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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34267
PENWEST PHARMACEUTICALS CO.
(Exact name of registrant as specified in its charter)
Washington (State or other jurisdiction of incorporation or organization) |
91-1513032 (I.R.S. Employer Identification No.) |
2981 Route 22 | ||
Suite 2 | ||
Patterson, NY | 12563-2335 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code:
(845)-878-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(845)-878-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, par value $.001 | The NASDAQ Stock Market | |
(Including Associated Preferred Stock Purchase Rights) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the Registrants Common Stock held by non-affiliates as of
June 30, 2009 was approximately $52,235,000 based on the last sale price of the Registrants Common
Stock on the Nasdaq National Market on June 30, 2009. The number of shares of the Registrants
Common Stock outstanding as of March 10, 2010 was 31,808,790.
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PENWEST PHARMACEUTICALS CO.
EXPLANATORY NOTE
Penwest Pharmaceuticals Co. (Penwest, company, we, our and us) is filing this
Amendment No. 1 on Form 10-K/A (Amendment No. 1) to its Annual Report on Form 10-K for the year
ended December 31, 2009, as filed with the SEC on March 16, 2010 (Form 10-K), to furnish the
information required in Part III (Items 10, 11, 12, 13 and 14). This Amendment No. 1 is limited in
scope to the items identified above and should be read in conjunction with the Form 10-K. This
Amendment No. 1 does not reflect events occurring after the filing of the Form 10-K and, other than
the furnishing of the information identified above, does not modify or update the disclosure in the
Form 10-K in any way.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our Board of Directors
Our board of directors is divided into three classes and currently consists of three class I
directors (Christophe M. Bianchi, Paul E. Freiman and Jennifer L. Good), three class II directors
(Peter F. Drake, David P. Meeker and Anne M. VanLent) and two class III directors (Joseph E.
Edelman and Kevin C. Tang). The term of each class of directors is three years, and the terms of
the three classes are staggered so that only one class is elected each year. At each annual meeting
of shareholders, directors are elected to serve for a three-year term to succeed the directors of
the same class whose terms are then expiring. The class I, class II and class III directors were
elected to serve until the annual meeting of shareholders to be held in 2010, 2011 and 2012,
respectively, and until their respective successors are elected and qualified. Christophe M.
Bianchi, Paul E. Freiman and Jennifer L. Good are our nominees for election as directors at our
2010 annual meeting of shareholders.
Set forth below are the names of our directors and our nominees for election as directors at
our 2010 annual meeting of shareholders, their ages as of April 1, 2010, the year in which each
first became a director, their positions and offices with us, if applicable, their principal
occupations and business experience during at least the past five years, and the names of other
public companies for which they currently serve or have served within the past five years as a
director.
We have also included information with respect to each nominees specific experience,
qualifications, attributes and skills that led our board to conclude that such individual should
serve as one of our directors. We believe that all of our director nominees have a reputation for
integrity, honesty and adherence to high ethical standards. They have each demonstrated business
acumen and an ability to exercise sound judgment, as well as a commitment of service to us and our
board.
No director, director nominee or executive officer is related by blood, marriage or adoption
to any other director, director nominee or executive officer. Except as described below with
respect to Mr. Edelman and Mr. Tang, no director, director nominee or executive officer, or any
associate of any such director, director nominee or executive officer, is a party adverse to us, or
has a material interest adverse to us, in any legal proceeding.
DR. CHRISTOPHE M. BIANCHI
Age: 48
Christophe M. Bianchi has served as one of our directors since June 2007. Dr. Bianchi is
currently Executive Vice President, Commercial Operations at Millennium Pharmaceuticals, Inc., a
wholly owned subsidiary of Takeda Pharmaceutical Company Limited. Dr. Bianchi has held this
position since he joined Millennium in 2006. Prior to joining Millennium, Dr. Bianchi served in a
variety of positions at Sanofi-Aventis, a pharmaceutical company, including from 2004 to 2006 as
the head of the U.S. oncology business unit of Sanofi-Aventis, and from 2001 through 2004 as Vice
President of the Internal Medicine and Central Nervous System Business Unit of Sanofi. Dr. Bianchi
received an M.D. from the University of Reims-Champagne in France and an M.B.A. from the Wharton
School at the University of Pennsylvania. He is also a graduate of Ecole Des Hautes Etudes
Commerciales (EDHEC Graduate School of Management) in France. Dr. Bianchi has substantial
experience and expertise in the pharmaceutical industry and, in particular, experience and
expertise with respect to the development and commercialization of pharmaceuticals. Based on this,
he provides significant insight and perspective to our board regarding relationships with
pharmaceutical companies and their efforts in the development and commercialization of our
products, as well as extensive contacts for the Company in its business developments efforts. Dr.
Bianchi also has a medical background which is valuable to our board.
DR. PETER F. DRAKE
Age: 56
Peter F. Drake has served as one of our directors since April 2005. Dr. Drake is currently
the Managing General Partner of Mayflower Partners, a healthcare investment fund. From 2002 until
December 2009, Dr. Drake served as the General Partner of Vector Fund Management, LP, a venture
capital firm. From 1999 to 2002, he served as a Managing Director in the Equity Research
Department of Prudential Securities, Inc., following Prudentials acquisition of Vector Securities
International, an investment banking firm co-founded by Dr. Drake in 1988. He currently serves on
the board of directors of Trustmark Insurance Co., a healthcare insurance provider, and Cortex
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Pharmaceuticals, Inc., a neuroscience company, and Rodman & Renshaw, an investment bank. Dr. Drake
received a
B.A. in Biology from Bowdoin College, and a Ph.D. in Biochemistry and Neurobiology from Bryn
Mawr College. Dr. Drake brings strong strategic, financial and investment skills and experience to
our board of directors. Over his years on our board, Dr. Drake has provided significant
contributions to our discussions regarding financing options, strategic transactions and the
strategic direction of Penwest. Dr. Drake also has many strong relationships in the industry that
have been useful in our business development efforts.
JOSEPH E. EDELMAN
Age: 54
Joseph E. Edelman has served as one of our directors since June 2009. Mr. Edelman is the
Chief Executive Officer and Portfolio Manager of Perceptive Advisors LLC, an investment firm
focused on health care with a particular emphasis on biotechnology companies. He founded the firm
in 1999. Prior to that he was Senior Analyst at Paramount Capital from 1994 to 1999, and was the
Senior Biotechnology Analyst at Prudential Securities from 1990 to 1994. Mr. Edelman received his
B.A. in Psychology from the University of California, San Diego, and an M.B.A. in Marketing from
New York University. Mr. Edelman serves on our board to reflect the perspective of one of our two
largest shareholders, Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman has informed us that the Securities Exchange Commission, which we refer to as the
SEC, and the Financial Industry Regulation Authority, which we refer to as FINRA, conducted
inquiries into various short sales that were placed by Mr. Edelman and others associated with
Perceptive Advisors LLC in 2005 and 2006 on behalf of a broker-dealer that Mr. Edelman was
associated with during such time and Perceptive Life Sciences Master Fund Ltd. Mr. Edleman has
informed us that FINRA Matter No. 20050007960 was resolved on or about December 18, 2008 pursuant
to the terms of a letter of acceptance, waiver and consent entered into by Mr. Edelman and other
persons, including persons associated with Perceptive Advisors LLC. Pursuant to the letter of
acceptance, waiver and consent, Mr. Edelman agreed to the payment of a fine in the amount of
$50,000, which amount was paid by Mr. Edelman from the assets of Perceptive Advisors LLC. Mr.
Edelman has informed us that fines in lesser amounts were imposed against some of the other
parties associated with Perceptive Advisors LLC, and that none of these fines were paid by
Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman has informed us that, on October 20, 2009, an inquiry conducted by the SECs New
York Regional Office concerning primarily the same secondary offerings that were the subject of
the letter of acceptance, waiver and consent was formally resolved. Pursuant to the order issued
in connection with the resolution, Perceptive Advisors LLC agreed to disgorge profits and pay
pre-judgment interest in the aggregate amount of $314,755.26 and to pay a fine of $125,000. Mr.
Edelman has informed us that these amounts have been paid by Perceptive Advisors LLC and were not
paid by Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman, through his relationship with Perceptive, is associated with the following legal
proceeding which is adverse to the Company. On April 20, 2009, Tang Capital and Perceptive brought
suit against us in the Superior Court of the State of Washington, King County, (Tang Capital
Partners, et al. v. Penwest Pharmaceuticals Co.), seeking to enforce their alleged rights
under the Washington Business Corporation Act to inspect certain Company documents (the King
County Action). In addition, on April 28, 2009, Tang Capital and Perceptive brought suit against
us in the Superior Court of the State of Washington, Thurston County (Tang Capital Partners,
et al. v. Penwest Pharmaceuticals Co.), seeking either for the court to set the number of
directors to be elected at our 2009 annual meeting of shareholders at three rather than two, or
for the court to require us to waive the advance notice provisions of our bylaws to permit Tang
Capital and Perceptive to include a proposal in the proxy statement in which the required
percentage for board approval of certain matters would be 81% or more, rather than 75% or more
(the Thurston County Action). On May 13, 2009, Tang Capital and Perceptive dismissed this
Thurston County Action reasserting the same claims via an amended complaint in the King County
Action. Tang Capital and Perceptive sought preliminary injunctive relief on their claims prior to
our 2009 annual meeting of shareholders and the motion was denied by the court on May 22, 2009.
Although the King County Action remains pending, the proposed bylaw amendment and bylaw proposal
were not approved by our shareholders at our 2009 annual meeting of shareholders. The trial of the
King County Action is currently scheduled for October 4, 2010.
PAUL E. FREIMAN
Age: 75
Paul E. Freiman has served as our Chairman of the Board since February 2005 and served as our
Lead Director from 1997 to 2005. Mr. Freiman is president of ThirdAge Pharma LLC, a consulting
firm that he founded in January 2009. Mr. Freiman served as the Chief Executive Officer and
President of Neurobiological Technologies, Inc., a biotechnology company, from May 1997 to
December 2008. Mr. Freiman is also a director of Calypte Biomedical Corporation, a developer of in
vitro testing solutions, NeoPharm Inc., a biotechnology company, NovaBay Pharmaceuticals, Inc., a
pharmaceutical company, and Otsuka America Pharmaceuticals Inc.,
a pharmaceutical
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company. He is a
graduate of Fordham University with a B.S. in Pharmacy and received an honorary doctorate from
the Arnold & Marie Schwartz College of Pharmacy. Mr. Freiman has a strong commercial
background as well as tremendous insight into the drug development process and the scientific,
operational and regulatory aspects of clinical trials. Mr. Freiman is a veteran of the industry,
serving as chairman and chief executive officer of both a major pharmaceutical and a biotechnology
company and brings unique insights and understanding of the companys challenges, strategy and
operations. Mr. Freiman is our longest serving board member, providing board leadership for 13
years and has extensive knowledge of our business. His leadership skills, consensus building
skills and focus on corporate governance have been critical to the operations of our board over
the years, particularly through the management transitions and changes in directors that we have
experienced.
JENNIFER L. GOOD
Age: 45
Jennifer L. Good has served as one of our directors and as our President and Chief Executive
Officer since June 2006. Ms. Good served as our President, Chief Operating Officer and Chief
Financial Officer from November 2005 to June 2006, and Chief Financial Officer from February 1997
to November 2005. Ms. Good received a Bachelor of Business Administration degree from Pacific
Lutheran University and is a Certified Public Accountant licensed by the state of Washington. Ms.
Good has served the company as its Chief Financial Officer, Chief Operating Officer, President,
Chief Executive Officer and, since the departure of the Chief Financial Officer in January 2009,
acting again as our principal financial officer. Ms. Good also has a strong financial background
and experience in raising capital and in business development. Based on this experience, Ms. Good
has a unique understanding of our company and our operations, strategy, challenges and risks. She
is critical to our relationships with Endo Pharmaceuticals Inc. (Endo), Edison Pharmaceuticals
Inc. (Edison) and Otsuka America Pharmaceutical, Inc. (Otsuka) and has demonstrated her leadership
skills as she kept our management team and employees motivated during a time with significant
external pressures and a number of employee reductions
DR. DAVID P. MEEKER
Age: 55
David Meeker has served as one of our directors since January 2007. Dr. Meeker has served in
various roles at Genzyme Corporation, a pharmaceutical company, since 1994, including as Chief
Operating Officer since March 2010, Executive Vice President, Therapeutics, Biosurgery, and
Transplant from March 2008 to March 2010, President of the LSD (Lysosomal Storage Diseases)
Therapeutics business unit from March 2003 through March 2008, Senior Vice President, Therapeutics
Europe from May 2000 to March 2003 and as Senior Vice President, Medical Affairs from June 1998 to
May 2000. Dr. Meeker is a Fellow at the American College of Physicians and the American College of
Chest Physicians. He attended Dartmouth College and received an M.D. from The University of
Vermont. Dr. Meekers experience in the industry, his executive leadership skills, his work with
orphan drugs and in rare disorders, his scientific and medical background and his understanding of
clinical development provide Dr. Meeker with a unique understanding of our A0001 program and other
development programs. Dr. Meeker also serves an important role as a liaison with management
regarding clinical and technical matters.
KEVIN C. TANG
Age: 43
Kevin C. Tang has served as one of our directors since June 2009. Mr. Tang is the Managing
Director of Tang Capital Management, LLC, an investment firm focused on the health care industry
that he founded in August 2002. From September 1993 to July 2001, Mr. Tang held various positions
at Deutsche Banc Alex. Brown, Inc., an investment banking firm, most recently serving as Managing
Director and head of the firms life sciences research group. Mr. Tang currently serves as a
director of Ardea Biosciences, Inc, a biotechnology company focused on the development of
small-molecule therapeutics for the treatment of gout, cancer and human immunodeficiency virus
(HIV), and A.P. Pharma, Inc., a specialty pharmaceutical company. Mr. Tang received his B.S.
degree in Psychology from Duke University in 1989.
Mr. Tang, through his relationship with Tang Capital, is associated with the King County Action
described above, which is adverse to the Company.
ANNE M. VANLENT
Age: 62
Anne M. VanLent has served as one of our directors since December 1998. Ms. VanLent is
president of AMV Advisors, a consulting company, providing strategic planning and financial
services to emerging growth life sciences companies, which she founded in 2008. Ms. VanLent served
as Executive Vice President and Chief Financial Officer
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of Barrier Therapeutics, Inc., a
NASDAQ-listed specialty pharmaceutical company in the field of dermatology, from
May 2002 to May 2008. Prior to joining Barrier, Ms. VanLent served as a principal of The
Technology Compass Group, LLC, a healthcare/technology consulting firm, which she founded in
October 2001. From mid-1997 to October 2001, Ms. VanLent served as Executive Vice President,
Portfolio Management of Sarnoff Corporation, a privately-held research and development company
that creates and commercializes electronic, biomedical and information technologies. Ms. VanLent
currently serves as a director and chair of the audit committee of Integra LifeSciences Holdings
Corporation, a NASDAQ-listed medical technology company. Ms. VanLent received a B.A. in Physics
from Mount Holyoke College. Ms. VanLents experience and expertise in the pharmaceutical industry
and experience in strategic financial management are valuable to our board. Ms. VanLent plays a
crucial role on the board by virtue of her understanding of corporate governance matters and
through her service as chair of the Audit Committee and Nominating and Corporate Governance
Committee. Ms. VanLent is diligent in keeping the board abreast of current audit issues and
collaborating with our independent auditors and management team.
Information about our Executive Officers
The following table sets forth the names, ages and positions of our executive officers as
of April 1, 2010.
Name | Age | Title | Dates | |||||
Jennifer L. Good
|
45 | President and Chief Executive Officer | 2006 current | |||||
President, Chief Operating Officer and Chief Financial Officer | 2005 2006 | |||||||
Senior Vice President, Finance and Chief Financial Officer | 1997 2005 | |||||||
Anand R. Baichwal, Ph.D.
|
55 | Senior Vice President, Licensing and Business Development | 2006 current | |||||
Senior Vice President, Research & New Technology Development and Chief Scientific Officer | 1997 2006 | |||||||
Amale Hawi, Ph.D.
|
56 | Senior Vice President, Pharmaceutical Development |
2007 current | |||||
President, A. Hawi Consulting Ltd., a pharmaceutical development consulting practice | 2002 2007 | |||||||
Frank P. Muscolo
|
53 | Controller and Chief Accounting Officer | 2007 current | |||||
Controller | 1997 2007 | |||||||
Thomas Sciascia, M.D.
|
56 | Senior Vice President, Clinical Development and Regulatory and Chief Medical Officer | 2009 current | |||||
Senior Vice President and Chief Medical Officer | 2001 2009 |
Audit Committee
The Audit Committee is currently comprised of Ms. VanLent and Drs. Drake and Meeker. Our board
of directors has determined that all of the audit committee members are independent as defined
under the rules of The NASDAQ Stock Market, including the independence requirements contemplated by
Rule 10A-3 under the Securities Exchange Act of 1934.
Our board of directors has also determined that Anne M. VanLent qualifies as an audit
committee financial expert. In deciding whether members of our audit committee qualify as financial
experts within the meaning of the SEC regulations and the NASDAQ listing standards, our board
considered the nature and scope of experiences and responsibilities members of our audit committee
have previously had with reporting companies.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable to all of our directors and
employees. The code of business conduct and ethics is available on our website, www.penwest.com ,
and is available without charge upon request to Corporate Secretary, Penwest Pharmaceuticals Co.,
2981 Route 22, Suite 2, Patterson, New York 12563, telephone (845) 878-8400.
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Any waiver of the code of business conduct and ethics for directors or executive officers, or
any amendment to the
code that applies to directors or executive officers, may be made only by the board of
directors. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of this code of ethics by posting such information on our
website. To date, no such waivers have been requested or granted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and holders of more than ten percent of our common stock to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and other equity
securities. Based solely on our review of copies of reports filed by the reporting persons
furnished to us, or written representations from reporting persons, we believe that during 2009,
the reporting persons complied with all Section 16(a) filing requirements, other than as follows:
| Mr. Freiman failed to timely file one Form 4 relating to one reportable transaction; and | ||
| Mr. Drake failed to timely file one Form 4 relating to one reportable transaction. |
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The compensation committee of our board of directors oversees our executive compensation
program. In this role, the compensation committee reviews and approves annually, all compensation
decisions relating to our executive officers.
Objectives and Philosophy of Our Executive Compensation Program
The primary objectives of our executive compensation program are to:
| attract, retain and motivate the best possible executive talent; | ||
| ensure executive compensation is aligned with our corporate strategies and business objectives, including our short-term operating goals and longer-term strategic objectives; | ||
| promote the achievement of key strategic, financial and operational performance measures by linking short-term and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and | ||
| align our executives incentives with the creation of shareholder value. |
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To achieve these objectives, the compensation committee evaluates our executive compensation
program with the goal of setting compensation for our executive officers at levels that the
committee believes are competitive with other companies in our industry and our region that compete
with us for executive talent. In addition to base salary, our executive compensation program ties a
substantial portion of each executives overall compensation to key company strategic, financial
and operational goals, such as new product development initiatives, clinical trial and regulatory
progress, intellectual property portfolio development, establishment and maintenance of key
strategic relationships, and exploration of business development opportunities, as well as our
financial and operational performance as measured by adherence to operating budgets approved by our
board of directors. We also seek to use our executive compensation program to retain our executives
by granting them stock options and allowing them to participate in the long-term success of our
business, as reflected in stock price appreciation, thus aligning their interests with those of our
shareholders.
In making compensation decisions, the compensation committee compares our executive
compensation to the executive compensation paid by a peer group of companies that the committee
believes have business operations, market capitalizations, numbers of employees, revenues and
growth profiles that are comparable to ours. The compensation committee reviews the foregoing
factors relating to the peer group companies as necessary to determine whether any adjustments to
the composition of the peer group should be made. As a result, our peer group might change from
year to year.
The compensation committee worked with our senior management in 2009 and 2010 to determine the
peer group to use to compare executive compensation programs. The peer group that the compensation
committee used for compensation decisions made in February 2009 consisted of: Acorda Therapeutics,
Adolor Corp., Anadys Pharma, Anesiva Inc., Antares Pharma, Aradigm Corp., Depomed Inc., Durect
Corp., Epicept Corp., Jazz Pharma, Nastech Pharma, Neurocrine Bisoscience, Repligen Corp., Scolr
Pharma Inc., and Targacept Inc. In connection with the compensation decisions made in February
2010, the compensation committee used an adjusted peer group that consisted of: Adolor Corp.,
Anadys Pharma, Ardea Biosciences, Inc., Antares Pharma, Aradigm Corp., CombinatoRx, Incorporated,
Depomed Inc., Durect Corp., Epicept Corp., Jazz Pharma, Ligand Pharmaceuticals, Inc., Neurocrine
Bisoscience, Repligen Corp., Scolr Pharma Inc., and Targacept Inc.
The compensation committee also considers industry survey data regarding executive
compensation to understand industry compensation practices. In both February 2009 and February
2010, the compensation committee supplemented data regarding the peer group of such year with
survey data from the Radford Biotechnology Survey.
In making compensation decisions, the compensation committee generally targets compensation
for executives at the 50th percentile. The committee intends that if an executive achieves the
individual and company performance goals determined by the committee, then the executive should
have the opportunity to receive compensation that is competitive with peer group and industry
norms. The committee, however, may vary this general target with respect to executives based on
other factors including individual contribution and performance, reporting structure, complexity
and importance of role and responsibilities, leadership and growth potential.
In evaluating individual contribution and performance, reporting structure, complexity and
importance of role and responsibilities, leadership and growth potential for executives other than
the chief executive officer, the committee seeks the advice of our chief executive officer. Our
chief executive officer meets with the committee to review each executive and makes recommendations
with respect to each element of compensation for each executive.
Components of our Executive Compensation Program
The primary elements of our executive compensation program are:
| base salary; | ||
| annual cash incentive bonuses; | ||
| stock option awards; | ||
| change in control benefits; and | ||
| health and life insurance, and other employee benefits. |
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We do not have any formal or informal policy or target for allocating compensation between
short-term and long-term compensation, between cash and non-cash compensation or among the
different forms of non-cash compensation. Instead, the compensation committee, after reviewing
industry information, determines subjectively what it believes to be the appropriate level and mix
of the various compensation components.
Base Salary
The committee uses base salary to recognize the experience, skills, knowledge and
responsibilities required of all of our employees, including our executives. Base salaries are
reviewed annually by our compensation committee, and are adjusted from time to time to realign
salaries with market levels after taking into account individual responsibilities, performance and
experience. Base salaries may also be increased for merit reasons, based on the executives success
in meeting or exceeding individual performance objectives, promoting our core values and
demonstrating leadership abilities. Additionally, the compensation committee adjusts base salaries
as warranted throughout the year for promotions, other changes in the scope or breadth of an
executives role or responsibility, or other market changes.
In January and February 2009, the compensation committee met to determine the executive
officers base salaries for 2009. After discussion of the executive officers performance and
market levels, as well as the other factors noted herein, the committee determined not to increase
the executive officers base salaries for 2009. The committee made this determination based on the
economic environment and concerns about our cash reserves. As a result, our executive officers
base salaries for 2009 were as follows:
Base Salary | ||||
Executive Officer | for 2009 | |||
Jennifer L. Good, |
$ | 387,000 | ||
President and Chief Executive Officer |
||||
Thomas R. Sciascia, M.D., |
$ | 310,000 | ||
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer |
||||
Amale Hawi, Ph.D., |
$ | 281,600 | ||
Senior Vice President, Pharmaceutical Development |
||||
Anand R. Baichwal, Ph.D., |
$ | 248,000 | ||
Senior Vice President, Licensing and Chief Scientific Officer |
In February 2010, the compensation committee approved the following base salaries for our
named executive officers, effective March 1, 2010.
Base Salary | ||||
Executive Officer | for 2010 | |||
Jennifer L. Good, |
$ | 410,000 | ||
President and Chief Executive Officer |
||||
Thomas R. Sciascia, M.D., |
$ | 319,000 | ||
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer |
||||
Amale Hawi, Ph.D., |
$ | 290,000 | ||
Senior Vice President, Pharmaceutical Development |
||||
Anand R. Baichwal, Ph.D., |
$ | 258,000 | ||
Senior Vice President, Licensing and Business Development |
Annual Cash Incentive Bonus Plan
Our executive compensation program includes an annual cash incentive bonus plan for our
executive officers that is intended to motivate each of them to work toward the achievement of
company strategic, operational and financial targets and individual performance objectives, and to
reward our executive officers when their efforts result in success for us. Bonus targets under the
annual cash incentive bonus plan are calculated as a percentage of each executive officers base
salary, with targets corresponding to the rank of the executive. The target percentages set for
2009 were 40% for Ms. Good and 30% for each other named executive officer.
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The compensation committee approves corporate goals for each year and determines potential
bonus amounts based on the achievement of these goals and individual performance goals. Our
corporate targets generally conform to certain operational goals, such as advancing development
programs and meeting specified financial targets. The compensation committee works with our chief
executive officer to develop challenging goals that it believes can be reasonably achieved during
the year and to weight the various goals for the corporate targets. Individual objectives are tied
to the particular area of expertise of an executive officer and his or her role and
responsibilities. Achievement of these individual objectives is measured relative to external
forces, internal resources utilized and overall individual effort. Individual objectives are based
on a variety of factors, including the achievement of corporate goals. The individual performance
objectives for each executive officer (other than our chief executive officer) are determined by
the chief executive officer. In the case of our chief executive officer, the individual objectives
are reviewed with the compensation committee and are based on the achievement of our corporate
goals.
In determining the total cash payments made under the bonus plan, the committee assigns 75%
weighting to the achievement of our corporate goals and 25% weighting to individual performance
objectives. After the end of each fiscal year, the compensation committee reviews the corporate
goals and individual objectives for the previous year and determines whether such goals and
objectives were achieved and the level of achievement by each officer. Whether an executive officer
has achieved his or her individual performance objectives is determined by the chief executive
officer and is reviewed with the compensation committee.
In establishing our corporate goals for 2009, the committee considered the objectives for 2009
that had been discussed with the full board and publicly announced by us. The corporate-level goals
that the committee adopted for 2009 and the weighting attached to each of these goals were as
follows:
2009 Goals
Weighting | ||||
Manage our cash expenditures so that our cash resources at December 31, 2009 equal at least $10 million |
15 | % | ||
Execute at least two new individual drug delivery technology agreements or a multi-drug agreement, with
cash generated from these new agreements of at least $1 million in 2009 and total cash generated under all
of our drug delivery technology agreements of $1.5 million in 2009 |
20 | % | ||
Execute at least one licensing transaction for Opana ER that generates at least $1 million in cash in 2009 |
20 | % | ||
Commence a Phase IIa clinical trial of A0001 in 2009, with data analysis expected by the end of the first
quarter of 2010 |
30 | % | ||
Select and acquire a back-up compound from Edison Pharmaceuticals |
15 | % |
In February 2010, the committee evaluated our 2009 performance against our 2009 corporate
goals and determined that 87% of the 2009 corporate goals had been achieved. In calculating the
87%:
| The committee recognized that we had exceeded our goals with respect to end of year cash and our drug delivery technology business. The Committee agreed to a credit of 20% with respect to our cash goal as our end of the year cash level (excluding proxy costs) exceeded our cash target by 28% and a credit of 27% with respect to our drug delivery technology goal as we signed two agreements in 2009 and total cash generated under our drug delivery technology agreements was 35% higher than our cash target. | ||
| The committee recognized that we had achieved our goal with respect to the Edison back-up compound and agreed to a credit of 15% as we selected and acquired the compound in September 2009. | ||
| The committee recognized that we had partially achieved our A0001 clinical goal and agreed to a credit of 10% in recognition of the progress made in this program during 2009, including the commencement of two Phase IIa proof of concept trials for A0001, including one in patients with Friedreichs Ataxia, with data expected in the third quarter of 2010. The committee also recognized that we had partially achieved our Opana ER licensing goal as the agreement entered into with Valeant Pharmaceuticals generated less than $1 million in cash for us after sharing the proceeds with our collaborator, Endo Pharmaceuticals, and taking into account foreign currency conversion, and agreed to a credit of 15%. |
In February 2010, the committee also evaluated the individual performance of our executive
officers and determined the bonus credit that would be given for individual performance objectives.
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| The committee determined to give Ms. Good the full 25% for her individual performance during 2009 in recognition of her role in negotiating and signing the Opana ER transaction with Valeant Pharmaceuticals, in working under our collaboration and licensing agreements with Endo, Edison and Otsuka and in our other 2009 business development activities and in transitioning the company to profitability, as well as for her leadership of the company during an adversarial proxy contest, including with our employees, our shareholders and our business partners. | ||
| The committee determined that Dr. Sciascia had achieved his individual goal with respect to managing our cash burn and partially achieved his goals with respect to the clinical development of A0001, and based on this, determined to give him credit for 18% of the 25% for his individual performance objectives. | ||
| The committee determined that Dr. Hawi had achieved her individual goals with respect to managing our cash burn, our drug delivery technology business and the selection of a back-up compound for A0001 and had only partially achieved her goals with respect to the clinical development of A0001, and based on this, determined to give her credit for 23% of the 25% for her individual performance objectives. | ||
| The committee determined that Dr. Baichwal had achieved his individual goal with respect to managing our cash burn, had exceeded his goal with respect to the cash generated under drug delivery technology agreements and did not achieve his goal with respect to Opana ER transactions, and based on this and his important role in our relationship with Otsuka and in the patent area, determined to give Dr. Baichwal credit for the full 25% for his individual performance objectives. |
Based on these determinations, the committee determined the cash bonuses for 2009 as follows:
2009 Annual | ||||||||||||
2009 Bonus | Cash Bonus | Percentage of | ||||||||||
Named Executive Officer | Targets | Payments | Bonus Target | |||||||||
Jennifer L. Good |
$ | 154,800 | $ | 139,000 | 90 | % | ||||||
President and Chief Executive Officer |
||||||||||||
Thomas R. Sciascia, M.D. |
$ | 93,000 | $ | 77,000 | 83 | % | ||||||
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer |
||||||||||||
Amale Hawi, Ph.D. |
$ | 84,480 | $ | 74,000 | 88 | % | ||||||
Senior Vice President, Pharmaceutical Development |
||||||||||||
Anand R. Baichwal, Ph.D. |
$ | 74,400 | $ | 67,000 | 90 | % | ||||||
Senior Vice President, Licensing and Business Development |
The committee also considered whether to modify the officers bonus targets for 2010 but left
them unmodified upon the determination that these targets were consistent with the targeted 50th
percentile. The committee did agree to revisit Ms. Goods bonus target for 2010 following the
collection of additional market data.
Stock Option Awards
Our equity award program is our primary vehicle for offering long-term incentives to our
executives. The committee believes that equity grants provide our executives with a strong link to
our long-term performance, create an ownership culture and help to align the interests of our
executives and our shareholders. In addition, the vesting feature of our equity grants is intended
to further our goal of executive retention because this feature provides an incentive to our
executives to remain in our employ during the vesting period. In determining the size of equity
grants to our executives, the compensation committee considers comparative share ownership to
executives in the peer group and survey data, our company-level performance, the applicable
executives performance, the amount of equity previously awarded to the executive, the vesting of
such equity and the recommendations of management.
We typically make an initial equity award of stock options to new executives, annual option
grants as part of the overall compensation program and other option grants in connection with
promotions during the year. All grants of options to our executives are approved by the
compensation committee.
Our equity awards to our executives have been in the form of stock options. The compensation
committee reviews all components of the executives compensation when determining annual equity
awards to ensure that an executives total compensation conforms to our overall philosophy and
objectives. As with the other forms of executive compensation, we intend that the share numbers of
these awards will be set near the 50th percentile of option grants by comparable companies as set
forth in the compensation data.
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Typically, the stock options we grant to our executives have ten-year option terms and vest in
four equal annual installments. We set the exercise price of all stock options to equal the closing
price of our common stock on the day of the grant. Prior to the exercise of an option, the holder
has no rights as a shareholder with respect to the shares subject to such option, including voting
rights and the right to receive dividends or dividend equivalents. The stock option agreements with
our executive officers provide that the stock options will become immediately exercisable in full
if there is a change in control of the company, upon death or disability, or upon retirement in
accordance with our normal retirement policy. Except in the case of termination for cause, exercise
rights cease twelve months after the date of termination, or upon death or disability.
We do not have any equity ownership guidelines for our executives.
Equity awards to our executives are typically granted annually in conjunction with the
committees review of their individual performance. This review generally takes place at a meeting
of the compensation committee held in the first quarter of each year. We do not plan to make these
annual grants of stock options at a time when we are aware of material non-public information. We
generally time annual option grants so that the grants occur after the release of our financial
results for the previous fiscal year.
On February 17, 2009, the compensation committee approved for our named executive officers the
stock option awards set forth in the table below.
Number of Shares | ||||
Subject to Stock | ||||
Executive Officer | Options Granted | |||
Jennifer L. Good, |
100,000 | |||
President and Chief Executive Officer |
||||
Thomas R. Sciascia, M.D., |
65,000 | |||
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer |
||||
Amale Hawi, Ph.D., |
65,000 | |||
Senior Vice President, Pharmaceutical Development |
||||
Anand R. Baichwal, Ph.D., |
50,000 | |||
Senior Vice President, Licensing and Business Development |
In granting these awards, the committee acknowledged that these option levels were identical
to the option levels granted in 2008 and that 2008 option levels had been deemed generous in light
of the relatively low cash bonuses that were granted to the executives for 2007 and determined
that, given the salary freeze, the option awards should continue to be generous. The committee also
considered the compensation data and determined that these awards were within the desired range
with regard to the number of shares underlying the options granted to each executive.
Severance/Change in Control Benefits
Retention Agreements
We enter into executive retention agreements with each of our executive officers. Pursuant to
the executive retention agreements and our stock option agreements under our stock incentive plans,
our executives are entitled to specified benefits in the event of the termination of their
employment under specified circumstances following a change in control. We have provided more
detailed information about these agreements and benefits, along with estimates of their value under
various circumstances, under the caption Potential Payments Upon Termination or Change in Control
below.
The committee first decided that we should enter into executive retention agreements with our
executive officers in 2005 after reviewing the practices of other companies. The committee believed
that the benefits provided for by these agreements would provide management with the appropriate
incentives to act in the best interest of the shareholders, as well as help us attract and retain
the necessary executive talent for growing our business. These agreements were set to expire at the
end of 2008. As a result, during 2008, the committee considered whether to let the agreements
expire, or to enter into new retention agreements and, if so, on what terms. After consulting with
the full board, in November 2008, the committee concluded that it continued to believe that
retention agreements are an important component of the incentives we provide to our executive
officers. As a result, the committee recommended, and the board approved, new executive retention
agreements for our executive officers. These agreements expire on December 31, 2011.
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As with the expired agreements, we structured the new executive retention agreements to
provide double trigger benefits. In other words, the change in control does not itself trigger
benefits; rather, benefits are paid only if the employment of the executive is terminated by us
other than for cause, death or disability, or by the executive for good reason during a specified
period after the change in control. This period was initially 12 months. We believe a double
trigger benefit maximizes shareholder value because it prevents an unintended windfall to
executives in the event of a friendly change of control, while still providing them appropriate
incentives to cooperate in negotiating any change in control in which they believe they may lose
their job. Our stock option agreements, however, do provide for full acceleration of vesting upon a
change in control.
We did, however, adjust the change in control benefits payable under the agreements after
comparing the benefits provided under the expiring agreements with the benefits generally provided
in similar circumstances by other companies in the industry. Under the prior agreements, the
severance benefits had been determined based on the number of years of service with the company.
Under the new agreements, benefits are determined based on the executives position with the
company.
On March 16, 2010, we entered into amendments to the agreements with each of our executive
officers. Under the amended agreements, benefits are paid only if the employment of the executive
is terminated by us other than for cause, death or disability, or by the executive for good reason
during the 18-month period following the change in control, rather than the 12-month period
initially provided by the agreement. The amended agreements also provide for earlier payment of the
severance amounts (including payment of as much as possible in a lump sum) to the extent permitted
by Section 409A of the Internal Revenue Code. The amended agreement did not increase the amount of
severance payable to the executives. The compensation committee approved the amendments in
recognition of the uncertainty our executives faced as a result of the anticipated proxy contest in
connection with the 2010 annual meeting of shareholders.
Severance
In connection with the resignation of Mr. Palleiko, our former Senior Vice President,
Corporate Development, and Chief Financial Officer, on January 21, 2009, the committee approved a
severance and settlement and release agreement with Mr. Palleiko that provided for a severance
payment in the aggregate amount of $225,750, which was paid in equal bi-weekly installments to Mr.
Palleiko over the nine months following the date of his termination, plus $15,416 in premiums paid
on behalf of Mr. Palleiko in respect of health, dental and vision insurance coverage for the
nine-month period following Mr. Palleikos termination. Additionally, the severance agreement
provided for acceleration of vesting with respect to an aggregate of 16,250 shares of common stock
under stock options issued to Mr. Palleiko on March 13, 2008 and June 11, 2008, such that the
shares became immediately exercisable as of January 30, 2009. 11,375 of such shares had an exercise
price of $2.62, and 4,875 of such shares had an exercise price of $3.05. The closing price of our
common stock on the NASDAQ Global Market was $1.77 on January 30, 2009, the date on which such
options were modified to become fully vested. In approving these benefits, the committee considered
the terms of prior separation arrangements entered into by us with former executive officers and
the contributions made by Mr. Palleiko during his tenure with us.
Benefits and Other Compensation
We maintain broad-based benefits that are provided to all employees, including health and
dental insurance, life and disability insurance, and a 401(k) plan. Executives are eligible to
participate in all of our employee benefit plans, in each case on the same basis as other
employees. We contribute $0.75 for every dollar of employee contributions to the 401(k) plan, up to
6% of the employees eligible pay.
We limit the perquisites that we make available to our executive officers. Our executive
officers are entitled to few benefits that are not otherwise available to all of our employees. For
example, we do not provide pension arrangements, post-retirement health coverage or similar
benefits to our executive officers or our other employees. Similarly, our health and insurance
plans are the same for all employees.
In 2009, Ms. Good received a monthly allowance of $1,000 of reimbursement for her vehicle. We
also paid the hotel and living expenses of Dr. Sciascia for those nights that he stayed in Danbury,
Connecticut.
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Tax Considerations
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax
deduction for compensation in excess of $1.0 million paid to each of our chief executive officer,
our chief financial officer and each other officer whose compensation is required to be reported to
our shareholders pursuant to the Exchange Act by reason of being among our three most highly
compensated executive officers. Qualifying performance-based compensation is not subject to the
deduction limitation if specified requirements are met. We periodically review the potential
consequences of Section 162(m) and we generally intend to structure the performance-based portion
of our executive compensation, where feasible, to comply with exemptions in Section 162(m) so that
the compensation remains tax deductible to us. However, the compensation committee may, in its
judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m)
when it believes that such payments are appropriate to attract and retain executive talent.
Risks Arising from Compensation Policies and Practices
We believe our approach to goal setting, setting of targets with payouts at multiple levels of
performance, and evaluation of performance results assist in mitigating excessive risk-taking that
could harm our value or reward poor judgment by our executives. Several features of our programs
reflect sound risk management practices. We believe we have allocated our compensation among base
salary and short and long-term compensation target opportunities in such a way as to not encourage
excessive risk-taking. Further, with respect to our incentive compensation programs, although the
corporate performance metrics that determine payouts for certain business operations leaders are
based in part on the achievement of business segment metrics, the metrics that determine payouts
for our executive officers are company-wide metrics only. This is based on our belief that applying
Company-wide metrics encourages decision-making that is in the best long-term interests of Penwest
and our shareholders as a whole. The mix of equity award instruments used under our long-term
incentive program that includes full value awards also mitigates risk. Finally, the multi-year
vesting of our equity awards properly accounts for the time horizon of risk.
Executive Compensation
Summary Compensation
The following table contains information about the compensation of each of our named executive
officers for the years ended December 31, 2009, December 31, 2008, and December 31, 2007.
Summary Compensation Table
Non-Equity | ||||||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||||||
Option | Plan | All Other | ||||||||||||||||||||||||||
Salary | Bonus | Awards | Compensation | Compensation | Total | |||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($)(1) | ($)(2) | ($) | ($) | |||||||||||||||||||||
Jennifer L. Good(3) |
2009 | $ | 398,130 | $ | | $ | 98,000 | $ | 139,000 | $ | 24,600 | (4) | $ | 659,730 | ||||||||||||||
President and |
2008 | 381,374 | | 178,600 | 92,880 | 23,925 | 676,779 | |||||||||||||||||||||
Chief Executive Officer |
2007 | 369,339 | 45,000 | 453,050 | | 23,700 | 891,089 | |||||||||||||||||||||
Benjamin L. Palleiko(5) |
2009 | 29,231 | | | | 241,885 | (6) | 271,116 | ||||||||||||||||||||
Former Senior Vice President, |
2008 | 296,028 | | 116,090 | 36,120 | 18,475 | 466,713 | |||||||||||||||||||||
Corporate Development and |
2007 | 287,878 | 29,200 | 209,100 | | 17,478 | 543,656 | |||||||||||||||||||||
Chief Financial Officer |
||||||||||||||||||||||||||||
Thomas R. Sciascia, M.D. |
2009 | 318,991 | | 63,700 | 77,000 | 17,535 | (7) | 447,226 | ||||||||||||||||||||
Senior Vice President, |
2008 | 305,086 | | 116,090 | 55,800 | 17,707 | 494,683 | |||||||||||||||||||||
Clinical and Regulatory Affairs
and |
2007 | 294,652 | 30,000 | 313,650 | | 17,773 | 656,075 | |||||||||||||||||||||
Chief Medical Officer |
||||||||||||||||||||||||||||
Amale Hawi, Ph.D.(8) |
2009 | 292,099 | | 63,700 | 74,000 | 12,180 | (9) | 441,979 | ||||||||||||||||||||
Senior Vice President, |
2008 | 279,565 | | 89,300 | 63,360 | 11,505 | 443,730 | |||||||||||||||||||||
Pharmaceutical Development |
2007 | 172,404 | | 684,000 | 18,425 | 4,011 | 878,840 | |||||||||||||||||||||
Anand R. Baichwal, Ph.D. |
2009 | 254,607 | | 49,000 | 67,000 | 12,600 | (10) | 383,207 | ||||||||||||||||||||
Senior Vice President, Licensing |
2008 | 244,334 | | 80,370 | 40,920 | 11,925 | 377,549 | |||||||||||||||||||||
and Business Development |
2007 | 234,652 | 24,000 | 209,100 | | 11,700 | 479,452 |
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(1) | Aggregate grant date fair value of option awards granted during the year computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (FASB ASC Topic 718). The grant-date fair value was determined using a Black-Scholes valuation applied to the number of shares which may be purchased under an option grant. The assumptions used in the Black-Scholes valuations and the resulting values per share may be found in Note 11 of the Companys 2009 Form 10-K filed with the SEC on March 16, 2010. | |
(2) | The amounts in this column reflect payments made under our annual cash incentive bonus program, which is described above in Compensation Discussion and Analysis. | |
(3) | Ms. Good is also a member of our board of directors but does not receive any additional compensation in her capacity as a director. | |
(4) | Consists of: | |
$12,000 in an automobile allowance; | ||
$11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and | ||
$1,575 in premiums paid on behalf of Ms. Good for supplemental life and disability insurance plans. | ||
(5) | In connection with the resignation of Mr. Palleiko, our former Senior Vice President, Corporate Development, and Chief Financial Officer, on January 21, 2009, the committee approved a severance and settlement and release agreement with Mr. Palleiko that provided for a severance payment in the aggregate amount of $225,750, which was paid in equal bi-weekly installments to Mr. Palleiko over the nine months following the date of his termination, plus $15,416 in premiums paid on behalf of Mr. Palleiko in respect of health, dental and vision insurance coverage for the nine-month period following Mr. Palleikos termination. Additionally, the severance agreement provided for acceleration of vesting with respect to an aggregate of 16,250 shares of common stock under stock options issued to Mr. Palleiko on March 13, 2008 and June 11, 2008, such that the shares became immediately exercisable as of January 30, 2009. | |
(6) | Consists of the payments described in footnote 5, in connection with the termination of Mr. Palleikos employment, in addition to the following payments made during Mr. Palleikos employment: | |
$588 in hotel and living expense reimbursements for Mr. Palleiko; | ||
$131 in premiums paid on behalf of Mr. Palleiko for supplemental life and disability insurance. | ||
(7) | Consists of: | |
$4,935 in hotel and living expense reimbursements for Dr. Sciascia; | ||
$11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and | ||
$1,575 in premiums paid on behalf of Dr. Sciascia for supplemental life and disability insurance plans. | ||
(8) | Dr. Hawi joined the company in May 2007. | |
(9) | Consists of: | |
$11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and | ||
$1,155 in premiums paid on behalf of Dr. Hawi for supplemental life and disability insurance plans. | ||
(10) | Consists of: | |
$11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and | ||
$1,575 in premiums paid on behalf of Dr. Baichwal for supplemental life and disability insurance plans. |
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Employment Letter Arrangements and Other Agreements with our Named Executive Officers
In connection with the resignation of Mr. Palleiko, our former Senior Vice President,
Corporate Development, and Chief Financial Officer, on January 21, 2009, the committee approved a
severance and settlement and release agreement with Mr. Palleiko that provided for a severance
payment in the aggregate amount of $225,750, which was paid in equal bi-weekly installments to Mr.
Palleiko over the nine months following the date of his termination, plus $15,416 in premiums paid
on behalf of Mr. Palleiko in respect of health, dental and vision insurance coverage for the
nine-month period following Mr. Palleikos termination. Additionally, the severance agreement
provided for acceleration of vesting with respect to an aggregate of 16,250 shares of common stock
under stock options issued to Mr. Palleiko on March 13, 2008 and June 11, 2008, such that the
shares became immediately exercisable as of January 30, 2009.
We have entered into executive retention agreements with each of our named executive officers.
A description of the executive retention agreements entered into with each named executive officer
is included under Potential Payments Upon Termination or Change in Control below.
Grants of Plan-Based Awards During 2009
The following table summarizes information regarding options granted to each of the named
executive officers during the year ended December 31, 2009.
2009 Grants of Plan-Based Awards
All Other | ||||||||||||||||||||||||||||
Option | ||||||||||||||||||||||||||||
Awards: | Grant | |||||||||||||||||||||||||||
Number of | Exercise or | Date | ||||||||||||||||||||||||||
Estimated Future Payouts Under | Securities | Base Price | Fair | |||||||||||||||||||||||||
Non-Equity Incentive Plan Awards | Underlying | of Option | Value of | |||||||||||||||||||||||||
Threshold | Target | Maximum | Grant | Options | Awards | Option | ||||||||||||||||||||||
Name | ($) | ($)(1) | ($) | Date | (2) | ($/Sh)(3) | Awards(4) | |||||||||||||||||||||
Jennifer L. Good |
| | 154,800 | 3/5/09 | 100,000 | $ | 1.56 | $ | 98,000 | |||||||||||||||||||
Benjamin L. Palleiko |
| | | | | | | |||||||||||||||||||||
Thomas Sciascia, M.D. |
| | 93,000 | 3/5/09 | 65,000 | 1.56 | 63,700 | |||||||||||||||||||||
Amale Hawi, Ph.D. |
| | 84,480 | 3/5/09 | 65,000 | 1.56 | 63,700 | |||||||||||||||||||||
Anand R. Baichwal, Ph.D. |
| | 74,400 | 3/5/09 | 50,000 | 1.56 | 49,000 |
(1) | This reflects the targets set for 2009 under our annual cash incentive bonus program, as described in Compensation Discussion and Analysis. | |
(2) | Options granted in 2009 to the named executive officers become exercisable in four equal annual installments, commencing one year after the vesting commencement date, which is typically the grant date. | |
(3) | The exercise price of the stock option awards is equal to the closing price of our common stock on the grant date as reported by the NASDAQ Global Market. | |
(4) | Grant date fair value of option awards computed in accordance with ASC Topic 718. |
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Outstanding Equity Awards at 2009 Fiscal Year-End
The following table summarizes information regarding unexercised stock options held by the
named executive officers as of December 31, 2009.
2009 Outstanding Equity Awards at Fiscal Year-End
Option Awards | ||||||||
Number of | Number of | |||||||
Securities | Securities | |||||||
Underlying | Underlying | |||||||
Unexercised | Unexercised | Option | ||||||
Options | Options | Exercise | Option | |||||
(#) | (#) | Price | Expiration | |||||
Name | Exercisable | Unexercisable | ($) | Date | ||||
Jennifer L. Good |
22,000 | | 12.75 | 2/02/2010 | ||||
32,000 | | 12.00 | 3/01/2011 | |||||
32,000 | | 19.13 | 2/14/2012 | |||||
50,000 | | 9.90 | 2/20/2013 | |||||
50,000 | | 16.39 | 2/12/2014 | |||||
45,000 | | 10.35 | 2/17/2015 | |||||
50,000 | | 16.14 | 11/23/2015 | |||||
37,500(1) | 12,500(1) | 22.67 | 2/09/2016 | |||||
32,500(2) | 32,500(2) | 13.02 | 3/01/2017 | |||||
17,500(3) | 52,500(3) | 2.62 | 3/13/2018 | |||||
7,500(4) | 22,500(4) | 3.05 | 6/11/2018 | |||||
| 100,000(5) | 1.56 | 3/5/2019 | |||||
Benjamin L. Palleiko |
75,000 | (7) | 17.15 | 1/21/2010 | ||||
7,500 | (7) | 13.02 | 1/21/2010 | |||||
11,375 | (7)(8) | 2.62 | 1/21/2010 | |||||
4,875 | (7)(8) | 3.05 | 1/21/2010 | |||||
Thomas R. Sciascia, M.D. |
75,000 | | 13.00 | 3/06/2011 | ||||
25,000 | | 19.13 | 2/14/2012 | |||||
36,000 | | 9.90 | 2/20/2013 | |||||
30,000 | | 16.39 | 2/12/2014 | |||||
35,000 | | 10.35 | 2/17/2015 | |||||
22,500(1) | 7,500(1) | 22.67 | 2/09/2016 | |||||
22,500(2) | 22,500(2) | 13.02 | 3/01/2017 | |||||
11,375(3) | 34,125(3) | 2.62 | 3/13/2018 | |||||
4,875(4) | 14,625(4) | 3.05 | 6/11/2018 | |||||
| 65,000(5) | 1.56 | 3/5/2019 | |||||
Amale Hawi, Ph.D. |
50,000(6) | 50,000(6) | 12.09 | 5/02/2017 | ||||
8,750(3) | 26,250(3) | 2.62 | 3/13/2018 | |||||
3,750(4) | 11,250(4) | 3.05 | 6/11/2018 | |||||
| 65,000(5) | 1.56 | 3/5/2019 | |||||
Anand R. Baichwal, Ph.D. |
15,000 | | 12.75 | 2/02/2010 | ||||
20,000 | | 12.00 | 3/01/2011 | |||||
20,000 | | 19.13 | 2/14/2012 | |||||
20,000 | | 9.90 | 2/20/2013 | |||||
20,000 | | 10.35 | 2/17/2015 | |||||
22,500(1) | 7,500(1) | 22.67 | 2/09/2016 | |||||
15,000(2) | 15,000(2) | 13.02 | 3/01/2017 | |||||
7,875(3) | 23,625(3) | 2.62 | 3/13/2018 | |||||
3,375(4) | 10,125(4) | 3.05 | 6/11/2018 | |||||
| 50,000(5) | 1.56 | 3/5/2019 |
(1) | These options vest in four equal annual installments with the first installment vesting on February 9, 2007. | |
(2) | These options vest in four equal annual installments with the first installment vesting on March 1, 2008. | |
(3) | These options vest in four equal annual installments with the first installment vesting on March 13, 2009. | |
(4) | These options vest in four equal annual installments with the first installment vesting on June 11, 2009. |
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(5) | These options vest in four equal installments with the first installment vesting on March 5, 2010. | |
(6) | These options vest in four equal annual installments with the first installment vesting on May 2, 2008. | |
(7) | These options expired one year from the date of termination of Mr. Palleikos employment with us. | |
(8) | Vesting of options was accelerated in 2009 as part of the severance agreement between Mr. Palleiko and the company. |
Option Exercises and Stock Vested During 2009
None of the named executive officers exercised any vested options during 2009. We do not have
a policy of granting our named executive officers restricted or non-restricted shares of our common
stock. We did not grant to any named executive officers any awards of common stock in 2009.
Potential Payments Upon Termination or Change in Control
On November 12, 2008, we entered into executive retention agreements with each of our
executive officers. These retention agreements replaced prior retention agreements with each of our
executive officers that had been scheduled to expire on December 31, 2008. On March 10, 2010, we
entered into amendments to these agreements.
The retention agreements, as amended, provide that, if, within 18 months following a change in
control of our company, the executives employment is terminated by us other than for cause, death,
or disability, or by the executive for good reason, as such terms are defined in the retention
agreements:
| we will pay the executive an amount equal to either 200% (in the case of our chief executive officer) or 150% (in the case of our other executive officers) of the highest annual base salary during the period of the executives employment with us and the highest annual bonus during the period of the executives employment with us, including the target bonus of the executive for the calendar year during which the date of termination occurs, with such amount to be paid as soon as possible following termination, to the extent permitted by Section 409A of the Internal Revenue Code; | ||
| we will pay the full premium for group medical insurance under the continuation coverage rules known as COBRA, up to the amount that we pay for active and similarly-situated employees who receive the same type of coverage, with such payments to last until the earlier of (i) 24 months (in the case of our chief executive officer) or 18 months (in the case of our other executive officers) following the date the executives employment is terminated and (ii) the date the COBRA continuation coverage expires; and | ||
| the vesting of all stock options and restricted stock held by the executive will be accelerated in full, to the extent not already vested, and all shares of stock underlying stock options and all shares of restricted stock will be free of any right of repurchase by us. |
The retention agreements terminate if a change in control of the company does not occur prior
to December 31, 2011.
The following table shows payments and benefits potentially payable to each of our named
executive officers that was employed with us on December 31, 2009 if he or she were to be
terminated other than for cause, death or disability, or resigns for good reason following a change
in control of our company. The amounts shown assume that such termination was effective as of
December 31, 2009, and thus include amounts earned through such time, and are estimates of the
amounts that would be paid out to the executive upon his or her termination. Mr. Palleiko is not
included on the following table as his employment with the company terminated in January 2009, as
described under Severance/Change in Control Benefits Severance.
Continuing | Additional | Acceleration of | ||||||||||||||||||
Base Salary | Bonus | Benefits | Payments | Stock | ||||||||||||||||
Name | ($) | ($) | ($) | ($)(1) | Options(2)($) | |||||||||||||||
Jennifer L. Good |
774,000 | 309,600 | 36,624 | 10,000 | 103,000 | |||||||||||||||
Thomas R. Sciascia, M.D. |
465,000 | 139,500 | 31,041 | 10,000 | 66,950 | |||||||||||||||
Amale Hawi, Ph.D. |
422,400 | 126,720 | 9,996 | 10,000 | 66,950 | |||||||||||||||
Anand R. Baichwal, Ph.D. |
372,000 | 111,600 | 31,054 | 10,000 | 51,500 |
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(1) | Consists of compensation for the discontinuance of life insurance, accidental death and dismemberment insurance and long-term disability insurance benefits that would have been provided over the 24 months (in the case of our chief executive officer) or 18 months (in the case of our other executive officers) had the executives employment not been terminated. | |
(2) | This amount would be determined by multiplying the number of option shares that would accelerate, assuming a December 31, 2009 employment termination date, by the excess of $2.59 over the exercise price of the option. $2.59 is the closing price of our common stock on the NASDAQ Global Market on December 31, 2009. |
Compensation of Directors
Under our director compensation program, non-employee directors receive annual fees, meeting
fees and equity compensation as follows. Kevin C. Tang and Joseph E. Edelman do not accept any
compensation in connection with their service as directors.
Annual Fees
Each non-employee director receives:
Annual retainer as a director |
$ | 20,000 | ||
Additional annual retainer for chairman of the board |
15,000 | |||
Additional annual retainer for audit committee chair |
15,000 | |||
Additional annual retainer for other audit committee members |
5,000 | |||
Additional annual retainer for other board committee chairs |
10,000 | |||
Additional annual retainer for other board committee members |
3,000 |
We pay these annual retainers in quarterly installments on the first business day of each
calendar quarter. Directors may elect to receive these fees in cash, shares of our common stock or
a combination of both. For those directors that have elected to receive shares of stock in lieu of
cash fees, we determine the number of shares of common stock to be issued in lieu of cash fees by
dividing the fees to be paid in stock by the closing price of our common stock on the date the fees
are otherwise payable. In 2009, we granted an aggregate of 14,014 shares of common stock related to
annual retainer fees and meeting fees, as described below, to our non-employee directors at a
weighted average of $2.00 per share.
Meeting Fees
We also pay our non-employee directors, in cash or shares of our common stock pursuant to a
directors election, fees of $1,500 for each board meeting attended in person and fees of between
$500 and $1,000 for each board meeting attended telephonically. For those directors that have
elected to receive shares of stock in lieu of cash fees, we determine the number of shares of
common stock to be issued in lieu of cash fees by dividing the fees to be paid in stock by the
closing price of our common stock on the date the fees are otherwise due.
Equity Compensation
On the first business day of each calendar year, we issue each non-employee director either
options to purchase 12,000 shares of our common stock or a grant of 6,000 shares of restricted
common stock, as elected by each director. The exercise price of the options equals the closing
price of our common stock on the grant date. Options granted pursuant to this program vest on the
first anniversary of the date of grant. Shares of restricted common stock granted pursuant to this
program are granted without requiring payment of additional consideration by the recipient and vest
on the first anniversary of the grant date. The vesting of options and of the restricted common
stock granted to our non-employee directors is subject to acceleration in full upon a change in
control of our company.
In addition, upon the date of the initial election of a non-employee director to our board, we
grant such non-employee director 20,000 shares of restricted common stock and grant an additional
12,000 shares of restricted common stock every four years thereafter. These shares vest in four
equal annual installments commencing upon the first anniversary of the date of the grant. The
vesting of the restricted common stock is subject to acceleration in full upon a change in control
of our company.
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Expense Reimbursement
We reimburse our non-employee directors for all reasonable expenses incurred in attending
meetings of the board of directors and committees of the board.
The following table summarizes the amounts paid (and stock awards made) to our non-employee
directors during 2009.
2009 Director Compensation
Fees Earned or | ||||||||||||||||
Paid in Cash | Stock Awards | Option Awards | Total | |||||||||||||
Name(1) | ($)(2) | ($)(3) | ($)(4) | ($) | ||||||||||||
Christophe M. Bianchi, M.D. |
$ | 42,250 | $ | | $ | 12,600 | $ | 54,850 | ||||||||
Peter F. Drake, Ph.D. |
36,249 | 30,300 | | 66,549 | ||||||||||||
Joseph E. Edelman(5) |
| | | | ||||||||||||
Paul E. Freiman |
60,250 | 10,020 | | 70,270 | ||||||||||||
Robert J. Hennessey(6) |
17,750 | | 12,600 | 30,350 | ||||||||||||
David P. Meeker, M.D. |
50,750 | | 12,600 | 63,350 | ||||||||||||
W. James OShea(7) |
21,500 | | 12,600 | 34,100 | ||||||||||||
John N. Staniforth, Ph.D.(8) |
11,500 | 10,020 | | 21,520 | ||||||||||||
Kevin C. Tang(5) |
| | | | ||||||||||||
Anne M. VanLent |
50,750 | | 12,600 | 63,350 |
(1) | Jennifer L. Good, one of our directors, is also our President and Chief Executive Officer and a named executive officer. Ms. Good does not receive any additional compensation as a director. See Summary Compensation Table above for disclosure relating to her compensation. | |
(2) | Includes fees that were paid in shares of common stock in lieu of cash at the directors elections: | |
Dr. Drake received 14,014 shares of common stock in lieu of $27,999 of cash fees | ||
(3) | The amounts shown represent the aggregate grant date fair value, computed using the market price on the date of grant of restricted stock awards granted during 2009, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation Stock Compensation (FASB ASC Topic 718). | |
(4) | The amounts shown represent the aggregate grant date fair value of option awards granted during 2009 computed in accordance with FASB ASC Topic 718. The grant date fair value was determined using a Black-Scholes valuation applied to the number of shares granted under an option. The assumptions used in the Black-Scholes valuations and the resulting values per share may be found in Note 11 of the Companys 2009 Form 10-K filed with the SEC on March 16, 2010. | |
(5) | Joseph Edelman and Kevin Tang have elected not to receive compensation for serving as a member of the board of directors. | |
(6) | Robert Hennesseys term as a director expired at the 2009 annual meeting. In connection with this, the vesting of options to purchase 12,000 shares of our common stock, and the vesting of 6,000 shares of our restricted stock granted to him in 2007, were accelerated in full. The grant date fair value of such options was $12,600, and the fair value of such options on the date of acceleration was $11,640. The grant date fair value of such restricted stock was $88,710, and the fair value of such restricted stock on the date of acceleration was $13,560. | |
(7) | W. James OSheas term as a director expired at the 2009 annual meeting. In connection with this, the vesting of options to purchase 12,000 shares of our common stock, and the vesting of 10,000 shares of our restricted stock, were accelerated in full. The grant date fair value of such options was $12,600, and the fair value of such options on the date of acceleration was $12,480. The grant date fair value of such restricted stock was $134,100, and the fair value of such restricted stock on the date of acceleration was $24,300. | |
(8) | John N. Staniforths term as a director expired at the 2009 annual meeting. In connection with this, the vesting of 6,000 shares of our restricted stock granted to him in 2009, and the vesting of 6,000 shares of our restricted stock granted to him in 2007, were accelerated in full. The grant date fair value of such restricted stock granted to him in 2009 was $10,020, and the fair value of such restricted stock on the date of acceleration was $14,580. The grant date fair value of such restricted stock granted to him in 2007 was $89,160, and the fair value of such restricted stock on the date of acceleration was $14,580. |
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The following table shows the aggregate number of unvested stock awards held by each of our
non-employee directors as of December 31, 2009, and the aggregate number of shares subject to
options held by each of our non-employee directors as of December 31, 2009.
Aggregate | ||||||||
Number of | ||||||||
Unvested Stock | Aggregate Number | |||||||
Awards as of | of Option Awards | |||||||
Name | 12/31/09 | as of 12/31/09 | ||||||
Christophe M. Bianchi, M.D. |
10,000 | 12,000 | ||||||
Peter F. Drake, Ph.D. |
18,000 | | ||||||
Joseph E. Edelman |
| | ||||||
Paul E. Freiman |
12,000 | 58,673 | ||||||
Robert J. Hennessey |
| 73,568 | ||||||
David P. Meeker, M.D. |
10,000 | 12,000 | ||||||
W. James OShea |
| 12,000 | ||||||
John N. Staniforth, Ph.D. |
| 79,666 | ||||||
Kevin C. Tang |
| | ||||||
Anne M. VanLent |
6,000 | 83,374 |
Compensation Committee Interlocks and Insider Participation
The current members of the compensation committee are Mr. Freiman, Dr. Drake and Dr. Bianchi.
No member of the compensation committee was at any time during 2009, or formerly, an officer or
employee of ours or any subsidiary of ours, nor has any member of the compensation committee had
any relationship with us requiring disclosure under Item 404 of Regulation S-K of the Exchange Act.
None of our executive officers serves as a member of the board of directors or compensation
committee, or other committee serving an equivalent function, of any entity that has one or more
executive officers who serve as members of our board of directors or our compensation committee.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with the companys management, as set forth below under
Information About Executive and Director Compensation. Based on this review and discussion, the
compensation committee recommended to the companys board of directors that the Compensation
Discussion and Analysis be included in this proxy statement.
By the Compensation Committee of
the Board of Directors of
Penwest Pharmaceuticals Co.
the Board of Directors of
Penwest Pharmaceuticals Co.
Christophe M. Bianchi, Chair
Peter F. Drake
Paul E. Freiman
Peter F. Drake
Paul E. Freiman
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table presents information we know regarding the beneficial ownership of our
common stock as of January 31, 2010 for each person, entity or group of affiliated persons whom we
know to beneficially own more than 5% of our common stock. The table also sets forth such
information for our directors and named executive officers and a former named executive officer,
individually, and our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. Except as
indicated by footnote, to our knowledge, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as beneficially owned by them.
Options and/or warrants to purchase shares of common stock that are exercisable within 60 days of
January 31, 2010 are deemed to be beneficially owned by the person holding such options for the
purpose of computing ownership of such person, but are not treated as outstanding for the purpose
of computing the ownership of any other person. Applicable percentage of beneficial ownership is
based on 31,808,690 shares of common stock outstanding as of January 31, 2010.
Unless otherwise indicated in the footnotes, the address of each director and named executive
officer set forth below is: c/o Penwest Pharmaceuticals Co., 2981 Route 22, Suite 2, Patterson, NY
12563.
Amount and Nature of Beneficial | ||||||||
Ownership | ||||||||
Name and Address of Beneficial Owner | Number of Shares | Percentage | ||||||
Tang Capital Management, LLC and Related Persons |
6,695,598 | (1) | 21.0 | % | ||||
4401 Eastgate Mall
|
||||||||
San Diego, CA 92121 |
||||||||
Perceptive Advisors and Related Persons |
6,476,446 | (2) | 20.4 | % | ||||
499 Park Avenue, 25(th) Floor
|
||||||||
New York, NY 10022 |
||||||||
D.E. Shaw & Co., L.P. |
2,515,771 | (3) | 7.9 | % | ||||
120 W. 45(th) Street, Tower 45, 39th Floor
|
||||||||
New York, NY 10036 |
||||||||
Directors and Director Nominees: |
||||||||
Christophe M. Bianchi, M.D. |
44,000 | (4) | * | |||||
Peter F. Drake, Ph.D. |
97,923 | * | ||||||
Joseph E. Edelman |
6,476,446 | (2) | 20.4 | % | ||||
Paul E. Freiman |
80,457 | (5) | * | |||||
Jennifer L. Good |
458,217 | (6) | 1.4 | % | ||||
David P. Meeker, M.D. |
47,612 | (7) | * | |||||
Kevin C. Tang |
6,695,598 | (1) | 21.0 | % | ||||
Anne M. VanLent |
126,107 | (8) | * | |||||
Other Named Executive Officers: |
||||||||
Anand R. Baichwal, Ph.D. |
187,055 | (9) | * | |||||
Amale Hawi, Ph.D. |
87,500 | (10) | * | |||||
Thomas R. Sciascia, M.D. |
349,119 | (11) | 1.1 | % | ||||
All executive officers and directors as a group (11 persons) |
14,650,034 | 44.5 | % |
* | Represents beneficial ownership of less than 1%. | |
(1) | The foregoing information is based solely on a Schedule 13D/A filed with the Securities and Exchange Commission on February 5, 2010. Tang Capital Partners, LP reports having shared voting and dispositive power for 6,396,598 shares; Tang Capital Management, LLC reports having shared voting and dispositive power for 6,396,598 shares; and Kevin C. Tang reports having sole voting and dispositive power with respect to 77,500 shares, shared voting power for 6,544,098 shares and shared dispositive power for 6,618,098 shares. |
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(2) | The foregoing information is based solely on a Schedule 13D/A filed with the Securities and Exchange Commission on February 5, 2010. Perceptive Advisors LLC and Mr. Joseph Edelman report having shared voting power and shared dispositive power for 6,476,446 shares. | |
(3) | The foregoing information is based solely on a Schedule 13G/A filed with the Securities and Exchange Commission on February 16, 2010. David E. Shaw is the President and sole shareholder of D.E. Shaw & Co., Inc., which is the general partner of D.E. Shaw & Co., LP., which in turn is the managing member and investment advisor of D.E. Shaw Valence Portfolios, L.L.C. David E. Shaw may be deemed to have the shared power to vote or direct the vote of, and the shared power to dispose or direct the disposition of, the 2,515,771 shares as described above and, therefore, Mr. Shaw may be deemed to be the beneficial owner of such shares. Mr. Shaw disclaims beneficial ownership of such 2,515,771 shares. D.E. Shaw Valence Portfolios, L.L.C. and D.E. Shaw & Co., L.P. report having shared voting power and shared dispositive power for 2,515,771 shares. | |
(4) | Includes 12,000 shares subject to outstanding stock options held by Dr. Bianchi that are exercisable within 60 days following January 31, 2010. | |
(5) | Includes 51,202 shares subject to outstanding stock options held by Mr. Freiman that are exercisable within 60 days following January 31, 2010. | |
(6) | Includes 425,250 shares subject to outstanding stock options held by Ms. Good that are exercisable within 60 days following January 31, 2010. | |
(7) | Includes 12,000 shares subject to outstanding stock options held by Dr. Meeker that are exercisable within 60 days following January 31, 2010. | |
(8) | Includes 75,616 shares subject to outstanding stock options held by Ms. VanLent that are exercisable within 60 days following January 31, 2010. | |
(9) | Includes 164,125 shares subject to outstanding stock options held by Dr. Baichwal that are exercisable within 60 days following January 31, 2010. | |
(10) | Includes 87,500 shares subject to outstanding stock options held by Dr. Hawi that are exercisable within 60 days following January 31, 2010. | |
(11) | Includes 308,625 shares subject to outstanding stock options held by Dr. Sciascia that are exercisable within 60 days following January 31, 2010. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information, as of December 31, 2009, about our common stock that
may be issued upon exercise of options, warrants and rights under all of our equity compensation
plans, which consist of our 2005 Stock Incentive Plan, our 1997 Equity Incentive Plan and our 1997
Employee Stock Purchase Plan.
Equity Compensation Plan Information
Number of | Number of Shares | |||||||||||
Shares to be | Remaining Available | |||||||||||
Issued Upon | for Future Issuance | |||||||||||
Exercise of | Weighted-Average | Under Equity | ||||||||||
Outstanding | Exercise Price of | Compensation Plans | ||||||||||
Options, | Outstanding | (Excluding Shares | ||||||||||
Warrants and | Options, Warrants | Reflected in | ||||||||||
Rights | and Rights | Column A) | ||||||||||
Plan Category | (Column A) | (Column B) | (Column C) | |||||||||
Equity compensation plans that have been approved by shareholders |
2,615,682 | $ | 10.62 | 2,157,006 | ||||||||
Equity compensation plans that have not been approved by our shareholders |
| $ | | | ||||||||
Total |
2,615,682 | $ | 10.62 | 2,157,006 |
As of March 31, 2010, there were 2,832,705 shares subject to issuance upon the exercise of
outstanding stock options or awards under our equity compensation plans, at a weighted average
exercise price of $9.03, and with a weighted average remaining life of 6.55 years. In addition, as
of March 31, 2010, there were 57,000 unvested shares of restricted stock outstanding under our
equity compensation plans. As of March 31, 2010, there were 1,763,991 shares available
for future issuance under our 2005 Stock Incentive Plan, no shares available for future
issuance under our 1997 Equity
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Incentive Plan, and 7,803 shares available for future issuance under
our 1997 Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Transactions with Related Persons
Related Person Transactions
We have determined that there were no related party transactions to disclose in 2009.
Policy and Procedures for Related Person Transactions
Our board of directors has adopted written policies and procedures for the review of any
transaction, arrangement or relationship in which Penwest is a participant, the amount involved
exceeds $120,000, and one of our executive officers, directors, director nominees or 5%
shareholders (or their immediate family members), each of whom we refer to as a related person, has
a direct or indirect material interest, which we refer to as a related person transaction.
The policy calls for proposed related person transactions to be reviewed and, if deemed
appropriate, approved by our audit committee. Whenever practicable, the reporting, review and
approval will occur prior to entry into the transaction. If advance review and approval is not
practicable, the committee will review, and, in its discretion, may ratify the related person
transaction. The policy also permits the chairman of the audit committee to review and, if deemed
appropriate, approve proposed related person transactions that arise between committee meetings,
subject to ratification by the committee at its next meeting. Any related person transactions that
are ongoing in nature will be reviewed annually
A related person transaction reviewed under the policy will be considered approved or ratified
if it is authorized by the committee after full disclosure of the related persons interest in the
transaction. As appropriate for the circumstances, the committee will review and consider:
| the related persons interest in the related person transaction; | ||
| the approximate dollar value of the amount involved in the related person transaction; | ||
| the approximate dollar value of the amount of the related persons interest in the transaction without regard to the amount of any profit or loss; | ||
| whether the transaction was undertaken in the ordinary course of our business; | ||
| whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party; | ||
| the purpose of, and the potential benefits to us of, the transaction; and | ||
| any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction. |
The committee may approve or ratify the transaction only if the committee determines that, under
all of the circumstances, the transaction is in, or is not inconsistent with, Penwests best
interests. The committee may impose any conditions on the related person transaction that it deems
appropriate.
Board Independence
Under the rules of The NASDAQ Stock Market, a director will only qualify as an independent
director if, in the opinion of our board of directors, that person does not have a relationship
which would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
Our board of directors has determined that none of Drs. Bianchi, Drake and Meeker, Mr. Freiman, and
Ms. VanLent has a relationship that would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and that each of these directors is an independent
director as defined under section 5605(a)(2) of the Nasdaq rules. In addition, our board of directors determined that each of Robert Hennessey and W. James
OShea, who served
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as directors until their terms expired at the 2009 annual meeting, was an
independent director as defined under section 5605(a)(2) of the Nasdaq rules. Only independent
directors serve on our standing board committees
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees billed to us for the fiscal years ended December 31,
2009 and December 31, 2008 by Ernst & Young LLP:
Fee Category | 2009 | 2008 | ||||||
Audit Fees(1) |
$ | 400,000 | $ | 492,000 | ||||
Audit-Related Fees(2) |
45,000 | 42,000 | ||||||
Tax Fees(3) |
52,900 | 70,000 | ||||||
All Other Fees(4) |
2,162 | 3,000 | ||||||
Total Fees |
$ | 500,062 | $ | 607,000 | ||||
(1) | Audit fees consist of fees for the audit of our financial statements, the audit of our internal control over financial reporting, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements, including our registration statements filed on Form S-3 and Form S-8 in 2008. | |
(2) | Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review of our financial statements, and which are not reported under Audit Fees. In 2009 and 2008, these fees included fees for audits of our retirement plan. | |
(3) | Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax fees in 2009 and 2008 included tax compliance services, which relate to preparation of original and amended tax returns, claims for refunds and tax payment planning services. Tax fees in 2009 also include tax consulting services in connection with our consideration of shareholder distribution alternatives, including dividend considerations. Tax fees in 2008 also included tax consulting services in connection with our review of the ownership change provisions of Section 382 of the Internal Revenue Code. | |
(4) | In 2009 and 2008, all other fees related to a subscription to the Ernst & Young Global Accounting and Auditing Information Tool. |
The audit committee has adopted policies and procedures relating to the approval of all audit
and non-audit services that are to be performed by our independent registered public accounting
firm. This policy generally provides that we will not engage our independent registered public
accounting firm to render audit or non-audit services unless the service is specifically approved
in advance by the audit committee or the engagement is entered into pursuant to the pre-approval
procedures described below.
From time to time, the audit committee may pre-approve specified types of services that are
expected to be provided to us by our independent registered public accounting firm during the next
twelve months. Any such pre-approval is detailed as to the particular service or types of services
to be provided and is also generally subject to a maximum dollar amount.
The audit committee has also delegated to the chair of the audit committee the authority to
approve any audit or non-audit services to be provided to us by our independent registered public
accounting firm. Any approval of services by the chair of the audit committee pursuant to this
delegated authority is reported on at the next meeting of the audit committee.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | The list of Exhibits filed as part of this report are set forth on the Exhibit Index immediately preceding such exhibits, and is incorporated herein by this reference. This list includes a subset containing each management contract, compensatory plan, or arrangement required to be filed as an exhibit to this report. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Penwest Pharmaceuticals Co. |
||||
/s/ Jennifer L. Good | ||||
Jennifer L. Good | ||||
President and Chief Executive Officer | ||||
Date: April 29, 2010
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Exhibit Index
Filed with | ||||||||||||
Exhibit | this Form | Form or | Filing Date | SEC File | ||||||||
Number | Description | 10-K/A | Schedule | with SEC | Number | |||||||
3.1 | Amended and Restated Articles of Incorporation of the
Registrant
|
10-Q | 8/3/2004 | 000-23467 | ||||||||
3.2 | Amended and Restated Bylaws of the Registrant, as amended
|
S-8 | 7/2/08 | 333-152086 | ||||||||
3.3 | Designation of Rights and Preference of Series A Junior
Participating Preferred Stock of the Registrant filed on
July 17, 1998
|
10/A | 7/17/1998 | 000-23467 | ||||||||
4.1 | Specimen certificate representing the Common Stock
|
S-1/A | 12/17/1997 | 333-38389 | ||||||||
10.1 | Product Development and Supply Agreement dated August
17, 1994 by and between the Registrant and Mylan
Pharmaceuticals Inc.
|
S-1 | 10/21/1997 | 333-38389 | ||||||||
10.2 | Sales and Distribution Agreement dated January 3, 1997
by and between the Registrant and Mylan Pharmaceuticals
Inc.
|
S-1 | 10/21/1997 | 333-38389 | ||||||||
10.3 | Letter Agreement dated February 25, 2000 by and between
the Registrant and Mylan Pharmaceuticals Inc.
|
10-Q | 8/14/2000 | 000-23467 | ||||||||
10.4 | Amended and Restated Strategic Alliance Agreement, dated
as of April 2, 2002, by and between Endo Pharmaceuticals
Holdings Inc. and the Registrant
|
10-Q | 8/14/2002 | 000-23467 | ||||||||
10.5 | Amendment, dated January 7, 2007, to the Amended and
Restated Strategic Alliance Agreement, dated as of April
2, 2002, by and between Endo Pharmaceuticals Inc. and
the Registrant
|
8-K | 2/15/2007 | 000-23467 | ||||||||
10.6 | Second Amendment, dated July 14, 2008, to the Amended
and Restated Strategic Alliance Agreement, dated as of
April 2, 2002, by and between the Registrant and Endo
Pharmaceuticals Inc.
|
10-Q | 11/10/2008 | 000-23467 | ||||||||
10.7 | Third Amendment, signed March 31, 2009, to the Amended
and Restated Strategic Alliance Agreement, dated as of
April 2, 2002, by and between the Registrant and Endo
Pharmaceuticals Inc.
|
10-Q | 5/11/2009 | 000-34267 | ||||||||
10.8 | 1997 Equity Incentive Plan
|
S-1 | 10/21/1997 | 333-38389 | ||||||||
10.9 | 1997 Employee Stock Purchase Plan
|
S-1 | 10/21/1997 | 333-38389 | ||||||||
10.10 | 1998 Spinoff Option Plan
|
10/A | 7/7/1998 | 000-23467 | ||||||||
10.11 | Recognition and Incentive Agreement dated as of May 14,
1990 between the Registrant and Anand Baichwal, as
amended
|
S-1/A | 11/10/1997 | 333-38389 | ||||||||
10.12 | Termination Agreement dated as of February 1, 2007 by
and between Anand Baichwal and the Registrant
|
8-K | 2/5/2007 | 000-23467 | ||||||||
10.13 | Form of Option Agreement for 1997 Incentive Plan
|
10-K | 3/16/05 | 000-23467 | ||||||||
10.14 | 2005 Stock Incentive Plan, as amended
|
10-Q | 8/8/2008 | 000-23467 | ||||||||
10.15 | Amendment No. 1 to 2005 Stock Incentive Plan
|
10-Q | 11/9/06 | 000-23467 | ||||||||
10.16 | Form of Incentive Stock Option Agreement for grants
under 2005 Stock Incentive Plan
|
8-K | 6/7/2005 | 000-23467 |
29
Table of Contents
Filed with | ||||||||||||
Exhibit | this Form | Form or | Filing Date | SEC File | ||||||||
Number | Description | 10-K/A | Schedule | with SEC | Number | |||||||
10.17 | Form of Employee Nonstatutory Stock Option Agreement for
grants under 2005 Stock Incentive Plan
|
8-K | 6/7/2005 | 000-23467 | ||||||||
10.18 | Form of Nonstatutory Stock Option Agreement (Consultants
and Directors) for grants under 2005 Stock Incentive
Plan
|
8-K | 6/7/2005 | 000-23467 | ||||||||
10.19 | Form of Director Restricted Stock Agreement for grants
under 2005 Stock Incentive Plan
|
8-K | 6/7/2005 | 000-23467 | ||||||||
10.20 | Summary of Executive Officer Bonus Program
|
10-K | 3/16/2009 | 001-34267 | ||||||||
10.21 | Summary of the Director Compensation Program
|
10-K | 3/16/2009 | 001-34267 | ||||||||
10.22 | Manufacture and Supply Agreement dated November 6, 2006
between the Registrant and Draxis Specialty
Pharmaceuticals Inc.
|
10-K | 3/16/2007 | 000-23467 | ||||||||
10.23 | Credit and Security Agreement dated as of March 13, 2007
by and among the Registrant and Merrill Lynch Capital, a
division of Merrill Lynch Business Financial Services
Inc.
|
10-Q | 5/10/2007 | 000-23467 | ||||||||
10.24 | Collaboration and License Agreement dated as of July 16,
2007 by and between Edison Pharmaceuticals, Inc. and the
Registrant
|
10-Q | 11/8/2007 | 000-23467 | ||||||||
10.25 | Settlement Agreement dated May 5, 2009, by and between
Edison Pharmaceuticals, Inc. and the Company
|
10-Q | 8/10/09 | 000-34267 | ||||||||
10.26 | Securities Purchase Agreement dated March 5, 2008, among
the Registrant and the purchasers party thereto
|
8-K | 3/6/2008 | 000-23467 | ||||||||
10.27 | Form of Warrant issued by the Registrant to each of the
purchasers under the Securities Purchase Agreement dated
March 5, 2008
|
8-K | 3/6/2008 | 000-23467 | ||||||||
10.28 | Rights Agreement, dated as of March 11, 2009, between
the Registrant and Mellon Investor Services, LLC, as
Rights Agent
|
8-K | 03/12/2009 | 000-23467 | ||||||||
10.29 | Severance and Settlement Agreement and Release, dated
January 30, 2009, by and between the Registrant and
Benjamin L. Palleiko
|
10-Q | 05/11/2009 | 001-34267 | ||||||||
10.30 | Lease dated February 27, 2003, by and between JRS Pharma
LP and the Registrant, as amended to date
|
10-K | 3/16/2010 | 001-34267 | ||||||||
23 | Consent of Ernst & Young LLP
|
10-K | 3/16/2010 | 001-34267 | ||||||||
31 | Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Exchange Act
Rules 13a-14 or 15d-14, as adopted pursuant to Section
302 of Sarbanes-Oxley Act of 2002 |
X | ||||||||||
32 | Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Exchange Act
Rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley Act
of 2002
|
10-K | 3/16/2010 | 001-34267 |
| Confidential treatment granted as to certain portions, which portions are omitted and filed separately with the Commission. | |
| Management contract or compensatory plan or arrangement required to be filed as an Exhibit to the Annual Report on Form 10-K. | |
| Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission. |
30