DEF 14A 1 a17-8680_1def14a.htm DEF 14A

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

SCHEDULE 14A

(Rule 14a-101)

 

INFORMATION REQUIRED IN

PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 


 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material under §240.14a-12

 

ARALEZ PHARMACEUTICALS INC.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 



March 23, 2017

 

 

Dear Shareholder:

 

You are cordially invited to attend the 2017 Annual and Special Meeting of Shareholders (the “Meeting”) of Aralez Pharmaceuticals Inc. (“Aralez” or the “Company”) on Wednesday, May 3, 2017, at 9:00 a.m. (Eastern Standard Time) at the offices of Stikeman Elliott LLP, 5300 Commerce Court West, 199 Bay Street, Toronto, ON, Canada M5L 1B9. The board of directors (the “Board”) and management of the Company hope that you will be able to attend the Meeting.

 

The attached Notice of 2017 Annual and Special Meeting of Shareholders and Proxy Statement describe the business to be conducted at the Meeting, including: (1) receiving the audited consolidated financial statements of the Company for the fiscal year ended December 31, 2016, together with the auditor’s report thereon; (2) the election of eight directors to the Board, each of whom will serve until the next annual meeting of shareholders of the Company or until their successors are elected or appointed; (3) the approval of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017; (4) the approval of the Amended and Restated 2016 Long-Term Incentive Plan, (5) a non-binding, advisory vote to approve our approach to the compensation of our named executive officers, as disclosed in the accompanying Proxy Statement; (6) a non-binding advisory vote to approve the frequency of future advisory votes to approve our approach to the compensation of our named executive officers; and (7) such other business as may properly be brought before the Meeting.

 

As a shareholder of the Company, your participation in the affairs of Aralez is important, regardless of the number of shares you hold. Therefore, whether or not you are able to attend in person, please vote your shares as soon as possible by completing and returning the enclosed proxy, or, if you hold your shares through a bank, broker or other financial intermediary, by following the procedures described in the voting instruction form provided by such intermediary.

 

On behalf of the Board, we would like to express our appreciation for your continued interest in the affairs of Aralez.

 

 

Sincerely yours,

 

 

 

 

Adrian Adams

 

Chief Executive Officer

 

7100 West Credit Avenue, Suite 101, Mississauga, Ontario, Canada, L5N 0E4

TEL: (905) 876-1118

http://www.aralez.com

 



 

 


 

NOTICE OF 2017 ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 


 

TIME

 

9:00 a.m. (Eastern Standard Time) on Wednesday, May 3, 2017

 

 

 

PLACE

 

Stikeman Elliott LLP

 

 

5300 Commerce Court West

 

 

199 Bay Street

 

 

Toronto, ON, Canada M5L 1B9

 

 

 

ITEMS OF BUSINESS

 

1.                   To receive the audited consolidated financial statements of Aralez Pharmaceuticals Inc. (the “Company”) for the fiscal year ended December 31, 2016, together with the auditor’s report thereon.

 

 

 

 

 

2.                   To elect eight directors to the board of directors (the “Board”) of the Company, each of whom will serve until the next annual meeting of shareholders of the Company or until their successors are elected or appointed.

 

 

 

 

 

3.                   To approve the appointment of Ernst & Young LLP, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017.

 

 

 

 

 

4.      To approve the Amended and Restated 2016 Long-Term Incentive Plan.

 

 

 

 

 

5.                   To conduct a non-binding advisory vote to approve our approach to the compensation of our named executive officers, as disclosed in the accompanying Proxy Statement.

 

 

 

 

 

6.                   To conduct a non-binding advisory vote to approve the frequency of future advisory votes to approve our approach to the compensation of our named executive officers.

 

 

 

 

 

7.                   To transact such other business as may properly be brought before the 2017 Annual and Special Meeting of Shareholders (the “Meeting”).

 

 

 

RECORD DATE

 

You are entitled to vote at the Meeting or any adjournment or postponement thereof if you were a shareholder of record at the close of business on March 6, 2017.

 

 

 

ANNUAL REPORT

 

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 is available on the Company’s corporate website at www.aralez.com, on the EDGAR website maintained by the SEC at www.sec.gov and on the SEDAR website maintained by the Canadian Securities Administrators at www.sedar.com.

 

The Board recommends: a vote FOR each of the director nominees; a vote FOR the proposal to approve the appointment of Ernst & Young LLP as the Company’s auditors for the fiscal year ending December 31, 2017; a vote FOR the proposal to approve the Amended and Restated 2016 Long-Term Incentive Plan; a vote FOR the proposal to approve our approach to the compensation of our named executive officers, as disclosed in the accompanying Proxy Statement; and a vote in favour of holding future non-binding advisory votes to approve our approach to the compensation of our named executive officers EVERY YEAR. The accompanying Proxy Statement provides detailed information relating to each of the proposals to be considered at the Meeting and forms part of this Notice of 2017 Annual and Special Meeting of Shareholders.

 

 

By Order of the Board of Directors

 

 

 

 

Eric L. Trachtenberg

 

General Counsel, Chief Compliance Officer & Corporate Secretary

 

 

 

March 23, 2017

 

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on Wednesday, May 3, 2017

 

This Notice of 2017 Annual and Special Meeting of Shareholders, the Proxy Statement (including the proxy) and our 2016 Annual Report are available at:

 

www.envisionreports.com/Aralez2017

 

This website does not use “cookies,” to track the identity of anyone accessing the

website to view the proxy materials, or gather any personal information.

 



 

TABLE OF CONTENTS

 

 

 

Page

Questions and Answers About The 2017 Annual And Special Meeting Of Shareholders And Related Proxy Materials

 

1

Why is the Company providing proxy materials?

 

1

Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a full set paper copy of the proxy materials?

 

1

What proxy materials are available to shareholders?

 

1

When was the Notice first mailed to shareholders?

 

1

How can I access the proxy materials on the Internet?

 

1

How do I request paper copies of the proxy materials?

 

2

Who is soliciting the proxies?

 

2

What proposals will be voted on at the Meeting?

 

2

What are the Board’s voting recommendations?

 

2

What shares may I vote?

 

3

What is the difference between holding Common Shares as a Registered Shareholder and as a Non-Registered Shareholder?

 

3

May I attend the Meeting in person?

 

4

How can I vote my Common Shares in person at the Meeting?

 

4

How can I vote my Common Shares without attending the Meeting?

 

4

Can Registered Shareholders revoke their proxy or change their vote?

 

5

Can Non-Registered Shareholders change their vote?

 

5

How are votes counted?

 

5

What is the quorum requirement for the Meeting?

 

6

What is the voting requirement to approve each of the proposals?

 

6

What happens if I abstain from voting on Proposal 3, Proposal 4 and/or Proposal 5?

 

6

What is a “broker non-vote”?

 

6

Will I have rights of dissent?

 

7

What does it mean if I receive more than one proxy or voting instruction form?

 

7

Who will bear the cost of soliciting votes for the Meeting?

 

7

Where can I find the voting results of the Meeting?

 

7

 

 

 

Explanatory Note

 

8

 

 

 

Board of Directors and Corporate Governance

 

9

The Board in General

 

9

Corporate Governance Overview

 

11

Corporate Governance Guidelines

 

12

Board Leadership Structure

 

12

Board Oversight of Risk

 

12

Director Independence

 

13

Director Compensation

 

13

Committees of the Board

 

13

Board Meetings and Attendance During Fiscal Year 2016

 

15

Director Attendance at Annual Shareholders’ Meeting

 

16

Compensation Committee Interlocks and Insider Participation

 

16

Orientation and Continuing Education

 

16

Code of Business Conduct and Ethics

 

17

Considerations in Evaluating Director Nominees

 

17

Diversity Policy

 

18

Board Renewal

 

18

Board Evaluations

 

18

Communications with the Board

 

19

Cease Trade Orders and Bankruptcies

 

19

Penalties or Sanctions

 

20

 

 

 

Executive Officers

 

21

 

 

 

Certain Relationships and Related Party Transactions

 

23

 

 

 

Ownership of the Company

 

25

Security Ownership of Certain Beneficial Owners and Management

 

25

Section 16(a) Beneficial Ownership Reporting Compliance

 

27

 

 

 

Executive and Director Compensation

 

28

Compensation Committee Report

 

28

Compensation Discussion and Analysis

 

28

Summary Compensation Table (for fiscal years 2016 and 2015)

 

44

Grants of Plan-Based Awards in 2016

 

46

Employment and Other Agreements

 

46

Outstanding Equity Awards at December 31, 2016

 

48

Option Exercises and Stock Vested in Fiscal Year 2016

 

48

Pension Benefits for Fiscal Year 2016

 

49

Nonqualified Deferred Compensation for Fiscal 2016

 

49

Potential Payments on Termination and Change of Control

 

49

Director Compensation

 

55

Director Compensation for Fiscal Year 2016

 

55

 



 

Equity Plans and Inducement Grants

57

 

 

Equity Compensation Plan Information

61

 

 

Report of the Audit Committee

62

 

 

Proposal 1—Election of Directors

63

 

 

Proposal 2—Approval of the Appointment of the Company’s Independent Registered Public Accounting Firm

64

 

 

Proposal 3—Approval of the Amended and Restated 2016 Long-Term Incentive Plan

66

 

 

Proposal 4—Non-binding, Advisory Vote To Approve The Company’s Approach To The Compensation Of Its Named Executive Officers

77

 

 

Proposal 5—Non-binding, Advisory Vote To Approve The Frequency Of Future Advisory Votes To Approve The Company’s Approach To The Compensation Of Its Named Executive Officers

79

 

 

Other Matters

80

 

 

Indebtedness of Directors and Executive Officers

80

 

 

Interest of Informed Persons in Material Transactions

80

 

 

Interest of Certain Persons or Companies in Matters to be Acted Upon

80

 

 

Availability of Quarterly Financial Information

80

 

 

Householding of Proxy Materials

81

 

 

The Company’s Website

81

 

 

The Company’s Principal Executive Office

81

 

 

Annual Report and Other SEC Filings

81

 

 

Additional Questions and Information Regarding the Meeting and Shareholder Proposals

82

What happens if additional proposals are presented at the Meeting?

82

How do I propose individuals to serve as directors?

82

May I propose actions for consideration at next year’s Meeting of Shareholders?

82

 

 

Annex A — Amended and Restated 2016 Long-Term Incentive Plan

 

 

 

Annex B — Corporate Governance Guidelines

 

 

 

Annex C — Audit Committee Charter

 

 



 

 

PROXY STATEMENT

 

FOR

 

2017 ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NO SECURITIES REGULATORY AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE.

 

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS AND RELATED PROXY MATERIALS

 

Q:                    Why is the Company providing proxy materials?

 

A:                    The board of directors (the “Board”) of Aralez Pharmaceuticals Inc. (“Aralez,” the “Company,” “we,” “our,” or “us,” as the context requires) is providing this proxy statement (this “Proxy Statement”) to solicit your proxy in connection with Aralez’s 2017 Annual and Special Meeting of Shareholders (the “Meeting”), which is scheduled to take place on Wednesday, May 3, 2017. The Board is requesting your vote on the proposals described in this Proxy Statement.

 

Q:                    Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set paper copy of the proxy materials?

 

A:                    We are utilizing rules under applicable U.S. and Canadian securities laws that allow companies to furnish their proxy materials on the Internet rather than in paper form. These rules allow a company to send to its shareholders a notice regarding Internet availability of proxy materials (“Notice”). The securities laws that allow us to furnish our proxy materials over the Internet rather than in paper form do not require us to do so for all shareholders. Shareholders who have previously opted to receive proxy materials in paper form will receive paper copies of the proxy materials in accordance with their instructions. Instructions on how to access the proxy materials on the Internet or how to request a paper or electronic copy of our proxy materials may be found in the Notice and below.

 

Q:                       What proxy materials are available to shareholders?

 

A:                       The Company has made available: (1) the Notice of 2017 Annual and Special Meeting of Shareholders; (2) this Proxy Statement (including the proxy); and (3) the Company’s Annual Report on Form 10-K, including the related management discussion & analysis, for the fiscal year ended December 31, 2016.

 

Q:                    When was the Notice first mailed to shareholders?

 

A:                    In order to comply with the rules under applicable U.S. and Canadian securities laws, the Company mailed the Notice to you twice. The Notice was first mailed to shareholders on or about March 23, 2017. The Notice was then mailed a second time to shareholders on or about April 3, 2017 and accompanied by a proxy or voting instruction form, as applicable, that can be used to vote your shares at the Meeting.

 

Shareholders have the option of (1) accessing the proxy materials, including instructions on how to vote online, by telephone or by mail; or (2) requesting that the proxy materials be sent to the shareholders in paper form or electronically. Opting to receive your proxy materials online will save the Company the cost of producing and mailing documents to your home or business, and will also give you an electronic link to the proxy voting site.

 

Q:                    How can I access the proxy materials on the Internet?

 

A:                    The Notice contains instructions on how to view the proxy materials on the Internet, vote your shares online, by telephone or by mail, and obtain printed or electronic copies of the proxy materials. The proxy materials are available online at www.envisionreports.com/Aralez2017, on the EDGAR website maintained by the Securities and Exchange Commission (the “SEC”) at www.sec.gov and on the SEDAR website maintained by the Canadian Securities Administrators (“CSA”) at www.sedar.com.

 

1



 

Q:                    How do I request paper copies of the proxy materials?

 

The Notice contains instructions on how to request paper or electronic copies of the proxy materials.  You must request a paper or electronic copy of the proxy materials by the deadline indicated in the Notice to ensure you receive them prior to the deadline for the submission of your voting instructions, which is 9:00 a.m. (Eastern Standard Time) on May 1, 2017.

 

Q:                    Who is soliciting the proxies?

 

A:                    The Board and management of Aralez are soliciting proxies for use at the Meeting, including any postponements or adjournments thereof. We have retained the services of MacKenzie Partners, Inc. to aid in the solicitation of proxies.

 

Q:                    What proposals will be voted on at the Meeting?

 

A:                    There are five proposals for which a vote is contemplated at the Meeting:

 

·                  The election of eight directors to the Board, each of whom will serve until the next annual meeting of shareholders or until their successors are elected or appointed (Proposal 1);

 

·                  The approval of the appointment of Ernst & Young LLP (“E&Y”), an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017 (Proposal 2);

 

·                  The approval of the Amended and Restated 2016 Long-Term Incentive Plan (Proposal 3);

 

·                  A non-binding, advisory vote to approve our approach to the compensation of our named executive officers, as disclosed in this Proxy Statement (“say-on-pay”) (Proposal 4); and

 

·                  A non-binding, advisory vote to approve the frequency of future advisory votes to approve our approach to the compensation of our named executive officers (“say-on-frequency”) (Proposal 5).

 

Shareholders will also consider and vote upon any other business properly brought before the Meeting or any adjournment or postponement thereof.

 

Q:                    What are the Board’s voting recommendations?

 

A:                    The Board recommends that you vote all of your common shares (“Common Shares”):

 

·                  FOR the election of each of the eight nominees named herein to the Board (Proposal 1);

 

·                  FOR the approval of the appointment of E&Y, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017 (Proposal 2);

 

·                  FOR the approval of the Amended and Restated 2016 Long-Term Incentive Plan (Proposal 3);

 

·                  FOR the approval of a non-binding, advisory say-on-pay vote to approve our approach to the compensation of the Company’s named executive officers, as disclosed in this Proxy Statement (Proposal 4); and

 

·                  EVERY YEAR for the non-binding advisory vote to approve the frequency of future advisory votes to approve our approach to the compensation of the Company’s named executive officers (Proposal 5).

 

2



 

Q:                    What shares may I vote?

 

A:                    You may vote all Common Shares that you owned as of the close of business on March 6, 2017 (the “Record Date”). These Common Shares include:

 

1.                       those Common Shares held in your name as a “Registered Shareholder; and

 

2.                       those Common Shares held by you as a “Non-Registered Shareholder” through a bank, broker or other financial intermediary.

 

Each Common Share is entitled to one vote for each of the proposals to be considered at the Meeting. The Company’s authorized share capital consists of an unlimited number of Common Shares and an unlimited number of preferred shares. On the Record Date, there were 65,683,646 Common Shares issued and outstanding. No preferred shares are currently issued and outstanding.

 

The holders of Common Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend and vote at those meetings, except those meetings at which holders of a specific class of shares are entitled to vote separately as a class under the British Columbia Business Corporations Act (“BCBCA”).

 

Q:                    What is the difference between holding Common Shares as a Registered Shareholder and as a Non-Registered Shareholder?

 

A:                    Most Aralez shareholders hold their Common Shares through a bank, broker or other financial intermediary, as a Non-Registered Shareholder, rather than in their own name, as a Registered Shareholder. As summarized below, there are some distinctions between Common Shares held by Registered Shareholders and those held by Non-Registered Shareholders.

 

Registered Shareholders

 

If your Common Shares are registered in your name with Aralez’s transfer agent, Computershare Investor Services Inc. (the “Transfer Agent”), or if you are registered as the holder of Common Shares in book-entry form, you are considered, with respect to those Common Shares, the Registered Shareholder, and we have delivered a Notice directly to you. As a Registered Shareholder, you have the right to attend the Meeting in person or to grant your proxy directly to the Named Proxies (as defined below) or any other person who will appear in person at the Meeting on your behalf. Voting by proxy means that you are giving the person or people named on your proxy form (your proxyholders) the authority to vote your Common Shares for you at the Meeting or any adjournment or postponement thereof. The Board has selected Adrian Adams and Andrew I. Koven (the “Named Proxies”) to vote all Common Shares for which the Company has been appointed to act as proxy at the Meeting. The Named Proxies will vote any properly submitted proxy, if received in time and not revoked, at the Meeting according to your directions. The Named Proxies will vote any properly submitted proxy that fails to specify a choice on any proposal to be acted upon at the Meeting in accordance with the Board’s voting recommendations (as described below in “What are the Board’s voting recommendations?”), and, in the Named Proxies’ discretion, FOR or AGAINST such other business as may properly come before the Meeting or any adjournment or postponement thereof.

 

Registered Shareholders are requested to submit a proxy for their Common Shares, giving the Named Proxies the right to vote your Common Shares on your behalf. Alternatively, if you are a Registered Shareholder, you may also vote your Common Shares by proxy by appointing another person to attend the Meeting on your behalf and vote your Common Shares for you. This person does not have to be a shareholder, but must be present at the Meeting to vote your Common Shares. Make sure that the person you appoint is aware that he or she has been appointed as your proxy and attends the Meeting. At the Meeting, he or she should see a representative of the Transfer Agent.

 

To be valid, your proxy must be received by the proxy department of the Transfer Agent by mail, on the Internet at www.investorvote.com or by telephone at 1-866-732-VOTE (8683) not later 9:00 a.m. (Eastern Standard Time) on May 1, 2017, or if the Meeting is adjourned or postponed, not less than two business days before the time of any such adjourned or postponed Meeting. Failure to properly complete or submit a proxy may result in its invalidation. See “How can I vote my Common Shares without attending the Meeting?” further below.

 

Non-Registered Shareholders

 

If you hold your Common Shares through a bank, broker or other financial intermediary, you are considered, with respect to those Common Shares, the Non-Registered Shareholder, and your bank, broker or other financial intermediary is forwarding the Notice to you. Your bank, broker or other financial intermediary is considered, with respect to those Common Shares, the Registered Shareholder. As the beneficial owner of the Common Shares, you have the right to direct your bank, broker or other financial intermediary to vote your Common Shares according to your instructions (see “How can I vote my Common Shares without attending the Meeting?” below), but because you are not the Registered Shareholder, you may not vote these Common Shares in person at the Meeting unless you obtain a signed proxy from the Registered Shareholder giving you the right to vote the Common Shares. In most cases, your bank, broker or other financial intermediary will provide you with instructions on how to vote your Common Shares by telephone, on the Internet or by mail, in each case not later than 9:00 a.m. (Eastern Standard Time) on May 1, 2017, or if the Meeting is adjourned or postponed, not less than two business days before the time of any such adjourned or postponed Meeting.  Please consult your bank, broker or other financial intermediary to ensure your vote is received in advance of the above noted voting deadline.

 

3



 

The Company will pay for the cost of intermediaries to deliver the Notice, and if, requested, printed proxy materials (including a voting instruction form) to Non-Registered Shareholders (both objecting beneficial owners and non-objecting beneficial owners). The Company will not reimburse shareholders, nominees or agents for the cost incurred in obtaining authorization to execute forms of proxy from their principals or beneficial owners.

 

Non-Registered Shareholders who receive a voting instruction form should carefully follow the instructions provided to ensure their vote is counted.

 

Q:                    May I attend the Meeting in person?

 

A:                    You are invited to attend the Meeting in person and we encourage all shareholders of Aralez to attend the Meeting.

 

All shareholders attending the Meeting will be asked to present a form of photo identification, such as a driver’s license, in order to be admitted to the Meeting. All bags or packages permitted in the Meeting room will be subject to inspection. No cameras, computers, recording equipment, other similar electronic devices, signs, placards, briefcases, backpacks, large bags or packages will be permitted in the Meeting. The use of mobile phones, tablets, laptops and similar electronic devices during the Meeting is prohibited, and such devices must be turned off and put away before entering the Meeting room.

 

Q:                    How can I vote my Common Shares in person at the Meeting?

 

A:                    You may vote Common Shares you hold in your name as the Registered Shareholder in person at the Meeting. If you choose to do so, you do not need to submit a proxy, but you should see a representative of the Transfer Agent at the Meeting. Voting in person at the Meeting will revoke any proxy you submitted earlier upon your request.

 

If you hold your Common Shares through a bank, broker or other financial intermediary as a Non-Registered Shareholder, you may vote the Common Shares in person at the Meeting only if you have obtained a signed proxy from your bank, broker or other financial intermediary (i.e., the Registered Shareholder) giving you the right to vote the Common Shares. Any Non-Registered Shareholder who wishes to vote his or her Common Shares in person at the Meeting, should follow the instructions included in the voting instruction form provided by your bank, broker or other financial intermediary, and see a representative of the Transfer Agent at the Meeting.

 

Even if you plan to attend the Meeting in person, we recommend that you also submit your proxy as described below so that your vote will be counted if you later decide not to attend the Meeting. Submitting your proxy now will not prevent you from voting your Common Shares in person at the Meeting if you desire to do so, as your proxy is revocable at your option.

 

Q:                    How can I vote my Common Shares without attending the Meeting?

 

A:                    Whether you hold Common Shares as a Registered Shareholder or as a Non-Registered Shareholder, you may direct your vote without attending the Meeting.

 

If you hold your Common Shares as a Registered Shareholder, you may vote by granting a proxy through one of the following methods:

 

By Mail— You may vote your Common Shares by signing and dating each proxy that you receive and returning it by 9:00 a.m. (Eastern Standard Time) on May 1, 2017 to the Transfer Agent. If you provide specific voting instructions, your Common Shares will be voted as you instruct at the Meeting. If you sign your proxy but do not provide instructions, your Common Shares will be voted in accordance with the Board’s recommendations.  See “What are the Board’s voting recommendations?” for more information.

 

On the Internet—You may vote your Common Shares online at www.investorvote.com, by following the instructions provided in the Notice and the proxy. Voting on the Internet has the same effect as voting by mail. If you vote on the Internet, you do not need to return a proxy by mail. Internet voting will be available until 9:00 a.m. on May 1, 2017.

 

By Telephone— You may vote your Common Shares over the phone, by dialing 1-866-732-VOTE(8683) and following the instructions. Voting by telephone has the same effect as voting by mail. If you vote by telephone, you do not need to return a proxy by mail. Telephone voting will be available until 9:00 a.m. on May 1, 2017.

 

If you hold Common Shares as a Non-Registered Shareholder, you may instruct your bank, broker or other financial intermediary to vote your Common Shares by following the instructions provided by them in the voting instruction form. Most intermediaries offer voting by mail, by telephone and on the Internet.

 

4



 

Q:                    Can Registered Shareholders revoke their proxy or change their vote?

 

A:                    A Registered Shareholder may revoke a previously submitted proxy at any time before it has been exercised by:

 

·                  timely submitting a proxy by mail, Internet or telephone that is dated later than the proxy you are revoking, but received before 9:00 a.m. (Eastern Standard Time) on May 1, 2017, or if the Meeting is adjourned or postponed, not less than two business days before the time of any such adjourned or postponed Meeting;

 

·                  sending a revocation notice in writing to the Corporate Secretary of the Company at its registered office, which is located at 666 Burrard Street, Suite 1700, Vancouver, British Columbia, V6C 2X8, so that it is received at any time up to and including the last business day before the date of the Meeting. The notice can be from the shareholder or the attorney of such shareholder, duly authorized in writing; or

 

·                  attending the Meeting, providing a revocation notice to the chairperson of the Meeting before any vote in respect of which the proxy has been given, and casting your vote at the Meeting.

 

Q:                    Can Non-Registered Shareholders change their vote?

 

A:                    A Non-Registered Shareholder may change or revoke any prior voting instructions by contacting the bank, broker or other financial intermediary that holds their shares and following the instructions provided by such intermediary in sufficient time prior to the Meeting.

 

Q:                    How are votes counted?

 

A:                    For Proposal 1 (the election of directors), you may vote “FOR” or “WITHHOLD” for each of the nominees to the Board.

 

For Proposal 2 (the approval of E&Y, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017), you may vote “FOR” or “WITHHOLD”.

 

For Proposal 3 (the approval of the Amended and Restated 2016 Long-Term Incentive Plan), you may vote “FOR”, “AGAINST” or “ABSTAIN”.

 

For Proposal 4 (the non-binding, advisory say-on-pay vote), you may vote “FOR”, “AGAINST” or “ABSTAIN”.

 

For Proposal 5 (the non-binding, advisory say-on-frequency vote), you may vote “EVERY YEAR”, “EVERY TWO YEARS”, “EVERY THREE YEARS” or “ABSTAIN.”

 

For abstentions, see “What happens if I abstain from voting on Proposal 3, Proposal 4 and/or Proposal 5” below.

 

If you are a Registered Shareholder and you properly submit your proxy with no voting instructions, the Named Proxies will vote your Common Shares in accordance with the Board’s recommendation on each of the proposals. See “What are the Board’s voting recommendations?” for more information.

 

If you hold your Common Shares as a Non-Registered Shareholder and you have not provided voting instructions to your bank, broker or other financial intermediary, such intermediary will not have discretionary authority to vote your Common Shares in the election of directors (Proposal 1), the vote to approve the Amended and Restated 2016 Long-Term Incentive Plan (Proposal 3), the non-binding, advisory say-on-pay vote (Proposal 4), or the non-binding, advisory say-on-frequency vote (Proposal 5), resulting in a “broker-non-vote” with respect to these matters. However, most intermediaries do have the authority to exercise discretion to vote your Common Shares with respect to the approval of E&Y, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017 (Proposal 2). See “What is a broker non-vote?” for more information.

 

5



 

Q:                    What is the quorum requirement for the Meeting?

 

A:                    Business may only be transacted at the Meeting if a quorum is present.  Under the Company’s Articles, two persons who are, or who represent by proxy, shareholders who in the aggregate hold at least fifty percent (50%) of the issued and outstanding Common Shares entitled to vote at a meeting of shareholders constitute a quorum. Abstentions and “broker non-votes” (described below) will be counted as present and entitled to vote for purposes of determining a quorum.

 

Q:                    What is the voting requirement to approve each of the proposals?

 

A:                    A plurality of the votes duly cast in person or by proxy by the shareholders at the Meeting with respect to each director is required for the election of each director. However, pursuant to the Company’s Majority Voting Policy, if, in an uncontested election of directors, any of the nominees named in this Proxy Statement do not receive at least a majority of the votes cast (including votes cast FOR and votes cast WITHHOLD), such director will be required to promptly tender his resignation for consideration by the Board. The Company’s Majority Voting Policy is described in more detail under the heading “Proposal 1—Election of Directors.”

 

Proposal 2 (the approval of E&Y, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017) and Proposal 3 (the approval of the Amended and Restated 2016 Long-Term Incentive Plan) are each considered an ordinary resolution. Ordinary resolutions are passed by a simple majority of votes, such that if more than half of the votes that are cast are cast in favor, the resolution passes.

 

Due to the non-binding, advisory nature of the say-on-pay vote (Proposal 4), there is no minimum vote requirement for this matter. However, this proposal will be considered to have passed with the affirmative vote of a majority of the votes cast by the shareholders that are present or represented by proxy at the Meeting and entitled to vote.

 

A plurality of the votes cast for the advisory say-on-frequency vote (Proposal 5) will be considered the shareholders’ preferred frequency for holding future advisory say-on-pay votes.

 

Q:                    What happens if I abstain from voting on Proposal 3, Proposal 4 and/or Proposal 5?

 

A:                    If a proxy is properly submitted and the shareholder has explicitly abstained from voting on Proposal 3, Proposal 4 and/or Proposal 5, the Common Shares represented by such proxy will be considered present at the Meeting for the purpose of determining a quorum. Abstentions will not be counted as votes cast and therefore will have no effect on the outcome of any proposal.

 

Q:                    What is a “broker non-vote”?

 

A:                    A “broker non-vote” occurs when a bank, broker or other financial intermediary submits a proxy that does not indicate a vote for one or more of the proposals because the intermediary has not received instructions from the Non-Registered Shareholder of the Common Shares on how to vote on such proposals and does not have discretionary authority to vote in the absence of instructions.

 

Intermediaries typically do not have discretionary authority to vote on “non-routine” matters. Under certain rules of the New York Stock Exchange (the “NYSE Rules”) that apply to all NYSE-licensed intermediaries who have record ownership of listed company stock (including stock such as our Common Shares that are listed on NASDAQ), these NYSE-licensed intermediaries have discretionary authority to vote on “routine” matters when they have not received timely voting instructions from the Non-Registered Shareholder. Proposal 2 (the approval of E&Y, an independent registered public accounting firm, as the Company’s auditors for the fiscal year ending December 31, 2017) is considered a “routine” matter under the NYSE Rules. Proposal 1 (election of directors), Proposal 3 (the approval of the Amended and Restated 2016 Long-Term Incentive Plan), Proposal 4 (the non-binding, advisory say-on-pay vote) and Proposal 5 (the non-binding, advisory say-on-frequency vote) are each considered “non-routine” matters on which the intermediaries do not have discretionary authority to vote, resulting in a “broker non-vote” in the event these NYSE-licensed intermediaries have not received timely voting instructions from the Non-Registered Shareholder.

 

Broker non-votes will be counted for the purposes of determining whether a quorum exists at the Meeting, but because they are not votes that are cast, they will have no effect on the outcome of Proposals 1, 3, 4 or 5.

 

6



 

Q:                    Will I have rights of dissent?

 

A:                    No rights of dissent are available under the laws of the Province of British Columbia, Canada or our Articles to any shareholder with respect to any of the proposals.

 

Q:                    What does it mean if I receive more than one proxy or voting instruction form?

 

A:                    It means your Common Shares are registered differently or are held in more than one account. Please provide voting instructions for all proxies and voting instruction forms you receive.

 

Q:                    Who will bear the cost of soliciting votes for the Meeting?

 

A:                    Aralez is paying the costs of the solicitation of proxies. The solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers, and employees, who will not receive any additional compensation for such solicitation activities. We have retained the services of MacKenzie Partners, Inc. to aid in the solicitation of proxies for a fee of $12,500 plus expenses payable by the Company. MacKenzie Partners, Inc. currently expects that approximately 12 of its employees will assist in the solicitation. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding the Notice, and any printed proxy materials that are specifically requested by shareholders, and any other solicitation materials to shareholders.

 

Q:                    Where can I find the voting results of the Meeting?

 

A:                    We will announce preliminary voting results at the Meeting and publish final voting results in a press release following the Meeting and also in a Current Report on Form 8-K filed with the SEC and a Voting Results Report pursuant to, and in accordance with, Section 11.3 of National Instrument 51-102 — Continuous Disclosure Obligations following the Meeting.

 

Additional Q&A information regarding the Meeting and shareholder proposals may be found on page 82.

 

7



 

EXPLANATORY NOTE

 

On June 8, 2015, POZEN Inc., a Delaware corporation (“Pozen”), entered into an Agreement and Plan of Merger and Arrangement (the “Merger Agreement”), among Tribute Pharmaceuticals Canada Inc., a corporation incorporated under the laws of the Province of Ontario, Canada (“Tribute”), Aguono Limited (which was renamed Aralez Pharmaceuticals Limited and subsequently renamed Aralez Pharmaceuticals plc in connection with its re-registration as a public limited company), a limited company incorporated in Ireland (“Former Parent”), Trafwell Limited, a private limited company incorporated in Ireland, ARLZ US Acquisition Corp., a corporation incorporated under the laws of the State of Delaware and a wholly-owned subsidiary of Former Parent, and ARLZ CA Acquisition Corp., a corporation incorporated under the laws of the Province of Ontario and a wholly-owned subsidiary of Former Parent (“Can Merger Sub”) in order to effectuate the merger of Pozen and Tribute.  On December 7, 2015, the Merger Agreement was amended, pursuant to which, among other things, (i) Aralez replaced Former Parent as a party to the Merger Agreement, whereby, after giving effect to the merger transactions, Aralez would be the ultimate parent company of the combined companies, (ii) ARLZ US Acquisition II Corp., a corporation formed under the laws of the State of Delaware, would be merged with and into Pozen, with Pozen continuing as the surviving corporation and an indirect wholly-owned subsidiary of Aralez, and (iii) Can Merger Sub and Tribute would amalgamate, with the separate legal existence of Can Merger Sub ceasing and Tribute and Can Merger Sub continuing as one corporation and as a wholly-owned subsidiary of Aralez.

 

On February 5, 2016, pursuant to the Merger Agreement, Aralez completed the acquisition of Tribute by way of a court approved plan of arrangement in a share transaction with an estimated purchase price of $138 million made up of (i) $115 million related to Tribute common shares, equity awards and certain warrants outstanding and (ii) $23 million in repayments of Tribute indebtedness.  In connection with the transaction, Pozen and Tribute were combined under and became subsidiaries of Aralez, with Pozen treated as the acquiring company for accounting purposes (the “Tribute Transaction”).  As a result of the merger, each share of Pozen common stock outstanding immediately prior to the effective time of the merger was converted into one Aralez Common Share. Pursuant to the arrangement, each outstanding Tribute common share was exchanged for 0.1455 of an Aralez Common Share. Pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Aralez is the successor issuer to Pozen.

 

Unless we specify otherwise, all references in this Proxy Statement to “we,” “our,” “us,” “the Company” and “our company” refer to Aralez Pharmaceuticals Inc. and/or our predecessor, Pozen, prior to the Tribute Transaction, as the context requires.

 

8



 

BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

 

The Board in General

 

The Board is currently comprised of eight directors, each of whose current term of office as a director expires at the Meeting. The Board is responsible for nominating directors for election to the Board and for filling vacancies on the Board that may occur between annual meetings of shareholders.

 

Biographical information for each of our directors as of the date of this Proxy Statement is provided below. There are no familial relationships among any of the executive officers and directors of the Company.

 

Name

 

Position with the Company

 

Age 

 

Director Since

 

Residence

Adrian Adams

 

Director and Chief Executive Officer

 

66

 

2015

 

Pennsylvania, USA

Jason M. Aryeh

 

Director 

 

48

 

2016

 

California, USA

Neal F. Fowler

 

Director

 

55

 

2016

 

North Carolina, USA

Rob Harris

 

Director

 

61

 

2016

 

Ontario, Canada

Arthur S. Kirsch

 

Director and Chairperson of the Board

 

65

 

2016

 

New York, USA

Kenneth B. Lee, Jr.

 

Director

 

69

 

2016

 

North Carolina, USA

Seth A. Rudnick, M.D.

 

Director

 

68

 

2016

 

North Carolina, USA

F. Martin Thrasher

 

Director

 

65

 

2016

 

Ontario, Canada

 

Adrian Adams has been our Chief Executive Officer since February 5, 2016, and has been a director of the Company since December 11, 2015 and Chairperson of the Transaction Committee since November 3, 2016.  From May 2015 through February 5, 2016, Mr. Adams was the Chief Executive Officer and a director of Pozen, and served as a consultant to Pozen from April 2015 to May 2015. Previously, Mr. Adams served as Chief Executive Officer and President and as a director of Auxilium Pharmaceuticals Inc., a specialty biopharmaceutical company, from December 2011 until January 2015, when it was acquired by Endo International plc. Mr. Adams served as the Chairperson and Chief Executive Officer of and a director of Neurologix, Inc. (“Neurologix”), a company focused on the development of multiple innovative gene therapy development programs, from September 2011 to November 2011. Before Neurologix, Mr. Adams served as President, Chief Executive Officer and a director of Inspire Pharmaceuticals, Inc., a specialty pharmaceutical company, from February 2010 until May 2011, when it was acquired by Merck & Co., Inc. Previously, Mr. Adams served as President and Chief Executive Officer of Sepracor Inc., a specialty pharmaceutical company, from March 2007 and May 2007, respectively, until February 2010, when Sepracor was acquired by Dainippon Sumitomo Pharma Co., Ltd. Prior to his appointment as Chief Executive Officer of Sepracor, Mr. Adams served as its Chief Operating Officer. Prior to joining Sepracor, Mr. Adams served as the President and Chief Executive Officer of Kos Pharmaceuticals, Inc., a specialty pharmaceutical company, from 2002 until its acquisition by Abbott Laboratories in December 2006. Mr. Adams has also held general management and senior international and national marketing positions at SmithKline Beecham, Novartis and ICI (now part of AstraZeneca). Mr. Adams has served as Chairperson of the board of directors of AcelRx Pharmaceuticals, Inc. since February 2013 and served on the board of directors of Amylin Pharmaceuticals, Inc. from October 2007 to August 2012. Mr. Adams graduated from the Royal Institute of Chemistry at Salford University in the U.K.

 

Mr. Adams is a highly qualified pharmaceutical executive who brings to the Board over 30 years of experience in the industry. Mr. Adams has extensive national and international experience and has been instrumental in launching major global brands in addition to driving successful corporate development activities encapsulating financing, product and company acquisitions, in-licensing and company M&A activities.

 

Jason M. Aryeh has been a director of the Company since February 5, 2016.  He is the Founder and Managing General Partner of JALAA Equities, LP, a private hedge fund focused on the biotechnology and specialty pharmaceutical sector, and has served in such capacity since 1997. Mr. Aryeh has served on the board of directors of QLT since 2012 and is currently the Chairperson of the board of directors of QLT, a biotechnology company, Chairperson of QLT’s corporate governance and nominating committee and Chairperson of QLT’s strategic action committee. Mr. Aryeh has also served on the board of directors of Ligand Pharmaceuticals Incorporated (“Ligand”), a public biotechnology company, since 2006, and is currently Chairperson of the nominating and governance committee and a member of the compensation committee of Ligand. He has also served on the Cystic Fibrosis Foundation’s Therapeutics board of directors since 2011. Mr. Aryeh served on the board of directors of CorMatrix Cardiovascular, a medical device company, from 2010 to March 2017. He also served as a director of Immunomedics, Inc., a publicly-traded biopharmaceutical company, from August 2015 to March 2017, and was a member of the audit committee and nominating committee.  Previously, Mr. Aryeh served as a director of both Nabi Biopharmaceuticals, prior to its merger with Biota Pharmaceuticals, Inc. in November 2012, and of Myrexis, Inc., until January 2013, both of which were public biotechnology companies. Mr. Aryeh earned a B.A. in economics, with honors, from Colgate University, and is a member of the Omnicron Delta Epsilon Honor Society in economics.

 

Mr. Aryeh brings to the Board his extensive background in the biotechnology industry through his current and former positions as a director of multiple life science companies, as well as valuable capital markets experience, including through his service as managing general partner of a hedge fund focused on the life sciences sector.

 

9



 

Neal F. Fowler has been a director of the Company since February 5, 2016, and was previously a director of Pozen from 2010 through February 5, 2016. Mr. Fowler is Chief Executive Officer of Liquidia Technologies Inc. (“Liquidia”), a biomedicines company, and has served in that capacity since 2008. Mr. Fowler is also a co-founder of Envisia Therapeutics Inc. (“Envisia”), an ophthalmology spin-out of Liquidia, and concurrently served as Chief Executive Officer of Envisia from its launch in 2013 through 2015. Mr. Fowler joined Liquidia in 2008 after seven years at Johnson & Johnson. While at Johnson & Johnson, he served as President of Centocor, Inc. (“Centocor”), a multi-billion dollar subsidiary focused on development and commercialization of industry leading biomedicines used in the treatment of chronic inflammatory diseases. Prior to Centocor, Mr. Fowler was President of Ortho-McNeil Neurologics Inc. and Vice President of the central nervous system franchise at Ortho-McNeil Pharmaceuticals. Mr. Fowler joined Johnson & Johnson after a 13-year career at Eli Lilly and Company where he held a variety of sales, marketing and business development roles with increasing responsibilities in both the pharmaceutical and medical device divisions. Mr. Fowler is a native of Raleigh, NC and received a Bachelor of Science degree in Pharmacy and Masters of Business Administration from the University of North Carolina at Chapel Hill (UNC-CH).

 

Mr. Fowler brings to the Board his extensive background in the pharmaceutical industry acquired through a variety of senior positions at several large pharmaceutical companies. He is currently chief executive officer at Liquidia Technologies, Inc., a position which has provided him with experience in running an emerging growth company.

 

Rob Harris has been a director of the Company since February 5, 2016.  He previously served as President, Chief Executive Officer and a director of Tribute from December 1, 2011 to February 2016. Mr. Harris founded Tribute Pharma, which later became Tribute Pharma Canada Inc. and Tribute Pharmaceuticals Canada Ltd. in November 2005. Tribute acquired both Tribute Pharma Canada Inc. and Tribute Pharmaceuticals Canada Ltd. on December 1, 2011. Mr. Harris was formerly the President and CEO of Legacy Pharmaceuticals Inc. from September 2004 to October 2005. As the VP of Business Development at Biovail Corporation from October 1997 to September 2004, Mr. Harris was involved in, led and successfully concluded numerous business development transactions, including the licensing of new chemical entities, the acquisition of mature products, the completion of co-promotion deals, distribution agreements, product development and reformulation transactions. Mr. Harris joined Biovail in 1997 as the GM of Biovail Pharmaceuticals Canada at a time when the company experienced rapid growth in the Canadian division. Before Biovail, Mr. Harris worked in various senior commercial management positions during his twenty-year tenure at Wyeth (Ayerst) from 1977 to 1997 and has been involved in numerous product launches during his career.

 

Mr. Harris brings to the Board over 35 years of pharmaceutical industry experience in both Canada and the United States in sales, marketing, business development and general management.

 

Arthur S. Kirsch has been a director of the Company, Chairperson of the Board, and Chairperson of the Audit Committee since February 5, 2016.  Previously, he was a director of Pozen from 2004 through February 5, 2016.  Mr. Kirsch has been Senior Advisor, GCA, LLC (formerly GCA Savvian, LLC), an investment bank, since June 2005. Mr. Kirsch is a founding member and Managing Director of Vector Securities, LLC, an investment and merchant banking firm, from 2001 to May 2005. He was a Managing Director and Head of Healthcare Research and Capital Markets of Prudential Vector Healthcare Group, a unit of Prudential Securities, Inc., a full-service brokerage firm, from 1999 to 2001. Mr. Kirsch was the Director, Equity Research of Vector Securities International, Inc., an investment banking firm, from 1995 to 1999. He has served as a director of Immunomedics, Inc., a publicly-traded biopharmaceutical company, since August 2015, and is a member of the audit committee and nominating committee. He currently serves as a director of Liquidia, a privately held biotechnology company, since December, 2016.

 

Mr. Kirsch has over 30 years of experience working in equity capital markets and has extensive knowledge of the healthcare and life sciences field. Mr. Kirsch, who has spent the majority of his career in investment banking with a focus on the healthcare industry, brings both financial and industry expertise to the Board.

 

Kenneth B. Lee, Jr. has been a director of the Company and Chairperson of the Compensation Committee since February 5, 2016.  Previously, he was a director of Pozen from 2002 to February 5, 2016, and from 2002 was also Pozen’s lead Independent Director. Since June 2002 he has been an independent consultant and general partner of Hatteras Venture Partners (formerly Hatteras BioCapital, LLC and BioVista Capital, LLC), and the general partner of Hatteras BioCapital Fund, L.P., a venture capital fund focusing on life sciences companies, since 2003. Mr. Lee was President of A.M. Pappas & Associates, a venture capital firm, between January 2002 and June 2002.  He was a Partner of Ernst & Young LLP from 1982 through 2000, and was the National Director of the Life Sciences Practice for the firm. He was a Partner of Ernst & Young Corporate Finance LLC from 2000 to 2001, where he served as the Managing Director of Ernst & Young’s Health Sciences Corporate Finance Group from 2000 to 2001. Mr. Lee has served on the board of directors of Biocryst Pharmaceuticals, Inc., a public company, since 2011, and is currently Chairperson of the audit committee and Chairperson of the finance committee. He is also a director of Clinipace Worldwide, a privately held company. Previously, he served on the boards of directors of CV Therapeutics, Inc., for which he served as lead independent director and Chairperson of the audit committee and a member of the compensation committee, Abgenix, Inc., for which he served on the audit committee and the compensation committee, OSI Pharmaceuticals, for which he served as a member of the audit committee, Inspire Pharmaceuticals Inc., for which he served as Chairperson of the board of directors, and Chairperson of the audit committee and a member of the compensation committee and finance committee, and Maxygen, Inc., for which he served as Chairperson of the audit committee and a member of the nominating/governance committee and the compensation committee. Mr. Lee served as a member of the executive committee of the board of directors of the North Carolina Biotechnology Industry Organization and as a member of the board of directors of Ibiliti, a nonprofit organization dedicated to building and expanding networks of resources for advanced medical technology companies. Mr. Lee is also a co-founder of the National Conference on Biotechnology Ventures.

 

Mr. Lee brings his extensive accounting and financial background to the Board, as well as expertise in the life sciences industry from his experience as a general partner of several venture capital funds specializing in life sciences. He has also served and is serving on the boards and audit committees of several public pharmaceutical companies similar in size to the Company, including serving as Chairperson of the board of directors of Biocryst Pharmaceuticals, Inc.

 

10



 

Seth A. Rudnick, M.D. has been a director of the Company and Chairperson of the Nominating/Corporate Governance Committee since February 5, 2016.  Previously, he was a director of Pozen from 2011 through February 5, 2016.  Dr. Rudnick was a venture partner and previously general partner at Canaan Partners, a venture capital firm from 1998 to December 2014. Formerly, Dr. Rudnick was the Chief Executive Officer and Chairperson of CytoTherapeutics Inc., a company developing stem cell-based therapies, from 1991 to 1998. He helped found and served as the Head of Research and Development for Ortho Biotech, a division of Johnson & Johnson focusing on cancer and chronic illnesses from 1986 to 1991. He currently serves on the boards of directors of the following privately held biotechnology companies: Meryx Pharmaceuticals, for which he serves as Chairperson, Liquidia Technologies, Inc., for which he serves as Chairperson, and G1 Therapeutics, for which he serves as Chairperson. Dr. Rudnick also served on the board of directors of Square 1 Financial, Inc., a public financial services company, from 2012 to October 2015. Currently he is a Clinical Adjunct Professor of Medicine at University of North Carolina, Chapel Hill.

 

Dr. Rudnick brings to the Board deep operational experience in the pharmaceutical and biotechnology industries acquired through a variety of senior research and development positions in several large and mid-size pharmaceutical companies and as Chief Executive Officer, and Chairperson of CytoTherapeutics, Inc., Chairperson of Liquidia Technologies, Inc., Executive Chairperson of GI Therapeutics, and Chairperson of Meryx Pharmaceuticals. Dr. Rudnick retired from Canaan Partners, a global venture capital firm with significant investments in the healthcare sector, where he served as general venture partner from 1998 to 2013, which provided him with significant experience in and insight into life sciences investments.

 

F. Martin Thrasher has been a director of the Company since February 5, 2016.  Previously, he was a director of Tribute from 2009 to February 2016. Mr. Thrasher is a seasoned international executive. After graduating from the Richard Ivey School of Business in London, Ontario, Mr. Thrasher spent over 30 years working around the globe for companies such as General Foods from 1973 to 1977, McCormick & Co from 1977 to 1988, Campbell Soup Co. from 1988 to 2001 and ConAgra Foods Inc. from 2001 to 2004. He has served as President of FMT Consultants LLC since 2004. Mr. Thrasher has lived and worked in Canada, Australia, Belgium and the U.S. His responsibilities with Campbell Soup Co. included positions as President, International Grocery and President, North America Grocery. At ConAgra Foods Inc., he was President of the Retail Products Co, a $9 billion business with over 30,000 employees. Mr. Thrasher has been President of FMT Consulting, a boutique advisory and consulting firm since August 2004. In this capacity, he has served in a number of interim CEO and Executive Chairperson positions in Canada and the United States.

 

Mr. Thrasher brings to the Board extensive international business experience acquired from his time serving at several Fortune 500 companies. He has led large, complex organizations and overseen a variety of mergers and acquistions. Mr. Thrasher also has broad board experience having served on a number of private and public company boards.

 

Corporate Governance Overview

 

We have adopted policies and procedures that we believe will be of value to our shareholders and will positively aid in the governance of the Company. In addition to the compensation-related actions we have taken which are described in the “Compensation Discussion and Analysis” section of this Proxy Statement, we have adopted corporate governance practices, which we believe are beneficial to our shareholders, including, without limitation, annual director elections, robust corporate governance guidelines, a diversity policy, and a majority voting policy.  We have also elected not to adopt a shareholder rights plan at this time, but may do so in the future.

 

11



 

Corporate Governance Guidelines

 

As described in the Company’s Corporate Governance Guidelines, the Board is responsible for supervising the management of the Company’s business and affairs. The Board’s key responsibilities relate to the stewardship of management, generally through the Chief Executive Officer, to pursue the best interests of the Company, and include the following, among others:

 

·                              review and approval of the adoption of the strategic plan and, in relation thereto, approval of annual business and capital plans and policies and processes generated by management relating to the authorization of major investments and significant allocations of capital;

 

·                              supervision of senior management and succession planning, including the appointment of the Chief Executive Officer and the Chairperson of the Board, and ensuring that other executives are in place for sound management;

 

·                              ensuring that the Company has policies in accordance with the guidance set out under applicable U.S. and Canadian securities laws;

 

·                              ensuring that the Company has risk management systems in place and also ensuring that the appropriate internal controls and corporate governance policies are in place;

 

·                              ensuring a business ethics, compliance and corporate governance mindset and creation of a culture of integrity throughout the organization; and

 

·                              review of the Company’s Code of Business Conduct and Ethics (the “Code of Conduct”) from time to time and the implementation procedures to ensure compliance with the Code of Conduct.

 

The Board is entitled to engage outside advisers, at the Company’s expense, where, in the view of the Board, additional expertise or advice is required.

 

For a complete description of the Corporate Governance Guidelines, which function as the mandate for the Board, shareholders should refer to Annex B to this Proxy Statement.

 

Board Leadership Structure

 

The Company maintains separate Chairperson of the Board and Chief Executive Officer positions, which allows the Board to be more effective in overseeing the Company’s affairs and holding management accountable for the Company’s activities. Having an independent Chairperson fosters strong leadership and healthy discussion and avoids the potential for any conflict of interest. However, the Board believes that the Company and its shareholders are best served by maintaining flexibility to have any director serve as Chairperson and therefore believes that a permanent policy on whether the Chairperson and Chief Executive Officer positions should be separated or combined is not appropriate.

 

The Board has adopted a written position description for the Chairperson setting out the Chairperson’s responsibilities, including leadership and governance of the Board, the promotion of corporate social responsibility, the facilitation of shareholder meetings, and the oversight of committees of the Board. The primary functions of the Chief Executive Officer are to lead the management of the Company’s business and affairs, and to lead the implementation of the resolutions and the policies of the Board. As set out in the Chief Executive Officer’s position description approved by the Board, the duties and responsibilities of the Chief Executive Officer include leadership and governance, strategic planning, business organization and development, and risk management and disclosure, among others.

 

As discussed below, the Board has adopted charters for each of its committees. These charters set out, among other things, the duties and responsibilities of the respective committees. The Board has also adopted written position descriptions for the Chairperson of each of the respective committees of the Board.

 

Board Oversight of Risk

 

The Board carries out its risk oversight function both as a whole and through delegation of certain risk management oversight responsibilities to the committees of the Board, which report regularly to the Board. The Audit Committee has primary responsibility for overseeing enterprise risk management; however, the other committees of the Board also consider risk within their areas of responsibility. For example, the Nominating/Corporate Governance Committee monitors legal and regulatory compliance risks as they relate to corporate governance structure and processes, and the Compensation Committee reviews compensation programs and arrangements to assure that they do not encourage excessive risk taking for compensation purposes. The committee Chairpersons regularly apprise the Board of significant risks and management’s response to those risks. While the Board and its committees oversee risk management strategy, management is responsible for implementing and supervising day-to-day risk management processes and reporting to the Board and its committees on such matters.

 

12



 

Director Independence

 

The Board has determined that six of the eight incumbent directors (or 75% of the Board) have no material relationship with the Company, either directly or indirectly, and are “independent” within the meaning of the applicable NASDAQ listing standards and National Instrument 58-101 — Disclosure of Corporate Governance Practices (“NI 58-101”) (such directors, the “Independent Directors”). Specifically, the Board has identified each of the members of the Board, with the exception of Mr. Adams, who serves as our Chief Executive Officer, and Mr. Harris, who previously served as President and Chief Executive Officer of Tribute, as independent for the purposes of the applicable NASDAQ listing standards and for the purposes of NI 58-101.

 

The Independent Directors have the opportunity to meet in-camera at each quarterly meeting or more frequently as they deem necessary. These executive sessions of the Independent Directors are currently presided over by the Chairperson of the Board.

 

Director Compensation

 

The directors’ compensation program is designed to attract and retain qualified individuals to serve on the Board. See “Executive and Director Compensation—Director Compensation” below for details regarding the Company’s director compensation program.

 

Committees of the Board

 

The Board has the following four committees: (1) Audit Committee, (2) Compensation Committee, (3) Nominating/Corporate Governance Committee, and (4) Transaction Committee. The Board has adopted a written charter for each of these committees. The committee charters are posted on our corporate website at www.aralez.com.

 

Each of the charters of the committees of the Board generally provides that the committee will be granted unrestricted access to all information regarding the Company that is necessary or desirable to fulfill its duties and all directors, officers and employees of the Company will be directed to cooperate as requested by the members of the committee. In addition, each committee has the authority to retain, at the Company’s expense, independent legal, financial and other advisors, consultants and experts, to assist the committee in fulfilling its duties and responsibilities, including authority to retain and to approve any such firm’s fees and other retention terms.

 

Below is a description of the duties and composition of each standing committee of the Board.

 

Audit Committee

 

The Company has a separately designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act and National Instrument 52-110 — Audit Committees (“NI 52-110”). The current members of the Audit Committee are Mr. Kirsch, who serves as Chairperson, Mr. Lee and Mr. Thrasher. The Board has determined that each of the members of the Audit Committee is independent as defined by the applicable NASDAQ listing standards, the SEC rules applicable to audit committee members and within the meaning of NI 52-110. Each of the Audit Committee members is able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, and has an understanding of the accounting principles used to prepare financial statements, as well as an understanding of the internal controls and procedures necessary for financial reporting. See “The Board in General” above for the relevant education and experience of each current member of the Audit Committee. The Board has also determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

 

The Audit Committee oversees our financial reporting process and system of internal control over financial reporting, and selects and oversees the performance of, and approves in advance the services provided by, our independent registered public accounting firm. The Audit Committee provides an open avenue of communication among our independent registered public accounting firm, financial and senior management and the Board. The Audit Committee meets regularly with our independent registered public accounting firm without management present, and from time to time with management in separate private sessions, to discuss any matters that the Audit Committee or these individuals believe should be discussed privately with the Audit Committee, including any significant issues or disagreements that may arise concerning our accounting practices or financial statements. The Audit Committee also oversees our whistleblower policy for receiving and handling complaints or concerns regarding accounting, internal accounting controls or auditing matters. In addition, the Audit Committee assists the Board in its oversight role by providing quarterly reports regarding our risk and control environment to the Board.

 

The foregoing description of the responsibilities of the Audit Committee is intended as a summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Audit Committee’s charter, a  copy of which is set out in Annex C to this Proxy Statement and posted on our website at www.aralez.com.

 

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Compensation Committee

 

The current members of the Compensation Committee are Mr. Lee, who serves as Chairperson, Mr. Fowler and Dr. Rudnick. Each of the current members of the Compensation Committee is independent as defined by the applicable NASDAQ listing standards and within the meaning of NI 58-101.

 

Decisions regarding the compensation of our executive officers are made by the Compensation Committee. The Compensation Committee’s principal responsibilities include reviewing our overall compensation philosophy and the adequacy and market competitiveness of our compensation plans and programs, evaluating the Company’s compensation policies and practices to determine whether these policies and practices create incentives for a particular employee group to take actions which could put the Company at undue risk, evaluating the performance of and reviewing and approving compensation for our executive officers, evaluating and recommending director compensation, and reviewing and discussing with management the Compensation Discussion and Analysis included in this Proxy Statement. The Compensation Committee also administers our equity-based and other incentive plans, including assuming responsibility for granting, or delegating as appropriate the authority for granting, and making decisions with respect to, awards under our equity compensation and other incentive plans.

 

To assist in its efforts to meet the objectives and responsibilities outlined above, the Compensation Committee has retained an executive compensation consultant. During the fiscal year ended December 31, 2016 (“Fiscal Year 2016”), the Compensation Committee retained Radford, an Aon Hewitt Company, and nationally known executive compensation and benefits consulting firm, to advise it on various matters related to executive and director compensation and compensation programs.

 

The foregoing description of the responsibilities of the Compensation Committee is intended as a summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Compensation Committee’s charter, a copy of which is posted on our website at www.aralez.com.

 

Nominating/Corporate Governance Committee

 

The current members of the Nominating/Corporate Governance Committee are Dr. Rudnick, who serves as Chairperson, Mr. Fowler, Mr. Kirsch and Mr. Thrasher. Each of the members of the Nominating/Corporate Governance Committee is independent as defined by the applicable NASDAQ listing standards and within the meaning of NI 58-101.

 

The Nominating/Corporate Governance Committee assists the Board in fulfilling its responsibilities regarding the oversight of the composition of the Board and other corporate governance matters. Among its other duties, the Nominating/Corporate Governance Committee: (i) evaluates nominees and reviews the qualifications of individuals eligible to stand for election and reelection as directors and makes recommendations to the Board on this matter; (ii) oversees compliance with our Code of Conduct; (iii) reviews and approves related party transactions; (iv) recommends and advises the Board on certain other corporate governance matters; and (v) oversees the Board’s performance evaluation process.

 

The foregoing description of the responsibilities of the Nominating/Corporate Governance Committee is intended as a summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Nominating/Corporate Governance Committee’s charter, a copy of which is posted on our website at www.aralez.com.

 

Transaction Committee

 

The current members of the Transaction Committee are Mr. Adams, who serves as Chairperson, Mr. Aryeh, Mr. Harris and Mr. Kirsch.

 

The Transaction Committee’s principal activities include, among others, reviewing and evaluating potential strategic business development and licensing transactions of the Company, overseeing strategic transactions, facilitating the negotiation and/or consummation of the terms of any proposed strategic transaction, and approval of any strategic transaction that falls within the scope of the Transaction Committee’s authority in respect of business development strategy and which the Transaction Committee believes to be in the best interest of the Company.

 

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The foregoing description of the responsibilities of the Transaction Committee is intended as a summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Transaction Committee’s charter, a copy of which is posted on our website at www.aralez.com.

 

Other Committees

 

The Board may establish other committees as it deems necessary or appropriate from time to time.

 

Board Meetings and Attendance During Fiscal Year 2016

 

Following the merger with Pozen, the Board held a total of 14 meetings during Fiscal Year 2016 to, among other things, review significant developments affecting the Company, engage in strategic planning, and act on matters requiring approval from the Board. During Fiscal Year 2016, each director attended more than 75% of the aggregate number of Board meetings and meetings of committees of the Board on which he served.

 

The following chart sets out the number and percentage of meetings attended by the Board during Fiscal Year 2016 following completion of the merger:

 

Director

 

Board

 

Audit
Committee

 

Compensation
Committee

 

Nominating/Corporate
Governance Committee

 

Transaction
Committee

 

Total

Adrian Adams

 

14/14 (100%)

 

 

 

 

 

 

 

13/13 (100%)

 

27/27 (100%)

Jason M. Aryeh

 

12/13(1) (92%)

 

 

 

4/4(2) (100%)

 

 

 

10/11(3) (91%)

 

26/28 (92%)

Neal F. Fowler

 

14/14 (100%)

 

 

 

5/5 (100%)

 

5/5 (100%)

 

 

 

24/24 (100%)

Rob Harris

 

14/14(4) (100%)

 

 

 

 

 

 

 

13/13 (100%)

 

27/27 (100%)

Arthur S. Kirsch

 

14/14 (100%)

 

4/4 (100%)

 

2/2(4) (100%)

 

5/5 (100%)

 

13/13 (100%)

 

38/38 (100%)

Kenneth B. Lee, Jr.

 

14/14 (100%)

 

4/4 (100%)

 

5/5 (100%)

 

 

 

 

 

23/23 (100%)

Seth A. Rudnick, M.D.

 

11/14 (79%)

 

1/1(5) (100%)

 

5/5 (100%)

 

4/5 (80%)

 

 

 

21/25 (84%)

F. Martin Thrasher

 

14/14 (100%)

 

3/3(6) (100%)

 

 

 

3/4(7) (75%)

 

 

 

20/21 (95%)

 


(1)   Jason M. Aryeh recused himself from the Board meeting held on August 31, 2016, and so for purposes of this chart, this meeting has been removed from the total number of Board meetings as applicable to Mr. Aryeh.

 

(2)   Jason M. Aryeh joined the Compensation Committee on March 9, 2016.

 

(3)   Jason M. Aryeh recused himself from the Transaction Committee meetings held on September 6, 2016 and August 30, 2016, and so for purposes of this chart, these meetings have been removed from the total number of Transaction Committee meetings as applicable to Mr. Aryeh.

 

(4)   Arthur S. Kirsch stopped serving as a member of the Compensation Committee on March 9, 2016.

 

(5)   Seth A. Rudnick stopped serving as a member of the Audit Committee on March 9, 2016.

 

(6)   F. Martin Thrasher joined the Audit Committee on March 9, 2016.

 

(7)   F. Martin Thrasher joined the Nominating/Corporate Governance Committee on March 9, 2016.

 

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Director Attendance at Annual Shareholders’ Meetings

 

The Board encourages all directors to make attendance at all annual meetings of shareholders a priority. All of the Board members named in this Proxy Statement attended the Company’s 2016 annual meeting of shareholders.

 

Compensation Committee Interlocks and Insider Participation

 

During Fiscal Year 2016, the members of the Compensation Committee were Messrs. Lee, Aryeh and Fowler and Dr. Rudnick. None of these individuals has ever served as an officer or employee of the Company. None of the executive officers of the Company served on the board of directors or compensation committee of a company that had an executive officer that served on the Board or the Compensation Committee.

 

Orientation and Continuing Education

 

The Board has developed a new director orientation policy designed to provide each new director with a baseline knowledge about the Company that will serve as a basis for informed decision-making. The orientation program is tailored to the skills, experience, education, knowledge and needs of each new director and consists of a combination of written materials, one-on-one meetings with the Chairperson of the Board and members of the senior executive team from each key business function, office visits and other briefings and training as appropriate. As part of the orientation, a new director will be presented with a director manual that reviews Board policies and procedures, the Company’s current strategic plan, financial plan and capital plan, the most recent annual and quarterly reports and materials relating to key business issues. The Chairperson of each committee is responsible for coordinating orientation and continuing director development programs relating to the committee’s mandate.

 

The Board recognizes the importance of continuing education for directors. To facilitate ongoing education, the Company (i) encourages its directors to attend seminars and conferences on matters relating to governance, financial accounting and/or pharmaceuticals; (ii) organizes presentations by outside legal counsel and other advisors on matters of particular importance or emerging significance; and (iii) plans to provide a subscription to the Board to a service providing regular updates on governance trends and emerging topics of interest. In addition, the directors are canvassed for suggestions on educational presentations and reports and may request presentations by management or external advisors on issues of particular interest.

 

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Code of Business Conduct and Ethics

 

We have adopted a Code of Conduct that applies to our employees, officers (including our principal executive officer, principal financial officer and other members of our finance and administration department) and our directors.

 

The objective of the Code of Conduct is to provide guidelines for maintaining integrity, honesty and ethical conduct, objectivity and impartiality of the Company. The Code of Conduct addresses, among other topics, conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality, fair dealing with the Company’s shareholders, customers, suppliers, competitors and employees, compliance with laws, rules and regulations and reporting of any illegal or unethical behavior.

 

As part of the Code of Conduct, any person subject to the Code of Conduct is required to avoid situations involving a conflict, or an appearance of a conflict, between their personal, family or business interests, and interests of those of the Company and must promptly disclose any such conflict, or an appearance of a conflict, to the Company. The Board has the ultimate responsibility for stewardship of the Code of Conduct. The Board has designated the Nominating/Corporate Governance Committee to oversee the administration of the Code of Conduct. The Nominating/Corporate Governance Committee reviews and approves all related party transactions that must be disclosed pursuant to applicable securities laws and regulations.

 

All persons subject to the Code of Conduct are required to provide, upon request, certification of compliance with the Code of Conduct, as well as compliance with all Company policies.

 

The foregoing description of the Code of Conduct is intended as summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions, of the Code of Conduct, a copy of which is available on our website at www.aralez.com and available on SEDAR at www.sedar.com. We will disclose on our website any future amendments to and/or waivers from the Conduct of Conduct that relate to our directors or executive officers.

 

Considerations in Evaluating Director Nominees

 

The Board is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between annual meetings of shareholders. The Nominating/Corporate Governance Committee is responsible for evaluating and recommending candidates to the Board for board membership based upon an assessment of the independence, skills, qualifications and experience of the candidate and in a manner consistent with the criteria approved by the Board. Directors should be persons of good character and thus should possess integrity, accountability, judgment, responsibility, high performance standards, commitment, enthusiasm and courage.  Specifically, the Board seeks members from diverse professional and personal backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. No director should serve on more than five other public company boards and no member of the Audit Committee should serve on more than two other public company audit committees.

 

It is our Nominating/Corporate Governance Committee’s policy to consider shareholder proposals for nominees for election as directors that are nominated in accordance with our Articles, including the Advance Notice Provisions contained therein (as described below), and other applicable laws, including the rules and regulations of the SEC, applicable NASDAQ listing standards, and any other stock market on which we have applied to list our Common Shares for trading or quotation. See “Advance Notice Provisions” below.

 

Advance Notice Provisions

 

The Company’s Articles include advance notice provisions (the “Advance Notice Provisions”) for the purpose of providing shareholders, directors and management of the Company with a clear framework for nominating directors of the Company in connection with any annual or special meeting of shareholders. The Advance Notice Provisions are intended to (i) ensure that all shareholders receive adequate notice of director nominations and sufficient time and information with respect to all nominees for appropriate deliberations and register an informed vote; and (ii) facilitate an orderly and efficient process for annual or special meetings of shareholders of the Company. The Advance Notice Provisions fix the deadlines by which shareholders must submit director nominations to the Corporate Secretary of the Company prior to any annual or special meeting of shareholders for an effective nomination to occur. No person will be eligible for election as a director of the Company unless nominated in accordance with the Advance Notice Provisions.

 

In the case of an annual meeting of shareholders, notice must be received by a senior officer of the Company at the principal executive office of the Company not less than 30 days before the date of the annual meeting; provided, however, that in the event that the annual meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10th day following such public announcement. In the case of a general meeting of shareholders (which is not also an annual meeting), notice to the Company must be made not later than the close of business on the 15th day following the day on which the first public announcement of the date of the general meeting of shareholders was made. These provisions may preclude shareholders from making nominations for directors at a general meeting of shareholders. The Board may, in its sole discretion, waive any requirement of the Advance Notice Provisions. For the purposes of the Advance Notice Provisions, “public announcement” means disclosure in a press release reported by a national news service in Canada, or in a document publicly filed by the Company on the EDGAR website maintained by the SEC at www.sec.gov and on the SEDAR website maintained by the CSA at www.sedar.com.

 

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The foregoing description of the Advance Notice Provisions is intended as a summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Company’s Articles, which are available on the EDGAR website matined by the SEC at www.sec.gov and on the SEDAR website maintained by the CSA at www.sedar.com.

 

Diversity Policy

 

The Company has adopted a written diversity policy (the “Diversity Policy”), which recognizes the importance and benefit of having a Board and a slate of executive officers comprised of highly talented and experienced individuals, with a view toward fostering and promoting diversity amongst members of the Board and the Company’s executive team. The Diversity Policy mandates that the Board and its committees, as applicable, will, when identifying candidates for election to the Board or appointment as executive officers: (i) consider individuals who are highly qualified, based on their talents, experience, functional expertise and personal skills, character and qualities; (ii) consider criteria that promote diversity, including with regard to gender, ethnicity, age, national origin, disability, sexual orientation, and other dimensions; and (iii) consider the level of representation of women on the Board and in executive officer positions.

 

The Board recognizes the benefits that diversity brings to a company and will measure the effectiveness of the Diversity Policy based on, among other things, the relative increase of diversity on the Board and in executive officer positions over time, as well as the implementation of specific processes designed to foster the progression of diverse candidates to be considered for nomination or appointment. Currently, the Board is comprised of eight (8) male directors (100%). There are currently no female directors on the Board. There are currently six men (86%) and one woman (14%) with representation in the Company’s senior leadership group.A key objective of the Diversity Policy is to bring that diversity of thought which the Board believes is important to successful decision-making and stewardship to the Company.

 

Neither targets nor quotas relating to the identification and nomination of women directors or officers have been adopted to date, as the Board believes the focus when filling vacancies on the Board or the executive team should remain on finding the best qualified candidates given the needs and circumstances of the Company. A nominee’s diversity has and will, however, continue to be considered in the assessment of director nominees.

 

The foregoing description of the Diversity Policy is intended as a summary only and does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the Diversity Policy, which is appended to the Corporate Governance Guidelines set out in Annex B to this Proxy Statement and posted on our website at www.aralez.com.

 

Board Renewal

 

The Board has considered the issue of term limits and will continue to do so from time to time. At this time, given that the Company is a newly public company, the Board is of the view that imposing term limits would not be appropriate for the Company. The Board believes that its self-evaluation process is an effective and transparent way to ensure directors continue to remain strong contributors and that the current composition of the Board reflects this objective. See “- Board Evaluations” below. The Board has adopted a policy of mandatory retirement for directors such that no person shall be nominated by the Board to serve as a director after he or she has passed his or her 75th birthday, unless the Nominating/Corporate Governance Committee has voted, on an annual basis, to waive the mandatory retirement age for such director. The Board believes that this retirement policy, taken in conjunction with the Company’s annual assessment process and Diversity Policy, ensures the natural evolution of the Board.

 

Board Evaluations

 

Pursuant to the terms of the Company’s Corporate Governance Guidelines and the charters of each of the respective committees of the Board, the Board assesses the effectiveness of the Board and each of the committees of the Board at regular intervals. The Nominating/Corporate Governance Committee, on behalf of the Board, works with external counsel to develop and undertake the assessment process as outline in the table below:

 

Person(s) Reviewed

 

Reviewed By

 

Actions and Outcomes

Board of Directors

 

All members of the Board

 

·                       Board members complete a detailed questionnaire which provides both assessments and qualitative commentary with respect to Board effectiveness.

 

 

 

 

·                       A report is prepared by external counsel and reviewed with the Chairpersons of the Board and the Nominating/Corporate Governance Committee.

 

 

 

 

·                       Matters requiring follow-up are identified and action plans are developed and monitored by the Nominating/Corporate Governance Committee.

Board Committees

 

All Members of each Committee

 

·                       Members of each committee complete a detailed questionnaire which provides both assessments and qualitative commentary with respect to committee effectiveness.

 

 

 

 

·                       A report is prepared by external counsel and reviewed by the Chairperson of the Nominating/Corporate Governance Committee.

 

 

 

 

·                       The Chairperson of each committee discuss the results of the assessment with the respective committee and agree on any required matters for follow-up or action plans, as appropriate.

Individual Directors

 

Each director

 

·                       The Chairperson of the Board and Chairperson of the Nominating/Corporate Governance Committee conduct follow-up or prepare action plans, as appropriate, with each member of the Board.

 

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Communications with the Board

 

The Board values communications with shareholders and other stakeholders, and will ensure that measures are in place to facilitate effective communications between the Board and its shareholders and other stakeholders. The Corporate Governance Guidelines set forth the Company’s policy on communications with shareholders. Historically, almost all communications that the Company receives from shareholders and other stakeholders are administrative in nature and are not directed to the Board. If the Company should receive a shareholder or stakeholder communication directed to the Board, or to an individual director, said communication will be relayed to the Board or the individual director as the case may be.

 

Cease Trade Orders and Bankruptcies

 

Except as noted below, none of the Company’s directors or executive officers:

 

(a)         is, as at the date of this Proxy Statement, or has been, within 10 years before the date of this Proxy Statement, a director, CEO or CFO of any company (including the Company) that,

 

i.            was subject to an order that was issued while the director or executive officer was acting in the capacity as director, CEO or CFO; or

 

ii.         was subject to an order that was issued after the director or executive officer ceased to be a director, CEO or CFO and which resulted from an event that occurred while that person was acting in the capacity as a director, CEO or CFO;

 

(b)   is, as at the date of this Proxy Statement, or has been within 10 years before the date of this Proxy Statement, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or

 

(c)    has, within the 10 years before the date of this Proxy Statement, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.

 

For the purposes of the paragraphs above, “order” means: (i) a cease trade order; (ii) an order similar to a cease trade order; or (iii) an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days.

 

In September 2011, Mr. Adams was appointed Chairperson and Chief Executive Officer of Neurologix and Mr. Koven was appointed President and Chief Administrative Officer and a member of the board of directors of Neurologix. Mr. Adams and Mr. Koven each resigned from Neurologix in November 2011, primarily due to the company’s inability to raise sufficient capital to continue its operations (including its inability to compensate Messrs. Adams and Koven for their services). Neurologix filed for protection under Chapter 7 of the U.S. Bankruptcy Code on March 16, 2012.

 

Mr. Thrasher was a director of New Food Classics Inc., a private company which filed for creditor protection in January 2012 under the Companies’ Creditors Arrangement Act (Canada). Mr. Thrasher resigned from the board of New Food Classics Inc. in February 2012.

 

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Penalties or Sanctions

 

No director or executive officer of the Company has:

 

(a)   been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

 

(b)   been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote for a proposed director.

 

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EXECUTIVE OFFICERS

 

Our executive officers as of the date of this Proxy Statement are as follows:

 

Name

 

Age

 

Position with the Company

Adrian Adams

 

66

 

Chief Executive Officer

Andrew I. Koven

 

59

 

President and Chief Business Officer

Scott J. Charles

 

42

 

Chief Financial Officer

Jennifer L. Armstrong

 

46

 

Executive Vice President, Human Resources and Administration

Mark A. Glickman

 

51

 

Chief Commercial Officer

Eric L. Trachtenberg

 

44

 

General Counsel, Chief Compliance Officer and Corporate Secretary

James P. Tursi, M.D.

 

52

 

Chief Medical Officer

 

Our executive officers are appointed by, and serve at the discretion of, the Board. There are no familial relationships among any of our executive officers and directors of the Company.

 

Adrian Adams — For Mr. Adam’s biography, please see above under “Board of Directors and Corporate Governance—The Board in General”.

 

Andrew I. Koven has been our President and Chief Business Officer since February 5, 2016.  Previously, Mr. Koven was the President and Chief Business Officer of Pozen from June 2015 through February 5, 2016. Prior to joining Pozen, Mr. Koven served as Chief Administrative Officer and General Counsel of Auxilium Pharmaceuticals Inc., a specialty biopharmaceutical company, from February 2012 until January 2015, when it was acquired by Endo International plc. Mr. Koven served as President and Chief Administrative Officer and a member of the board of directors of Neurologix, Inc., a company focused on the development of multiple innovative gene therapy development programs, from September 2011 to December 2011. Before Neurologix, Inc., Mr. Koven served as Executive Vice President and Chief Administrative and Legal Officer of Inspire Pharmaceuticals, Inc., a specialty pharmaceutical company, from July 2010 until May 2011 when it was acquired by Merck & Co., Inc. Previously, Mr. Koven served as Executive Vice President, General Counsel and Corporate Secretary of Sepracor Inc., a specialty pharmaceutical company, from March 2007 until February 2010 when it was acquired by Dainippon Sumitomo Pharma Co., Ltd. Prior to joining Sepracor, Mr. Koven served as Executive Vice President, General Counsel and Corporate Secretary of Kos Pharmaceuticals, Inc., a specialty pharmaceutical company, from August 2003 until its acquisition by Abbott Laboratories in December 2006. Mr. Koven began his career in the pharmaceutical industry first as an Assistant General Counsel and then as Associate General Counsel at Warner-Lambert Company from 1993 to 2000, followed by his role as Senior Vice President and General Counsel at Lavipharm Corporation from 2000 to 2003. From 1986 to 1992 he was a corporate associate at Cahill, Gordon & Reindel in New York. From 1992 to 1993 he served as Counsel, Corporate and Investment Division, at The Equitable Life Assurance Society of the U.S.

 

Scott J. Charles has been our Chief Financial Officer since February 5, 2016.  Mr. Charles was previously Chief Financial Officer of Pozen from January 1, 2016 through February 5, 2016, and was Pozen’s Senior Vice President of Finance of from July 2015 through December 31, 2016. Prior to joining Pozen, Mr. Charles served as the Vice President of Finance and Treasurer at Ikaria, Inc., a critical care pharmaceutical company, from April 2008 to July 2015. From April 2002 to March 2008, Mr. Charles worked at Reliant Pharmaceuticals, Inc. in various finance functions, culminating with serving as the Vice President of Finance and Treasurer from April 2006 to March 2008. Prior to that, he was a Manager of Assurance and Business Advisory Services at Arthur Andersen, LLP. He holds a Bachelor of Science degree in Business Administration from Bucknell University and is a Certified Public Accountant.

 

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Jennifer L. Armstrong has been our Executive Vice President, Human Resources and Administration since February 5, 2016.  Ms. Armstrong was previously the Executive Vice President, Human Resources and Administration of Pozen from June 2015 through February 5, 2016.  Prior to joining Pozen, she served as Senior Vice President of Human Resources at Auxilium Pharmaceuticals, Inc., a specialty biopharmaceutical company, from July 2009 to March 2015. Prior to that, she served at Senior Vice President of Human Resources and Corporate Communications at Genaera Corporation, a specialty biopharmaceutical company, from January 1998 to May 2009. Ms. Armstrong holds a Master’s degree in Arts Administration and a Bachelor’s degree in Corporate Communications, both from Drexel University.

 

Mark A. Glickman has been our Chief Commercial Officer since February 5, 2016.  From June 2015 to February 5, 2016, Mr. Glickman was the Chief Commercial Officer of Pozen. Mr. Glickman previously served as Executive Vice President of Sales and Marketing for Auxilium Pharmaceuticals, a specialty biopharmaceutical company, from February 2012 to March 2015. From February 2009 to February 2012, he served as Vice President in the medical device division at Otsuka America Pharmaceutical, Inc., a pharmaceutical and medical device company and a subsidiary of Otsuka America, Inc. Prior to Otsuka, Mr. Glickman served as Senior Vice President of Sales and Marketing at Oscient Pharmaceuticals Corp., a commercial-stage pharmaceutical company, from September 2007 to September 2009. Before joining Oscient, from May 2007 to September 2007, Mr. Glickman served as Vice President of Sales at Bayer Healthcare’s Diabetes Care Division. From 2001 to 2007, he held various positions at Kos Pharmaceuticals, including Director of Marketing, Regional Sales Director and Vice President of Sales. Mr. Glickman started his pharmaceutical career at Bristol-Myers Squibb where he was responsible for the marketing of cardiovascular products, including the blockbuster Plavix. Mr. Glickman holds a Master of Business Administration degree from New York University.

 

Eric L. Trachtenberg has been our General Counsel, Chief Compliance Officer and Corporate Secretary since February 5, 2016.  Previously, Mr. Trachtenberg was the General Counsel, Chief Compliance Officer and Corporate Secretary of Pozen from January 1, 2016 through February 5, 2016, and was Deputy General Counsel of Pozen from June 2015 through December 31, 2015.  Prior to joining Pozen, Mr. Trachtenberg most recently served as Deputy General Counsel at Auxilium Pharmaceuticals, Inc., a specialty biopharmaceutical company, from May 2012 through its acquisition by Endo Pharmaceuticals in February 2015. Prior to Auxilium, he was Vice President, General Counsel and Corporate Secretary of Enobia Pharma, Inc., from April 2011 to April 2012, and managed all legal aspects of Enobia’s sale to Alexion Pharmaceuticals. Prior to that, Mr. Trachtenberg served as Vice President and Associate General Counsel of Sepracor Inc. and remained in that position with Sunovion Pharmaceuticals Inc. following the acquisition of Sepracor by Dainippon Sumitomo Pharma. Mr. Trachtenberg also held a Senior Counsel position at Kos Pharmaceuticals, Inc. before its acquisition by Abbott. Mr. Trachtenberg began his career as an Associate at Blank Rome LLP. He holds a Bachelor of Science degree in Management from Tulane University and a Juris Doctorate and Master of Business Administration degree from Temple University.

 

James P. Tursi, M.D. has been our Chief Medical Officer since February 5, 2016.  From October 2015 to February 5, 2016, Dr. Tursi was Chief Medical Officer of Pozen. Previously, Dr. Tursi served as Chief Medical Officer of Innocoll AG, a specialty pharmaceutical company, from March 2015 to September 2015, where he was responsible for managing all clinical research and development, medical affairs and safety activities. Prior to joining Innocoll, Dr. Tursi served as Chief Medical Officer at Auxilium Pharmaceuticals Inc., a specialty biopharmaceutical company, from August 2011 to March 2015, and as Vice President of Clinical Research & Development from March 2009 to August 2011. In these positions, Dr. Tursi was responsible for oversight of clinical and nonclinical development programs, clinical operations, medical affairs and global safety activities, and served as the clinical medical safety lead for all regulatory agency interactions with the FDA, Europe and Canada. Prior to Auxilium, he served as Director of Medical Affairs for GlaxoSmithKline Biologicals from January 2006 to March 2009 and directed all medical affairs responsibilities for the cervical cancer vaccine in North America. Dr. Tursi entered the pharmaceutical industry in 2004 as a Medical Director for Procter and Gamble Pharmaceuticals until 2006. He worked on several products and therapeutic areas, which included female sexual dysfunction, overactive bladder, and osteoporosis. His responsibilities included clinical development and medical affairs. Dr. Tursi was a board certified OB/GYN and practiced medicine and surgery for over 10 years. Dr. Tursi received his doctor of medicine degree from the Medical College of Pennsylvania and completed his residency training at the Johns Hopkins Hospital. Dr. Tursi has served as a member of the board of directors of Agile Therapeutics, a women’s health specialty pharmaceutical company, since October 2014, and is Chairperson of the compensation committee.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

The Board has adopted written policies and procedures for the review, approval or ratification of transactions involving the Company and any executive officer, director, director nominee, 5% shareholder and certain of their immediate family members (each of whom we refer to as a “related person”). The policies and procedures cover any transaction involving $120,000 or more with a related person (a “related person transaction”) in which the related person has a material interest and which does not fall under an explicitly stated exception set forth in the applicable disclosure rules of the SEC.

 

Any proposed related person transaction must be reported to the Chairperson of our Nominating/Corporate Governance Committee. The policy calls for the transaction to be reviewed and, if deemed appropriate, approved by the Nominating/Corporate Governance Committee. The transaction should be approved in advance whenever practicable. If not practicable, the Nominating/Corporate Governance Committee will review, and may, if deemed appropriate, ratify the related person transaction. The policy also permits the Chairperson of the Nominating/Corporate Governance Committee to approve related person transactions that arise between committee meetings, subject to ratification by the Nominating/Corporate Governance Committee at its next meeting. Any related person transaction that is ongoing in nature will be reviewed annually.

 

A related person transaction will be considered approved or ratified if it is authorized by the Nominating/Corporate Governance Committee or Chairperson after full disclosure of the related person’s interest in the transaction. The transaction may be approved or ratified only if the Nominating/Corporate Governance Committee determines that the transaction is not inconsistent with the Company’s best interests. In considering related person transactions, the Nominating/Corporate Governance Committee will consider any information considered material to investors and the following factors:

 

·                              the related person’s interest in the transaction;

 

·                              the approximate dollar value of the transaction;

 

·                              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 we could have reached with an unrelated third party; and

 

·                              the purpose and potential benefit to us of the transaction.

 

The policy provides that transactions involving the compensation of our executive officers will be reviewed and approved by the Compensation Committee or the Board, in accordance with the Compensation Committee’s charter.

 

23



 

Second Amended and Restated Debt Facility Agreement and Amended and Restated Subscription Agreement

 

Subsequent to December 31, 2015, and concurrent with Tribute Transaction, we received an aggregate of $149.2 million of cash proceeds consisting of $75 million from the issuance of 2.5% senior secured convertible notes to the Deerfield Entities (hereafter defined) pursuant to the Second Amended and Restated Debt Facility Agreement (the “Facility Agreement”), as amended, dated December 7, 2015, by and among Aralez, Pozen, Tribute, Deerfield Private Design Fund III, L.P. (“Deerfield Private Design”), Deerfield International Master Fund, L.P. (“Deerfield International) and Deerfield Partners, L.P. (“Deerfield Partners” and, together with Deerfield Private Design, and Deerfield International, the “Deerfield Entities”), and an aggregate of $75 million from certain investors pursuant to the Amended and Restated Subscription Agreement (the “Subscription Agreement”), dated December 7, 2015, by and among Aralez, Aralez Pharmaceuticals Limited, Tribute, Pozen, QLT ($45,000,000), Deerfield Private Design ($5,000,000), Deerfield International ($2,800,000), Deerfield Partners ($2,200,000), Broadfin Healthcare Master Fund, Ltd. ($12,500,000), JW Partners, LP ($5,850,000) and JW Opportunities Master Fund, Ltd. ($1,650,000), net of certain transaction-related costs, and used part of the proceeds to pay off Tribute’s existing debt obligations including accrued interest and termination fees in the amount of $22.5 million. As a result of these transactions, the Deerfield Entities and Broadfin became holders of more than 5% of our outstanding Common Shares.

 

The convertible notes issued pursuant to the Facility Agreement (described above) are due in February 2022 and are not prepayable by Aralez. In addition, under the Facility Agreement, Aralez also had a $200 million acquisition facility available until April 30, 2017.  In October 2016, Aralez drew down $200 million under the acquisition facility to finance permitted acquisitions. The acquisition facility is to be repaid over a 6-year period from each draw. Amounts drawn under the acquisition facility bear an interest rate of 12.5% per annum and are prepayable in whole or in part at any time following the end of the sixth month after the funding date of each draw.

 

We have paid $980,602 in legal fees to the attorneys representing the Deerfield Entities since January 1, 2016 in connection with matters related to the Facility Agreement.

 

In addition, pursuant to a consent to the Facility Agreement entered into in connection with certain acquisitions, the lenders under the Facility Agreement agreed that they and/or affiliated funds will have available sufficient capital to make additional loans to Aralez in an aggregate amount of up to $250 million for the payment of the purchase price of any acquisitions permitted by the terms of the Facility Agreement (as modified by such consent) with respect to target businesses mutually approved by, and as otherwise mutually agreed upon, by Aralez and the lenders, subject to the satisfaction of certain conditions set forth in the Facility Agreement.

 

Payments to Rob Harris

 

In connection with the Tribute Transaction, Mr. Harris resigned from his position as President, Chief Executive Officer and a director of Tribute. Pursuant to the terms of his employment agreement with Tribute, Mr. Harris received a lump sum severance payment of $1,216,542 CAN, less deductions and withholdings, upon his execution of a general release of claims against Tribute and Aralez.

 

Mr. Harris entered into a consulting agreement, dated February 5, 2016, with Tribute, pursuant to which he agreed to provide consulting services to Tribute through his consulting firm and to advise and assist Mr. Adams, our Chief Executive Officer, on all material aspects of the Canadian business and business conducted by Tribute, commencing February 5, 2016 and ending on June 30, 2016. Pursuant to the terms of the consulting agreement, Mr. Harris’ consulting firm was paid a weekly fee of $9,375 CAD for the services provided and reimbursed for all reasonable travel and out-of-pocket expenses actually and properly incurred by the consulting firm from time to time in connection with the services provided under the consulting agreement.

 

24



 

OWNERSHIP OF THE COMPANY

 

Security Ownership of Certain Beneficial Owners and Management

 

The following tables sets forth information known to us concerning the beneficial ownership of our outstanding Common Shares as of March 6, 2017 (unless otherwise noted) for:

 

·                              each person known by us to beneficially own 5% or more of our outstanding Common Shares;

 

·                              each of our directors;

 

·                              each of our named executive officers; and

 

·                              all of our directors and current executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In computing the number of Common Shares beneficially owned by a person and the percentage ownership of that person, Common Shares that could be issued upon the exercise of outstanding options and warrants held by that person that are currently exercisable at March 6, 2017, or that will become exercisable within 60 days of March 6, 2017, are considered outstanding. These Common Shares, however, are not considered outstanding when computing the percentage ownership of each other person.

 

Except as indicated in the footnotes to this table and pursuant to state community property laws, each shareholder named in the table has sole voting and investment power for the Common Shares shown as beneficially owned by them. Percentage of ownership is based on 65,683,646 Common Shares issued and outstanding on March 6, 2017.

 

Name and Address of Beneficial Owner

 

Number of Common
Shares
Beneficially Owned

 

Percentage
Beneficially Owned

 

Entities affiliated with Deerfield Management Company, L.P.

 

10,701,185

(1)

9.9

%

Par Investment Partners, L.P.

 

6,400,000

(2)

9.7

%

Broadfin Capital, LLC

 

4,791,590

(3)

7.3

%

 


(1) Based on information disclosed in a Schedule 13G/A filed with the SEC on February 14, 2017 by Deerfield Mgmt, L.P., Deerfield Management Company, L.P., Deerfield Mgmt III, L.P., Deerfield Private Design Fund III, L.P., Deerfield International Master Fund, L.P., Deerfield Partners, L.P. and James E. Flynn (the “Deerfield Reporting Persons”).  As reported in the Schedule 13G/A filed by the Deerfield Reporting Persons: (i) Deerfield Mgmt, L.P. has shared voting power and shared dispositive power with respect to 5,372,884 Common Shares, comprised of an aggregate of 844,583 Common Shares and 4,528,301 Common Shares underlying convertible notes held by Deerfield Partners, L.P. and Deerfield International Master Fund, L.P., of which Deerfield Mgmt, L.P. is the General Partner; (ii) Deerfield Management Company, L.P. has shared voting power and shared dispositive power with respect to 10,701,185 Common Shares, comprised of an aggregate of 1,644,583 Common Shares and 9,056,602 Common Shares underlying convertible notes held by Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P. and Deerfield International Master Fund, L.P., of which Deerfield Management Company, L.P. is the investment advisor; (iii) Deerfield Mgmt III, L.P. has shared voting power and shared dispositive power with respect to 5,328,301 Common Shares, comprised of an aggregate of 800,000 Common Shares and 4,528,301 Common Shares underlying convertible notes held by Deerfield Private Design Fund III, L.P., of which Deerfield Mgmt III, L.P. is the general partner; (iii) Deerfield Private Design Fund III, L.P. has shared voting power and shared dispositive power with respect to 5,328,301 Common Shares, comprised of an aggregate of 800,000 Common Shares and 4,528,301 Common Shares underlying convertible notes; (iv) Deerfield International Master Fund, L.P. has shared voting power and shared dispositive power with respect to 3,008,815 Common Shares, comprised of an aggregate of 472,966 Common Shares and 2,535,849 Common Shares underlying convertible notes; (v) Deerfield Partners, L.P. has shared voting power and shared dispositive power with respect to 2,364,069 Common Shares, comprised of an aggregate of 371,617 Common Shares and 1,992,452 Common Shares underlying convertible notes; and (vi) James E. Flynn has shared voting power and shared dispositive power with respect to 10,701,185 Common Shares, comprised of an aggregate of 1,644,583 Common Shares and 9,056,602 Common Shares underlying convertible notes held by Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P. and Deerfield International Master Fund, L.P. The provisions of the convertible notes beneficially owned by the Deerfield Entities restrict the conversion of such securities to the extent that, upon such exercise or conversion, the number of Common Shares then beneficially owned by the holder and any other person or entities with which such holder would constitute a Section 13(d) “group” would exceed 9.985% of the total number of Common Shares of Aralez then outstanding (the “Ownership Cap”).  Accordingly, notwithstanding the number of Common Shares reported, the Deerfield Entities disclaim beneficial ownership of the Common Shares issuable upon the conversion of such convertible notes to the extent that upon such conversion the number of Common Shares beneficially owned by the Deerfield Reporting Persons hereunder, in the aggregate, would exceed the Ownership Cap. The address of the Deerfield Reporting Persons is 780 Third Avenue, 37th Floor, New York, NY 10017.

 

25



 

(2) Based on information disclosed in a Schedule 13G/A filed with the SEC on February 14, 2017 with respect to ownership as of December 31, 2016 by PAR Investment Partners, L.P., PAR Group, L.P. and PAR Capital Management, Inc. PAR Group, L.P. is the sole general partner of PAR Investment Partners, L.P. PAR Capital Management, Inc. is the sole general partner of PAR Group, L.P. The address of PAR Capital Management, Inc. is 200 Clarendon Street, F1 48, Boston, MA 02116.

 

(3) Based on information disclosed in a Schedule 13G/A filed with the SEC on February 13, 2017, Broadfin Capital, LLC, Broadfin Healthcare Master Fund, Ltd., and Kevin Kotler share voting power and dispositive power with respect to these Common Shares. The address of Broadfin Capital, LLC is 300 Park Avenue, 25th Floor, New York, NY 10022.

 

Name of Beneficial Owner(1)

 

Number of Common
Shares
Beneficially Owned

 

Percentage
Beneficially Owned

 

Adrian Adams

 

1,556,173

(2)

2.4

%

Jason M. Aryeh

 

92,755

(3)

*

 

Scott J. Charles

 

105,647

(4)

*

 

Neal F. Fowler

 

58,869

 

*

 

Mark A. Glickman

 

68,823

(5)

*

 

Rob Harris

 

1,423,081

(6)

2.2

%

Arthur S. Kirsch

 

119,930

(7)

*

 

Andrew I. Koven

 

269,551

(8)

*

 

Kenneth B. Lee, Jr.

 

89,059

(9)

*

 

Seth A. Rudnick, M.D.

 

86,891

(10)

*

 

F. Martin Thrasher

 

381,211

(11)

*

 

James P. Tursi, M.D.

 

71,647

(12)

*

 

All current directors, director nominees and executive officers as a group (14 persons)

 

4,410,709

(13)

6.7

%

 


*                 Less than 1%

 

(1)  Unless otherwise set forth herein, the address of the named beneficial owners is c/o Aralez Pharmaceuticals Inc., 7100 West Credit Avenue, Suite 101, Mississauga, Ontario, Canada, L5N 0E4.

 

(2)  This number includes 28,505 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 41,446 Common Shares that are issuable pursuant to RSUs that will vest within 60 days of March 6, 2017.

 

(3)  These Common Shares are held by JALAA Equities, LP, of which Mr. Aryeh is the General Partner, and include 45,468 Common Shares issuable pursuant to warrants that are currently exercisable.

 

(4)   This number includes 10,859 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 15,789 Common Shares that are issuable pursuant to RSUs that will vest within 60 days of March 6, 2017.

 

(5)   This number includes 10,443 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 15,184 Common Shares that are issuable pursuant to RSUs that will vest within 60 days of March 6, 2017.

 

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(6)   This number includes 190,830 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 45,469 Common Shares that are issuable pursuant to warrants that are currently exercisable.

 

(7) This number includes 18,321 Common Shares that are issuable pursuant to options that are currently exercisable or will become exercisable within 60 days of March 6, 2017.

 

(8) This number includes 14,243 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 20,710 Common Shares that are issuable pursuant to RSUs that will vest within 60 days of March 6, 2017.

 

(9) This number includes 6,107 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017.

 

(10)  This number includes 30,000 Common Shares held in the Seth A. Rudnick 2014 GST Trust U/A Dated 3/01/2014 (the “Trust”) for the benefit of Mr. Rudnick’s heirs. Mr. Rudnick’s spouse is the trustee of the Trust.

 

(11) This number includes 13,095 Common Shares that are issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 90,938 Common Shares that are issuable pursuant to warrants that are currently exercisable.

 

(12) This number includes 10,859 Common Shares issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017 and 15,789 Common Shares that are issuable pursuant to RSUs that will vest within 60 days of March 6, 2017.

 

(13) This number includes 318,410 Common Shares issuable pursuant to stock options that are currently exercisable or will become exercisable within 60 days of March 6, 2017, 130,943 Common Shares that are issuable pursuant to RSUs that will vest within 60 days of March 6, 2017 and 136,407 Common Shares that are issuable pursuant to warrants that are currently exercisable.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act, and the rules issued thereunder, requires our directors and executive officers and beneficial owners of more than 10% of our equity securities to file reports of ownership and changes in beneficial ownership of our equity securities with the SEC. Copies of these reports are furnished to the Company. Based solely on our review of the copies of such reports furnished to us, and representations from the persons subject to Section 16(a) with respect to the Company, we believe that during 2016 all of our executive officers, directors and 10% shareholders complied with the Section 16(a) requirements, except that QLT Inc. filed one late Form 4 reporting one transaction.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the disclosures contained in the “Compensation Discussion and Analysis” below. Based on that review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

 

COMPENSATION COMMITTEE:

 

 

 

Kenneth B. Lee, Jr. (Chairperson)

 

Neal F. Fowler

 

Seth A. Rudnick, M.D.

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis explains our compensation program for Fiscal Year 2016 as it pertains to our named executive officers. Our named executive officers for Fiscal Year 2016 consisted of the following:

 

·                              Adrian Adams, Chief Executive Officer (“CEO”);

 

·                              Andrew I. Koven, President and Chief Business Officer;

 

·                              Scott J. Charles, Chief Financial Officer;

 

·                              James P. Tursi, MD, Chief Medical Officer; and

 

·                              Mark A. Glickman, Chief Commercial Officer.

 

For purposes of this Compensation Discussion and Analysis, we refer to these persons as our “named executive officers.”

 

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Executive Summary

 

Our 2016 fiscal year was a transformational year for our company. The Pozen and Tribute business combination was completed on February 5, 2016, and the combined entity now operates as Aralez. The combined company was intended to provide the former shareholders of Pozen and Tribute with significant strategic and financial benefits over time, as the combined company is a more diversified provider of specialty healthcare products with a strategic focus on cardiovascular and pain indications, a global footprint, and is better positioned to meet the challenges of the evolving future landscape in the pharmaceutical industry.

 

In our first year of operation as Aralez, we have made excellent progress in delivering against the expectations that we outlined upon the formation of the Company. In September 2016, Yosprala was approved by the FDA, and was launched in October 2016, strengthening our therapeutic anchor position in cardiovascular disease. We acquired Zontivity in September 2016 and Toprol-XL and its authorized generic in October 2016, leveraging our competitive platform by executing on our growth strategy and further diversifying our product offerings and revenue stream. In addition, Blexten was approved by Health Canada in April 2016, and was launched commercially in Canada in December 2016.

 

We have achieved this progress while also maintaining a sound financial position through disciplined decision making and cost management. As a result, we ended 2016 with revenues and earnings that were greater than our original financial guidance and expenses that were less than our original guidance.

 

2016 Compensation Actions

 

In anticipation, and since the completion of the Tribute Transaction, our Compensation Committee undertook a review of the Pozen executive compensation program, and focused on creating the appropriate compensation metrics for a company the size of Aralez, at a similar stage and with similar corporate objectives. In 2016, our Compensation Committee designed our new executive compensation program, including the following:

 

·                  Compensation Philosophy. Development of the Aralez compensation philosophy;

 

·                  Peer Group. Establishment of the Aralez peer group, consisting of companies of a similar size to Aralez with a similar business focus;

 

·                  Annual Incentive Bonus Plan. Adoption of our annual incentive bonus plan for Fiscal Year 2016, based on the potential achievement of Aralez corporate goals for Fiscal Year 2016;

 

·                  Long-Term Equity Program. Development of our long-term equity-based incentive program, consisting of a combination of time-based and performance-based equity awards; and

 

·                  Pay-For-Performance. Focus on compensation that is based on the achievement of pre-established performance goals.

 

The executive compensation program developed by our Compensation Committee is designed to promote the short- and long-term objectives of Aralez, and to ensure that our executives are provided compensation based on their performance and achievement against these objectives. Our Compensation Committee also determined that our executive compensation program would include the following practices and policies, which help to align the interests of our executives and our shareholders and reduce any risks involved in our compensation program:

 

ü              Share Ownership Guidelines. Robust share ownership guidelines that apply to our CEO.

 

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ü              Share Retention Policy. A share retention policy that applies to all of our named executive officers.

 

ü              Anti-Pledging Policy. Executives and directors are not permitted to pledge shares.

 

ü              Anti-Hedging Policy. Executives and directors may not enter into hedging transactions.

 

ü              Clawback Policy. Clawback policy that applies to incentive-based compensation awarded to executives if there is a restatement of financials.

 

ü              No Repricings. The Aralez 2016 Long-Term Incentive Plan (the “2016 Plan”) prohibits repricings without shareholder approval.

 

ü              No Single Trigger Awards. New equity awards will not automatically accelerate upon a Change of Control.

 

ü              No Section 280G Gross-Ups. Employment agreements no longer contain a Section 280G excise tax gross-up.

 

In March 2017, our Compensation Committee determined that the pre-determined Company performance metrics set by the Compensation Committee early in 2016 with respect to our 2016 Annual Incentive Bonus Plan had been achieved at the 196.76% level. However, our Compensation Committee and our management determined that adjustments were appropriate in order to achieve a greater degree of alignment between executive pay and the interests of our shareholders. In light of our recent share price performance and certain near-term business challenges, our Compensation Committee and our management agreed that the annual incentive bonuses for our named executive officers would be paid out at the target level, rather than the much higher level of actual achievement under the pre-determined Company performance metrics for 2016 (for Mr. Glickman, the annual cash incentive award would be paid at target for the Company performance factor, and at his actual level of achievement for his individual objectives). Mr. Adams and Mr. Koven also agreed to remove themselves from eligibility for a cash bonus under our Annual Incentive Bonus Plan with respect to the 2017 performance period. Our Compensation Committee and management are committed to aligning our executive compensation program with the interests of our shareholders, and this adjustment to the 2016 annual incentive bonuses demonstrates this commitment.

 

2016 Shareholder Say-on-Pay Vote

 

Aralez provides shareholders the opportunity to cast an annual, non-binding advisory vote on executive compensation (a “say-on-pay proposal”). Proposal 5 below is an advisory vote on the frequency of such say-on-pay proposals, and the Board recommends that our shareholders vote to continue to hold say-on-pay proposals on an annual basis.

 

During the portion of Fiscal Year 2016 prior to the say-on-pay proposal, the Compensation Committee was primarily focused on developing an executive compensation program for Aralez following the completion of the Tribute Transaction. The Compensation Committee considered the outcome of the prior Pozen say-on-pay proposal when developing the 2016 Aralez executive compensation program. At the Pozen annual meeting of stockholders held on June 10, 2015, approximately 53% of the votes cast on the say-on-pay proposal were voted in favor of the proposal.

 

Specifically, our Compensation Committee made the following changes to our executive compensation program for 2016, which differ from the past practices of Pozen:

 

·                              Double-Trigger Vesting on Equity Awards. Awards granted under the 2016 Long-Term Incentive Plan (the “2016 Plan”) will not automatically accelerate upon a change of control.

 

·                              No Section 280G Gross-Ups. The employment agreements with our new executive management team do not contain a tax gross-up with respect to any excise tax under Section 280G or 4999 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

·                              Objective Performance Goals. The Aralez Annual Incentive Bonus Plan provides annual incentive bonuses based on the achievement of pre-established, objective performance goals rather than on a discretionary basis.

 

·                              Mix of Long-Term Equity Awards. Long-term equity incentives are composed of a 50/50 mix of time-based and performance-based awards, in order to more closely link pay to Company performance while retaining our executives and aligning their interests with the interests of our shareholders.

 

·                              Revised Peer Group. Our Compensation Committee developed a new peer group based on the anticipated size and revenues of Aralez following the Tribute Transaction, and further refined the peer group during the last quarter of 2016 to more closely track the market capitalization and revenues of Aralez.

 

·                              Emphasis on Performance-Based Compensation. For Fiscal Year 2016, approximately 50% of our CEO’s target compensation is earned based on the achievement of pre-established performance goals, and approximately 77% of our CEO’s target compensation is variable.

 

30



 

At the Aralez annual meeting of shareholders held on June 16, 2016, approximately 67% of the votes cast on the say-on-pay proposal were voted in favor of the proposal.

 

Following the 2016 say-on-pay vote, the Compensation Committee and its representatives contacted several key shareholders, representing approximately 23% of the outstanding shares, to discuss any concerns they may have with the Aralez executive compensation program. Our Compensation Committee considered the feedback of these shareholders, as well as certain concerns raised by ISS and Glass Lewis in their recommendations with respect to the say-on-pay proposal, in order to determine whether changes should be made to the executive compensation program to better achieve our compensation objectives.

 

The feedback received from these shareholders was generally positive with respect to the changes made to our executive compensation program in 2016, particularly with respect to our focus on pay for performance, including the proportion of compensation based on the achievement of pre-established, objective performance goals. We also received helpful, constructive input from several shareholders, including the suggestion that we link more of our incentive compensation metrics to company strategy.

 

Our Compensation Committee is committed to aligning the interests of our executives with the interests of our shareholders, and analyzes our compensation program with an eye towards the alignment of these interests. In March 2017, our Compensation Committee and our management determined that, notwithstanding management exceeding the pre-determined Company performance metrics with respect to our 2016 Annual Incentive Bonus Plan, such performance did not translate into increased shareholder return, indicating that there was a disconnect in the alignment between executive compensation and the interests of our shareholders. In order to more closely align our compensation program with our shareholders’ interests, our Compensation Committee and our named executive officers agreed that the annual incentive bonuses would be paid at the target level, a level far lower than the actual level of performance for 2016 (for Mr. Glickman, the annual cash incentive award would be paid at target for the Company performance factor, and at his actual level of achievement for his individual objectives). In addition, Mr. Adams and Mr. Koven agreed to remove themselves from eligibility for a cash bonus under the Annual Incentive Bonus Plan with respect to the 2017 performance period. These significant reductions in the annual incentive bonuses earned by our named executive officers, together with Mr. Adams’ and Mr. Koven’s decision to opt out of eligibility for 2017 cash bonuses under the Annual Incentive Bonus Plan, demonstrate our deep commitment to align executive pay with shareholder interests.

 

The input received from shareholders, as well as the say-on-pay vote results from 2016 and prior years, have been and will continue to be considered by the Compensation Committee in the development and refinement of the executive compensation programs.

 

Philosophy and Compensation Process

 

The following is a description of our compensation philosophy and process for determining executive compensation, which applied to the compensation decisions made during Fiscal Year 2016.

 

Objectives of Executive Compensation Program

 

Our compensation philosophy was developed by our Compensation Committee following the completion of the Tribute Transaction, and will continue to be refined to ensure alignment with our business and human capital objectives. Our executive compensation program is designed:

 

·                              to promote the achievement of our annual and long-term performance objectives as approved by the Compensation Committee and/or the Board;

 

·                              to ensure that our executive officers’ interests are aligned with maximizing shareholder value and the medium to long-term success of the Company; and

 

·                              to provide compensation packages that will attract, retain, and motivate superior executive personnel.

 

Our executive compensation program is designed to reward achievement of annual and long-term corporate goals, as well as individual goals that are supportive of our corporate and strategic objectives. We aim to provide higher levels of pay when executive and organizational performance exceeds performance standards. Likewise, individual and organizational performance that falls short of the pre-approved standards will result in payments and overall compensation that are at the lower end of competitive pay ranges.

 

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Our compensation programs are designed not only to reward past performance, but to provide incentives for continued high levels of executive performance, particularly through the multi-year vesting of time-based equity awards and the performance-based equity awards. All compensation decisions are guided by the overarching principle that the highest comparative levels of compensation should be paid to our highest performing executives when the Company is achieving high levels of performance.

 

Our Compensation Committee uses a mix of salary, variable cash and equity-based incentives in our executive compensation program in order to motivate our executive officers to work to fulfill our corporate goals and to build long-term value for our shareholders. Our Compensation Committee also believes that employees should be owners of the Company, and all of our executive officers are shareholders or hold unvested equity-based incentive awards. As of December 31, 2016, our actively employed named executive officers beneficially owned 3.2% of the outstanding Common Shares, which creates alignment with our shareholders.

 

Our Compensation Committee strives to mitigate excessive risk-taking that could harm our value or reward poor judgment by our executives. Several features of our executive compensation program reflect sound risk management practices that balance incentive opportunities with long-term value creation for our shareholders: (i) our annual cash incentives are based on the achievement of performance metrics that promote progress towards long-term Company goals rather than rewarding high-risk investments at the expense of long-term Company value; (ii) our Compensation Committee allocates compensation among base salary and short and long-term compensation target opportunities in such a way as to not encourage excessive risk-taking; and (iii) our Compensation Committee grants a mix of equity award instruments that include performance-based equity awards, full value awards, and appreciation awards, and have multi-year vesting periods, which mitigates risk and properly accounts for the time horizon of risk. Our Compensation Committee has determined that our policies, practices, and programs do not create risks that are likely to have a material adverse impact on the Company.

 

Role of Compensation Committee, Executive Officers, and Compensation Consultant

 

Our Compensation Committee is responsible for our executive compensation program. In accordance with its charter, our Compensation Committee’s responsibilities include reviewing and approving our overall compensation philosophy and the adequacy and market effectiveness of our compensation plans and programs; evaluating the performance of, and reviewing and approving total compensation for, its executive officers; and administering its equity-based and other incentive programs.

 

As required by its charter, our Compensation Committee is composed solely of independent directors under NASDAQ and SEC rules and “outside directors” as determined under Section 162(m) of the Code and the applicable Treasury Regulations.

 

Our Compensation Committee, when necessary, receives staff support from members of our executive management team, including Mr. Adams, Jennifer Armstrong, our Executive Vice President, Human Resources and Administration, and Eric Trachtenberg, our General Counsel, Chief Compliance Officer and Corporate Secretary. Our management provides input to our Compensation Committee regarding corporate goals and performance criteria for our annual incentive awards and long-term performance awards. In evaluating our executive officers other than the CEO, our Compensation Committee relies in part on the input and recommendations of our CEO. In evaluating our CEO’s compensation, our Compensation Committee considers, among other factors, an annual self-assessment submitted by our CEO, as well as a thorough review of corporate performance. Our CEO is not present during our Compensation Committee’s deliberations or determinations of his compensation.

 

In addition, our Compensation Committee has engaged Radford, an Aon Hewitt Company, and leading compensation consultant, to assist the Compensation Committee in the performance of its duties. Radford served as an advisor to the Pozen Compensation Committee since 2008 in connection with the compensation decisions for the executive officers, and our Compensation Committee has continued this engagement following the completion of the Tribute Transaction. During Fiscal Year 2016, Radford has assisted our Compensation Committee with the development of our executive compensation program, including an assessment of Board compensation and the establishment of our peer group (described below) and has provided data relating to the compensation practices of our peers. Other than services provided to our Compensation Committee, Radford has not performed any services for Aralez, Pozen, or any of its management during 2016.

 

Peer Group and Benchmarking

 

In October 2015 and in preparation for the Tribute Transaction, the Pozen Compensation Committee engaged Radford to conduct an analysis of Aralez’s peer group and suggest updates to the peer group based on the business model of Aralez and the anticipated valuation of Aralez following the Tribute Transaction. A new peer group was selected based on the following criteria (reflecting projections as of October 2015):

 

·                              Commercial biopharmaceutical/specialty pharmaceutical companies, with no preference for location.

 

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·                              Market Capitalization: range of 0.5x to 3x of the estimated post-deal market capitalization (estimated in October 2015 at $750 million).

 

·                              Revenue: range of 0.5x to 3x of the estimated post-deal annual revenue (estimated in October 2015 at $75 million).

 

·                              Preference for companies with fewer than 300 employees that meet the financial metrics set forth above to reflect the business model and organization complexity of similar leadership roles.

 

Using these criteria, the Pozen Compensation Committee approved the following peer group for purposes of compensation benchmarking for Aralez during 2016 following the completion of the Tribute Transaction:

 

Aegerion Pharmaceuticals

 

Momenta Pharmaceuticals

ANI Pharmaceuticals

 

Osiris Therapeutics

Anika Therapeutics

 

Raptor Pharmaceutical Corp.

ARIAD Pharmaceuticals

 

Repligen

BioDelivery Sciences International

 

Retrophin

Eagle Pharmaceuticals

 

SciClone Pharmaceuticals

Enanta Pharmaceuticals

 

Spectrum Pharmaceuticals

ImmunoGen

 

Sucampo Pharmaceuticals

Intersect ENT

 

Supernus Pharmaceuticals

Ligand Pharmaceuticals

 

Vanda Pharmaceuticals

 

In selecting peer companies, the Pozen Compensation Committee considered a number of factors, including whether a potential peer has products on the market, whether a potential peer has executive positions of similar scope of responsibility, as well as whether investors might consider such company as a peer when considering investments in the Company. Our peer group shares only a few peers with the Pozen peer group due to the larger size and different business model of Aralez. The Pozen Compensation Committee determined that it was appropriate to have peers that ranged from 0.5x to 3x of our anticipated market capitalization due to the anticipated growth of Aralez through acquisitions following the Tribute Transaction. The approved peers have market capitalization ranging from approximately $200 million to $2 billion, and annual revenue ranging from approximately $20 million to $250 million.

 

In November 2016, our Compensation Committee engaged Radford to perform an updated analysis of our peer group to determine its appropriateness and whether any peer companies should be added or removed. Our Compensation Committee considered similar factors as those considered by the Pozen Compensation Committee in determining the sector and stage of the updated peer group, but made adjustments with respect to market capitalization and revenue. The updated peers range from 0.5x to 3.0x of our current market capitalization (which is between 0.3x and 2.0x of our projected market capitalization based on anticipated growth) and from 0.5x to 3.0x of our projected revenue assuming our continued growth. The new peers have market capitalization ranging from approximately $223 million to $1.4 billion, and annual revenue ranging from approximately $60 million to $441 million.

 

The new peer group, detailed below, will be used for purposes of compensation benchmarking for 2017:

 

AMAG Pharmaceuticals

 

Merrimack Pharmaceuticals

Amarin

 

Momenta Pharmaceuticals

ANI Pharmaceuticals

 

Retrophin

Anika Therapeutics

 

SciClone Pharmaceuticals

Arena Pharmaceuticals

 

Spectrum Pharmaceuticals

Enanta Pharmaceuticals

 

Sucampo Pharmaceuticals

ImmunoGen

 

Vanda Pharmaceuticals

 

In determining our 2016 peer group and our updated peer group, our Compensation Committee considered the peer group criteria used by institutional investor advisory groups such as ISS and Glass Lewis for making comparisons. Because the institutional investor advisory firms select peer companies from broad industry categories and do not focus on companies with products on the market and with similar business models, we have found that there is only limited overlap between the Aralez peer group and those used by the institutional investor advisory firms.

 

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Elements of Compensation

 

Our executive compensation program, as designed by our Compensation Committee, incorporates four primary elements of compensation, described below:

 

·                              Base salary: Fixed compensation based on the role of the executive and the base salary for similar positions in our market for talent. Base salary provides compensation regardless of market performance or external factors and helps to retain our management team.

 

·                              Annual cash incentives: Variable compensation based on Company performance and, for named executive officers other than the CEO, individual performance. Annual cash incentives encourage our executives to work towards our corporate goals and provides our executives an opportunity to earn additional compensation for outstanding performance.

 

·                              Long-term incentive compensation: Variable compensation based on the value of our Common Shares. We grant both time-based awards and performance-based awards in order to retain our executives and to reward them for above-target performance. Equity-based compensation aligns the interests of our executives with the interests of our shareholders.

 

·                              Other benefits: Our executives participate in our benefit plans on the same basis as other employees, and we do not provide material perquisites.

 

In addition, employment agreements with each of our named executive officers provide for potential payments upon certain terminations of employment and upon a change of control of our company, which are described in the narrative accompanying the Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table and the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”. Our Compensation Committee believes that each of these compensation elements complements the others and that together they serve to achieve our compensation objectives.

 

Compensation awarded to our named executive officers is weighted towards performance-based compensation, with an emphasis on long-term equity incentive awards. We believe that putting a substantial proportion of our named executive officers’ compensation “at risk” motivates our executives to achieve our corporate objectives, and delivering compensation in the form of equity creates an ownership culture amongst our executives and ensures that our executives are focused on the interests of our shareholders.

 

The chart below illustrates the proportion of our CEO’s targeted compensation for 2016 that is allocated to each type of compensation.

 

 

The target annual cash incentive bonus and performance share units are earned based on pre-established Company performance goals, meaning that approximately 50% of our CEO’s target compensation is only earned if the performance goals have been satisfied. Equity-based compensation makes up approximately 53% of our CEO’s target compensation, the value of which will increase or decrease with the price of our Common Shares, ensuring an alignment between our executives and our shareholders. Only 23% of our CEO’s target compensation is fixed, and the remaining 77% is variable, based on our performance and/or the price of our Common Shares.

 

Base Salary

 

The base salary of our CEO and other named executive officers is intended to provide a level of assured cash compensation that is commensurate with their senior professional status and career accomplishments. Accordingly, their base salaries are designed to be competitive with similar positions within the biopharmaceutical industry. Our Compensation Committee relies on peer group analysis, surveys, and the advice of Radford to set base salaries for our named executive officers that are benchmarked to similar roles in the peer group.

 

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Base salary adjustments include a combination of cost-of-living and merit increases, based on the executive’s performance of his or her key responsibilities and duties, and will be generally approved, communicated, and implemented in March of each year to allow for evaluation of the entire year, including our financial performance. Our Compensation Committee considers the CEO’s assessment of and recommendations with respect to each of the other executive officers. In addition, our Compensation Committee considers the market pay practices for the individual jobs.

 

Our Compensation Committee reviewed the base salaries of our named executive officers in March 2016, and determined that no changes would be made. The base salary for Messrs. Adams, Koven, Charles and Glickman and Dr. Tursi for Fiscal Year 2016 remained at the level that was negotiated when they joined Pozen during Fiscal Year 2015, as set forth below.

 

Named Executive Officer

 

2016 Base Salary

 

Adrian Adams

 

$

700,000

 

Andrew I. Koven

 

$

450,000

 

Scott J. Charles

 

$

400,000

 

James P. Tursi, MD

 

$

400,000

 

Mark A. Glickman

 

$

385,000

 

 

Annual Cash Incentives

 

We award annual cash incentives to our named executive officers in order to reward them for the achievement of short-term goals relating to the financial performance of the Company as well as their execution of our operating plan and strategic initiatives. Annual cash incentives are paid pursuant to our Annual Incentive Bonus Plan, which is a sub-plan under our 2016 Plan.

 

Target annual cash incentives are based on a percentage of each named executive officer’s base salary. The target annual cash incentive level for each named executive officer is specified in his employment agreement. Annual cash incentive targets were set based upon advice from the Compensation Committee’s independent consultants and through negotiations with our executives when they were hired.

 

Named Executive Officer

 

2016 Annual Cash
Incentive Target

 

Adrian Adams

 

100

%

Andrew I. Koven

 

75

%

Scott J. Charles

 

45

%

James P. Tursi, MD

 

45

%

Mark A. Glickman

 

45

%

 

The annual cash incentive for our CEO is based solely on the achievement of Company goals, while the annual cash incentive for our other named executive officers is based 75% on the achievement of Company goals and 25% on the achievement of individual performance goals related to the named executive officer’s role with the Company.

 

Company Performance Goals

 

For Fiscal Year 2016, our Compensation Committee set Company performance goals based on three separate performance metrics, with the weightings set forth below:

 

Company Operating Metric

 

Weighting

 

Net Revenues(1)

 

50

%

Adjusted EBITDA

 

25

%

Adjusted Net Income

 

25

%

 


(1)         Net Revenue includes the revenue from Tribute and Pozen beginning January 1, 2016 prior to the closing of the Tribute Transaction on February 5, 2016.

 

35



 

Adjusted EBITDA and Adjusted Net Income results are adjusted at the end of the performance period to take into account items of significant income or expense which are determined to be appropriate adjustments and to exclude the following one-time/discrete items:

 

·                              Items related to a change in accounting principle and tax law;

 

·                              Costs to evaluate, execute and integrate acquisitions, and related accounting implications, including acquired in-process research and development;

 

·                              Items related to the sale or disposition of a business, segment or product, including discontinued operations;

 

·                              Other items including changes in foreign currency exchange rates, asset impairment charges, income tax adjustments and losses on extinguishment or modification of debt;

 

·                              Charges related to share-based compensation including charges related to warrants;

 

·                              Depreciation and amortization;

 

·                              Restructuring costs; and

 

·                              Financing costs as well as related interest expense implications.

 

Performance goals are based on our corporate plan for Fiscal Year 2016, with performance at the budget level resulting in a payout at approximately the target level.

 

Each performance goal is assigned a threshold, target, stretch, super-stretch, and super-super-stretch level. Payout (as a percentage of target) for each level of achievement is set forth below:

 

 

 

Payout
(% of Target)

 

Below Threshold

 

0

%

Threshold

 

75

%

Target

 

100

%

Stretch

 

200

%

Super-Stretch

 

250

%

Super-Super-Stretch

 

300

%

 

The threshold level of performance must be achieved on the Net Revenue goal and also either Adjusted EBITDA or Adjusted Net Income in order for payment on any performance goal to be paid out above the target level. The Net Revenue target for 2016 was $53.0 million, with a threshold performance target of $42.4 million and maximum payout at the performance target of $175.0 million. The Adjusted EBITDA target was ($60.0) million, with a threshold performance target of ($72.0) million and maximum payout at the performance target of ($36.0) million. The Adjusted Net Income target was ($65.0) million, with a threshold performance target of ($78.0) million and maximum payout at the performance target of ($50.0) million. Payout percentages are interpolated in a straight-line basis between band points. Our Compensation Committee set performance goals that are aligned with our corporate plan for Fiscal Year 2016 such that the stretch, super-stretch, and super-super-stretch payout levels would require extraordinary performance.

 

Individual Performance Goals

 

For 2016, 25% of each named executive officer’s (other than our CEO) potential bonus, as set forth above, is based on the achievement of the executive’s individual performance goals for the year. The individual goals are set at the beginning of the year and are based on each executive’s role with the Company and to closely correlate to the Company’s strategic goals for 2016. Our CEO’s annual cash incentive for 2016 is based only on the achievement of Company performance targets.

 

Mr. Koven’s individual goals primarily related to his role as President and Chief Business Officer, including business development, management of Tribute Canada, implementation of supply chain organization, support for Regulatory Affairs, management of the Ireland subsidiary, and ensuring manufacture of sufficient quantities of Yosprala for launch.

 

Mr. Charles’ individual goals primarily related to his role as Chief Financial Officer, including management of financial reports, guidance, and budgeting, building presence and credibility with the investor/analyst community, implementation of a ERP system to facilitate reporting and analysis, and ensuring that the Company has adequate access to capital.

 

36



 

Dr. Tursi’s individual goals primarily related to his role as Chief Medical Officer, including support of the Fibricor launch, gaining FDA approval of Yosprala and preparation for the Yosprala launch, development of a Medical Science Liaison organization, and development of a global safety structure to support the Fibricor and Yosprala launches

 

Mr. Glickman’s individual goals primarily related to his role as Chief Commercial Officer, including achievement of net revenue targets for Fibricor and Yosprala, development of best-in-class launches of Fibricor and Yosprala, and the hiring and management of the sales team.

 

2016 Performance

 

In the first quarter of 2017, our Compensation Committee reviewed 2016 performance and determined the level of achievement of the performance goals for the annual incentive bonuses and the individual performance of each of our named executive officers other than the CEO. The actual results with respect to 2016 Company performance are set forth below:

 

Company Operating Metric

 

Actual
Performance
(in millions)

 

Percentage of
Target

 

Net Revenues

 

$

56.9

 

108.36

%

Adjusted EBITDA

 

$

(41.7

)

270.31

%

Adjusted Net Income

 

$

(44.1

)

300.00

%

Total Achievement (as percentage of target):

 

 

 

196.76

%

 

With respect to individual performance, our Compensation Committee determined that Mr. Koven achieved 125% of his individual objectives; Mr. Charles achieved 124% of his individual objectives; Dr. Tursi achieved 118% of his individual objectives; and Mr. Glickman achieved 85% of his individual objectives. Based on the Company and individual performance for 2016, Mr. Adams would have been entitled to an annual incentive bonus equal to 196.76% of his target bonus; Mr. Koven would have been entitled to 178.82%; Mr. Charles would have been entitled to 178.57%; Dr. Tursi would have been entitled to 177.07%; and Mr. Glickman would have been entitled to 168.82%.

 

Notwithstanding the higher achievements of our named executive officers under the 2016 pre-determined performance metrics, the Compensation Committee and our management have determined that the annual incentive bonuses earned under the 2016 formula should be adjusted downward in order to achieve a greater degree of alignment with our shareholders. Our Compensation Committee and management agreed that the annual cash incentive awards would be paid out only at the target level for all of our named executive officers (for Mr. Glickman, the annual cash incentive award would be paid at target for the Company performance factor, and at his actual level of achievement for his individual objectives), rather than the higher level resulting from the use of the 196.76% Company performance factor and each individual named executive officer’s actual level of individual performance. As a result of this determination, the annual cash incentive awards earned by many of our named executive officers is close to half of the amount they would have been entitled to receive under the pre-determined formula. In addition, Mr. Adams and Mr. Koven have agreed to remove themselves from eligibility for a cash bonus under the Annual Incentive Bonus Plan with respect to the 2017 performance period. The significant reduction in annual cash incentive awards earned and the foregoing by Mr. Adams and Mr. Koven of their eligibility to receive cash bonuses for 2017 under the Annual Incentive Bonus Plan shows the commitment by the Compensation Committee and management to align our executive compensation program with the interests of our shareholders to a very significant degree. We note that annual incentive bonus is only one component of executive pay. The long-term equity incentive portion of executive pay is already fully aligned with the interests of our shareholders.

 

The amount each named executive would have been entitled to under the actual 2016 results and the actual amount paid to each named executive officer is set forth below:

 

Named Executive Officer

 

2016 Annual Cash
Incentive — Actual
Results

 

 2016 Annual Cash
Incentive — Amount
Paid

 

Adrian Adams

 

$

1,377,320

 

$

700,000

 

Andrew I. Koven

 

$

603,518

 

$

337,500

 

Scott J. Charles

 

$

321,426

 

$

180,000

 

James P. Tursi, MD

 

$

318,726

 

$

180,000

 

Mark A. Glickman

 

$

292,481

 

$

166,861

 

 

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Long-Term Incentive Compensation

 

Long-term equity-based incentive compensation is a key element of the Aralez executive compensation program.  Equity-based incentive compensation ties a significant portion of compensation to Company performance by linking a significant portion of the executive’s total pay opportunity to the price of our Common Shares. The long-term equity-based compensation package granted to our executives is composed of stock options, time-based RSUs, and performance-based restricted stock units (“PSUs”), in the proportions set forth below:

 

Stock
Options

 

RSUs

 

PSUs

 

20

%

30

%

50

%

 

Our Compensation Committee grants these types of awards together in order to balance the goals of retention and pay-for-performance.

 

Stock Options:

 

Stock options vest in equal installments on a monthly basis over a four-year vesting period, and have an exercise price equal to the fair market value of our Common Shares on the date of grant. Accordingly, the actual value an executive will realize is tied to future stock appreciation and is therefore aligned with corporate performance and shareholder returns.

 

 

 

Restricted Stock Units:

 

RSUs vest in equal annual installments over a three year vesting period. RSUs ensure that each of our executives is a true owner of the Company and help to retain our executives over the vesting period.

 

 

 

Performance-Based Restricted Stock Units:

 

PSUs vest at the end of a three-year performance period based on the achievement of pre-determined performance goals. Our Compensation Committee granted PSUs to our named executive officers in Fiscal Year 2016 with a three-year relative total shareholder return as the performance goal (measured against companies in the NASDAQ biotechnology index with annual revenue between $50 million and $500 million). Target performance (TSR in the 50th percentile) will pay out the target number of PSUs, while threshold performance (TSR in the 25th percentile) will pay out 50% of the PSUs, performance above target (TSR in the 75th percentile) will pay out 150%, and stretch performance (TSR in the 90th percentile) will pay out 200%. PSUs motivate our executives by providing them an opportunity to increase their compensation for extraordinary performance and align the interests of our executives with the interests of our shareholders.

 

Our named executive officers were granted equity awards on March 17, 2016, with the following value (at the target level):

 

Named Executive Officer

 

Stock Options(1)

 

RSUs(1)

 

PSUs(1)

 

Adrian Adams

 

$

315,000

 

$

472,500

 

$

787,500

 

Andrew I. Koven

 

$

157,500

 

$

236,250

 

$

393,750

 

Scott J. Charles

 

$

120,000

 

$

180,000

 

$

300,000

 

James P. Tursi, MD

 

$

120,000

 

$

180,000

 

$

300,000

 

Mark A. Glickman

 

$

115,500

 

$

173,250

 

$

288,750

 

 


(1)         Grant date fair value of stock options was determined using a Black-Scholes model. The grant date fair value of RSUs and PSUs was determined using the “face value” of these awards, based on the closing price of our stock on NASDAQ on the date of grant (although, for accounting purposes and in the Summary Compensation Table, the PSUs will be subject to a “Monte Carlo” simulation).

 

Procedures and Policies for Granting Equity-Based Awards

 

Our Compensation Committee approves the grant of all equity and equity-based awards to our CEO and other executive officers, as well as to the non-employee members of our Board. Equity awards to our named executive officers for Fiscal Year 2016 were granted in March on the second clear trading day following the end of our year-end blackout period. In all cases, stock options are granted at exercise prices equal to the closing price of our Common Shares as reported on NASDAQ on the date of grant.

 

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New-hire grants for our executive officers are approved by our Compensation Committee prior to employment. As permitted under the 2016 Plan, our Compensation Committee delegated to the CEO the authority to grant stock options and RSUs to new non-executive officer employees upon commencement of employment in accordance with a specified schedule of numbers of stock options or RSUs per grant, based on hiring position.

 

During 2015, in connection with the hiring of our new management team, the Pozen Board and Compensation Committee granted certain sign-on RSU awards to Messrs. Adams, Koven, Charles and Glickman and Dr. Tursi, which vest in equal installments on the first four anniversaries of the date of grant. RSU awards were also granted to Mr. Charles, Dr. Tursi and Mr. Glickman during 2016 as additional sign-on awards, described in further detail below in the section of this Compensation Discussion and Analysis entitled “Additional Sign-On Equity Awards to Mr. Charles, Dr. Tursi, and Mr. Glickman” and also in the narrative accompanying the Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table.

 

Other Benefits

 

Benefits offered to our named executive officers serve as a safety net of protection against financial catastrophes that can result from illness, disability or death. Benefits offered to our named executive officers are substantially the same as those offered to all of our regular full-time employees. We maintain a 401(k) plan for our employees, including our named executive officers, to encourage our employees to save some portion of their cash compensation for their eventual retirement. Effective April 1, 2016, we match 50% of the first 6% of an employee’s eligible earnings in the 401(k) plan. Effective January 1, 2017, the 401(k) match was capped at $12,000. We generally do not provide substantial perquisites to our executives. In addition, we offer tax preparation services for our named executive officers who are primarily located in the United States but are required to file tax returns in Canada. We also reimburse our named executive officers for the Canadian Pension Payment that they are required under Canadian law to pay, despite being ineligible to receive Canadian pension benefits, and we provide a tax equalization payment to reimburse these named executive officers for Canadian, US and state taxes that apply to such payment.

 

Post-Employment Benefits

 

Providing reasonable severance benefits to our named executive officers in the context of termination by us without cause or by the executive for good reason (as defined in their employment agreements), either in connection with a change of control or otherwise, is an important part of maintaining a competitive executive compensation program and contributes to our ability to attract and retain high quality executives. In part, this reflects a recognition that it may be difficult for a senior executive to find a comparable position in a relatively short period of time following termination of employment. Providing reasonable protections to our named executive officers in the event of a change of control is helpful in aligning our executives’ interests with those of our shareholders in the event a potential change of control situation should occur.

 

Pozen entered into employment agreements with our named executive officers when they were initially hired by Pozen. These agreements require that we provide severance and related benefits in the event of a termination of employment or a change of control. In connection with negotiating these provisions in our executives’ employment agreements, the Pozen Compensation Committee received advice from its legal and compensation consultants as to practices and levels of such benefits among comparable companies. These provisions and benefits, as well as an estimate of the dollar value of these benefits that would be payable to our executive officers under specified assumed conditions are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control.”

 

We do not offer post-employment health or life insurance to our named executive officers other than the continuation of medical benefits for a period following certain terminations (subject to payment of active employee rates) pursuant to their employment agreements.

 

Additional Sign-On Equity Awards to Mr. Charles, Dr. Tursi, and Mr. Glickman

 

During 2015, we entered into employment agreements with several new executives, including Mr. Charles, Dr. Tursi, and Mr. Glickman. These three executives each received a sign-on grant of 29,137 RSUs upon their engagement by Pozen, which vest on an annual basis ratably over four years, subject to their continued service through the applicable vesting dates. The size of the sign-on RSU grants was determined through negotiation with the executives. During the negotiations with Mr. Charles, Dr. Tursi, and Mr. Glickman, the Pozen Compensation Committee recognized that any equity-based awards granted to the executives prior to the Tribute Transaction would be subject to the 15% excise tax imposed by Section 4985 of the Code. As described in further detail in the section of this Compensation Discussion and Analysis entitled “Compensation Issues Related to the Tribute Transaction and Formation of Aralez—Section 4985 Tax Equalization”, the Pozen Board determined that Mr. Charles, Dr. Tursi, and Mr. Glickman would receive an equalization payment to cover the amount of the excise tax and any additional taxes attributable to the equalization.

 

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In addition, in order to lower the costs associated with the sign-on RSU grants, the Pozen Compensation Committee only granted 25% of the total number of RSUs that were intended to be eventually granted to Mr. Charles, Dr. Tursi, and Mr. Glickman at the time of hire, with the understanding that the additional 75% of the intended sign-on RSU award would be granted on or about the one-year anniversary of employment. None of Mr. Charles, Dr. Tursi, or Mr. Glickman had a legal, contractual, or enforceable right to any additional equity grants, and neither Pozen nor Aralez was obligated to grant additional RSUs to Mr. Charles, Dr. Tursi, or Mr. Glickman. Since the completion of the Tribute Transaction was delayed past the originally anticipated closing date, and the price of Pozen common stock fell between the executives’ dates of hire and the closing date, the Aralez Compensation Committee determined that the costs associated with the sign-on RSUs would be significantly lower than originally anticipated, and that the additional sign-on RSU award would provide retention and incentive benefits to Mr. Charles, Dr. Tursi, and Mr. Glickman and should not be further delayed. On February 12, 2016, the Aralez Compensation Committee granted each of Mr. Charles, Dr. Tursi, and Mr. Glickman an additional sign-on grant of 86,863 RSUs (the additional 75% of the award referred to above), which vest in four equal installments on the first, second, third and fourth anniversary of the executive’s date of hire, and agreed to provide a tax equalization payment with respect to the additional sign-on grant, as described above.

 

The terms of the employment agreements entered into with Mr. Charles, Dr. Tursi, and Mr. Glickman are included in the narrative accompanying the Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table and the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

Compensation Matters Related to the Tribute Transaction and Formation of Aralez

 

During Fiscal Year 2015, the Pozen Board and Compensation Committee paid close attention to the executive compensation matters that arose as a result of the Tribute Transaction. Retaining critical members of our management team through the closing of the Tribute Transaction was key to the success of the transaction and formation of Aralez. Pozen’s Board and Compensation Committee took steps to encourage the retention of these individuals, and considered the increased tax burden on our named executive officers relative to the other shareholders due to the structure of the Tribute Transaction.

 

Section 4985 Tax Equalization

 

Section 4985 of the Code imposes a 15% excise tax on the value of certain equity compensation held during the period commencing six months before and ending six months after the closing of the Tribute Transaction by individuals who are and/or were directors and executive officers of Pozen and are or were subject to the reporting requirements of Section 16(a) of the Exchange Act during the same period. This excise tax applies to all compensation (or rights to compensation) granted to such persons by Pozen if the value of such compensation or right is based on (or determined by reference to) the value of stock in Pozen or its affiliates (but excluding statutory incentive stock options and holdings in tax-qualified plans). This includes: (i) unexercised vested or unvested time-based and performance-based nonqualified stock options; (ii) unvested restricted stock; (iii) unvested RSUs; and (iv) other stock-based compensation held by such persons during this 12-month period. The excise tax, however, does not apply to any stock option that is exercised on or prior to the closing date of the Tribute Transaction or any other stock compensation that is distributed, cashed-out, or otherwise paid in a manner resulting in income inclusion (for U.S. purposes) prior to the closing of the Tribute Transaction.

 

The Pozen Board carefully considered the potential impact of the excise tax on Pozen’s executive officers and directors at the time it approved the Tribute Transaction and reviewed the approach taken by other issuers in similar transactions, including in transactions where executive officers and directors were reimbursed for excise tax applicable as a result of the transaction. The financial analysis considered by the Pozen board of directors at the time the Tribute Transaction was approved included an estimate of potential excise tax equalization payments.

 

The Pozen Compensation Committee held several meetings to consider the excise tax matter. Under the current understanding of Section 4985 of the Code, the Pozen Compensation Committee determined that there were four viable alternatives with respect to the treatment of the excise tax payable by the executive officers and directors:

 

·                              Provide an equalization payment to the Pozen executive officers and directors for the amount of the excise tax and for any additional taxes attributable to equalization.  We refer to these payments as tax equalization payments. Providing the Pozen executives and directors with a tax equalization payment would have the highest cost to Pozen but would ensure that all of the incentive and retention aspects of the equity awards remain in place.

 

·                              Accelerate the vesting for some or all of the outstanding awards.  Accelerating the vesting of some or all of the Pozen stock options and RSUs would reduce the value of the equity compensation subject to the excise tax. Pozen could then reimburse the excise tax and additional taxes attributable to equalization for only awards that are not accelerated. This alternative would reduce the tax equalization payments and lower the cost to Pozen, but would also reduce the incentive and retention value of the awards.

 

40



 

·                              Convert outstanding awards into cash-based awards not tied to the performance of Pozen stock.  This alternative would eliminate those new awards from the applicability of the excise tax, but only if the Tribute Transaction closed more than six months after the conversion of the awards and Pozen would still be required to make significant cash payments at the time of vesting.

 

·                              Take no action at all.  While there would be no cash cost to Pozen, this alternative would result in the Pozen executive officers and directors being subject to the 15% excise tax, and not receiving the intended benefits of the awards, and indeed being unfairly penalized financially, as a result of the imposition of an excise tax that was not contemplated when many of the awards were issued.

 

Based upon the advice of its independent advisers, as well as reports from management of Pozen, including an examination of the potential impact of the excise tax on Pozen’s executive officers and directors, the Pozen Compensation Committee determined to take the following actions: (i) accelerate the vesting of the outstanding equity awards for the legacy Pozen employees; (ii) provide a tax equalization payment for the new management team officers (including Messrs. Adams, Koven, Charles and Glickman and Dr. Tursi); (iii) provide a tax equalization payment to executive officers hired prior to May 31, 2015 and directors for any vested stock options that are “underwater” at the completion of the Tribute Transaction (i.e., the strike price is above the stock price on the day of the transaction); and (iv) provide a tax equalization payment to the directors for outstanding unvested RSUs that are being assumed and converted. The Pozen Compensation Committee determined this would be appropriate for the following reasons:

 

·                              There should be no financial penalty to the executive officers and non-employee directors.  Since the Tribute Transaction was pursued for the benefit of all of Pozen’s shareholders, the Pozen Compensation Committee determined that the executive officers should not be financially penalized, relative to Pozen’s shareholders in general, for either their efforts to complete the Tribute Transaction or their mere status as individuals covered by Section 4985 of the Code. The Pozen executive officers and directors were responsible for consummating the Tribute Transaction, which should benefit Pozen’s shareholders, and they should not be penalized for creating these benefits. The tax equalization payments will put the Pozen executive officers and directors in the same net after tax position they would have been in if no such excise tax had been applied. All Pozen executive officers and directors will still be subject to applicable income and capital gains taxes on these equity awards when due.

 

·                              The awards held by the recently hired executive officers were meant to retain their services. Acceleration of these awards could avoid any potential excise tax, but would not serve to retain these executives. It is vital for Aralez to retain the services of these highly skilled executives in order to realize the strategic benefits of the Tribute Transaction. If these executives were forced to pay the excise tax on their recently granted equity awards, Pozen and Aralez would need to offer additional incentives to make up for the loss of compensation, or else risk losing these talented executives during a key time for the company.

 

·                              Converting the awards into cash-based awards was not appropriate.  This would require a large outlay of cash at the time of the ultimate payment of the awards and would not provide the intended benefit if the Tribute Transaction closed prior to the end of Fiscal Year 2015 as originally anticipated (in which event the excise tax still would be payable, notwithstanding the conversion of the awards).

 

·                              Acceleration for legacy officers would reduce the potential tax equalization payments.  This split approach, acceleration of some awards and tax equalization payments for other awards, provides a good balance between reducing the cash costs payable and maintaining a significant portion of the outstanding equity awards for both long-term incentive and retention purposes. The Pozen Compensation Committee estimated that the acceleration of the awards held by legacy officers would reduce the aggregate tax equalization payments by approximately $0.6 million.

 

For all new executive officers and non-employee directors, the Pozen Compensation Committee and Board approved the payment by Pozen of a tax equalization payment in the amount of the excise tax payable with respect to the equity compensation that remained unvested as of the closing of the Tribute Transaction, and the additional sign-on RSUs granted in February 2016, as well as any additional taxes payable by the current executive officers as a result of equalization. The Pozen Compensation Committee and Board also approved the payment of tax equalization payments to the legacy executive officers and directors for the excise tax and the attendant related taxes for any vested stock options that were underwater at the time of the completion of the Tribute Transaction.

 

41



 

At the special meeting of Pozen stockholders to approve the Tribute Transaction, Pozen held a shareholder advisory vote to approve certain compensatory arrangements between Pozen and its named executive officers relating to the Tribute Transaction, which included disclosure of the excise tax equalization payments. Approximately 77% of Pozen’s shareholders voted to approve these compensatory arrangements, including the excise tax equalization payments.

 

The Tribute Transaction closed on February 5, 2016, which triggered the excise tax on awards held by our named executive officers and additional awards granted during the six months following the closing of the transaction. The total tax equalization payment provided to our named executive officers during 2016 is detailed in the following table:

 

Named Executive Officer

 

Tax Equalization
Payment

 

Adrian Adams

 

$

5,070,389

 

Andrew I. Koven

 

$

4,213,206

 

Scott J. Charles

 

$

534,580

 

James P. Tursi, MD

 

$

534,580

 

Mark A. Glickman

 

$

524,563

 

 

Share Ownership Guidelines

 

Employee ownership is a core component of our operating culture, and we believe that share ownership encourages our executives to create value for our shareholders over the long term, and promotes retention and affiliation with the Company by allowing our employees to share in our long-term success while aligning employee and executive interests with those of our shareholders. To reflect this commitment to employee ownership, we have adopted share ownership guidelines, which require the CEO to hold shares with a value equal to six times base salary, as well as a share retention policy for all named executive officers, which requires such officers to retain at least 50% of the total equity credited from grants of equity awards (net of amounts required to pay taxes and exercise prices) while such individual remains a named executive officer. As of December 31, 2016, Mr. Adams owned Common Shares with a value greater than nine times his 2016 base salary. We expect that the members of our management team will comply with the share retention policy as their equity awards vest.

 

Anti-Hedging/Anti-Pledging Policy

 

Certain short-term or speculative transactions in our securities by directors or executive officers create the potential for heightened legal risk and/or appearance of improper or inappropriate conduct involving our securities. As a result, we do not allow any director or executive officer to hedge the economic risk of his or her ownership of Common Shares, which includes entering into any derivative transaction on Aralez securities (e.g., any short-sale, forward, option, collar). Further, we do not allow any director or executive officer to pledge Aralez securities at any time, which includes having Aralez securities in a margin account or using Aralez securities as collateral for a loan.

 

Clawback of Incentive Compensation

 

Our Board adopted an incentive-based compensation recovery policy that applies to all executives, including the named executive officers. The policy relates to the recoupment of incentive compensation awarded to these executives if there is a restatement of published financials.

 

Tax and Accounting Implications

 

In setting elements of compensation, our Compensation Committee considers the impact of the following tax and accounting provisions:

 

·                              Section 162(m).  In making compensation decisions, our Compensation Committee is mindful of the potential impact of Section 162(m) of the Code, which generally disallows a tax deduction to public companies for certain compensation over $1 million paid in any year to its chief executive officer and its three most highly compensated executive officers (other than its chief executive officer and chief financial officer). Qualifying performance-based compensation is not subject to this deduction limit if certain requirements are met. Our Compensation Committee generally seeks, where feasible, to structure the incentive compensation granted to our named executive officers in a manner that is intended to minimize or eliminate the impact of Section 162(m) of the Code. However, the Compensation Committee may at times elect to make awards that are subject to the Section 162(m) deduction limit, such as time-based RSUs or cash awards when it believes that such awards are appropriate to attract and retain top-quality executives or otherwise achieve its compensation objectives.

 

42



 

Also, under Section 162(m)(4)(G) of the Code, the $1 million compensation deduction limitation referenced above is reduced (but not below zero) by the amount of any payment made directly or indirectly by Aralez of the excise tax imposed on those employees under Section 4985 of the Code. As discussed above in the section of this Compensation Discussion and Analysis entitled “Compensation Issues Related to the Tribute Transaction and Formation of Aralez—Section 4985 Tax Equalization,” our named executive officers became eligible to receive a payment following the completion of the Tribute Transaction. Our Compensation Committee considered the impact of the tax equalization payments on the deduction limitation under Section 162(m) of the Code, but determined that the tax equalization payments are appropriate.

 

·                              Section 409A.  Section 409A of the Code, which governs the form and timing of payment of deferred compensation, generally changes the tax rules that affect most forms of deferred compensation that were not earned and vested prior to 2005. It also expands the types of compensation that are considered deferred compensation subject to these regulations. Section 409A imposes sanctions, including a 20% penalty and an interest penalty, on the recipient of deferred compensation that does not comply with Section 409A. Our Compensation Committee considers the potential implications of Section 409A of the Code in determining the form and timing of compensation awarded to our executives.

 

·                              Sections 280G and 4999.  No employment agreement executed since January 1, 2009 provides for a gross-up payment to reimburse the executive for certain excise taxes imposed under Section 4999 of the Code as well as additional taxes resulting from such reimbursement, and there is no gross-up payment provision in the employment agreements with our named executive officers.

 

·                              Accounting Rules.  Various rules under generally accepted accounting principles determine the manner in which grants for equity-based and other compensation are accounted for in our financial statements. Aralez records compensation expenses with respect to equity awards in accordance with FASB ASC Topic 718. Among the factors it has considered when making compensation decisions for our named executive officers, our Compensation Committee has taken into account the accounting treatment under FASB ASC Topic 718 of equity-based and alternative forms of compensation.

 

43



 

Summary Compensation Table (for fiscal years 2016 and 2015)

 

The following table summarizes the total compensation paid to or earned by, or with regard to stock awards and options, the grant date fair value of such awards granted during the fiscal years ended December 31, 2016 and 2015 to our named executive officers. None of our named executive officers were named executive officers in 2014.

 

Name and Principal Position(1)

 

Year

 

Salary
($)

 

Bonus
($)(2)

 

Stock
Awards
($)(3)

 

Option
Awards
($)(3)

 

Non-Equity
Incentive
Plan
Compensation
($)(4)

 

All Other
Compensation
($)

 

Total
($)

 

Adrian Adams

 

2016

 

 

700,000

 

 

 

1,373,981

 

 

174,666

 

 

700,000 

 

 

5,085,997

(5)

 

8,034,644

 

Chief Executive Officer

 

2015

 

 

410,217

 

 

 

14,858,944

 

 

 

408,333

 

 

197,882

 

 

15,875,376

 

Andrew I. Koven

 

2016

 

 

450,000

 

 

 

686,557

 

 

87,277

 

 

337,500

 

 

4,229,174

(6)

 

5,790,508

 

President and Chief

 

2015

 

 

264,383

 

 

 

11,281,789

 

 

 

196,875

 

 

221,919

 

 

11,964,966

 

Business Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott J. Charles

 

2016

 

 

400,000

 

 

 

1,014,194

 

 

66,540

 

 

180,000

 

 

545,688

(7)

 

2,206,422

 

Chief Financial Officer,

 

2015

 

 

175,572

 

 

400,000

 

 

355,471

 

 

 

77,500

 

 

 

1,008,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James P. Tursi, MD

 

2016

 

 

400,000

 

 

 

1,014,194

 

 

66,540

 

 

180,000

 

 

544,631

(8)

 

2,205,365

 

Chief Medical Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark A. Glickman

 

2016

 

 

385,000

 

 

 

994,134

 

 

63,989

 

 

166,861

 

 

536,653

(9)

 

2,146,637

 

Chief Commercial Officer

 

2015

 

 

204,321

 

 

200,000

 

 

362,464

 

 

 

90,956

 

 

9,660

 

 

867,401

 

 


(1)         Mr. Adams and Mr. Koven joined Pozen on May 31, 2015. Mr. Charles joined Pozen on July 27, 2015 as Senior Vice President, Finance, and was appointed Chief Financial Officer effective January 1, 2016. Mr. Glickman joined Pozen on June 22, 2015. Dr. Tursi joined Pozen on October 1, 2015, and was not a named executive officer with respect to 2015.

 

(2)         The amounts included in this column are the sign-on awards paid to Mr. Charles and Mr. Glickman at the time of hire.

 

(3)         The amounts included in this column are the dollar amounts representing the full grant date fair value of each stock option, RSU or PSU award, as applicable, calculated in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures), and do not represent the actual value that may be recognized by the named executive officers upon option exercise or settlement of the RSU or PSU award. For stock options, amounts are computed by multiplying the fair value of the award (as determined under the Black-Scholes option pricing model) by the total number of options granted. For RSUs, fair value is computed by multiplying the total number of shares subject to the award by the closing market price of Common Shares on the date of grant. For PSUs, fair value is based on the Monte Carlo valuation model, and the amount disclosed in this column is based on the probable outcome of the performance conditions. The following amounts represent the maximum potential PSU value by individual for fiscal 2016 (based on the value of Common Shares on the date of grant): Mr. Adams: $1,802,962; Mr. Koven: $900,912; Mr. Charles: $686,838; Dr. Tursi: $686,838; and Mr. Glickman: $660,512. For information on the valuation assumptions used in calculating the grant date fair value of stock options, see Note 12 to Aralez’s audited financial statements included in the 2016 Annual Report. For Mr. Charles, Dr. Tursi, and Mr. Glickman, the amounts set forth in the Stock Awards column for 2016 reflect both the RSU and PSU awards granted as part of 2016 compensation program and the additional sign-on RSU awards described above in the section titled “Additional Sign-On Equity Awards to Mr. Charles, Dr. Tursi, and Mr. Glickman.”

 

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(4)         For 2016, this amount represents the amount that was paid to our named executive officers under our Annual Incentive Bonus Plan. The amounts actually paid to each named executive officer are less than the amounts earned based on performance objectives identified at the beginning of the performance period. The results and final payouts with respect to 2016 are described above in the section titled “Compensation Discussion and Analysis — Elements of Compensation — Annual Cash Incentives .” The 2015 awards for Messrs. Adams, Koven, Charles and Glickman were guaranteed at the target level, pro-rated for the portion of Fiscal Year 2015 in which they were employed by Pozen.

 

(5)         This amount includes $12,000 in employer matching contributions to Mr. Adams’ 401(k) plan, $3,605 in tax equalization payments related to the Canadian Pension Payment,  and $5,070,389 in tax equalization payments related to the excise tax under Section 4985 of the Code.

 

(6)         This amount includes $12,000 in employer matching contributions to Mr. Koven’s 401(k) plan, $3,968 in tax equalization payments related to the Canadian Pension Payment,  and $4,213,206 in tax equalization payments related to the excise tax under Section 4985 of the Code.

 

(7)         This amount includes $9,000 in employer matching contributions to Mr. Charles’ 401(k) plan, $2,108 in tax equalization payments related to the Canadian Pension Payment,  and $534,580 in tax equalization payments related to the excise tax under Section 4985 of the Code.

 

(8)         This amount includes $9,503 in employer matching contributions to Dr. Tursi’s 401(k) plan, $548 in tax equalization payments related to the Canadian Pension Payment,  and $534,580 in tax equalization payments related to the excise tax under Section 4985 of the Code.

 

(9)         This amount includes $11,665 in employer matching contributions to Mr. Glickman’s 401(k) plan, $425 in tax equalization payments related to the Canadian Pension Payment,  and $524,563 in tax equalization payments related to the excise tax under Section 4985 of the Code.

 

45



 

Grants of Plan-Based Awards in 2016

 

The following table provides additional information about awards granted to our named executive officers in 2016.

 

 

 

 

 

 

 

 

 

Estimate Future Payouts Under Non-
Equity
 Incentive Plan Awards (2)

 

Estimated Future Payouts Under
Equity Incentive Plan Awards (3)

 

All Other
Stock
Awards:
Number of
Shares of
Stock or

 

All Other
Option
Awards:
Number of
Securities
Underlying

 

Exercise
or Base
Price of
Option

 

Grant Date
Fair Value
of Stock
and
Option

 

Name

 

Award
Type
(1)

 

Grant
Date

 

Date of
Action

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

Units
(#)(4)

 

Options
(#)(5)

 

Awards
($/Sh)

 

Awards
($)(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adrian Adams

 

AIC

 

 

 

3/8/2016

 

 

525,000

 

 

700,000

 

 

2,100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPT

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105,251

 

 

3.80

 

 

315,000

 

 

 

RSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

124.342

 

 

 

 

 

 

472,500

 

 

 

PSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

103,619

 

207,237

 

414,474

 

 

 

 

 

 

 

 

901,481

 

Andrew I. Koven

 

AIC

 

 

 

3/8/2016

 

 

253,125

 

 

337,500

 

 

1,012,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPT

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,592

 

 

3.80

 

 

157,500

 

 

 

RSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

62,132

 

 

 

 

 

 

236,250

 

 

 

PSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

51,777

 

103,553

 

207,106

 

 

 

 

 

 

 

 

450,456

 

Scott J. Charles

 

RSU

 

2/12/2016

 

2/12/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

86,863

 

 

 

 

 

 

490,776

 

 

 

AIC

 

 

 

3/8/2016

 

 

135,000

 

 

180,000

 

 

540,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPT

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,096

 

 

3.80

 

 

120,000

 

 

 

RSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

47,368

 

 

 

 

 

 

180,000

 

 

 

PSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

39,474

 

78,947

 

157,894

 

 

 

 

 

 

 

 

343,419

 

James P. Tursi, MD

 

RSU

 

2/12/2016

 

2/12/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

86,863

 

 

 

 

 

 

490,776

 

 

 

AIC

 

 

 

3/8/2016

 

 

135,000

 

 

180,000

 

 

540,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPT

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,096

 

 

3.80

 

 

120,000

 

 

 

RSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

47,368

 

 

 

 

 

 

180,000

 

 

 

PSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

39,474

 

78,947

 

157,894

 

 

 

 

 

 

 

 

343,419

 

Mark A. Glickman

 

RSU

 

2/12/2016

 

2/12/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

86,863

 

 

 

 

 

 

490,776

 

 

 

AIC

 

 

 

3/8/2016

 

 

129,938

 

 

173,250

 

 

519,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPT

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,559

 

 

3.80

 

 

115,500

 

 

 

RSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

45,553

 

 

 

 

 

 

173,250

 

 

 

PSU

 

3/17/2016

 

3/8/2016

 

 

 

 

 

 

 

37,961

 

75,921

 

151,842

 

 

 

 

 

 

 

 

330,256

 

 


(1)             Award types are as follows: AIC is an annual incentive cash award, OPT is a stock option, RSU is a restricted stock unit, and PSU is a performance-based restricted stock unit.

 

(2)             Each annual incentive cash award amount represents the individual’s current salary multiplied by their target bonus opportunity. The material terms of the annual cash incentive awards, including the actual results and individual payouts for 2016, are described above in the section titled “Compensation Discussion and Analysis — Elements of Compensation — Annual Cash Incentives.”

 

(3)             PSU awards cliff vest at the end of the performance period (December 31, 2018) based on the actual percentile ranking of Aralez’s total shareholder return compared to peer performance. The material terms of the PSU awards are described above in the section titled “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentive Compensation.”

 

(4)             The RSU awards granted on February 12, 2016 to Mr. Charles, Dr. Tursi and Mr. Glickman vest in four equal installments on the first, second, third and fourth anniversary of the executive’s date of hire. The RSU awards granted on March 17, 2016 vest in equal annual installments over a three year vesting period.

 

(5)             The stock option awards vest in equal installments on a monthly basis over a four-year vesting period.

 

(6)             The amounts included in this column are the dollar amounts representing the grant date fair value of each option, RSU, or PSU, as applicable, calculated in accordance with FASB ASC TOPIC 718 (excluding the effect of estimated forfeitures), and do not represent the actual value that may be recognized by the named executive officers upon option exercise or vesting of RSUs or PSUs. For PSUs, grant date fair value is based on the Monte Carlo valuation model, and the amount disclosed in this column is based on the probable outcome of the performance conditions.

 

Employment and Other Agreements

 

During Fiscal Year 2016, each of our named executive officers was employed pursuant to employment agreements with us. Each employment agreement specifies, among other things, the named executive officer’s initial base salary, bonus and equity opportunity, entitlement to participate in the company’s benefits plans and post-termination benefits and obligations. The post-employment benefits are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

Employment Agreement with Adrian Adams

 

Adrian Adams was appointed Chief Executive Officer on May 31, 2015. Under the terms of Mr. Adams’ employment agreement, which has an initial term of three years, he is entitled to (i) a base salary of $700,000, with annual increases, if any, to be made based on performance and in the sole discretion of the Board; (ii) an annual cash bonus, based on performance, payable in the discretion of the Compensation Committee, with a targeted amount of 100% of base salary; (iii) annual equity awards under the Company’s equity compensation plan with a target value of not less than 225% of his base salary (50% of which will vest ratably over four years and 50% of which will vest based on the achievement of performance criteria); (iv) a one-time sign-on equity award in the form of 1,944,888 RSUs, which vest in equal annual installments on the first four anniversaries of the date of grant; and (v) reimbursement of up to $100,000 for reasonable legal fees associated with negotiating his employment agreement. He will also receive a tax equalization payment for any taxes imposed by Section 4985 of the Code. In addition, Mr. Adams’ employment agreement provides for benefits if his employment is terminated under certain circumstances which are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

46



 

In March 2017, we amended Mr. Adams’ employment agreement to provide that he has agreed not to be eligible for a cash bonus under the Annual Incentive Bonus Plan with respect to the 2017 performance period, but that, for purposes of calculating any severance that he may become entitled to, his 2017 bonus will be deemed to have been paid at the target level.

 

Employment Agreement with Andrew I. Koven

 

Andrew I. Koven was appointed President and Chief Business Officer on May 31, 2015. Under the terms of Mr. Koven’s employment agreement, which has an initial term of three years, Mr. Koven will receive (i) an annual base salary of $450,000, with annual increases, if any, to be made based on performance and in the sole discretion of the Board; (ii) an annual cash bonus, based on performance, payable in the discretion of the Compensation Committee, with a targeted amount of 75% of base salary; (iii) annual equity awards under the Company’s equity compensation plan with a target value of not less than 175% of Mr. Koven’s base salary (50% of which will vest ratably over four years and 50% of which will vest based on the achievement of performance criteria); (iv) a one-time sign-on equity award in the form of 1,476,674 RSUs, which vest in equal annual installments on the first four anniversaries of the date of grant; (v) a tax equalization payment for any taxes imposed by Section 4985 of the Code; and (vi) reimbursement up to $100,000 for reasonable legal fees associated with negotiating his employment agreement. In addition, Mr. Koven’s employment agreement provides for benefits if his employment is terminated under certain circumstances which are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

In March 2017, we amended Mr. Koven’s employment agreement to provide that he has agreed not to be eligible for a cash bonus under the Annual Incentive Bonus Plan with respect to the 2017 performance period, but that, for purposes of calculating any severance that he may become entitled to, his 2017 bonus will be deemed to have been paid at the target level.

 

Employment Agreement with Scott J. Charles

 

Scott J. Charles was appointed Senior Vice President, Finance on July 27, 2015, and was been appointed Chief Financial Officer effective January 1, 2016. Under the terms of Mr. Charles’ employment agreement, which was effective as of July 27, 2015 and has an initial term of three years, Mr. Charles will receive (i) an annual base salary of $400,000, with annual increases, if any, to be made based on performance and in the sole discretion of the Compensation Committee; (ii) an annual cash bonus, based on performance, payable in the discretion of the Compensation Committee, with a targeted payout amount of 45% of Mr. Charles’ base salary; (iii) annual equity awards under the Company’s equity compensation plan with a target value of not less than 150% of Mr. Charles’ base salary; (iv) a one-time sign-on equity award in the form of 29,137 RSUs; (v) a signing bonus of $400,000; and (vi) a tax equalization payment for any taxes imposed by Section 4985 of the Code. In addition, Mr. Charles’ employment agreement provides for benefits if Mr. Charles’ employment is terminated under certain circumstances which are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

Employment Agreement with James P. Tursi

 

James P. Tursi, MD, was appointed Chief Medical Officer on October 1, 2015. Under the terms of Dr. Tursi’s employment agreement, which was effective as of October 1, 2015 and has an initial term of three years, Dr. Tursi will receive (i) an annual base salary of $400,000, with annual increases, if any, to be made based on performance and in the sole discretion of the Compensation Committee; (ii) an annual cash bonus, based on performance, payable in the discretion of the Compensation Committee, with a targeted payout amount of 45% of Dr. Tursi’s base salary; (iii) annual equity awards under the Company’s equity compensation plan with a target value of not less than 150% of Dr. Tursi base salary; (iv) a one-time sign-on equity award in the form of 29,137 RSUs; and (v) a tax equalization payment for any taxes imposed by Section 4985 of the Code. In addition, Dr. Tursi’s employment agreement provides for benefits if Dr. Tursi’s employment is terminated under certain circumstances which are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

Employment Agreement with Mark A. Glickman

 

Mark A. Glickman was appointed Chief Commercial Officer on June 19, 2015. Under the terms of Mr. Glickman’s employment agreement, which was effective as of June 22, 2015 and has an initial term of three years, Mr. Glickman will receive (i) an annual base salary of $385,000, with annual increases, if any, to be made based on performance and in the sole discretion of the Compensation Committee; (ii) an annual cash bonus, based on performance, payable in the discretion of the Compensation Committee, with a targeted payout amount of 45% of Mr. Glickman’s base salary; (iii) annual equity awards under the Company’s equity compensation plan with a target value of not less than 150% of Mr. Glickman’s base salary; (iv) a one-time sign-on equity award in the form of 29,137 RSUs; (v) a signing bonus of $200,000; and (vi) a tax equalization payment for any taxes imposed by Section 4985 of the Code. In addition, Mr. Glickman’s employment agreement provides for benefits if Mr. Glickman’s employment is terminated under certain circumstances which are described in the section of this Proxy Statement entitled “Potential Payments on Termination and Change of Control”.

 

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Outstanding Equity Awards at December 31, 2016

 

The following table summarizes the equity awards made to our named executive officers that had not been exercised and remained outstanding as of December 31, 2016.

 

 

 

Option Awards

 

Stock Awards

 

Name

 

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)

 

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)

 

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

 

Option
Exercise
Price
($)(1)

 

Option
Expiration
Date

 

Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)

 

Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)(2)

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units, or
Other Rights
That
Have Not
Vested
(2)

 

Adrian Adams

 

19,734

(3)

85,517

 

 

 

3.80

 

3/17/2026

 

1,458,666

(4)

 

6,432,717

 

 

 

 

 

 

 

 

 

 

124,342

(5)

 

548,348

 

 

 

 

 

 

 

 

 

 

 

 

103,619

(7)

 

456,960

 

Andrew I. Koven

 

9,861

(3)

42,731

 

 

 

3.80

 

3/17/2026

 

1,107,506

(4)

 

4,884,101

 

 

 

 

 

 

 

 

 

 

 

62,132

(5)

 

274,002

 

 

 

 

 

 

 

 

 

 

 

 

 

51,777

(7)

 

 

 

Scott J. Charles

 

7,518

(3)

32,578

 

 

 

3.80

 

3/17/2026

 

21,853

(4)

 

96,372

 

 

 

 

 

 

 

 

 

 

65,148

(6)

 

287,303

 

 

 

 

 

 

 

 

 

 

47,368

(5)

 

208,893

 

 

 

 

 

 

 

 

 

 

 

 

 

39,474

(7)

 

174,080

 

James P. Tursi, MD

 

7,518

(3)

32,578

 

 

 

3.80

 

3/17/2026

 

21,853

(4)

 

96,372

 

 

 

 

 

 

 

 

 

 

65,148

(6)

 

287,303

 

 

 

 

 

 

 

 

 

 

47,368

(5)

 

208,893