2019, we disclosed that we planned to halt the execution of our growth strategy, cease making additional strategic transactions and investments and instead pursue a formal process to unlock the value of our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders.
Over the subsequent months, our board of directors and management analyzed, together with outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the high-quality assets in our portfolio to our stockholders. While, as noted herein, we have targeted the end of 2020 for the sale of our Material Assets (as defined below), we further recognize that, the duration and extent of the public health issues related to the COVID-19 pandemic make it possible, and perhaps probable, that the timing of the sale of all or substantially all of the Company’s assets, including the Material Assets, and therefore the timing of the Dissolution, may be delayed. As a result, we will continue to assess the market for our assets so as to balance the cost of continuing to incur general and administrative expenses against the state of the market for our assets so that we may determine the appropriate time to sell the Material Assets and other assets of the Company.
Pursuant to our monetization strategy, we are exploring a variety of potential transactions, including a sale of the whole company, divestiture of assets, spin-offs of operating entities, merger opportunities or a combination thereof. In addition, we have analyzed, and continue to analyze, the optimal mechanisms for returning value to stockholders in a tax-efficient manner, including via share repurchases, cash dividends and other distributions of assets. We have not set a definitive timeline and intend to pursue monetization in a disciplined and cost-effective manner seeking to maximize returns to stockholders. We also recognize, however, that accelerating the timeline, while continuing to seek to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as potentially provide faster returns to stockholders.
Our focus throughout 2020 and continuing until Dissolution, if approved by our stockholders, will be the monetization and execution of potential transactions for the sale of the Company and/or the disposition of certain material assets, including, without limitation, the following assets: (1) our ownership interest in Noden Pharma DAC and Noden Pharma USA Inc. (collectively, Noden) and the branded prescription medicine products sold under the name Tekturna® and Tekturna HCT® in the United States, Rasilez® and Rasilez HCT® in the rest of the world, and an authorized generic form of Tekturna in the United States (collectively, the Noden Products); (2) our ownership interest in LENSAR, Inc. (LENSAR) and the LENSAR® Laser System; (3) our investment in shares of Evofem Biosciences, Inc. (Evofem); and (4) certain royalty rights and hybrid notes/royalty receivables (collectively, the Material Assets). In furtherance of these efforts and to assist us in our monetization strategy, at the end of 2019 we retained Bank of America Securities to advise us in a process for a sale of the Company. We have also retained SVB Leerink to advise us generally regarding the monetization strategy. In the event that we conclude that a whole company sale will not maximize value, and that a sale of the assets of the Company, separately or in combination, will provide more significant stockholder value, we have retained Torreya Partners to advise us in our monetization of our Noden asset and shares of Evofem, SVB Leerink to advise us in our monetization of LENSAR and the LENSAR® Laser System, and BofA Securities to advise us in a sale of our royalty assets. BofA Securities has also been retained to advise us on a sale of the whole company.
During the ongoing strategic process and in connection with the implementation and execution of our monetization strategy, the Board discussed from time-to-time its plan to liquidate and dissolve the Company following the consummation of the sale of all or substantially all of the Company’s assets, including the Material Assets. Upon the disposition of the Material Assets pursuant to our monetization strategy, rather than using the combination of the proceeds from our monetization strategy and sale of the Material Assets to continue operations of the Company, the Board has determined that the more advisable course of action would be to liquidate and dissolve so that we can have the opportunity to provide some distribution of assets to our stockholders, after we take care of various obligations and contingencies, as described elsewhere in this proxy statement.
On February 3, 2020, members of our Board were provided with a draft Plan of Complete Liquidation (the Plan of Liquidation) and a preliminary description of the Dissolution. The Plan of Liquidation provided to the Board outlined a plan to maximize value to stockholder by the end of 2020 through a complete liquidation of assets, including the engagement of various financial advisors to assist with the disposition of each of the Material Assets. At meetings of the Board held on February 6, 2020 and February 7, 2020, the Board reviewed the Plan of Liquidation, including a discussion of the Material Assets and expected value to stockholders by monetizing such assets by the end of 2020. After further discussion, the Board unanimously approved the Plan of Liquidation, including the asset monetization timeline and strategy.
On April 24, 2020, members of our Board were provided with a draft Plan of Dissolution, as well as a description of the Dissolution, to be considered in preparation for the Board meeting to be held on May 4, 2020. At the May 4, 2020 meeting, our Board further considered the Plan of Dissolution and the Dissolution. During this meeting, members of our Board had the opportunity to ask questions about the legal aspects of the Plan of Dissolution and the Dissolution, and the Board’s questions were answered by outside financial and legal advisors and our executive officers. Our Board determined that, following the disposition of the Material Assets, or at such earlier time as the Board determines in its sole discretion that such disposition of certain of the Material Assets or a sale of the Company is unlikely to maximize the value that can be returned to stockholders from our monetization strategy, the Company would, if approved by the stockholders, file a Certificate of Dissolution in Delaware and proceed to wind-down and dissolve the company in accordance with Delaware law.
After further discussion at the May 4, 2020 meeting, our Board unanimously determined that the Dissolution was advisable and in the best interests of us and our stockholders, adopted the Plan of Dissolution, authorized and approved the proposed Dissolution, recommended that our stockholders authorize and approve the proposed Dissolution in accordance with the Plan of Dissolution, and, subject to approval by our stockholders, generally authorized our officers to take all necessary actions to effect the Plan of Dissolution and our Dissolution in accordance with the Plan of Dissolution. The Plan of Dissolution approved by the Board is attached to this proxy statement as Annex A.
Reasons for the Dissolution
The decision of the Board to seek your approval for the Dissolution Proposal followed a lengthy process which the Board consulted with management and financial, accounting and legal advisors and carefully considered the risks, timing, viability and potential impact to our stockholders of the alternatives potentially available to us. Based on such consideration and analysis, the Board determined that the Dissolution pursuant to the Plan of Dissolution is advisable and in the best interests of us and our stockholders.
The Board considered the following factors, among others, in favor of the Dissolution pursuant to the Plan of Dissolution:
the determination by our Board, after conducting a review of our financial condition, evaluation of potential strategic alternatives, prospects for the sale of the Company as a whole or the sale of all or substantially all of the Company’s assets, including the Material Assets, in individual sales, the results of operations and our future business prospects, that continuing to operate as a going concern is not reasonably likely to create greater value for the stockholders than the value that may be obtained for the stockholders pursuant to the sale of all or substantially all of the Company’s assets, including the Material Assets, and the Dissolution;
the sale of all or substantially all of the Company’s assets, including the Material Assets, and the Dissolution provide our stockholders with an opportunity to potentially monetize their investment in the Company and allows us to distribute the maximum amount of cash to the Company’s stockholders from the sale of all or substantially all of the Company’s assets, including the Material Assets;
commencing the dissolution process under the DGCL, including the mailing of notices to claimants and the requirement that claimants respond by a specified date or their claims will be barred, may facilitate an earlier resolution of certain claims against the Company;
the material costs associated with our business operations, including accounting, legal and other expenses in connection with required filings with the SEC and required to support the day-to-day operations of our various operating segments and our prior growth strategy;
the range of aggregate net proceeds which may be realizable by us from the sale of all or substantially all of the Company’s assets, including the Material Assets;
under Sections 281(c) and 282 of the DGCL, by following the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL, directors of a dissolved corporation would be protected from personal liability to claimants of the dissolved corporation for failing to make adequate provision for such corporation’s actual and potential liabilities, and each stockholder’s potential liability would be limited in the aggregate to the amount distributed to such stockholder in the dissolution and further limited to claims filed before the expiration of the winding-up period;
the Dissolution Proposal is subject to approval by our stockholders and allows stockholders to have a direct vote on whether they concur with such proposal as a favorable outcome for the Company and its stockholders;
the terms and conditions of the Plan of Dissolution permit the Board to abandon or delay implementation of the dissolution prior to the filing of the Certificates of Dissolution if it determines that, in light of new proposals presented or changes in circumstances, a dissolution is no longer advisable and in the best interests of the Company and its stockholders;
that under the DGCL, if the circumstances justifying the Dissolution change, the Certificate of Dissolution may be revoked after the effective time of the Dissolution if the Board adopts a resolution recommending revocation and if the stockholders originally entitled to vote on the Dissolution approve such revocation at a meeting of stockholders; and
there are potential U.S. federal income tax benefits of the Plan of Dissolution to our stockholders, including that distributions received by a U.S. Holder (as defined in “Material U.S. Federal Income Tax Consequences of the Proposed Dissolution” beginning on page 46 of this proxy statement) pursuant to the Plan of Dissolution are intended to be treated as a reduction in the U.S. Holder’s tax basis in such holder’s shares of our common stock, but not below zero, with any excess taxable as capital gain; for a more detailed discussion, see “Material U.S. Federal Income Tax Consequences of the Proposed Dissolution” beginning on page 45 of this proxy statement.
The Board also considered certain material risks or potentially unfavorable factors in arriving at its conclusion that the Dissolution is advisable and in the best interests of us and our stockholders, including, among others:
there are uncertainties as to the timing, nature and amount of any liquidating distributions to stockholders, including the risk that there could be unanticipated delays in selling all or substantially all of the Company’s assets, including the Material Assets, and the amounts we would ultimately distribute to our stockholders pursuant to the Plan of Dissolution may be substantially less than the amounts we currently estimate if the amounts of our liabilities, other obligations and expenses and claims against us are higher than we currently anticipate;
it is possible that the timing of the sale of all or substantially all of the Company’s assets, including the Material Assets, and therefore the timing of the Dissolution, may be delayed and significantly impacted by public health issues related to the COVID-19 pandemic;
it is possible that the aggregate liquidating distributions that would be paid to a stockholder under the Plan of Dissolution would not exceed the amount that the stockholder could have received upon sales of its shares of the Company in the open market;
the uncertainty of value, if any, of the Material Assets;
the disposition of our remaining assets will be subject to corporate-level U.S. federal, state and local tax;
the announcement of the Dissolution Proposal may cause significant turnover in our stockholder base, which may cause us to undergo an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in our equity ownership over a three-year period) and limit our ability to use our pre-change net operating loss carryforwards and other pre-change tax attributes;
the Board and our executive officers may have interests in the Plan of Dissolution that are different from, or in addition to, the interests of stockholders generally;
in the event we fail to create adequate reserves for payment of the amounts ultimately payable in respect of expenses and liabilities, creditors may seek recovery from our stockholders and our stockholders may be required to return to certain creditors some or all of the liquidating distributions;
the fact that, under the DGCL, our stockholders are not entitled to appraisal rights for their shares of common stock in connection with the Dissolution;
potential changes in applicable laws (including tax laws) and regulations;
risk of diverting management focus and resources from other strategic options and from operational matters while working to implement the Dissolution; and
if the Dissolution pursuant to the Plan of Dissolution is approved by our stockholders, holders of shares of our common stock would generally not be permitted to transfer the shares of common stock after the effective time of the Dissolution, and such lack of liquidity and the delisting of our common stock from the Nasdaq Stock Market may adversely affect the trading prices of our common stock prior to the effective time of the Dissolution.
Our Board also considered the other factors described in the section entitled “Risks Related to the Dissolution” of this Proxy Statement and under the caption “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC and other documents we file with or furnish to the SEC, in deciding to approve, and recommend that our stockholders approve, the Plan of Dissolution.
The preceding discussion is not intended to be an exhaustive description of the information and factors considered by our Board, but addresses the material information and factors considered. In view of the variety of factors considered in connection with its evaluation of the Plan of Dissolution, our Board did not find it practical and did not quantify or otherwise attempt to assign relative weight to the specific factors considered in reaching its conclusions. In addition, our Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but rather conducted an overall analysis of the factors described above. In considering the factors described above, individual members of our Board may have given different weight to different factors.
At this time, our Board has considered all of the strategic alternatives the Board has to date considered feasible and has determined that the Dissolution is advisable and in the best interests of us and our stockholders, and to return to our stockholders the company’s remaining assets and/or cash that are not necessary to provide for the Company’s liabilities. The Board, however, retains the right to consider additional alternatives that may develop and abandon or delay implementation of the Plan of Dissolution should a superior alternative arise before the filing of the Certificate of Dissolution with the Delaware Secretary of State.
Estimated Distribution to Stockholders
We estimate that we will have between approximately $350 million to $700 million of cash and other non-cash assets that we will be able to distribute to our stockholders in connection with the Dissolution, which implies a per share distribution with an aggregate value of between approximately $2.98 and $5.97 based on 117,285,043 shares outstanding as of April 24, 2020. We cannot predict with certainty the amount of cash available to distribute to our stockholders in connection with the Dissolution, nor can we predict with certainty the value of other non-cash assets, if any, that may be distributed to our stockholders in connection with the dissolution, until such time as we are able to dispose of all or substantially all of the Company’s assets, including the Material Assets, if any. Calculating such an estimate is inherently uncertain and requires that we make a number of assumptions regarding future events, many of which are unlikely to ultimately be true and are not known at this time. We used the following assumptions when calculating the range of estimated distributable value of cash and other non-cash assets: (i) the purchase price of all or substantially all of our assets, including the Material Assets, will not be adjusted for any tax contingencies, (ii) we file the Certificate of Dissolution and implement the Plan of Dissolution shortly after closing of the sale of our Material Assets, (iii) there are no currently unknown or unanticipated material liabilities, and no such liabilities arise or are identified after the filing of the Certificate of Dissolution, (iv) the estimate of the Company’s known, contingent or future liabilities, including related to the FTB audit and the IRS audit (each as defined below) is reasonable and materially accurate, (v) the accounting for our liabilities (including those that are presently unknown), which involves estimates and complex valuations, (vi) certain tax provisions of the recently enacted Coronavirus Aid, Relief, and Economic Security Act, which allow net operating losses generated in tax years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five preceding tax years for federal income tax purposes, and (vii) the number of our employees will be reduced substantially following the effective time of the Dissolution and as our various assets are disposed of in accordance with our monetization strategy.
Further, we made a number of assumptions regarding the future value of the sale of the Material Assets prior to Dissolution, including: (i) the sales of the Material Assets may be made in one or more installments, (ii) the Board’s estimate of the transaction-related costs in connection with the sale of all or substantially all of the Company’ assets, including the Material Assets, is reasonable and materially accurate, (iii) each of the Material Assets shall be disposed of in connection with a sale, (iv) the timing and value realized upon sale of any of the Company’s assets would not be subject to material delay or other limitations as a result of public health issues related to the COVID-19 pandemic, (v) the Board’s estimate as to the impact on the valuation of the Material Assets as a result of COVID-19, including any potential discount applied to the Board’s estimate of realizable proceeds or value that may be obtained upon disposition as a result thereof, is reasonable and materially accurate, (vi) the Board’s estimate of the net proceeds to be received by the Company from each of the sales of the Material Assets is reasonable and materially accurate, (vii) there are no asset-specific interdependencies, and (viii) assumptions specific to timing and value to be received upon the sale of each individual Material Asset, including, without limitation, (A) our ownership interest in Noden and the Noden Products would be acquired by either a strategic buyer with substantial revenue, cost and financial synergies, or a financial buyer with limited revenue, cost and financial synergies, (B) our ownership interest in LENSAR and the LENSAR® Laser System would be acquired by a buyer at a value that reflects the future cash flows that the buyer could realize by commercializing LENSAR’s proprietary and differentiated technologies, the amount of which we considered based on recently conducted market research and discussions with a financial advisor, or LENSAR will be spun-out as a public company and the shares distributed to our shareholders, the value of which we considered based on public company forward revenue multiples and discussions with a financial advisor, (C) our shares of Evofem will be either distributed to our stockholders or sold in a private transaction, a marketed secondary public offering at the then-current market price or on the open market at then-current market price, which we have assumed for purposes of this Proxy Statement to be a recent volume weighted average price prior to the filing of this Proxy Statement, and is subject to change based on prevailing market conditions and other factors, and (D) the sale of royalty rights and hybrid notes/royalty receivables will be subject to a competitive bidding process with robust demand among potential acquirors.
The Board also considered and relied upon, without independent verification, information provided by its financial advisors engaged to assist with the disposition of each of the Material Assets.
As discussed above, our estimate of the amounts we may distribute to our stockholders in connection with the Dissolution includes the potential distribution of certain non-cash assets. Although we currently anticipate that we will sell each of the Material Assets prior to the Dissolution, our Board is evaluating alternative transactions with respect to certain assets, including a potential taxable spin-off of LENSAR and the LENSAR® Laser System. In accordance with the Plan of Liquidation, the Company is concurrently evaluating a spin-off transaction which, if consummated, would result in our stockholders receiving equity securities in LENSAR. The value of any equity securities received if a spin-off transaction is consummated is included in our estimate of the total amounts distributable to stockholders referenced above. The spin-off transaction can be carried out independently of the divestitures of the other assets of the Company. While our preference is to distribute cash to our shareholders from a sale of LENSAR, if a sale alternative is not available at this time, possibly due to the COVID-19 pandemic or other uncertainties, or if the Board, with the advice of its financial advisors, believes that the value in a spin-off could generate greater value to its shareholders than a sale transaction, then it will undertake (or pursue) a spin-off.
In addition to the sale or disposition of the Material Assets as discussed above, we similarly anticipate selling or disposing of, or receiving proceeds from, each of our remaining assets. Such assets include:
the resulting outcome of continued litigation of claims filed by the Company against the guarantors of obligations owed to the Company by Wellstat Diagnostics, LLC (the Wellstat Diagnostics Guarantors) under a credit agreement that we entered into, as a lender, with Wellstat Diagnostics, LLC;
principal and interest payments due under a credit agreement entered into by the Company, as a lender, with CareView Communications, Inc., the recoverable amount of which is expected to be substantially less than the principal and interest payable;
amounts received in connection with our agreement with a counterparty pursuant to which we sold the remaining assets of DFM, LLC, to which we are entitled to a single-digit percentage of any net final award in connection with its monetization process using certain intangible assets included in the sale;
amounts received from a royalty based on a “know-how” license for technology provided in the design of solanezumab, an Eli Lilly-licensed humanized monoclonal antibody being tested in a study of older individuals who may be at risk of memory loss and cognitive decline due to Alzheimer’s disease. The 2% royalty on net sales is payable for 12.5 years after the product’s first commercial sale, and is currently in ongoing clinical studies with Phase 3 testing results expected in July of 2022; and
proceeds from our investment in shares of Alphaeon Corporation.
We are considering the monetization of the foregoing assets prior to the filing of the Certificate of Dissolution, but such assets may mature into more significant value for our stockholders following the Dissolution.
Our estimate of the anticipated distribution amounts are preliminary and subject to change and many of the factors that are necessary to determine how much, if any, we will be able to distribute to our stockholders in liquidation are subject to change and outside of our control. The foregoing estimates are qualified by the assumptions set forth above, are subject to numerous uncertainties, and may not reflect the total range of possible outcomes, and actual amounts may differ materially from such estimates. We have attempted to make reasonable estimates and assumptions, but if any of such estimates or assumptions are inaccurate, the actual amount we distribute to our stockholders may be lower or higher than the estimated range. It is possible that the aggregate liquidating distributions that would be paid to a stockholder under the Plan of Dissolution would not exceed the amount that the stockholder could have received upon sales of its shares of common stock in the open market. It is not possible to predict with certainty what the amount of aggregate liquidating distributions ultimately will be. While we intend to pursue matters related to our liquidation and winding up as quickly as possible after completion of the sale of our Material Assets, the timing thereof is also subject to numerous risks and uncertainties. For a discussion of risks related to the Dissolution and the estimates, assumptions and uncertainties related thereto, stockholders are urged to review the risk factors set forth in the section entitled “Risks Related to the Dissolution” of this Proxy Statement and under the caption under the caption “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC and the other documents we file with or furnish to the SEC. Further, the timing of many elements of this process after our Dissolution will not be entirely within our control and, therefore, we are unable to estimate when we would be able to begin making any post-Dissolution liquidating distributions to our stockholders. See “Risks Related to The Dissolution” beginning on page 11. The timing of any distributions to our stockholders after the filing of the Certificate of Dissolution will in large part depend on our ability to pay or make adequate provision for payment of all of our liabilities and obligations in the manner provided under the DGCL following the filing of the Certificate of Dissolution, the timing of the sale of our assets and our ability to provide for the payment of liabilities and obligations that are not identified or not fixed at the time of the filing of the Certificate of Dissolution. Under the DGCL, before a dissolved corporation may make any distributions to its stockholders, it must pay or make reasonable provision to pay all of its liabilities and obligations, including all contingent, conditional or unmatured claims known to the corporation, and claims which, based on facts known to the corporation, are likely to arise or become known to the corporation within five years (or such longer period of time as the Delaware Court of Chancery may determine, not to exceed ten years). We are unable to currently determine the amount of all liabilities and obligations that we will owe, or the amount of a contingency reserve we will be required to establish, upon the filing of the Certificate of Dissolution. As a result, we anticipate a substantial period of time may transpire between the filing of the Certificate of Dissolution and any liquidating distributions to our stockholders.
The Plan of Dissolution gives the Board of Directors, to the fullest extent permitted by law, the authority to liquidate all of our assets in the manner that is in the best interest of the Company’s stockholders after the filing of the Certificate of Dissolution. In accordance with Section 271 of the DGCL, the sale of all or substantially all of our assets will require additional approval of our stockholders. We are unable to determine at this time whether any such stockholder approval will be required in connection with the disposition of our assets prior to Dissolution.
Delaware Law Applicable to our Dissolution
We are a corporation organized under the laws of the State of Delaware and the Dissolution will be governed by the DGCL. The following is a brief summary of some of the DGCL provisions applicable to the Dissolution. The following summary is qualified in its entirely by Sections 275 through 283 of the DGCL, which are attached to this proxy statement as Annex B.
Delaware Law Generally
Authorization of Board and Stockholders. If a corporation’s board of directors deems it advisable that the corporation should dissolve, it may adopt a resolution to that effect by a majority vote of the whole board and notify the corporation’s stockholders entitled to vote on the dissolution of the adoption of the resolution and the calling of a meeting of stockholders to act on the resolution. Our Board has unanimously adopted a resolution deeming the Dissolution advisable and in the best interests of us and our stockholders. This proxy statement and its accompanying materials constitute a notice to this effect to our stockholders and a notice of the Annual Meeting at which our stockholders of record on the Record Date may vote to approve the Dissolution, among other matters. The Dissolution must be authorized and approved by the holders of a majority of our outstanding common stock on the Record Date entitled to vote on the Dissolution Proposal.
Certificate of Dissolution. If a corporation’s stockholders authorize its dissolution, to consummate the dissolution the corporation must file a certificate of dissolution with the Secretary of State of the State of Delaware. The certificate of dissolution must include the corporation’s name, the date the dissolution was authorized, a statement that the dissolution has been authorized by the corporation’s board of directors and stockholders, the names and addresses of the directors and officers of the corporation and the date that the corporation’s original certificate of incorporation was filed with the Secretary of State of the State of Delaware. If our stockholders authorize the Dissolution at the Annual Meeting, we plan to target the end of 2020 to file the Certificate of Dissolution with the Secretary of State of the State of Delaware, but recognize this may be delayed given the uncertainties related to the COVID-19 pandemic. Ultimately, the timing of such filing is subject to the discretion of the Board, and may depend on our ability to successfully execute our monetization strategy. Prior to filing the Certificate of Dissolution, we intend to continue to explore alternatives for returning capital to stockholders in a manner intended to maximize value and in accordance with our monetization strategy. Following the completion of the sale of all or substantially all of the Company’s assets, including the Material Assets, or such earlier time as the Board determines in its sole discretion that disposition of certain of the Material Assets or a sale of the Company is unlikely to maximize the value that can be returned to stockholders from our monetization strategy, we will file the Certificate of Dissolution as soon as practicable and in accordance with Delaware law. The timing and success of our monetization strategy, and therefore the targeted filing date of the Certificate of Dissolution, are subject to numerous risks and uncertainties, including, without limitation, the risk factors set forth in the section entitled “Risks Related to the Dissolution” of this Proxy Statement and under the caption “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC and other documents we file with or furnish to the SEC.
Possible Permitted Abandonment of Dissolution. The resolution authorizing a dissolution adopted by a corporation’s board of directors may provide that, notwithstanding authorization of the dissolution by the corporation’s stockholders, the board of directors may abandon the dissolution without further action by the stockholders. While we do not currently foresee any reason that our Board would abandon our proposed Dissolution once it is authorized by our stockholders, to provide our Board with the maximum flexibility to act in the best interests of our stockholders, the resolutions adopted by our Board included this kind of provision.
Time of Dissolution. When a corporation’s certificate of dissolution is filed with the Secretary of State of the State of Delaware and has become effective, along with the corporation’s tender of all taxes (including Delaware franchise taxes) and fees authorized to be collected by the Secretary of State of the State of Delaware, the corporation will be dissolved.
Continuation of the Corporation After Dissolution
A dissolved corporation continues its existence for three years after dissolution, or such longer period as the Delaware Court of Chancery may direct, for the purpose of prosecuting and defending suits and enabling the corporation to settle and close its business, to dispose of and convey its property, to discharge its liabilities and to distribute to its stockholders any remaining assets. A dissolved corporation may not, however, continue the business for which it was organized. Any action, suit or proceeding begun by or against the corporation before or during this survival period does not abate by reason of the dissolution, and for the purpose of any such action, suit or proceeding, the corporation will continue beyond the three-year period until any related judgments, orders or decrees are fully executed, without the necessity for any special direction by the Delaware Court of Chancery. The Plan of Dissolution
will govern our winding up process after dissolution, and is described in further detail under the heading “Description of our Plan of Dissolution” beginning on page 6.
Payment and Distribution to Claimants and Stockholders
A dissolved corporation must make provision for the payment (or reservation of funds as security for payment) of claims against the corporation in accordance with the applicable provisions of the DGCL and the distribution of remaining assets to the corporation’s stockholders. The dissolved corporation may do this by following one of two procedures, as described below.
Safe Harbor Procedures under DGCL Sections 280 and 281(a) (the Safe Harbor Procedures)
A dissolved corporation may elect to give notice of its dissolution to persons having a claim against the corporation (other than claims against the corporation in any pending actions, suits or proceedings to which the corporation is a party) (the Current Claimants) and to persons with contractual claims contingent on the occurrence or nonoccurrence of future events or otherwise conditional or unmatured (the Contingent Contractual Claimants), and after giving these notices, following the procedures set forth in the DGCL, as described below.
Current Claimants
Notices and Publication. The notice to Current Claimants must state (1) that all such claims must be presented to the corporation in writing and must contain sufficient information reasonably to inform the corporation of the identity of the claimant and the substance of the claim; (2) the mailing address to which the claim must be sent; (3) the date (the Claim Date) by which the claim must be received by the corporation, which must be no earlier than 60 days from the date of the corporation’s notice; (4) that the claim will be barred if not received by the Claim Date; (5) that the corporation may make distributions to other claimants and the corporation’s stockholders without further notice to the Current Claimant; and (6) the aggregate annual amount of all distributions made by the corporation to its stockholders for each of the three years before the date of dissolution. The notice must be published at least once a week for two consecutive weeks in a newspaper of general circulation in the county in which the corporation’s registered agent in Delaware is located and in the corporation’s principal place of business and, in the case of a corporation having $10,000,000 or more in total assets at the time of dissolution, at least once in all editions of a daily newspaper with a national circulation. On or before the date of the first publication of the notice, the corporation must also mail a copy of the notice by certified or registered mail, return receipt requested, to each known claimant of the corporation, including persons with claims asserted against the corporation in a pending action, suit or proceeding to which the corporation is a party.
Effect of Non-Responses to Notices. If the dissolved corporation does not receive a response to the corporation’s notice by the Claim Date from a Current Claimant who was given actual notice according to the foregoing paragraph, then the claimant’s claim will be barred.
Treatment of Responses to Notices. If the dissolved corporation receives a response to the corporation’s notice by the Claim Date, the dissolved corporation may accept or reject, in whole or in part, the claim. If the dissolved corporation rejects a claim, it must mail a notice of the rejection to the Current Claimant by certified or registered mail, return receipt requested, within 90 days after receipt of the claim (or, if earlier, at least 150 days before the expiration of the post-dissolution survival period). The notice must state that any claim so rejected will be barred if the Current Claimant does not commence an action, suit or proceeding with respect to the claim within 120 days of the date of the rejection.
Effect of Non-Responses to Rejections of Claims. If the dissolved corporation rejects a claim and the Current Claimant does not commence an action suit or proceeding with respect to the claim within the 120-day post-rejection period, then the Current Claimant’s claim will be barred.
Contingent Contractual Claimants
Notices. The notice to Contingent Contractual Claimants (persons with contractual claims contingent on the occurrence or nonoccurrence of future events or otherwise conditional or unmatured) must be in substantially the same form and sent and published in the same manner, as notices to Current Claimants and shall request that Contingent Contractual Claimants present their claims in accordance with the terms of such notice.
Responses to Contractual Claimants. If the dissolved corporation receives a response by the date specified in the notice by which the claims from Contingent Contractual Claimants must be received by the corporation, which must be no earlier than 60 days from the date of the corporation’s notice to Contingent Contractual Claimants, the dissolved corporation must offer to the Contingent Contractual Claimant such security as the dissolved corporation determines is sufficient to provide compensation to the claimant
if the claim matures. This offer must be mailed to the Contingent Contractual Claimant by certified or registered mail, return receipt requested, within 90 days of the dissolved corporation’s receipt of the claim (or, if earlier, at least 150 days before the expiration of the post-dissolution survival period). If the Contingent Contractual Claimant does not deliver to the dissolved corporation a written notice rejecting the offer within 120 days after receipt of the offer for security, the claimant is deemed to have accepted the security as the sole source from which to satisfy the claim against the dissolved corporation.
Determination by Delaware Court of Chancery
A dissolved corporation that has complied with the Safe Harbor Procedures must petition the Delaware Court of Chancery to determine the amount and form of security that will be (1) reasonably likely to be sufficient to provide compensation for any claim against the dissolved corporation that is the subject of a pending action, suit or proceeding to which the dissolved corporation is a party, other than a claim barred pursuant to the Safe Harbor Procedures, (2) sufficient to provide compensation to any Contingent Contractual Claimant who has rejected the dissolved corporation’s offer for security for such person’s claims made pursuant to the Safe Harbor Procedures, and (3) reasonably likely to be sufficient to provide compensation for claims that have not been made known to the dissolved corporation or that have not arisen but that, based on facts known to the dissolved corporation, are likely to arise or to become known to the dissolved corporation within five years after the date of dissolution or such longer period of time as the Delaware Court of Chancery may determine, not to exceed ten years after the date of dissolution.
Payments and Distribution
If a dissolved corporation has followed the Safe Harbor Procedures, then it will (1) pay the current claims made but not rejected, (2) post the security offered and not rejected for contractual claims that are contingent, conditional or unmatured, (3) post any security ordered by the Delaware Court of Chancery in response to the dissolved corporation’s petition to the court described above, and (4) pay or make provision for all other claims that are mature, known and uncontested or that have been finally determined to be owing by the dissolved corporation. If there are insufficient assets to make these payments and provisions, then they will be satisfied ratably in accordance with legal priorities, to the extent that assets are available.
All remaining assets will be distributed to the dissolved corporation’s stockholders, but not earlier than 150 days after the date of the last notice of rejection given by the dissolved corporation to a Current Claimant pursuant to the Safe Harbor Procedures.
Alternative Procedures under DGCL Section 281(b) (the Alternative Procedures)
If a dissolved corporation does not elect to follow the Safe Harbor Procedures, it must adopt a plan of distribution pursuant to which it will (1) pay or make reasonable provision to pay all claims and obligations, including all contingent, conditional or unmatured contractual claims known to the corporation, (2) make such provision as will be reasonably likely to be sufficient to provide compensation for any claim against the dissolved corporation that is the subject of a pending action, suit or proceeding to which the dissolved corporation is a party and (3) make such provision as will be reasonably likely to be sufficient to provide compensation for claims that have not been made known to the dissolved corporation or that have not arisen but that, based on facts known to the dissolved corporation, are likely to arise or to become known to the dissolved corporation within ten years after the date of dissolution. If there are insufficient assets to make these payments and provisions, then they will be satisfied ratably in accordance with legal priorities, to the extent assets are available. All remaining assets will be distributed to the dissolved corporation’s stockholders.
Liabilities of Stockholders and Directors
If a dissolved corporation follows either the Safe Harbor Procedures or the Alternative Procedures, then (1) a stockholder of the dissolved corporation will not be liable for any claim against the dissolved corporation in an amount in excess of the lesser of (a) the stockholder’s pro rata share of the claim and (b) the amount distributed to the stockholder. If a dissolved corporation follows the Safe Harbor Procedures, then a stockholder of the dissolved corporation will not be liable for any claim against the dissolved corporation on which an action, suit or proceeding is not begun before the expiration of the post-dissolution survival period. In no event will the aggregate liability of a stockholder of a dissolved corporation for claims against the dissolved corporation exceed the amount distributed to the stockholder in dissolution. If a dissolved corporation fully complies with either the Safe Harbor Procedures or the Alternative Procedures, then the dissolved corporation’s directors will not be personally liable to the dissolved corporation’s claimants.
Application of These Procedures to the Company
We currently plan to elect to follow the Safe Harbor Procedures because we believe that these procedures offer more protection to our stockholders and, generally, provide a method to fulfill our responsibilities to claimants and stockholders in the Dissolution.
However, our Plan of Dissolution specifically permits our Board to decide to abandon any plans to follow the Safe Harbor Procedures and to follow the Alternative Procedures permitted by Delaware law if our Board determines that following the Safe Harbor Procedures would be impracticable, inadvisable or otherwise not in our best interests. If we follow the Safe Harbor Procedures, then the required published notices would be published in a newspaper of general circulation in New Castle County, Delaware (the location of our registered agent), and Incline Village, Nevada (the location of our principal place of business), as well as in a daily newspaper with national circulation, since our total assets exceed $10 million. Information about our liquidation, winding up and distribution procedures is described in further detail under the heading “Description of our Plan of Dissolution” below.
Description of our Plan of Dissolution
The Dissolution will be conducted in accordance with the Plan of Dissolution, which is attached to this proxy statement as Annex A and incorporated by reference into this proxy statement. The following is a summary of our Plan of Dissolution and does not purport to be complete or contain all of the information that is important to you. To understand our Plan of Dissolution more fully, you are urged to read this proxy statement as well as the Plan of Dissolution. Our Plan of Dissolution may be modified, clarified or amended by action by our Board at any time and from time to time, as further described below.
Authorization and Effectiveness
Our Plan of Dissolution may become effective after the holders of a majority of the outstanding common stock entitled to vote on the Dissolution Proposal have authorized the Dissolution and will constitute our authorized plan and will evidence our authority to take all actions described in the Plan of Dissolution. If the Dissolution is approved by our stockholders, the timing of the filing of a Certificate of Dissolution will be subject to the discretion of the Board. Prior to filing the Certificate of Dissolution, we intend to continue to explore alternatives for returning capital to stockholders in a manner intended to maximize value and in accordance with our monetization strategy. In support of our monetization strategy, our Board approved the Plan of Liquidation. Under such Plan of Liquidation, we are targeting the end of 2020 for the monetization of our Material Assets, but recognize this may be delayed given the uncertainties related to the COVID-19 pandemic. The timing and success of our monetization strategy is subject to numerous risks and uncertainties, including, without limitation, the risk factors set forth in the section entitled “Risks Related to the Dissolution” of this Proxy Statement and under the caption “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC and other documents we file with or furnish to the SEC. Following the completion of the sale of all or substantially all of the Company’s assets, including the Material Assets, or such earlier time as the Board determines in its sole discretion that disposition of certain of the Material Assets or a sale of the Company is unlikely to maximize the value that can be returned to stockholders from our monetization strategy, we will file the Certificate of Dissolution with the Secretary of State of the State of Delaware and ensure that all relevant taxes (including Delaware franchise taxes) and fees are paid. The effective time of the Dissolution will be when the Certificate of Dissolution is filed with the office of the Secretary of State of the State of Delaware or such later date and time that is stated in the Certificate of Dissolution.
Survival Period
For three years after the effective time of the Dissolution (or such longer period as the Delaware Court of Chancery may direct) (the Survival Period), we will continue as a body corporate for the purpose of prosecuting and defending lawsuits (civil, criminal or administrative) by or against us; settling and closing our business; disposing of and conveying our property; discharging our liabilities in accordance with the DGCL; and distributing our remaining assets to our stockholders. We will no longer engage in our existing business operations, except to the extent necessary to preserve the value of our assets and wind up our business affairs in accordance with our Plan of Dissolution. We anticipate that all distributions to our stockholders will be made in cash, and may be made at any time, from time to time, in accordance with the DGCL.
General Liquidation, Winding Up and Distribution Process
We intend to elect to follow the Safe Harbor Procedures described in further detail under the heading “Delaware Law Applicable to Our Dissolution” beginning on page 35. If for any reason our Board deems it inadvisable or impracticable to comply, or to continue to comply, with the Safe Harbor Procedures, then we will comply with the Alternative Procedures. If we use the Alternative Procedures, our Board will also adopt a separate plan of distribution in accordance with the Alternative Procedures.
Continuing Employees and Consultants
During the Survival Period, we may select, retain, hire, employ or contract with employees, consultants, agents, trustees, independent professional advisors (including legal counsel, accountants and financial advisors) and others, as the Board may determine, from time to time, to be necessary or advisable to effect the Dissolution as described in our Plan of Dissolution. The Board expects that during the Dissolution, the number of employees of the Company will be reduced substantially following the
effective time of the Dissolution and as our various assets are disposed of in accordance with our monetization strategy. The Board also expects that outside legal and financial advisors will be retained to assist with the Dissolution.
After filing the Certificate of Dissolution, the Board expects it will reduce the size of the Board to three Board seats to save costs.
We may, in the absolute discretion of the Board, pay the Company’s officers, directors, employees, consultants, agents and other representatives, compensation or additional compensation above their regular compensation, including pursuant to severance and retention agreements, in money or other property, in recognition of the extraordinary efforts they will be required to undertake in connection with the implementation of the Plan of Dissolution.
Costs and Expenses
We will pay all costs and expenses that the Board may determine from time to time to be necessary or advisable to effect the Dissolution in accordance with the Plan of Dissolution and as may be necessary or advisable to continue our existence and operations. These costs and expenses may include, without limitation, brokerage, agency, professional, consulting and other fees and expenses of persons rendering services to the Company in connection with the matters described in the Plan of Dissolution and costs incurred to comply with contracts to which the Company is a party.
Indemnification
We will continue to indemnify our officers, directors, employees and agents in accordance with, and to the extent required or permitted by, the DGCL, our certificate of incorporation, our bylaws and any contractual arrangements, whether these arrangements existed before the Dissolution or were entered into after the Dissolution. During the Survival Period, acts and omissions of any indemnified or insured person in connection with the implementation of the Plan of Dissolution will be covered to the same extent that they were covered before the effective time of the Dissolution. The Board is authorized to obtain and maintain insurance as may be necessary to cover the Company’s indemnification obligations.
Stockholder Consent
Authorization of the Dissolution by the holders of a majority of the outstanding stock of the Company entitled to vote thereon shall constitute approval of all matters described in this proxy statement relating to the Dissolution, including our Plan of Dissolution. Authorization of the Dissolution by the holders of a majority of the outstanding stock of the Company shall constitute the authorization of the sale, exchange or other disposition in liquidation of all of the remaining property and assets of the Company after the effective time of the Dissolution, whether the sale, exchange or other disposition occurs in one transaction or a series of transactions, and shall constitute ratification of any and all contracts for sale, exchange or other disposition that are conditioned on stockholder approval.
Subsidiaries
As part of the Dissolution, we may take actions with respect to each of our direct and indirect subsidiaries, based on the advice and counsel of our legal and other advisors and in accordance with the requirements of the laws and charter documents governing each subsidiary, to liquidate, dissolve or otherwise wind up each such subsidiary.
Known Liabilities
Among other liabilities, the Company’s major known, contingent and future liabilities include (i) an audit by the California Franchise Tax Board (the FTB) and (ii) an audit by the United States Internal Revenue Service (the IRS). The timing of the resolution of the FTB audit and the IRS audit, and the amounts to be ultimately paid by the Company, if any, is uncertain. The outcome of these audits could result in the payment of tax amounts that differ from the amounts the Company has reserved for uncertain tax positions for the periods under audit resulting in incremental expense or a reversal of the Company’s reserves in a future period. At this time, the Company does not anticipate a material change in the unrecognized tax benefits related to the FTB audit or the IRS audit that would affect the effective tax rate, deferred tax assets or valuation allowances over the next 12 months.
Legal Claims
We will defend any claims against us, our officers or directors or our subsidiaries, whether a claim exists before the effective time of the Dissolution or is brought during the Survival Period, based on advice and counsel of our legal and other advisors and in such manner, at such time and with such costs and expenses as our Board may approve from time to time. During the Survival Period, we may continue to prosecute any claims that we had against others before the effective time of the Dissolution and may
institute any new claims against any person as the Board may determine necessary or advisable to protect the Company and its assets and rights or to implement the Plan of Dissolution. At the Board’s discretion, we may defend, prosecute or settle any lawsuits, as applicable.
From time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. We are currently involved in certain legal proceedings described in more detail in Note 25, Legal Proceedings, to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC. In the event of a determination adverse to us, our subsidiaries, directors or officers in any these matters, we may incur substantial monetary liability and be required to change our business practices. We may also incur substantial legal fees in defending against these claims.
Stock of the Company
From and after the effective time of the Dissolution as set forth in the Certificate of Dissolution, and subject to applicable law, each holder of shares of our common stock shall cease to have any rights in respect of that stock, except the right to receive distributions, if any, pursuant to and in accordance with the Plan of Dissolution and the DGCL. After the effective time of the Dissolution, our stock transfer records shall be closed, and we will not record or recognize any transfer of our common stock occurring after the effective time of the Dissolution as set forth in the Certificate of Dissolution, except, in our sole discretion, such transfers occurring by will, intestate succession or operation of law as to which we have received adequate written notice. Pursuant to the Plan of Dissolution, after the Dissolution is approved by our stockholders, our Board will have discretion over the timing of the filing of the Certificate of Dissolution. We are currently targeting the end of 2020 as the effective time of the Dissolution, but recognize this may be delayed given the uncertainties related to the COVID-19 pandemic. We intend to provide advance notice to our stockholders prior to closing our stock transfer records. No stockholder shall have any appraisal rights in connection with our liquidation, dissolution and winding up.
Unclaimed Distributions
If any distribution to a stockholder cannot be made, whether because the stockholder cannot be located, has not surrendered a certificate evidencing ownership of the Company’s common stock or provided other evidence of ownership as required in the Plan of Dissolution or by the Board or for any other reason, the distribution to which the stockholder is otherwise entitled will be transferred, at such time as the final liquidating distribution is made by us, or as soon as practicable after that distribution, to the official of such state or other jurisdiction authorized by applicable law to receive the proceeds of the distribution. The proceeds of such distribution will thereafter be held solely for the benefit of and for ultimate distribution to the stockholder as the sole equitable owner of the distribution and will be treated as abandoned property and escheat to the applicable state or other jurisdiction in accordance with applicable law. The proceeds of any such distribution will not revert to or become the property of us or any other stockholder.
Liquidating Trust
While we do not currently propose transferring our assets to a liquidating trust, we may do so if deemed appropriate by our Board, based on advice of our legal, tax and accounting advisors. We may, for example, transfer assets to a liquidating trust if we are unable to complete the Dissolution within the initial three-years of the Survival Period.
Abandonment, Exceptions, Modifications, Clarifications and Amendments
Notwithstanding the authorization of the Dissolution by our stockholders as described in this proxy statement, our Board will have the right, as permitted by the DGCL, to abandon the Dissolution at any time before it becomes effective and terminate our Plan of Dissolution, without any action by our stockholders, if our Board determines that to do so is in the best interest of us and our stockholders. Without further action by our stockholders, our Board may, to the extent permitted by Delaware law, waive, modify or amend any part of our Plan of Dissolution, and may provide for exceptions to or clarifications of the terms of our Plan of Dissolution. After the Certificate of Dissolution has been filed, revocation of the Dissolution would require stockholder approval under Delaware law.
Our Certificate of Incorporation and Bylaws and the DGCL
During the Survival Period, we will continue to be governed by our certificate of incorporation and bylaws, insofar as their terms apply and insofar as necessary or appropriate to implement our Plan of Dissolution. Our Board will continue to have the authority
to amend our bylaws as it may deem necessary or advisable. To any extent that the provisions of our Plan of Dissolution conflict with any provision of the DGCL, the provisions of the DGCL shall prevail.
Authority of the Board
Our Board, without further action by our stockholders, is authorized to take all actions as they deem necessary or advisable to implement our Plan of Dissolution. All determinations and decisions to be made by our Board will be at the absolute and sole discretion of our Board.
Material U.S. Federal Income Tax Consequences of the Proposed Dissolution
The following discussion is a summary of the material U.S. federal income tax consequences of the Dissolution to U.S. Holders and Non-U.S. Holders (each as defined below), but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), U.S. Treasury regulations promulgated thereunder (the Treasury Regulations), judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the IRS), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a U.S. Holder or Non-U.S. Holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below.
This discussion is limited to U.S. Holders and Non-U.S. Holders that hold our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income or the alternative minimum tax. In addition, it does not address consequences relevant to holders subject to special rules, including, without limitation:
U.S. expatriates and former citizens or long-term residents of the United States;
U.S. Holders whose functional currency is not the U.S. dollar;
persons who hold our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
banks, insurance companies, and other financial institutions;
real estate investment trusts or regulated investment companies;
brokers, dealers or traders in securities;
“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
tax-exempt organizations or governmental organizations;
persons deemed to sell our common stock under the constructive sale provisions of the Code;
persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
tax-qualified retirement plans;
“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds; and
persons subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into account in an applicable financial statement.
If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS
TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE DISSOLUTION ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definitions of U.S. Holder and Non-U.S. Holder
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common stock that, for U.S. federal income tax purposes, is or is treated as:
an individual who is a citizen or resident of the United States;
a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of our common stock that is neither a U.S. Holder nor an entity treated as a partnership for U.S. federal income tax purposes.
U.S. Federal Income Tax Treatment of the Dissolution
We intend for distributions made pursuant to the Plan of Dissolution to be treated as a series of distributions in complete liquidation of the Company, and this discussion assumes this treatment will be respected. In accordance with such treatment, each of our stockholders will be treated as receiving its portion of such distributions in exchange for its shares of our common stock. If a stockholder holds different blocks of shares of our common stock (generally, shares of our common stock purchased or acquired on different dates or at different prices), the holder’s portion of such distributions must be allocated among the several blocks of shares in the proportion that the number of shares in a particular block bears to the total number of shares owned by the holder.
If we distribute any asset other than cash pursuant to the Plan of Dissolution, or if a stockholder assumes a liability in connection with the Dissolution, the treatment of such asset or liability may vary depending on the circumstances of the stockholder and the nature of the asset or liability. Please consult your tax advisor with respect to the tax consequences to you of the receipt of any such asset or assumption of any such liability.
Until all of our remaining assets have been distributed to our stockholders or a liquidating trust and the liquidation is complete, we will continue to be subject to U.S. federal income tax on our income, if any, such as interest income. We will also generally recognize gain or loss, if any, upon the sale of any assets held by us in connection with the Dissolution based on the difference between the fair market value of the consideration received for such assets sold and our tax basis in such assets. In addition, if we distribute any assets, other than cash, to our stockholders or to a liquidating trust in connection with the Dissolution, we will generally recognize gain or loss, if any, based on the difference between the fair market value of such assets and our tax basis in such assets. Any tax liability resulting from the Dissolution will reduce the cash available for distribution to our stockholders.
Notwithstanding our position that the distributions made pursuant to the Plan of Dissolution will be treated as a series of distributions in complete liquidation of the Company, it is possible that the IRS or a court could determine that any of these distributions is a current distribution. In addition, if the Dissolution is abandoned or revoked, these distributions would be treated as current distributions. A current distribution would be treated as a dividend for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits. Under this treatment, amounts not treated as dividends for U.S. federal income tax purposes would constitute a return of capital and first be applied against and reduce a holder’s adjusted tax basis in its shares of our common stock, but not below zero. Any excess would be treated as capital gain. Please consult your tax advisor with respect to the proper characterization of any distributions made pursuant to the Plan of Dissolution.
U.S. Federal Income Tax Consequences of Distributions Made Pursuant to the Plan of Dissolution to U.S. Holders
Distributions made pursuant to the Plan of Dissolution to a U.S. Holder will be treated as received by the U.S. Holder in exchange for the U.S. Holder’s shares of our common stock. The amount of any such distribution allocable to a block of shares of our common stock owned by the U.S. Holder will reduce the U.S. Holder’s tax basis in such shares, but not below zero. Any excess amount allocable to such shares will be taxable as capital gain. Such gain generally will be taxable as long-term capital gain if the shares have been held for more than one year. Any tax basis remaining in a share of our common stock following the final liquidating distribution by the Company will be treated as a capital loss. The deductibility of capital losses is subject to limitations.
U.S. Federal Income Tax Consequences of Distributions Made Pursuant to the Plan of Dissolution to Non-U.S. Holders
Distributions made pursuant to the Plan of Dissolution to a Non-U.S. Holder will be treated as received by the Non-U.S. Holder in exchange for the Non-U.S. Holder’s shares of our common stock. The amount of any such distribution allocable to a block of shares of our common stock owned by the Non-U.S. Holder will reduce the Non-U.S. Holder’s tax basis in such shares, but not below zero. Any excess amount allocable to such shares will be treated as capital gain. A Non-U.S. Holder will not be subject to U.S. federal income tax on any such gain unless:
the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable);
the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
our common stock constitutes a U.S. real property interest (USRPI) by reason of our status as a U.S. real property holding corporation (USRPHC) for U.S. federal income tax purposes.
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we are not currently, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the distribution will not be subject to U.S. federal income tax if one or more exceptions from these rules under the Code apply.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
U.S. Holders
A U.S. Holder may be subject to information reporting and backup withholding when such holder receives a distribution made pursuant to the Plan of Dissolution. Certain U.S. Holders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A U.S. Holder will be subject to backup withholding if such holder is not otherwise exempt and:
the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social security number;
the holder furnishes an incorrect taxpayer identification number;
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends; or
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Non-U.S. Holders
A distribution made pursuant to the Plan of Dissolution and received within the United States or through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status,
such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. Proceeds from a distribution made pursuant to the Plan of Dissolution and received through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
U.S. Federal Income Tax Consequences of a Liquidating Trust
We may transfer our remaining assets and obligations to a liquidating trust if our Board determines that such a transfer is advisable. Under applicable Treasury Regulations, a trust will be treated as a liquidating trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to and consistent with the accomplishment of that purpose. However, if the liquidation is unreasonably prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of the liquidation can be said to be lost or abandoned, the trust will no longer be considered a liquidating trust. Although neither the Code nor the Treasury Regulations thereunder provide any specific guidance as to the length of time a liquidating trust may last, the IRS’s guidelines for issuing rulings with respect to liquidating trust status call for a term not to exceed three years, which period may be extended to cover the collection of installment obligations.
If we transfer assets to a liquidating trust and distribute interests in the liquidating trust to our stockholders, we intend that such transfer and distribution would be treated for U.S. federal income tax purposes as if we distributed an interest in each of the assets so transferred directly to our stockholders. Each holder would be treated as receiving a liquidating distribution from us, which would be treated generally as described above.
Assuming that the liquidating trust is treated as a “liquidating trust” for U.S. federal income tax purposes, we intend that the liquidating trust would be treated as a “grantor trust” for U.S. federal income tax purposes. In that case, each unit or interest in the liquidating trust would represent ownership of an undivided proportionate interest in all of the assets and liabilities of the liquidating trust and a holder would be treated for U.S. federal income tax purposes as receiving or paying directly a pro rata portion of all income, gain, loss, deduction and credit of the liquidating trust. A holder would be taxed each year on its share of revenues from the liquidating trust, net of such holder’s share of expenses of the liquidating trust (including interest and depreciation) whether or not the holder receives a distribution of cash from the liquidating trust that year. When the liquidating trust makes distributions to holders, the holders would recognize no additional gain or loss.
Assuming the liquidating trust is treated as a grantor trust for U.S. federal income tax purposes, a holder’s tax basis in a unit of the liquidating trust (and indirectly in the pro rata portion of the net assets in the liquidating trust that are attributable to that unit) would be equal to the fair market value of a unit (and those net assets) on the date that it is distributed to the holder, which value would be determined by us and reported to the holders. The long-term or short-term character of any capital gain or loss recognized in connection with the sale of the liquidating trust’s assets would be determined based upon a holding period commencing at the time of the acquisition by a holder of such holder’s beneficial interest in the liquidating trust.
The trustee or trustees of the liquidating trust would provide to each holder of units in the liquidating trust after each year end a detailed itemized statement that reports on a per unit basis the holder’s allocable share of all the various categories of revenue and expense of the liquidating trust for the year. Each holder must report such items on its U.S. federal income tax return regardless of whether the liquidating trust makes current cash distributions.
If the liquidating trust fails to qualify as a liquidating trust that is a grantor trust for U.S. federal income tax purposes, the consequences to holders would depend on the reason for the failure to qualify, and, under certain circumstances, the liquidating trust could be treated as an association taxable as a corporation for U.S. federal income tax purposes. If the liquidating trust is taxable as a corporation, the trust itself would be subject to U.S. federal income tax at the applicable corporate income tax rate, which is currently 21%. In that case, distributions made by the liquidating trust would be reduced by any such additional taxes imposed on the trust, and a holder would be subject to tax upon the receipt of distributions that constitute dividends from the trust rather than taking into account its share of the trust’s taxable items on an annual basis.
Holders should consult their tax advisors regarding the tax consequences that would apply to them if we were to transfer assets to a liquidating trust.
Vote Required
The affirmative vote of the holders of a majority of the shares of our common stock outstanding on the Record Date and entitled to vote on the Dissolution Proposal is required to approve the Dissolution Proposal. Abstentions and broker non-votes will be counted towards the tabulation of votes cast on the Dissolution Proposal and will have the same effect as a vote against the Dissolution Proposal.
THE Board recommends A vote “FOR” the Dissolution Proposal to approve the Dissolution in accordance with the terms and conditions of the Plan of DISSOLUTION.
PROPOSAL NO. 4:
Approval of Amendment to the Restated Certificate of Incorporation to Declassify Our Board of Directors
Under our Restated Certificate of Incorporation, as amended (the Restated Certificate of Incorporation), our Board of Directors is divided into three classes of directors, with each class holding office for staggered three-year terms. The Board has approved and declared advisable an amendment to our Restated Certificate of Incorporation to increasephase-in the total number of authorized shares of common stock from 250,000,000 to 350,000,000 shares (the common stock amendment). As of March 28, 2013, the record date, there were 139,982,757 sharesdeclassification of our common stock outstanding. In addition, asBoard and provide for the annual election of all directors by the 2023 annual meeting of stockholders.
On February 27, 2020, we entered into a cooperation and support agreement (the Cooperation Agreement) with Engine Capital, L.P. and certain of its affiliates. Pursuant to the Cooperation Agreement, the Board agreed, among other things, to submit for approval and adoption by our stockholders at this Annual Meeting, an amendment to the Restated Certificate of Incorporation to authorize the declassification of the same date, shares of common stock are reserved for issuance upon: (i) the conversionBoard. In light of the Company’s outstanding convertible debt, (ii)Cooperation Agreement, as well as the exercisebenefits of options andannual election of directors, such as enabling stockholders to express a view on the award of shares under our equity compensation plans and (iii) the exercise of currently outstanding warrants related to the hedgecollective performance of our May 2015 Convertible Notes. These reserved shares total 84,684,270 shares. Accordingly,Board as well as each director’s performance by means of an annual vote, the Board has determined that it is advisable and in the best interests of the record date, only 25,332,973 sharesCompany and its stockholders to amend the Restated Certificate of common stock remained availableIncorporation to provide for future issuance.the declassification of the Board.
At a meeting held on January 23, 2013, our Board unanimously adopted the proposed common stock amendment. At that time, our Board directed that the proposed common stock amendment be submitted for approval by the stockholders at the 2013 Annual Meeting. The proposed amendment to the Restated Certificate of Incorporation is attached hereto as Appendixwould provide for each of the directors who terms expire to be elected to a one-year term, beginning at the 2021 annual meeting of stockholders. The proposed amendment to our Restated Certificate of Incorporation would not change the unexpired three-year terms of directors elected prior to the effectiveness of the amendment, including directors elected at this annual meeting. Accordingly:
the three-year term for the two Class I directors elected at the Annual Meeting will expire at the 2023 annual meeting of stockholders;
the current three-year terms for the Class II directors, John P. McLaughlin and Dominique Monnet, will expire at the 2021 annual meeting of stockholders, and
the current three-year terms for the Class III directors, Alan Bazaar and Natasha A. Hernday will expire at the 2022 annual meeting of stockholders.
Director nominees standing for election at the 2021 annual meeting and each annual meeting thereafter would be elected to serve a one-year term. Beginning with the 2023 annual meeting, all directors would stand for annual elections.
The proposed common stock amendment would increase the number of shares of common stock the Company is authorized to issue by 100,000,000 shares of common stock. Thus, if Proposal 3 is approved, the total authorized common capital stocktext of the Companyproposed amendment to the Restated Certificate of Incorporation may be found in Annex C to this proxy statement. If our stockholders approve and adopt the proposed amendment to the Restated Certificate of Incorporation, it would increase from 250,000,000 shares to 350,000,000 shares.
The additional common stock proposed to be authorized under the common stock amendment would have rights identical to our currently outstanding common stock. If the common stock amendment is approved, it will become effective upon the acceptance for filing of a certificate of amendment of ourto the Restated Certificate of Incorporation bysetting forth the proposed amendment with the Secretary of State of the State of Delaware.Delaware, which we would intend to file promptly following the Annual Meeting. Additionally, if our stockholders approve and adopt the proposed amendment to the Restated Certificate of Incorporation, the Board intends to adopt changes to our Third Amended and Restated Bylaws to make conforming changes related to the declassification the Board. If our stockholders do not approve and adopt the proposed amendment, our Board will remain classified.
Reasons for IncreasingIn addition, Delaware law provides that a director who serves on a classified Board of directors may only be removed by stockholders “for cause.” If the Numberproposed amendment to the Restated Certificate of Authorized Shares
OurIncorporation is approved and adopted by our stockholders and implemented, any director or the whole Board has determined thatmay be removed from office with the proposal to increaseaffirmative vote of the numberholders of a majority of the voting power of the outstanding shares of authorizedcommon stock is desirable(i) but, until the 2023 annual meeting of stockholders, only for cause, and in(ii) beginning at the stockholders’ best interest because it would provide the Company2023 annual meeting of stockholders, with the ability to support its present capital needs and future anticipated growth and would provide the Company with the flexibility to consider and respond to future business opportunities and needs as they arise, including equity offerings, convertible debt offerings, acquisitions, issuances under stock incentive plans and other corporate purposes. or without cause.
Vote Required
The availability of additional shares of stock would permit the Company to undertake certainaffirmative vote of the foregoing actions withoutholders of a majority of the delay and expense associated with holding a special meeting of shareholders to obtain shareholder approval each time such an opportunity arises that would require the issuance of shares of our common stock. We have no current agreements forstock is required to approve the foregoing.
Notwithstanding the foregoing, authorized but unissued shares of common stock may also enable the Company’s Board to render more difficult or to discourage an attempt to obtain control of the Company and thereby protect the continuity of or entrench its management, which may adversely affect the market price of the Company’s common stock. If, in the due exercise of its fiduciary obligations, for example, the Company’s Board were to determine that a takeover proposal were not in the best interests of the Company, such shares could be issued by the board of directors without stockholder approval in one or more private placements or other transactions that might prevent or render more difficult or make more costly the completion of any attempted takeover transaction by diluting voting or other rights of the proposed acquirer or insurgent stockholder group, by creating a substantial voting block in institutional or other hands that might support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise. We have no current intention to issue shares for anti-takeover purposes.
Vote Required
The amendment to the Restated Certificate of Incorporation of the Company to increase the authorized common share capitaldeclassify our Board of the Company from 250,000,000 to 350,000,000 shares will be approved if a majority of the shares entitled to vote and present at the Annual Meeting in person or by proxy vote “FOR” approval.Directors. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.the same effect as an “Against” vote.
THE BOARD RECOMMENDS THAT YOUA VOTE “FOR” PROPOSAL 3.NO. 4.
PROPOSAL 4:NO. 5:
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or the(the Dodd-Frank Act,Act) and Section 14A of the Securities Exchange Act of 1934, as amended, or the Exchange Act, our stockholders are now entitled to vote to approve, on an advisory (nonbinding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules.statement.
As described in detail later in this proxy statement under the heading “Compensation Discussion &and Analysis,” our executive compensation programs are designed to retain and incentivize the high quality executives whose efforts are key to our long-term success. Under these programs, our named executive officers are rewarded on the basis of individual and corporate performance measured against established corporate and strategic goals. Please read the section of this proxy statement under the heading “Compensation Discussion &and Analysis” for additional details about our executive compensation programs, including information about the fiscal year 20122019 compensation of our named executive officers.
The Compensation Committee of our Board continually reviews the compensation programs for our named executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our stockholders’ interests and current market practices.
We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. Accordingly, we are asking our stockholders to cast a non-binding advisory vote “FOR” the following resolution at the Annual Meeting:
RESOLVED, that the stockholders of the Company APPROVE, on an advisory (nonbinding) basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 20132020 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion &and Analysis, compensation tables and narrative disclosure is hereby APPROVED.disclosure.
The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or ourthe Board. Nevertheless, ourthe Board and ourthe Compensation Committee value the opinions of our stockholders, whether expressed through this vote or otherwise, and, accordingly, the Board and Compensation Committee intend to consider the results of this vote in making determinations in the future regarding executive compensation arrangements.
After consideration of the vote of stockholders at our 2011 annual meeting and other factors, the Board has decided to hold We currently seek advisory votes on the approval of the compensation of our named executive compensation annually until the next advisory voteofficers on frequency occurs. Accordingly, unless the Board modifies its policy on the frequency of future votes, the next advisory vote to approve executive compensation will be held at the 2014an annual meeting of stockholders.basis.
Stockholder approval of this Proposal 4No. 5 will require the affirmative vote of a majority of the votes cast in person or represented by proxy at the Annual Meeting.
THE BOARD RECOMMENDS A VOTE “FOR” PROPOSAL 4.NO. 5.
COMPENSATIONSTOCKHOLDER PROPOSAL TO DECLASSIFY THE BOARD OF OUR DIRECTORS
In January 2012, in consultation withThe following stockholder proposal will be voted on at the Compensation Committee’s compensation consultant, our Board established its compensation policy for outside directors. The cash and equity compensation payable to our outside directors in 2012 is described in this section. Members of our Board who are also employeesAnnual Meeting if properly presented by or on behalf of the stockholder proponent.
Proposal 6 – Elect Each Director Annually
RESOLVED, shareholders ask that our Company are not entitledtake all the steps necessary to any compensationreorganize the Board of Directors into one class with respecteach director subject to their service as Board members.
Cash Compensation
In 2012,election each outside director received a retainer of $100,000 per year, except for our Lead Director who received a retainer of $115,000 per year for his or her service ona one‑year term.
Although our Board. Each outside director also received annual cash retainers for service on Board committees, as follows:company can adopt this proposal topic in one‑year and the proponent is in favor of a one‑year implementation, this proposal allows the option to phase it in over 3‑years.
Each memberClassified boards like the PDL BioPharma have been found to be one of 6 entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Audit Committee receivedHarvard Law School. Thus transitioning away from a retainerclassified board is particularly important since our stock was at $22 five‑years ago.
Arthur Levitt, former Chairman of $15,000 per year, exceptthe Securities and Exchange Commission said, “In my view it’s best for the Chairpersoninvestor if the entire board is elected once a year. Without annual election of the Audit Committeeeach director shareholders have far less control over who received a retainerrepresents them.”
A total of $30,000 per year, for his or her service on the Audit Committee.
Each member of the Compensation Committee received a retainer of $5,000 per year, except for the Chairperson of the Compensation Committee who received a retainer of $10,000 per year, for his or her service on the Compensation Committee.
Each member of the Litigation Committee received a retainer of $10,000 per year, except for the Chairperson of the Litigation Committee who received a retainer of $20,000 per year, for his or her service on the Litigation Committee.
Each member of the Nominating79 S&P 500 and Governance Committee received a retainer of $2,500 per year, except for the Chairperson of the Nominating and Governance Committee who received a retainer of $5,000 per year, for his or her service on the Nominating and Governance Committee.
In December 2012, in consultation with the Compensation Committee’s compensation consultant, our Board increased the annual cash retainer for members of the Audit Committee and Compensation Committee effective immediately, as follows:
Each member of the Audit Committee will receive a retainer of $17,500 per year, except for the Chairperson of the Audit Committee who will continue to receive a retainer of $30,000 per year, for his or her service on the Audit Committee.
Each member of the Compensation Committee will receive a retainer of $15,000 per year, except for the Chairperson of the Compensation Committee who will receive a retainer of $22,500 per year, for his or her service on the Compensation Committee.
All cash compensation paid to outside directors for their service on our Board and its committees is paid on a quarterly basis in arrears.
WeFortune 500 companies, worth more than $1 trillion, also reimburse our directors for their reasonable travel expenses for Board and committee meetings. Our Board annually sponsors a multi-day off-site meeting to which our Board members may bring their spouses. When we hold such a meeting, we reimburse our Board members for their spouses’ reasonable travel expenses for such off-site meeting.
Equity Compensation
We provide our outside directors with grants of restricted stockadopted this important proposal topic since 2012. Annual elections are widely viewed as a portioncorporate governance best practice. Annual election of their total compensationeach director could make directors more accountable, and thereby contribute to ensureimproved performance and increased company value. Thus it was not a surprise that this proposal topic won 96%‑support at United Therapeutics Corporation in 2019.
Annual election of each director can be a first step to make the corporate governance of PDL BioPharma more competitive. It is especially important to have competitive corporate governance after our outside directors own common stock in the Company and their interests are aligned with our stockholders. As approved by our stockholders at the Company’s 2009 Annual Meeting, each of our outside directors receives an annual grant of restricted stock under our 2005 Equity Incentive Plan withhas sunk 90% since 2006. Another step would be to give shareholders a grant date value equalright to $50,000, based on the closing price of our common stock on the date of grant. Such grants are made to each current outside director annually at the date of our annual general meeting of stockholders and to each new outside director upon his or her initial election to the Board. Each grant of restricted stock vests on the first anniversary of the grant date so long as the director continues to serve on our Board during the vesting period. During the vesting period, our outside directorscall a special meeting. At least shareholders now have the right to vote their restricted stock andact by written consent to receive any dividends or distributions paid on their restricted stock, except that dividends or distributions are accumulated and paid onelect a new director to help address the earlierabysmal performance of PDLI.
In December 2015, the Delaware Court of Chancery issued a decision, In Re VAALCO Energy, Inc., in which the Court interpreted Section 141(k) of General Corporation Law of the vestingState of Delaware and held that many companies may improperly state in their certificate of incorporation or bylaws that directors may be removed only for cause. The governing documents of PDL BioPharma may need to be updated to allow directors to be removed without cause.
Please vote yes:
Elect Each Director Annually – Proposal 6
Opposition Statement to Stockholder Declassification Proposal
As set forth above, the Company received a proposal from John Chevedden, a stockholder of the underlying stockCompany, to declassify the Company’s Board. However, the Company is already presenting its own proposal to declassify the Board at this Annual Meeting. Because of this, on several occasions the Company has requested that Mr. Chevedden withdraw his proposal, but he has failed to do so. Accordingly, Mr. Chevedden’s precatory Board declassification proposal appears in accordance withthis proxy statement, however, if the vesting conditions ofstockholders approve the original award or March 15th of the year following the payment of such dividend or distribution to all stockholders.
2012 Compensation of Directors
In 2012, our outside directors who served during 2012 on our Board earned the compensation set forthBoard’s declassification proposal (described in the table below:
| Director | | Fees Earned | | | Stock Awards(1) | | | All Other Compensation(2) | | | Total | |
Frederick Frank(3) | | $ | 117,056 | | | $ | 50,000 | | | $ | 15,095 | | | $ | 182,151 | |
Jody S. Lindell | | $ | 135,873 | | | $ | 50,000 | | | $ | 5,095 | | | $ | 190,968 | |
Paul W. Sandman | | $ | 138,724 | | | $ | 50,000 | | | $ | 5,095 | | | $ | 193,819 | |
Harold E. Selick, Ph.D. | | $ | 125,951 | | | $ | 50,000 | | | $ | 5,095 | | | $ | 181,046 | |
(1) | Amounts in this column represent the grant date fair value of the restricted stock granted to our outside directors, as determined in accordance with FASB ASC Topic 718. As of December 31, 2012, each of our outside directors had 7,924 unvested restricted stock awards. |
(2) | Amounts in this column represent the dollar value of dividends and interest accrued on those dividends paid to the director on the restricted stock award that vested in June. |
(3) | Mr. Frank resigned from the Board in November 2012. After resigning from the Board, Mr. Frank was hired as a consultant and paid a retainer of $10,000. This amount is reflected in the All Other Compensation column. |
Shares subject to options heldProposal 4 above), this proposal (even if also approved by our outside directors asstockholders) will be moot. If stockholders approve Mr. Chevedden’s stockholder proposal to declassify the Board but do not approve the Company’s proposal to amend the Company’s Restated Certificate of December 31, 2012, are set forthIncorporation to declassify the Board, the Company would not have the requisite authority to amend its Restated Certificate of Incorporation to declassify the Board; the Company would have to hold another stockholder vote in order to declassify the table below:
| | | Shares Subject to Options Held as of December 31, 2011 | |
| Director | | Vested | | | Unvested | | | Total | |
Paul W. Sandman | | | 42,500 | | | | — | | | | 42,500 | |
Stock Ownership Guidelines
Our Board has determined that ownership of our common stock by our officers and directors promotes a focus on long-term growth and aligns the interests of our officers and directors with those of our stockholders.Board. As a result, ourthe Board adopted stock ownership guidelines statingunanimously recommends that our outside directors, our chief executive officeryou vote “AGAINST” Mr. Chevedden’s Board declassification proposal and our other five most-highly-compensated officers (based on annual base salary), should maintain certain minimum ownership levels of our common stock.
Our stock ownership guidelines encourage that each outside director should own shares of common stock with a value of at least one timevote “FOR” the annual cash retainer we payCompany’s proposed amendment to the outside director not later than seven years afterCompany’s Restated Certificate of Incorporation to declassify the date the person initially becomes an outside director. We believe that our directors will be in compliance with this requirement not later than seven years after the date each director became an outside director.
The Board is permitted, in its discretion,Board. As required pursuant to waive the application of our stock ownership guidelines to any covered individual if it determines that, as a resultRule 14a-8(l) of the individual’s personal circumstances, applicationSecurities and Exchange of 1934, as amended, the Company will provide Mr. Chevedden’s address and the number of the ownership guidelines would result inCompany’s voting securities held by Mr. Chevedden to stockholders of the Company promptly upon receiving an oral or written request.
Stockholder approval of this Proposal No. 6 will require the affirmative vote of a hardship.majority of the votes cast or represented by proxy at the Annual Meeting.
EXECUTIVE OFFICERS
Certain information with respect to our current executive officers is set forth below (other thanbelow. Under the information regarding John P. McLaughlin, our President and Chief Executive Officer, which is set forth above under “Proposal 1: Election of Director – Members of the Board of Directors”). Under our Bylaws, each executive officer is appointed annually by ourthe Board, of Directors, and each holds office until such officer resigns, is removed, is otherwise disqualified to serve or such officer’s successor is elected and qualified. There are no family relationships among any of our directors or executive officers.
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| Name | | Age | | Position |
John P. McLaughlin
Dominique Monnet | | 61 | | President and Chief Executive Officer Acting Chief Financial Officer |
Christopher Stone | | 4855 | | Vice President, General Counsel and Secretary |
Danny HartEdward Imbrogno (1)
| | 3756 | | Deputy General CounselVice President, Chief Financial Officer and Assistant SecretaryChief Accounting Officer |
___________________Jill Jene | | 47 | | Vice President, Business Development |
___________
(1)John P. McLaughlin Mr. Imbrogno was appointed as an executive officer of the Company in June 2019.,
Dominique Monnet, please see discussion under “Proposal No. 1: Election of Directors – Members- Recommendation of the Board of Directors” for biographical information about Mr. McLaughlin.Monnet.
Christopher Stone,joined the Company in February 2009 as our Vice President, General Counsel and Secretary, age 48, joined the Company in February 2009.Secretary. He brings more than 2030 years of legal experience to the role. Before joining PDL, Mr. Stone served as Vice President of Legal Affairs and Corporate Secretary at LS9, an advanced biofuels development company, where his work included a focus on intellectual property protection and licensing. Prior to that time, he was Vice President of Intellectual Assets USA at Danisco A/S, a global producer of food ingredients, enzymes and bio-based solutions. From 1994 to 2005, Mr. Stone was with Genencor International, a biotechnology company whichthat was acquired by Danisco in 2005, most recently as Vice President of Intellectual Property and General Patent Counsel. At Genencor, he handled all intellectual property matters, including developing and implementing an overall strategy for its domestic and international patent estate of approximately 3,700 patents and patent applications, and managed multiple litigation and interference proceedings and numerous European patent oppositions. Mr. Stone received a J.D. from the National Law Center at George Washington University and a B.S. in Biochemistry from the University of Massachusetts. He is an active member of the District of Columbia Bar, Nevada Bar (company counsel) and California Bar, and was admitted to practice before the United States Patent & Trademark Office in 1992.
Edward ImbrognoDanny Hart, our Deputy General Counsel and Assistant Secretary, age 37, joined the Company in January 2010October 2018 as our Vice President, Finance. In July 2019, he was appointed as Chief Accounting Officer, in October 2019, he was appointed as Acting Chief Financial Officer and in March 2020, he was appointed Chief Financial Officer. From May 2017 to October 2018, Mr. Imbrogno was Senior Director and Corporate Controller for BioDelivery Sciences International, Inc., a Nasdaq-listed specialty pharmaceutical company. From June 2016 to April 2017, Mr. Imbrogno provided accounting and financial reporting consulting services. From September 2013 to May 2014, Mr. Imbrogno was Vice President, Financial Reporting for International Lease Finance Corporation, the Company’s Corporate Counsel. Since joining the Company,world’s largest independent aircraft lessor, until its acquisition by AerCap Holdings N.V. Mr. Hart was promoted to Associate Corporate Counsel and Assistant SecretaryImbrogno remained with AerCap through March 2016 assisting with post-acquisition financial reporting transition, primarily at AerCap’s headquarters in April 2011 and then to his current position of Deputy General Counsel and Assistant Secretary in January 2012.Amsterdam, Netherlands. From 2006 untilto 2013, he was Director, Accounting for Amgen, a Nasdaq-listed multinational biopharmaceutical company. Prior to Amgen, Mr. Imbrogno held positions at several companies with increasing financial accounting and reporting responsibilities. Mr. Imbrogno began his career in public accounting with EY culminating as an Audit Manager where he provided audit and related financial services to public and private companies. Mr. Imbrogno holds a B.S. in accounting from Pennsylvania State University and an M.B.A. from Wake Forest University. He is a licensed Certified Public Accountant and is a member of the American Institute of Certified Public Accountants.
Jill Jene, Ph.D., our Vice President, Business Development, joined the Company Mr. Hart worked as an associate with Hogan & Hartson LLP (now Hogan Lovells US LLP), a leading international law firm, where his practice focused on securities, corporate governance and mergers and acquisitions.in May 2018. Before joining Hogan & Hartson, Mr. Hart began his legal careerPDL, Dr. Jene was Senior Vice President, Business Development at Skadden, Arps, Slate, Meagher & Flom LLP,twoXAR, Inc. from May 2017 until May 2018. Prior to that, she was with Depomed, Inc. (now known as Assertio Therapeutics, Inc.) from April 2006 to May 2017, most recently as vice president, business development. At Depomed she was instrumental in closing more than 20 transactions, including the acquisition of four commercial franchises. Dr. Jene holds a leading international law firm, where he focused on corporate restructurings. Mr. Hart received a J.D.Ph.D. and M.S. in chemistry from VanderbiltNorthwestern University, Law Schoolan M.B.A. from DePaul University and a B.A.B.S. in chemistry from the University of Washington in Seattle. He is licensed to practice as company counsel in Nevada and holds an active license to practice law in the State of Delaware and an inactive license in the State of Colorado.Bradley University.
COMPENSATION DISCUSSION &AND ANALYSIS
Overview
This Compensation Discussion &and Analysis describes our compensation program as it relates to our named executive officers set forth below in the Summary“Executive Officer Compensation-Summary Compensation Table. In this Compensation Discussion & Analysis, we first present an executive summary of our compensation program for our named executive officers. Next, we discuss the philosophy and objectives of our executive compensation program in greater detail and we review the process the Compensation Committee follows in deciding how to compensate our named executive officers. We then present a brief overview of the specific elements of our compensation program and we present a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of our” Our named executive officers for fiscal year 2012.2019 include Dominique Monnet, our President and Chief Executive Officer; Christopher Stone, our Vice President, General Counsel and Secretary; Edward Imbrogno, our Vice President, Chief Financial Officer and Chief Accounting Officer; Jill Jene, our Vice President, Business Development; and Peter Garcia, our former Vice President and Chief Financial Officer.
We present our Compensation Discussion and Analysis in the following sections:
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| 1. | Executive Summary. In this section, we describe certain aspects of our business, highlight our 2019 corporate performance, and summarize certain governance aspects of our executive compensation program. | p. | |
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| 2. | Executive Compensation Program Philosophy, Objectives and Process. In this section, we describe our executive compensation philosophy and objectives and the process the Compensation Committee follows in deciding how to compensate our named executive officers and the material elements of our executive compensation program. | p. | |
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| 3. | Compensation Program Elements. In this section, we present a brief overview of the specific elements of our compensation program and a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of our named executive officers for fiscal year 2019. | p. | |
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| 4. | Other Executive Compensation Matters. In this section, we summarize our other compensation policies, review the accounting and tax treatment of compensation and the relationship between our compensation program and risk. | p. | |
This Compensation Discussion &and Analysis contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual compensation programs that we adopt in the future may differ materially from currently planned programs as summarized in this discussion.
Executive Summary
Business Overview
Beginning in January of 2019, we evaluated and updated our corporate strategy to pursue a long-term growth plan, the goal of which was to deliver market-leading shareholder value through the acquisition, development and potential monetization of a portfolio of actively managed healthcare growth assets. As part of this growth strategy, we focused on (i) commercial-stage assets with multiple year growth potential and (ii) in a departure from our prior business development strategy, late clinical stage pharmaceutical products. Pursuant to this strategy, in April we entered into an agreement with Evofem Biosciences, Inc. (“Evofem”) to acquire approximately 29% (as of such date) of their common stock plus warrants to purchase additional shares of its common stock for $60 million.
In September of 2019, our Board and management decided to initiate a strategic review process of the Company’s business and growth strategy with the assistance of certain independent financial advisors, during which we suspended our growth strategy. In December of 2019, we announced that the Board had completed the strategic review process and, as a result, we decided to halt the execution of our growth strategy, cease additional strategic investments and pursue a formal process to unlock value by monetizing our assets and returning net proceeds to our stockholders.
Over the subsequent months, the Board and management have analyzed, together with outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the assets in our portfolio to our stockholders. In February 2020, the Board adopted a plan of complete liquidation (the “Plan of Liquidation”). Adopting the Plan of Liquidation was an important first step for any distributions to our shareholders pursuant to that plan to qualify as liquidating distributions, which are eligible for potentially preferable tax treatment under U.S. federal tax law. There can be no assurance any such distributions will in fact be made or that they will ultimately be determined to be liquidating distributions. In the event that the Board concludes that the whole company sale process is unlikely to maximize the value that can be returned to the stockholders from our monetization process, the Company would likely, if approved by its stockholders, file a certificate of dissolution in Delaware and proceed to wind-down and dissolve the Company in accordance with Delaware law.
Pursuant to the Plan of Liquidation, we are exploring a variety of potential transactions, including a whole company sale, divestiture of assets, spin-offs of operating entities, merger opportunities or a combination thereof. In addition, we have analyzed, and continue to analyze, the optimal mechanisms for returning value to stockholders in a tax-efficient manner, including via share repurchases, cash dividends and other distributions of assets. We have not set a definitive timeline and intend to pursue the liquidation strategy in a disciplined and cost-effective manner seeking to maximize returns to stockholders. We recognize, however, that accelerating the timeline, while continuing to seek to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as potentially provide faster returns to stockholders. While we cannot provide a definitive timeline for the liquidation process, we are targeting the end of 2020 for completing the liquidation of our more significant assets as part of the Plan of Liquidation. However, we further recognize that, the duration and extent of the public health issues related to the COVID-19 pandemic make it possible, and perhaps probable, that the timing of the liquidation of such assets may be delayed into the first half of 2021.
We have designed our compensation plan going forward in 2020 with the goal of maximizing shareholder return pursuant to our monetization strategy. Accordingly, as described below, we implemented the Wind-Down Retention Plan to ensure retention of sufficient expertise to carry out our monetization strategy.
Fiscal 20122019 Performance
Growth Strategy Acquisitions
During 2019 we actively managed a portfolio of pharmaceutical and medical device products and income generating assets, while prior to September 2019, evaluating new product acquisition and investment opportunities under our then applicable growth strategy. In 2012,the second quarter of 2019, we reportedacquired approximately 29% (as of such date) of the outstanding common stock of Evofem plus warrants to acquire additional shares of its common stock for $60 million.
Share and Note Repurchase Programs
Since 2017 the Company has implemented four share repurchase programs to take advantage of the relatively low share price of the Company’s common stock in comparison to the Company’s book value. The Company has since completed three of these share repurchase programs in an aggregate amount of $155 million, and in December of 2019 as part of our newly announced strategy to monetize assets and return net proceeds to shareholders, instituted a new repurchase program in an amount of up to $275 million, that would include repurchases of both shares of common stock as well as our outstanding convertible notes. Through March 31, 2020, the Company has repurchased (i) $135.2 million in principal amount of its convertible notes for an aggregate purchase price of $116.7 million and the issuance of 13.4 million shares of our common stock to such holders and (ii) 6.3 million shares of its common stock under the current repurchase program, for an aggregate purchase of $20.3 million, at an average cost of $3.20 per share, including trading commissions.
Total Stockholder Return
The chart below shows our total revenue of $374.5 million, a 3.5% increase over 2011 revenue and an approximate 8.6% increasestockholder return (“TSR”) over the Company’s revenueone, three and five year periods ending December 31, 2019 in 2010. In additioncomparison to the average of our peer group specified under “Comparator Companies” on page 56:
While our five-year TSR performance lagged in comparison to our royalty revenue,peers, there are certain factors that may explain this. First is the significant decline in revenues we generated over $6.3 million in income unrelatedexperienced after the first quarter of 2016 due to the Queen et al. patents and attributable to our income generating asset acquisitions.
We are a unique public company consisting of fewer than ten employees and maintain the highest revenue-per-employee in our industry with limited expenses related to operating as a public company. We are entirely focused on increasing the return to our stockholders over the life of our current assets, and, if possible, acquiring assets and completing transactions that extend our ability to pay dividends beyond the expiration of the Queen et al. patents and the conclusion of most license payments related to the patents. The following paragraphs highlight three areasWhile we anticipated this decline in revenue and informed our investors of our business whereplan to mitigate it through the acquisition of income generating assets and our more recent acquisition growth strategy, the significant decline in revenues quarter over quarter negatively impacted our stock price. Second, we took actioneliminated our dividend program in 2012August of 2016 to increase cash on hand for subsequent acquisitions of income generating assets, commercial-stage products and/or launching specialized companies dedicated to the ratecommercialization of returnthese products, which resulted in several dividend sensitive institutional investors selling our stock. In February 2020, our Board had adopted the Plan of Liquidation, which we believe will provide our stockholders with value in the form of liquidating distributions of cash and/or property in a tax efficient manner.
Fiscal 2019 Executive Compensation
Emphasis on “At Risk”, Performance Based Compensation
The Compensation Committee is focused on linking both cash and equity compensation to Company performance and making a significant portion of such compensation variable or “at risk.” “At risk” pay is tied to the achievement of corporate goals, individual objectives and/or stock price performance. Since 2014, all cash and equity compensation earned by executive officers was “at risk” under the annual bonus and long-term incentive plans devised by the Compensation Committee; the only component of compensation not “at risk” is base salary. For 2019, his first year as our Chief Executive Officer, the “at-risk” cash payments and equity grants to our stockholders and extend our ability to pay dividends. These items were completed while continuing to protectchief executive officer represented in excess of 90% of his total target compensation for 2019. As shown in the Company’s most valuable asset,table below, the Queen et al. patents.
Income Generating Asset Acquisitions
This year, the Company began executing on its strategy to extend the distribution of dividend payments to its stockholders for a longer period of time. Largely during the second half of 2012, the Company executed seven income generating asset acquisition transactions, utilizing over $125 million of the Company’s available cash and cash equivalents. While the Company’s intent is to focus on and build returns in later years, the Company recognized over $6.3 million in income unrelated to the Queen et al. patents in 2012 that was attributable to these acquisitions.
Debt Restructuring
In early 2012, the Company exchanged $179 million of one of its existing convertible notes for a new convertible note in equal principal amount that added a “net share settlement” feature. The exchange of the notes removed approximately 27.8 million shares of potential dilution to our stockholders at the time, which was equivalent to 30.3 million shares of potential dilution at the end of our 2012 fiscal year. Also during 2012, we reduced our debt by approximately 22% from a balance of $428.6 million at the end of 2011 to $335.3 million at the end of 2012. As a result, cash interest expense was $11.8 million less in 2012 than in 2011.
Dividends
In 2012, the Company continued to pay its notably high yield quarterly dividend of $0.15 per share, totaling $0.60 per share for the year.
In addition to decreasing potential dilution and the creation of additional sources of revenue and income to the Company, we achieved a total stockholder return (TSR) of 23.8% in 2012, which compares with 13.6% over three years and 10.6% over five years. Relative to the list of companies our Compensation Committee, in consultation with its independent compensation consultant, prepared as comparable companies with which it could evaluate the“at risk” compensation of our namedchief executive officers, PDL’s one-officer has represented at least 80% of total target compensation for each year in the past five years:
Key 2019 Compensation Decisions Affecting our Chief Executive Officer:
Base Salary and five-year TSR were better than 37.5%Target Annual Bonus Decreases for Chief Executive Officer Position in 2019: For 2019, Mr. Monnet received a salary of $635,000, a decrease of 9% in comparison to the annual salary paid to our previous chief executive officer during 2018, and PDL’s three-year TSR was better than 31.3%had a target bonus equal to 80% of his annual salary, a decrease from a target of 100% of annual salary of our previous chief executive officer for 2018.
Target Annual Bonus Payout for Chief Executive Officer in 2019: For 2019, Mr. Monnet received an annual bonus payout equal to 100% of his target bonus based on the comparator companies selectedCompany’s performance relative to the corporate objectives established by the Compensation Committee for 2012 compensation decisions. When2019 annual bonus purposes.
Updated Severance Plan: In response to shareholder requests that our TSR is compared to the “peer companies” selected by Institutional Shareholder Services (ISS), we outperformed 78.6% in 2012, 57.1% over three years and 78.6% over five years.
Fiscal 2012 Executive Compensation
In 2012, our Compensation Committee took steps to increase the percentage of cash payments that are “at-risk” and tied explicitly to Company performance. “At-risk” cash payments to our CEO increased to 50.9% in 2012 from 17% in 2010, the most recent year when a long-term incentive plan vested, as illustrated in the chart below:
For fiscal year 2012, our Compensation Committee reviewed the base salary of each of our named executive officers and performance ofbe better incentivized to potentially sell the Company, as well asin April 2019 we put in place an analysisexecutive severance plan (the “Severance Plan”) that provides payments of 3x annual salary and summary of competitive market practice prepared by Setren, Smallberg & Associates (Setren), the Compensation Committee’s independent compensation consultant. Based on this review, the Compensation Committee decided to raise certain of the named executive officers’ salaries so that their base salaries are near or at the 50th percentile of the Compensation Committee’s comparator companies and to give cost-of-living adjustments to the remaining named executive officers.
With respect to the annual cashtarget bonus the Compensation Committee established the 2012 Annual Bonus Plan for fiscal year 2012. This annual cash bonus is intended to incentivize and reward our named executive officers for accomplishing corporate (75% weighting) and individual (25% weighting) goals, except for our chief executive officer whose bonus is determined solely on the performanceas a result of the Company against its corporate goals. Thea termination in connection with a change of control (and 2x annual cash bonus is compensation that is entirely at risk in the case of underperformance,salary and while target bonus amounts are set byfor other executive officers).
Wind-down Retention Plan
After we announced our strategy to monetize our assets and distribute net proceeds to our shareholders, we recognized that our ability to execute on our monetization plan and optimize returns to our shareholders depended to a large extent on our ability to retain the necessary expertise to effectively transact with respect to our assets. Due to the unique diverse nature of our assets, we believe that effectively transacting our assets requires a significant level of expertise and engagement. Accordingly, on December 21, 2019, the Compensation Committee of the Board adopted a Wind Down Retention Plan in consultationwhich the Company’s executive officers and other employees who are participants in the Company’s Severance Plan are eligible to participate. We believe that the Wind-Down Retention Plan is a necessary component for both efficiently implementing our monetization strategy and also to fully optimize asset value and subsequent shareholder returns.
Under the Wind Down Retention Plan, participants are eligible to earn a retention benefit in consideration for their continued employment with Setren, the Compensation Committee determinesCompany. The Wind Down Retention benefits are equivalent to previously disclosed compensation payments contemplated in connection with a change in control under the ultimateCompany’s existing Severance Plan. For our Chief Executive Officer, the retention benefit is a lump sum cash payment equal to three times the sum of his base salary and target bonus, plus an amount equal to the cost of 12 months of health insurance continuation under COBRA. For other named executive officers, the retention benefit equals two times the sum of their base salary and target bonus, plus an amount equal to the cost of 12 months of health insurance continuation under COBRA. Under the Wind Down Retention Plan, payment of the retention benefit to any participant will occur upon termination of the participant’s employment with the Company either by the Company without cause or by the participant for good reason. The retention benefit, if paid, would be in lieu of (and not in addition to) any other severance compensation that could become payable to the participant under the Company’s Severance Plan. The Wind Down Retention Plan, during its term, is intended to supersede any inconsistent terms or duplicative benefits that would apply from the Company’s preexisting severance program.
The Wind Down Retention Plan also provides that, consistent with the existing terms of the our Amended and Restated 2005 Equity Incentive Plan (the “Equity Plan”), the vesting of all outstanding equity awards held by participants as of the date the plan is adopted will be accelerated upon the earlier of: (i) a termination of the participant’s employment with the Company either by the Company without cause or by the participant for good reason or (ii) the consummation of a change in control (as defined in the Equity Plan) of the Company. In addition, the post-termination exercise period for all outstanding stock options will be extended until their expiration date.
The Wind Down Retention Plan further provides for equitable adjustments to outstanding stock options held by participants to ensure such participants realize the same benefits provided to shareholders in the event one or more cash dividends or other distributions become payable to shareholders. Consistent with the existing terms of the Equity Incentive Plan, in the event one or more cash dividends or other distributions are paid to shareholders, the exercise price of outstanding stock options will be reduced on a dollar-for-dollar basis to reflect the per share value of such dividends or distribution; provided that such exercise price will not be reduced below the par value of the shares subject to the option. Furthermore, in the event that the Company declares a cash dividend or other distribution that exceeds the difference between the exercise price of an outstanding stock option and the par value of the underlying shares, the holder of such stock option will be entitled to receive from the Company, in lieu of such equitable adjustment, a cash payment in an amount equal to the number of shares subject to such stock option multiplied by the per share amount of the cash bonus, which can rangedividend that exceeds the difference between zero and a maximum bonus level, not to exceed 150%exercise price of the annual target bonus, basedoutstanding option and the par value of the underlying shares (a “true-up payment”). In consideration that the Company may not be able to issue stock underlying a stock option if it were to file for dissolution, the true-up payment could also be paid with respect to a post-dissolution dividend or distribution with respect to a stock-option that was not exercised prior to dissolution. Regardless of scenario, a true-up payment shall be payable only once for a given option and shall be made on accomplishmentthe same date that dividend payments are paid to the Company’s shareholders.
The terms of corporatethe Wind Down Retention Plan provide that the plan may not be amended or terminated without the written consent of each affected participant.
Stockholder Engagement and individual goals.Response to 2019 Say-on-Pay Vote
In December 2012,May 2019, we reached out to our top 35 stockholders, who in the Compensation Committee evaluatedaggregate owned approximately 85% of our outstanding common stock at such time, to determine if such stockholders had any issues or questions regarding the Company’s performance againstvoting proposals in the 2012 corporate performance goals (as well as2019 proxy statement. An overwhelming majority of the performancevotes cast (above 93%) at our annual meeting held in June 2019 were in favor of each of the namedproposals, including the “say-on-pay” proposal. Since the requirement to hold “say-on-pay” votes was implemented, we have received stockholder approval votes greater than 93% of votes cast each year. In reviewing our executive officers,compensation program, the Compensation Committee considered, among other thanthings, the 2018 vote results and other feedback we received from stockholders. After careful consideration, the Compensation Committee kept our executive compensation program substantially the same as in 2018, with the exception being a grant of restricted stock to Mr. Monnet in connection with his promotion to chief executive officer, against their individual goals). The Compensation Committee determined that 110% of the corporate goals were achieved.
The amount of base salary and cash bonus earned by each named executive officer for fiscal year 2012 is set forth in the Summary Compensation Table on page 39.
In January 2012, the Compensation Committee established the 2013 Long-Term Incentive Plan, or the 2013 LTIP, for our named executive officers. The 2013 LTIP is comprised of two components: (i) the right to receive a cash payment and (ii) a number of unvested restricted sharesadoption of our common stockSeverance Plan and, following our change in strategic direction to pursue a monetization strategy, the adoption of our Wind-Down Retention Plan. Also, on several occasions throughout 2019 and earlier in 2020, both executive officers and our chairperson met directly with stockholders to discuss a specific grant value. The purposevariety of issues, including compensation at both the 2013 LTIP is to enhance stockholder return over the long term, through promotion of long-term corporate goalsexecutive and retention of the Company’s management team. The 2013 LTIP ultimately vests in December 2013. director level.
Our Compensation Committee recognizes that the attainment of long-term goals typically takes more than one year to accomplishBoard and therefore our annual cash bonus plan inadequately incentivizes those goals.
In 2013, our Compensation Committee continuesvalue the opinions of our stockholders, and we believe that it is important for our stockholders to focushave an opportunity to vote on linking an even greater percentagethe say-on-pay proposal annually. At the Company’s annual meeting of compensation to performance and putting more of its named executive officers’ compensation at risk. Accordingly,stockholders held in June 2017, the long-term incentive plan adopted by our Compensation Committee in early 2013 states that allmajority of the votes cast on the say-on-frequency proposal were cast in favor of annual say-on-pay votes and the Board has determined that we will hold an annual advisory vote on executive compensation that could be earned underuntil the plannext say-on-pay-frequency vote is at risk and tied to the achievement of performance criteria.held.
Selected Compensation Governance Highlights
Our executive compensation program includes the followingconsists of an array of compensation governance features and controls, among others:controls. Below we summarize certain executive compensation-related practices that were in effect during 2019 and that we believe serve our stockholders’ long-term interests.
Our Compensation Committee is comprised solely of independent directors.
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| What We Do |
| ü | | The Compensation Committee is comprised solely of independent directors. |
| ü | | We structure a substantial portion of officer pay opportunities in the form of “at-risk” performance-based compensation. |
| ü | | Our chief executive officer’s annual cash bonus is 100% attributable to the achievement of corporate goals set by the Compensation Committee and ratified by the Board and is fully at risk of non-payment in the event of unsatisfactory performance, thereby putting a substantial portion of our chief executive officer’s total annual cash compensation (comprised of base salary and an annual cash bonus opportunity) at risk and tied to the Company’s annual performance. |
| ü | | Our long-term incentive plans have been designed to reward and retain our leadership team, to align the interest of management with our stockholders and incentivize long-term performance. All of our outstanding cash and equity incentive awards for our executive officers are fully “at risk”, earned based on achievement of performance goals that are aligned with our business plan or tied to our stock price. |
| ü | | We conduct an annual say-on-pay vote. |
| ü | | We seek input from, listen to and respond to stockholders. |
| ü | | We have adopted a clawback policy to prevent executive officers involved in certain wrongful conduct from unjustly benefiting from such conduct, and to remove the financial incentives to engage in such conduct. |
| ü | | We enforce robust stock ownership guidelines for executive officers and directors. |
| ü | | We strictly prohibit our directors and executive officers from “short sales,” hedging and other monetization transactions (such as zero-cost collars and forward sale contracts), holding the Company’s securities in margin accounts and pledging the Company’s securities as collateral for loans. |
| ü | | The Compensation Committee retains an independent compensation consultant. |
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What We Do Not Do |
| û | | We do not provide gross-up tax payments for our named executive officers. |
| û | | We do not provide guaranteed bonuses. |
| û | | We do not re-price underwater awards and do not provide discount stock options or stock appreciation rights. |
Our named executive officers receive no supplemental executive retirement benefits or perquisites.
We do not gross-up tax payments for our named executive officers.
Our chief executive officer’s annual cash bonus is 100% attributable to the achievement of corporate goals set by the Compensation Committee and ratified by the Board and is fully at risk of non-payment in the event of unsatisfactory performance, thereby putting approximately 50% of our chief executive officer’s annual cash compensation (comprised of base salary and an annual cash bonus opportunity) at risk and tied to the Company’s annual performance.
Our long-term incentive plans have been designed to retain our valuable management, align the interest of management with our stockholders and incentivize long-term performance.
We maintain stock ownership guidelines for our directors and executive officers.
We use grants of restricted stock in connection with the Company’s long-term incentive plans rather than stock options because, in the opinion of our Compensation Committee, use of actual shares rather than options causes our named executive officers and our employees to be more careful with risk and directly aligns their interests with the interests of our stockholders.
We strictly prohibit our executive officers from “short sales,” hedging and monetization transactions (such as zero-cost collars and forward sale contracts), holding PDL securities in margin accounts and pledging PDL securities as collateral for loans.
We have adopted a clawback policy to prevent executives involved in certain wrongful conduct from unjustly benefiting from that conduct, and to remove the financial incentives to engage in that conduct.
Compensation decisions and other details are discussed in greater detail in the remainder of this Compensation Discussion & Analysis.
Executive Compensation Program Philosophy, Objectives and Process
Philosophy and Objectives
The Company has a unique business model in the biopharmaceutical industry because we conduct no clinical research, development or commercialization activities, but rather earn substantially all our revenues from royalties. In order to efficiently conduct our operations, we rely on a small staff of fewer than ten persons, with our principal place of business being in the State of Nevada, a state without corporate income tax. To achieve our corporate goals, we need a highly talented and seasoned team of business professionals. We compete with many other companies in seeking to attract and retain a skilled management team and suffer from the disadvantages of being located in a remote location with limited access to top executive talent and having a potentially short corporate existence due to the loss of significant royalty revenues after expiry of the Company’s patents in 2014.
The Compensation Committee has structured our executive compensation program to take into account our unique business model, locationleveraged headcount and potentially short corporate existence. Accordingly, the Compensation Committee utilizes four types of compensation to attract and retain a talented management team: base salary, annual cash bonus, long-term incentive compensation and employee benefits.location.
The goals of our executive compensation established by the Compensation Committee are fourfold:
Structure our compensation plans to effectively motivate our executive leadershipmanagement to achieve the stated goals of the Company and to perform in a manner that maximizes stockholder value.
Offer executive compensation programs that are competitive in the marketplace to enable us to recruit high-quality candidates for senior leadership positions and to retain these executivesexecutive officers through appropriate base compensation, annual cash bonuses and long-term equity and cash awards and incentives.incentive programs.
Strike a balance of short-term and long-term incentives tied to our named executive officers’ individual performance and their contribution to our annual and long-term company-wide goals and objectives.
Align the interests of our named executive officers andwith those of our stockholders through the use of equity incentives, performance metrics and stock ownership requirementsrequirements.
Prior to our strategic review in the latter part of PDL stock.
Our2019, our business mission iswas to enhancemaximize stockholder value by (i) managing our intellectual property to maximizethrough the valueacquisition, nurturing and growth of our patenta portfolio and related assets and (ii) acquiring new income generatingof healthcare assets. Because these goals arethis mission would be accomplished over a varied period of time,both the short- and long-term, the Compensation Committee has established a compensation program that utilizes a mix of annual and long-term incentives to assureensure that management and employees are focused on attainment of the Company’s corporate goals whether these goals are short- or long-term. Ourin
alignment with stockholders’ interests. The Compensation Committee has not employed any specific policies for allocating compensation between annual and long-term compensation, between cash and non-cash compensation or among different forms of non-cash compensation;compensation, although it has determined thatreviews the mix with its currentindependent compensation structure adequately accomplishes the Company’s objectives.consultant on an annual basis.
The Compensation Committee structures our executive compensation program in a manner that it thinksbelieves does not promote inappropriate risk taking by our executives, but ratherexecutive officers, and encourages them to take a balanced approach, focused on achieving our corporate goals and enhancing stockholder return. For example, the Company does not currently award stock options; the Compensation Committee instead utilizes restricted stock awards that capture dividend payments and promote a sense of ownership among management and the Company’s employees. Further, our named executive officers are subject to stock ownership guidelines, requiring them to own a defined multiple of their base salary. A more complete discussion regarding the risk assessment process can be found at “Risk Assessment of Compensation Policies” above.
Executive Compensation Process
When making executive compensation program decisions, ourthe Compensation Committee reviews: (i) the Company’s competitive market compensation data;data, (ii) the Company’s standaloneour performance against our corporate goals and objectives, (iii) our performance relative to itsour comparator companies, and peers; (iii)(iv) individual officer qualifications;qualifications and (iv)performance based on specified performance metrics, and (v) the unique circumstances of the Company. To accomplish these reviews, the Compensation Committee engaged Setren, a life sciences compensation consultant,Board Advisory to provide advice on competitive market practice and recommendations for structuring our named executive officerofficers’ compensation for fiscal year 2012,2019. Board Advisory reports, and is accountable, to the CompanyCompensation Committee, and may not conduct any other work for us without the authorization of the Compensation Committee. Board Advisory did not provide any services to us in 2019 beyond its engagement as an advisor to the Compensation Committee on compensation matters. After review and consultation with Board Advisory, the Compensation Committee has determined that Board Advisory is independent and there is no conflict of interest resulting from retaining Board Advisory currently or during the year ended December 31, 2019. In reaching these conclusions, the Compensation Committee considered the factors set forth in Exchange Act Rule 10C-1 and Nasdaq Stock Market (“NASDAQ”) listing standards.In addition, we engaged ISSthird party corporate governance advisors to provide market performancecompensation and performance metric data for fiscal year 20112018 for the Compensation Committee’s fiscal year 20122019 compensation decisions.
Our chief executive officer aids the Compensation Committee by providing annual recommendations regarding the compensation of all executive officers, other than himself. Each named executive officer, in turn, participates in an annual performance review with the chief executive officer to provide input about his or her contributions to the Company’s success for the period being assessed. The performance of our chief executive officer and executive team as a group is reviewed annually by the Compensation Committee.
Comparator Companies
Due to the Company’s unique business model and circumstances, ourthe Compensation Committee has found it difficult to establish an appropriate group of peer companies againstfor the purposes of evaluating our compensation practices. The mix of health care products and royalty and debt assets that generate the Company’s revenues straddles both the more traditional healthcare industry and the asset management industry. The Compensation Committee, in consultation with Board Advisory, has determined that companies in the pharmaceutical industry remained the most appropriate peers for executive compensation comparison purposes in 2019 because (i) our primary focus was acquiring growth-oriented pharmaceutical products and companies, (ii) all of our existing income generating assets and products are derived from the healthcare industry and (iii) it is the sector from which to benchmarkwe primarily draw our named executive officers’ compensation. Instead, ourmanagement. To that end, the Compensation Committee directed itsBoard Advisory to analyze companies in the pharmaceutical industry with the same Global Industry Classification Standard code, or GICS code, and revenues between 0.4x and 2.5x the Company’s annual revenue, or between $120 million to $802.5 million, and in particular comparable small, profitable pharmaceutical companies, to recommend a peer group for purposes of analyzing the Company’s compensation consultant to prepare apractices.
The list of comparator companies fromis reviewed and updated annually as the healthcare industry with revenues between $100 million and $600 million (the comparator companies). The Compensation Committee has determined that such searchprevious year’s companies may no longer fit the most appropriate parameters are appropriate based on the sector from which the Company primarily draws its management and the range of revenue being comparable to the Company’s revenue. The resulting list of companies is refined to select those companies that most closely resemblefor the Company. The list of comparator companies was selected based in part on the Company’s size in terms of revenues based on information available to the Compensation Committee in the fall of 2018. The following list of comparator companies for 20122019 compensation decisions demonstrates the Compensation Committee’s focus on selecting companies relatively similar in industry sector and size (after taking into account that the Company is unique in its business model and circumstances):
Alexion Pharmaceuticals | Ista Pharmaceuticals | Santarus |
Alnylam Pharmaceuticals | Jazz Pharmaceuticals | The Medicines Company |
AuxiliumAmphastar Pharmaceuticals, Inc. ANI Pharmaceuticals, Inc. Avadel Pharmaceuticals plc Collegium Pharmaceutical, Inc. Corcept Therapeutics, Inc. Eagle Pharmaceuticals, Inc. Halozyme Therapeutics, Inc. Innoviva, Inc. Intersect ENT, Inc.
| Medicis Pharmaceutical | United Therapeutics |
BioMarin Pharmaceutical | OnyxIronwood Pharmaceuticals, | Vertex Inc.Ligand Pharmaceuticals, |
Cubist Inc.Osmotica Pharmaceuticals | Regeneron plcPacira Pharmaceuticals, | ViroPharma |
Emergent BioSolutions | Salix Inc.Retrophin, Inc. Spectrum Pharmaceuticals, | Inc. Supernus Pharmaceuticals, Inc. Teligent, Inc. Vanda Pharmaceuticals Inc.
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Competitive Market Data
OurEach year, Board Advisory surveys the compensation practices of the comparator companies to assess the competitiveness of our compensation programs. Although we maintain the peer group for executive compensation and performance reference purposes, the comparator company compensation data is limited to publicly available information and therefore does not necessarily provide comparisons for all officers. By contrast, survey data has the advantage of including data on executive positions beyond what is available in public filings but may not be specific to the selected companies in the peer group. In light of this, Board Advisory analyzed (i) the compensation levels of the comparator companies referenced above and (ii) the 2018 Radford Global Life Sciences Survey for biotechnology companies with annual revenues in a range between $50 million and less than $500 million (the “2018 Radford Compensation Survey”). With respect to the survey data presented to the Compensation Committee, reviewed the resultingidentities of the individual companies included in the survey were not provided to the Compensation Committee, and the Compensation Committee did not refer to individual compensation information for such companies.
We believe that by utilizing both publicly available comparator company data and the survey data, we are able to develop the best set of robust competitive marketdata reasonably available for use in making compensation decisions. The Compensation Committee, when making compensation adjustments to the named executive officers, reviews the publicly available comparator company group data prepared by Setren fromand the listsurvey data to ensure that, following any compensation adjustment, the total compensation of named executive officers falls within our guidelines.
The Compensation Committee uses the 50th percentile of comparator companies. Our Compensation Committee has determined that, in order to attract the executive talent necessary to lead the Company,companies as a benchmark, or starting point, for decisions regarding target total direct compensation (comprised of base salary, annual bonus opportunity and long-term incentive opportunity) should be near or at the 50th percentile of the comparator companies.
Performance Data
OurCompany’s executive officers. However, in order to attract and retain the executive talent necessary to lead the Company, the Compensation Committee revieweddoes not establish compensation levels based solely on benchmarking. The Compensation Committee instead relies on the Company’s and individual performance relative to established corporate and individual goals whenjudgment of its members in making compensation decisions for fiscalregarding base salaries, target bonus levels and long-term equity incentive awards after reviewing our performance and carefully evaluating each named executive officer’s performance during the year, 2012. Additionally, theleadership qualities, business responsibilities, career with our Company, current compensation arrangements and long-term potential to enhance stockholder value. The Compensation Committee reviewed and considered pay-for-performance reports prepared by ISS to confirmdoes not guarantee that the Company’s pay practices are reasonable relative to the Company’s performance and are in line with industry and market practices and standards. The ISS peer companies for 2012 were:any executive will receive a specific market-derived compensation level.
Acorda Therapeutics | Cubist Pharmaceuticals | Momenta Pharmaceuticals |
Alkermes | Dendreon | Myriad Genetics |
Amylin Pharmaceuticals | Emergent BioSolutions | Onyx Pharmaceuticals |
BioMarin Pharmaceutical | Exelixis | Spectrum Pharmaceuticals |
Cepheid | Genomic Health | United Therapeutics |
Qualifications and Unique Company Existence
In addition to analyzing market compensation and performance data, the Compensation Committee considers aneach individual’s qualifications, experience and experiencecontribution to the Company when making compensation decisions, as well as the Company’sour unique business model and the difficulty in locating experienced and qualified executive officer candidates inwilling to relocate to the remote area surrounding the Company’s headquarters, the Company’s potentially short-term corporate existence (resulting in our headquarters. The only named executive officers’ potentially short-term employment with the Company) and the fact that we require our named executive officersofficer not required to be located proximate to the Company’sour headquarters in Nevada.Nevada is our Vice President of Business Development whose responsibilities include extensive travels and is domiciled in the San Francisco Bay Area, close to key stakeholders and potential target companies.
No Delegation of Compensation Decisions
The Compensation Committee has not delegated any of its exclusive power to determine matters of executive compensation and benefits. Our chief executive officer assistsand an independent compensation consultant assist the Compensation Committee by presenting
proposals and recommendations to the Compensation Committee, information on the Company and individual performance of theour named executive officers and management’s perspective and recommendations on compensation matters (our chief executive officer recuses himself from that portion of the Compensation Committee meetings involving deliberation and decision making ofdecision-making pertaining to his own compensation). The Compensation Committee reports to the Board on the major items covered at each Compensation Committee meeting.
Compensation Program Elements
The annual compensation payable to our named executive officers is composedcomprised of four primary elements which are designed together to motivate our named executive officers to meetachieve our strategic goals. These four elements areare: (i) base salary, (ii) annual cash bonus, (iii) long-term incentive compensation and (iv) employee benefits.
In addition, we provide other limited perquisites, benefits and severance, but such perquisites and benefits other than a housing allowance provided to a limited number of employees, are generally available to all of our employees on the same terms as to our named executive officers.
Each element, — and why we pay it, — is discussed below.
Base Salary
Base salary is the fundamental, fixed element of our named executive officers’ compensation and the foundation for each named executive officer’s total compensation.
In order to attract the executive talent necessary to lead the Company, our Compensation Committee thinks that base salary should be near or at the 50th percentile of similar-sized companies within the biotechnology industry and should be based on an individual’s qualifications and experience. When setting base salaries for our named executive officers, the Compensation Committee considers the Company’s unique business model, the executive officers’ prior performance, individual contributions, responsibilities, experience and position, the difficulty in locating experienced and qualified executive officer candidates in the remote area surrounding the Company’s headquarters, the Company’s potentially short-term corporate existence (resulting in our named executive officers’ potentially short-term employment with the Company) and the fact that we require our named executive officers to be located proximate to the Company’s headquarters in Nevada.
Base salaries are reviewed annually and may be adjusted by ourthe Compensation Committee taking into account the individual performance of the named executive officer as well as that of the Company as a whole.
For fiscal year 2012,2019, the Compensation Committee reviewed the base salary and performance of each of our named executive officers, the performance of the Company and Setren’sBoard Advisory’s analysis and summary of the market practice of the comparator companies. The Compensation Committee determined that the base salaries of all of the named executive officers were lower than the 50th percentile at both its comparator companies and the 2011 Radford Biotechnology Survey, with Mr. McLaughlin’s and Mr. Hart’s base salary being the furthest beneath the 50th percentile. Based on this review, and a review of the performance of each named executive officer and the unique role of each named executive officer within the Company, the Compensation Committee determined to raiseincrease the base salary of Mr. Monnet to $635,00 from $525,000 in connection with his promotion to the position of chief executive officer of the Company and increase the base salaries of its named executive officers. Other thanMessrs. Garcia and Stone and Dr. Jene by 3% for 2019. In connection with his appointment as chief accounting officer, effective July 1, 2019, Mr. McLaughlin’sImbrogno’s base salary which remains slightly below the 50th percentile, the Compensation Committee raised the base salaries of its named executive officerswas increased to at or near the average of the 50th percentile of its comparator companies and the 2011 Radford Biotechnology Survey. $346,000 from $288,400.
The fiscal year 20122019 base salaries for our named executive officers are set forth in the table below:
| Name | | Title | | 2012 Base Salary | | | % Increase from 2011 Base Salary | |
| John P. McLaughlin | | President, Chief Executive Officer and Acting Chief Financial Officer | | $ | 675,000 | | | | 15.4 | % |
| Christopher Stone | | Vice President, General Counsel and Secretary | | $ | 390,000 | | | | 4.0 | % |
| Danny Hart | | Deputy General Counsel and Assistant Secretary | | $ | 237,000 | | | | 27.2 | % |
Bruce Tomlinson(1) | | Former Vice President and Chief Financial Officer | | $ | 375,000 | | | | — | |
| Caroline Krumel | | Former Vice President of Finance and Principal Accounting Officer | | $ | 237,000 | | | | 3.0 | % |
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| Name | | Title | | 2019 Base Salary | | % Increase or Decrease from 2018 Base Salary | |
| Dominique Monnet | | President and Chief Executive Officer | | $635,000 | | 21% | (1) |
| Christopher Stone | | Vice President, General Counsel and Secretary | | $497,490 | | 3% | |
| Peter Garcia | | Former Vice President and Chief Financial Officer | | $474,600 | (2) | 3% | |
| Jill Jene | | Vice President, Business Development | | $350,200 | | 3% | |
| Edward Imbrogno | | Vice President, Chief Financial Officer and Chief Accounting Officer | | $346,000 | (3) | 24% | |
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(1) | Raise for |
(1) | Mr. Tomlinson is absent from this table becauseMonnet’s increase in salary was a result of his appointmentpromotion to chief financialexecutive officer occurredas of December 31, 2018. This base salary represented a decrease of 9% in 2012.comparison to the annual salary paid to our previous chief executive officer during 2018. |
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(2) | Mr. Garcia separated from the Company, effective August 15, 2019. |
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(3) | Mr. Imbrogno’s base salary was increased to $346,000, effective July 1, 2019, from $288,400 in connection with his promotion to chief accounting officer. |
Annual Cash Bonus
The second component of our named executive officers’ total compensation is the annual cash bonus. The annual cash bonus is intended to encourage high levels of individual and Company performance by rewarding our named executive officers for their individual contributions and our overall performance during the year.
As discussed above, in order to attract the executive talent necessary to lead the Company, our
The Compensation Committee thinks that total compensation should be near or at the 50th percentile of other similar-sized companies within the biotechnology industry and should be based on an individual’s qualifications and experience. Furthermore, our Compensation Committee thinksbelieves that a significant portion of a named executive officer’s compensation should be based on Company and individual performance. As a result, we provide our named executive officers with an annual cash bonus opportunity that can be earned based on achievement of certain predetermined corporate and, in the case of theour named executive officers other than our chief executive officer, individual performance goals.
As with base salary, when determining annual bonus opportunities, the Compensation Committee considers the Company’s unique business model, the executive officers’ prior performance, individual contributions, responsibilities, experience and position, the difficulty in locating experienced and qualified executive officer candidates in the remote area surrounding the Company’s headquarters, the Company’s potentially short-term corporate existence (resulting in our named executive officers’ potentially short-term employment with the Company) and the fact that we require our named executive officers to be located proximate to the Company’s headquarters in Nevada.
Fiscal Year 20122019 Annual Bonus Evaluation
For fiscal year 2012,2019, the Compensation Committee established the 20122019 Annual Bonus Plan. The 20122019 Annual Bonus Plan is composed entirely of cash andcompensation that is compensation entirely at risk, depending on performance. In the event of underperformance, the Compensation Committee may elect to award no bonus. In the event of performance that exceeds the Compensation Committee’s performance expectations, the bonus amount is capped at a maximum of 150%200% of the target amount, unless the Compensation Committee determines in its discretion to award amounts outside of and in addition to the 2012 Annual Bonus Plan.amount.
As part of the 20122019 Annual Bonus Plan, the BoardCompensation Committee reviewed, and approvedrecommended to the Board for approval, the Company’s corporate goals for 2012,2019 and the Compensation Committee reviewed and approved individual goals for our named executive officers, as well as the weighting of corporate and individual goals in determining their bonuses for fiscal year 2012.2019.
In determining the appropriate ratio of corporate goals and individual goals for measuring overall performance, the Compensation Committee has determined that theour chief executive officer’s performance should be measured solely on the basis of the Company’s overall performance with respect to corporate goals. With respect to the other named executive officers, the Compensation Committee has determined that the ratio should be heavily skewed toward the attainment of the corporate goals, but also recognized that, in a company with a small staff such as PDL,the Company, some weight should be accorded to the attainment of individual goals because the individual goals contribute toward attainment of the corporate goals.
In connection with itsthe annual cash bonus, the Compensation Committee reviewed the target bonus (as a percentage of base salary) of each named executive officer and Setren’sBoard Advisory’s analysis and summary of the market practice of the comparator companies. The Compensation Committee determined that the target bonus percentages of Mr. Stone and Ms. Krumel were near or at the 50th percentile at both its comparator companies and the 2011 Radford Biotechnology Survey and that the target bonus percentage of Messrs. McLaughlin and Hart were below the 50th percentile. Based on this review and a review of the performance of each named executive officer, the Compensation Committee determined to raise the target bonus percentage of certain of the named executive officers to a percentage at or near the 50th percentile of the comparator companies and the Radford Biotechnology Survey.
The target and maximum bonus (as a percentage of base salary) and the ratio of corporate to individual goals for each named executive officer are set forth in the table below:
| Name | | Title | | 2011 Target Bonus | | | 2012 Target Bonus | | | 2012 Maximum Bonus | | | Ratio of 2012 Corporate Goals/ 2012 Individual Goals | |
| John P. McLaughlin | | President, Chief Executive Officer and Acting Chief Financial Officer | | | 70 | % | | | 100 | % | | | 150 | % | | | 100%/0 | % |
| Christopher Stone | | Vice President, General Counsel and Secretary | | | 50 | % | | | 50 | % | | | 75 | % | | | 75%/25 | % |
| Danny Hart | | Deputy General Counsel and Assistant Secretary | | | 20 | % | | | 30 | % | | | 45 | % | | | 75%/25 | % |
Bruce Tomlinson(1) | | Former Vice President and Chief Financial Officer | | | — | | | | 50 | % | | | — | | | | 75%/25 | % |
| Caroline Krumel | | Former Vice President of Finance and Principal Accounting Officer | | | 30 | % | | | 30 | % | | | 45 | % | | | 75%/25 | % |
(1) | The 2012 target bonus percentage for Mr. Tomlinson was not evaluated along with the other named executive officers because at the time of the target bonus evaluation, Mr. Tomlinson was not an officer of the Company (although Mr. Tomlinson’s target bonus percentage was evaluated in connection with his employment offer). Because Mr. Tomlinson joined the Company mid-year, he was eligible to receive a prorated portion of his target bonus in 2012. |
31 |
| | | | | | | | | | |
| Name | | Title | | 2018 Target Bonus | | 2019 Target Bonus | | 2019 Maximum Bonus | | Ratio of 2019 Corporate Goals/ 2019 Individual Goals |
| Dominique Monnet | | President and Chief Executive Officer | | 75% | | 80% | | 160% | | 100%/0% |
| Christopher Stone | | Vice President, General Counsel and Secretary | | 75% | | 75% | | 150% | | 75%/25% |
| Peter Garcia | | Former Vice President and Chief Financial Officer | | 75% | | 75% | | 150% | | 75%/25% |
| Jill Jene | | Vice President, Business Development | | 60% | | 75% | | 150% | | 75%/25% |
| Edward Imbrogno | | Vice President, Chief Financial Officer and Chief Accounting Officer | | 50% | | 75% | | 150% | | 75%/25% |
Corporate Goals
Our corporate goals for 20122019 and the relative weight ascribed to them are set forth in the table below:
2012 |
| | |
| 2019 Corporate Goal | | Weight | |
Optimize Value of Patent Estate | | | 30 | % |
Enhance Finance Group | | | 20 | % |
Implement Corporate Strategy & Business Development | | | 40 | %50% |
Expand Investor Relations OutreachExecute a strategy to build portfolio of actively managed late clinical stage or commercial stage product with significant revenue growth potential | | |
10Noden | % | 10% |
| Meet Noden’s fiscal year 2019 EBITDA goal of $11.2 million | | |
| LENSAR | | 10% |
| Meet LENSAR 2019 plan and operating budget loss of $8.6 million | | |
| Finance | | |
| Manage income generating assets to assure anticipated return vs. budget when measured on a cash basis | | 10% |
| Achieve capital structure optimization and tax objectives | | 10% |
| Stock Price | | 10% |
| Meet/exceed peer companies’ share performance | | |
| Total | | | 100 | %100% |
The 2019 Annual Bonus Plan also included the following stretch goals: (i) deliver substantive progress toward the completion of a second strategic transaction involving a late-stage or commercial-stage biopharma product and/or company with significant revenue growth potential, (ii) effectively manage the portfolio of non-strategic assets while minimizing management distraction and (iii) exceed peer companies’ share performance by 50%. No numeric percentages or weights were given to the stretch goals, but rather the awarding of any payments under the stretch goals was to be determined at the Compensation Committee’s discretion.
At the time the Compensation Committee set the goals for 2019, it believed that each of the 2019 annual bonus plan goals was achievable, but only with significant effort. The Compensation Committee monitored the achievement of the 20122019 corporate goals throughout the year.
Individual Goals
Christopher Stone
Goals for 20122019 for Christopher Stone, our Vice President, General Counsel and Secretary, included:included (with percentage weighting in parenthesis): (i)effectively manage litigation with Roche/Genentech; (ii) performintellectual property and legal diligence for income generating asset acquisition opportunities;acquisitionsand oversee transactional and documentation components of acquisitions (50%); (ii) Effectively manage and/or oversee intellectual property, legal and healthcare compliance matters for the Company and operating subsidiaries (20%); (iii) for new acquisitions, manage legal components of newly approved licensed product issues related toacquired entities (10%); (iv) effectively manage new disputes and litigation matters (10%); (v) effectively manage the Queen et al. patentsWellstat Diagnostics loan default litigation (5%); and other acquired patents, as applicable; (iv) strengthen PDL’s position with respect to its foreign patents; and (v)(vi) manage and address any new litigation or disputes, as applicable. A specific value was not attacheddevelop the legal department with regard to each goal.efficiency and risk management processes and ensuring appropriate staffing and skills given the changing nature of the Company (5%).
Danny HartPeter Garcia
Goals for 20122019 for Danny Hart, our Deputy General Counsel and Assistant Secretary, included: (i) perform diligence for income generating asset acquisition opportunities; (ii) manage income generating asset acquisition process, including drafting and negotiation of terms; (iii) develop standard evaluation tools for evaluation of income generating asset acquisitions; (iv) support Compensation Committee in meeting regulatory and governance standards; (v) direct and manage 2012 proxy and annual meeting; (vi) advise Board of Directors and recommend improvements to optimize corporate governance; (vii) provide legal support for ‘34 Act reporting; and (viii) manage legal component of debt related issues and transactions. A specific value was not attached to each goal.
Caroline Krumel
Goals for 2012 for Caroline Krumel,Peter Garcia, our former Vice President and Chief Financial Officer, included (with percentage weighting in parenthesis): (i) monitor financial markets and evaluate debt and equity financing opportunities, and recommend financing strategy based on the needs of Financethe Company, including evaluating and Principal Accounting Officer, included: (i) prepare SEC financial filings;acting on an exchange of existing notes and pursuing straight debt financing or lines of credit and completing $100 million stock repurchase plan and evaluate potential new plans (15%); (ii) manage tax returns and audits to successful resolution (10%); (iii) work with the Board and senior management to develop an acquisition plan that includes compatible acquisition targets and assess impact on cash flow models (15%); (iv) effectively manage and coordinate financial and Sarbanes-Oxley audits;compliance and quarterly reviews with auditors (5%); (v) continue to meet SEC filing requirements, with reliable and timely filings and no restatements, including integrating new investments into the Company’s consolidated financials (10%); (vi) maintain and manage the Company’s investments and ensure compliance with debt and other potential financing requirements (5%); (vii) maintain an active consultative relationship with auditors, tax preparers and other third-party service providers to ensure timely responses and proper risk mitigation (10%); (viii) create a sustainable investor relations program completing at least two non-deal roadshows during 2019 (10%); (ix) develop process improvements to the
accounting close and reporting cycle evaluating and implementing new software systems to assist (10%) and (x) manage and lead budget process for PDL and subsidiaries, including long range plan (10%).
Jill Jene
Goals for 2019 for Jill Jene, our Vice President, Business Development, included (with percentage weighting in parenthesis): (i) execute a strategic transaction to acquire a late clinical stage or commercial stage product with significant revenue growth potential (50%); (ii) build high performance team and support professional development of the team, aligned with corporate needs, and effectively complement internal team’s capacity with external network of consultants and experts to meet transactional timelines (25%); (iii) provide leadership and strategic insight to the Company’s organization around product and company acquisition process; from the identification of an opportunity, including developing a strategic rationale for the Company’s interest in an asset, input into financial model, successful diligence, through close and integration (15%); (iv) effectively source new opportunities by maintaining connections with bankers, potential partners and brokers; (v) proactively seek and source opportunities through EU sourcing efforts, therapeutic area based screening and evaluation (10%); and (vi) deliver substantive progress toward the completion of a second strategic acquisition of a late stage or commercial stage biopharma product and/or company with significant revenue growth potential (no weight given).
Ed Imbrogno
Goals for 2019 for Edward Imbrogno, our Vice President, Chief Accounting Officer and Acting Chief Financial Officer, included (with percentage weighting in parenthesis): (i) assist CEO with interim CFO responsibilities including investor relations and capital market transactions (10%); (ii) coordinate with third party service providers (10%); (iii) effectively manage external reporting (15%); (iv) provide financial modeling of newly acquired revenue assets (10%); (v) maintain active CPA designation, including attending seminars and conferences related to financial instrument accounting (5%); (vi) effectively manage consolidated financial reporting (10%); (vii) effectively manage and coordinate financial and Sarbanes-Oxley audits and quarterly reviews with external auditors (10%); (viii) monitor performance of existing income generating assets (10%); (ix) manage payroll processing and 401(k) reporting and compliance (5%); (x) assist with any royalty audits (5%); and (xi) evaluate, research and determine financial reporting and disclosure impact, preparedocument proper technical memos to support the Company’s accounting treatment for periodic transactions and newly issued accounting pronouncements and ensure timely adoption of the same; (iv) manage preparation of financial statements; (v) direct and coordinate budget management functions; (vi) direct and coordinate debt service payments; (vii) manage federal and state tax audits; (viii) ensure compliance with local, state and federal tax laws and regulations; (ix) ensure compliance with 401(k) reporting requirements. A specific value was not attached to each goal.Company’s business (10%).
20122019 Performance Evaluations and Bonus Amounts
The 20122019 Annual Bonus Plan requires that our chief executive officer conduct the performance reviews of our other named executive officers, thatwhich are then reviewed by ourthe Compensation Committee. Following these assessments, ourthe Compensation Committee determines the attainment percent of the goals for our other named executive officers. OurThe Compensation Committee is responsible for evaluating our chief executive officer’s performance.
In December 2012,January 2020, the Compensation Committee evaluated the Company’s performance against the 20122019 corporate performance goals. The Compensation Committee determined that 110%85% of the 2019 corporate goals established for the 2019 Annual Bonus Plan had been achieved and awarded an additional 15% for the achievement of certain stretch goals included in the 2019 Annual Bonus Plan, as further described below. The Compensation Committee based its decision on the following factors:
Business Development - Execute a strategy to build portfolio of actively managed late clinical stage or commercial stage product with significant revenue growth potential. The Company purchased approximately a 29% position in the stock of Evofem, a late clinical stage company with a novel product named Phexxi™ that has significant growth potential. Evofem successfully re-filed its new drug application for Phexxi™ and also successfully completed its Phase 2b program for indications of the prevention of chlamydia and gonorrhea, further enhancing its revenue growth potential. As of December 31, 2019, the Company had an unrecognized gain of $36.4 million from its Evofem investment. However, the Company did not make progress towards other products or companies necessary to build a portfolio of products. The Committee acknowledged that the suspension of the growth strategy in September of 2019 affected the Company’s ability to achieve this goal. The Committee used its discretion to conclude that the Company had performed at a level of 40% versus the target level of 50%.
Noden - Meeting EBITDA goal. The corporate goal was to effectively operate the Noden business by meeting the fiscal year earnings before interest, taxes, depreciation and amortization (“EBITDA”) goal of $11.2 million, as adjusted to take out a one-time non-cash accounting charge. Noden generated approximately $11 million in adjusted EBITDA in comparison to the goal of $11.2 million. Based on the substantial achievement of the goal, the Compensation Committee concluded that the Company had performed at a level of 10% versus the target level of 10%. Adjusted EBITDA is a non-
GAAP measure and is used by the Company to accurately measure operational performance for a subsidiary business that does not include financial or other adjustments that may not be directly connected to operating results.
LENSAR - Meeting 2019 plan and operating budget. LENSAR met its goal by having an operating loss of $8.9 million in comparison to the 2019 plan operating loss of $8.6 million. Based on the substantial achievement of the goal, the Compensation Committee concluded that the Company had performed at a level of 10% versus the target level of 10%.
Finance - Management of income generating assets to assure anticipated return vs. budget when measured on a cash basis. Cash flows from the Company’s income generating assets were significantly higher that the projected cash flows. In 2019, the Company received $79.3 millionin comparison to a full-year projection of $51.1 million. The Committee concluded that the Company had performed at a level of 10% versus the target level of 10%.
Finance - Achievement of Capital structure optimization and, tax objectives. The Company completed its $100 million share repurchase program that was announced in the fall of 2018. The Company also extended the maturity of approximately $86 million of its convertible notes from December of 2021 to December of 2024, which would have enabled the Company more flexibility for future financings, if necessary, in connection with its then stated growth strategy. Finally, in connection with the Company’s subsequent change in strategy to an asset monetization and near-term shareholder return program, the Company announced a $275 million share and convertible note repurchase program, whereby it retired approximately 80% of its convertible notes in December 2019 for the purpose of enabling the Company more flexibility to pursue its new strategy in consideration of the covenants and other provisions of the convertible notes that would have made such a strategy difficult to achieve. The Compensation Committee noted, however, that the cost of the note exchange and extension was significantly higher than expected, and concluded that the Company had performed at a level of 5% versus the target level of 10%.
Stock Price - Share performance relative to peer companies. The Company’s share price increased by approximately 12% in 2019, in comparison to a 6.2% decrease in share price by the Company’s peer companies during 2019. The Compensation Committee concluded that the Company had performed at a level of 10% versus the target level of 10%.
Stretch goals - (i)deliver substantive progress toward the completion of a second strategic transaction involving a late-stage or commercial-stage biopharma product and/or company with significant revenue growth potential, (ii)effectively manage the portfolio of non-strategic assets while minimizing management distraction and (iii) exceed peer companies’ share performance by 50%. The Compensation Committee reviewed the stretch goals, noting that the Company did not deliver substantive progress towards the completion of a second strategic transaction in 2019, but did effectively manage non-strategic assets and the Company’s increase in share price was more than 50% greater than the average performance of its peer’s stock price. In consideration of the stretch goals, the Compensation Committee used its discretion to award an additional 15% to the scoring of the corporate goals were achieved. as a whole.
The Compensation Committee then reviewed the individual 20122019 performance of each of the Company’s named executive officers and, specifically, their level of achievement of the individual goals established for them, at the beginning of 2012, their management and leadership, their professional contributions and their technical and organizational contributions. Based on its review, the Compensation Committee determined that:
Mr. McLaughlin, whose 2012 Annual Bonus Plan isMonnet, because his bonus was based solely upon the achievement of corporate goals under the 2019 Annual Bonus Plan with no individual goal component, would be 110%receive 100% of thehis target amount;
bonus;
Mr. Stone achieved all of his individual goals in 20122019 and that, combined with his continued strongsuperior performance and contribution in 2012,2019, resulted in the Compensation Committee awarding Mr. Stone achievinga 140% achievement level relative to his individual goals for 2019;
Mr. Garcia did not qualify for payment under the 20122019 Annual Bonus Plan at 120%;
because he was not an employee of the Company as of December 31, 2019;
Dr. Jene achieved all of her individual goals in 2019 and that, combined with continued strong performance and contributions to the Company in 2019, resulted in the Compensation Committee awarding Dr. Jene a 127.5% achievement level relative to her individual goals for 2019; and
Mr. HartImbrogno achieved all of his individual goals in 20122019 and that, combined with his continued strong performance and contributioncontributions to the Company in 2012,2019, resulted in the Compensation Committee awarding Mr. Hart achievingImbrogno a 120% achievement level relative to his individual goals at 120%; and
for 2019.Ms. Krumel achieved all of her individual goals in 2012 and that, combined with her strong performance and contribution in 2012, resulted in Ms. Krumel achieving her individual goals for the 2012 Annual Bonus Plan at 125%. This amount was determined to be an amount in addition to a one-time discretionary cash payment of $10,000 in 2012 to Ms. Krumel for her performance in the absence of a chief financial officer.
Following this review, the Compensation Committee approved bonus payments to each of theour named executive officers based on the above determinations:
| Name | | Title | | 2012 Annual Bonus Plan Bonus | |
| John P. McLaughlin | | President, Chief Executive Officer and Acting Chief Financial Officer | | $ | 742,500 | |
| Christopher Stone | | Vice President, General Counsel and Secretary | | $ | 219,375 | |
| Danny Hart | | Deputy General Counsel and Assistant Secretary | | $ | 79,988 | |
Bruce Tomlinson(1) | | Former Vice President and Chief Financial Officer | | | — | |
| Caroline Krumel | | Former Vice President of Finance and Principal Accounting Officer | | $ | 80,876 | |
|
| | | | | | |
| Name | | Title | | 2019 Annual Bonus |
| Dominique Monnet | | President and Chief Executive Officer | | $ | 508,000 |
|
| Christopher Stone | | Vice President, General Counsel and Secretary | | $ | 410,429 |
|
Peter Garcia (1) | | Former Vice President and Chief Financial Officer | | N/A |
|
| Jill Jene | | Vice President, Business Development | | $ | 280,707 |
|
| Edward Imbrogno | | Vice President, Chief Financial Officer and Chief Accounting Officer | | $ | 211,942 |
|
___________________
(1) | |
(1) | Because he was no longer employed by the Company as of December 31, 2019, Mr. TomlinsonGarcia was not eligible to receive a bonus under the 20122019 Annual Bonus Plan because Mr. Tomlinson resigned from the Company on November 30, 2012.Plan. |
Long-Term IncentiveIncentives
The third component of the Company’sour compensation strategy is the long-term incentive plan. As currently arranged,awards. Our long-term incentive award program is intended to provide executives with opportunities to participate in the appreciation of our stock price and to create unvested award value that will provide a financial incentive for executives to remain with the Company and to work for the continued success of the organization. In 2019, our long-term incentive award program was comprised solely of stock options, which we believe best aligned the interests of management and stockholders in relation to the Company’s growth strategy at the time by rewarding increases in stockholder value.
Stock Option Awards
In recognition of the Company’s transition into a more traditional pharmaceutical company, starting in 2017, the decision was made to primarily use stock options for the Company’s executive officers as opposed to cash and restricted stock, which had been used in the Company’s long-term incentive plans for several years prior. The restructuring was in part a response to feedback that the Company had received from certain of its stockholders who expressed a belief that stock options better aligned the Company’s executive officer’s interests with that of its stockholders compared to cash payments and restricted stock awards. Specifically, our named executive officers receive long-term incentives thatreceived the following stock option awards in 2019:
|
| | | | |
| Name | | Title | | Number of Stock Option Granted in 2019 |
| Dominique Monnet | | President and Chief Executive Officer | | 2,450,000 |
| Christopher Stone | | Vice President, General Counsel and Secretary | | 833,333 |
Peter Garcia (1) | | Former Vice President and Chief Financial Officer | | 641,025 |
| Jill Jene | | Vice President, Business Development | | 384,615 |
| Edward Imbrogno | | Vice President, Chief Financial Officer and Chief Accounting Officer | | 108,766 |
____________________
| |
(1) | 99,666 of Mr. Garcia’s outstanding stock options vested upon his departure from the Company in August 2019; the remaining stock options granted in 2019 were terminated. |
The stock options granted in March 2019 vest atover a four-year period, with 25% vest on the endfirst anniversary of their grant date and the remainder vesting monthly on a pro rata basis for the 36 months following the first anniversary.The vesting of all stock options is subject to: (i) continuous service with the Company as of such vesting date and (ii) accelerated vesting in the event of a change of control. The stock options granted expire ten years from the date of grant, subject to earlier termination in the event of termination of employment. The exercise price of options granted under the stock plans is 100% of the yearfair market value of the underlying stock on the date of grant. Executives do not realize value from our stock options unless our stock price appreciates following the yeardate of grant and our Compensation Committee therefore considers stock options to be “at-risk,” performance-based compensation.
Restricted Stock Award
In connection with his promotion to chief executive officer, in March 2019 Mr. Monnet was granted 451,075 shares of restricted stock, which shares will vest in equal installments on each of the long-term incentive planfirst, second and third anniversaries of the grant date. The vesting of the restricted stock is adopted.subject to: (i) Mr. Monnet’s continuous service with the Company as of such vesting date and (ii) accelerated vesting in the event of a change of control.
Staggered Plans Promote RetentionIn February 2020, in connection with the Board adopting the Plan of Liquidation, all of the stock options and restricted stock granted to our employees, executive officers and directors accelerated and vested under the change in control definition in the Equity Plan, other than the outstanding awards under the 2016/20 LTIP (as discussed below).
The purpose ofLong-Term Incentive Plan Awards Prior to 2018
Under our long-term incentive plan isplans in place prior to enhance stockholder return over the long-term, through promotion of long-term corporate goals and retention of the Company’s management team. The Compensation Committee recognizes that continuity of a management team is critical to corporate success in most instances and, therefore, it is in the Company’s best interests to retain certain key members of the Company. Our Compensation Committee has determined that the use of staggered plans increases the effectiveness of the retention component of the long-term incentive plans. Rather than implement a single plan that vests at the end of three or more years, the Compensation Committee staggers two, two-year long-term incentive plans. The result is that when a long-term incentive plan vests, the2018, each named executive officers remain at the midpoint in vesting under a second, staggered plan.
In May 2011, the Compensation Committee adopted a long-term incentive plan that vested on December 14, 2012, and paid to eligible named executive officers soon thereafter (the 2012 LTIP). In January 2012, the Compensation Committee adopted another long-term incentive plan that will vest in December 2013 and that overlaps the recently vested long-term incentive plan. In January 2013, the Compensation Committee adopted a long-term incentive plan that will vest in December 2014 and that overlaps the 2013 LTIP.
Plan Components
Under the long-term incentive plans, each executive officer is eligible forwas granted awards consisting ofof: (i) restricted stock and (ii) a cash payment. The Compensation Committee fashioned the long-term incentive plan to consist of a mix of 70% cash and 30% restricted stock. In determining the appropriate mix of the cash and non-cash, the Compensation Committee determined that it was important to include a significant cash component because (i) the cash component could easily be subjected to adjustments that would incentivize the accomplishment of certain, valuable long-term goals and (ii) in the event that the Company’s management successfully accomplished a transaction that resulted in a change in control and the loss of employment for some or all of the named executive officers, the cash component would provide financial support in the likely event that the officers are terminated following such a transaction. The equity component seeks to align management’s interest with the interests of our stockholders by ensuring that (i) only transactions on terms attractive to equity holders are implemented and (ii) management is incentivized to continue the Company’s robust dividend payments. The equity component is not subject to adjustment.
Equity
Subject to the acceleration provisions set forth in the severance agreements of the named executive officers and the long-term incentive plans described below, theeach cash award and restricted stock award vests at the end of the two-yeartimes specified in each plan, provided that the named executive officer remains employed by the Company through such date. In 2019, two of such long-term incentive plans were still effective, the 2015/19 long-term incentive plan (the “2015/19 LTIP”) and the 2016/20 long-term incentive plan (the “2016/20 LTIP”). Under such long-term incentive plans, in addition to remaining employed by the Company through the applicable vesting dates, the Company must meet minimum performance goals described over the applicable performance periods for the restricted stock and cash awards to vest and/or be paid. Payment of the cash payment under the long-term incentive plans will be made on or as soon as practicable after the applicable vesting dates.
Dividend payments and other distributions made on the restricted stock during the vesting periodperiods of the restricted stock will accrue through the vesting periodperiods and will be paid, plus interest, to the named executive officer upon vesting of the restricted stock award. InIf the event of a change in control,minimum performance goals for the long-term incentive plan directs thatplan’s restricted stock awards are not met, the accrued dividend payments and other distributions will be forfeited.
Long-Term Incentive Plan Payments in 2019.
2015/19 LTIP Payments in 2019.
The performance goal with respect to the vesting of the restricted stock award, including any accrued but unpaid dividends or other distributions, plus interest, and the target cash payment, including any adjustments (as discussed below) earned on the target cash payment, will accelerate and pay in connection with the change in control.
Cash
Payment16.67% of the target plus2015/19 LTIP award on December 12, 2019, the adjustmentfinal year of the five-year performance period, was that the aggregate cash payment undergenerated by the long-term incentive plan will be made on or as soon as practicable afterincome generating assets acquired over the initial two calendar-year performance period of the plan vests,(2015 and 2016) be least 80% of the amount projected for such assets. In addition, the 2015/19 LTIP provided that if the named executive officer remains employed byperformance goal for any calendar year subsequent to the Company throughinitial two calendar-year performance period were not met, that an award could still vest if the vesting date. Whilecumulative cash flows during the 2012 and 2013 LTIPs only requireperiod from 2017 to 2019 generated at least 80% of the passage of time to vest and pay at the target award amounts,projected cumulative cash flows for such three-year period.
In December 2019, the Compensation Committee fashionedreviewed the 2014 LTIP so that all awards underCompany’s performance against this goal for the plan are at risk if certain2019 performance criteria are not met.
With each plan, theperiod. The Compensation Committee adoptsdetermined that the performance goalsgoal had not been met in recognition that allow incremental payment expressed as a percentagethe Company had received approximately $13.4 million in cash in 2019 from the income generating assets acquired during 2015 and 2016 in comparison to the projection for approximately $65.5 million in cash to be received from such assets for 2019. However, in reviewing the three-year look-back provision, the Committee determined the cumulative cash flows during such period were in excess of the target80% threshold of forecasted cash payment when target goals are exceeded (the adjustment). Inflows. During the casethree-year period of 2017 through 2019, the Company received approximately $196.5 million in cash from the income generating assets acquired during 2015 and 2016 in comparison to the projection of approximately $164.4 million for such period. Despite the cash flows coming in at approximately 120% of the 2014 LTIP, failure to achieve certain performance goals may result in the elimination of any cash payment or restricted stock grant. The amount of the adjustment and the achievement of each performance goal are determined byprojection, the Compensation Committee, in its sole discretion, provideddetermined to award the payments at 92% of the target award. The Compensation Committee based this determination on the fact that the aggregate maximum cash payment that anygoal during the initial two-year performance period of the 2015/19 LTIP under the plan was only awarded at a 92% level. Upon vesting, Mr. Stone, the only remaining named executive officer may receive underparticipating in the 20122015/19 LTIP, may not exceed two times his or her target cash payment. The adjustment for each performance goal underreceived the 2012 LTIP isawards set forth in the table below:below for the 2019 vesting period of the 2015/19 LTIP:
|
| | | | | | | | | | | | | | | | | | |
| 2019 Payouts Under 2015/19 LTIP Awards |
| | | | | | | | | | | | | |
| Name | | Title | | Target Cash | |
Cash Awarded | | Target Value of Restricted Stock Award at Grant(1) | | Target Number of Shares Underlying Restricted Stock Award at Grant(2) | | Number of Shares Vested under Restricted Stock Award |
| Christopher Stone | | Vice President, General Counsel and Secretary | | $ | 255,154 |
| | $ | 234,700 |
| | $ | 109,332 |
| | 16,136 | | 14,848 |
Performance Goal |
| | |
| | Adjustment(1) | Target Value of Restricted Stock Award at Grant is the value of the restricted stock on the date granted assuming 100% of the award is achieved. The realized value of such restricted stock may be more or less based on: (i) the value of our common stock when the restricted stock actually vests over the life of the 2015/19 LTIP and (ii) the number of shares that actually vest. |
Protection | (2) | A price of European Union Queen et al. Patent Rights | | | 40 | % |
Sale or Merger$7.62 per share was used to determine the initial number of Company | | | 20-50 | % |
Recapitalizationshares granted in 2015, which reflected the closing price of the Company’s shares on January 28, 2015, as per the terms of the 2015/19 LTIP.For the subsequent grant of $75,690 in restricted stock to Mr. Stone, a price of $4.95 per share was used, reflecting the closing price of the Company’s shares on September 29, 2015, as per the terms of each such officer’s retention bonus. The retention bonuses were awarded by the Compensation Committee in September 2015 in light of concerns about retaining management beyond 2015 given the transitional phase of the Company | | | 10 | % |
Royalty Rights Acquisition | | | 30-50 | % and dramatic decrease in revenue expected after the first quarter of 2016.
|
The Compensation Committee determined the above adjustment percentages by assessing the value deliveredperformance goal with respect to the Company’s stockholders as well as the difficultyvesting of attaining each16.67% of the specified performance goals. For example,2016/20 LTIP award on December 12, 2019, the Compensation Committee has determined that protecting our European patent rights would take considerable time and effort from the Company and would at the same time deliver a significant value to our stockholders. The goals related to a salefourth year of the Company or acquiring royalty rights are goalsfive-year performance period, was that are equally complicated to achieve, but slightly less complicated to achieve than the goal related to protection of our European patent rights. However, both of those goals haveaggregate cash generated by the potential to deliver more value to our stockholders; therefore, their adjustment percentage range is ultimately higher thanincome generating assets acquired over the adjustment percentage for protection of our European patent rights. “Recapitalizationinitial two calendar-year performance period of the Company” is anticipated to require less effort to achieve even though it will deliver value to our stockholders if accomplished successfully.plan (2016 and 2017) be least 75% of the projected cash flow for such assets during the 2019 calendar year.
In December 2012,2019, the Compensation Committee reviewed the Company’s performance against the 2016/20 LTIP performance goalsgoal for the 2019 performance period and determined that based on the Company’s performance in meeting those goals, the total adjustment should be 95%.goal had not been met. The Compensation Committee arrived at 95% by determining thatdid not award any payments for the Company had achieved (i) all of2019 vesting period under the European Rights adjustment (40%); (ii) all of the recapitalization adjustment (10%); and (iii) most of the royalty rights acquisition adjustment (45%). The Board subsequently ratified the Compensation Committee’s adjustment and, upon vesting, the named executive officers received the awards set forth in the table below:2016/2020 LTIP.
| Name | | Title | | Target Cash | | | Incremental Cash Adjustment | | | Value of Restricted Stock Award | | | Number of Shares Underlying Restricted Stock Award | |
| John P. McLaughlin | | President, Chief Executive Officer and Acting Chief Financial Officer | | $ | 469,000 | | | $ | 445,550 | | | $ | 201,000 | | | | 30,501 | |
| Christopher Stone | | Vice President, General Counsel and Secretary | | $ | 258,000 | | | $ | 245,100 | | | $ | 110,600 | | | | 16,783 | |
| Danny Hart | | Deputy General Counsel and Assistant Secretary | | $ | 58,600 | | | $ | 55,670 | | | $ | 25,100 | | | | 3,809 | |
Bruce Tomlinson(1) | | Former Vice President and Chief Financial Officer | | | — | | | | — | | | | — | | | | — | |
| Caroline Krumel | | Former Vice President of Finance and Principal Accounting Officer | | $ | 70,400 | | | $ | 66,880 | | | $ | 30,200 | | | | 4,583 | |
(1)
| Mr. Tomlinson was not eligible to receive payment under the 2012 LTIP because Mr. Tomlinson joined the Company after eligibility under the plan expired. |
Employee Benefits
The final component of the Company’s compensation strategy is the inclusion of certain employee benefits. We provide our employees, including our named executive officers, with customary benefits, including medical, dental, vision and life insurance coverage, short-term and long-term disability coverage and the ability to participate in our 401(k) plan, which provides for a Company matching contribution up to certain limits. The costs of our insurance coverage benefits are largely borne by us; however, employees pay portions of the premiums for some of these benefits. We think that these benefits are of the type customarily offered to employees by our peer group and in our industry.
This element of compensation is intended to provide assurance of financial support in the event of illness or injury and encourage retirement savings through a 401(k) plan.
All Other Compensation
We generally do not offer perquisites to our named executive officers. However, dueDue to the Company’s unique business model, the difficulty in locating experienced and qualified executive officer candidates in the remote area surrounding the Company’s headquarters the Company’s potentially short-term corporate existence (resulting in our named executive officers’ potentially short-term employment with the Company) and the fact that in most cases we require our named executive officers to be located proximate to the Company’s headquarters in Nevada, the Compensation Committee decided to provide housing assistance in 2019 to Mr. TomlinsonMonnet ($5,0004,000 per month), Ms. KrumelMr. Garcia ($3,5004,000 per month for the months he remained employed by the Company) and Mr. Imbrogno ($4,000 per month) and Mr. Hart ($2,500 per month). We generally do not offer any other perquisites to our named executive officers.
Severance Benefits
In May 2011, our Board of Directors authorized theThe Company to enterhas entered into a severance agreements withplan that covers each of its named executive officers that provideand provides for certain compensation benefits and accelerated vesting rightsbenefits if the named executive officer’s employment is terminated without “cause” or should he or she resignsresign for “good reason,” as those terms are defined in the applicable severance agreement.
Specifically, the severance agreements provide that, upon termination of the named executive officer’s employment without cause or his or her resignation for good reason, the named executive officer will be entitled to receive, subject to the execution of a general release of all claims against the Company, the following severance payment and benefits: (i) a percentage of the named executive officer’s annual base salary, (ii) a percentage of the named executive officer’s target annual bonus for the year in which the separation occurs, (iii) payment of the named executive officer’s COBRA premiums, if any, for a certain number of months, (iv) acceleration of vesting of a pro-rated amount of the restricted stock awards granted pursuant to any outstanding long-term incentive plan, (v) payment of any accrued but unpaid dividends or other distributions, plus interest, paid on the restricted stock awards which are accelerated pursuant to clause (iv) and (vi) payment of a pro-rated amount of the named executive officer’s target cash payment that the executive officer is eligible to earn under any long-term incentive plan. Any severance payments under the severance agreements will be paid in a lump sum within 5 days after the effective date of the named executive officer’s release of claims.
The Company adopted the severance agreements because it recognizes that they are necessaryplan in recognition of the need to attract and retain a talented management team. team to a unique location.
The BoardCompany adopted the new Severance Plan in April 2019. A description of Directors determined the amountSeverance Plan and a calculation of the severance benefits for each of its named executive officers upon recommendation ofunder the Compensation Committee, which,severance agreements in consultation with its compensation consultant, Setren, determined the recommended amounts based on the 50th percentile of its comparator companies’ practices.
A calculation of these severance benefitseffect in 2019 can be found at “Potential“Executive Officer Compensation-Potential Payments upon Termination or Change in Control” below.
Other Executive Compensation Matters
Stock Ownership Guidelines
OurThe Board has determined that ownership of our common stock by our officers promotes a focus on long-term growth and aligns the interests of our officers with those of our stockholders. As a result, ourthe Board has adopted stock ownership guidelines stating that our chief executive officer and our other five most-highly-compensated officers (based on annual base salary), should maintain certain minimum ownership levels of our common stock.
Our stock ownership guidelines encouragerequire the following levels of ownership among our named executive officers:
Our chief executive officer, chief financial officer and general counsel should own shares of common stock with a value of at least one time such executive officer’s annual base salaryofficers not later than sevenfive years after the date the person is initially appointed to such position; andthe applicable position:
|
| | |
| Title | | Ownership Threshold |
| Chief Executive Officer | | Three times (3x) base salary |
| Chief Financial Officer and General Counsel | | One times (1x) base salary |
| Other Executives | | 50% of base salary |
Our other executive officers should own sharesAs of common stock with a valueDecember 31, 2019, all of at least one-half the officer’s annual base salary not later than seven years after the date the person is initially appointed to such position.
Our Board carefully evaluated market practices among its comparator companies and compensation standards set by independent third parties when setting the ownership levels by our executive officers. Our Board determined that the amounts are near or at the 50th percentile of its comparator companies and further determined that the levels are appropriate after considering that the Company uses only restricted stock awards as its equity compensation component, thereby resulting in far fewer shares granted to its executive officers than is typical at most companies where stock options are granted. We believe that our named executive officers will bewere in compliance with this requirement not later than seven years after the date each person was appointed to such position with the Company.requirement.
The Board is permitted, in its discretion, to waive the application of our stock ownership guidelines to any covered individual if it determines that, as a result of the individual’s personal circumstances, application of theour stock ownership guidelines would result in a hardship.
Hedging and Pledging Prohibition against Certain Equity Transactions
Our Trading Compliance Policy strictly prohibits our executivedirectors, officers, and other individuals designated as having access to material non-public information, both during their service with us and following their termination of service, from “shortengaging in the following transactions: (i) short sales” in our securities, (ii) hedging and monetization transactions, (such asincluding zero-cost collars and forward sale contracts),contracts, that limit economic losses from holding PDLour securities, (iii) holding our securities in a margin accountsaccount, and (iv) pledging PDL securities as collateral for loans. “Short” sales, whichour securities. Other employees are sales of shares of common stock by a person that does not own the shares at the time of the sale, evidence an expectation that the value of the shares will decline.strongly discouraged from engaging in these transactions. We prohibit and/or discourage our directors, officers and employees from entering into “short” salesengaging in hedging transactions because it is our view that such transactions detract from the alignment of our directors, officers and employees with our stockholders, signal to the market that the officer hasindividuals engaging in these transactions have no confidence in us or in our short-term prospects, and may reduce the officer’sapplicable individual’s incentive to improve our performance.
In addition, Section 16(c) of the Exchange Act expressly prohibits executive officers and directors from engaging in short sales. Our officers are also prohibited under our Trading Compliance Policy from entering into hedging or monetization transactions, such as zero-cost collars and forward sale contracts, which allow a party to lock in much of the value of their stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions would allow someone to continue to own the covered securities, but without the full risks and rewards of ownership. If an officer were to enter into such a transaction, the officer would no longer have the same objectives as our other stockholders.
Consideration of the Stockholders’ Advisory Vote on Compensation
At the Company’s annual meeting of stockholders held in June 2012, an overwhelming majority of the votes cast on the say-on-pay proposal were voted in favor of the proposal. In reviewing our executive compensation program, the Compensation Committee considered, among other things, the 2012 vote results and other feedback we received from stockholders. After careful consideration, the Compensation Committee did not alter the structure of the executive compensation program as a result of the 2012 vote results. In addition, taking into consideration the voting results from the 2011 annual meeting concerning the frequency of the stockholders advisory votes on executive compensation, our current policy is to hold an annual advisory vote on executive compensation until the next advisory vote on the frequency of such votes.
Compensation RecoveryClawback Policy
In January 2013, ourThe Board has adopted a policy for recoupment of incentive compensation, (theor the clawback policy).policy. The Board adopted the clawback policy to prevent executivesexecutive officers involved in certain wrongful conduct from unjustly benefiting from that conduct, and to remove the financial incentives to engage in such conduct. The clawback policy generally requires an executive officer who is involved in wrongful conduct that results in a restatement of the Company’s financial statements to repay to the Company up to the full amount of any incentive compensation based on the financial statements that were subsequently restated. Incentive compensation includes bonuses or awards under the Company’s annual cash bonus plans, long-term incentive plans and equity incentive plans.
Our Board intends to review its clawback policy for compliance with the Securities and Exchange Commission’s final rules related to compensation recovery, when such rules are adopted.
Tax and Accounting Considerations
In determining executive compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and to its executives.our executive officers. However, to maintain maximum flexibility in designing compensation programs, the Compensation Committee will not limit compensation to those levels or types of compensation that are intended to be deductible. For example, ourthe Compensation Committee considers the provisions of Section 162(m) of the Code and related Treasury Department regulations that restrict deductibility for federal income tax purposes of executive compensation paid to our chief executive officer and each of our three other most-highly-compensated executive officers holding office at the end of any year, other than our chief executive officer and other than our chief financial officer,for certain “covered employees” to the extent such compensation exceeds $1,000,000 for any of such officersemployees in any year and does not qualify for an exception under the statute or regulations. The membersPrior to the Tax Cuts and Jobs Act of 2017, covered employees included our Compensation Committee qualifychief executive officer and each of the next three highest compensated officers serving at the end of the taxable year other than our chief financial officer, and compensation that qualified as outside directors for purposes“performance-based” under Section 162(m) was exempt from this $1 million limitation. As part of exempting executive compensation from the limitsTax Cuts and Jobs Act of 2017, the ability to rely on this “qualified performance-based compensation” exception was eliminated, and the limitation on deductibility was generally expanded to include all named executive officers.Although we maintained compensation plans that were intended to permit the award of deductible compensation as qualified performance-based compensation under Section 162(m). Further, as prior to the Tax Cuts and Jobs Act of 2017, subject to the Act’s transition relief rules, we may no longer take a resultdeduction for any compensation paid to our covered employees in excess of stockholder approval of our 2005 Equity Incentive Plan and the amended Plan in June 2009, certain performance-based awards granted under the plan are eligible to be fully deducted by the Company. However, the$1,000,000. The Compensation Committee has determined that our interests are best served in certain circumstances by providing compensation that doesis not qualify as performance-based compensationdeductible under Section 162(m) of the Code and, accordingly, has grantedmay grant such compensation whichthat may be subject to the $1,000,000 annual limit on deductibility, including base salary, annual cash bonuses and time-vested restricted stock.long-term incentive awards.
In addition to Section 162(m), Sections 280G and 4999 of the Code provide that executive officers, persons who hold significant equity interests and certain other highly-compensated service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control of the Company that exceeds certain prescribed limits, and that the Company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. Further, Section 409A of the Code imposes certain additional taxes on service providers who enter into certain deferred compensation arrangements that do not comply with the requirements of Section 409A.409A of the Code. We have not agreed to pay any named executive officer, a “gross-up” or other reimbursement payment for any tax liability that he or she might owe as a result of the application of SectionsSection 280G, 4999 or 409A of the Code.
The Compensation Committee also considers the accounting consequences to the Company of different compensation decisions and the impact of certain arrangements on stockholder dilution. However, neither of these factors by themselves will compel a particular compensation decision.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion &and Analysis contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion &and Analysis be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.2019.
Respectfully Submitted By:
The Compensation Committee
Harold Selick, Ph.D.Elizabeth O’Farrell (chairperson)
Jody S. Lindell
Paul W. Sandman
Natasha Hernday
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
The compensation earned by our chief executive officer, our chief financial officer, our threetwo other highest compensated executive officers serving as of the end of 2019 and our former chief financial officer (the named executive officers) and our executive officers who departed the Company in 2012 for the last three fiscal years is set forth in the table below:
| Name and Title | | Year | | Salary | | | Bonus | | | Stock Awards(1) | | | Non-Equity Incentive Plan Compensation | | | All Other Compensation | | | Total | |
John P. McLaughlin | | 2012 | | $ | 675,000 | | | $ | 469,000 | (2) | | $ | 201,000 | | | $ | 1,188,050 | (3) | | $ | 46,649 | (4) | | $ | 2,579,699 | |
| President and Chief | | 2011 | | $ | 585,000 | | | $ | — | | | $ | 201,000 | | | $ | 368,550 | | | $ | 9,800 | (5) | | $ | 1,164,350 | |
| Executive Officer | | 2010 | | $ | 515,000 | | | $ | 742,500 | (6) | | $ | — | | | $ | 257,500 | | | $ | 186,013 | (7) | | $ | 1,701,013 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Christopher Stone | | 2012 | | $ | 390,000 | | | $ | 258,000 | (2) | | $ | 110,600 | | | $ | 464,475 | (8) | | $ | 30,166 | (9) | | $ | 1,253,241 | |
| Vice President, General | | 2011 | | $ | 360,635 | (10) | | $ | — | | | $ | 110,600 | | | $ | 173,438 | | | $ | 9,800 | (11) | | $ | 654,473 | |
Counsel and Secretary | | 2010 | | $ | 319,300 | | | $ | 391,315 | (12) | | $ | — | | | $ | 143,685 | | | $ | 104,850 | (13) | | $ | 959,150 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Danny Hart(14) | | 2012 | | $ | 237,000 | | | $ | 58,600 | (2) | | $ | 30,200 | | | $ | 135,658 | (15) | | $ | 44,577 | (16) | | $ | 506,035 | |
| Deputy General Counsel and Assistant Secretary | | 2011 | | $ | 186,300 | | | $ | — | | | $ | 25,100 | | | $ | 39,123 | | | $ | 38,652 | (17) | | $ | 289,175 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bruce Tomlinson | | 2012 | | $ | 178,977 | (18) | | $ | — | | | $ | — | (19) | | $ | — | | | $ | 156,900 | (20) | | $ | 335,877 | |
Former Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Caroline Krumel(21) | | 2012 | | $ | 237,000 | | | $ | 80,400 | (22) | | $ | 30,200 | | | $ | 147,756 | (23) | | $ | 57,507 | (24) | | $ | 552,863 | |
Former Vice President of Finance and Principal Accounting Officer | | 2011 | | $ | 220,417 | (25) | | $ | 2,000 | (26) | | $ | 30,200 | | | $ | 62,100 | | | $ | 47,800 | (27) | | $ | 362,517 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Title | | Year | | Salary | | Bonus | | Stock Awards(1) | | Option Awards(2) | | Non-Equity Incentive Plan Compensation | | All Other Compensation | | Total |
| Dominique Monnet | | 2019 | | $ | 635,000 |
| | $ | — |
| | $ | 1,678,000 |
| | $ | 3,822,000 |
| | $ | 508,000 |
| (3) | $ | 58,000 |
| (4) | $ | 6,701,000 |
|
| President and Chief | | 2018 | | $ | 525,000 |
| | $ | — |
| | $ | — |
| | $ | 1,568,740 |
| | $ | 346,500 |
| | $ | 58,000 |
| | $ | 2,498,240 |
|
| Executive Officer | | 2017 | | $ | 155,303 |
| | $ | — |
| | $ | 773,444 |
| | $ | 1,459,114 |
| | $ | — |
| | $ | 25,301 |
| | $ | 2,413,162 |
|
| | | | | | | | | | | | | | | | | |
| Edward Imbrogno | | 2019 | | $ | 294,200 |
| | $ | — |
| | $ | 82,500 |
| | $ | 167,500 |
| | $ | 211,943 |
| (3) | $ | 58,000 |
| (5) | $ | 814,143 |
|
| Vice President, Chief Financial Officer and | | | | | | | | | | | | | |
|
| |
|
|
| Chief Accounting Officer | | | | | | | | | | | | | | | |
|
|
| | | | | | | | | | | | | | | | | |
| Christopher Stone | | 2019 | | $ | 497,490 |
| | $ | — |
| | $ | — |
| | $ | 1,300,000 |
| | $ | 645,129 |
| (6) | $ | 10,000 |
| (7) | $ | 2,452,619 |
|
| Vice President, General | | 2018 | | $ | 483,000 |
| | $ | — |
| | $ | — |
| | $ | 1,137,555 |
| | $ | 500,940 |
| | $ | 10,000 |
| | $ | 2,131,495 |
|
| Counsel and Secretary | | 2017 | | $ | 460,350 |
| | $ | — |
| | $ | 437,320 |
| | $ | — |
| | $ | 467,154 |
| | $ | 10,000 |
| | $ | 1,374,824 |
|
| | | | | | | | | | | | | | | | | |
| Peter Garcia | | 2019 | | $ | 290,975 |
| | $ | — |
| | $ | — |
| | $ | 1,000,000 |
| (8) | $ | — |
| (9) | $ | 1,286,285 |
| (10) | $ | 2,577,260 |
|
| Former Vice President and | | 2018 | | $ | 452,000 |
| | $ | — |
| | $ | — |
| | $ | 1,131,398 |
| | $ | 479,033 |
| | $ | 54,000 |
| | $ | 2,116,431 |
|
| Chief Financial Officer | | 2017 | | $ | 430,301 |
| | $ | — |
| | $ | 433,845 |
| | $ | — |
| | $ | 463,443 |
| | $ | 58,000 |
| | $ | 1,385,589 |
|
| | | | | | | | | | | | | | | | | |
| Jill Jene | | 2019 | | $ | 350,200 |
| | $ | — |
| | $ | — |
| | $ | 600,000 |
| | $ | 280,707 |
| (3) | $ | 10,000 |
| (11) | $ | 1,240,907 |
|
| Vice President, Business | | 2018 | | $ | 210,139 |
| | $ | 50,000 |
| (12) | $ | — |
| | $ | 400,000 |
| | $ | 108,000 |
| | $ | 3,063 |
| | $ | 771,202 |
|
| Development | | | | | | | | | | | | | | | |
|
|
_______________________
| |
| (1) | Amounts in this column represent the grant date fair value of restricted stock awards granted in 2012 and 2011,the relevant fiscal year, calculated in accordance with FASB ASC Topic 718. The amounts shown disregard estimated forfeitures. Assumptions used in the calculation of these amounts for awards granted in 2012 and 2011 are included in Note 1418 to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 1, 2013.11, 2020. |
| |
| (2) | Except as described in footnote (8) below for Mr. Garcia, amounts in this column represent the grant date fair value of stock options granted in the relevant fiscal year, calculated in accordance with FASB ASC Topic 718. The 2012 and 2011 restricted stock grants were madeamounts shown disregard estimated forfeitures. Assumptions used in connectionthe calculation of these amounts are included in Note 18 to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the Company’s adoption of the 2013 LTIP that will vest in December 2013, and the 2012 LTIP that vested and paid December 2012, respectively.SEC on March 11, 2020. |
Mr. Stone and Mr. Garcia were granted stock options on August 29, 2017, subject to the approval of the stockholders of the Company. As a result, pursuant to SEC rules and FASB ASC Topic 718, since the stock option grants were subject to stockholder approval, the grant date of such awards for purposes of FASB ASC Topic 718 and SEC disclosure rules was June 8, 2018, the date such option grants were approved by the stockholders. This date was also used to determine the grant date fair value of these stock options for purposes of FASB ASC Topic 718, which are as follows for each named executive officer who received these awards: $777,555 for Mr. Stone; and $771,339 for Mr. Garcia. In addition, during 2018 Mr. Stone, Mr. Garcia and Dr. Jene were granted additional stock options, the grant date fair value of which were: $360,000 for Mr. Stone, $360,059 for Mr. Garcia; and $400,000 for Dr. Jene. Assumptions used in the calculation of these amounts are included in Note 18 to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 11, 2020.
(3)Consists of a payment under the 2019 Annual Bonus Plan.
(2)
| Consists of the cash component of the 2012 LTIP that vested and paid in December 2012. |
