omer-def14a_20190607.htm

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant  

Filed by a Party other than the Registrant  

Check the appropriate box:

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under Rule 14a-12

OMEROS CORPORATION

(Name of Registrant as Specified In Its Charter)

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

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No fee required.

 

 

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

 

 

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Title of each class of securities to which transaction applies:

 

 

 

 

 

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Aggregate number of securities to which transaction applies:

 

 

 

 

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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):

 

 

 

 

 

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Fee paid previously with preliminary materials.

 

 

 

 

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.

 

 

 

 

 

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Date Filed:

 

 

 

 

 


 

April 29, 2019

Dear Fellow Shareholder:

You are cordially invited to attend the 2019 Annual Meeting of Shareholders of Omeros Corporation. The meeting will be held at the World Trade Center Seattle located at 2200 Alaskan Way, Suite 410, Seattle, Washington 98121, on Friday, June 7, 2019, at 10:00 a.m. local time.

The attached Notice of Annual Meeting of Shareholders and Proxy Statement contain details of the business to be conducted at the annual meeting.

Whether or not you attend the annual meeting, it is important that your shares be represented and voted. Therefore, please vote as soon as possible by telephone, via the Internet or by completing and mailing the enclosed proxy card. Voting by any of these methods will ensure your representation at the annual meeting. If you decide to attend the annual meeting, you will be able to vote in person even if you have previously submitted your proxy.

On behalf of our board of directors, I would like to express our appreciation for your continued support of Omeros. We look forward to seeing you at the annual meeting.

 

Sincerely,

 

GREGORY A. DEMOPULOS, M.D.

Chairman and CEO

 

 

 


 

OMEROS CORPORATION

The Omeros Building

201 Elliott Avenue West

Seattle, Washington 98119

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON JUNE 7, 2019

April 29, 2019

To our Shareholders:

We cordially invite you to the 2019 Annual Meeting of Shareholders, or the 2019 Annual Meeting, of Omeros Corporation, a Washington corporation, to be held on Friday, June 7, 2019, at 10:00 a.m. local time, at the World Trade Center Seattle, 2200 Alaskan Way, Suite 410, Seattle, Washington 98121, for the following purposes:

 

(1)

to elect the three Class I director nominees named in this proxy statement to the board of directors, each to serve until the 2022 Annual Meeting of Shareholders, and to elect the one Class III director nominee named in this proxy statement to the board of directors to serve until the 2021 Annual Meeting of Shareholders;

 

(2)

to approve an amendment and restatement of the Omeros Corporation 2017 Omnibus Incentive Compensation Plan;

 

(3)

to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and

 

(4)

to transact such other business as may properly come before the 2019 Annual Meeting or any adjournment or postponement thereof.

The foregoing items of business are more fully described in the proxy statement accompanying this notice.

Shareholders of record at the close of business on April 12, 2019 will be entitled to vote at the 2019 Annual Meeting, or any adjournment or postponement of the meeting.

The proxy statement accompanying this notice is being issued in connection with the solicitation by the board of directors of a proxy on the enclosed form of proxy card for use at the 2019 Annual Meeting.

We look forward to seeing you at the 2019 Annual Meeting.

 

By Order of the Board of Directors,

Marcia S. Kelbon

Vice President, Patent

General Counsel and Secretary

YOUR VOTE IS IMPORTANT

If you plan to attend the 2019 Annual Meeting, we encourage you to vote in advance of the meeting to ensure that your shares are represented at the meeting. You may vote prior to the 2019 Annual Meeting by mailing the proxy card in the enclosed postage-prepaid envelope, by telephone or via the Internet in accordance with the instructions on your proxy card. Even if you vote in advance of the 2019 Annual Meeting, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other holder of record and you wish to vote at the 2019 Annual Meeting, you must obtain from the record holder a proxy card issued in your name.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

2019 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 7, 2019

 

The proxy statement and the 2018 Annual Report to Shareholders are available at: www.edocumentview.com/OMER.

 

 

 

 


 

TABLE OF CONTENTS

 

 

  

Page

INFORMATION CONCERNING PROXY SOLICITATION, VOTING AND THE MEETING

  

1

PROPOSAL 1 — ELECTION OF DIRECTORS

  

4

CORPORATE GOVERNANCE

  

7

NON-EMPLOYEE DIRECTOR COMPENSATION

  

12

EXECUTIVE COMPENSATION

  

13

TRANSACTIONS WITH RELATED PERSONS

  

28

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  

29

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

  

30

PROPOSAL 2 — AMENDMENT AND RESTATEMENT OF THE OMEROS CORPORATION 2017 OMNIBUS INCENTIVE COMPENSATION PLAN

 

30

PROPOSAL 3 — RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

38

OTHER BUSINESS

  

41

APPENDIX A

 

A-1

 

 

 

 


 

OMEROS CORPORATION

The Omeros Building

201 Elliott Avenue West

Seattle, Washington 98119

PROXY STATEMENT FOR 2019 ANNUAL MEETING OF SHAREHOLDERS

INFORMATION CONCERNING PROXY SOLICITATION, VOTING AND THE MEETING

General

The enclosed proxy is solicited on behalf of the board of directors of Omeros Corporation for use at the 2019 Annual Meeting of Shareholders, or the 2019 Annual Meeting, of Omeros Corporation to be held on Friday, June 7, 2019, at 10:00 a.m. local time, or any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The 2019 Annual Meeting will be held at the World Trade Center Seattle, 2200 Alaskan Way, Suite 410, Seattle, Washington 98121.

This proxy statement, the enclosed proxy and the 2018 Annual Report to Shareholders, which includes audited financial statements as of and for the year ended December 31, 2018, will be mailed on or about April 29, 2019 to all shareholders entitled to vote at the 2019 Annual Meeting.

Record Date and Quorum

Shareholders of record at the close of business on April 12, 2019, which we refer to as the record date, are entitled to notice of and to vote their shares at the 2019 Annual Meeting. As of the record date, 49,037,987 shares of Omeros’ common stock, $0.01 par value per share, were issued and outstanding. Holders of shares of common stock are entitled to cast one vote per share on all matters to be voted upon at the 2019 Annual Meeting. The presence in person or by proxy of the holders of record of a majority of the outstanding shares of common stock entitled to vote is required to constitute a quorum for the transaction of business at the 2019 Annual Meeting.

Abstentions and broker non-votes (which occur when a broker lacks discretionary authority to vote uninstructed shares on a matter) are considered shares present at the 2019 Annual Meeting for the purpose of determining the existence of a quorum. The inspector of elections, Computershare Inc., will report the number of shares represented in person or by proxy at the meeting for purposes of determining whether or not a quorum is present at the 2019 Annual Meeting.

Proposals at the 2019 Annual Meeting

Shareholders are being asked to vote on the following proposals:

 

Proposal 1. Election to the board of directors of the three Class I director nominees named in this proxy statement, each to serve until the 2022 Annual Meeting of Shareholders, and the one Class III director nominee named in this proxy statement, to serve until the 2021 Annual Meeting of Shareholders;

 

Proposal 2. Approval of the amendment and restatement of the Omeros Corporation 2017 Omnibus Incentive Compensation Plan, or the 2017 Plan;

 

Proposal 3. Ratification of the appointment of Ernst & Young LLP, or Ernst & Young, as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and

 

Any other business that may properly come before the 2019 Annual Meeting or any adjournment or postponement thereof.

Our board of directors recommends you vote:

 

FOR the election of each of the director nominees named in this proxy statement;

 

FOR the approval of the amendment and restatement of the 2017 Plan;

 

FOR the ratification of the appointment of Ernst & Young as our independent registered public accounting firm for the fiscal year ending December 31, 2019.

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Votes Required

Proposal 1: Election of Directors

The three candidates for Class I director who receive the highest number of affirmative votes and the one candidate for Class III director who receives the highest number of affirmative votes will be elected. Shareholders are not entitled to cumulate votes for the election of directors.

Proposal 2: Amendment and restatement of the Omeros Corporation 2017 Omnibus Incentive Compensation Plan

The proposed amendment and restatement of the 2017 Plan will be approved if the number of votes cast in favor of this proposal exceeds the number of votes cast against this proposal.

Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm

The appointment of Ernst & Young as our independent registered public accounting firm will be ratified if the number of votes cast in favor of this proposal exceeds the number of votes cast against this proposal.

Abstentions and Broker Non-Votes

Abstentions will not be counted as votes cast for or against any of the proposals. Accordingly, abstentions will not affect the determination of the directors who have received the highest number of affirmative votes or whether the votes cast in favor of Proposals 2 and 3 exceed those cast against those proposals.

Brokers and other intermediaries who hold shares for the accounts of their clients may vote such shares either as directed by their clients or, in the case of “uninstructed shares,” in their own discretion if permitted by the applicable stock exchange regulations. Uninstructed shares for which brokers or other intermediaries lack voting discretion are referred to as “broker non-votes.” If your shares are held by a broker on your behalf and you do not instruct the broker as to how to vote your shares on Proposal 1 regarding the election of directors, or on Proposal 2, regarding the proposed amendment and restatement of the 2017 Plan, the broker may not exercise discretion to vote on the applicable proposal. Broker non-votes will not be counted as votes cast with respect to these proposals. Brokers may exercise discretion to vote for or against Proposal 3, the ratification of the appointment of our independent registered public accounting firm in the absence of your instruction. Brokers will have similar discretion to vote on any other routine proposals that are brought before the 2019 Annual Meeting.

How to Vote

If your shares are registered directly in your name with our transfer agent, Computershare Inc., you are considered the registered shareholder of those shares. Registered shareholders may cast their vote by:

 

(1)

signing, dating and promptly mailing the proxy card in the enclosed postage-paid envelope;

 

(2)

calling 1-800-652-VOTE (8683) using a touch-tone telephone;

 

(3)

accessing the website www.envisionreports.com/OMER; or

 

(4)

completing a ballot at the 2019 Annual Meeting.

If your shares are held in the name of a brokerage firm, bank or other holder of record, you are considered the beneficial shareholder with respect to those shares. If you are a beneficial shareholder, please refer to the voting instructions forwarded by your broker, bank or other holder of record to see what options are available to you to cast your vote. A beneficial shareholder may not vote shares in person at the 2019 Annual Meeting unless he or she obtains a “legal proxy” from the broker, bank or other holder of record with respect to his or her shares.

If you plan to attend the 2019 Annual Meeting, we encourage you to vote in advance of the meeting to ensure that your shares are represented at the meeting. Votes cast by proxy or in person at the 2019 Annual Meeting will be tabulated by a representative of Computershare Inc., the inspector of elections appointed for the meeting.

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Revoking a Proxy

A registered shareholder can revoke his or her proxy before the time of voting at the 2019 Annual Meeting by any of the following:

 

(1)

mailing a revised proxy card dated later than the prior proxy card;

 

(2)

submitting a new vote by telephone;

 

(3)

submitting a new vote via the Internet;

 

(4)

voting in person at the 2019 Annual Meeting; or

 

(5)

notifying our corporate secretary in writing that the proxy is revoked. The revocation must be received before the start of the 2019 Annual Meeting to be effective.

Any beneficial shareholder may change or revoke his or her voting instructions by contacting the broker, bank or other holder of record or by obtaining a proxy from such institution and voting in person at the 2019 Annual Meeting.

Attending the 2019 Annual Meeting

Only shareholders as of the close of business on April 12, 2019 (the record date), or holders of a valid proxy for the meeting, are entitled to attend the 2019 Annual Meeting. In order to gain admittance to the meeting, you may be asked to present photo identification, such as a driver’s license or passport, and proof of stock ownership as of the record date, such as a brokerage statement or letter from a bank or broker indicating beneficial ownership on the record date. We will not admit anyone to the meeting who does not present acceptable identification or ownership information upon request or refuses to comply with our admittance and security procedures. The use of cameras, recording devices and other electronic devices is prohibited at the 2019 Annual Meeting.

How to Obtain Directions to Attend the 2019 Annual Meeting

The 2019 Annual Meeting will be held on Friday, June 7, 2019, at 10:00 a.m. local time, at the World Trade Center Seattle, 2200 Alaskan Way, Suite 410, Seattle, Washington 98121. If you need directions to the meeting, please call Omeros’ investor relations department at (206) 676-5000.

Proxy Solicitation

This proxy statement is furnished in connection with the solicitation of your vote by the board of directors. We pay the costs of soliciting proxies from our shareholders. We may reimburse brokerage firms and other persons representing beneficial shareholders for their expenses in forwarding the voting materials to the beneficial shareholders. Directors, officers and regular employees may solicit proxies on our behalf personally, by telephone or by other electronic means without additional compensation. We also have retained Georgeson LLC for a fee of $10,000, plus customary costs and expenses, to assist us in the solicitation of proxies.

“Householding” of Proxy Materials

A copy of our 2018 Annual Report to Shareholders, including our 2018 Annual Report on Form 10-K, accompanies this proxy statement. If you are a beneficial shareholder, the bank, broker or other holder of record may deliver a single proxy statement and 2018 Annual Report to Shareholders, along with individual proxy cards or voting instruction forms, to any household at which two or more beneficial shareholders reside unless you have provided instructions to the contrary. This procedure, referred to as householding, reduces the volume of duplicate materials shareholders receive and reduces mailing expenses. If you would like to revoke your consent to householding and in the future receive your own set of proxy materials, or if your household is currently receiving multiple copies of the same items and you would like in the future to receive only a single copy at your address, you should contact your bank, broker or other holder of record. Alternatively, you may also contact our corporate secretary at (206) 676-5000 or send a written request to our corporate secretary at The Omeros Building, 201 Elliott Avenue West, Seattle, Washington 98119 to revoke your consent to householding or to receive a separate proxy statement and 2018 Annual Report to Shareholders.

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Shareholder Proposals for 2020 Annual Meeting

Under Rule 14a-8 under the Securities Exchange Act of 1934, or the Exchange Act, we must receive shareholder proposals intended for inclusion in our proxy statement for our 2020 Annual Meeting of Shareholders, or the 2020 Annual Meeting, at our principal executive offices at The Omeros Building, 201 Elliott Avenue West, Seattle, Washington 98119, no later than December 31, 2019. However, if the date of the 2020 Annual Meeting changes by more than 30 days from the date of the 2019 Annual Meeting, notice by a shareholder of a proposal must be received a reasonable time before we begin to print and send the proxy materials for the 2020 Annual Meeting.

We must receive shareholder proposals submitted for consideration at the 2020 Annual Meeting, but not for inclusion in our proxy statement for the 2020 Annual Meeting under Exchange Act Rule 14a-8, and director nominations at our principal executive offices at The Omeros Building, 201 Elliott Avenue West, Seattle, Washington 98119, no later than December 31, 2019. However, if the date of the 2020 Annual Meeting changes by more than 30 days from the date of the 2019 Annual Meeting, notice by a shareholder of such a proposal or a director nomination must be received no later than the close of business on the later of (a) 120 calendar days in advance of the 2020 Annual Meeting and (b) 10 calendar days following the date on which public announcement of the date of the 2020 Annual Meeting is first made.

In addition, notice of any shareholder proposal or director nomination must be given in accordance with our bylaws and the applicable requirements of Rule 14a-8 under the Exchange Act. If a shareholder fails to give notice of a proposal as required by our bylaws or other applicable requirements, then the proposal will not be included in the proxy statement for the 2020 Annual Meeting and the shareholder will not be permitted to present the proposal for a vote at the 2020 Annual Meeting.

 

 

PROPOSAL 1 — ELECTION OF DIRECTORS

Our board is divided into three classes, generally serving staggered three-year terms. In February 2019, in accordance with our bylaws, our board of directors increased its size from seven to eight members by designating an additional Class III director position and appointing Thomas F. Bumol, Ph.D. to fill the new position. Under the Washington Business Corporations Act directors who are appointed by the board to fill a newly created vacancy may serve a term ending at the next annual meeting of shareholders at which directors are elected. The terms of our directors will expire as set forth in the following table:

 

Omeros Board of Directors

 

Term Expires

Class I Directors

 

 

Ray Aspiri

 

2019

Arnold C. Hanish

 

2019

Rajiv Shah, M.D.

 

2019

Class II Directors

 

 

Thomas J. Cable

 

2020

Peter A. Demopulos, M.D.

 

2020

Class III Directors

 

 

Thomas F. Bumol, Ph.D.

 

2019

Gregory A. Demopulos, M.D.

 

2021

Leroy E. Hood, M.D., Ph.D.

 

2021

 

Following the recommendation of the nominating and governance committee, our board of directors has nominated for election at the 2019 Annual Meeting (i) our three current Class I directors, Ray Aspiri, Arnold C. Hanish and Rajiv Shah, M.D., for election as Class I directors, and (ii) Thomas F. Bumol, Ph.D., for election as a Class III director. If elected, the Class I director nominees would serve until the 2022 Annual Meeting of Shareholders and the Class III director nominee would serve until the 2021 Annual Meeting of Shareholders or, in each case, until his successor is duly elected and qualified, or until his earlier death, resignation or removal.

Nominees for Election as Directors at the 2019 Annual Meeting

Nominees for election as a Class I director for a term expiring at the 2022 Annual Meeting of Shareholders

Ray Aspiri, age 82, has served on our board of directors since January 1995 and previously served as our treasurer from January 1999 to September 2007. Mr. Aspiri has also served as chairman of our compensation committee since January 1995 and as a member of our nominating and governance and audit committees since September 2009 and July 2011, respectively. From his founding of the company in 1997 until its sale in December 2012, Mr. Aspiri served as the chairman of the board of Tempress Technologies, Inc., a privately held research and development company that specialized in high-pressure fluid dynamics for the oil and gas industry. From

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1980 to 1997, Mr. Aspiri served as the chairman of the board and chief executive officer of Tempress, Inc., a privately held company specializing in products for the truck, marine and sporting goods industries. Our nominating and governance committee has concluded that Mr. Aspiri should continue to serve on the board of directors based on his experience in founding and managing companies, his knowledge of commercial manufacturing and his prior experience serving on our board of directors and as chairman of our compensation committee. Mr. Aspiri has indicated an interest in potentially retiring from the board of directors before the conclusion of the term expiring at the 2022 Annual Meeting of Shareholders and has requested that we continue our ongoing search for additional director candidates to replace Mr. Aspiri should he elect to retire from our board of directors prior to the expiration of the term for which he has been nominated.

Arnold C. Hanish, age 71, has served on our board of directors and as chairman of our audit committee since September 2012. From 1994 until his retirement in December 2012, Mr. Hanish served as vice president and chief accounting officer at Eli Lilly and Company. Prior to his appointment as chief accounting officer, Mr. Hanish held a number of senior financial positions at Eli Lilly. Before Eli Lilly, Mr. Hanish held various positions at Arthur Young & Company (currently Ernst & Young) for nearly 14 years. Mr. Hanish currently is a member of the Deloitte and Touche Audit Quality Review Council. Mr. Hanish was a member of the Standing Advisory Group of the Public Company Accounting Oversight Board from 2004 through 2008 and from 2011 through 2012. In addition, from 2007 to 2010, he served as the chairperson of Financial Executives International’s Committee on Corporate Reporting. Mr. Hanish was inducted into the Financial Executives International Hall of Fame in 2016. Mr. Hanish earned his B.A. in accounting from the University of Cincinnati. Our nominating and governance committee has concluded that Mr. Hanish should continue to serve on the board of directors based on his experience in public company finance and accounting, reporting to the U.S. Securities and Exchange Commission, or SEC, management and corporate governance, his knowledge of the pharmaceutical and biotechnology industry and his experience as the chairman of our audit committee.

Rajiv Shah, M.D., age 46, has served on our board of directors since June 2015. Dr. Shah has served as the President of the Rockefeller Foundation since February 2017. From March 2015 to February 2017, Dr. Shah was the managing partner of Latitude Capital, an emerging markets private equity firm that he founded. Dr. Shah served as Administrator of the United States Agency for International Development, or USAID, from January 2010 to February 2015. Dr. Shah served as Undersecretary and Chief Scientist at the U.S. Department of Agriculture from May 2009 to January 2010, during which time he created the National Institute for Food and Agriculture. Prior to working in government, Dr. Shah worked in senior roles at the Bill & Melinda Gates Foundation, leading the Foundation’s efforts in global health, agriculture and financial services. Dr. Shah also serves on the board of trustees of the Rockefeller Foundation and is a Distinguished Fellow in Residence at Georgetown University, Edmund A. Walsh School of Foreign Service. From March 2015 to June 2017, Dr. Shah served on the board of directors of Arcadia Biosciences, Inc., a publicly traded agricultural technology company. Dr. Shah earned his M.D. from the University of Pennsylvania Medical School, his Master of Science in Health Economics at the Wharton School of Business and his Bachelor of Science in Economics from the University of Michigan. Our nominating and governance committee has concluded that Dr. Shah should continue to serve on the board of directors based on his experience in government, regulatory affairs, international development and strategic partnerships, as well as his scientific background.

Nominee for election as a Class III director for a term expiring at the 2021 Annual Meeting of Shareholders

Thomas F. Bumol, Ph.D., age 65, has served on our board of directors since February 2019. Dr. Bumol is Executive Director of the recently established Allen Institute for Immunology in Seattle, Washington, a position he assumed in March 2018. Dr. Bumol joined the Allen Institute following a 35-year career at Eli Lilly and Company. Dr. Bumol held various positions at Eli Lilly from 1982 until his retirement in December 2017. He was most recently the Senior Vice President of Biotechnology and Immunology Research and the Site Head of Eli Lilly’s Biotechnology Center in San Diego, California. While at Eli Lilly, Dr. Bumol’s teams and collaborators advanced over 100 molecules into clinical development, including TRULICITY® (dulaglutide), TALTZ®(ixekizumab), EMGALITY® (galcanezumab) and mirikizumab. Through strategic alliances, he and his teams also helped develop and support REOPRO® (abciximab) with Centocor Inc. (n/k/a Janssen Pharmaceutical Cos.) as well as OLUMIANT® (baricitinib) with Incyte Corporation. Dr. Bumol has over 50 publications and reviews and eight issued U.S. patents. He serves on the University of Michigan Technology Transfer National Advisory Board, on the Board of Directors of PanTheryx, and as an advisor to Lilly Ventures. Dr. Bumol earned his B.S. degree in microbiology from the University of Michigan and his Ph.D. in microbiology-immunology from the University of Minnesota. He completed postdoctoral studies through a fellowship in the Department of Molecular Immunology at Scripps Research in La Jolla, California. Our nominating and governance committee has concluded that Dr. Bumol should continue to serve on the board of directors based on his scientific expertise in drug discovery and development and experience in strategic partnering and other collaborations within the life sciences and pharmaceutical industries.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS

VOTE FOR EACH OF THE NOMINEES NAMED ABOVE

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Continuing Members of the Board of Directors

Class II Directors — Continuing in Office until the 2020 Annual Meeting of Shareholders

Thomas J. Cable, age 79, has served on our board of directors since January 1995. He has also served on our audit committee since January 1995 and on our compensation committee since December 2007. In addition, Mr. Cable has served as chairman of our nominating and governance committee since September 2009. Mr. Cable is the vice chairman of the board of the Washington Research Foundation, a technology transfer and early stage venture capital organization affiliated with the University of Washington, which he co-founded in 1980. Mr. Cable also founded Cable & Howse Ventures, a venture capital firm, and Cable, Howse & Ragen, an investment banking firm, and co-founded Montgomery Securities, an investment banking firm acquired by Bank of America. A former U.S. Navy submarine officer, Mr. Cable received his M.B.A. from the Stanford Graduate School of Business and his B.A. from Harvard University. Our nominating and governance committee has concluded that Mr. Cable should continue to serve on the board of directors based on his knowledge and experience in finance, investment banking, technology development and product commercialization, as well as his knowledge of Omeros and our industry.

Peter A. Demopulos, M.D., age 65, has served on our board of directors since January 1995. Dr. Demopulos is a practicing board-certified general and interventional cardiologist at Seattle Cardiology, part of the Swedish Heart & Vascular Institute. He has been a member of Seattle Cardiology since 2005, also serving as its Medical Director from 2005 to 2010. Dr. Demopulos is also a clinical assistant professor of cardiology at the University of Washington School of Medicine, a position that he has held since 1989. He also participates as an investigator in clinical trials evaluating interventional cardiology devices and drug therapies at Seattle Cardiovascular Research and Swedish Cardiovascular Research. Dr. Demopulos received his M.D. from the Stanford University School of Medicine and his B.S. from Stanford University. Our nominating and governance committee has concluded that Dr. Demopulos should continue to serve on the board of directors based on his medical and scientific expertise, his experience as a clinical investigator and his experience with clinical development and trial design, as well as his knowledge of Omeros and our industry. Dr. Demopulos is the brother of Gregory A. Demopulos, M.D., our president and chief executive officer and the chairman of our board of directors.

Class III Directors — Continuing in Office until the 2021 Annual Meeting of Shareholders

Gregory A. Demopulos, M.D., age 60, founded our company and has served as our president, chief executive officer and chairman of the board of directors since June 1994. He also served as our chief financial officer and treasurer from January 2009 to October 2013 in an interim capacity and as our chief medical officer from June 1994 to March 2010. Prior to founding Omeros, Dr. Demopulos completed his residency in orthopedic surgery at Stanford University and his fellowship training in hand and microvascular surgery at Duke University. Dr. Demopulos currently serves on the board of trustees of the Smead Funds Trust, an open-end mutual fund company registered under the Investment Company Act of 1940. Dr. Demopulos received his M.D. from the Stanford University School of Medicine and his B.S. from Stanford University. Our nominating and governance committee has concluded that Dr. Demopulos should continue to serve on the board of directors based on his position and experience as our chief executive officer and his medical and scientific expertise, experience with clinical development and design and knowledge of our operations and development programs. Dr. Demopulos is the brother of Peter A. Demopulos, M.D., a member of our board of directors.

Leroy E. Hood, M.D., Ph.D., age 80, has served on our board of directors since March 2001. He also has served on our nominating and governance committee since September 2009 and on our compensation committee since July 2011. Dr. Hood previously served as a member of our audit committee from September 2009 to December 2009 and from June 2012 to September 2012. Dr. Hood has served as senior vice president and chief science officer of Providence Health & Services, a multi-state, not-for-profit health system, since April 2016, and is the chief strategy officer of the Institute for Systems Biology, a non-profit research institute dedicated to the study and application of systems biology. Dr. Hood co-founded the Institute for Systems Biology in 2000 and served as its president through December 2017. Previously, Dr. Hood was founder and chairman of the Department of Molecular Biotechnology at the University of Washington School of Medicine. Dr. Hood also co-founded Amgen, Inc., Applied Biosystems, Inc., Darwin Molecular Technologies, Inc., Rosetta Inpharmatics, Inc. and SyStemix, Inc. Dr. Hood is a member of the National Academy of Sciences, the American Philosophical Society, the American Association of Arts and Sciences, the Institute of Medicine and the National Academy of Engineering. Dr. Hood received his Ph.D. and B.S. from the California Institute of Technology and his M.D. from The Johns Hopkins School of Medicine. Our nominating and governance committee has concluded that Dr. Hood should continue to serve on the board of directors based on his scientific expertise in drug discovery and development and experience in founding and building biotechnology and pharmaceutical companies.

 

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CORPORATE GOVERNANCE

Board Leadership Structure

Gregory A. Demopulos, M.D., is our principal executive officer and chairman of the board of directors. Thomas J. Cable is our lead independent director. The responsibilities of our lead independent director are to:

 

serve as chairman of meetings of the board of directors at which the chairman of the board is not present, such as executive sessions of the non-executive directors;

 

call meetings of the non-executive directors as he deems appropriate;

 

serve as the principal liaison on board-wide issues between the chairman of the board and the non-executive directors; and

 

coordinate the activities of the non-executive directors as he deems appropriate.

Taking into account Dr. Demopulos’ in-depth knowledge of our operations, programs and strategy, as well as the oversight authority granted to our lead independent director and the committees of our board of directors, which are each comprised solely of independent directors, our board of directors has determined that combining the roles of principal executive officer and chairman of the board of directors and appointing a separate lead independent director is the appropriate board leadership structure for us and our shareholders at this time because it promotes unified leadership and allows for a single, clear focus for management to execute the company's strategy and business plans, while at the same time maintaining a leadership structure for the company’s independent directors.

Risk Oversight

Our management is primarily responsible for assessing and managing risk, while our board of directors is responsible for overseeing management’s execution of its responsibilities, including risk management. The board of directors is supported by its committees in fulfillment of this responsibility. In particular, the audit committee focuses on our overall financial risk by evaluating our internal controls and disclosure policies, as well as the integrity of our financial statements and periodic reports. Our compensation committee strives to create incentives that encourage a reasonable and appropriate level of risk-taking consistent with our business strategy. Finally, the nominating and governance committee is responsible for reviewing our corporate governance and developing and maintaining corporate governance policies and procedures that are appropriate in light of the risks we face.

Director Independence

Our board of directors has determined that Mr. Aspiri, Dr. Bumol, Mr. Cable, Mr. Hanish, Dr. Hood and Dr. Shah each meet the independence requirements under applicable listing standards of The Nasdaq Stock Market LLC, or Nasdaq, as well as applicable rules promulgated by the SEC.

Board and Committee Meeting and Annual Meeting Attendance

Our board of directors held a total of eight meetings during 2018. No directors, except for Drs. Shah and Hood, attended fewer than 75% of the total number of board meetings and the total number of committee meetings of the board on which he served during 2018. Dr. Hood’s attendance at a previously-scheduled honorary symposium and a jury duty obligation prevented his attendance at the board and committee meetings held on those days. Dr. Shah was prevented from attending two board meetings because of a previously-scheduled speaking commitment and a travel conflict resulting from an unplanned change in flight time, respectively. Absent these conflicts, Drs. Hood and Shah each would have attended at least 75% of applicable meetings.

We encourage, but do not require, our board members to attend our annual meeting of shareholders. Five of the seven directors then serving on our board attended our 2018 Annual Meeting of Shareholders.

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Committees of the Board of Directors

Our board of directors has standing audit, compensation and nominating and governance committees, each of which has the composition and responsibilities described below. The following table provides membership information for each committee during 2018:

 

Chair

 

Member

 


Name

 

Audit Committee

 

Compensation

Committee

 

Nominating and

Governance Committee

 

Ray Aspiri

Thomas F. Bumol, Ph.D.

 

 

 

Thomas J. Cable

Gregory A. Demopulos, M.D.

 

 

 

Peter A. Demopulos, M.D.

 

 

 

Arnold C. Hanish

 

 

Leroy E. Hood, M.D., Ph.D.

 

Rajiv Shah, M.D.

 

 

 

 

Corporate Governance Documents

Please visit our investor relations website at investor.omeros.com, under “Governance,” for additional information on our corporate governance including:

 

the charters approved by our board of directors for the audit committee, compensation committee and nominating and governance committee;

 

our code of business conduct and ethics;

 

our corporate governance principles, which includes policies on shareholder communications with the board of directors, director attendance at our annual meetings and succession planning; and

 

our lead independent director charter.

In the event of any amendment to, or waiver from, a provision of our code of business conduct and ethics, we will promptly post on our investor relations website relevant information regarding the amendment or waiver, including the date and the nature of the event. Our website and the information contained on, or that can be accessed through, our website is not a part of this proxy statement.

Whistleblower Policy

We have adopted a whistleblower policy applicable to our employees that provides for protection from retaliation or discrimination by our company due to reporting issues relating to compliance with applicable laws and regulations.

Audit Committee

Membership and Independence

The members of our audit committee are Mr. Aspiri, Mr. Cable and Mr. Hanish. Mr. Hanish is the chairman of our audit committee. Our board of directors has determined that each member of our audit committee meets current Nasdaq and SEC requirements for independence for audit committee members. Our board of directors has also determined that Mr. Hanish is an “audit committee financial expert” as defined in SEC rules. Our audit committee held a total of seven meetings during 2018.

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Responsibilities

Under its charter, the audit committee is responsible for, among other things:

 

selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent registered public accounting firm;

 

evaluating the qualifications, performance and independence of our independent registered public accounting firm;

 

monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

 

reviewing with our independent registered public accounting firm and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls;

 

reviewing the adequacy and effectiveness of our internal control policies and procedures;

 

establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

 

reviewing and approving, in advance, any proposed related-party transactions and monitoring compliance with our code of business conduct and ethics; and

 

preparing the audit committee report that the SEC requires in our annual meeting proxy statements.

Compensation Committee

Membership and Independence

The members of our compensation committee are Mr. Aspiri, Mr. Cable and Dr. Hood. Mr. Aspiri is the chairman of our compensation committee. Our board of directors has determined that each member of our compensation committee meets current Nasdaq requirements for independence of compensation committee members. In addition, our board of directors has determined that each member of the compensation committee is a non-employee director for purposes of Rule 16b-3 of the Exchange Act. Our compensation committee held a total of eight meetings during 2018.

Responsibilities

Under its charter, the compensation committee is responsible for, among other things:

 

evaluating the performance of our executive officers and approving their compensation and other terms of employment and reviewing and approving corporate performance goals and objectives relevant to such compensation;

 

evaluating and recommending to our board of directors the type and amount of compensation to be paid or awarded to board members;

 

evaluating and recommending to our board of directors the equity incentive plans, compensation plans and similar programs advisable for us;

 

administering our equity incentive plans;

 

reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers; and

 

preparing the compensation committee report that the SEC requires in our annual proxy statement.

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Processes and Procedures

Our board of directors has delegated to the compensation committee the authority to determine the compensation for our executive officers. Non-executive director compensation is recommended by our compensation committee to the board of directors for approval. Our executive officers participate in general discussions with our compensation committee and board of directors about executive compensation matters but they do not participate in discussions during which their individual compensation is considered. The compensation committee may delegate any or all of its authority under its charter to one or more subcommittees. The compensation committee may also delegate to our CEO the authority to grant employee stock options or other equity-based awards to employees of the company or any subsidiary of the company who are not directors or executive officers of the company, on such terms and subject to such limitations as the compensation committee may determine.

Compensation Committee Interlocks and Insider Participation

During 2018, Mr. Aspiri, Mr. Cable and Dr. Hood served on our compensation committee. During 2018, no member of our compensation committee was an officer or employee or formerly an officer of our company, and, except as set forth under the section entitled “Transactions with Related Persons” in this proxy statement, no member had any relationship that would require disclosure as a related person transaction under Item 404 of Regulation S-K. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Nominating and Governance Committee

Membership and Independence

The members of our nominating and governance committee are Mr. Aspiri, Mr. Cable and Dr. Hood. Mr. Cable is the chairman of our nominating and governance committee. Our board of directors has determined that each member of our nominating and governance committee meets current Nasdaq requirements for independence. Our nominating and governance committee held two meetings in 2018.

Responsibilities

Under its charter, the nominating and governance committee is responsible for, among other things:

 

assisting the board of directors in identifying prospective director nominees and recommending director nominees to our board of directors for each annual meeting of shareholders;

 

evaluating nominations by shareholders of candidates for election to our board of directors;

 

recommending governance principles to our board of directors;

 

overseeing the evaluation of our board of directors;

 

reviewing shareholder proposals for our annual meetings;

 

evaluating proposed changes to our charter documents;

 

reviewing and assessing our senior management succession plan; and

 

recommending to our board of directors the members for each board committee.

Shareholder Recommendations and Nominees

It is the policy of our board of directors that the nominating and governance committee consider both recommendations and nominations for candidates to the board of directors from shareholders so long as such recommendations and nominations comply with our articles of incorporation, bylaws and applicable law, including the rules and regulations of the SEC. Shareholders may recommend director nominees for consideration by the nominating and governance committee by writing to us at the address below and providing evidence of the shareholder’s ownership of our stock, the nominee’s name, home and business address and other contact information, as well as the nominee’s detailed biographical data and qualifications for board membership, and information regarding any relationships between the recommended candidate and us within the last three fiscal years.

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Following verification of the shareholder status of the person submitting the recommendation, all properly submitted recommendations will be promptly brought to the attention of the nominating and governance committee. Shareholders who desire to nominate persons directly for election to the board of directors at an annual meeting of shareholders must meet the deadlines and other requirements set forth in our bylaws and the rules and regulations of the SEC. See “Shareholder Proposals for 2020 Annual Meeting.” Any vacancies on the board occurring between our annual meetings of shareholders may be filled by persons elected by a majority of the directors then in office, and any director so elected will serve until the next shareholders’ meeting at which directors are elected.

You may write to the nominating and governance committee at:

Omeros Corporation

The Omeros Building

201 Elliott Avenue West

Seattle, Washington 98119

Attn: Nominating and Governance Committee

c/o Office of the General Counsel

Director Qualifications

The nominating and governance committee works with our chief executive officer to identify and recruit new directors and considers candidates proposed by shareholders as part of this process. The committee may also engage consultants or search firms, as it deems advisable, to identify director candidates. The committee also considers the composition of the board and director succession plans on an ongoing basis. In director succession planning, the nominating and governance committee and the board of directors take into account, among other things, the needs of the board of directors and the company with a view to achieving a balance of knowledge, skills, experience and other attributes that would be beneficial to the oversight role of the board of directors. In addition, our corporate governance principles provide that the nominating and governance committee will consider, in identifying and evaluating potential director candidates, the issue of board diversity including gender, ethnicity, background, professional experience and perspective and that, if the nominating and governance committee engages a director search firm or other professional to assist it in identifying director nominees, the committee will refer such firm or other professional to this diversity policy and advise that candidates who would contribute to board diversity should be identified among the candidates under consideration.

Our board of directors believes that there are no specific minimum qualifications that must be met by each candidate for the board, nor are there specific qualities or skills that are necessary for one or more of the members of the board to possess, except as may be required by rules promulgated by Nasdaq or the SEC. In evaluating the qualifications of the candidates, the nominating and governance committee will consider many factors, including issues of character, judgment, independence, diversity with respect to gender, race, ethnicity, background, professional experience and perspective, teamwork, familiarity with the pharmaceutical and biotechnology industry, age, area of expertise, corporate experience, length of service and other commitments, as well as a commitment to the long-term interests of Omeros and its shareholders. The nominating and governance committee will evaluate these factors, among others, and does not assign any particular weighting or priority to any of these factors. The committee will consider each individual candidate in the context of the current perceived needs of the board as a whole. While the board of directors has not established specific minimum qualifications for director candidates, the board believes that candidates and nominees must reflect a board that is comprised of directors who (a) are predominantly independent, (b) are of high integrity, (c) have qualifications that will increase overall board effectiveness and (d) meet other requirements as may be required by applicable rules of Nasdaq and the SEC.

Shareholder Communication with the Board of Directors

It is the policy of our board of directors to allow shareholders to communicate with its directors. Communications may be addressed to the entire board, to the non-management directors as a group or to any individual director. All such communications will be initially received and processed by the office of our general counsel. Spam, junk mail, product complaints, product inquiries, new product suggestions, resumes and other forms of job inquiries, surveys, business solicitations and advertisements and threatening, hostile, illegal and similar unsuitable communications will not be delivered to the board, but will be made available to a director upon request. To contact members of the board of directors, a shareholder should send a letter to the following address:

Omeros Corporation

The Omeros Building

201 Elliott Avenue West

Seattle, Washington 98119

Attn: The Board of Directors

c/o Office of the General Counsel

 

 

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NON-EMPLOYEE DIRECTOR COMPENSATION

To attract and retain qualified non-employee candidates to serve on the board of directors, we utilize a combination of cash and equity-based incentive compensation. The significant amount of time that members of the board expend in fulfilling their duties, as well as the skill level required of our directors, is evaluated in setting director compensation, along with director compensation levels at companies in our peer group. We also reimburse our directors for travel and incidental expenses incurred in the performance of their services for us. Director compensation is reviewed periodically by the compensation committee with input from the compensation committee’s independent third-party consultant, Compensia, Inc., or Compensia, a national compensation consulting firm providing executive compensation advisory services. Our non-employee director compensation policy was last updated by the board of directors in 2017 following the recommendation of the compensation committee and advice from Compensia with respect to the practices of peer companies. The 2017 update to our non-employee director compensation policy was intended to bring the total compensation of non-employee directors to approximately the median of our peers.

The non-employee director compensation policy provides that a non-employee director is automatically granted an option to purchase 15,000 shares of our common stock upon his or her initial appointment or election to the board, subject to vesting in equal annual installments over a three-year period beginning on the date the director took office. In addition, on the date of each annual meeting of shareholders, each non-employee director who has served as a director for at least six months and who would continue to serve as a director after the annual meeting is automatically granted an option to purchase 7,500 shares of our common stock that vests in full on the day prior to the date of the next annual meeting of shareholders. The per share exercise price for options granted to non-employee directors is equal to the closing public trading price of our common stock on the date of grant, and vesting is conditioned on the director’s continued service as a director through the applicable vesting dates.

Under our policy, each non-employee director receives an annual cash retainer of $40,000 for service on the board of directors, plus additional fees for committee service, as applicable. Committee fees are $7,500, $5,000 and $2,500 per year for service as a non-chair member of the audit, compensation and nominating and governance committees, respectively, while fees for the chairs of those committees are $15,000, $10,000 and $5,000 per year, respectively. In addition, our lead independent director receives an annual retainer of $10,000 for his service in such capacity. Director fees are paid on a quarterly basis as earned.

2018 Non-Employee Director Compensation

The following table shows the compensation of each person who served as a non-employee director during the fiscal year ended December 31, 2018:

 

Name

 

Fees Earned or

Paid in Cash ($)

 

 

Option Awards ($)(1)(2)

 

 

Total ($)

 

Ray Aspiri

 

 

60,000

 

 

 

99,928

 

 

 

159,928

 

Thomas J. Cable

 

 

67,500

 

 

 

99,928

 

 

 

167,428

 

Peter A. Demopulos, M.D.

 

 

40,000

 

 

 

99,928

 

 

 

139,928

 

Arnold C. Hanish

 

 

55,000

 

 

 

99,928

 

 

 

154,928

 

Leroy E. Hood, M.D., Ph.D.

 

 

47,500

 

 

 

99,928

 

 

 

147,428

 

Rajiv Shah, M.D.

 

 

40,000

 

 

 

99,928

 

 

 

139,928

 

 

(1)

The amounts reported in this column represent the grant date fair value of option awards granted to our non-employee directors during 2018 as computed in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718. The assumptions used to calculate the value of these option awards are set forth in Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

(2)

As of December 31, 2018, Mr. Aspiri, Mr. Cable, Dr. Peter Demopulos, Mr. Hanish, Dr. Hood and Dr. Shah held options to purchase 40,000, 65,000, 53,334, 55,000, 65,000 and 40,000 shares of our common stock, respectively.

 

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program and the components of our compensation program for our named executive officers. This section also discusses our executive compensation process. When we refer to our named executive officers in this proxy statement, we are referring to the following individuals, who are our only executive officers:

 

Gregory A. Demopulos, M.D., our president, chief executive officer and chairman of the board of directors, who is referred to as our CEO;

 

Michael A. Jacobsen, our vice president, finance, chief accounting officer and treasurer, who is referred to as our PFO; and

 

Marcia S. Kelbon, J.D., M.S., our vice president, patent and general counsel and secretary.

This Compensation Discussion and Analysis contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.

Executive Summary

Business Highlights

During 2018, we made significant progress in our commercial, clinical and preclinical programs. These advances included the items listed below.

 

OMIDRIA® – Pass-through reimbursement for our FDA-approved commercial ophthalmology product, OMIDRIA® (phenylephrine and ketorolac intraocular solution) 1%/0.3%, expired January 1, 2018, as scheduled. In March 2018, certain drugs including OMIDRIA received a two-year extension of pass-through reimbursement, effective October 1, 2018, through enactment of the Consolidated Appropriations Act, 2018. OMIDRIA revenues were significantly reduced in the first three quarters of 2018 before the extension of pass-through reimbursement status became effective. During this period, we continued our outreach to the ophthalmologic community regarding the benefits of OMIDRIA and continued to call on existing and new purchasing accounts to ensure a strong platform for the re-introduction of OMIDRIA. After pass-through reimbursement was reinstated effective October 1, 2018, weekly sales of OMIDRIA increased substantially from levels seen during the first nine months of the year, and fourth quarter 2018 revenues were $22.0 million, our highest quarterly revenue to date. This represents a 59 percent increase year-over-year compared to fourth quarter 2017, the last quarter before losing our pass-through status on January 1, 2018.

 

MASP-2 (narsoplimab) – We are advancing three Phase 3 clinical programs for our lead MASP-2 inhibitor narsoplimab (formerly referred to as OMS721) in the indications listed below. We are scaling up our internal capabilities and commercial infrastructure along with our third-party manufacturing capacity to meet anticipated clinical and commercial requirements in our narsoplimab program.

2018 highlights in our narsoplimab program included:

 

Hematopoietic stem cell transplant-associated thrombotic microangiopathy (HSCT-TMA). We received orphan drug designation from both the U.S. Food and Drug Administration, or FDA, and the European Commission for the treatment of HSCT-TMA, as well as breakthrough therapy designation from FDA for treatment of high-risk HSCT-TMA. We also reported positive data from our ongoing Phase 2 clinical trial in patients with HSCT-TMA. We plan to submit for regulatory approval with data from the currently treated patients, and the Phase 2 study will continue to gather additional exposure and follow-up data.

Immunoglobulin A (IgA) nephropathy. We received orphan drug designation from the European Commission for the treatment of IgA nephropathy in 2018, which follows the orphan drug and breakthrough therapy designations granted by FDA in 2017 for narsoplimab in the treatment of IgA nephropathy. We also reported positive data from the second cohort of IgA nephropathy patients in our ongoing Phase 2 clinical trial and began enrollment in our Phase 3 clinical trial evaluating narsoplimab in patients with IgA nephropathy. We believe that the trial design will allow assessment for either full or accelerated approval at 36 weeks based on proteinuria results either (1) across the general population of study patients or (2) in the high-proteinuria subset of patients.

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Atypical hemolytic uremic syndrome (aHUS). We continued enrollment in our single-arm (i.e., no control arm), open-label Phase 3 clinical trial in patients with newly diagnosed or ongoing aHUS. We have active sites in both the U.S. and Europe for this trial.

 

PDE7 (OMS527) – We initiated a Phase 1 single-ascending- and multiple-ascending-dose clinical trial designed to assess the safety and pharmacokinetics of our PDE7 inhibitor compound in healthy subjects. We have completed dosing in all six cohorts in the single-ascending-dose portion of the trial, including a cohort to assess whether pharmacokinetics are affected by food. Dosing in the first two cohorts in the multiple-ascending-dose portion of the trial is also complete. The compound to date has been well tolerated and pharmacokinetic data support once-daily dosing, with or without food. Following Phase 1 completion, if successful, we plan to conduct a Phase 2a study targeting nicotine addiction.

 

MASP-3 (OMS906)The manufacturing scale-up process for a MASP-3 inhibitor antibody is underway as we continue to advance our OMS906 program towards the clinic. We are currently targeting paroxysmal nocturnal hemoglobinuria as the first clinical indication for OMS906.

 

GPCRs – During 2018 we continued advancing multiple potential clinical candidates in our G protein-coupled receptor, or GPCR, program. We are conducting in vitro and in vivo preclinical efficacy studies and are optimizing compounds for a number of targets including: GPR151, linked to schizophrenia and cognition; GPR161, which is associated with triple negative breast cancer and various sarcomas; GPR174, which is involved in the modulation of the immune system and, in animal and ex vivo human studies, increases cytokine production and inhibits production of regulatory T cells, or “T-regs,” and checkpoint molecules, all of which are known to be important in cancer, organ transplantation and autoimmune disease, such as multiple sclerosis.

Significant Executive Compensation Actions

We determine compensation for our named executive officers based on their ability to achieve operational goals that further our long-term business objectives and create sustainable long-term shareholder value in a cost-effective manner. We generally make compensation adjustments on an annual basis in connection with approval of compensation adjustments for all eligible employees, although, in historical periods, compensation adjustments or the timing thereof have been affected by the availability of cash, the need to preserve capital or the achievement of significant corporate objectives.

In April 2018, our compensation committee approved base salary adjustments and stock option awards to our named executive officers in connection with the approval of salary adjustments and stock option awards to all eligible employees for company and individual performance in 2017. Cash bonuses for our named executive officers with respect to company and individual performance during 2017 were delayed in the interest of preserving capital until September 2018.

In February 2019, our compensation committee approved stock option awards for all eligible employees, including our named executive officers, on the basis of company and individual performance in 2018. During 2019, we also expect to make salary adjustments and grant cash bonuses to eligible employees, including our named executive officers, on the basis of company and individual performance in 2018.

Executive Compensation Philosophy and Objectives

We operate in a highly competitive business environment, which is constantly reshaped by medical advances, frequent changes to market and regulatory requirements and the emergence of new competitive technologies. To thrive in this environment, we must work rapidly to create and refine new development programs and product candidates, drive product candidates toward commercialization, achieve commercial objectives and demonstrate an ability to quickly identify and capitalize on new business opportunities. To achieve these goals, we need a highly talented team of technical and business professionals.

We compete with many other companies in seeking to attract and retain a skilled management team. To meet this challenge, we have employed a compensation philosophy of offering our executive officers competitive compensation and benefits packages that are focused on the creation of long-term shareholder value and rewarding our executive officers for achieving our strategic objectives.

We orient our executive compensation program to:

 

provide total compensation opportunities that enable us to recruit and retain executives with the experience and skills to manage the growth of our company and lead us to the next stage of development;

 

establish a clear alignment between the interests of our executives and the interests of our shareholders;

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reinforce a culture of ownership, excellence and urgency; and

 

create a direct and meaningful link between company business results, individual performance and compensation.

Executive Compensation-Setting Process

Role of the Compensation Committee

The compensation committee of our board of directors is responsible for establishing our executive compensation philosophy and administering our executive compensation program, as well as determining and approving the compensation for our executive officers. The compensation committee periodically reports to our board of directors on its deliberations and actions. The compensation committee, with the assistance of Compensia, reviews our executive compensation program, including any incentive compensation plans, to determine whether they are appropriate, properly coordinated and achieve their intended purposes. In addition to the services mentioned above, Compensia also recommends to our board of directors or compensation committee any modifications of our existing plans, or new plans or programs, from time to time as requested by our board of directors or compensation committee.

Role of Management

In carrying out its responsibilities, the compensation committee works with members of our management, including our CEO. Typically, our senior management assists the compensation committee and Compensia by providing information on company and individual performance, market data and management’s perspective and recommendations on compensation matters. Our CEO reviews data compiled by Compensia and our senior management and, after discussion with Compensia, makes recommendations to the compensation committee regarding the compensation of our executive officers and significant employees, including Ms. Kelbon and Mr. Jacobsen. Our CEO does not make recommendations with respect to his own compensation and excuses himself from compensation committee meetings when his compensation is discussed.

While the compensation committee solicits and reviews our CEO’s recommendations and proposals with respect to compensation-related matters and receives guidance from Compensia, the compensation committee makes its decisions independently and may consider factors and information other than our CEO’s recommendations and proposals.

Role of Compensation Consultant

The compensation committee is authorized to retain the services of compensation consultants and other advisors in connection with the discharge of its responsibilities. The compensation committee has engaged Compensia, a national compensation consulting firm, to assist it from time to time in developing a set of executive compensation guiding principles, to evaluate the competitiveness of our executive officers’ compensation and to assist it in designing and implementing our executive compensation program. Compensia serves at the discretion of the compensation committee. Our compensation committee has evaluated Compensia’s independence using the factors specified by the SEC and Nasdaq listing standards and has determined that the work performed by Compensia in 2018 does not give rise to any conflict of interest. Compensia provided advisory services to the compensation committee with respect to executive compensation in 2018 but did not provide other services.

Use of Competitive Data

To assess the competitiveness of our executive compensation program and current compensation levels and to assist it in setting compensation levels, the compensation committee refers to compensation data compiled with respect to the compensation paid to executives in a peer group of comparable companies in our industry. Compensia assisted in the development of this group, which we refer to as the Peer Group, with our input in 2014. Companies were selected for the Peer Group based on their similarities to Omeros, including their stage of development, number of development programs, revenue and market capitalization. Compensation data for the companies comprising the Peer Group is gathered from public filings and supplemented by survey data from the Radford Global Life Sciences Survey. The Peer Group was comprised of the following companies:

 

Aegerion Pharmaceuticals, Inc.

Anika Therapeutics, Inc.

Arena Pharmaceuticals, Inc.

Avanir Pharmaceuticals, Inc.

Dendreon Corporation

Dyax Corp.

Exelixis, Inc.

Hyperion Therapeutics, Inc.

Insys Therapeutics, Inc.

MannKind Corporation

Momenta Pharmaceuticals, Inc.

NPS Pharmaceuticals, Inc.

Pacira Pharmaceuticals, Inc.

Spectrum Pharmaceuticals, Inc.

Sucampo Pharmaceuticals, Inc.

Vanda Pharmaceuticals Inc.

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The compensation committee considered compensation data from this Peer Group when making its 2018 compensation decisions.

With Compensia’s assistance, our compensation committee developed a revised and updated Peer Group in early 2019, which the compensation committee intends to use in connection with compensation decisions for the 2019 performance year. Peer companies were selected for the revised Peer Group based on their comparability to Omeros in terms of stage of development, depth and diversity of pipeline programs, and revenue and market capitalization. The revised Peer Group is comprised of the following companies:

ACADIA Pharmaceuticals Inc.

Akcea Therapeutics, Inc.

Alder Biopharmaceuticals Inc.

Amicus Therapeutics, Inc.

Biocryst Pharmaceuticals, Inc.

Clovis Oncology, Inc.

Corcept Therapeutics Incorporated

Dermira, Inc.

Enanta Pharmaceuticals, Inc.

Heron Therapeutics, Inc.

Insmed Inc.

Intercept Pharmaceuticals, Inc.

La Jolla Pharmaceutical Co.

Portola Pharmaceuticals, Inc.

Progenics Pharmaceuticals, Inc.

PTC Therapeutics, Inc.

Radius Health, Inc.

Retrophin, Inc.

Rigel Pharmaceuticals, Inc.

Spectrum Pharmaceuticals, Inc.

Vanda Pharmaceuticals Inc.

 

 

Compensation Program Design

In 2018, compensation for our named executive officers consisted of base salary, stock option awards and certain employee benefits and perquisites, as well as the opportunity to earn cash bonuses. Base salary adjustments and annual stock option awards for employees, including our named executive officers, were approved in April 2018. These decisions were based on company and individual performance in 2017, as well as market adjustment factors. Cash bonuses for our named executive officers with respect to 2017 performance were delayed until September 2018 in order to preserve capital. In most years, we expect that the compensation of our named executive officers will include equity awards and bonuses, however in some years we expect that the timing of compensation decisions may be delayed, or that we may elect to defer paying cash bonuses in order to preserve capital or fund other corporate priorities.

We do not specifically allocate between short-term and long-term compensation and equity and cash compensation. The compensation committee considers each compensation element separately and then reviews total compensation to consider whether it is appropriate in light of company performance, our named executive officers’ individual performance and our liquidity requirements. The compensation committee also gives weight in making compensation decisions to relative internal pay equity among our named executive officers, as well as among our employees generally, commensurate with their relative contributions. The compensation committee annually reviews our executive compensation program to ensure that our compensation program does not encourage excessive risk-taking by executives. The compensation committee conducted an executive compensation risk assessment and determined that it does not believe that our compensation programs and policies, as described in this proxy statement, encourage risks that are reasonably likely to have a material adverse effect on the company.

In order to provide appropriate incentives for our named executive officers and align interests with our shareholders, the compensation committee has determined that a substantial portion of the total compensation for named executive officers should be “at risk,” and as a result stock option awards and cash bonuses collectively comprise the majority of total compensation for our CEO and other named executive officers. The compensation committee considers stock option grants to involve “at risk” compensation because the realization of compensation for a stock option award is dependent on the price of our common stock at the time the stock options are exercised (notwithstanding the grant date fair value of option awards reported in the Summary Compensation Table below). With respect to cash bonuses, our compensation committee determines the amounts of bonuses in relation to the achievement of corporate and individual objectives during the applicable performance year.

Executive Compensation Program Components

The following is a description of each component of our executive compensation program, the rationale for each component and how awards were determined in 2018.

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Base Salary

Base salaries are used to recognize the experience, skills, knowledge and responsibilities required of our named executive officers. The compensation committee reviews the base salaries of our named executive officers each year. In assessing these base salary levels, the compensation committee considers market competitiveness based on Peer Group and survey data, the executive officer’s past and expected future contributions to Omeros, his or her knowledge, experience and responsibilities and the relative base salaries and responsibilities of the other members of our senior management team.

In April 2018, the compensation committee increased the base salaries of Dr. Demopulos, Mr. Jacobsen and Ms. Kelbon, in connection with the increase of base salaries for all eligible employees at the vice president level and above. After reviewing market adjustment data as well as Peer Group data and considering the performance of our named executive officers, their importance to the organization and relative internal pay equity between our executive officers and other employees, the compensation committee increased the base salaries for each of Dr. Demopulos, Mr. Jacobsen and Ms. Kelbon by three percent. Consistent with our implementation of company-wide salary changes in prior years, the compensation committee made these base salary increases retroactive to April 1, 2018. Base annual salary rates in 2018 for our named executive officers, after giving effect to this base salary increase, were as follows:

 

 

 

Adjusted

 

Named Executive Officer

 

2018 Base Salary

 

Gregory A. Demopulos, M.D.

 

$

776,134

 

Michael A. Jacobsen

 

$

355,402

 

Marcia S. Kelbon, J.D., M.S.

 

$

400,008

 

Annual Bonuses

Our compensation committee has the authority and discretion to award annual bonuses to our named executive officers. The purpose of annual bonuses is to provide incentives for our named executive officers and other employees to achieve the annual corporate and individual performance objectives developed from our annual business review and adjusted during the year to reflect any changes in our operating plans and strategy. We believe bonuses provide an effective tool to motivate and retain our employees, including our named executive officers, and achieve our business objectives. Annual bonuses may be paid in the form of cash and/or additional equity awards.

With respect to our payment of bonuses, the compensation committee first establishes a target bonus amount for each named executive officer. This amount is calculated as a percentage of the named executive officer’s base salary, which can range from 20% to 100% for an individual performance year. The target amounts are reviewed and revised as needed to align with competitive market compensation paid to similarly situated executives at the companies in the Peer Group and to properly address individual responsibilities and experience, internal pay equity and other factors. The extent to which these bonuses are actually paid is determined at the discretion of the compensation committee based primarily upon an assessment of our achievement of the corporate performance objectives for the year, with consideration also being given to an assessment of each named executive officer’s individual performance and contribution to achievement of our corporate performance objectives.

Preliminary performance objectives are established by the board of directors, with input from our named executive officers and other members of senior management, as corporate goals that reflect our business priorities for the year and may be weighted by relative importance. For each performance year, the compensation committee, in consultation with the board of directors, reviews the corporate performance objectives and their weightings to determine and confirm their appropriateness for use as performance measurements for purposes of named executive officer compensation. The objectives and/or weightings may be re-visited during the year and potentially restated in the event of significant changes in corporate strategy or the occurrence of significant corporate events. The compensation committee retains full discretion to adjust individual bonus awards upwards for exceptional performance and to otherwise adjust bonus awards upwards or downwards to respond to changes in competitive compensation or other factors not measured by corporate or individual performance in any given year. In addition, depending on the company’s cash position, the compensation committee has the discretion, after consulting with the board of directors and our CEO, to not pay cash bonuses to conserve cash and support ongoing development programs and commercialization efforts.

Corporate performance factors established in connection with compensation decisions for the 2017 performance year included objectives related to the following:

 

OMIDRIA net sales;

 

progress towards securing permanent or extended pass-through reimbursement status for OMIDRIA;

17


 

 

operating cash flow;

 

data reported from our Phase 2 clinical trials for narsoplimab;

 

initiation of Phase 3 and registration trials for narsoplimab;

 

receipt of breakthrough therapy designations for narsoplimab; and

 

other strategic objectives.

In September 2018 the compensation committee reviewed our executive compensation program and approved payment of cash bonuses for our named executive officers, in each case based on company and individual performance in 2017. In determining bonus payments for our named executive officers, our compensation committee considered the corporate milestones achieved in 2017, including the substantial growth in sales of OMIDRIA, near achievement of breakeven cash flow by year-end December 31, 2017, progress towards securing an extension of pass-through reimbursement for OMIDRIA, advancement of three Phase 3 programs for narsoplimab and generation of positive data in Phase 2 trials of narsoplimab in renal diseases and in thrombotic microangiopathies. Our compensation committee approved cash bonuses equal to 80% of the target bonus amount for each of Mr. Jacobsen and Ms. Kelbon based on these accomplishments, as well as their individual performance which included, for Mr. Jacobsen, successful completion of capital raising transactions and, for Ms. Kelbon, favorable resolution of patent litigation against Par Pharmaceutical, Inc. and its subsidiary, Par Sterile Products, LLC. The target bonus amount for each of Mr. Jacobsen and Ms. Kelbon was 25% of their 2017 base salaries, resulting in cash bonus payments of $69,010 and $77,671, respectively. The compensation committee approved a cash bonus payment of $700,000 for Dr. Demopulos in recognition of his key leadership role in the achievement of each of the corporate milestones described above. In determining the amount of the bonus awarded to Dr. Demopulos, the compensation committee considered the critical importance of OMIDRIA revenues to our company’s ability to continue advancing our development programs and achieve our ambition of becoming a multi-product commercial pharmaceutical company. As such, the compensation committee’s evaluation of Dr. Demopulos’ performance placed particular emphasis on the effectiveness of his extraordinary efforts during 2017 and early 2018 to secure an extension of pass-through reimbursement status for OMIDRIA.

We expect that we will pay bonuses during 2019 to our eligible employees, including our named executive officers, based on the level of achievement of corporate performance objectives established in early 2018 and the compensation committee’s discretion. Corporate objectives established for the 2018 performance year included, among other things, OMIDRIA sales levels, progress toward permanent pass-through reimbursement for OMIDRIA, achievement of positive clinical data in our narsoplimab program and regulatory submissions.

Equity Compensation

We use equity awards to provide incentives and to reward our named executive officers for long-term corporate performance based on the value of our common stock and thereby align the interests of our executive officers, and other key employees, with those of our shareholders. Historically, we have not applied a rigid formula in determining the size of the equity awards that were granted to our executive officers. Instead, the compensation committee has exercised its judgment, taking into consideration, among other things, Peer Group data compiled by Compensia as well as company performance, an evaluation of the expected and actual performance of each named executive officer, each named executive officer’s responsibilities, experience, skills and contributions, the cash compensation received by each named executive officer, relative internal pay equity and market conditions. The compensation committee generally also considers the existing equity holdings of each named executive officer, including the current economic value of their unvested equity and the ability of these unvested holdings to satisfy our objectives of retaining and incentivizing our executive officers. Based on these factors, the compensation committee, with data received from Compensia and, with respect to Mr. Jacobsen and Ms. Kelbon, input from the CEO, determines the size of each award at levels it considered appropriate to create a meaningful opportunity for reward predicated on the creation of long-term shareholder value. The compensation committee has historically granted equity awards in the form of stock options, although it is authorized to grant other types of equity awards, including restricted stock and restricted stock units, and may do so in the future.

The compensation committee grants stock option awards on an annual basis. In April 2018, the compensation committee granted stock option awards to our employees, including our named executive officers. In determining the size of the stock option awards for the named executive officers, the compensation committee considered their individual performance and the corporate milestones achieved in 2017, discussed above, as well as internal equity and related factors.

Historically, stock option awards granted by our compensation committee in connection with annual performance reviews vest in equal monthly installments over a four-year period. The per share exercise price for our stock option awards is equal to the fair market value of our common stock on the date of grant. The fair market value is the closing public trading price of our common stock on the date of grant or, if the equity award is granted on a day when the trading market for our common stock is closed, the closing public trading price on the most recent trading day prior to the date of grant.

18


 

The stock option awards granted to our named executive officers in April 2018 have an exercise price of $13.58 per share and vest in equal monthly installments over a four-year period commencing April 1, 2018. The stock option awards granted to our named executive officers in 2018 were as follows:

 

 

 

Number of Shares of

Common Stock

Underlying Stock

Option Awards

 

Named Executive Officer

 

Granted April 2018

 

Gregory A. Demopulos, M.D.

 

 

350,000

 

Michael A. Jacobsen

 

 

60,000

 

Marcia S. Kelbon, J.D., M.S.

 

 

65,000

 

Retirement and Other Benefits

We have established a broad-based tax-qualified Section 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. Under this plan, participants may elect to make pre-tax contributions, or post-tax contributions under a Roth option, of up to 100% of their current compensation, not to exceed the applicable statutory income tax limitation (which was $18,500 in 2018, or $24,500 if over age 50). We have an annual matching program based on salary deferral contributions made by participants in the plan. The company contribution is a match of the amount participants contribute to the plan, up to 4% of their eligible earnings or a maximum employer match of $4,000 per year. Participants must be employed with the company at December 31 of each year to be eligible for the matching contribution. The matching contribution vests at 25% per year beginning upon the participant’s initial employment at the company. We intend for the plan to qualify under Section 401(a) of the Internal Revenue Code, or the Code, so that deferral contributions by participants to the plan, and income earned on plan contributions, are not taxable to participants until withdrawn from the plan.

Additional benefits received by our employees, including our named executive officers, consist of medical, dental and vision benefits, medical and dependent care flexible spending accounts, short- and long-term disability insurance, accidental death and dismemberment insurance and basic life insurance coverage. These benefits are provided to our named executive officers on the same basis as to all of our full-time employees.

We design our employee benefits programs to be affordable and competitive in relation to the market as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.

Perquisites and Other Personal Benefits

Historically, with the exception of parking expenses, we only have provided perquisites or other personal benefits to our CEO. Pursuant to the terms of his employment agreement, we pay certain expenses incurred by our CEO, including his medical malpractice insurance premiums and practice fees so that he may continue to practice medicine, as well as parking expenses and business-related information technology expenses. We believe that his ability to maintain his position as a practicing surgeon is beneficial to our corporate objectives including, for example, by providing him with insight in determining the strategic direction of the company and our specific drug development programs as well as establishing relationships with key medical opinion leaders.

Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. In the future, however, we may provide such items in limited circumstances, such as when we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executives more efficient and effective and for recruitment, motivation or retention purposes. All future practices with respect to significant perquisites or other personal benefits will be approved and subject to periodic review by the compensation committee.

Our named executive officers are not eligible to receive any tax “gross-ups” or other tax reimbursement payments.

19


 

Employment Agreement and Post-Employment Compensation

Except for our CEO, we do not have employment agreements with our named executive officers. For a summary of the material terms and conditions of the employment agreement with our CEO, see “Employment Agreement with Gregory A. Demopulos, M.D.” below in this proxy statement. Our CEO’s current employment agreement, which was entered into in 2010, was deemed necessary by our compensation committee to provide a competitive compensation package to retain someone with his unique skill set and medical expertise. At the same time, the compensation committee was sensitive to the need to balance the market competitiveness with the financial limitations of a development-stage life sciences company.

As part of his compensation package, the CEO’s employment agreement includes certain severance obligations and other provisions that apply in the event of termination of his employment under specified circumstances, including following a change in control of our company. The compensation committee determined that these provisions were necessary to induce our CEO to limit his medical practice in exchange for the uncertainty of a demanding position in the company and were developed based on negotiations with our CEO. The compensation committee believes that these protections continue to serve a retention purpose and help our CEO maintain his focus on his duty to maximize shareholder value if there is a potential transaction that could involve a change in control of our company. For a summary of these provisions, see “Potential Payments upon Termination or Change in Control” below in this proxy statement.

In addition, we provide all of our employees, including our named executive officers, with accelerated vesting benefits for their equity awards in the event of a change in control of the company. We have provided this benefit to encourage our employees to focus on their responsibilities and not be distracted by the potential effect of a change in control of our company on their employment status. For a summary of the material terms and conditions of these benefits, see “Potential Payments upon Termination or Change in Control” below in this proxy statement.

Hedging and Pledging Policy

Under our insider trading policy, all of our employees, including our executive officers, as well as our directors are prohibited from engaging in short sales of our stock as well as in transactions in publicly traded options, such as puts and calls, or in other derivative securities of our common stock, with the exception of securities issued pursuant to our compensatory benefit plans. This prohibition extends to any hedging or similar transaction designed to decrease the risks associated with holding our securities. Our insider trading policy also prohibits our executive officers and directors from pledging our securities as collateral for loans or holding our securities in margin accounts in which the securities may be sold without the officer’s or director’s consent unless certain preclearance requirements and restrictions are satisfied including approval by our board of directors or the audit committee of the board of directors. As permitted by our insider trading policy, exemptions have been granted with respect to our CEO and The Demopulos Family Trust to permit each to pledge shares of Omeros common stock as collateral for a line of credit.

Tax and Accounting Considerations

Deductibility of Executive Compensation

Generally, Section 162(m) of the Code disallows a tax deduction to any publicly held corporation for any remuneration in excess of $1.0 million paid in any taxable year to certain executive officers. The performance-based compensation exception to the deductibility limit under Section 162(m) of the Code was eliminated for taxable years beginning after December 31, 2017. Accordingly, we are unable to deduct remuneration in excess of $1.0 million paid to our covered executive officers (consisting of any employee who, at any time after December 31, 2016, was our principal executive officer, principal financial officer or one of our other three highest paid named executive officers), unless such payment qualifies for certain transition relief.

As described above, the compensation committee believes that its primary responsibility is to provide a compensation program that enables us to attract, retain and motivate highly qualified and talented executive officers. Accordingly, while the compensation committee considers all cost elements of our executive compensation programs, the compensation committee may, in its judgment, authorize compensation payments that exceed the $1.0 million limit on deductible compensation when it believes that such payments are appropriate to attract, retain and reward executive talent and to promote our corporate objectives.

Taxation of “Parachute” Payments and Deferred Compensation

Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control of our company that exceeds certain prescribed limits, and that our company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We are not obligated to provide any named executive officer with a “gross-up” or other reimbursement payment for any tax liability that may become payable as a result of the application of Sections 280G or 4999.

20


 

Section 409A of the Code imposes significant additional taxes if an executive officer, director or service provider receives “deferred compensation” that does not satisfy the restrictive conditions of the provision. Although we did not have a traditional nonqualified deferred compensation plan in place for our executive officers during 2018, Section 409A applies to certain equity awards and severance arrangements. We believe that we have structured our equity awards in a manner intended to comply with the applicable Section 409A conditions.

Accounting for Stock-Based Compensation

We follow FASB ASC Topic 718, Compensation — Stock Compensation, for our stock-based compensation awards. FASB ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. This calculation is performed for accounting purposes and reported in the compensation tables below, even though recipients may never realize any value from their awards. FASB ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award.

Compensation Committee Report

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management and, based on such review and discussion, has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2018.

COMPENSATION COMMITTEE

Ray Aspiri, Chairman

Thomas J. Cable

Leroy E. Hood, M.D., Ph.D.


21


 

Summary Compensation Table

The following table reflects our named executive officers’ compensation for the years ended December 31, 2018, 2017 and 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option

 

 

Incentive Plan

 

 

All Other

 

 

 

 

 

 

 

 

 

Salary

 

 

Bonus

 

 

Awards

 

 

Compensation

 

 

Compensation

 

 

Total

 

Name and Principal Position

 

Year

 

($)(1)

 

 

($)

 

 

($)(2)

 

 

($)

 

 

($)(3)

 

 

($)

 

Gregory A. Demopulos, M.D.

 

2018

 

 

770,483

 

 

 

700,000

 

 

 

3,250,275

 

 

 

 

 

 

19,581

 

 

 

4,740,339

 

President, Chief Executive Officer and

 

2017

 

 

748,041

 

 

 

901,725

 

 

 

2,864,963

 

 

 

 

 

 

20,555

 

 

 

4,535,284

 

Chairman of the Board of Directors

 

2016

 

 

776,918

 

 

 

248,595

 

 

 

5,340,280

 

 

 

 

 

 

15,163

 

 

 

6,380,956

 

Michael A. Jacobsen

 

2018

 

 

352,814

 

 

 

69,010

 

 

 

557,190

 

 

 

 

 

 

6,630

 

 

 

985,644

 

Vice President, Finance, Chief Accounting

 

2017

 

 

338,769

 

 

 

136,179

 

 

 

534,793

 

 

 

 

 

 

6,586

 

 

 

1,016,327

 

Officer and Treasurer

 

2016

 

 

336,778

 

 

 

51,880

 

 

 

1,134,810

 

 

 

 

 

 

2,573

 

 

 

1,526,041

 

Marcia S. Kelbon, J.D., M.S.

 

2018

 

 

397,095

 

 

 

77,671

 

 

 

603,623

 

 

 

 

 

 

6,693

 

 

 

1,085,082

 

Vice President, Patent and General

 

2017

 

 

381,287

 

 

 

258,121

 

 

 

572,993

 

 

 

 

 

 

6,651

 

 

 

1,219,052

 

Counsel and Secretary

 

2016

 

 

400,412

 

 

 

64,061

 

 

 

1,068,056

 

 

 

 

 

 

2,619

 

 

 

1,535,148

 

 

(1)

The 2016 salary amounts include lump sum payments for each of our named executive officers made in 2017 for salary adjustments that were approved in 2016 and applied retroactively to April 2014, April 2015 and April 2016.

(2)

Amounts shown in this column do not reflect compensation realized by the named executive officers. Instead, the dollar amounts reported in this column represent the grant date fair value of option awards granted to our named executive officers during the applicable year as computed in accordance with FASB ASC Topic 718. The assumptions used to calculate the value of option awards are set forth in Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeiture related to service-based vesting conditions. Realization of the compensation reported in this column, if any, is dependent upon the price of our common stock at the time the stock options are exercised.

(3)

All Other Compensation includes perquisites and other personal benefits paid to Dr. Demopulos of $14,831, $15,805 and $14,413 in 2018, 2017 and 2016, respectively. Perquisites and personal benefits provided in 2018 consisted of expenses incurred by Dr. Demopulos to retain his medical license, including medical malpractice insurance premiums and practice fees, parking expenses, business-related information technology expenses. In addition, in 2018 Dr. Demopulos received 401(k) matching contributions and life insurance premium payments under benefit plans available to all eligible employees. All Other Compensation for Mr. Jacobsen and Ms. Kelbon includes life insurance premium payments, parking expenses and 401(k) matching contributions.

2018 Grants of Plan-Based Awards

The following table shows certain information regarding grants of plan-based awards made to our executive officers for the year ended December 31, 2018.

 

 

 

 

All Other Option

 

 

 

 

 

 

 

 

 

 

 

Awards: Number

 

 

Exercise or Base

 

Grant Date Fair

 

 

 

 

 

of Securities

 

 

Price of Option

 

Value of Stock and

 

 

 

 

 

Underlying Options

 

 

Awards

 

Option Awards

 

Name

 

Grant Date

 

(#)(1)

 

 

($/Sh)

 

($)(2)

 

Gregory A. Demopulos, M.D.

 

04/08/18

 

 

350,000

 

(3)

13.58

 

 

3,250,275

 

Michael A. Jacobsen

 

04/08/18

 

 

60,000

 

(3)

13.58

 

 

557,190

 

Marcia S. Kelbon, J.D., M.S.

 

04/08/18

 

 

65,000

 

(3)

13.58

 

 

603,623

 

 

 

(1)

These option awards were granted under the 2017 Plan.

(2)

Amounts shown in this column do not reflect compensation realized by the named executive officers. Instead, the dollar amounts reported in this column represent the grant date fair value of option awards granted to our named executive officers during the applicable year as computed in accordance with FASB ASC Topic 718. The assumptions used to calculate the value of option awards are set forth in Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeiture related to service-based vesting conditions. Realization of the compensation reported in this column, if any, is dependent upon the price of our common stock at the time the stock options are exercised.

(3)

The shares subject to this option award vest on a monthly basis in equal amounts over a four-year period that began on April 1, 2018.

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Outstanding Equity Awards at 2018 Fiscal Year-End

The following table reflects outstanding equity awards held by each of the named executive officers as of December 31, 2018. The vesting schedule applicable to each outstanding award is described in the footnotes to the table below.

 

 

 

Number of

 

 

 

Number of

 

 

 

 

 

 

 

 

 

Securities

 

 

 

Securities

 

 

 

 

 

 

 

 

 

Underlying

 

 

 

Underlying

 

 

 

 

 

 

 

 

 

Unexercised

 

 

 

Unexercised

 

 

 

 

 

 

 

 

 

Options (#)

 

 

 

Options (#)

 

 

Option Exercise

 

 

Option Expiration

Name

 

Exercisable

 

 

 

Unexercisable

 

 

Price ($)

 

 

Date

Gregory A. Demopulos, M.D.

 

 

215,000

 

(1)

 

 

 

 

 

6.31

 

 

04/06/20

 

 

 

110,000

 

(2)

 

 

 

 

 

6.31

 

 

04/06/20

 

 

 

220,039

 

(3)

 

 

 

 

 

4.10

 

 

01/08/22

 

 

 

275,000

 

(4)

 

 

 

 

 

10.40

 

 

10/07/22

 

 

 

350,000

 

(6)

 

 

 

 

 

9.37

 

 

09/25/23

 

 

 

25,000

 

(6)

 

 

 

 

 

11.19

 

 

10/02/23

 

 

 

450,000

 

(8)

 

 

 

 

 

11.58

 

 

10/29/24

 

 

 

366,660

 

(9)

 

 

33,340

 

 

 

10.27

 

 

02/19/26

 

 

 

266,662

 

(10)

 

 

133,338

 

 

 

10.56

 

 

12/05/26

 

 

 

171,872

 

(11)

 

 

203,128

 

 

 

11.55

 

 

02/26/27

 

 

 

57,105

 

(12)

 

 

292,895

 

 

 

13.58

 

 

04/08/28

Michael A. Jacobsen

 

 

29,188

 

(7)

 

 

 

 

 

9.37

 

 

09/25/23

 

 

 

100,000

 

(8)

 

 

 

 

 

11.58

 

 

10/29/24

 

 

 

77,915

 

(9)

 

 

7,085

 

 

 

10.27

 

 

02/19/26

 

 

 

56,665

 

(10)

 

 

28,335

 

 

 

10.56

 

 

12/05/26

 

 

 

32,082

 

(11)

 

 

37,918

 

 

 

11.55

 

 

02/26/27

 

 

 

9,999

 

(12)

 

 

50,001

 

 

 

13.58

 

 

04/08/28

Marcia S. Kelbon, J.D., M.S.

 

 

53,996

 

(5)

 

 

 

 

 

6.05

 

 

03/28/20

 

 

 

90,000

 

(4)

 

 

 

 

 

10.40

 

 

10/07/22

 

 

 

40,972

 

(6)

 

 

 

 

 

9.37

 

 

09/25/23

 

 

 

110,000

 

(8)

 

 

 

 

 

11.58

 

 

10/29/24

 

 

 

73,332

 

(9)

 

 

6,668

 

 

 

10.27

 

 

02/19/26

 

 

 

53,332

 

(10)

 

 

26,668

 

 

 

10.56

 

 

12/05/26

 

 

 

34,374

 

(11)

 

 

40,626

 

 

 

11.55

 

 

02/26/27

 

 

 

10,833

 

(12)

 

 

54,167

 

 

 

13.58

 

 

04/08/28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on March 1, 2010.

(2)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on February 28, 2009.

(3)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on April 1, 2011.

(4)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on April 1, 2012.

(5)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on October 1, 2009.

(6)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on April 1, 2013.

(7)

1/4 of the shares subject to this option award vested on September 3, 2014 and 1/48 of the shares subject to this option award vest each month thereafter.

(8)

The shares subject to this option award vested on a monthly basis in equal amounts over a four-year period that began on April 1, 2014.

23


 

(9)

The shares subject to this option award vest on a monthly basis in equal amounts over a four-year period that began on
April 1, 2015.

(10)

The shares subject to this option award vest on a monthly basis in equal amounts over a four-year period that began on
April 1, 2016.

(11)

The shares subject to this option award vest on a monthly basis in equal amounts over a four-year period that began on
February 26, 2017.

(12)

The shares subject to this option award vest on a monthly basis in equal amounts over a four-year period that began on
April 1, 2018.

2018 Option Exercises and Stock Vested

The following table shows certain information regarding option exercises by our named executive officers during the year ended December 31, 2018.

 

 

 

Number of

 

 

 

 

 

 

 

Shares Acquired

 

 

Value Realized on

 

Name

 

on Exercise (#)

 

 

Exercise ($)(1)

 

Gregory A. Demopulos, M.D.

 

 

 

 

 

 

Michael A. Jacobsen

 

 

30,812

 

 

 

442,311

 

Marcia S. Kelbon, J.D., M.S.

 

 

174,061

 

 

 

2,812,689

 

 

(1)

Represents the difference between the closing price of our common stock on the date of exercise and the exercise price of the option award.

Potential Payments upon Termination or Change in Control

Pursuant to our employment agreement with Dr. Demopulos we are required to make payments to him upon termination of his employment in the circumstances described below. In addition, under the terms of our equity incentive plans, all of our named executive officers and significant employees are entitled to acceleration of vesting of their option awards upon a merger or change in control under certain conditions or pursuant to terms and conditions as may be determined by the compensation committee according to such plans.

Employment Agreement with Gregory A. Demopulos, M.D.

Overview. We entered into an employment agreement with Dr. Demopulos dated April 7, 2010 related to his service as our president and chief executive officer. Pursuant to the terms of his employment agreement, Dr. Demopulos is an at-will employee and was entitled to receive an initial annual base salary of $600,000, which our compensation committee reviews at least annually. In April 2018, our compensation committee increased Dr. Demopulos’ annual base salary to $776,134 from $753,528, effective as of April 1, 2018. We may not reduce Dr. Demopulos’ annual base salary without his consent. Dr. Demopulos is entitled to participate in awards under our equity compensation and/or equity incentive plans at a level and on terms commensurate with his position and responsibilities, and no less favorable than those applicable to chief executive officers of peer companies as reasonably determined by the compensation committee, taking into account the recommendation of our independent compensation consultants. Dr. Demopulos also is entitled to participate in any employee benefit and fringe benefit plans that we make available to our executive employees, such as our equity compensation plans, 401(k) plan, disability and life insurance and company-paid health insurance. We also have agreed to allow Dr. Demopulos to maintain his status as a board-eligible orthopedic and hand and microvascular surgeon, which includes his performance of surgical procedures on a limited basis and have agreed to pay related malpractice insurance and professional fees, which were $10,157 in 2018. We believe that Dr. Demopulos’ ability to maintain his standing as a practicing surgeon is beneficial to our corporate objectives including, for example, providing him with insight in determining the strategic direction of the company and our specific drug development programs, as well as establishing relationships with key medical opinion leaders.

The employment agreement prohibits Dr. Demopulos from carrying on any business or activity, directly or indirectly, in direct competition with us or soliciting our employees to terminate their employment with us or to work with one of our competitors during his employment and for a period of up to two years following termination of his employment. In addition, the employment agreement prohibits him from soliciting or attempting to influence any of our customers or clients to purchase products from our competitors rather than our products.

The compensation due to Dr. Demopulos pursuant to his employment agreement following termination of his employment with us varies depending upon the nature of the termination.

24


 

Termination Without Cause or for Good Reason. Dr. Demopulos’ employment agreement provides that if we terminate his employment without “cause,” as defined below, or if he terminates his employment with us for “good reason,” as defined below, then until the earlier of (a) two years from the date of his termination and (b) his start date with a new employer that pays him an annual base salary at least equal to the annual base salary we paid to him prior to his termination (provided that if he terminates his employment for good reason because of a reduction in his annual base salary, then the annual base salary that will be measured will be the annual base salary we paid him prior to such reduction), we will be obligated to pay him on our regularly scheduled payroll dates on an annualized basis:

 

the annual base salary he was receiving as of his termination, provided that if he terminates his employment for good reason because of a reduction in his annual base salary, then the annual base salary we will be obligated to pay him will be his annual base salary in effect prior to such reduction; plus

 

the greater of (1) the average annual bonus paid or payable with respect to the preceding two calendar years and (2) any bonus he would have been entitled to in the year of his termination as determined by our board of directors in good faith.

In addition, if we terminate Dr. Demopulos’ employment without cause or if he terminates his employment with us for good reason, all of his unvested option awards will immediately vest and become exercisable until the maximum term of the respective option awards and all unvested restricted shares he holds, if any, will immediately vest. Dr. Demopulos and his eligible dependents may also continue to participate in all health plans we provide to our executive employees on the same terms as our employees for a period of up to two years from the date of his termination, unless his new employer provides comparable coverage.

“Cause” is defined under Dr. Demopulos’ employment agreement to mean:

 

his willful misconduct or gross negligence in the performance of his duties, including his refusal to comply in any material respect with the legal directives of our board of directors so long as such directives are not inconsistent with his position and duties, and such refusal to comply is not remedied within 10 working days after written notice from the board of directors;

 

dishonest or fraudulent conduct that materially discredits us, a deliberate attempt to do an injury to us or conduct that materially discredits us or is materially detrimental to our reputation, including conviction of a felony; or

 

his material breach, if incurable, of any element of his confidential information and invention assignment agreement with us, including without limitation, his theft or other misappropriation of our proprietary information.

Dr. Demopulos may terminate his employment for “good reason” if he terminates his employment with us within 120 days of the occurrence of any of the following events:

 

any material diminution in his authority, duties or responsibilities;

 

any material diminution in his base salary;

 

we relocate his principal work location to a place that is more than 50 miles from our current location; or

 

we materially breach his employment agreement.

If any of the above events have occurred as a result of our action, we will have 30 days from notice of such event from Dr. Demopulos to remedy the situation, in which case Dr. Demopulos will not be entitled to terminate his employment for good reason related to the event.

If Dr. Demopulos’ employment had been terminated without cause or if he had terminated his employment with good reason on December 31, 2018, he would have been entitled to receive an annual base salary of $776,134 and an annual bonus amount of $496,316, payable on a bi-monthly basis over a period of up to two years from the date of termination. In addition, option awards with a value of $106,342 would automatically vest upon his termination, which is the difference between $11.14, the closing trading price of our common stock on December 31, 2018, and the exercise price of the outstanding option awards held by Dr. Demopulos with an exercise price of less than $11.14 per share, multiplied by the number of shares subject to each such option award that would have automatically vested on his termination date.

Dr. Demopulos and his eligible dependents would also be entitled to participate in the health plans we provide to our employees for a period of up to two years from the date of his termination at a cost to us of approximately $21,390.

Termination for Cause, Voluntary Termination, Death or Disability. If we terminate Dr. Demopulos’ employment for cause, if he voluntarily terminates his employment with us other than for good reason, or if his employment is terminated as a result of his death or “disability,” as defined below, Dr. Demopulos will be entitled to receive payments for all earned but unpaid salary, bonuses and vacation time, but he will not be entitled to any severance benefits.

25


 

“Disability” is defined under Dr. Demopulos’ employment agreement as his inability to perform his duties as the result of his incapacity due to physical or mental illness, and such inability, which continues for at least 120 consecutive calendar days or 150 calendar days during any consecutive 12-month period, if shorter, after its commencement, is determined to be total and permanent by a physician selected by us and our insurers and acceptable to Dr. Demopulos.

2008 Equity Incentive Plan and 2017 Omnibus Incentive Compensation Plan

Pursuant to the 2008 Equity Incentive Plan, or the 2008 Plan, in the event of a merger or “change in control,” as defined in the 2008 Plan, the vesting of option awards issued pursuant to such plan and held by our then-current employees, including those held by Dr. Demopulos, Mr. Jacobsen and Ms. Kelbon, as applicable, will be accelerated to the extent of 50% of the remaining unvested shares if the successor corporation assumes or substitutes outstanding option awards or replaces such awards with a comparable cash incentive program. Under both the 2008 Plan and the 2017 Plan, if there is no assumption or substitution of outstanding option awards or replacement of such awards with a comparable cash incentive program by the successor corporation in connection with a merger or “change in control” (as separately defined in each plan), the option awards will become fully vested and exercisable immediately prior to the change in control. In addition, under awards granted under each of the 2008 Plan and the 2017 Plan, if within 12 months following a change in control an employee, including Dr. Demopulos, Mr. Jacobsen or Ms. Kelbon, is terminated without “cause” or as a result of a “constructive termination,” as such terms are defined below, any outstanding option awards held by him or her, as applicable, that we issued pursuant to the 2008 Plan or the 2017 Plan, as applicable, will become fully vested and exercisable. The amounts under these plans that our named executive officers would have received under each of these scenarios appear in the table below.

The 2008 Plan or the equity award agreements thereunder define key terms relating to the change in control provisions as follows:

 

a “change in control” means a proposed sale of all or substantially all of our assets, or the merger of us with or into another corporation, or other change in control;

 

a termination for “cause” means a termination of an employee for any of the following reasons: (1) his or her willful failure to substantially perform his or her duties and responsibilities to us or a deliberate violation of a company policy; (2) his or her commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to us; (3) unauthorized use or disclosure by him or her of any proprietary information or trade secrets of ours or any other party to whom he or she owes an obligation of nondisclosure as a result of his or her relationship with us; or (4) his or her willful breach of any of his or her obligations under any written agreement or covenant with us; and

 

a “constructive termination” means the occurrence of any of the following events: (1) there is a material adverse change in an employee’s position causing such position to be of materially reduced stature or responsibility; (2) a reduction of more than 30% of an employee’s base compensation unless in connection with similar decreases of other similarly situated employees; or (3) an employee’s refusal to comply with our request to relocate to a facility or location more than 50 miles from our current location; provided that in order for an employee to be constructively terminated, he or she must voluntarily terminate his or her employment within 30 days of the applicable material change or reduction.

The 2017 Plan defines key terms relating to the merger or change in control provisions as follows:

 

a “change in control” means a sale of all or substantially all of our assets, or the merger of us with or into another corporation, or other change in control;

 

a termination for “cause” means a termination of the employment or consulting relationship with the company for any of the following reasons: (1) willful misconduct or gross negligence in performance of duties or material violation of company policy; (2) commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to us; (3) unauthorized use or disclosure of any proprietary information or trade secrets of ours or any other party to whom he or she owes an obligation of nondisclosure as a result of his or her relationship with us; or (4) willful breach of any of his or her obligations under any written agreement or covenant with us; and

26


 

 

a “constructive termination” means the employee’s termination of employment within 120 days of any of the following events: (1) any material diminution in the employee’s authority, duties or responsibilities; (2) any material diminution in base salary; (3) any change of more than 50 miles in the geographic location at which the employee must primarily perform services; and (4) any other action or inaction that constitutes a material breach by the company of an employment agreement with the employee; provided, however, that the employee must first provide the company with written notice specifying the foregoing occurrences within 90 days of such occurrence, and provide the company with an opportunity to cure the condition within 30 days of delivery of such notice.

Equity Acceleration Upon a Change in Control

The following table summarizes the value that Dr. Demopulos, Mr. Jacobsen and Ms. Kelbon would have derived from the acceleration of outstanding equity awards had a change in control (and certain other events, as applicable) occurred on December 31, 2018. The amounts below represent the difference between $11.14, the closing trading price of our common stock on December 31, 2018, and the exercise price of the option awards with an exercise price of less than $11.14 per share held by these individuals, multiplied by the number of shares subject to such option awards that would have vested pursuant to the terms of our equity plans on December 31, 2018 upon the occurrence of each of the events identified in the table below.

 

 

 

 

 

 

 

 

 

 

 

Termination Without

Cause or

 

 

 

Option Awards

 

 

Option Awards

 

 

Constructive

Termination

 

 

 

Assumed by

 

 

Not Assumed

 

 

Within 12 Months of

 

Name

 

Successor ($)

 

 

by Successor ($)

 

 

Change in Control ($)

 

Gregory A. Demopulos, M.D.

 

 

53,171

 

 

 

106,342

 

 

 

106,342

 

Michael A. Jacobsen

 

 

11,299

 

 

 

22,598

 

 

 

22,598

 

Marcia S. Kelbon, J.D., M.S.

 

 

10,634

 

 

 

21,269

 

 

 

21,269

 

 

CEO Pay Ratio Disclosure

We are required by SEC rules and regulations to disclose the annual total compensation for our CEO and the median annual total compensation for our worldwide employee population excluding our CEO, and the ratio of annual total compensation for our CEO to the annual total compensation for our median employee. Our population of employees was significantly higher as of December 31, 2018 when compared to December 31, 2017, the date on which we last identified our median employee. As such, we chose to re-identify the median employee for 2018 using substantially the same methodology as was used to identify the median employee for 2017. To identify and quantify the total compensation of our median employee and our CEO, we took the following steps:

1.We determined that, as of December 31, 2018, our employee population consisted of 232 individuals (excluding our CEO), all of whom reside in the U.S. This population consisted of our full-time, part-time and temporary employees employed with us as of the determination date.

2.To identify the “median employee” from our employee population, we used total W-2 compensation consistently applied to all employees included in the calculation. We annualized the compensation for full-time and permanent, part-time employees who were not employed by us for all of 2018 for purposes of establishing the distribution of employees within our population and identified the employee nearest the median of this distribution who was employed for the full year 2018 as our median employee. We did not use any statistical sampling techniques and did not make any cost of living adjustments in identifying our median employee.

3.For the annual total compensation of our median employee, we identified and calculated the elements of that employee’s compensation for 2018 in accordance with the requirements of Item 402(c)(2).

Based on this analysis, for 2018, total compensation of our CEO was $4,740,339, as reported in the Summary Compensation Table above, and the total compensation of our median employee was $142,837. This results in a ratio of annual total CEO compensation to annual total median employee compensation of approximately 33 to 1. Our reported CEO pay ratio is an estimate calculated in a manner consistent with SEC rules for identifying the median employee and determining the ratio of his or her compensation to that of our CEO. These rules permit companies to employ a wide range of methodologies, estimates and assumptions. CEO pay ratios reported by other companies, which may have used other permitted methodologies or assumptions, and which may have a significantly different work force structure from ours, are not necessarily comparable to our CEO pay ratio. Also, as noted

27


 

above, the dollar amount of stock option awards included in the total compensation for our CEO and our median employee represent the grant date fair value of stock option awards as computed in accordance with FASB ASC Topic 718, using assumptions set forth in Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Realization of this compensation is dependent upon the price of our common stock at the time the stock options are exercised.

 

 

TRANSACTIONS WITH RELATED PERSONS

The following is a summary of transactions since January 1, 2018 to which we have been a party in which the amount involved exceeded $120,000 and in which any of our executive officers, directors or beneficial holders of more than five percent of our common stock had or will have a direct or indirect material interest, other than compensation arrangements which are described elsewhere in this proxy statement. We believe that the terms of such transactions are as favorable as those we could have obtained from parties not related to us.

Technology Transfer Agreements

We are party to technology transfer agreements with Gregory A. Demopulos, M.D. pursuant to which he irrevocably transferred to us all of his intellectual property rights in our early PharmacoSurgery® platform and our former Chondroprotective program, for which we have suspended activity. Other than his rights as a shareholder, Dr. Demopulos has not retained any rights to our PharmacoSurgery platform or Chondroprotective program, except that if we file for liquidation under Chapter 7 of the U.S. Bankruptcy Code or voluntarily liquidate or dissolve, other than in connection with a merger, reorganization, consolidation or sale of assets, Dr. Demopulos and another individual have the right to repurchase the PharmacoSurgery and Chondroprotective intellectual property at their respective then-current fair market values.

Insurance Policies

In 2018 we purchased group insurance policies (i.e., medical, dental, vision, disability and life) for our employees through Group Solutions Northwest, LLC, or Group Solutions, for which we paid policy premiums of approximately $2.6 million in 2018. Group Solutions received commissions from the sale of these policies of approximately $100,000, or less than 10% of its 2018 revenues. The owner and chief executive officer of Group Solutions is Gary Aspiri, the son of Ray Aspiri, one of our directors. The audit committee evaluated this transaction and ratified and approved its terms, concluding that the premiums we paid, and commissions received by Group Solutions, were consistent with terms we could expect to obtain for comparable insurance coverage from an unrelated third party. The board of directors considered this transaction when evaluating Ray Aspiri’s independence under Nasdaq listing standards and applicable SEC rules and concluded that the transaction did not affect his status as an independent director or his ability to serve on the audit committee and compensation committee. Ray Aspiri did not participate in the proceedings of the audit committee or board of directors related to this transaction.

Indemnification Agreements

We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification for expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding relating to their service to Omeros.

Policies and Procedures for Related-Party Transactions

We have adopted a written policy that prohibits our executive officers, directors and director nominees and principal shareholders, including their immediate family members, from entering into a related-party transaction with us without the approval of our audit committee. Any request for us to enter into a transaction with an executive officer, director or director nominee, principal shareholder, or any of such persons’ immediate family members, in which such party had, has or will have a direct or indirect material interest and where the amount involved exceeds $120,000, other than certain excluded transactions including those involving compensation for services provided to us as an executive officer or director, must be presented to our audit committee for review, consideration and approval. All of our directors and executive officers are required to report to our audit committee any such related-party transaction. In considering the proposed related-party transaction, our audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, whether the transaction is fair to us, whether there are business reasons to enter into the transaction and whether the terms of the transaction would be similar if the transaction did not involve a related party, whether the transaction would impair the independence of a non-employee director, the materiality of the transaction and whether the transaction would present an improper conflict of interest between us and the related party.

 

28


 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our common stock at April 12, 2019, for: each person who we know beneficially owns more than five percent of our common stock; each of our directors; each of our named executive officers; and all of our directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. Applicable percentage ownership is based on 49,037,987 shares of common stock outstanding at April 12, 2019. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of April 12, 2019. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

Unless otherwise indicated, the address of each person who owns more than five percent of our common stock listed in the table below is c/o Omeros Corporation, The Omeros Building, 201 Elliott Avenue West, Seattle, Washington 98119.

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Percent of Class

 

 

 

Exercisable

 

 

Beneficially

 

 

Beneficially

 

Name and Address of Beneficial Owner

 

Stock Options(1)

 

 

Owned(2)

 

 

Owned

 

5% Security Holders:

 

 

 

 

 

 

 

 

 

 

 

 

Ingalls & Snyder, LLC (3)

 

 

 

 

 

5,582,273

 

 

 

11.4

%

BlackRock, Inc. (4)

 

 

 

 

 

3,989,206

 

 

 

8.1

%

D.E. Shaw & Co., L.P. (5)

 

 

 

 

 

2,488,108

 

 

 

5.1

%

Executive Officers and Directors:

 

 

 

 

 

 

 

 

 

 

 

 

Gregory A. Demopulos, M.D.

 

 

2,707,984

 

 

 

4,734,970

 

(6)

 

9.2

%

Michael A. Jacobsen

 

 

343,767

 

 

 

357,267

 

 

*

 

Marcia S. Kelbon, J.D., M.S.

 

 

504,860

 

 

 

705,505

 

 

 

1.4

%

Ray Aspiri

 

 

40,000

 

 

 

267,178

 

(7)

*

 

Thomas F. Bumol, Ph.D.

 

 

 

 

 

 

 

 

 

Thomas J. Cable

 

 

65,000

 

 

 

105,067

 

 

*

 

Peter A. Demopulos, M.D.

 

 

53,334

 

 

 

402,898

 

(8)

*

 

Arnold C. Hanish

 

 

55,000

 

 

 

57,400

 

 

*

 

Leroy E. Hood, M.D., Ph.D.

 

 

65,000

 

 

 

119,390

 

 

*

 

Rajiv Shah, M.D.

 

 

40,000

 

 

 

40,000

 

 

*

 

All executive officers and directors as a group (10 persons)

 

 

3,874,945

 

 

 

6,789,675

 

 

 

12.8

%

 

*

Less than 1%

(1)

Represents shares that could be purchased pursuant to the exercise of option awards vested as of and within 60 days of April 12, 2019.

(2)

Represents outstanding shares plus the options set forth in the previous column.

(3)

Derived from amount reported in Amendment No. 7 to Schedule 13G filed with the SEC on January 30, 2019. The address of Ingalls & Snyder, LLC is 1325 Avenue of the Americas, New York, NY 10019. The Schedule 13G/A indicates that Ingalls & Snyder, LLC has shared dispositive power, but lacks voting power, over the shares. The Schedule 13G/A filed by the reporting person provides information as of December 31, 2018 and, consequently, the beneficial ownership of the reporting person may have changed between December 31, 2018 and the date of this proxy statement.

(4)

Derived from amount reported in Amendment No. 4 to Schedule 13G filed with the SEC on February 6, 2019. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. The Schedule 13G/A indicates that BlackRock, Inc. has sole voting power over 3,884,507 shares of common stock and sole dispositive power over 3,989,206 shares of common stock. The Schedule 13G/A filed by the reporting person provides information as of December 31, 2018 and, consequently, the beneficial ownership of the reporting person may have changed between December 31, 2018 and the date of this proxy statement.

29


 

(5)

Derived from amount reported in the Schedule 13G filed with the SEC on March 8, 2019 by D.E. Shaw & Co., L.P. and David E. Shaw (collectively, the “Reporting Persons”). The address of the Reporting Persons is 1166 Avenue of the Americas, New York, NY 10036. The Schedule 13G indicates that the Reporting Persons have shared voting power over 2,466,008 shares of common stock and shared dispositive power over 2,488,108 shares of common stock. The Schedule 13G filed by the Reporting Rersons provides information as of March 1, 2019 and, consequently, the beneficial ownership of the Reporting Persons may have changed between March 1, 2019 and the date of this proxy statement.

(6)

Dr. Demopulos has pledged 2,026,986 of his outstanding shares of common stock as collateral for a line of credit as described in “Hedging and Pledging Policy” above in this proxy statement.

(7)

Includes 186,872 shares of common stock held by Aspiri Enterprises LLC, of which Mr. Aspiri is the managing partner and a member.

(8)

Includes 164,382 shares of common stock held by The Demopulos Family Trust, of which Dr. Peter Demopulos is the trustee and a beneficiary along with his mother and sister. Such shares are pledged as collateral for a line of credit as described in “Hedging and Pledging Policy” above in this proxy statement. Dr. Peter Demopulos disclaims beneficial ownership of the shares held by The Demopulos Family Trust except to the extent of his pecuniary interest therein.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our officers and directors and persons who own more than 10% of a registered class of our equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% shareholders are also required to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms, we believe that during the 2018 fiscal year all Section 16(a) filing requirements applicable to our officers, directors and 10% shareholders were satisfied, except that a Form 4 reporting stock options awarded to Gregory A. Demopulos on April 8, 2018 was filed one day late, on April 11, 2018.

 

PROPOSAL 2 AMENDMENT AND RESTATEMENT OF THE OMEROS CORPORATION 2017 OMNIBUS INCENTIVE COMPENSATION PLAN

Overview

We believe that equity-based compensation is fundamental to our attracting, retaining and motivating highly qualified and dedicated employees who have the skills and experience required to achieve our business goals, provides a strong link to our long-term performance, creates an ownership culture and generally aligns the interests of our executives and other employees with our shareholders.

On April 19, 2019, our board of directors approved the amendment and restatement of the 2017 Plan. We refer to such amended and restated plan as the Amended Plan. The Amended Plan will become effective when and if approved by our shareholders. The Amended Plan, marked to reflect changes to the 2017 Plan, is attached as Appendix A to this proxy statement. This summary does not purport to be a complete description of all terms of the Amended Plan and is qualified in its entirety by reference to the text of the Amended Plan.

Under the Amended Plan, the aggregate number of shares authorized for issuance is increased by 5,000,000 shares to a total of 8,600,000 shares. In addition to this increase in the total number of shares, shares underlying any awards that were outstanding under the 2008 Plan on the effective date of the 2017 Plan that are terminated, surrendered or canceled without having been fully exercised or that are forfeited in whole or in part after the effective date of the 2017 Plan will be available for issuance under the Amended Plan.

In addition to the increase in authorized number of shares, the Amended Plan places additional limits on the “recycling” of shares authorized for issuance under the Amended Plan by providing (i) that shares delivered to us (by actual delivery, attestation, or net exercise) in connection with the exercise of an award or to satisfy tax withholding obligations (including shares retained from an award creating the tax obligation) shall not be added back to the number of shares available for issuance under the Amended Plan and (ii) that any shares repurchased by us on the open market using the proceeds from the exercise of an award shall not increase the number of shares available for issuance under the Amended Plan. The Amended Plan also clarifies that the company may not repurchase outstanding options or stock appreciation rights without obtaining shareholder approval and provides that any cash dividends accrued on outstanding shares of restricted stock issued under the 2017 Plan shall not be paid unless and until such shares of restricted stock have become vested. The Amended Plan also contains certain other administrative changes, including the removal of provisions that no longer apply due to the elimination, as part of the Tax Act Cuts and Jobs Act of 2017, of the exception for performance-based compensation from the deductibility limitation in Section 162(m) under the Internal Revenue Code.

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Why We are Asking our Shareholders to Approve the Amendment and Restatement of the 2017 Plan

In connection with its recommendation that shareholders approve the 2017 Plan at our 2017 Annual Meeting of Shareholders our board of directors noted that the 3,600,000 shares of common stock authorized for issuance thereunder would be sufficient to meet our objectives for providing equity incentive compensation for approximately two years and that we expected to seek approval of an increase in the number of shares reserved at our 2019 Annual Meeting. Consistent with that expectation, the board of directors has approved and recommended that the shareholders approve the Amended Plan to ensure our ability to grant stock options and other equity awards as inducements to attract, retain and motivate our officers, employees, non-employee directors and other key persons. The other modifications contained in the Amended Plan reflect our commitment to ensuring that our compensation plans and programs reflect best practices for executive compensation and stewardship of corporate resources.

We have grown our headcount of employees significantly since 2017, from 148 as of March 31, 2017 to 235 as of March 31, 2019 and we expect to continue to grow our company significantly over the next several years. We have begun to build our commercial infrastructure and capabilities in anticipation of potential marketing approval of narsoplimab in the treatment of HSCT-TMA and, thereafter, in the treatment of IgA nephropathy. In addition, we continue to advance our other clinical and earlier-stage development programs. As we focus on building our company and enabling our expanded commercial infrastructure, we expect to continue to hire a significant number of employees in 2019 and beyond.

Our board of directors believes that our future success depends in large part on our ability to offer competitive compensation to attract, retain and motivate talented employees with skills and experience that are highly sought after. Our board of directors believes that approval of the Amended Plan, including the authorization of the additional shares for issuance thereunder, is appropriate and in the best interests of our shareholders given our current expectations on hiring and the highly competitive environment in which we recruit and retain employees.

If the Amended Plan is not approved by our shareholders, we anticipate that we will exhaust all the shares available for issuance under the 2017 Plan by late 2019, and potentially sooner depending on the pace of our hiring and the relative seniority of new employees. The inability to make competitive equity awards to attract and retain talented employees in a highly competitive market would adversely affect our business. As of April 12, 2019, there were stock options to acquire 11,826,231 shares of common stock outstanding under our equity compensation plans. These stock options have a weighted-average exercise price of $11.51 and a weighted-average remaining contractual term of 6.60 years. Other than the foregoing, no other equity awards were outstanding as of April 12, 2019. If shareholders approve the Amended Plan, these prior awards will remain outstanding and continue to be subject to the award agreements under which they were issued in all respects. At April 12, 2019, the number of remaining securities available for future issuance under our equity compensation plans consists of 551,564 shares of common stock available for future issuance under our 2017 Plan, which includes 427,463 shares that were subject to awards outstanding under the 2008 Plan that were terminated, surrendered or canceled after the effective date of 2017 Plan. This amount does not reflect the additional 5,000,000 shares authorized under the Amended Plan if it is approved by our shareholders.

Important Aspects of the Amended Plan

The Amended Plan includes a number of important features, including the following: 

 

Plan capacity. The maximum number of shares of common stock available for awards under the Amended Plan is 8,600,000 shares, plus any shares underlying any awards that were outstanding under the 2008 Plan on the effective date of the 2017 Plan that are terminated, surrendered or canceled without having been fully exercised or are forfeited in whole or in part after the effective date of the 2017 Plan. The issuance of additional awards under the Amended Plan would require further shareholder approval.

 

Fungible plan design. The Amended Plan provides that grants of “full-value” awards, such as restricted stock and restricted stock units, are deemed for purposes of determining the number of shares available for future grants under the Amended Plan as an award for 1.5 shares for each share of common stock subject to the award. Grants of stock options or stock appreciation rights are deemed to be an award of one share for each share of common stock subject to the award. This plan structure provides the company with flexibility to determine the equity awards that are best suited for its needs while at the same time recognizing that certain types of awards may be more valuable than others. We believe the size of the share reserve request will be sufficient to meet our objectives for providing equity incentive compensation until the 2022 annual meeting of shareholders, at which time we expect to seek approval of an increase in the number of reserved shares under the Amended Plan.

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Repricing prohibited without shareholder approval. The Amended Plan prohibits the repricing of outstanding stock options and stock appreciation rights, whether by amending an existing award or by substituting a new award at a lower price, or by any other action that would be treated as a repricing for accounting purposes, unless we obtain shareholder approval. The Amended Plan also clarifies that the company may not repurchase for cash outstanding stock options or stock appreciation rights.

 

Limitations on share recycling. Shares tendered or held back for taxes will not be added back to the reserved pool under the Amended Plan. Upon the exercise of a stock option, the full number of shares underlying the award will be charged to the reserved pool. Additionally, shares we reacquire on the open market or otherwise using cash proceeds of option exercises will not be added to the reserved pool.

 

No dividend payment for unvested awards. We have never paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future. However, to the extent we do pay dividends in the future, dividends or dividend equivalents (even if accrued) will not be paid on equity awards granted under the Amended Plan unless and until such award has vested.

Summary of the Amended Plan

The following is a description of the principal terms of the Amended Plan. The summary is qualified in its entirety by the full text of the Amended Plan.

Plan Administration

The Amended Plan is administered by the board of directors, the compensation committee or by a similar committee performing the functions of the compensation committee. We refer to this administering body as the plan administrator. The plan administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants and to determine the specific terms and conditions of each award, subject to the provisions of the Amended Plan. The plan administrator may delegate the administrative responsibilities of the Amended Plan and the board of directors may also delegate to the company’s chief executive officer a portion of its authority to grant awards, subject to certain limitations.

Eligibility and Limitations on Grants

Persons eligible to participate in the Amended Plan will be directors, officers, employees, consultants, advisors and other service providers of the company and its subsidiaries, as selected from time to time by the plan administrator. As of April 12, 2019, approximately 241 employees and non-employee directors (consisting of approximately 234 employees, including our three executive officers, and seven non-employee directors) would be eligible to participate in the Amended Plan.

The maximum aggregate number of shares of common stock that may be granted under the Amended Plan is 8,600,000 shares, plus any shares underlying any awards that were outstanding under the 2008 Plan on the effective date of the 2017 Plan that are terminated, surrendered or canceled without having been fully exercised or are forfeited in whole or in part after the effective date of the 2017 Plan. All of such shares may be delivered pursuant to incentive stock options, or ISOs, granted under the Amended Plan. For purposes of calculating the maximum number of shares that may be issued pursuant to all awards under the Amended Plan, every one share issuable pursuant to the exercise of a stock option or stock appreciation right shall count as one share, and every one share underlying restricted stock, restricted stock units, or other stock-based awards shall count as 1.5 shares.

Stock Options

Stock options may be granted under the Amended Plan pursuant to option agreements. The Amended Plan permits the grant of stock options that are intended to qualify as ISOs and options that are not intended to qualify as ISOs, which are commonly referred to as “nonstatutory” or “non-qualified” stock options. Generally, ISOs may be granted only to employees of the company and its subsidiaries. The differing tax treatment of ISOs and non-qualified stock options is discussed below under “Material U.S. Federal Income Tax Consequences of Participation in the Amended Plan.”

The exercise price of a non-qualified stock option may not be less than 100% of the fair market value of the common stock subject to the stock option on the date of grant. The exercise price of an ISO may not be less than 100% of the fair market value of the common stock subject to the stock option on the date of grant and, in some cases, may not be less than 110% of such fair market value. The Amended Plan prohibits the repricing of outstanding stock options and the exchange of cash or other securities for out-of-the money awards unless approved by our shareholders or in connection with a substitution of the option in connection with a

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corporate transaction under limited circumstances. Under the Amended Plan, a transaction subject to these restrictions would include (i) amending an option award to decrease the exercise price, (ii) cancelling an outstanding option in conjunction with the grant of a new option with a lower exercise price, (iii) repurchasing options for cash or (iv) any other action that would be treated for accounting purposes as a repricing of the option. The term of stock options granted under the Amended Plan may not exceed 10 years and, in some cases, may not exceed five years.

Acceptable forms of consideration for the purchase of our common stock pursuant to the exercise of a stock option under the Amended Plan will be determined by the plan administrator and may include payment by cash, certified or bank check, promissory note or consideration under a broker-assisted (or other) cashless exercise program. The plan administrator may also accept payment in the form of unrestricted common stock already owned by the optionee of the same class of common stock subject to the stock option; provided, however, that in the case of an incentive stock option, the right to make payment in the form of already owned shares of common stock of the same class as the common stock subject to the incentive stock option may be authorized only at the time the incentive stock option is granted.

After termination of an employee, director or consultant, he or she may exercise his or her option award for the period of time stated in the option agreement and plan. Unless otherwise specified in an option agreement or otherwise, if termination is due to death or disability, the option will remain exercisable for twelve months and, in all other cases, the option will remain exercisable for three months. However, an option may not be exercised later than the expiration of its term.

Stock Appreciation Rights

Stock appreciation rights may be granted under the Amended Plan pursuant to stock appreciation right agreements. Each stock appreciation right is denominated in common stock equivalents. The strike price of each stock appreciation right will be determined by the plan administrator but will in no event be less than 100% of the fair market value of the common stock subject to the stock appreciation right on the date of grant. The Amended Plan prohibits the repricing of stock appreciation rights or the exchange of cash or other securities for out-of-the-money awards unless approved by our shareholders or in connection with a substitution of the stock appreciation right in connection with a corporate transaction under limited circumstances. Under the Amended Plan, a transaction subject to these restrictions would include (i) amending a stock appreciation right to decrease the exercise price, (ii) cancelling an outstanding stock appreciation right in conjunction with the grant of a new stock appreciation right with a lower exercise price, (iii) repurchasing stock appreciation rights for cash (other than pursuant to the terms established at the initial time of issuance), or (iv) any other action that would be treated for accounting purposes as a repricing of the stock appreciation right. The plan administrator may also impose restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate. The appreciation distribution payable upon exercise of a stock appreciation right may be paid in shares of our common stock, in cash or in a combination of cash and stock at the election of the plan administrator. Stock appreciation rights expire under the same rules that apply to stock options.

Restricted Stock Awards

Restricted stock may be granted under our Amended Plan. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the plan administrator. The plan administrator will determine the number of shares of restricted stock granted to any employee. The plan administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the plan administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest will revert to the company.

Restricted Stock Units

Restricted stock units may be granted under our Amended Plan. Restricted stock units are awards of restricted stock, performance shares or performance units that are paid out in installments or on a deferred basis. The plan administrator determines the terms and conditions of restricted stock units including the vesting criteria and the form and timing of payment.

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Performance Units and Shares

Performance units and performance shares may be granted under our Amended Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the plan administrator are achieved or the awards otherwise vest. The plan administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. Performance units shall have an initial dollar value established by the plan administrator prior to the grant date. Performance shares will have an initial value equal to the fair market value of our common stock on the grant date. Payment for performance units and performance shares may be made in cash or in shares of our common stock with equivalent value, or in some combination, as determined by the plan administrator.

Other Awards 

The plan administrator is permitted to grant other awards of cash or our common stock or awards that are valued in whole or in part by reference to, or are otherwise based upon, common stock, including, without limitation, dividend equivalents.

Transferability of Awards

Unless the administrator provides otherwise, the Amended Plan generally does not allow for the transfer of awards during a participant’s lifetime and only the recipient of an award may exercise an award during his or her lifetime.

Change in Control Provisions

Under the Amended Plan, in the case of a merger or change in control (as defined in the Amended Plan), unless provided otherwise provided by the plan administrator, if awards are not assumed or substituted for awards issued by the successor that are comparable or are not replaced with a comparable cash incentive program of the successor:

 

all outstanding stock options and stock appreciation rights will immediately become fully vested and exercisable;

 

all restrictions on restricted stock and restricted stock units will lapse; and

 

all outstanding performance awards will be considered earned and payable in full at the target performance goal level.

In addition, in the event that the employment of a participant is terminated without cause (as defined in the Amended Plan), or there is a constructive termination (as defined in the Amended Plan), in connection with, or within twelve months following, a change in control, all outstanding stock options and stock appreciation rights of such person will immediately become fully vested and exercisable, all restrictions on restricted stock and restricted stock units will lapse, all performance goals or other vesting requirements for performance shares and units will be deemed achieved, and all other terms and conditions will be deemed to have been met.

In the event the service of a non-employee director is terminated on or following a merger or change in control, other than pursuant to a voluntary resignation, his or her options and stock appreciation rights will fully vest and become immediately exercisable, all restrictions on restricted stock and restricted stock units will lapse, all performance goals or other vesting requirements for performance shares and units will be deemed achieved, and all other terms and conditions will be deemed to have been met.

Tax Withholding

Participants in the Amended Plan are responsible for the payment of any federal, state, local or foreign taxes that we are required by law to withhold upon any option exercise or vesting of other awards. Unless otherwise determined, withholding obligations may be settled with common stock, including common stock that is part of the award that gives rise to the withholding requirement.

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Limitation on Deductions

Under Section 162(m) of the Code, our deduction for certain awards under the Amended Plan may be limited to the extent that any “covered employee” (generally, the principal executive officer, principal financial officer or other executive officer whose compensation is required to be reported in the Summary Compensation Table for any year following 2016) receives compensation in excess of $1.0 million a year.

Amendments and Termination

The board of directors may amend, alter, suspend or terminate the Amended Plan, but no amendment, alteration, suspension or termination will be made that would impair the rights of a recipient under an award without such recipient’s consent. We will obtain shareholder approval for any amendment to the Amended Plan to the extent required by applicable law and listing requirements.

Material U.S. Federal Income Tax Consequences of Participation in the Amended Plan

The following is a brief summary of the material U.S. Federal income tax consequences associated with awards under the Amended Plan, based on current U.S. Federal income tax laws and Treasury regulations promulgated thereunder, all as in effect or existence as of the date of this proxy statement. We have not sought, nor do we intend to seek, any ruling from the U.S. Internal Revenue Service with respect to the statements made in this section. This summary is not intended to be exhaustive, does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences. Moreover, the tax effects of participation in the Amended Plan may vary depending on the facts and circumstances pertaining to each participant. Each participant who receives an award under the Amended Plan should consult his or her own tax advisor with respect to his or her individual tax position and the effect of any legislative revisions on such position.

Unrestricted Stock. Generally, a participant receiving an award of unrestricted stock will recognize taxable income at the time unrestricted stock is granted. The taxable income will equal the excess of the fair market value of the unrestricted stock on the grant date over any amount the participant pays for the unrestricted stock. We generally will be entitled to an income tax deduction equal to the amount of ordinary income a participant recognizes in connection with an award of unrestricted stock.

Restricted Stock. The grant of restricted stock generally does not result in taxable income to a participant or a tax deduction for us. At the time the restrictions expire, however, a participant will realize ordinary taxable income in an amount equal to the fair market value of the stock on the date the restrictions expire. However, a participant may instead elect to include the value of the stock in income at the time of grant by making a “section 83(b) election.” If the participant later forfeits the restricted stock, the participant will not be able to deduct the amount previously recognized as income (although he or she might be able to claim a capital loss equal to any amount actually paid for the shares). We generally will be entitled to an income tax deduction equal to the amount of ordinary income a participant recognizes in connection with an award of restricted stock. The deduction generally will be allowed for the taxable year in which the participant recognizes such ordinary income. In addition, after the restriction period, a participant will be taxed on the accumulated dividends paid with respect to restricted stock as compensation, and we will be entitled to a corresponding deduction in the year the dividends were paid. However, if a participant makes a section 83(b) election to be taxed on the value of a restricted stock award granted when the award is granted, dividends paid with respect to the award will be taxed as dividends and will not be deductible by us.

Incentive Stock Options. ISOs are intended to meet the requirements of Section 422 of the Code. Generally, the grant of an ISO does not result in taxable income to the participant or a tax deduction for us. The exercise of an ISO will not result in ordinary taxable income to the participant (although the difference between the exercise price and the fair market value of the common stock subject to the ISO may result in alternative minimum tax liability to the participant) and we will not be allowed a deduction at any time in connection with such award, if the following conditions are met: