SCHEDULE 14A INFORMATION
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Cempra, Inc.
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CEMPRA, INC.
6320 Quadrangle Drive, Suite 360
Chapel Hill, North Carolina 27517
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 2015
TO THE SHAREHOLDERS OF
CEMPRA, INC.
The 2015 annual meeting of shareholders of Cempra, Inc. will be held at our corporate headquarters, 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517, on May 21, 2015, at 4:00 p.m. Eastern time, for the following purposes:
1. | To elect 3 Class I directors for a three-year term expiring in 2018; |
2. | To approve amendments to our 2011 Equity Incentive Plan to (i) increase the number of shares of common stock reserved for issuance thereunder from 3,342,105 shares to 4,842,105 shares, and (ii) provide an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year; |
3. | To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015; and |
4. | To act upon such other matters as may properly come before the meeting or any adjournment thereof. |
These matters are more fully described in the proxy statement accompanying this notice.
The Board has fixed the close of business on April 2, 2015 as the record date for the determination of shareholders entitled to notice of and to vote at the meeting or any adjournment thereof. A list of shareholders eligible to vote at the meeting will be available for review during our regular business hours at our principal offices in Chapel Hill, North Carolina for the ten days prior to the meeting for review for any purposes related to the meeting.
Our shareholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, you are urged to vote by proxy by following the instructions contained in the accompanying proxy statement. You may revoke your proxy in the manner described in the proxy statement at any time before it has been voted at the meeting. Any shareholder attending the meeting may vote in person even if he or she has returned a proxy. Your vote is important. Whether or not you plan to attend the annual meeting, we hope that you will vote as soon as possible.
Our proxy statement and proxy are enclosed, along with our 2014 Annual Report, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange Commission.
Chapel Hill, North Carolina |
Dated: April 17, 2015 |
By Order of the Board of Directors |
Shane Barton |
Secretary |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2015 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 21, 2015: This proxy statement and our 2014 Annual Report to Shareholders are available at:www.cempra.com.
CEMPRA, INC.
6320 Quadrangle Drive, Suite 360
Chapel Hill, North Carolina 27517
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 2015
This proxy statement has been prepared by the management of Cempra, Inc. “We,” “our” and the “Company” each refers to Cempra, Inc.
In addition to soliciting proxies by mail, we are furnishing proxy materials, including the notice, proxy statement, electronic proxy card for the meeting and 2014 Annual Report to shareholders, including financial statements, by providing access to them on the internet. These materials were first available on the internet on or about April 17, 2015. The proxy statement contains instructions for accessing and reviewing our proxy materials on the internet and for voting by proxy over the internet. We mailed copies of the proxy materials on or about April 17, 2015 to our shareholders of record and beneficial owners as of April 2, 2015, the record date for the meeting.
GENERAL INFORMATION ABOUT VOTING
Who Can Vote
You are entitled to attend the meeting and vote your common stock if you held shares as of the close of business on April 2, 2015. At the close of business on April 2, 2015, a total of 43,587,346 shares of common stock were outstanding and entitled to vote. Each share of common stock has one vote.
Voting by Proxies
If your common stock is held by a broker, bank or other nominee, they should send you instructions that you must follow in order to have your shares voted. If you hold shares in your own name, you may vote by proxy in any one of the following ways:
• | via the internet by accessing the proxy materials on the secure website,www.investorvote.com, and following the voting instructions on that website; |
• | via telephone by calling toll free 1-800-652-8683 in the United States or 1-800-962-4284 outside the United States and following the recorded instructions; or |
• | by requesting printed copies of the proxy materials be mailed to you and completing, dating, signing and returning the proxy card that you receive in response to your request. |
The internet and telephone voting procedures are designed to authenticate shareholders’ identities by use of a control number to allow shareholders to vote their shares and to confirm that shareholders’ instructions have been properly recorded. Voting via the internet or telephone must be completed by 11:59 p.m. local time on May 20, 2015. Of course, you can always come to the meeting and vote your shares in person. If you submit or return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board.
We are not aware of any other matters to be presented at the meeting except for those described in this proxy statement. If any matters not described in this proxy statement are presented at the meeting, the proxies will use their own judgment to determine how to vote your shares. If the meeting is adjourned, the proxies may vote your shares on the new meeting date as well, unless you revoke your proxy instructions before then.
Revoking Your Proxy Instructions
If you are a shareholder of record, you can revoke your proxy before your shares are voted at the meeting by:
• | Filing a written notice of revocation bearing a later date than the proxy with our Corporate Secretary at 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517 at or before the taking of the vote at the meeting; |
• | Duly executing a later-dated proxy relating to the same shares and delivering it to our Corporate Secretary at 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517 at or before the taking of the vote at the meeting; or |
• | Attending the meeting and voting in person (although attendance at the meeting will not in and of itself constitute a revocation of a proxy). |
If you are a beneficial owner of shares held in street name, you may submit new voting instructions by contacting your bank, broker, nominee or trustee. You may also vote in person at the meeting if you obtain a legal proxy from them.
Counting Votes
Consistent with state law and our bylaws, the presence, in person or by proxy, of at least a majority of the shares entitled to vote at the meeting will constitute a quorum for purposes of voting on a particular matter at the meeting. Once a share is represented for any purpose at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is set for the adjournment. Shares held of record by shareholders or their nominees who do not vote by proxy or attend the meeting in person will not be considered present or represented and will not be counted in determining the presence of a quorum. Signed proxies that withhold authority or reflect abstentions or “broker non-votes” will be counted for purposes of determining whether a quorum is present. “Broker non-votes” are proxies received from brokerage firms or other nominees holding shares on behalf of their clients who have not been given specific voting instructions from their clients with respect to non-routine matters.
Assuming the presence of a quorum at the meeting:
• | The election of directors will be determined by a plurality of the votes cast at the meeting. This means that the two nominees receiving the highest number of “FOR” votes will be elected as directors. Withheld votes and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on the proposal to elect directors. |
• | The approval of the ratification of the appointment of our independent registered public accounting firm and the amendment of our 2011 Equity Incentive Plan require the affirmative vote of a majority of the votes cast at the meeting. Abstentions and broker non-votes are not treated as votes cast, and therefore will have no effect on the proposals. Further, because your vote on the ratification of the appointment of our independent registered public accounting firm is advisory, it will not be binding on our Board or our company. However, the Board and the Audit Committee will consider the outcome of the vote when making future decisions regarding the selection of our independent registered public accounting firm. |
With respect to “routine” matters, such as the ratification of the selection of our independent registered public accounting firm, a bank, brokerage firm, or other nominee has the authority (but is not required) under the rules governing self-regulatory organizations, or SRO rules, including NASDAQ, to vote its clients’ shares if the clients do not provide instructions. When a bank, brokerage firm, or other nominee votes its clients’ shares on routine matters without receiving voting instructions, these shares are counted both for establishing a quorum to conduct business at the meeting and in determining the number of shares voted FOR, AGAINST or ABSTAINING with respect to such routine matters.
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With respect to “non-routine” matters, such as the election of directors and the amendment of our 2011 Equity Incentive Plan, a bank, brokerage firm, or other nominee is not permitted under the SRO rules to vote its clients’ shares if the clients do not provide instructions. The bank, brokerage firm, or other nominee will so note on the voting instruction form, and this constitutes a “broker non-vote.” “Broker non-votes” will be counted for purposes of establishing a quorum to conduct business at the meeting, but not for determining the number of shares voted FOR, AGAINST, ABSTAINING or WITHHELD FROM with respect to such non-routine matters.
In summary, if you do not vote your proxy, your bank, brokerage firm, or other nominee may either:
• | vote your shares on routine matters and cast a “broker non-vote” on non-routine matters; or |
• | leave your shares unvoted altogether. |
We encourage you to provide instructions to your bank, brokerage firm, or other nominee by voting your proxy. This action ensures that your shares will be voted in accordance with your wishes at the meeting.
Cost of this Proxy Solicitation
We will pay the cost of this proxy solicitation. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting proxies by mail, our employees might solicit proxies personally and by telephone. None of these employees will receive any additional compensation for this. We did not, but may in the future, retain a proxy solicitor to assist in the solicitation of proxies for a fee. We will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.
Attending the Annual Meeting
If you are a holder of record and plan to attend the annual meeting, please bring your proxy or a photo identification to confirm your identity. If you are a beneficial owner of common stock held by a bank or broker, i.e., in “street name,” you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote in person your common stock held in street name, you must get a proxy in your name from the registered holder.
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PROPOSAL NO. 1—ELECTION OF DIRECTORS
Our bylaws currently provide that the number of directors constituting the Board shall be not less than five nor more than nine. The Board may establish the number of directors within this range. There are eight directors presently serving on our Board, and the number of directors to be elected at this annual meeting is three.
Our Board is divided into three classes, each class as nearly equal in number as practicable. Each year, one class is elected to serve for three years. At our annual meeting, three Class I directors will be elected for a term of three years, expiring in 2018, or until their successors are elected and qualified. The Class I directors standing for re-election in 2015 and their respective biographical summaries are listed below.
Vote Required
Directors are elected by a plurality of the votes cast at the annual meeting. This means that the three Class I nominees receiving the highest number of votes will be elected.
Voting by the Proxies
The proxies will vote your common stock in accordance with your instructions. If you are a shareholder of record, unless you mark your proxy card to withhold authority to vote, your common stock will be voted for the election of the nominees named in this proxy statement. Each nominee has agreed to serve and we expect that each of the nominees will be able to serve if elected. However, if any nominee is unavailable for election, the proxies may vote your common stock to elect a substitute nominee proposed by the Board.
If you are a beneficial owner of shares held in street name and you do not provide your broker with voting instructions, under the SRO rules governing brokers, your broker maynot vote your shares on the election of directors.
Nominees
The Board proposes the three Class I nominees listed below for election to the Board for a three-year term. The Board has determined that Michael R. Dougherty and David Gill are independent as defined in Rule 5605(a)(2) of the NASDAQ Marketplace Rules. Prabhavathi Fernandes is not independent because she serves as our President and Chief Executive Officer. In addition to the specific bars to independence set forth in that rule, we also consider whether a director or his or her affiliates have provided any services to, worked for or received any compensation from us or any of our subsidiaries in the past three years in particular. In addition, none of the nominees is related by blood, marriage or adoption to any other nominee or any of our executive officers.
Class I Directors with Terms Expiring in 2015 | ||||||||
Name | Age | Director Since | Position(s) with Cempra | |||||
Michael R. Dougherty | 57 | May 2013 | Director | |||||
Prabhavathi Fernandes, Ph.D. | 66 | November 2005 | Director, President and Chief Executive Officer | |||||
David Gill | 60 | April 2012 | Director |
Class I Director Nominees
Michael R. Dougherty – Mr. Dougherty joined our Board in 2013. Mr. Dougherty was Chief Executive Officer, and Member of the Board of Directors, of Kalidex Pharmaceuticals, Inc. from May 2012 to October 2012. Mr. Dougherty was the President and Chief Executive Officer of Adolor Corp. and a member of the Board of Directors of Adolor from December 2006 until December 2011. Mr. Dougherty joined Adolor as Senior Vice President of Commercial Operations in November 2002, and until his appointment as President and Chief Executive Officer in December 2006, served in a number of capacities, including Chief Operating Officer and Chief Financial Officer. From November 2000 to November 2002, Mr. Dougherty was President and Chief Operating Officer of
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Genomics Collaborative, Inc., a privately held functional genomics company. Previously, Mr. Dougherty served in a variety of senior positions at Genaera Corporation, formerly Magainin Pharmaceuticals Inc., a publicly-traded biotechnology company, including as President and Chief Executive Officer, as well as a director, and at Centocor, Inc., a publicly-traded biotechnology company, including as Senior Vice President and Chief Financial Officer. Mr. Dougherty is currently on the board of directors of Biota Pharmaceuticals, Inc. (NASDAQ; BOTA), Trevena, Inc. (NASDAQ; TRVN) and Celator Pharmaceuticals, Inc. (NASDAQ; CPXX). Mr. Dougherty was a member of the board of directors of Viropharma Incorporated (NASDAQ; VPHM) from January 2004 to January 2014 when it was acquired by Shire Plc. Mr. Dougherty received a B.S. from Villanova University. Among other experience, qualifications, attributes and skills, Mr. Dougherty’s leadership roles in small and large pharmaceutical organizations led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
Prabhavathi Fernandes, Ph.D.– Dr. Fernandes, one of our founders, has been our President and Chief Executive Officer and a member of our Board since our founding in November 2005. Prior to that, she was President and Chief Executive Officer of several privately held companies, including DarPharma, Inc. from 2003 to 2005, Ricerca Biosciences from 2000 to 2003 and Small Molecule Therapeutics from 1998 to 2000. Dr. Fernandes was Vice President, Drug Discovery of Bristol-Myers Squibb Company from 1988 to 1998, Senior Director of Squibb Pharmaceutical Research Institute from 1987 to 1988, Senior Project Leader of Abbott Laboratories from 1983 to 1987 and Senior Microbiologist of the Squibb Institute for Medical Research, the research division of E.R. Squibb and Sons, from 1980 to 1983. She has served on the advisory board of Optimer Pharmaceuticals, Inc. since 2004 and the supervisory board of GPC Biotech AG from 2004 to 2008. Dr. Fernandes served on the product development working group for Biodefense for the National Institute of Allergy and Infectious Diseases from 2003 to 2004 and the U.S. Congressional Panel for Assessment of Impact of Antibiotic Resistant Bacteria and the American Society for Microbiology Advisory Panel for Antibiotic Resistance from 1991 to 1995. Dr. Fernandes holds a B.S. in botany, zoology and chemistry from the University of Bangalore (India), an M.S. in microbiology from the Christian Medical College (India) and a Ph.D. in microbiology from Thomas Jefferson University, Philadelphia, Pennsylvania. Among other experience, qualifications, attributes and skills, Dr. Fernandes’ experience in senior leadership roles in small and large pharmaceutical organizations and her position as President and Chief Executive Officer of our company led to the conclusion of our Board that she should serve as a director of our company in light of our business and structure.
David Gill –Mr. Gill joined our Board in April 2012. Mr. Gill is Chief Financial Officer of Endochoice, Inc., a private medtech company, a position he has held since August 2014. He served as the Chief Financial Officer of INC Research, a clinical research organization, from February 2011 to August 2013, and served as a board member and audit committee chairman of INC Research from 2007 to 2010. From March 2009 to February 2011, Mr. Gill was the Chief Financial Officer of TransEnterix, a then private medical device company. From July 2005 to November 2006, Mr. Gill was Chief Financial Officer and Treasurer of NxStage Medical, Inc., a publicly traded dialysis equipment company. He currently serves as a director and chair of the audit committee of Histogenics Corporation (NASDAQ: HSGX), a regenerative medicine company, positions he has held since February 2015. From 2006 to 2011, he served on several public and private company boards of directors, including those of LeMaitre Vascular (LMAT), a publicly traded medical device company, and IsoTis, Inc. (NASDAQ: ISOT), a publicly traded orthobiologics company that was acquired by Integra LifeSciences Holdings Corporation in October 2007. From January 2002 to May 2005, Mr. Gill served as Senior Vice President and Chief Financial Officer of CTI Molecular Imaging, Inc., a publicly traded medical imaging company, until its sale to Siemens AG. Mr. Gill has led initial public offerings for three companies and has raised more than $500 million in equity and $600 million in debt over his career. Mr. Gill holds a B.S. degree, cum laude, in Accountancy from Wake Forest University and an M.B.A. degree, with honors, from Emory University. Mr. Gill was formerly a certified public accountant. Among other experience, qualifications, attributes and skills, Mr. Gill’s education and experience in accounting and finance, and his service as an officer and as a director of various publicly traded companies led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
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Recommendation
The Board unanimously recommends that shareholders voteFOR the election of the three Class I nominees for election to the Board for a three-year term.
Other Directors Not Up for Re-election at this Meeting
Class II Directors with Terms Expiring in 2016 | ||||||||
Name | Age | Director Since | Position(s) with Cempra | |||||
Dov Goldstein, M.D. | 47 | January 2008 | Director | |||||
John H. Johnson | 57 | June 2009 | Director | |||||
Class III Directors with Terms Expiring in 2017 | ||||||||
Name | Age | Director Since | Position(s) with Cempra | |||||
Richard Kent, M.D. | 65 | September 2010 | Director | |||||
Garheng Kong, M.D., Ph.D. | 39 | September 2006 | Chairman of the Board of Directors | |||||
P. Sherrill Neff | 63 | September 2011 | Director |
Dov A. Goldstein, M.D. –Dr. Goldstein has served on our Board since January 2008. He has been a partner at Aisling Capital, a private investment firm, since 2008. From 2006 to 2008, he was a Principal at Aisling Capital. From July 2014 to January 2015, he served as Chief Financial Officer of Loxo Oncology(NASDAQ:LOXO) and an Operating Partner at Aisling Capital. In January 2015, he became a Partner again at Aisling Capital and the Acting Chief Financial Officer at Loxo Oncology (NASDAQ:LOXO). From 2000 to 2005, Dr. Goldstein was Chief Financial Officer of Vicuron Pharmaceuticals, Inc. (NASDAQ: MICU) (acquired by Pfizer Inc.). From 1998 to 2000, Dr. Goldstein was Director of Venture Analysis at HealthCare Ventures, a privately held investment fund. Dr. Goldstein serves on the board of directors of several publicly reporting pharmaceutical companies, namely ADMA Biologics, Inc. (OTCQB; ADMA) and Esperion Therapeutics, Inc. (NASDAQ: ESPR). Dr. Goldstein has also served on the board of Loxo Oncology (NASDAQ:LOXO) and Durata Therapeutics (NASDAQ:DRTX). He holds a B.S. in biology from Stanford University, an M.D. from the Yale School of Medicine and an M.B.A. from the Columbia Business School. Among other experience, qualifications, attributes and skills, Dr. Goldstein’s knowledge and experience in the pharmaceutical industry and venture capital industry led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
John H. Johnson –Mr. Johnson has served on our Board since June 2009. He served as President and Chief Executive Officer of Dendreon Corp., a publicly traded biotechnology company (NASDAQ: DNDNJ), from February 2012, became Chairman in July 2013, and served in those roles until August 2014. He served as the Chief Executive Officer and as a director of Savient Pharmaceuticals, Inc., a company that develops and commercializes specialty pharmaceuticals, from 2011 to January 2012. Mr. Johnson was Senior Vice President of Eli Lilly and Company and President of Lilly Oncology, Eli Lilly’s oncology business unit, from 2009 to 2011. From 2007 to 2009, Mr. Johnson was Chief Executive Officer of ImClone Systems Incorporated, a biopharmaceutical development company, and was also a member of ImClone’s board of directors until it became a wholly owned subsidiary of Eli Lilly in 2008. From 2001 to 2007, Mr. Johnson served as company group chairman of Johnson & Johnson’s Worldwide Biopharmaceuticals unit. Mr. Johnson served as Chairman of the Board of Tranzyme, Inc. (NASDAQ: TZYM), a publicly traded biopharmaceutical company, from December 2010 until July 2013. Mr. Johnson serves as the chairman of the board of Cortendo AB, a global biopharmaceutical company, and also serves as a director of Sucampo Pharmaceuticals, Inc. (NASDAQ: SCMP), a global biopharmaceutical company, Portola Pharmaceuticals, Inc. (NASDAQ: PTLA), a biopharmaceutical company, and Histogenics Corporation (NASDAQ: HSGX), a regenerative medicine company. Mr. Johnson holds a B.S. in Education from East Stroudsburg
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University of Pennsylvania. Among other experience, qualifications, attributes and skills, Mr. Johnson’s leadership roles in large pharmaceutical organizations led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
Richard Kent, M.D. –Dr. Kent has served on our Board since September 2010. Beginning in 2010, Dr. Kent became a full partner at Intersouth Partners, a venture capital firm. He was a venture partner at Intersouth Partners from 2008 to 2010. From 2002 to 2008, Dr. Kent was the President and Chief Executive Officer of Serenex, Inc., a drug development company, when it was acquired by Pfizer Inc. From 2001 until he joined Serenex, Dr. Kent was President and Chief Executive Officer of Ardent Pharmaceuticals, Inc. Before that, he held senior executive positions at GlaxoSmithKline plc., where he was Senior Vice President of Global Medical Affairs and Chief Medical Officer, at Glaxo Wellcome plc., where he was Vice President of U.S. Medical Affairs and Group Medical Director, and at Burroughs Wellcome plc., where he was International Director of Medical Research. Dr. Kent currently serves as a director of Cytomedix, Inc., a publicly traded biopharmaceutical company, and served as a director of Inspire Pharmaceuticals, Inc. from 2004 to 2011. He also serves on the boards of several private companies. Dr. Kent holds a B.A. from the University of California, Berkley and an M.D. from the University of California, San Diego. Among other experience, qualifications, attributes and skills, Dr. Kent’s knowledge and experience in the securities and investments industry and leadership roles in the pharmaceutical industry led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
Garheng Kong, M.D., Ph.D. –Dr. Kong has served on our Board since September 2006 and as Chairman of our Board since November 2008. Dr. Kong has been the Managing Partner of Sofinnova Healthquest, a healthcare investment firm, since July 2013. He was a general partner at Sofinnova Ventures, a venture firm focused on life sciences, from September 2010 to December 2013. From 2000 to September 2010, he was at Intersouth Partners, a venture capital firm, most recently as a general partner, where he was a founding investor or board member for various life sciences ventures, several of which were acquired by large pharmaceutical companies. Dr. Kong has also served on the board of directors of Histogencis Corporation (NASDAQ: HSGX), a regenerative medicine company, since July 2012, Alimera Sciences, Inc. (NASDAQ: ALIM), a biopharmaceutical company, since October 2012, and has served on the board of Laboratory Corporation of America Holdings (NYSE: LH), a healthcare company, since December 2013. Dr. Kong holds a B.S. from Stanford University. He holds an M.D., Ph.D. and M.B.A. from Duke University. Among other experience, qualifications, attributes and skills, Dr. Kong’s knowledge and experience in the venture capital industry and his medical training led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
P. Sherrill Neff –Mr. Neff has served on our Board since September 2011. Mr. Neff founded Quaker Partners Management, L.P. in 2002 and has since served as a partner at the investment firm. From 1994 to 2002, Mr. Neff was President and Chief Operating Officer of Neose Technologies, Inc., a biopharmaceutical company, and a director from 1994 to 2003. From 1993 to 1994, he was Senior Vice President, Corporate Development at U.S. Healthcare. Prior to that time, Mr. Neff was managing director at investment bank Alex.Brown & Sons for nine years. Mr. Neff holds a B.A. from Wesleyan University and a J.D. from the University of Michigan Law School. Mr. Neff serves on the board of directors of Resource Capital Corporation, (NYSE: RSO), a publicly traded real estate investment trust, and Regado Biosciences, Inc. (NASDAQ; RGDO), as well as several privately held organizations including Neuronetics, Inc., Intact Vascular, Inc. and RainDance Technologies, Inc. Mr. Neff also served on the board of directors of Amicus Therapeutics, Inc. from 1996 until 2011. Mr. Neff has served on the board of directors of the National Venture Capital Association since 2009. Among other experience, qualifications, attributes and skills, Mr. Neff’s experience in the venture capital industry led to the conclusion of our Board that he should serve as a director of our company in light of our business and structure.
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CORPORATE GOVERNANCE
Information About the Board of Directors and its Committees
Board Composition
Our Board currently consists of eight members. Our certificate of incorporation and bylaws provide for a classified board of directors, consisting of three classes as follows:
• | Class I, which consists of Mr. Dougherty, Dr. Fernandes and Mr. Gill, and whose term expire at the annual meeting; |
• | Class II, which consists of Dr. Goldstein and Mr. Johnson, and whose terms will expire at our 2016 annual meeting; and |
• | Class III, which consists of Dr. Kent, Dr. Kong and Mr. Neff, and whose terms expire at our 2017 annual meeting. |
Directors elected at this meeting and each subsequent annual meeting will be elected for three-year terms or until their successors are duly elected and qualified.
We have historically separated the position of Chairman, currently independent director Garheng Kong, M.D., Ph.D., and that of Chief Executive Officer, currently Prabhavathi Fernandes, Ph.D. While the Board believes that separation of these positions has served our company well, and intends to maintain this separation where appropriate and practicable, the Board does not believe that it is appropriate to prohibit one person from serving as both Chairman and Chief Executive Officer.
Selection of Nominees for our Board of Directors
To be considered as a director nominee, an individual must have, among other attributes: high personal and professional ethics, integrity and values; commitment to our company and its shareholders; an inquisitive and objective perspective and mature judgment; availability to perform all Board and committee responsibilities; and independence. In addition to these minimum requirements, the Nominating and Governance Committee will also evaluate whether the nominee’s skills are complementary to the existing directors’ skills and the Board’s need for operational, management, financial, international, industry-specific or other expertise. We do not have a specific written policy with regard to the consideration of diversity in identifying director nominees. We focus on identifying nominees with experience, qualifications, attributes and skills to work with the other directors to serve the long-term interests of our shareholders. All those matters being equal, we do and will consider diversity a positive additional characteristic in potential nominees.
The Nominating and Governance Committee invites Board members to submit nominations for director. In addition to candidates submitted by Board members, director nominees recommended by shareholders will be considered. Shareholder recommendations must be made in accordance with the procedures described in the following paragraph and will receive the same consideration that other nominees receive. All nominees are evaluated by the Nominating and Governance Committee to determine whether they meet the minimum qualifications and whether they will satisfy the Board’s needs for specific expertise at that time. The Committee recommends to the full Board nominees for election as directors at our annual meeting of shareholders.
Our bylaws permit any shareholder of record to nominate directors. You must give written notice of your intent to make nominations by personal delivery or by certified mail, postage prepaid, to our Secretary. Any such timely notice will be forwarded to the Nominating and Governance Committee. If the election is to be held at the annual meeting of shareholders, you must give your notice not more than 90 days nor less than 60 days before the meeting. If the election is to be held at a special meeting of shareholders called to elect directors, you must give your notice by the tenth business day following the date on which notice of the special meeting is first given to shareholders. Your notice must include the following: (1) your name and address, as they appear on the our books, and the name and residence address of the persons to be nominated; (2) the class and number of shares which you beneficially own; (3) whether and the extent to which you have engaged in any hedging or other transaction or series of
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transactions, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for you, or to increase or decrease your voting power with respect to any share of our stock; (4) a representation that you are a shareholder of record of our company entitled to vote at the meeting and intend to appear in person or by proxy to nominate the persons specified in your notice; (5) a description of all arrangements or understandings between you and each nominee and any other persons, by name, as to how you will make the nominations; (6) all other information regarding each nominee you propose which is required to be disclosed in a solicitation of proxies for election of directors or is required under Regulation 14A of the Securities Exchange Act of 1934, including any information required to be included in a proxy statement if the nominee had been nominated by the Board; and (7) the written consent of each nominee to be named in a proxy statement to serve as a director, if elected.
No shareholder has nominated anyone for election as a director at this annual meeting.
Board Committees
Our Board has established an Audit Committee, Compensation Committee and Nominating and Governance Committee. Our Audit Committee consists of Mr. Gill (Chair), Mr. Dougherty and Dr. Kong. Our Compensation Committee consists of Dr. Kong (Chair), Dr. Kent and Mr. Neff. Our Nominating and Governance Committee consists of Dr. Goldstein (Chair), Mr. Dougherty and Mr. Johnson.
Our Board has undertaken a review of the independence of our directors and has determined that all directors except Dr. Fernandes are independent within the meaning of Section 5605(a)(2) of the NASDAQ Marketplace Rules and that Mr. Dougherty, Dr. Kong and Mr. Gill meet the additional test for independence for audit committee members imposed by Securities and Exchange Commission, or SEC, regulation and Section 5605(c)(2)(A) of the NASDAQ Marketplace Rules. The members of our Compensation Committee are all independent within the meaning of Section 5606(a)(2) of the NASDAQ Marketplace Rules.
Each of the above-referenced committees operates pursuant to a formal written charter. The charters for these committees, which have been adopted by our Board, contain a detailed description of the respective committee’s duties and responsibilities and are available on our website atwww.cempra.com under the “Investor Relations—Corporate Governance” tab.
Audit Committee
The primary purpose of our Audit Committee is to assist the Board in the oversight of the integrity of our accounting and financial reporting process, the audits of our consolidated financial statements, and our compliance with legal and regulatory requirements. The Audit Committee is responsible for hiring the independent registered public accounting firm, reviewing and approving the planned scope of the annual audit and pre-approving all audit services and permissible non-audit services provided by our independent registered public accounting firm. Its role also includes meeting with management and our independent registered public accounting firm to review our annual audited financial statements and quarterly financial statements. The Audit Committee monitors the integrity of our financial statements, the performance of our internal audit function and our compliance with regulatory and legal requirements.
Compensation Committee
The primary purpose of our Compensation Committee is to assist our Board in exercising its responsibilities relating to compensation of our executive officers and employees and to administer our equity compensation and other benefit plans. In carrying out these responsibilities, this committee reviews all components of executive officer and employee compensation for consistency with its compensation philosophy, as in effect from time to time. Our Compensation Committee is responsible for reviewing and recommending to our Board the compensation paid to directors, as well as designing and implementing compensation policies for our key personnel, including executive
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officers and employees. Finally, the Compensation Committee has the authority to obtain, at our expense, the advice and assistance of internal or external advisers, experts and others to assist the Committee.
Nominating and Governance Committee
The primary purpose of our Nominating and Governance Committee is to assist our Board in promoting the best interest of our company and our shareholders through the implementation of sound corporate governance principles and practices. The Nominating and Governance Committee is also responsible for identifying and evaluating candidates to serve on our Board, developing and recommending an annual self-evaluation process for our Board and overseeing the self-evaluation process.
Information Regarding Meetings of the Board and Committees
The business of our company is under the general oversight of our Board as provided by the laws of Delaware and our bylaws. During the fiscal year ended December 31, 2014, the Board held four meetings and also conducted business by written consent, the Audit Committee held four meetings, the Compensation Committee held one meeting and the Nominating and Governance Committee held one meeting. Each person who was a director during 2014 attended at least 75% of the Board meetings and the meetings of the committee on which he or she served.
We do not have a formal written policy with respect to Board members’ attendance at our annual meetings of shareholders. To save on reimbursable travel expenses, only Dr. Fernandes attended our 2014 Annual Meeting of Shareholders.
Risk Oversight
Our Board is responsible for our company’s risk oversight and has delegated that role to the Audit Committee. In fulfilling that role, the Audit Committee focuses on our general risk-management strategy, the most significant risks facing our company, and ensures that risk-mitigation strategies are implemented by management. The Compensation Committee oversees risks related to our compensation and benefit plans and policies to ensure sound pay practices that do not cause risks to arise that are reasonably likely to have a material adverse effect on our company. The Nominating and Governance Committee seeks to minimize risks related to governance structure by implementing sound corporate governance principles and practices. Each of the committees regularly reports to the full Board as appropriate on its efforts at risk oversight, and will report any matter that rises to the level of a material or enterprise-level risk.
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PROPOSAL NO. 2 –APPROVAL OF THE
AMENDMENT TO THE 2011 EQUITY INCENTIVE PLAN TO (i) INCREASE THE NUMBER OF SHARES RESERVED THEREUNDER BY 1,500,000 SHARES AND (ii) PROVIDE AN AUTOMATIC ANNUAL INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER IN THE AMOUNT OF 4% OF THE SHARES OF COMMON STOCK OUTSTANDING ON DECEMBER 31 OF THE PRECEDING YEAR
Our Board of Directors and our shareholders approved our 2011 Equity Incentive Plan, or the 2011 Plan, in October 2011. When adopted, an aggregate of 1,526,316 shares was reserved for issuance under the 2011 Plan. On January 1, 2013 an additional 105,263 shares were added automatically to the share reserve pursuant to Section 3(a) of the Plan, which increased the number of shares available to 1,631,579. In May 2013, our Board and shareholders subsequently approved an amendment to the 2011 Plan to increase the number of shares of common stock reserved for issuance under the 2011 Plan from 1,631,579 shares to 3,131,579 shares. Since that date, an aggregate of 210,526 shares were added automatically to the share reserve pursuant to Section 3(a) of the Plan, which increased the number of shares available to 3,342,105 shares as of March 31, 2015. Through March 31, 2015, options issued under the 2011 Plan and still outstanding totaled 2,366,644 shares. In addition, 67,391 options have been exercised and 154,330 options forfeited or expired under the 2011 Plan through March 31, 2015. As a result, as of March 31, 2015, there are only 908,070 shares currently available for issuance under the 2011 Plan. The Board has approved increasing the number of shares available for issuance under the 2011 Plan by 1,500,000 shares. If the amendment to the 2011 Plan is approved at the meeting, immediately thereafter there will be a total of 4,842,105 shares of common stock reserved for issuance under the 2011 Plan with a total of 2,408,070 shares available for issuance in the form of new grants (assuming the amendment had been effective at March 31, 2015).
The 2011 Plan, currently administered by our Compensation Committee, authorizes our Board or the Compensation Committee to grant stock options and other equity awards to eligible employees, directors and consultants and is structured to allow our Board or Compensation Committee broad discretion in creating equity incentives. We believe that equity awards made under the 2011 Plan are an important incentive for our employees and our directors. Equity awards, which to date have consisted entirely of option grants, are a significant part of our ability to attract, retain and motivate people whose skills and performance are critical to our success. Our goal is to link employee compensation to corporate performance because we believe that this increases employee motivation to improve shareholder value. We have, therefore, consistently included equity incentives as a significant component of compensation for our employees as well as our directors.
As of March 31, 2015, we had 59 employees. In order to retain the services of existing employees, it might be necessary to grant additional options to such employees. In addition, we expect to need additional staff to support any launch of our product candidates, and especially as we plan the launch of solithromycin as a treatment for community acquired bacterial pneumonia, assuming receipt of FDA approval. Our Board believes that the remaining 908,070 shares of common stock available for issuance under the 2011 Plan as of March 31, 2015 are insufficient to accomplish the purposes of the 2011 Plan as described above.
Section 3(a) of the 2011 Plan provides that the number of shares of our common stock reserved for issuance under the 2011 Plan will automatically increase on January 1 of each year, and continuing through January 1, 2021, by the least of (a) 4% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) 105,263 shares, or (c) such lesser number of shares of common stock as determined by our board of directors. The Board has approved amending Section 3(a) of the 2011 Plan to provide an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year. In effect, this amendment simply removes the two lower limits on the current automatic annual increase. While our Board also has proposed the amendment of the 2011 Plan to increase the number of shares reserved thereunder from 3,342,105 shares to 4,842,105 shares, as discussed above, even with such an increase, if approved, our Board believes it is important to maintain a sufficient amount of shares available for issuance under the 2011 Plan, especially as we grow our company. The Board believes that, at this time, the automatic annual increase, combined with the proposed increase in the number of shares reserved for issuance under the 2011 Plan, will provide a sufficient amount of shares to accommodate our planned growth.
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Vote Required
Approval of the amendment of our 2011 Plan requires the affirmative vote of a majority of the votes cast at the meeting.
Voting by the Proxies
The proxies will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted for the approval of the amendment of the 2011 Plan to (i) increase the number of shares of common stock reserved for issuance thereunder from 3,342,105 shares to 4,842,105 shares, and (ii) provide an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year.
Recommendation
The Board unanimously recommends that shareholders voteFOR the approval of the amendment to the 2011 Plan to (i) increase the number of shares of common stock reserved for issuance thereunder from 3,342,105 shares to 4,842,105 shares, and (ii) provide an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year.
Summary of the 2011 Plan
Stock Awards.Our 2011 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards (including performance stock awards), restricted stock unit awards (including performance stock unit awards), stock appreciation rights and other forms of equity compensation, or collectively, stock awards. Incentive stock options may be granted only to employees. All other awards may be granted to employees (including officers), consultants and non-employee directors. To date, we have only granted stock options under the 2011 Plan.
Share Reserve.The aggregate number of shares of our common stock that may be issued pursuant to stock awards under our 2011 Plan is currently 3,342,105 shares. As currently in effect, the number of shares of our common stock reserved for issuance under the 2011 Plan will automatically increase on January 1 of each year, and continuing through January 1, 2021, by the least of (a) 4% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) 105,263 shares, or (c) such lesser number of shares of common stock as determined by our Board. As noted above, our Board has approved and is asking our shareholders to approve the amendment of Section 3(a) of the 2011 Plan to provide an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year. The proposed amendment, in effect, simply removes the two lower limits on the current automatic annual increase. Also as noted above, our Board has approved and is asking our shareholders to approve the amendment of the 2011 Plan to increase the number of shares available for issuance under the 2011 Plan by 1,500,000 shares.
Shares that are forfeited prior to becoming fully vested may become available for the grant of new stock awards under our 2011 Plan. Shares issued under our 2011 Plan may be previously unissued shares or reacquired shares bought on the open market. As of March 31, 2015, options covering an aggregate of 2,588,365 shares have been granted, 67,391 shares of our common stock have been issued and 154,330 options have been forfeited or expired, under our 2011 Plan.
Administration.Our Board has delegated its authority to administer our 2011 Plan to our Compensation Committee. Subject to the terms of our 2011 Plan, our Compensation Committee determines award recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, our Compensation Committee also determines the exercise price of options granted, the consideration (if any) to be paid for other types of stock awards and the strike price of stock appreciation rights.
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Stock Options.Incentive and nonstatutory stock options are granted pursuant to award agreements adopted by our Compensation Committee. Our Compensation Committee determines the exercise price for a stock option, within the terms and conditions of our 2011 Plan, provided that the exercise price of a stock option cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under our 2011 Plan vest at the rate specified by our Compensation Committee.
The Compensation Committee determines the term of stock options granted under our 2011 Plan, up to a maximum of 10 years, except in the case of certain incentive stock options, as described below. Unless the terms of the award agreement provide otherwise, if an optionholder’s relationship with us, or any of our affiliates, ceases for any reason other than for cause, disability or death, the optionholder may exercise any vested options for a period of three months following the cessation of service. If an optionholder’s service relationship with us is terminated for cause, then the option terminates immediately. If an optionholder’s service relationship with us, or any of our affiliates, ceases due to disability or death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may exercise any vested options for a period of 12 months. The Compensation Committee may extend the exercise period in the event that exercise of the option following termination of service is prohibited by applicable securities laws. In no event, however, may an option be exercised beyond the expiration of its term.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the Compensation Committee and may include (a) cash or, if permitted by the Compensation Committee, its equivalent, (b) the tender of common stock previously owned by the optionholder, (c) net exercise (d) delivering a properly executed notice of exercise of the option to us and a broker, with irrevocable instructions to the broker promptly to deliver to us the amount necessary to pay the exercise price of the option or (e) any combination of (a), (b), (c) or (d).
Unless the Compensation Committee provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder’s death.
Limitations on Incentive Stock Options.Incentive stock options may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (a) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and (b) the term of the incentive stock option does not exceed five years from the date of grant.
Restricted Stock Awards.Restricted stock awards are granted pursuant to award agreements adopted by our Compensation Committee. Restricted stock awards may be granted for consideration (in addition to past services), as determined by the Compensation Committee. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the Compensation Committee. Upon termination of service for any reason, restricted stock must be offered to us for purchase for the amount of cash (or cash equivalents) paid for the shares of common stock or forfeited if no cash (or cash equivalent) was so paid.
Restricted Stock Unit Awards. Restricted stock unit awards are granted pursuant to award agreements adopted by our Compensation Committee. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by our Compensation Committee, or in any other form of consideration set forth in the award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant’s cessation of continuous service for any reason.
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Performance Stock Awards. Our 2011 Plan permits the grant of performance stock awards (either a restricted stock award or restricted stock award unit) pursuant to award agreements adopted by our Compensation Committee. The performance stock or performance stock units will be issued only upon the achievement of certain pre-established performance goals during a designated performance period. Upon termination of service for any reason prior to the performance period, all performance stock and performance stock units will be forfeited except as determined by the Compensation Committee in certain circumstances.
Stock Appreciation Rights. Stock appreciation rights are granted pursuant to award agreements adopted by the Compensation Committee. If issued, the Compensation Committee will determine the strike price for a stock appreciation right which cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (a) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (b) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under our 2011 Plan vests at the rate specified in the stock appreciation right agreement as determined by our Compensation Committee.
Our Compensation Committee determines the term of stock appreciation rights granted under our 2011 Plan, up to a maximum of 10 years. If a participant’s service relationship with us, or any of our affiliates, ceases without cause, then the participant may exercise any vested stock appreciation right for three months (or such longer or shorter period specified in the stock appreciation right agreement) after the date such service relationship ends. If a participant’s service relationship with us, or any of our affiliates, ceases for cause, then all the vested SARs terminate immediately. If a participant’s service relationship with us, or any of our affiliates, ceases due to death or disability, then the participant (or his or her beneficiary) may exercise any vested stock appreciation right for one year (or such longer or shorter period specified in the award agreement) after the date such service relationship ends. In no event, however, may a stock appreciation right be exercised beyond the expiration of its term.
Other Stock Awards. The Compensation Committee may grant awards of unrestricted shares of common stock to an employee, non-employee director or consultant that is fully vested on the date made.
Changes to Capital Structure.In the event of a specified type of change in our capital structure, such as a stock split, appropriate adjustments will be made to (a) the maximum number and types of shares reserved under our 2011 Plan, (b) the number and type of shares issuable upon exercise, vesting or payment of outstanding options, stock appreciation rights and restricted stock units under our 2011 Plan (as well as the option price per share under outstanding options and the fair market value of a share on the date an outstanding stock appreciation right was granted), and (c) in the event of a spin-off from us or other non-cash dividend on the outstanding shares of common stock, equitable adjustments to the exercise price of all outstanding options, stock appreciation rights and restricted stock units and to the number of shares underlying such awards.
Corporate Transactions. The 2011 Plan provides that, in the event of a sale, lease or other disposition of all or substantially all of our assets or specified types of mergers or consolidations (each, a “corporate transaction”), any surviving or acquiring corporation shall either assume awards outstanding under the 2011 Plan or substitute similar awards for those outstanding under the 2011 Plan. If any surviving corporation declines to assume awards outstanding under the 2011 Plan or to substitute similar awards, then, with respect to participants whose service with us has not terminated prior to the time of such corporate transaction, unless otherwise determined by our Board, the vesting and the time during which such awards may be exercised will be accelerated in full, and all outstanding awards will terminate if the participant does not exercise such awards at or prior to the corporate transaction. With respect to any awards that are held by other participants that terminated service with us prior to the corporate transaction, the vesting and exercisability provisions of such awards will not be accelerated and such awards will terminate if not exercised prior to the corporate transaction. For all participants that are terminated in connection with, or if the awards are assumed or substituted within one year after, a corporate transaction, a minimum of the greater of 50% of the otherwise unvested portion of their award and the portion of such award that would otherwise vest during the one year after the corporate transaction shall vest and become immediately exercisable.
Changes in Control.Our Board has the discretion to provide that a stock award under the 2011 Plan will immediately vest as to all or any portion of the shares subject to the stock award (a) immediately upon the occurrence of certain specified change in control transactions, whether or not such stock award is assumed, continued or substituted by a surviving or acquiring entity in the transaction or (b) in the event a participant’s service
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with us or a successor entity is terminated actually or constructively within a designated period following the occurrence of certain specified change in control transactions. Stock awards held by participants under the 2011 Plan will not vest automatically on such an accelerated basis unless specifically provided in the participant’s applicable award agreement.
For purposes of the 2011 Plan, a change in control is the occurrence of one or more of the following events:
• | a transaction in which one person or a group acquires stock that, combined with stock previously owned, controls more than 50% of our value or voting power; |
• | a merger, consolidation or similar transaction involving us (directly or indirectly) in which our shareholders immediately before the transaction do not own at least 50% of the outstanding securities following such transaction; |
• | our complete liquidation or dissolution; |
• | a sale, lease, license or other disposition of all or substantially all of our assets, other than to an entity in which more than 50% of the voting power is owned by our shareholders in substantially the same proportions as their ownership of our voting securities immediately prior to such transaction; or |
• | a majority of our Board is replaced by persons whose appointment or election is not endorsed by a majority of our Board. |
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PROPOSAL NO. 3—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Pursuant to its charter, the Audit Committee of our Board has appointed the firm PricewaterhouseCoopers LLP, Raleigh, North Carolina, to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2015. While the Audit Committee is solely responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm, the Committee and the Board are requesting that the shareholders ratify this appointment. If the shareholders ratify this appointment, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it believes that doing so would be in the best interests of our shareholders. If the shareholders do not ratify this appointment, the Audit Committee may reconsider, but might not change, its appointment.
PricewaterhouseCoopers LLP, or PwC, has audited our financial statements annually since our formation in November 2005. Representatives of PwC are expected to be present at the annual meeting of shareholders with the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Vote Required
Ratification of the appointment of PwC as our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast at the meeting.
Voting by the Proxies
The proxies will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted for the ratification of the appointment of PwC as our independent registered public accounting firm for the fiscal year ending December 31, 2015.
Recommendation
The Board unanimously recommends that shareholders voteFOR the ratification of the appointment of PwC as our independent registered public accounting firm for the fiscal year ending December 31, 2015.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The following table shows the number of shares of our common stock beneficially owned as of March 31, 2015 by:
• | each person known by us to own beneficially more than 5% of the outstanding shares of our common stock; |
• | each director and nominee for director; |
• | each of our executive officers named in the Summary Compensation Table below (the “Named Executive Officers”); and |
• | all of our current directors and executive officers as a group. |
This table is based upon the information supplied by our Named Executive Officers, directors and principal shareholders and from Schedules 13G filed with the SEC. Except as indicated in footnotes to this table, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown, and their address is c/o Cempra, Inc., 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517. As of March 31, 2015, we had 43,587,346 shares of common stock outstanding. Share ownership in each case also includes shares issuable upon exercise of outstanding options that can be exercised within 60 days after March 31, 2015 for purposes of computing the percentage of common stock owned by the person named. Options owned by a person are not included for purposes of computing the percentage owned by any other person.
Name and Address of Beneficial Owner | Number of shares beneficially owned | Percentage of shares beneficially owned | ||||||
5% or greater shareholders: | ||||||||
Intersouth Partners VI, L.P. and its affiliates(1) | 3,355,762 | 7.7 | % | |||||
406 Blackwell Street, Suite 200 Durham, NC 27701 | ||||||||
Aisling Capital II, LP(2) | 3,332,278 | 7.6 | % | |||||
888 Seventh Avenue, 30th Floor New York, NY 10106 | ||||||||
Quaker BioVentures II, L.P.(3) | 3,565,601 | 8.2 | % | |||||
Cira Centre 2929 Arch Street, Suite 325 Philadelphia, PA 19104 | ||||||||
Wasatch Advisors, Inc.(4) | 3,454,456 | 7.9 | % | |||||
505 Wakara Way Salt Lake City, UT 84108 | ||||||||
Directors and Named Executive Officers: | ||||||||
Richard Kent, M.D.(5) | 3,407,012 | 7.8 | % | |||||
Dov Goldstein, M.D.(6) | 3,383,528 | 7.7 | % | |||||
P. Sherrill Neff(7) | 3,616,851 | 8.3 | % | |||||
Prabhavathi Fernandes, Ph.D.(8) | 785,263 | 1.8 | % | |||||
John H. Johnson(9) | 90,034 | * | ||||||
Garheng Kong, M.D., Ph. D.(10) | 90,284 | * | ||||||
David Gill(11) | 61,250 | * | ||||||
Michael R. Dougherty(12) | 46,250 | * | ||||||
Mark W. Hahn(13) | 159,374 | * | ||||||
David Moore(14) | 48,540 | * | ||||||
David W. Oldach, M.D.(15) | 88,786 | * | ||||||
All current executive officers and directors as a group (11 persons)(18) | 11,767,172 | 26.2% |
* | Less than 1%. |
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(1) | Includes (i) 1,970,728 shares of held by Intersouth Partners VI, L.P. and 1,345,558 shares held by Intersouth Partners VII, L.P. and (ii) 15,790 shares and 23,686 shares issuable upon the exercise of warrants held by Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P., respectively. The shares directly held by Intersouth Partners VI, L.P. (“Intersouth VI”) are indirectly held by Intersouth Associates VI, LLC (“ISA VI”), as general partner of Intersouth VI, and each of the individual managing members of ISA VI. The individual managing members (collectively, the “ISA VI Member Managers”) of ISA VI are Mitch Mumma and Dennis Dougherty. ISA VI Member Managers may share voting and dispositive power over the shares directly held by Intersouth VI. The shares held directly by Intersouth Partners VII, L.P. (“Intersouth VII”) are indirectly held by Intersouth Associates VII, LLC (“ISA VII”), as general partner of Intersouth VII, and each of the individual managing members of ISA VII. The individual managing members (collectively, the “ISA VII Member Managers”) of ISA VII are Mitch Mumma and Dennis Dougherty. |
(2) | Includes (i) 3,293,060 shares and (ii) 39,218 shares issuable upon the exercise of warrants. The shares directly held by Aisling Capital II, LP (“Aisling”) are indirectly held by Aisling Capital Partners, LP (“Aisling GP”), as general partner of Aisling, Aisling Capital Partners, LLC (“Aisling Partners”), as general partner of Aisling GP, and each of the individual managing members of Aisling Partners. The individual managing members (collectively, the “Aisling Managers”) of Aisling Partners are Dennis Purcell, Dr. Andrew Schiff and Steve Elms. Each of Aisling, Aisling GP and Aisling Partners may be deemed to have sole power to direct the voting and disposition of the shares directly held by Aisling. The Aisling Managers may share voting and dispositive power over the shares directly held by Aisling. |
(3) | Includes (i) 3,527,154 shares and (ii) 38,447 shares issuable upon the exercise of warrants. The shares directly held by Quaker BioVentures II, L.P. (“Quaker BioVentures”) are indirectly held by Quaker BioVentures Capital II, L.P. (“Quaker Capital LP”), as general partner of Quaker BioVentures and Quaker BioVentures Capital II, LLC (“Quaker Capital LLC”), as general partner of Quaker Capital LP. |
(4) | Based on information provided in a Schedule 13G/A filed by Wasatch Advisors, Inc. on February 17, 2015. |
(5) | Consists of (i) 15,000 shares held by Dr. Kent, (ii) 36,250 shares that Dr. Kent has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options, (iii) 1,970,728 shares held by Intersouth Partners VI, L.P., 1,345,558 shares held by Intersouth Partners VII, L.P. and (iv) 15,790 shares and 23,686 shares issuable upon the exercise of warrants held by Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P., respectively. Dr. Kent, a member of our Board of Directors, is a partner of Intersouth Partners, the general partner of Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P. Dr. Kent disclaims beneficial ownership of these shares held by Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P., except to the extent of any pecuniary interest therein. |
(6) | Consists of (i) 51,250 shares that Dr. Goldstein has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options, (ii) 3,293,060 shares held by Aisling Capital II, LP and (iii) 39,218 shares issuable upon the exercise of warrants held by Aisling Capital II, LP. Dr. Goldstein, a member of our Board, is a member of the investment committee of Aisling Capital II, LP. Dr. Goldstein disclaims beneficial ownership of these shares held by Aisling Capital II, LP, except to the extent of any pecuniary interest therein. |
(7) | Consists of (i) 51,250 shares that Mr. Neff has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options, (ii) 3,527,154 shares held by Quaker BioVentures II, L.P. and (iii) 38,447 shares issuable upon the exercise of warrants held by Quaker BioVentures II, L.P. Mr. Neff, a member of our Board, is a managing member of Quaker BioVentures Capital II, LLC, the general partner of Quaker BioVentures Capital II, L.P., the general partner of Quaker BioVentures II, L.P. Pursuant to powers of attorney granted by Quaker BioVentures Capital II, LLC and Quaker BioVentures Capital II, L.P., Mr. Neff shares voting power with respect to the securities owned by the entities for which these entities serve as general partners. Mr. Neff disclaims beneficial ownership of the shares held by Quaker BioVentures II, L.P., except to the extent of any pecuniary interest therein. He also disclaims beneficial ownership of the shares issuable under the stock options, which he holds beneficially for Quaker Partners Management, LP, except to the extent of any pecuniary interest therein. |
(8) | Includes (i) 215,789 shares held by Dr. Fernandes, and (ii) 569,474 shares that Dr. Fernandes has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options. |
(9) | Includes (i) 10,000 shares held by Mr. Johnson, and (ii) 80,034 shares that Mr. Johnson has the right to acquire from us within 60 days of March 31, 2014 pursuant to the exercise of stock options. |
(10) | Consists of 90,284 shares that Dr. Kong has the right to acquire from us within 60 days of March 31, 2014 pursuant to the exercise of stock options. |
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(11) | Consists of 61,250 shares that Mr. Gill has the right to acquire from us within 60 days of March 31, 2014 pursuant to the exercise of stock options. |
(12) | Consisting of 46,250 shares that Mr. Dougherty has the right to acquire from us within 60 days of March 31, 2014 pursuant to the exercise of options. |
(13) | Consists of 159,374 shares that Mr. Hahn has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options. |
(14) | Consists of (i) 1,000 shares held by Mr. Moore and (ii) 47,540 shares that Mr. Moore has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options. |
(15) | Consists of (i) 3,300 shares held by Dr. Oldach, and (ii) 85,486 shares that Dr. Oldach has the right to acquire from us within 60 days of March 31, 2015 pursuant to the exercise of stock options. Dr. Oldach became our Chief Medical Officer in January 2015. |
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DIRECTOR COMPENSATION
Director Compensation in Fiscal 2014
The following table shows the compensation earned by each non-employee director of our company for the year ended December 31, 2014.
Name | Fees Earned or Paid in Cash | Option Awards(1) (2) | All Other Compensation | Total | ||||||||||||
Michael R. Dougherty | $ | 40,000 | $ | 130,875 | $ | — | $ | 170,875 | ||||||||
David Gill | 50,000 | 130,875 | — | 180,875 | ||||||||||||
Dov Goldstein, M.D. | 43,000 | 130,875 | — | 173,875 | ||||||||||||
John H. Johnson | 40,000 | 130,875 | — | 170,875 | ||||||||||||
Richard Kent, M.D. | 40,000 | 130,875 | — | 170,875 | ||||||||||||
Garheng Kong, M.D., Ph.D. | 85,000 | 157,050 | — | 242,050 | ||||||||||||
P. Sherrill Neff | 40,000 | 130,875 | — | 170,875 |
(1) | The reported amounts represent the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 2 of the financial statements included in our annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 26, 2015. |
(2) | At December 31, 2014, the following directors held options to purchase common shares in the following amounts: Mr. Dougherty 40,000 shares; Mr. Gill, 55,000 shares; Dr. Goldstein, 45,000 shares; Mr. Johnson, 73,784 shares; Dr. Kent, 30,000 shares; Dr. Kong, 82,784 shares; and Mr. Neff, 45,000. |
Directors Compensation Plan
Subsequent to our initial public offering in February 2012, our Board, with the assistance of Pay Governance, LLC, an independent compensation consultant, determined that compensation for directors should be a mix of cash and equity-based compensation. Beginning March 20, 2012, all members of the Board receive an annual cash retainer of $35,000. The Chairman of the Board, if not a Named Executive Officer, receives an additional annual cash retainer of $35,000. The chairman of our Audit Committee receives an additional annual cash retainer of $15,000. The chairman of our Compensation Committee receives an additional cash retainer of $10,000. The chairman of the Nominating and Governance Committee receives an additional annual cash retainer of $8,000. Other members of our Audit Committee, Compensation Committee and Nominating and Governance Committee receive additional annual cash retainers of $5,000. Beginning in 2012, each director receives an initial grant of 25,000 option shares when first appointed to the Board and thereafter annual grants of 15,000 option shares. The Chairman of the Board, if not a Named Executive Officer, receives an additional annual grant of 3,000 option shares.
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EXECUTIVE COMPENSATION
Compensation Objectives and Components
In 2014, our Chief Executive Officer, Chief Financial Officer and Chief Commercial Officer were our executive officers, who we refer to as our Named Executive Officers. Our Board has delegated responsibility for creating and reviewing the compensation of our entire senior management team, including our Named Executive Officers, to the Compensation Committee of our Board.
The primary objectives of the Compensation Committee with respect to executive compensation are to attract, retain and motivate executive officers who will make important contributions to the achievement of our business goals and success. The Compensation Committee believes that the most effective executive compensation program will reward the achievement of annual, long-term and strategic goals of our company. Our executive compensation program has been designed to link short- and long-term cash and equity incentives to the achievement of measurable corporate and individual performance objectives, and to align executives’ incentives with shareholder value creation. To achieve these objectives, the Compensation Committee has recommended that we maintain, and expects to continue to recommend further implementation of, compensation plans that tie a substantial portion of our Named Executive Officers’ overall compensation to our research, development, and operational performance.
Subsequent to our initial public offering in February 2012, our Compensation Committee engaged Pay Governance, LLC, an independent compensation consultant, to review our executive compensation programs on an annual basis. In 2014, the Compensation Committee, with the assistance of Pay Governance, developed a peer group of 15 public companies as our peers, which group was used by Pay Governance to conduct an executive compensation study. Based on the results of this study, as well as other factors considered by the Compensation Committee, the Compensation Committee made adjustments to our named executive officers’ compensation to remain competitive while also considering various other factors (noted below). In the future, the Compensation Committee intends to use information provided from that review, as well as information gathered by the Committee as it has done in the past, to guide our policies and procedures relating to executive compensation.
Based on these overall objectives and philosophy, the Compensation Committee has designed an executive compensation program that generally seeks to bring base salaries and total executive compensation in line with the companies at a similar stage of clinical development represented in the compensation data we review. Our program allows the Compensation Committee to determine each component of an executive’s compensation based on a number of factors, including (a) the executive’s overall experience and skills (with an emphasis on particular industry experience), (b) the executive’s position and responsibilities in comparison to other executives at the company and (c) the demand within our market for the executive’s skills relative to other executives in our industry.
The principal components of our executive compensation program are base salary, annual bonus, and long-term incentives. Our Compensation Committee believes that each component of executive compensation must be evaluated and determined with reference to competitive market data, individual and corporate performance, our recruiting and retention goals, internal equity and consistency, and other information we deem relevant. We believe that in the pharmaceutical industry, and for clinical stage companies, stock option awards are a primary motivator in attracting and retaining executives, in addition to salary and cash incentive bonuses. The Board, generally based on a recommendation of the Compensation Committee, approves all salary increases, as well as bonuses and stock option awards, if any, for Named Executive Officers. Annual base salary increases, annual bonuses, and long-term incentives, to the extent granted, are generally implemented during the first calendar quarter of the year.
We provide base salaries for our Named Executive Officers to compensate them for their services rendered during the fiscal year. Base salaries for our Named Executive Officers have been established based on their position and scope of responsibilities, their prior experience and training, and competitive market compensation data we review for similar positions in our industry. Base salaries are reviewed periodically and may be increased for merit reasons based on the executive’s performance, for retention reasons or if the base salary is not competitive to salaries paid by comparative companies for similar positions. Additionally, we may adjust base salaries throughout the year for promotions or other changes in the scope or breadth of an executive’s role or responsibilities.
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We have also implemented an annual cash incentive performance program, under which annual corporate goals are proposed by management and approved by the Compensation Committee at the start of each calendar year. These corporate goals include the achievement of qualitative operational goals and predefined research and development milestones. Each goal is weighted as to importance by the Compensation Committee. The individual performance of our Named Executive Officers is based on the level of achievement of a combination of corporate goals and goals related to their respective areas of responsibility. Annual cash bonuses granted to our Named Executive Officers are tied to the achievement of these corporate goals.
Our equity-based long-term incentive program is designed to align our Named Executive Officers’ long-term incentives with shareholder value creation. We believe that long-term participation by our executive officers in equity-based awards is a critical factor in the achievement of long-term company goals and business objectives. Our 2006 Plan allowed and our 2011 Plan allows the grant to executive officers of stock options, as well as other forms of equity incentives, as part of our overall compensation program. We typically make an initial award of stock options to new executives in connection with the commencement of their employment. These grants have an exercise price equal to the fair market value of our common stock on the grant date and a vesting schedule determined by the Compensation Committee. The initial stock option awards are intended to provide the executive with incentive to build value in our company over an extended period of time and to ensure competitive levels of total compensation. The size of the initial stock option award is determined based on numerous factors, including the executive’s skills and experience, the executive’s responsibilities with us while also considering the publicly available data of our peer group and other pharmaceutical companies similar in size to us. Thereafter, our practice is to make annual stock option awards as part of our overall performance management program. Typically, these grants are made to ensure the executive’s average equity and option amounts are in line with similar positions at comparable companies. As with base salary and initial equity award determinations, a review of all components of the executive’s compensation is conducted when determining annual equity awards to ensure that an executive’s total compensation conforms to our overall philosophy and objectives.
Other Compensation
We maintain limited broad-based benefits and perquisites that are provided to all eligible employees, including health insurance, life and disability insurance, dental insurance and paid vacation.
Employment and Severance Agreements
On August 9, 2013, we entered into an employment agreement with Dr. Fernandes. Prior to this agreement, we had no agreement with her. Pursuant to the agreement, we are obligated to pay Dr. Fernandes an annual base salary of at least $447,200; her 2015 base salary is $510,000. She also is eligible for an annual target bonus opportunity of not less than 50% of her base salary pursuant to our target bonus program for executive officers. Dr. Fernandes is entitled to four weeks paid vacation per year.
The employment agreement has an initial term of five years and may be extended for additional one-year periods upon the mutual written agreement of Dr. Fernandes and our Board of Directors. The employment agreement prohibits Dr. Fernandes, during the term of her employment with us and for 18 months thereafter, from competing with us in North America or soliciting any of our employees, consultants or independent contractors to terminate their employment or contracting relationship with us. During the term of the employment agreement, we must use our best efforts to cause Dr. Fernandes to be elected as a member of our Board of Directors.
The employment agreement is terminable upon Dr. Fernandes’s death or disability or upon its non-renewal, in which event we will pay her base salary through the date of termination, plus a pro rata share of her target bonus based upon the average percentage achievement of target objectives for the prior three years. If we terminate the employment agreement without “cause” (as defined in the employment agreement) or Dr. Fernandes terminates it with “good reason” (as defined in the employment agreement), then we will pay her base salary through the date of termination, plus a pro rata share of her target bonus based upon the average percentage achievement of target objectives for the prior three years. In addition, if (i) termination of her employment results in Dr. Fernandes incurring a “separation from service” as defined under Treasury Regulation 1.409A-1(h), (ii) she has not breached the employment agreement, and (iii) she executes and does not revoke within 60 days a general release of claims against us, we will pay Dr. Fernandes (a) an amount equal to her then-current base salary for a period of 18 months, (b) one and one-half times her target bonus based upon the average percentage of achievement of target objectives
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for the prior three years, payable in 18 equal monthly payments, plus (c) reimbursement of her COBRA premiums for the lesser of 18 months or until she becomes eligible for insurance benefits from another employer. If Dr. Fernandes dies prior to receiving any or all payments or benefits due her under the employment agreement, then we will pay them to her estate. Upon termination of Dr. Fernandes’s employment under the agreement for any reason, she shall be deemed to have resigned as a director of our company, effective as of the date of termination.
We also entered into a change in control severance agreement with Dr. Fernandes on August 9, 2013. Pursuant to the severance agreement, if Dr. Fernandes’s employment is terminated without “cause” (as defined in the severance agreement) or she resigns for “good reason” (as defined in the severance agreement) within 12 months of a “change in control” of our company (as defined in the severance agreement), then, provided (i) such termination results in Dr. Fernandes incurring a “separation from service” as defined under Treasury Regulation 1.409A-1(h), (ii) Dr. Fernandes has not breached the severance agreement, the previously executed confidentiality and assignment of inventions agreement or any of the non-compete or non-solicitation provisions of the employment agreement, and (iii) conditioned upon her execution of an effective release, (and without duplication of any severance payments or benefits under her employment agreement), we will pay Dr. Fernandes (a) an amount equal to her then-current base salary for a period of 24 months, (b) two times her target bonus based upon the average percentage of achievement of target objectives for the prior three years, payable in 24 equal monthly payments, plus (c) reimbursement of COBRA premiums for the lesser of 24 months or until she becomes eligible for insurance benefits from another employer. In addition, all of Dr. Fernandes’s outstanding and unvested stock options and other equity in our company would become immediately and fully exercisable. If her employment is terminated due to her death, “disability” (as defined in the severance agreement, for “cause”, she resigns without “good reason” or the term of the severance agreement expires without renewal, Dr. Fernandes will not be entitled to any additional compensation under the severance agreement beyond that which had accrued as of the date of termination. The employment agreement provides that no compensation or benefit that qualifies as a nonqualified deferred compensation plan under Section 409A of the Internal Revenue Code of 1986, as amended, or the Code, will be paid or provided to Dr. Fernandes before the day that is six months plus one day after the termination date. In addition, if an excess parachute payment would be made to Dr. Fernandes in the event of a change in control, we may, at our election, reduce the amounts to be paid to Dr. Fernandes to the extent necessary to avoid its treatment as an excess parachute payment under the Code.
On May 23, 2014, we entered into a change in control severance agreement with each of Mark W. Hahn, our Executive Vice President and Chief Financial Officer, and David Moore, our Executive Vice President and Chief Commercial Officer. The two agreements are identical. Pursuant to the severance agreement, if the executive’s employment is terminated without “cause” (as defined in the severance agreement) or he resigns for “good reason” (as defined in the severance agreement) within 6 months of a “change in control” of our company (as defined in the severance agreement), then, provided (i) such termination results in the executive incurring a “separation from service” as defined under Treasury Regulation 1.409A-1(h), (ii) the executive has not breached the severance agreement or the previously executed confidentiality and assignment of inventions agreement, and (iii) conditioned upon his execution of an effective release, we will pay the executive an amount equal to his then-current base salary for a period of 6 months, plus reimbursement of COBRA premiums for the lesser of 6 months or until he becomes eligible for insurance benefits from another employer. In addition, all of the executive’s outstanding and unvested stock options and other equity in our company would become immediately and fully exercisable. If his employment is terminated due to his death, “disability” (as defined in the severance agreement), for “cause” by us, he resigns without “good reason” or the term of the severance agreement expires without renewal, The executive will not be entitled to any additional compensation under the severance agreement beyond that which had accrued as of the date of termination. The severance agreement provides that no compensation or benefit that qualifies as a nonqualified deferred compensation plan under Section 409A of the Internal Revenue Code of 1986, as amended, or the Code, will be paid or provided to the executive before the day that is six months plus one day after the termination date. In addition, if an excess parachute payment would be made to the executive in the event of a change in control, we may, at our election, reduce the amounts to be paid to the executive to the extent necessary to avoid its treatment as an excess parachute payment under the Code. The severance agreement has an initial term of five years and will automatically renew thereafter for additional one-year terms unless we provide the executive with notice of nonrenewal at least 90 days prior to the end of the initial five-year term or any additional one-year term.
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Tax and Accounting Considerations
U.S. federal income tax generally limits the tax deductibility of compensation we pay to our Named Executive Officers to $1.0 million in the year the compensation becomes taxable to the executive officers. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements. Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. Rather, we seek to maintain flexibility in how we compensate our executive officers so as to meet a broader set of corporate and strategic goals and the needs of shareholders, and as such, we may be limited in our ability to deduct amounts of compensation from time to time. Accounting rules require us to expense the cost of our stock option grants. Because of option expensing and the impact of dilution on our shareholders, we pay close attention to, among other factors, the type of equity awards we grant and the number and value of the shares underlying such awards.
Summary Compensation Table
The following table sets forth information concerning the compensation paid or accrued to our Named Executive Officers in 2013 and 2014.
Name and Principal Position | Year | Salary $ | Bonus $ | Option Awards(1) $ | Non-Equity Incentive Plan Compensation(2) $ | All Other Compensation(3) $ | Total $ | |||||||||||||||||||||
Prabhavathi Fernandes, Ph.D. | 2014 | 475,000 | — | 1,590,742 | 205,112 | 50,700 | 2,321,554 | |||||||||||||||||||||
Director, President and Chief Executive Officer | 2013 | 447,200 | — | 780,125 | 194,532 | 49,916 | 1,471,773 | |||||||||||||||||||||
Mark Hahn | 2014 | 325,001 | — | 546,005 | 100,620 | 31,232 | 1,002,857 | |||||||||||||||||||||
Executive Vice President and Chief Financial Officer | 2013 | 292,600 | — | 195,015 | 75,201 | 35,095 | 597,911 | |||||||||||||||||||||
David Moore (4) | ||||||||||||||||||||||||||||
Executive Vice President and Chief Commercialization Officer | 2014 | 300,000 | — | 889,902 | 181,833 | 13,498 | 1,385,232 |
(1) | The reported amounts represent the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 2 of the financial statements included in our annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 26, 2015. |
(2) | Non-equity incentive plan compensation represents amounts earned in 2013 and 2014 as annual performance awards, which were paid in 2014 and 2015, respectively. |
(3) | These amounts represent the following in 2013 and 2014, respectively: Dr. Fernandes, $10,200 and $10,400 in 401(k) matching contributions, $3,596 and $3,762 in life, disability, and accidental death and dismemberment insurance premiums paid by us on her behalf, and $36,120 and $36,538 in unused paid time off; Mr. Hahn, $10,200 and $10,400 in 401(k) matching contributions, $3,260 and $3,970 in life, disability, and accidental death and dismemberment insurance premiums paid by us on his behalf, and $21,635 and $16,863 in unused paid time off; and Mr. Moore, $9,500 in 401(k) matching contributions, and $3,998 in life, disability, and accidental death and dismemberment insurance premiums paid by us on his behalf. |
(4) | Mr. Moore became a Named Executive Officer in 2014. |
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Outstanding Equity Awards at Fiscal Year-End 2014
The following table contains certain information concerning unexercised options for the Named Executive Officers as of December 31, 2014.
OPTION AWARDS | ||||||||||||||||||||
Name | Grant Date | Number of securities underlying unexercised options exercisable(#) | Number of securities underlying unexercised options unexercisable(#) | Option exercise price ($) | Option expiration date | |||||||||||||||
Prabhavathi Fernandes, Ph.D.(1) | 1/8/2014 | 31,250 | 93,750 | 13.10 | 01/07/24 | |||||||||||||||
1/8/2014 | — | 50,000 | 13.10 | 01/07/24 | ||||||||||||||||
3/7/2013 | 50,000 | — | 6.64 | 3/6/2023 | ||||||||||||||||
1/18/2013 | 150,000 | — | 6.63 | 1/17/2023 | ||||||||||||||||
3/20/2012 | 100,000 | — | 7.62 | 3/19/2022 | ||||||||||||||||
12/8/2010 | 40,698 | — | 2.09 | 12/7/2020 | ||||||||||||||||
7/28/2010 | 34,133 | — | 2.09 | 7/28/2020 | ||||||||||||||||
8/10/2009 | 82,194 | — | 2.09 | 8/9/2019 | ||||||||||||||||
6/3/2008 | 54,273 | — | 2.47 | 6/3/2018 | ||||||||||||||||
Mark W. Hahn(1) | 1/8/2014 | 11,250 | 33,750 | 13.10 | 1/7/2024 | |||||||||||||||
1/8/2014 | — | 15,000 | 13.10 | 1/7/2024 | ||||||||||||||||
1/18/2013 | 50,000 | — | 6.63 | 1/17/2023 | ||||||||||||||||
3/20/2012 | 25,000 | — | 7.62 | 3/19/2022 | ||||||||||||||||
12/8/2010 | 9,074 | — | 2.09 | 12/7/2020 | ||||||||||||||||
7/28/2010 | 7,643 | — | 2.09 | 7/28/2020 | ||||||||||||||||
2/2/2010 | 46,890 | — | 2.09 | 2/1/2020 | ||||||||||||||||
David Moore(1) | 1/2/2014 | 25,000 | 75,000 | 12.79 | 1/1/2024 |
(1) | In respect of the awards for 50,000 shares and 15,000 shares granted on January 8, 2014, to Dr. Fernandes and Mr. Hahn, respectively, 1/24th of the options vest at the end of each month over 24 months, beginning on January 1, 2014. In respect of the awards for 125,000 shares and 45,000 shares granted on January 8, 2014, to Dr. Fernandes and Mr. Hahn, respectively, 1/48th of the options vest at the end of each month over 48 months, beginning on January 1, 2014. In respect of the award for 100,000 shares granted on January 2, 2014, to Mr. Moore, one quarter of the options vested immediately and the remainder of the options vest one third on the first, second and third anniversaries after January 2, 2014. In respect of the awards granted on March 7, 2013, 1/4th of the shares vest at the end of each quarter, beginning on January 1, 2013. In respect of the awards granted on January 18, 2013, 1/4th of the shares vest at the end of each quarter, beginning on January 1, 2013. In respect of the awards granted on March 20, 2012, all will vest on the first anniversary of the grant date. In respect of the awards granted on July 28 and December 8, 2010, 1/48th of the options vest at the end of each month over 48 months, beginning on April 26, 2010 for the July options and 30 days after the grant date for the December options. In respect of the awards granted on June 3, 2008 and August 10, 2009, 1/4th of the options vest on the first anniversary of the grant date, and 1/48th of the options vest at the end of each month after the first anniversary over 36 months. In respect of the awards granted on February 2, 2010, 1/48th of the options vest at the end of each month over 48 months, beginning on September 25, 2009. |
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Potential Payments on Change of Control
If the severance payments called for in the change in control severance agreement for Dr. Fernandes had been triggered on December 31, 2014, we would have been obligated to make the following payments:
Name | Cash Payment ($ per month) and (# of months paid) | Benefits ($ per month) and (# of months paid) | Number of Options (# that would vest) and ($ market value)(1) | |||||||||||||
Prabhavathi Fernandes | $ | 39,583 24 mos | $ | 932 24 mos | 143,750 | $ | 3,379,563 | |||||||||
Mark W. Hahn | $ | 27,083 6 mos | $ | 932 6 mos | 48,750 | $ | 1,146,113 | |||||||||
David Moore | $ | 25,000 6 mos | $ | 1,412 6 mos | 75,000 | $ | 1,763,250 |
(1) | The market value equals the difference the fair market value of the shares that could be acquired based on the closing sale price per share of our common stock on the NASDAQ Global Market on December 31, 2014, which was $23.51, and the exercise prices for the underlying stock options. |
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SHAREHOLDER COMMUNICATIONS
Shareholders may send any communications regarding Company business to the Board in care of the Secretary of the Company at our principal executive offices located at 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517. The Secretary will forward all such communications to the addressee.
AUDITOR AND AUDIT COMMITTEE MATTERS
Report of the Audit Committee
The Audit Committee has reviewed and discussed with management our audited financial statements for the fiscal year ended December 31, 2014. The Committee has discussed with PricewaterhouseCoopers LLP, or PwC, our company’s independent registered public accounting firm, the matters required to be discussed by Auditing Standard No. 16, issued by the Public Company Accounting Oversight Board, or PCAOB. The Committee has received the written disclosures and letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. The Committee has also considered whether the provision of services other than the audit of our financial statements were compatible with maintaining PwC’s independence.
Based on the review and discussions referred to in the foregoing paragraph, the Committee recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for filing with the SEC.
All members of our Audit Committee are independent under SEC regulation and Section 5605(c)(2)(A) of the NASDAQ Marketplace Rules. The financial literacy requirements of the SEC require that each member of our Audit Committee be able to read and understand fundamental financial statements. In addition, at least one member of our Audit Committee must qualify as an audit committee financial expert, as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC, and have financial sophistication in accordance with the NASDAQ Marketplace Rules. Our Board has determined that each of Mr. Gill and Mr. Dougherty qualifies as an audit committee financial expert.
The Audit Committee pre-approves the engagement of our independent auditor to render any audit services to our company. The Audit Committee also pre-approves any other engagement of our independent auditor, which is limited to specified permitted non-audit services on a case-by-case basis. The Committee generally limits its pre-approval of non-audit services to a specified period of time and, for some services, to a maximum dollar amount.
Submitted on March 31, 2015 by: | THE AUDIT COMMITTEE | |
David Gill, Chairman | ||
Michael R. Dougherty | ||
Garheng Kong, M.D., Ph.D. |
Fees Paid to the Independent Registered Public Accounting Firm
For the years ended December 31, 2013 and December 31, 2014, PwC performed professional services for us. The professional services provided by PwC and the fees billed for those services are set forth below.
Audit Fees
The aggregate fees billed by PwC for the audit of our annual financial statements for the fiscal years ended December 31, 2013 and 2014 were $346,450 and $301,482, respectively.
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Audit-Related Fees
No fees were billed by PwC for assurance and related services that were reasonably related to the audit or review of our financial statements for the fiscal years ended December 31, 2013 and 2014, and that are not included in the amounts disclosed above under the caption “Audit Fees.”
Tax Fees
The aggregate fees billed by PwC for tax services for the fiscal years ended December 31, 2013 and 2014 were $23,655 and $34,191, respectively.
All Other Fees
No fees were billed by PwC for services other than those reported above under the captions “Audit Fees” and “Tax Fees” for each of the fiscal years ended December 31, 2013 and 2014.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
With respect to reviewing and approving related-party transactions, the Audit Committee reviews related-party transactions for potential conflicts of interests or other improprieties. Under SEC rules, related-party transactions are those transactions to which we are or may be a party in which the amount involved exceeds $120,000 annually, and in which any of our directors or executive officers or any other related person had or will have a direct or indirect material interest, excluding, among other things, compensation arrangements with respect to employment and board membership. Our Audit Committee may approve a related-party transaction if it determines that the transaction is in our best interests. Our directors are required to disclose to this Committee or the full Board any potential conflict of interest, or personal interest in a transaction that our Board is considering. Our executive officers are required to disclose any related-party transaction to the Audit Committee. We also poll our directors on an annual basis with respect to related-party transactions and their service as an officer or director of other entities. Any director involved in a related-party transaction that is being reviewed or approved must recuse himself or herself from participation in any related deliberation or decision. Whenever possible, we strive to ensure that the transaction is approved in advance and, if not approved in advance, it must be submitted for ratification as promptly as practical.
In 2014, we did not engage in any related-party transaction and, based on the procedures outlined above, as of the date of this proxy statement we are not aware of any existing or potential related-party transaction.
DEADLINE FOR SHAREHOLDER PROPOSALS FOR 2014 ANNUAL MEETING
Shareholder proposals to be included in the proxy statement for our next annual meeting of shareholders must be received by us not later than December 18, 2015. Under our bylaws, shareholder proposals to be considered at our next annual meeting must be received by us not later than 60 days prior to that meeting. All submissions must comply with all of the requirements of our bylaws and Rule 14a-8 of the Securities Exchange Act. Proposals should be mailed to Shane Barton, Secretary, Cempra, Inc., 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517.
Management’s proxy holders for the next annual meeting of shareholders will have discretion to vote proxies given to them on any shareholder proposal of which we do not have notice prior to March 3, 2016.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our officers and directors and persons who own more than 10% of our outstanding common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. These officers, directors and shareholders are required by regulations under the Securities Exchange Act to furnish us with copies of all forms they file under Section 16(a).
Based solely on our review of the copies of forms we have received, we believe that all such required reports have been timely filed.
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DIRECTIONS TO ANNUAL MEETING AT THE COMPANY’S HEADQUARTERS AT
6320 QUADRANGLE DRIVE, SUITE 360, CHAPEL HILL, NORTH CAROLINA
Driving directions (from I-40):
From the East (including RDU Airport): On Route 40 take Exit 273B for NC-54 E towards Durham. Turn right onto NC-54. At the light, turn right onto Quadrangle Drive. Follow Quadrangle to the first building on the right, which is Building Two Quadrangle. Cempra is located on the third floor of the Cempra Building.
From the West: On Route 40 take Exit 273 for NC-54 for Chapel Hill/Durham. Turn left at NC-54. At the light, turn right onto Quadrangle Drive. Follow Quadrangle to the first building on the right, which is Building Two Quadrangle. Cempra is located on the third floor of the Cempra Building.
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Using a black ink pen, mark your votes with an X as shown in |
x | |||
this example. Please do not write outside the designated areas. |
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Electronic Voting Instructions
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Available 24 hours a day, 7 days a week!
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Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy.
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VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
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Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 21, 2015.
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| Vote by Internet • Go towww.investorvote.com/CEMP • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website | |
Vote by telephone | ||
• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone | ||
• Follow the instructions provided by the recorded message |
q IFYOUHAVENOTVOTEDVIATHEINTERNETORTELEPHONE,FOLDALONGTHEPERFORATION,DETACHANDRETURNTHEBOTTOMPORTIONINTHEENCLOSEDENVELOPE. q
A Proposals —
| The Board of Directors recommends a voteFOR all the nominees listed andFOR Proposals 2 and 3.
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1. | Election of Directors — The Board unanimously recommends that shareholders vote FOR the election of the three Class I nominees for election to the Board for a three-year term: | + | ||||||||||||||||||
For | Withhold | For | Withhold | For | Withhold | |||||||||||||||
01 - Michael R. Dougherty | ¨ | ¨ | 02 - Prabhavathi Fernandes, Ph.D. | ¨ | ¨ | 03 - David Gill | ¨ | ¨ |
For | Against | Abstain | For | Against | Abstain | |||||||||||||||||||||
2. | To approve the amendment to the Cempra, Inc. 2011 Equity Incentive Plan to (i) increase the number of shares of common stock reserved for issuance thereunder from 3,342,105 shares to 4,842,105 shares, and (ii) provide an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year; | ¨ | ¨ | ¨ | 3. | The ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2015. | ¨ | ¨ | ¨ |
B Non-Voting Items |
Change of Address — Please print new address below. |
C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. | ||||||
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Important notice regarding the Internet availability of
proxy materials for the Annual Meeting of shareholders.
The Proxy Statement and 2014 Annual Report are available at:
www.edocumentview.com/CEMP
q IFYOUHAVENOTVOTEDVIATHEINTERNETORTELEPHONE,FOLDALONGTHEPERFORATION,DETACHANDRETURNTHEBOTTOMPORTIONINTHEENCLOSEDENVELOPE. q
Proxy — Cempra, Inc.
6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Prabhavathi Fernandes, Ph.D. and Mark W. Hahn as proxies, each with full power of substitution, to represent and vote as designated on the reverse side, all the shares of Common Stock of Cempra, Inc. held of record by the undersigned on April 2, 2015, at the Annual Meeting of Shareholders to be held at our corporate headquarters, 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517, on May 21, 2015, or any adjournment or postponement thereof.
The undersigned acknowledges receipt from the Company before the execution of this proxy of the Notice of Annual Meeting of Shareholders, a Proxy Statement for the Annual Meeting of Shareholders and the 2014 Annual Report to Shareholders.
(Continued and to be signed on the reverse side.)