Endocyte, Inc.
ENDOCYTE INC (Form: DEF 14A, Received: 04/13/2012 13:02:34)
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.   )

Filed by the Registrant   x                              Filed by a Party other than the Registrant   ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240.14a-12
Endocyte, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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Title of each class 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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LOGO

April 13, 2012

Dear Fellow Stockholder:

It is my pleasure to invite you to the 2012 Annual Meeting of Stockholders of Endocyte, Inc. on Thursday, May 31, 2012 at 12:00 p.m. (EDT), at the offices of Faegre Baker Daniels LLP, Suite 600, 600 East 96th Street, Indianapolis, Indiana 46240. At the meeting, stockholders will vote on the business items listed in the notice of the meeting, which follows on the next page.

Again this year, we are furnishing proxy materials to our stockholders over the Internet. We believe that this e-proxy process expedites stockholders’ receipt of proxy materials, help keep our costs low and reduce the environmental impact of our annual meeting. On April 13, 2012, we mailed our stockholders a Notice of Internet Availability containing instructions on how to access our Proxy Statement and our 2011 Annual Report to Stockholders and vote online. The Notice also contains instructions on how you can receive a paper copy of the proxy statement and annual report.

Whether or not you plan to attend the meeting, your vote is important and we encourage you to vote promptly.

You may vote your shares via a toll-free telephone number or over the Internet. If you received a paper copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided. Instructions regarding all three methods of voting are contained in the proxy statement and on the proxy card.

I look forward to seeing you at the annual meeting.

 

Sincerely,

LOGO

P. Ron Ellis

President

and Chief Executive Officer


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Endocyte, Inc.

3000 Kent Avenue, Suite A1-100

West Lafayette, Indiana 47906

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

 

TIME

   12:00 p.m. (EDT) on Thursday, May 31, 2012

PLACE

   Offices of Faegre Baker Daniels LLP, Suite 600, 600 East 96 th  Street, Indianapolis, Indiana 46240

ITEMS OF BUSINESS

  

(1)   To elect three directors to serve until the 2015 annual meeting of stockholders.

  

(2)   To consider ratifying the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2012.

  

(3)   To transact such other business as may properly come before the meeting.

RECORD DATE

   You can vote if you are a stockholder of record on April 9, 2012.

ANNUAL REPORT

   Our 2011 annual report to stockholders accompanies but is not part of these proxy materials.

PROXY VOTING

   We cordially invite you to attend the meeting, but regardless of whether you plan to be present, please vote in one of these ways:
  

(1)   VISIT THE WEB SITE noted on your proxy card or the Notice of Internet availability of proxy materials to vote via the Internet;

  

(2)   If you receive a printed copy of the proxy materials by mail, USE THE TOLL-FREE TELEPHONE NUMBER shown on your proxy card (this is a free call in the U.S.);

  

(3)   If you receive a printed copy of the proxy materials by mail, MARK, SIGN, DATE AND PROMPTLY RETURN your proxy card in the envelope provided, which requires no additional postage if mailed in the U.S.

  

By order of the Board of Directors,

  

LOGO

  

Daniel L. Boeglin

  

Secretary

April 13, 2012


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TABLE OF CONTENTS

 

    Page  

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

    1   

BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN STOCKHOLDERS AND MANAGEMENT

    5   

CORPORATE GOVERNANCE MATTERS

    7   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    9   

TRANSACTIONS WITH RELATED PERSONS

    9   

MEETINGS AND COMMITTEES OF THE BOARD

    11   

PROPOSAL 1 — ELECTION OF DIRECTORS

    12   

PROPOSAL 2 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    16   

REPORT OF THE AUDIT COMMITTEE

    18   

EXECUTIVE COMPENSATION

    19   

COMPENSATION COMMITTEE REPORT

    19   

COMPENSATION DISCUSSION AND ANALYSIS

    19   

ASSESSMENT OF COMPENSATION-RELATED RISKS

    26   

SUMMARY COMPENSATION TABLE

    27   

GRANTS OF PLAN-BASED AWARDS IN 2011

    28   

OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END

    29   

OPTION EXERCISES AND STOCK VESTED IN 2011

    30   

OTHER 2011 COMPENSATION INFORMATION

    30   

ESTIMATED POST-EMPLOYMENT PAYMENTS UNDER ALTERNATIVE TERMINATION SCENARIOS

    31   

2011 DIRECTOR COMPENSATION

    34   

ANNUAL REPORT

    35   

STOCKHOLDER PROPOSALS AT 2013 ANNUAL MEETING

    36   

WHERE YOU CAN FIND MORE INFORMATION

    36   

INCORPORATION BY REFERENCE

    36   

 

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Endocyte, Inc.

3000 Kent Avenue, Suite A1-100

West Lafayette, Indiana 47906

PROXY STATEMENT

This proxy statement and accompanying proxy are being provided to stockholders in connection with the solicitation by the Board of Directors of Endocyte, Inc. (“Endocyte,” “we,” “us,” “our” or the “company”) of proxies to be voted at the 2012 annual meeting on May 31, 2012.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Why did stockholders receive a Notice of Internet Availability of Proxy Materials?

All of our stockholders will receive a Notice of Internet Availability of Proxy Materials, or Notice, which was or will be sent to stockholders on or about April 13, 2012, containing information on the availability of our proxy materials on the Internet. Stockholders will not receive a printed copy of our proxy materials unless requested in the manner described in the Notice. The Notice explains how to access and review this proxy statement and our 2011 Annual Report to Stockholders, and how you may vote by proxy.

What is a proxy?

A proxy is your legal designation of another person to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the persons named in the proxy card, P. Ron Ellis and Michael A. Sherman, the authority to vote your shares in the manner you indicate on your proxy card.

Who is qualified to vote?

You are qualified to vote on all matters presented to the stockholders at the meeting if you own shares of our common stock, par value $.001 per share, at the close of business on April 9, 2012.

How many shares may vote at the meeting?

On April 9, 2012, there were 35,837,144 shares of common stock outstanding, all of which are entitled to vote on all matters presented to stockholders at the meeting.

How many shares must be present to hold the meeting?

The presence at the meeting in person or by proxy of holders of common stock representing a majority of all the votes entitled to be cast at the meeting, or 17,918,573 shares, will constitute a quorum for the transaction of business.

What is the difference between a “stockholder of record” and a “street name” holder?

These terms describe how your shares are held. If your shares are registered directly in your name with Computershare Trust Company, N.A. our transfer agent, you are a “stockholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.

How do I vote my shares?

If you are a “stockholder of record,” you have several choices. You can vote your shares by proxy:

 

   

By mailing your proxy card;

 

   

Over the telephone; or

 

   

Via the Internet.


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Please refer to the specific instructions set forth on the Notice or printed proxy materials. For security reasons, our electronic voting system has been designed to authenticate your identity as a stockholder.

If you hold your shares in “street name,” your broker/bank/trustee/nominee will provide you with materials and instructions for voting your shares.

Can I vote in person at the meeting?

If you are a “stockholder of record,” you may vote your shares in person at the meeting. If you hold your shares in “street name,” you must obtain a proxy from your broker, bank, trustee or nominee, giving you the right to vote the shares at the meeting.

What do I need to do to attend the meeting in person?

Proof of stock ownership and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the meeting. Only stockholders who owned Endocyte, Inc. common stock as of the close of business on April 9, 2012 are entitled to attend the meeting.

 

   

If your shares are registered in your name and you owned Endocyte, Inc. common stock as of the close of business on April 9, 2012, you only need to provide some form of government issued photo identification for admission.

 

   

If your shares are held in a bank or brokerage account, contact your bank or broker to obtain a written legal proxy in order to vote your shares at the meeting. If you do not obtain a legal proxy from your bank or broker, you will not be entitled to vote your shares, but you can still attend the meeting if you bring a recent bank or brokerage statement showing that you owned shares of Endocyte, Inc. common stock on April 9, 2012.

What are the Board’s recommendations on how I should vote my shares?

The Board recommends that you vote your shares as follows:

 

   

Proposal 1:      FOR all of the nominees for election as directors.

 

   

Proposal 2:      FOR the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm (independent auditors) for the year ending December 31, 2012.

How would my shares be voted if I do not specify how they should be voted?

If you sign and return a proxy card without indicating how you want your shares to be voted, the persons named as proxies will vote your shares as follows:

 

   

Proposal 1:      FOR all of the nominees for election as directors.

 

   

Proposal 2:      FOR the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm (independent auditors) for the year ending December 31, 2012.

What are broker non-votes?

A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary authority to vote for that particular proposal and has not received instructions from the beneficial owner as to how to vote its shares. Proposal 1 falls into this category. If you do not provide your broker with voting instructions, your shares will not be voted on the proposal to elect directors.

 

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What vote is required to approve each proposal?

The following votes are required from the holders of common stock to approve each of the proposals:

 

Proposal
Number

  

Subject

  

Vote Required

  

Impact of Abstentions and

Broker Non-Votes, if any

1    Election of directors    Directors will be elected by a plurality of the votes cast. The nominees receiving the most FOR votes will be elected.    Abstentions and broker non-votes will not count as votes cast on the proposal and will not affect the outcome of the vote.
2    Ratification of appointment of independent auditors    The holders of a majority of the shares present in person or by proxy and eligible to vote at the meeting must vote FOR to approve the proposal.    Abstentions will have the same effect as votes cast AGAINST the proposal.

Why are there no advisory votes on executive compensation?

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we submitted two non-binding proposals to the stockholders at the 2011 annual meeting — an advisory vote to approve the company’s executive compensation, or “say-on-pay” vote, and an advisory vote on the frequency of future say-on-pay votes, or “frequency vote.” The holders of approximately 99.9% of the shares voted on the say-on-pay vote were cast in favor of our executive compensation. In addition, the holders of approximately 67.2% of the shares voted on the frequency vote at the 2011 annual meeting voted in favor of holding say-on-pay votes every three years. Accordingly, the Board of Directors has determined that the next say-on-pay vote will be conducted at the 2014 annual meeting and the next frequency vote will be conducted no later than the 2017 annual meeting.

Why did I receive more than one Notice or proxy card?

You will receive multiple Notices or cards if you hold your shares in different ways (e.g., joint tenancy, trusts, custodial accounts) or in multiple accounts. If your shares are held by a broker (i.e., in “street name”), you will receive your proxy card or other voting information from your broker, and you will return your proxy card(s) to your broker. You should vote on and sign each proxy card you receive.

Can I change my vote after I have mailed in my proxy card?

You may revoke your proxy by doing one of the following:

 

   

By sending a written notice of revocation to Corporate Secretary, Endocyte, Inc., 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268 that is received prior to the meeting, stating that you revoke your proxy;

 

   

By signing a later-dated proxy card and submitting it so that it is received prior to the meeting in accordance with the instructions included in the proxy card(s); or

 

   

By attending the meeting and voting your shares in person.

What happens if additional matters are presented at the annual meeting?

We know of no matters other than the items of business described in this proxy statement that are to be considered at the meeting. If other matters requiring a vote do arise, the persons named as proxies will have the discretion to vote on those matters for you.

Who will count the votes?

Our controller has been appointed by our board of directors as the inspector of election for the annual meeting. She will count the votes and later certify such action. The inspector will be present at the meeting.

 

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Will the meeting be accessible to disabled persons?

The location of the meeting is accessible to disabled persons. Please call Joye Prosser at least five days in advance at 765-463-7175 if you require any special accommodations.

How can I review the list of stockholders entitled to vote at the meeting?

A list of stockholders entitled to vote at the meeting will be available at the meeting and for ten days prior to the meeting, between the hours of 8:45 a.m. and 4:30 p.m., at our offices at 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268. If you would like to view the stockholder list, please contact our Corporate Secretary to schedule an appointment.

Who pays the cost of this proxy solicitation?

We will pay the cost of preparing, assembling and mailing the proxy materials. We will also request banks, brokers and other holders of record to send the proxy materials to, and obtain proxies from, beneficial owners and will reimburse them for their reasonable expenses in doing so.

Is this proxy statement the only way that proxies are being solicited?

Certain employees or other representatives of the company may also solicit proxies by telephone, facsimile, e-mail or personal contact. They will not be specifically compensated for doing so.

 

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BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN

STOCKHOLDERS AND MANAGEMENT

The following table sets forth information concerning the beneficial ownership of our common stock as of the record date of April 9, 2012, of (1) each person (including any group) known to us to beneficially own more than five percent (5%) of any class of our voting securities as of the record date, (2) our directors and nominees for election as directors, (3) our named executive officers and (4) all of our current directors, named executive officers and other executive officers as a group. Unless otherwise indicated in the footnotes, shares are owned directly and the indicated person has sole voting and investment power. Also, unless otherwise noted below, the address of each person listed on the table is c/o Endocyte, Inc., 3000 Kent Avenue, Suite A1-100, West Lafayette, Indiana 47906.

 

Name and Address of

Beneficial Owner

   Shares  
   Number of Shares      %  

FMR LLC(1)

82 Devonshire Street

Boston, MA 02109

     2,223,994         6.21   

Pension Fund of the Christian Church (Disciples of Christ), Inc.(2)

     3,382,678         9.44   

Pension Fund of the Christian Church

130 East Washington Street

Indianapolis, IN 46204-3645

     

RA Capital Management Group, 20 Park Plaza, Boston, MA 02116(3)

     2,530,679         7.06   

Entities related to Sanderling Ventures(4)

Sanderling Ventures

400 S. El Camino Real, Suite 1200

San Mateo, CA 94402

     3,769,786         10.52   

P. Ron Ellis(5)

     544,926         1.52   

Michael A. Sherman(6)

     192,435         *   

Philip S. Low, Ph.D.(7)

     589,062         1.64   

Christopher P. Leamon, Ph.D.(8)

     165,005         *   

Binh Nguyen M.D., Ph.D.

             *   

John G. Clawson(9)

     35,191         *   

John C. Aplin, Ph.D.(10)

     41,533         *   

Douglas G. Bailey(11)

     387,187         1.08   

Keith E. Brauer(12)

     43,548         *   

Ann F. Hanham, Ph.D.(13)

     1,353,205         3.78   

Peter D. Meldrum

             *   

Fred A. Middleton(14)

     3,865,256         10.79   

James S. Shannon, M.D., MRCP(15)

     19,378         *   

All directors and executive officers as a group (16 people)(16)

     7,391,566         20.63   

 

 

(1) Based solely on information provided in a Schedule 13G/A filed with the Securities and Exchange Commission on January 10, 2012. FMR LLC entities have the sole power to dispose of 2,223,994 shares of common stock and the sole power to vote 0 shares of common stock.

 

(2) Based solely on information provided in a Schedule 13G/A filed with the Securities and Exchange Commission on February 6, 2012.

 

(3) Based solely on information provided in a Schedule 13G/A filed with the Securities and Exchange Commission on January 31, 2012. The filing group consists of Peter Kolchinsky, RA Capital Management LLC, or Capital, and RA Capital Healthcare Fund, L.P., or Fund. Fund has the shared power to dispose of and vote 1,335,068 shares, and Mr. Kolchinsky and Capital each have shared power to dispose of and vote 2,530,679 shares of common stock.

 

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(4)   Consists of (i) 100,828 shares held by Sanderling V Beteiligungs GmbH & Co. KG; (ii) 162,170 shares held by Sanderling V Biomedical Co-Investment Fund, L.P.; (iii) 249,148 shares held by Sanderling V Biomedical, L.P.; (iv) 113,315 shares held by Sanderling V Limited Partnership; (v) 267,491 shares held by Sanderling Venture Partners V Co-Investment Fund; (vi) 1,017,304 shares held by Sanderling Venture Partners V, L.P.; (vii) 831,461 shares held by Sanderling Venture Partners VI Co-Investment Fund, L.P.; (viii) 149,003 shares held by Sanderling Ventures Management V; (ix) 75,166 shares held by Sanderling Ventures Management VI; (x) 8,434 shares held by Sanderling VI Beteiligungs GmbH and Co. KG; (xi) 10,049 shares held by Sanderling VI Limited Partnership and (xii) 785,417 shares held by Sanderling V Strategic Exit Fund, L.P. Fred Middleton is a managing director of Middleton, McNeil & Mills Associates V, LLC which has the ultimate voting and investment power over shares held of record by Sanderling V Beteiligungs GmbH & Co. KG, Sanderling V Biomedical Co-Investment Fund, L.P., Sanderling V Biomedical, L.P., Sanderling V Limited Partnership, Sanderling Venture Partners V, L.P., Sanderling Venture Partners VI Co-Investment Fund, L.P., Sanderling VI Beteiligungs GmbH and Co. KG and Sanderling VI Limited Partnership and he may be deemed to have voting and investment power over shares held of record by Sanderling V Beteiligungs GmbH & Co. KG, Sanderling V Biomedical Co-Investment Fund, L.P., Sanderling V Biomedical, L.P., Sanderling V Limited Partnership, Sanderling Venture Partners V, L.P., Sanderling Venture Partners VI Co-Investment Fund, L.P., Sanderling VI Beteiligungs GmbH and Co. KG and Sanderling VI Limited Partnership. Fred Middleton is the owner of Sanderling Ventures Management V and Sanderling Ventures Management VI Partnership and he may be deemed to have voting and investment power over shares held of record by Sanderling Ventures Management V and Sanderling Ventures Management VI Partnership. Mr. Middleton disclaims beneficial ownership of the shares directly held by the entities affiliated with Sanderling except to the extent of his individual pecuniary interest therein.

 

(5)   Consists of (i) 112,986 shares held by P. Ron Ellis and (ii) 431,940 shares held by P. Ron Ellis issuable upon exercise of options exercisable within 60 days of the record date.

 

(6)   Consists of (i) 73,298 shares held by Michael A. Sherman, (ii) 19,919 shares held by Sherman Investors LLC over which Mr. Sherman disclaims beneficial ownership except to the extent of his pecuniary interest therein, and (iii) 99,218 shares issuable upon exercise of options exercisable within 60 days of the record date.

 

(7)   Consists of (i) 419,117 shares held by Philip S. Low and Joan Low, JTWROS and (ii) 169,945 shares held by Philip S. Low issuable upon exercise of options exercisable within 60 days of the record date.

 

(8)   Consists of (i) 25,073 shares held by Christopher P. Leamon and (ii) 139,932 shares issuable upon exercise of options exercisable within 60 days of the record date.

 

(9)   Consists of (i) 14,721 shares held by John G. Clawson and (ii) 20,470 shares issuable upon exercise of options exercisable within 60 days of the record date.

 

(10)   Consists of (i) 21,063 shares held by John Aplin and (ii) 20,470 shares issuable upon exercise of options exercisable within 60 days of the record date.

 

(11)   Consists of (i) 110,870 shares held by entities affiliated with ABV Holding Company, (ii) 74,529 shares held by Douglas G. Bailey, (iii) 138,349 shares held by Douglas G. Bailey and Sara G. Bailey JT TEN, (iv) 42,969 shares by Irrevocable Trust for Benefit of Laura Bailey and (v) 20,470 shares held by Douglas G. Bailey issuable upon exercise of options exercisable within 60 days of the record date. Douglas Bailey, a managing member of ABV Holding Company, is a member of our Board of Directors. Mr. Bailey disclaims beneficial ownership of the shares directly held by the entities affiliated with ABV Holding Company except to the extent of his pecuniary interest therein.

 

(12)   Consists of 43,458 shares issuable upon exercise of options exercisable within 60 days of the record date.

 

(13)   Consists of (i) 1,332,735 shares held by entities affiliated with Burrill & Company and (ii) 20,470 shares held by Ann F. Hanham issuable upon exercise of options exercisable within 60 days of the record date. Dr. Hanham disclaims beneficial ownership of the shares held by the entities affiliated with Burrill & Company except to the extent of her individual pecuniary interest therein.

 

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(14)   Consists of (i) 3,769,786 shares held by entities affiliated with Sanderling Ventures, (ii) 75,000 shares held by Fred A. Middleton and (iii) 20,470 shares held by Fred A. Middleton issuable upon exercise of options exercisable within 60 days of the record date.

 

(15)   Consists of 19,378 shares issuable upon exercise of options exercisable within 60 days of the record date.

 

(16)   Includes 1,145,446 shares issuable upon exercise of options exercisable within 60 days of the record date.

CORPORATE GOVERNANCE MATTERS

Policies on Corporate Governance

Our Board of Directors recognizes that good corporate governance is important to ensure that the company is managed for the long-term benefit of stockholders. The Board has adopted Corporate Governance Principles, written charters for each of its standing committees and a Code of Ethics and Business Conduct and will amend them as appropriate to reflect new policies or practices. The current version of each of these documents is available on our website, www.endocyte.com, in the Investor Relations section, and will be provided in print without charge upon written request to our Corporate Secretary at 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268.

We will also either disclose on Form 8-K or post on our Internet website any substantive amendment to, or waiver from, a provision of the Code of Ethics and Business Conduct that applies to any of our directors or executive officers.

Board Composition

Our Board of Directors is currently composed of nine members, divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the Annual Meeting of Stockholders to be held during the years 2014 for the Class I directors, 2012 for the Class II directors and 2013 for the Class III directors.

 

   

Our Class I directors are Philip S. Low, John C. Aplin and Douglas G. Bailey.

 

   

Our Class II directors are John G. Clawson, Ann F. Hanham and Keith E. Brauer.

 

   

Our Class III directors are P. Ron Ellis, Fred A. Middleton and James S. Shannon.

Our amended and restated certificate of incorporation and bylaws provide that the number of our directors, which is currently nine members, shall be fixed from time to time by a resolution of the majority of our Board of Directors.

Board Leadership Structure

John C. Aplin, one of our independent directors, currently serves as a non-executive Chairman of the Board. P. Ron Ellis is our President and Chief Executive Officer. Mr. Ellis focuses on the day-to-day developments of the company and establishes the company’s growth strategy and strategic plan. Mr. Aplin chairs the Board and, in that capacity, can impact the issues that are brought before the Board. The Board of Directors believes that these complementary roles provide an appropriate leadership structure for the company at this time.

The Board of Directors expects to re-evaluate its leadership structure on an ongoing basis and may change it as circumstances warrant. As stated in our Corporate Governance Principles, the Board believes that these two roles may, but need not be, the same person. If the Chairman and the Chief Executive Officer is combined in the future, the Board will designate one of its independent directors as “Lead Independent Director” with the responsibilities described in our Corporate Governance Principles. The Board believes that it is in the best interest of the company if the Board has the flexibility to change its leadership structure to one in which the offices of Chairman of the Board and Chief Executive Officer are held by one person based upon the circumstances then present.

 

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Board’s Role in Oversight of Risk Management

While risk management is primarily the responsibility of our management, the Board of Directors, acting primarily through the Audit Committee, provides overall risk oversight with a focus on the most significant risks facing us. We use a risk management process to identify and assess the major risks we face and develop strategies for controlling, mitigating and monitoring risk. As part of this process, we gather information throughout the company to identify and prioritize major risks. The identified risks and mitigation strategies are validated with management and presented to the Audit Committee on an ongoing basis.

Examples of major risks we have identified are our ability to achieve regulatory milestones, enter into license or other business development transactions, access capital, and execute clinical trials in a timely manner.

Information concerning risks relating to our compensation policies and practices is provided on page 26 of this proxy statement.

Additional review or reporting on risks is conducted as needed or as requested by the Board or Audit Committee.

Director Independence

Our common stock is listed on The Nasdaq Global Market. Under the listing rules of The Nasdaq Stock Market LLC (“Nasdaq”), independent directors must comprise a majority of a listed company’s board of directors and, subject to specified exceptions, independent directors must be the members of a listed company’s audit, compensation and nominating and corporate governance committees. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under the Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

After reviewing the composition of the Board of Directors, the composition of its committees and the independence of each director, our Board of Directors has determined that none of Messrs. Brauer, Bailey, Clawson and Middleton and Drs. Aplin, Hanham and Shannon, representing seven of our nine directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the Nasdaq listing rules. Our Board of Directors also determined that Mr. Brauer and Drs. Aplin and Hanham, who comprise our audit committee, Messrs. Bailey, Clawson and Middleton, who comprise our Compensation Committee, and Drs. Shannon and Hanham, who comprise our Nominating and Corporate Governance Committee, satisfy the independence standards for those committees established by applicable Securities and Exchange Commission rules and the Nasdaq listing rules.

In making its determination of independent status, our Board of Directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Our Board of Directors has determined that neither Mr. Ellis nor Dr. Low meets the independence eligibility requirements of the Nasdaq listing rules or Rule 10A-3 because both of them are executive officers and employees of the company. Consequently, Mr. Ellis and Dr. Low are not considered independent directors.

Nominations for Directors

The Nominating and Corporate Governance Committee will consider director nominees recommended by stockholders. A stockholder who wishes to recommend a director candidate should send such recommendation to

 

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our Corporate Secretary at 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268, who will forward it to the committee. Any such recommendation should include a description of the candidate’s qualifications for Board service, the candidate’s written consent to be considered for nomination and to serve if nominated and elected, and addresses and telephone numbers for contacting the stockholder and the candidate for more information. A stockholder who wishes to nominate an individual as a director candidate at the annual meeting of stockholders, rather than recommend the individual to the Nominating and Corporate Governance Committee as a nominee, must comply with the advance notice requirements for stockholder nominations set forth in our Amended and Restated By-Laws.

Director Qualifications

The Board of Directors believes that its members should exhibit high standards of independent judgment and integrity, have a strong record of achievement, have an understanding of our business and the competitive environment in which we operate, and bring the benefits of their experiences and backgrounds to the Board and committee functions. Directors should be committed to enhancing stockholder value on a long-term basis and have sufficient time to carry out their duties.

In considering director nominees, the Nominating and Corporate Governance Committee reviews the current composition of the Board, including issues of character, judgment, diversity, age, independence, corporate experience, length of service, understanding of the Company’s business, other commitments and any specialized areas of expertise needed by the Board or any of its committees. Although the Board does not have a policy requiring the consideration of diversity as a principal factor in identifying director candidates, the committee is expected to evaluate a candidate's background, age, education, professional accomplishments and experiences and the effect that the candidate's election would have on the composition of the Board as a whole.

Communications with the Independent Directors of the Board

The Board has implemented a process by which our stockholders and other interested parties may communicate with the Board or one or more members of our Board in a written communication addressed to Corporate Secretary, Endocyte, Inc., 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268. The Board has instructed our Corporate Secretary to promptly forward all such communications to the specified addressees thereof. However, certain items which are unrelated to the duties and responsibilities of the Board will be excluded, such as: product complaints, product inquiries, new product suggestions, resumes, surveys and advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that any communication that is filtered out must be made available to any non-management director upon request.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based on our records, we believe that during 2011 all applicable Section 16(a) filing requirements were met, except that two Form 5’s reporting gifts made by Messrs.  Ellis and Sherman were inadvertently filed one day late.

TRANSACTIONS WITH RELATED PERSONS

Policy

We have adopted a formal policy that our executive officers, directors, holders of more than five percent of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us in without the prior consent of our audit committee, or other independent members of our Board of Directors in the case it is inappropriate for our audit committee to review such transaction due to a conflict of interest. In approving or

 

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rejecting any such proposal, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

Related Party Transactions

We have been a party to the following transactions since January 1, 2011, in which the amount involved exceeded or will exceed $120,000, and in which any director, executive officer or holder of more than five percent of any class of our voting stock, or any member of the immediate family of or entities affiliated with any of them, had or will have a material interest.

Participation in Our Initial Public Offering

Entities affiliated with Burrill & Company, which prior to our initial public offering held more than five percent of our voting securities, purchased 500,000 shares of our common stock in our initial public offering for an aggregate purchase price of $3,000,000. Similarly, entities affiliated with Sanderling Ventures, a current holder of more than five percent of our voting securities, purchased 833,333 shares of our common stock in our initial public offering for an aggregate purchase price of approximately $5,000,000.

Transactions with Our Founders and Entities Affiliated with Our Founders

Philip S. Low, Ph.D., our Chief Science Officer and one of our founders and directors, conducts research at Purdue Research Foundation. We entered into an exclusive license agreement dated October 21, 1998, as amended, and an exclusive license agreement effective March 1, 2011 with Purdue Research Foundation to license certain intellectual property and methods that were invented in Dr. Low’s laboratory. Additionally, we entered into a lease dated March 1, 2011 with Purdue Research Foundation.

Dr. Low is entitled to a total of $50,000 upon the achievement of certain milestones pursuant to a patent assignment agreement dated November 1, 2007 that we entered into with Optical Therapeutic Technologies, or OTT, Dr. Low and three other individuals, pursuant to which each of the individuals assigned certain patent applications to us and OTT released any rights to conjugate patents of such patent applications. The patent assignment agreement provided each of the individuals, but not OTT, with the following payments:

 

   

$6,250 to each individual upon signing the patent assignment agreement;

 

   

$12,500 to each individual upon the issuance of the first conjugate patent by the USPTO; and

 

   

$37,500 to each individual upon the FDA’s approval of the first product comprising or containing any conjugate covered by a valid claim of a conjugate patent.

To date, we have paid the first payment of $6,250 to each individual upon execution of the patent assignment agreement, totaling $25,000. Potential payments totaling $200,000 may be paid to the individuals upon the achievement of the two milestones described above. The patent assignment agreement does not provide a term or termination provisions.

In September 2011, we entered into an agreement with On Target Laboratories, L.L.C., or On Target, to develop and commercialize products relating to the compound comprising our Folate and DUPA ligands and certain other licensed patents. The chief executive officer of On Target is the brother of Dr. Low, one of our directors and Chief Scientific Officer. We believe the terms of the On Target agreement are no less favorable to us than terms that would be available in an arm’s-length transaction. On Target is solely responsible for conducting research and development, seeking regulatory approval and commercialization of products. If On Target fails to meet minimum spend requirements in 2011 and 2012 on research and development, we have the right to terminate the agreement. We will be entitled to receive minimum royalty payments annually based on net sales, but there is no guarantee that a commercial product will be developed and approved for commercial sales. We will also be entitled to reimbursement of expenses relating to patent expenses and payments to the inventors and Purdue University as certain milestones are met. During 2011, we received $191,000 in license payments, and we expect to receive approximately $20,000 during 2012.

 

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MEETINGS AND COMMITTEES OF THE BOARD

Meetings and Attendance

Our business, property and affairs are managed under the direction of our Board of Directors. Members of our Board of Directors are kept informed of our business by our President and Chief Executive Officer, other officers and the Chairman of the Board, by reviewing materials provided to them, and by participating in meetings of the Board and its committees. Directors are also expected to use reasonable efforts to attend the annual meeting of stockholders. During 2011, the Board of Directors met eight times. The Board conducts many of its oversight responsibilities through three standing committees, including an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. During 2011, all directors participated in 75% or more of the aggregate number of meetings of the Board and the committees on which they served. All directors attended the 2011 annual meeting of stockholders in person, except for Dr. Hanham who participated by telephone.

Executive Sessions of Independent Directors

The independent directors meet in executive session without management present following each regularly scheduled Board meeting. The Chairman of the Board presides over these executive sessions. He also helps to set agendas for Board meetings and serves as a liaison between the independent directors and the senior management team.

Committee Membership

The table below provides current membership information for each of the standing committees of the Board:

 

Name

   Audit     Compensation     Nominating
and
Corporate Governance
 

John C. Aplin, Ph.D.(1)

     X       

Douglas G. Bailey

       X (2)   

Keith E. Brauer

     X (2)     

John G. Clawson

       X     

P. Ron Ellis

      

Ann F. Hanham, Ph.D.

     X          X   

Philip S. Low, Ph.D.

      

Fred A. Middleton

       X     

James S. Shannon, M.D., MRCP

         X (2) 

Number of 2011 Meetings

     10        9        8   

(1) Chairman of Board

      

(2) Committee Chairman

      

The Audit Committee

The members of our Audit Committee are Mr. Brauer and Drs. Aplin and Hanham, each of whom is a non-employee member of our Board of Directors. The committee’s chairman, Mr. Brauer, is our audit committee financial expert, as that term is defined under the Securities and Exchange Commission rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, and possesses financial sophistication, as defined under the Nasdaq listing rules. Our Audit Committee is responsible for, among other things:

 

   

reviewing and approving the selection of our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors;

 

   

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

 

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

 

   

discussing the scope and results of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end operating results; and

 

   

preparing the audit committee report that the Securities and Exchange Commission requires in our annual proxy statement.

The Compensation Committee

The members of our Compensation Committee are Messrs. Bailey, Clawson and Middleton. Mr. Bailey is the chairman of the committee. The Compensation Committee is responsible for, among other things:

 

   

overseeing our compensation policies, plans and benefit programs;

 

   

reviewing and approving for our executive officers: the annual base salary, the annual incentive bonus, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control arrangements, and any other benefits, compensations or arrangements;

 

   

discussing the Compensation Discussion and Analysis required by Securities and Exchange Commission regulations with management and, if appropriate, recommending its inclusion in the company’s annual report on Form 10-K and proxy statement;

 

   

administering the issuance of stock options and other awards under our stock plans; and

 

   

reviewing the results of advisory votes on executive compensation and determining whether to revise our compensation policies and programs to respond to stockholder concerns.

No member of the Compensation Committee during 2011 was an officer, employee or former officer of Endocyte or had any relationship requiring disclosure in this proxy statement pursuant to Securities and Exchange Commission regulations. None of our executive officers served as a member of a compensation committee or a director of another entity under the circumstances requiring disclosure in this proxy statement pursuant to Securities and Exchange Commission regulations.

The Nominating and Corporate Governance Committee

The members of our Nominating and Corporate Governance Committee are Drs. Shannon and Hanham. Dr. Shannon is the chairman of the committee. The committee held eight meetings during 2011. The Nominating and Corporate Governance Committee is responsible for, among other things:

 

   

assisting our Board of Directors in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to our Board of Directors;

 

   

reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our Board of Directors;

 

   

reviewing the succession planning for our executive officers;

 

   

overseeing the evaluation of our Board of Directors and management; and

 

   

recommending members for each committee of our Board of Directors.

PROPOSAL 1 — ELECTION OF DIRECTORS

The Board of Directors currently consists of nine members divided into three classes whose three-year terms of office expire at successive annual meetings. Directors elected at the annual meeting will serve for a term of office expiring at the 2015 annual meeting. Based on the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated the persons listed below as “Nominees for Director.” Two of the nominees — Mr. Brauer and Dr. Hanham — are current directors; Mr. Meldrum is not currently a director.

 

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We expect each nominee for election as a director will be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees.

One of our current Class II directors, John G. Clawson, is not seeking reelection to the Board, so his term will expire at the annual meeting. The Board of Directors is extremely grateful to Mr. Clawson for his service to the company, including his many years as Chairman of the Board.

There are no family relationships among any of our directors or executive officers. The names, principal occupations and certain other information about the nominees and the directors whose term of office is not expiring at the annual meeting, as well as key experiences, qualifications, attributes and skills of those persons that led the Nominating and Corporate Governance Committee to conclude that such person is currently qualified to serve as a director are set forth on the following pages.

Nominees for Director (Class II Directors)

Keith E. Brauer

Age 63

Audit Committee (Chairman)

Mr. Brauer has served as a member of our Board of Directors since August 2006. From August 1999 through December 2011, Mr. Brauer served in various roles at the Community Hospitals of Indianapolis, or CHI, including roles with CHI’s affiliate, Indiana Heart Hospital, or IHH. Mr. Brauer served as a member of CHI’s finance committee from August 1999 to December 2011, and as a member of IHH’s board of directors from April 2006 to December 2011, as Chairman of IHH’s board of directors. Mr. Brauer was also a member of CHI’s board of directors from October 2000 to December 2009 and as Chairman of CHI’s board of directors from August 2003 to August 2005. He has also served on the board of directors since June 2006 and chairman of the audit committee since September 2006 of NanoInk, Inc., a nanometer-scale manufacturing and applications development company. He has also served on the board of directors since August 2008 and chairman of the audit committee since October 2008 of NICO Corporation, a neurosurgery company. From 1988 to 1994, Mr. Brauer served in various executive roles at Eli Lilly and Company, a healthcare company, most recently as Executive Director and Chief Accounting Officer. From July 1994 to April 2006, Mr. Brauer served as Vice President, Finance and Chief Financial Officer of Guidant, which was acquired by Boston Scientific Corporation, a medical device company, in April 2006. Mr. Brauer retired with full benefits after the acquisition of Guidant and has not sought full time employment since that time. Mr. Brauer occasionally consults for investors in the medical device industry. Mr. Brauer holds a B.S. in management from Indiana University and an M.B.A. from the University of Michigan and has been a member of the Financial Executives Institute since 1984.

We believe that Mr. Brauer possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his financial, general operational and management experience.

Ann F. Hanham, Ph.D.

Age 59

Audit Committee

Nominating and Corporate Governance Committee

Dr. Hanham has served as a member of our Board of Directors since November 2004. Dr. Hanham joined Burrill & Company, a venture capital and merchant banking firm, in February 2000 and has served as a Managing Director there since January 2002. Dr. Hanham served on the board of directors of BioMimetic Therapeutics, Inc., a biopharmaceutical company, from May 2001 to September 2006; Biotie Therapies, a drug discovery and development company, from March 2009 to April 2011; and Targacept, a biopharmaceutical company, from September 2005 to August 2006. Dr. Hanham holds a B.Sc. from the University of Toronto, a M.Sc. from Simon Fraser University and a Ph.D. from the University of British Columbia.

 

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We believe that Dr. Hanham possesses specific attributes that qualify her to serve as a member of our Board of Directors, including experience in the venture capital industry and her years of financial, business and leadership experience in the biomedical industry.

Peter D. Meldrum

Age 64

Mr. Meldrum has been President and Chief Executive Officer and a director of Myriad Genetics, Inc. a molecular diagnostic company, since November 1991 and a director of Myriad since May 1991. Prior to joining Myriad, he was President and Chief Executive Officer of Founders Fund, Inc., a venture capital group specializing in the biotechnology industry. He received a Doctorate of Engineering (honorary) from the University of Utah in 2009, a Doctorate of Science (honorary) from Westminster College in 2004, an M.B.A. from the University of Utah in 1974 and a B.S. in Chemical Engineering from the University of Utah in 1970.

We believe that Mr. Meldrum's experience serving as the chief executive of a publicly held molecular diagnostic company for more than ten years will bring an added skill set to our board. Mr. Meldrum has over 37 years of experience in the biotechnology, diagnostic and related industries. Mr. Meldrum will also provide expertise in investor relations. Finally, Mr. Meldrum's scientific background and industry knowledge can be expected to lead to important insights for the Board.

The Board of Directors Unanimously Recommends that

Stockholders Vote FOR the Nominees Named Above.

Information regarding the company’s directors continuing in office is provided below.

Class III Directors (Terms expire in 2013)

P. Ron Ellis

Age 50

Mr. Ellis is one of our founders and has served as our President and Chief Executive Officer since January 1996 and as a member of our Board of Directors since December 1995. From May 1987 to December 1995, Mr. Ellis served in various positions at Hill-Rom Company, but most recently as Vice President of Strategy and Corporate Development of the specialty care division. Mr. Ellis holds a B.S. in computer science and an M.B.A. from Brigham Young University and a certification in regulatory affairs from Purdue University.

We believe that Mr. Ellis possesses specific attributes that qualify him to serve as a member of our Board of Directors, including the perspective and experience he brings as our President and Chief Executive Officer and as one of our co-founders, which brings historic knowledge, operational expertise and continuity to our Board of Directors.

Fred A. Middleton

Age 62

Compensation Committee

Mr. Middleton has served as a member of our Board of Directors since July 2001. Since 1987, Mr. Middleton has been a General Partner and Managing Director of Sanderling Ventures, a biomedical venture capital firm. During the last 30 years, Mr. Middleton has served in a number of roles as a member of management, board member or an investor of in over 25 biomedical companies. Mr. Middleton currently serves as Chairman of the Board of directors of Stereotaxis (STXS), a medical device company, as Chairman of the Board of Pacira Pharmaceuticals (PCRX), and as a member of board of directors of CardioNet (BEAT), a cardiac rhythm management services company. Mr. Middleton also serves on the board of directors of six other privately-held biomedical and biotechnology companies. He holds a B.S. in chemistry from the Massachusetts Institute of Technology and an M.B.A. with Distinction from the Harvard Business School.

We believe that Mr. Middleton possesses specific attributes that qualify him to serve as a member of the Board of Directors, including his experience in the venture capital industry and his general operational and management experience working with early-stage biomedical companies.

 

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James S. Shannon, M.D., MRCP (UK)

Age 55

Nominating and Corporate Governance Committee (Chairman)

Dr. Shannon has served as a member of our Board of Directors since February 2010. Dr. Shannon served as the President and Chief Executive Officer of Cerimon Pharmaceuticals, a biopharmaceutical company, from January 2009 to April 2011 and has served as a director from October 2008 until August 2011. Dr. Shannon served in various executive roles at Novartis AG, a healthcare products company from December 1994 to September 2008, serving as Global Head of Pharma Development from November 2005 to September 2008. He has served on the board of directors of MannKind Corporation, a biopharmaceutical company, since February 2011, Crucell, a biopharmaceutical company, from June 2010 until February 2011, Biotie Therapies, a biopharmaceutical company, since April 2010, and several other private companies. Dr. Shannon holds a B.Sc., an M.B., a B.Ch., a B.A.O. and an M.D. in medicine from Queen’s University of Belfast and is a Member of the Royal College of Physicians (UK).

We believe that Dr. Shannon possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his general operational and management experience in the biomedical industry, his experience managing product development programs and his experience in international markets.

Class I Directors (Terms expire in 2014)

John C. Aplin, Ph.D.

Age 66

Chairman of the Board

Audit Committee

Dr. Aplin has served as a member of our Board of Directors since May 2003 and as Chairman since May 2011. Since November 1990, Dr. Aplin has served as General Partner and Managing Director of CID Capital, a venture capital firm. Dr. Aplin has served on the board of directors of 25 companies and was the Chairperson of the M.B.A. program at Indiana University. Dr. Aplin holds a B.S. in business administration from Drake University, and an M.A. in industrial and labor relations and a Ph.D. in business administration from the University of Iowa. Dr. Aplin is also a Certified Management Consultant.

We believe that Dr. Aplin possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his experience in the venture capital industry, his years of business and leadership experience and his financial sophistication and expertise.

Douglas G. Bailey

Age 62

Compensation Committee (Chairman)

Mr. Bailey has served as a member of our Board of Directors since July 2001. Mr. Bailey is the founder of American Bailey Corporation, a private equity firm for which he has served as President since October 1984 and as Chief Executive Officer since 1996. Mr. Bailey has served as the President and Chief Executive Officer since April 2011, Chairman of the board of directors since January 2011, Deputy Chairman from 2002 through 2009, and a director since April 1998 of Fuel Tech, Inc., a technology company enabling clean, efficient energy. Mr. Bailey holds a B.S., an M.S. and Engineer’s degree, all in mechanical engineering from Massachusetts Institute of Technology, and an M.B.A. from the Harvard Business School.

We believe that Mr. Bailey possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his experience in the private equity industry and his years of business and leadership experience.

 

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Philip S. Low, Ph.D.

Age 61

Dr. Low is one of our founders and has served as our Chief Science Officer since April 1998 and as a member of our Board of Directors since December 1995. Dr. Low has served on the faculty at Purdue University since August 1976, where he is currently the Ralph C. Corley Distinguished Professor of Chemistry. Dr. Low holds a B.S. in chemistry from Brigham Young University and a Ph.D. in biochemistry from the University of California, San Diego.

We believe that Dr. Low possesses specific attributes that qualify him to serve as a member of our Board of Directors, including the perspective and experience he brings as our Chief Science Officer and as one of our co-founders, which brings historic knowledge, scientific expertise and continuity to our Board of Directors.

Current Class III Director Not Seeking Reelection

John G. Clawson

Age 84

Compensation Committee

Mr. Clawson has served as a member of our Board of Directors since December 1995 and as Chairman of our Board of Directors from August 2001 to May 2011. Mr. Clawson served as Chief Executive Officer of Hill-Rom, Inc., a wholly owned subsidiary of Hill-Rom Holdings, Inc., a medical device and equipment company, and a former subsidiary of Hillenbrand Industries, a healthcare and funeral services company, from 1975 to 1993. From May 2002 to November 2008, Mr. Clawson served as a director of Non-Invasive Monitoring Systems, a medical appliance and equipment company. Mr. Clawson holds a B.A. in social sciences from Brigham Young University and an M.B.A. from the Harvard Business School.

PROPOSAL 2 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for 2012, and we are asking stockholders to approve a proposal to ratify that appointment.

The Audit Committee approves all audits and permissible non-audit services to be provided to the company by Ernst & Young LLP prior to commencement of services and has delegated to the Chairman of the Audit Committee the authority to approve specific services up to specified individual and aggregate fee amounts. These approval decisions are presented to the full Audit Committee at the next scheduled meeting after such approvals are made.

The company has incurred fees as shown below for services from Ernst & Young LLP. Ernst & Young LLP has advised us that it has billed or will bill the company the below indicated amounts for the following categories of services for the years ended December 31, 2011 and 2010, respectively:

 

     2011      2010  

Audit Fees(1)

   $ 709,100       $ 490,000   

Audit-Related Fees

               

Tax Fees(2)

     66,900         142,400   

All Other Fees

               

 

(1) Includes fees for services rendered for the annual audits for the years ended December 31, 2011 and 2010, reviews of the quarterly financial statements, issuance of consent and comfort letters in connection with filing our registration statement for our public offerings and consultation services relating to debt issuances.

 

(2) Includes fees relating to tax return preparation and services in 2011 related to a Section 382 study relating to usage of the company’s net operating loss carryforwards.

We expect that representatives of Ernst & Young LLP will be present at the meeting and will be available to respond to appropriate questions. They will also have an opportunity to make a statement if they desire to do so.

 

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If the holders of a majority of voting shares voting on this matter do not ratify the selection, the Audit Committee will reconsider its choice taking into consideration the views of the stockholders and may, but will not be required to, appoint a different independent registered public accounting firm.

The Board of Directors Unanimously Recommends that Stockholders Vote FOR Ratification of the

Appointment of Ernst &Young LLP as our Independent Registered Public Accounting Firm for 2012.

 

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REPORT OF THE AUDIT COMMITTEE

The Audit Committee is responsible for monitoring the integrity of the company’s financial statements, the qualifications, performance and independence of the company’s independent registered public accounting firm and the company’s compliance with legal and regulatory requirements. We have the sole authority to appoint or replace the company’s independent registered public accounting firm. The committee operates under a written charter adopted by the Board. The committee currently has three members. The Board has determined that each committee member is independent under the standards of director independence established under our Corporate Governance Principles, the Nasdaq listing standards and applicable securities laws.

Management is responsible for the financial reporting process and the preparation of financial statements in accordance with accounting principles generally accepted in the United States. The company’s independent registered public accounting firm is responsible for auditing the financial statements and expressing an opinion on the financial statements. Our responsibility is to oversee and review the financial reporting process. We are not, however, professionally engaged in the practice of accounting or auditing and do not provide any expert or other special assurance as to such financial statements concerning compliance with laws, regulations or accounting principles generally accepted in the United States or as to the independence of the independent registered public accounting firm. We rely, without independent verification, on the information provided to us and on the representations made by management and the independent registered public accounting firm.

We held ten meetings during 2011. The meetings were designed, among other things, to facilitate and encourage communication among the committee, management and the independent registered public accounting firm, Ernst & Young LLP.

We discussed with Ernst & Young LLP the overall scope and plans for their respective audits. We met with Ernst & Young LLP, with and without management present, to discuss the results of their examinations.

We discussed with management the company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, particularly related to the company’s plans for compliance with the Sarbanes-Oxley Act.

We reviewed and discussed the audited financial statements for the year ended December 31, 2011 with management and Ernst & Young LLP. We reviewed Ernst & Young LLP’s report on our financial statements which indicated that the financial statements present fairly, in all material respects, our financial position and results of operations and cash flows in conformity with accounting principles generally accepted in the United States. We also discussed with management and Ernst & Young LLP the process used to support certifications by the company’s Chief Executive Officer and Chief Financial Officer that are required by the Securities and Exchange Commission to accompany the company’s periodic filings with the Securities and Exchange Commission.

We also discussed with Ernst & Young LLP matters required to be discussed by their professional standards, including, among other things, matters related to the conduct of the audit of the company’s financial statements and the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

We also received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with us concerning independence and we discussed with Ernst & Young LLP the independence of that firm.

When considering Ernst & Young LLP’s independence, we considered if services they provided to the company beyond those rendered in connection with their audit of the company’s financial statements and reviews of the company’s quarterly unaudited financial statements were compatible with maintaining their independence. We concluded that the provision of such services by Ernst & Young LLP’s has not jeopardized Ernst & Young LLP’s independence.

 

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Based on our review and these meetings, discussions and reports, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee Charter, we recommended to the Board that the company’s audited financial statements for the year ended December 31, 2011 be included in the company’s annual report on Form 10-K. The Committee has also selected Ernst & Young LLP as the company’s independent registered public accounting firm for the year ending December 31, 2012 and will present an advisory proposal to the stockholders at the meeting to ratify the selection.

The Audit Committee:

Keith E. Brauer, Chairman

John C. Aplin

Ann F. Hanham

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

The Compensation Committee consists of the three directors named below, each of whom meets the independence standards of the company’s Corporate Governance Principles, the Nasdaq listing standards and applicable securities laws.

The committee has the authority to engage its own advisers to assist it in carrying out its responsibilities. The Compensation Committee used Radford, an Aon Hewitt Consulting Company, or Radford, as its consultant during 2011. The consultant reports to the Compensation Committee directly and interacts with management, as necessary. The consultant has not performed work for the company other than pursuant to an engagement by the Compensation Committee.

The committee held nine meetings during 2011. The meetings were designed, among other things, to facilitate and encourage free and frank discussion between committee members and the consultant as well as extensive communication among committee members, executive management, and other company personnel involved in executive compensation matters.

The committee reviewed and discussed with management the Compensation Discussion and Analysis that immediately follows this report. Based on its review and these discussions with management, the committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the company’s annual report on Form 10-K for the fiscal year ended December 31, 2011, and proxy statement for the 2012 annual meeting of stockholders.

The Compensation Committee:

Douglas G. Bailey, Chairman

John G. Clawson

Fred A. Middleton

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

The following discussion and analysis is intended to supplement the more detailed information concerning executive compensation that appears in the rest of this section and in the compensation tables and accompanying narrative which follow this section. Our goal is to provide a better understanding of our compensation practices and the decisions that affected the compensation payable for 2011 to our executive officers, including the President and Chief Executive Officer, the Chief Financial Officer and the other executive officers named in the Summary Compensation Table, whom we refer to in this discussion as the named executive officers, or NEOs.

 

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The Compensation Committee of our Board of Directors, referred to in this section as the committee, plays a key role in designing and administering our executive compensation program. All principal elements of compensation paid to our executive officers are subject to approval by the committee. The Compensation Committee Report immediately precedes this discussion.

During 2011, we achieved a number of significant accomplishments, including the following:

 

   

we raised over $150 million in public offerings of common stock in February and August, which we believe is sufficient to fund the phase 3 trial of EC145 for the treatment of platinum-resistant ovarian cancer and a phase 2 trial of EC145 for the treatment of non-small cell lung cancer;

 

   

we conducted several meetings with both European health authorities and the FDA gaining alignment on clinical trial design for the Phase 3 PROCEED trial and making progress in our plans to seek conditional marketing authorization for EC145 and EC20 from the European Medicines Agency;

 

   

we initiated enrollment in the Phase 3 PROCEED trial according to plan; and

 

   

we executed a successful validation study of EC20 to select both FR(+) and FR(++) patient populations.

Results of 2011 Advisory Votes on Compensation

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, and regulations of the Securities and Exchange Commission, we submitted two non-binding proposals to our stockholders at the 2011 annual meeting. These proposals consisted of an advisory vote to approve the compensation of the NEOs as disclosed in the proxy statement, or a say-on-pay vote, and an advisory vote on the frequency of future say-on-pay votes, or a frequency vote. Stockholders holding approximately 99.9% of the votes cast on the say-on-pay vote voted to approve it. Stockholders holding approximately 67.2% of the votes cast on the frequency vote voted in accordance with the recommendation of the Board of Directors to hold future say-on-pay votes every three years. As a result, the next say-on-pay vote will be held at the 2014 annual meeting and the next frequency vote will be held no later than the 2017 annual meeting.

Substantially all of the committee’s decisions affecting the compensation of the NEOs for 2011 had been made prior to holding last year’s advisory votes on executive compensation. In view of the substantial support expressed by the stockholders on the say-on-pay vote, the committee did not make any changes to our executive compensation programs and policies in response to or as a result of the 2011 advisory votes. However, the committee intends to continue to monitor stockholder concerns in making future decisions affecting the compensation of the NEOs.

Compensation Philosophy

Our executive compensation program seeks to attract and retain our senior executives and motivate them to pursue our corporate objectives while encouraging the creation of long-term value for our stockholders. Through our annual goal-setting process, organizational objectives are established for our company and employees, including the NEOs. We evaluate and reward our NEOs through compensation intended to motivate them to identify and capitalize on the opportunities that result in our growth and success.

The main elements of our NEO compensation program are:

 

   

base salary;

 

   

short-term incentives through our cash bonus program;

 

   

long-term incentives through equity awards; and

 

   

broad-based employee benefits.

The committee believes that each of these compensation components are necessary to help us attract and retain the executive talent on which we depend. These elements comprise a compensation package for our NEOs that is intended to reward achievement of our business goals, link individual performance to our corporate performance, provide competitive pay and align the interests of our NEOs with those of our stockholders.

 

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Compensation Decision Process

Role of Committee

Prior to our initial public offering, decisions affecting the compensation of our officers were made by the Board of Directors based on committee recommendations which the Board could approve or modify as it saw fit. Now, all compensation decisions affecting our executive officers, including the NEOs, are solely determined by the committee.

Role of Management

The Chief Executive Officer, or CEO, typically attends all meetings of the committee, except for executive sessions. At the request of the committee, our CEO provides his assessment of the performance of our NEOs, other than himself. Our CEO also takes an active part in the discussions of the committee at which the compensation of NEOs other than himself are discussed. The committee may agree with our CEO’s recommendations or may reach a different conclusion as to the compensation of such NEOs. However, all decisions regarding our CEO’s compensation are determined by the committee in executive closed sessions outside of the CEO’s presence.

Role of Compensation Consultant

The committee has the authority to engage its own advisers to assist it in carrying out its responsibilities. The committee selected Radford, an Aon Hewitt Consulting Company, or Radford, as its consultant. The consultant reports directly to the committee and interacts with management, as necessary. For 2011, Radford provided us with benchmark data derived from surveys and the peer comparator group discussed below. Radford also provides advisory services supporting the committee in developing and executing elements of compensation plans for all employees. The consultant has not performed any work for us or management other than as part of their engagement by the committee.

Benchmarking

With the assistance of its consultant, Radford, in October 2010, the committee determined a group of similarly situated public peer companies, from which we benchmark competitive pay levels and compensation practices as disclosed pursuant to such companies’ publicly filed compensation data. The peer group was determined using the following criteria:

 

   

U.S. companies operating in drug delivery systems or biopharmaceutical industries that are similarly situated in phase 3 clinical trials or after filing an NDA;

 

   

comparable companies in terms of stage of development and our forecasted financial profile; and

 

   

sufficient room for growth without over- or under-extending the breadth of our selected peer group.

The peer group consisted of:

 

Alimera Sciences

   MAP Pharmaceuticals

Ardea Biosciences

   Medivation

ARIAD Pharmaceuticals

   Nabi Biopharmaceuticals

ArQule

   Novavax

AVEO Pharmaceuticals

   Omeros

BioCryst Pharmaceuticals

   Optimer Pharmaceuticals

Cadence Pharmaceuticals

   Orexigen Therapeutics

Cytokinetics

   Pain Therapeutics

DURECT

   Pharmacyclics

Dynavax Technologies

   Targacept

In determining 2011 compensation for our NEOs, the committee considered data for the peer group updated for a 3% salary increase trend in 2011 and other executive compensation data provided by Radford from surveys.

 

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This data is used to validate and ensure that compensation falls within a competitive range against industry norms. Generally, for the NEOs, the committee targets base salary to be between the 25th and 50th percentile of the peer group. It sets cash bonus opportunities at the 50th percentile and equity award opportunities at the 75th percentile. However, benchmarking is only one of many factors the committee considers in setting NEO compensation.

Performance-driven Compensation

The committee emphasizes performance in annually reviewing and setting our NEOs’ base salary, bonuses and equity awards. This emphasis on performance with respect to a substantial portion of compensation is intended to motivate our NEOs to pursue our business objectives, reward them for achievement of these objectives and align their interests with those of our stockholders.

Our annual bonus program provides participants, including NEOs, with opportunities to earn cash bonuses that relate to specific goals for company and individual performance. Bonuses are paid in the following year after the committee determines the payouts to the participants.

We also use equity awards to motivate performance. Stock options only have value to the extent our stock price improves over the term of the options. During 2011, the committee not only made awards of stock options, as it has done for several years, but also awards of performance-based restricted stock units, or PRSUs, that are subject to objective performance conditions. The PRSUs will be earned in whole or in part depending on our receiving regulatory approval permitting us to commercialize a product.

Elements of Executive Compensation

Base Salary

We provide base salaries to our NEOs and other employees to compensate them for services rendered on a day-to-day basis during the year. Generally, the base salary element of compensation is used to recognize the experience, skills, knowledge and responsibilities required of each NEO, and over time reflects an NEO’s overall sustained performance and contributions to our business. The reviews of NEO base salary levels conducted by our CEO, except with respect to his own salary, and by the committee are subjective, based on their general experience with respect to setting salary levels and supplemented by survey data and assessments of the performance of our NEOs. Survey and comparator group data also is used to validate that determinations fall within acceptable parameters relative to the market.

The following table sets forth information regarding the base salaries for 2011 for the NEOs. For the persons who were NEOs in 2011, it also shows the percentage increase from the prior year.

 

Named Executive Officer

   2011 Base Salary      Percentage Increase
from Prior Year
 

P. Ron Ellis

   $ 375,000         22.5

Michael A. Sherman

   $ 250,000         11.1

Christopher P. Leamon, Ph.D.

   $ 250,000         11.1

Philip S. Low, Ph.D.(1)

   $ 100,000           

Binh Nguyen M.D., Ph.D.(2)

   $ 290,000           

 

  (1) Dr. Low was not an NEO for 2010. Dr. Low’s compensation is based on part-time employment status.

 

  (2) Dr. Nguyen was hired in June 2011.

The increases in base salaries were made in consideration of our successful achievement of most of the corporate performance goals that had been set for 2010, achievement of other performance goals as they related to each NEO and the committee’s subjective assessment of each NEO’s performance of major job responsibilities and demonstration of teamwork, excellence and commitment. The increases generally exceeded market growth in salaries in order to transition NEO base salaries into the target range of the 25 th percentile of the peer group.

 

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Short-Term Incentives (Cash Bonuses)

NEOs are eligible to earn annual cash bonuses that relate to goals set by the committee for company and individual performance.

For 2011, the committee approved a target cash bonus opportunity for the chief executive officer equal to 50% of his base salary and target cash bonus opportunities for the other executive officers at 30% of base salary. For 2011, the Board of Directors had approved a number of strategic priorities in the areas of clinical trials, regulatory processes, financing and intellectual property management.

In February 2012, the committee assessed the performance of the company and the executive team in 2011. Key accomplishments included those discussed above under “— Executive Summary.” The committee also reviewed the accomplishment of company and individual goals for 2011. The committee reached a consensus based largely on the members’ subjective assessment of company and executive performance. The committee concluded that, on an overall basis, both the company and the executive team had exceeded expectations for the year. Based on this performance, the committee agreed to establish a bonus pool equal to 1.25 times the aggregate target amounts for the eligible participants. This pool was then allocated among participants, including the NEOs, with additional consideration to their individual performance relative to predetermined goals. This resulted in a bonus of 63% of base salary for the CEO and a range in bonuses as a percent of the salaries of other NEOs between 36% and 40%.

Long-Term Incentives (Equity Awards)

We believe that strong corporate performance over the long term is achieved with a corporate culture that encourages a long-term focus by our NEOs through the use of equity awards, the value of which depends on our stock performance. We use equity awards to provide certain of our employees, including our NEOs, with incentives to help align those employees’ interests with the interests of our stockholders and to enable them to participate in the long-term appreciation of our stockholder value. Additionally, equity awards provide an important retention tool for key employees, as the awards generally are subject to vesting over an extended period of time based on continued service with us.

Typically, we have made equity awards annually at the beginning of each year based primarily on corporate performance as a whole during the preceding year. In 2011, we delayed equity awards until April when the committee was in a position to review our audited financial statements for 2010 and our experience of becoming a public company. In addition, we may grant equity awards upon the occurrence of certain events during the year, for example, upon an employee’s hire or achievement of a significant business objective.

All 2011 equity awards were made under our 2010 Equity Incentive Plan, or EIP. The EIP permits the grant of incentive stock options to our employees and the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

The number of shares issuable under the EIP includes any shares subject to stock options or similar awards granted under our prior two plans that expire or terminate without having been exercised in full and unvested shares issued pursuant to awards granted under the prior plans that are forfeited to or repurchased by us, with the maximum number of shares to be added to the EIP from the prior plans equal to 2,486,910 shares. In addition, the EIP provides for annual increases in the number of shares available for issuance by an amount equal to the least of:

 

   

2,094,240 shares;

 

   

four percent of the outstanding shares of our common stock as of the last day of our immediately preceding year; or

 

   

such other number of shares as our Board of Directors may determine.

In November 2011, the Board approved increasing the number of shares available for issuance by 1,400,000 shares. At April 3, 2012, there were 618,513 shares available for issuance under the EIP.

 

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Shares issued pursuant to awards under the EIP that we repurchase or that expire or are forfeited, as well as shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award, will become available for future grant under the EIP. In addition, to the extent that an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the EIP.

The EIP is administered by the committee which has the power to determine the terms of awards, including the recipients, to prescribe rules and to construe and interpret the EIP and awards granted under the EIP.

For 2011, the committee made equity awards to the NEOs under the EIP in a combination of stock options and PRSUs. The stock option grants were designed to provide a compensation opportunity equal to the 50 th  percentile of the peer group comparable equity market value. The PRSUs were modeled by the consultant to provide additional equity value to bring the total equity awards to the 75 th percentile of the peer group comparable equity market value.

For 2011, the committee took into account the equity holdings of each of our NEOs and engaged in benchmarking ownership levels of individual NEOs as compared with our peer group. As a result of previous recommendations from Radford regarding increasing equity ownership to the extent deemed essential in ensuring NEOs have sufficient incentive and retention value, the committee continued to monitor our NEOs’ equity ownership level, including total equity ownership and unvested equity stakes.

As explained above, the equity awards made to the NEOs in 2011 consisted of two components — stock options and PRSUs.

Stock Options . In 2011, the committee made the following stock option awards to the NEOs under the EIP:

 

Named Executive Officer

   2011 Option
Grants
(Number of Shares)(1)
 

P. Ron Ellis

     160,000   

Michael A. Sherman

     60,000   

Christopher P. Leamon, Ph.D.

     63,089   

Philip S. Low, Ph.D.

     50,000   

Binh Nguyen M.D., Ph.D.

     88,000   

 

 

  (1) The options vest in four annual installments, subject to maintaining continued service.

Dr. Nguyen's grant was made in June 2011 in connection with his employment by the company. The grant date fair value of the stock option grants are included in the Summary Compensation Table on page 27 and the Grants of Plan-Based Awards in 2011 table on page 28.

The stock option grants in 2011 brought our NEOs to appropriate ownership percentiles compared to survey data ranging from the 25 th percentile to the 80 th percentile. Based on Radford benchmarking and what the committee determined appropriate for Mr. Ellis, the committee determined that the foregoing ownership levels, when compared to the survey data, were fair and at reasonable levels for incentive and retention purposes.

2011 PRSU Program . The second equity component used by the committee in 2011 was the PRSU program created under the EIP for the company’s employees, including the NEOs.

PRSUs awarded under the 2011 PRSU program will be earned, in whole or in part, depending upon whether the company receives, with respect to any country or jurisdiction, approval of the applicable regulatory authority to manufacture and sell a product in that country or jurisdiction, or Commercial Approval. The target number of PRSUs will be earned when we obtain Commercial Approval from any regulatory authority for any therapeutic compound or product of the company, or the First Commercial Approval, provided that such approval is granted on or before May 26, 2016, or the termination date. The earned PRSUs will vest fifty percent (50%) on the date the committee determines that the First Commercial Approval has been received and fifty percent (50%) one year thereafter, subject to maintaining continued service.

The difference between the target number and maximum number of PRSUs will be earned upon receipt of the second Commercial Approval from any regulatory authority (which may, but need not, be the same

 

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regulatory authority that granted the First Commercial Approval), or the Second Commercial Approval, provided that such approval is granted on or before the termination date. The maximum earned PRSUs will vest fifty percent (50%) on the date the committee determines that the Second Commercial Approval has been received and fifty percent (50%) one year thereafter, subject to maintaining continued service.

For purposes of the 2011 PRSU program, regulatory authority means, with respect to any country or jurisdiction, the governmental agency or authority that regulates the testing, investigation, manufacture, marketing and sale of human pharmaceutical products, including, without limitation, the Food and Drug Administration in the United States and the European Medicines Agency in the European Union.

In the event that the company experiences a Change in Control (as defined in the EIP) prior to the termination date, the unvested portion of the PRSUs will be considered earned and fully vested immediately prior to consummation of such Change in Control.

In the event any award recipient under the 2011 PRSU program ceases to be an employee or other service provider for any reason, any PRSUs that are not earned and any earned PRSUs that are not vested and nonforfeitable will be cancelled and forfeited to the company. If First Commercial Approval is not granted on or before the termination date, all unearned PRSUs will be cancelled and forfeited to the company.

The number of PRSUs awarded to the NEOs under the 2011 PRSU program were as follows:

 

     2011 PRSU Grants
(Number of PRSUs)
 

Named Executive Officer

   Target      Maximum  

P. Ron Ellis

     40,000         60,000   

Michael A. Sherman

     17,000         25,500   

Christopher P. Leamon, Ph.D.

     8,000         12,000   

Philip S. Low, Ph.D.

     8,000         12,000   

Binh Nguyen M.D., Ph.D.

     17,000         25,500   

There is no amount for the PRSU awards included in the Summary Compensation Table on page 27 or the Grants of Plan-Based Awards in 2011 table on page 28 because, as of December 31, 2011, we had not yet filed any applications for regulatory approval, and accordingly, it was not probable that the performance conditions would be achieved.

Broad-based Employee Benefits

Our NEOs are eligible to participate in the same group insurance and employee benefit plans as our other salaried employees. We provide employee benefits to all eligible employees, including our NEOs, which our Board of Directors and the committee believe are reasonable and consistent with its overall compensation objective to better enable us to attract and retain employees. These benefits include medical, dental, vision, and disability benefits and life insurance. We do not provide special plans or programs for our NEOs.

We sponsor a 401(k) tax-qualified retirement savings plan pursuant to which employees are entitled to participate. Employees can make contributions to the plan on a before-tax basis to the maximum amount prescribed by the U.S. Internal Revenue Service. We do not provide any matching to these contributions. Other than this plan, we do not maintain any other deferred savings plans in which our NEOs participate. We do not maintain or provide any defined benefit plans for our employees.

Our Board of Directors has adopted the 2010 Employee Stock Purchase Plan, or the ESPP, but we have chosen to delay commencing the ESPP until some date in the future, if ever, that the committee determines in its sole discretion that it is in our best interest to do so. We also intend to seek stockholder approval of the ESPP at a future date. The plan administrator will determine who is eligible, which may include our executive officers and other employees should we ever decide to commence offerings under it.

Change in Control and Severance Benefits

The committee considers maintaining a stable and effective management team to be essential to protecting and enhancing the best interests of us and our stockholders. Prior to our initial public offering in February 2011,

 

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we entered into change in control and severance arrangements with certain key executives, including our NEOs, that provide additional benefits in the event of a change in control. For more detail on the change in control and severance agreements, see “— Estimated Post Employment Payouts Under Alternative Termination Scenarios.”

Tax and Accounting Considerations

We have not provided any executive officer or director with a gross-up or other reimbursement for tax amounts the executive officer or director might pay pursuant to Section 280G or Section 409A of the Code. Section 280G and related Code sections provide that executive officers, directors who hold significant stockholder interests and certain other service providers could be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of our company that exceeds certain limits, and that we or our successor could lose a deduction on the amounts subject to the additional tax. Section 409A also imposes additional significant taxes on the individual in the event that an executive officer, director or service provider receives “deferred compensation” that does not meet the requirements of Section 409A.

Due to the limitations of Section 162(m) of the U.S. Internal Revenue Code Section, or Code, we generally receive a federal income tax deduction for compensation paid to our chief executive officer and to certain other highly compensated officers only if the compensation is less than $1,000,000 per person during any year or is “performance-based” under Code Section 162(m). In addition to salary and bonus compensation, upon the exercise of stock options that are not treated as incentive stock options, the excess of the current market price over the option price, or option spread, is treated as compensation and accordingly, in any year, such exercise may cause an officer’s total compensation to exceed $1,000,000. Option spread compensation from options that meet certain requirements will not be subject to the $1,000,000 cap on deductibility, and in the past we have granted options that we believe met those requirements. Additionally, under a special Code Section 162(m) exception, any compensation paid pursuant to a compensation plan in existence before February 9, 2011, the date we closed our initial public offering, will not be subject to the $1,000,000 limitation until the earliest of: (i) the expiration of the compensation plan, (ii) a material modification of the compensation plan as determined under Code Section 162(m), (iii) the issuance of all the employer stock and other compensation allocated under the compensation plan, or (iv) the first meeting of stockholders at which directors are elected after the close of the third calendar year following the year in which the public offering occurs, which in our case would be the 2015 annual meeting of stockholders. Although the committee cannot predict how the deductibility limit may impact our compensation program in future years, the committee intends to maintain an approach to executive compensation that strongly links pay to performance. In addition, although the committee has not adopted a formal policy regarding tax deductibility of compensation paid to our NEOs, the committee intends to consider tax deductibility under Code Section 162(m) as a factor in compensation decisions when it appears likely that the company will no longer qualify for an exception to that section.

ASSESSMENT OF COMPENSATION-RELATED RISKS

We believe that our compensation policies and practices are designed to encourage our employees to act in the long-term best interests of the company and are not reasonably likely to have a material adverse effect on our business. We believe that the following factors reduce the likelihood that our employees would be encouraged to take excessive risks:

 

   

We maintain our overall compensation at levels that are competitive with our peers.

 

   

Our compensation mix is designed in part to reward long-term performance and is balanced among fixed cash components, incentives that reward improvements in company and individual performance, and long-term incentive opportunities.

 

   

Our annual cash bonuses have been based on the achievement of several different financial and operational performance measures.

 

   

Our option awards generally have vesting periods of four years and only result in value to the extent our common stock price increases in value.

 

   

Our PRSU program is tied to the achievement of objective performance measures.

 

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SUMMARY COMPENSATION TABLE

The following table provides information regarding the compensation of our principal executive officer, principal financial officer and each of the next three most highly compensated executive officers. We refer to these persons as our named executive officers or NEOs.

 

Name and

Principal Position

  Year     Salary
($)
    Bonus
($)(1)
    Stock
Awards

($)(2)
    Option
Awards
($)(3)
    Non-Equity
Incentive Plan
Compensation

($)
    All Other
Compensation
($)(4)
    Total
($)
 

P. Ron Ellis

    2011        367,039        234,375        0        1,045,456               1,925        1,648,795   

President and Chief Executive

Officer

    2010        302,798                 286,248               1,005        590,051   
    2009        288,952                 99,230        63,000        3,271        454,453   

Michael A. Sherman

    2011        247,115        100,000        0        392,046               1,367        740,528   

Chief Financial Officer

    2010        223,500                 31,227               6,005        260,732   
    2009        220,154                 15,519        40,000        5,267        280,940   

Christopher P. Leamon, Ph.D.

    2011        247,115        90,000        0        396,159               1,331        734,605   

Vice President of Research

    2010        223,846                 52,045               6,005        281,896   
    2009        223,269                 34,193        40,000        3,271        300,733   

Philip S. Low, Ph.D.(5)

Chief Science Officer

    2011        98,846        36,000        0        360,319               840        496,005   

Binh Nguyen M.D., Ph.D.

Vice President of Clinical

Affairs

    2011        156,154        117,900        0        756,184               803        1,031,041   

 

 

(1) Bonuses for 2011 performance were paid in 2012. See “— Compensation Discussion and Analysis — Elements of Executive Compensation — Short-Term Incentives (Cash Bonuses)” for a discussion of our 2011 bonus program. The Compensation Committee approved paying out a total of 1.25 times the target cash bonus opportunities of the eligible participants. No specific formula was used to derive the actual amount of the 2011 bonus for each of the NEOs.

 

     The amount for Dr. Nguyen also includes his hiring bonus of $57,000.

 

(2) In accordance with ASC 718, the stock awards column does not include any amount relating to the PRSU awards made in 2011. During 2011, it was not probable that the performance conditions would be met during 2011. The maximum grant date value of the PRSU awards was: Mr. Ellis — $708,000; Mr. Sherman — $300,900; Dr. Leamon — $141,600; Dr. Low — $141,600; and Dr. Nguyen — $304,215.

 

(3) The amounts in this column represent the aggregate grant date fair value of the option awards and are computed in accordance with ASC 718. See Note 12 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, for a discussion of assumptions made in determining the grant date fair value and compensation expense of the stock options. These amounts do not correspond to the actual value, if any, that may be recognized by the executives.

 

(4) These amounts in 2011 represent cell phone allowance and the cost of group term life insurance beyond $50,000 of coverage.

 

(5) Dr. Low’s compensation is based on part-time employment status.

 

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GRANTS OF PLAN-BASED AWARDS IN 2011

The following table presents information concerning grants of plan-based awards to each NEO during the year ended December 31, 2011. The PRSU and stock option awards were made under the EIP.

 

            Estimated Future Payouts
Under Equity Incentive
Plan Awards(1)
     All Other
Option
Awards:
Number of
Securities
Underlying

Option
(#)
     Exercise
or Base
Price of
Option

Awards
($/SH)
     Grant
Date
Fair
Value of
Stock and

Option
Awards($)(2)
 

Name

   Grant
Date
     Threshold
(#)
     Target
(#)
     Maximum
(#)
          

P. Ron Ellis

     04/14/11                  160,000       $ 9.05       $ 1,045,056   
     05/26/11                 40,000         60,000            

Michael A. Sherman

     04/14/11                  60,000         9.05         392,046   
     05/26/11                 17,000         25,500            

Christopher P. Leamon, Ph.D.

     03/11/11                  13,089         7.49         69,454   
     04/14/11                  50,000         9.05         326,705   
     05/26/11                 8,000         12,000            

Philip S. Low, Ph.D.

     04/14/11                  30,000         9.05         196,023   
     05/26/11                 8,000         12,000            
     05/26/11                  20,000         11.80         164,296   

Binh Nguyen M.D., Ph.D.

     06/23/11                 17,000         25,500            
     06/23/11                  88,000         11.93         756,184   

 

 

(1) In accordance with ASC 718, the table does not include the grant date fair value of the PRSU awards made in 2011. During 2011, it was not probable that the performance conditions would be met as we had not yet filed any applications for regulatory approval.

 

(2) Reflects the grant date fair value of the option awards computed in accordance with ASC 718. For a discussion of the assumptions used to value the options, see Note 12 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. These amounts do not correspond to the actual value, if any, that may be recognized by the executives. Each of the option awards vest in four annual installments beginning April 14, 2012, subject to maintaining continued service.

 

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OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END

The following table presents certain information concerning equity awards held by the Named Executive Officers at December 31, 2011.

 

     Option Awards  

Name

   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Shares or
Units of Stock
That Have
Not Vested (#)
    Equity
Incentive  Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
     Option
Exercise
Price ($)
     Option
Expiration
Date
 

P. Ron Ellis

     13,089 (1)                     1.91         2/10/2015   
     26,178 (1)                     1.91         2/17/2016   
     77,793 (1)                     1.91         8/31/2016   
     52,356 (1)                     2.10         5/31/2017   
     64,081 (2)      1,364                3.06         2/12/2018   
     61,809 (3)      31,629                2.54         3/5/2019   
     68,979 (6)      75,000                3.82         2/11/2020   
            160,000 (8)              9.05         4/14/2021   

Michael A. Sherman

     52,356 (1)                     2.10         5/31/2017   
     10,253 (2)      218                3.06         2/12/2018   
     4,768 (3)      1,964                2.54         3/5/2019   
     5,671 (5)      4,800                2.54         11/12/2019   
     7,524 (6)      8,182                3.82         2/11/2020   
            60,000 (8)              9.05         4/14/2021   

Christopher P. Leamon, Ph.D.

     13,089 (1)                     1.91         2/10/2015   
     13,089 (1)                     1.91         2/17/2016   
     26,178 (1)                     2.10         2/11/2017   
     25,632 (2)      546                3.06         2/12/2018   
     26,467 (3)      10,899                2.54         3/5/2019   
     12,540 (6)      13,637                3.82         2/11/2020   
            13,089 (7)              7.49         3/11/2021   
            50,000 (8)              9.05         4/14/2021   

Philip S. Low, Ph.D.

     6,544 (1)                     1.91         2/10/2015   
     13,089 (1)                     1.91         2/17/2016   
     15,706 (1)                     2.10         2/1/2017   
     64,081 (2)      1,364                3.06         2/12/2018   
     16,120 (3)      6,639                2.54         3/5/2019   
     31,354 (6)      34,091                3.82         2/11/2020   
            30,000 (8)              9.05         4/14/2021   
            20,000 (9)              11.80         5/26/2021   

Binh Nguyen M.D., Ph.D.

            88,000 (10)              11.93         6/23/2021   

 

 

(1) The option is fully vested and immediately exercisable.

 

(2) Shares subject to the option vest monthly over a period of 48 months beginning on February 29, 2008.

 

(3) Shares subject to the option vest monthly over a period of 48 months beginning on March 31, 2009.

 

(4) Shares subject to the option vest monthly over a period of 48 months beginning on August 31, 2009.

 

(5) Shares subject to the option vest monthly over a period of 48 months beginning on November 30, 2009.

 

(6) Shares subject to the option vest monthly over a period of 48 months beginning on February 28, 2010.

 

(7) Shares subject to the option vest in four annual installments beginning March 11, 2012.

 

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(8)   Shares subject to the option vest in four annual installments beginning April 14, 2012.

 

(9)   Shares subject to the option vest in four annual installments beginning May 26, 2012.

 

(10)   Shares subject to the option vest in four annual installments beginning June 23, 2012.

OPTION EXERCISES AND STOCK VESTED AT YEAR-END 2011

The following table sets forth information regarding options exercised by our NEOs during 2011.

 

     Option Awards  

Name

   Number of
Shares
Acquired on
Exercise (#)
     Value
Realized on
Exercise ($)(1)
 

P. Ron Ellis

     22,012         28,033   

Michael A. Sherman

     20,942         22,591   

Christopher P. Leamon, Ph.D.

     20,073         160,479   

Philip S. Low, Ph.D.

               

Binh Nguyen M.D., Ph.D.

               

 

 

(1) Value realized is calculated on the basis of the amount by which the closing price of our common stock on the date of exercise on The Nasdaq Stock Market exceeds the aggregate exercise price of the option, multiplied by the number of options.

OTHER 2011 COMPENSATION INFORMATION

Pensions

During 2011, we did not maintain any plan providing for payments or other benefits at, following, or in connection with retirement.

Nonqualified Deferred Compensation

There were no nonqualified defined contributions or other deferred compensation plans for any NEO in existence during 2011.

Employment Agreements and Change in Control Arrangements

We do not currently have employment agreements with any of our NEOs, only Change in Control and Severance Agreements which are described in the following section.

 

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ESTIMATED POST-EMPLOYMENT PAYMENTS

UNDER ALTERNATIVE TERMINATION SCENARIOS

The following table sets forth the value of the benefits that would have been payable to each of the named executive officers, assuming that the following events occurred on December 31, 2011. We do not disclose payments or other benefits under our 401(k) retirement plan and health and welfare plans because all salaried employees are entitled to the same benefits under those plans. The amounts shown are only estimates of the amounts that would be payable to the executives upon termination of employment and do not reflect tax positions we may take or the accounting treatment of such payments. Actual amounts to be paid can only be determined at the time of separation.

 

Benefit

  Voluntary
resignation,
retirement, death
or disability

($)
    Termination by the
company without
cause or by executive
resignation with good
reason

($)
    Upon a change  in
control

($)
    Termination within
twelve months
following change in
control

($)
 

P. Ron Ellis

       

Severance Payment(1)

    0        375,000        0        375,000   

Stock Options(2)

    0        25,759        0        39,542   

PRSUs(3)

    0        0        225,600        225,600   

2011 Bonus(4)

    0        0        0        187,500   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    0        400,759        225,600        827,642   
 

 

 

   

 

 

   

 

 

   

 

 

 

Michael A. Sherman

       

Severance Payment(1)

    0        187,500        0        250,000   

Stock Options(2)

    0        4,087        0        8,405   

PRSUs(3)

    0        0        95,880        95,880   

2011 Bonus(4)

    0        0        0        75,000   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    0        191,587        95,880        429,285   
 

 

 

   

 

 

   

 

 

   

 

 

 

Christopher P. Leamon, Ph.D.

       

Severance Payment(1)

    0        187,500        0        250,000   

Stock Options(2)

    0        8,930        0        13,679   

PRSUs(3)

    0        0        45,120        45,120   

2011 Bonus(4)

    0        0        0        75,000   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    0        196,430        45,120        383,799   
 

 

 

   

 

 

   

 

 

   

 

 

 

Philip S. Low, Ph.D.

       

Severance Payment(1)

    0        0        0        0   

Stock Options(2)

    0        0        0        0   

PRSUs(3)

    0        0        45,120        45,120   

2011 Bonus(4)

    0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    0        0        45,120        45,120   
 

 

 

   

 

 

   

 

 

   

 

 

 

Binh Nguyen M.D., Ph.D.

       

Severance Payment(1)

    0        217,500        0        290,000   

Stock Options(2)

    0        0        0        0   

PRSUs(3)

    0        0        95,880        95,880   

2011 Bonus(4)

    0        0        0        87,000   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

            0        217,500        95,880        472,880   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) The severance payment was determined based on base salaries in effect on December 31, 2011.

 

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(2) Represents intrinsic value of all unvested awards that are accelerated as of the assumed date of termination. All calculations are based on $3.76 per share, the closing price of our common stock as reported by The Nasdaq Stock Market for December 30, 2011.

 

(3) Represents intrinsic value of all unvested PRSU awards as of the assumed date of termination. All calculations are based on $3.76 per share, the closing price of our common stock as reported by The Nasdaq Stock Market for December 30, 2011. The NEOs would receive the amounts under the “Upon a change in control” and “Termination within twelve months following change in control” columns immediately prior to a change in control, regardless of whenever their employment is terminated.

 

(4) The 2011 bonus amount represents the target bonus opportunity for the executive. The bonuses were paid in March 2012, and the amounts paid exceeded the target bonus opportunities.

Change in Control and Severance Agreements

Prior to our initial public offering, we entered into Change in Control and Severance Agreements with each of the persons who was an NEO at the time. Dr. Low is not a party to such an agreement. We entered into a Change in Control and Severance Agreement with Dr. Nguyen in June 2011. These agreements and the award agreements for our equity awards provide for the following benefits:

If the NEO’s employment is terminated without Cause, or if the NEO terminates employment with us for Good Reason, prior to a Change in Control or more than 12 months following a Change in Control, the NEO will be entitled to:

 

   

a lump sum severance payment equal to nine months (12 months for Mr. Ellis) of the NEO’s then-current base salary;

 

   

nine months (12 months for Mr. Ellis) reimbursement of premiums under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, for continued coverage under our medical, dental, or vision plans for the NEO and/or eligible dependents; and

 

   

stock option awards that would have vested in the following nine months will immediately vest and become exercisable.

If the NEO is terminated without Cause, or if the NEO terminates employment with us for Good Reason, within one year following a Change in Control, the NEO will be entitled to:

 

   

a lump sum payment equal to 12 months of base salary, as in effect immediately prior to the Change in Control or his termination, whichever is greater;

 

   

a lump sum payment equal to the target bonus for the year of termination or, if greater, for the year during which the Change in Control occurs;

 

   

twelve months reimbursement of COBRA premiums for continued coverage under our medical, dental, and/or vision plans for the NEO and eligible dependents; and

 

   

100 percent of unvested equity awards will immediately vest and become exercisable in full.

The foregoing severance benefits will be subject to the NEO providing us with an executed release of claims.

For the purposes of the above agreements, “cause,” “change in control,” and “good reason” are defined as follows:

“Cause”

(i) an act of personal dishonesty taken by the NEO in connection with his or her responsibilities as an employee and intended to result in the NEO’s substantial personal enrichment;

(ii) the NEO being convicted of, or pleading no contest or guilty to, a felony or misdemeanor that the Company reasonably believes has had or will have a material detrimental effect on the company;

 

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(iii) a willful act by the NEO that constitutes gross misconduct and that is injurious to the company;

(iv) following delivery to the NEO of a written demand for performance that describes the basis for the company’s reasonable belief that the NEO has not substantially performed his or her duties, the NEO’s continued violations of his or her obligations to the company that are demonstrably willful and deliberate on the NEO’s part; and

(v) the NEO’s material violation of any written employment policy or standard of conduct of the company.

“Change in Control”

(i) a change in the ownership of the company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the company that, together with the stock held by such Person, constitutes more than 50 percent of the total voting power of the stock of the company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than 50 percent of the total voting power of the stock of the company will not be considered a Change in Control; or

(ii) a change in the effective control of the company which occurs on the date that a majority of members of the Board (each, a “Director”) is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the company, the acquisition of additional control of the company by the same Person will not be considered a Change in Control; or

(iii) a change in the ownership of a substantial portion of the company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets from the company that have a total gross fair market value equal to or more than 50 percent of the total gross fair market value of all of the assets of the company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the company’s assets: (A) a transfer to an entity that is controlled by the company’s stockholders immediately after the transfer, or (B) a transfer of assets by the company to: (1) a stockholder of the company (immediately before the asset transfer) in exchange for or with respect to the company’s stock, (2) an entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the company, (3) a Person, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the company, or (4) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

For purposes of this definition of Change in Control, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the company.

“Good Reason” means the NEO’s termination of employment within 90 days following the expiration of any cure period (discussed below) following the occurrence of one or more of the following, without the NEO’s express written consent:

(i) a material reduction of the NEO’s duties, position, or responsibilities, relative to the NEO’s duties, position, or responsibilities in effect immediately prior to such reduction, unless the NEO is provided with a comparable position (i.e., a position of equal or greater organizational level, duties, authority, compensation and status), provided, however, that a reduction in duties, position, or responsibilities solely by virtue of the company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the company remains as such following a Change in Control but is not the Chief Executive Officer of the acquiring corporation) will not constitute “Good Reason”;

 

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(ii) a material reduction by the company in the NEO’s annualized base pay as in effect immediately prior to such reduction;

(iii) the relocation of the NEO’s principal place of performing his or her duties as an employee of the company by more than fifty (50) miles; or

(iv) the failure of the company to obtain the assumption of the agreement by a successor.

In order for an event to qualify as Good Reason, the NEO must not terminate employment with the company without first providing the company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than thirty (30) days following the date of such notice.

2011 DIRECTOR COMPENSATION

The following table sets forth information concerning compensation paid or accrued for services rendered to us by members of our Board of Directors for the year ended December 31, 2011. The table excludes Mr. Ellis, our President and Chief Executive Officer, and Dr. Low, our Chief Science Officer, who as employees do not receive any compensation from us in their roles as directors.

 

Name

(a)(1)

   Fees Earned
or Paid  in Cash
($)(b)
     Option
Awards(2)
($)(d)
     Total
($)(h)
 

John C. Aplin, Ph.D.

     41,458         164,389         205,847   

Douglas G. Bailey

     35,000         164,389         199,389   

Keith E. Brauer

     40,000         95,851         135,851   

John G. Clawson

     36,042         164,389         200,431   

Ann F. Hanham, Ph.D.

     34,813         164,389         199,202   

Fred A. Middleton

     30,000         164,389         194,389   

James S. Shannon , M.D., MRCP

     32,500         95,851         128,351   

 

 

(1) Neither P. Ron Ellis or Philip S. Low, Ph.D., each of whom was a director, officer and employee of the company during 2011, is included in this table because they did not receive any additional compensation for their respective service as a director. Compensation information for Mr. Ellis and Dr. Low is shown in the Summary Compensation Table on page 27.

 

(2) The amount in this column represents the aggregate grant date fair value of the option awards awarded during 2011, computed in accordance with FASB Topic ASC 718. This amount does not correspond to the actual value that will be recognized by the director. The assumptions used in the valuation of this award are consistent with the valuation methodologies specified in the notes to our financial statements. For a discussion of the assumptions used to determine grant date value, see footnote 2 to the Summary Compensation Table on page 27.

The aggregate number of shares subject to stock awards and stock options outstanding at December 31, 2011 for each non-employee director is as follows:

 

Name

   Aggregate Number of  Stock
Awards and Stock
Options Outstanding
as of December 31, 2011(1)
 

John C. Aplin, Ph.D.

     25,706   

Douglas G. Bailey

     25,706   

Keith E. Brauer

     44,421   

John G. Clawson

     25,706   

Ann F. Hanham, Ph.D.

     25,706   

Fred A. Middleton

     25,706   

James S. Shannon, M.D., MRCP

     25,706   

 

 

(1) Of the option shares, 59,723 have vested and 138,934 shares are unvested.

 

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We refer to each of our non-employee directors as an outside director. The compensation policy for outside directors provides for (1) cash retainers and (2) automatic grants of stock options under the EIP as described in the following paragraphs.

Each outside director receives an annual cash retainer of $25,000 for his or her service on our Board of Directors and our chair of the Board of Directors receives an additional $15,000 annually for his or her service as our chair of the Board of Directors. Each outside director who serves as a chair of our audit committee, compensation committee or nominating and corporate governance committee receives annual cash retainers of $15,000, $10,000 or $7,500, respectively, for his or her service as chair on such committee, and other members of our audit committee, compensation committee or nominating and corporate governance committee receives annual $7,500, $5,000 or $3,750, respectively, for his or her service on such committee. Each of the payments to our outside directors is made on a quarterly basis, in consideration for their services in these respective roles.

Until the 2011 annual meeting of stockholders, the program called for an automatic grant to a new outside director of a stock option to purchase 15,706 shares of our common stock on the date such person first became an outside director. In addition, each outside director was automatically granted an annual stock option to purchase 7,853 shares of our common stock on the date of each annual stockholder meeting.

In May 2011, the Board of Directors approved changes to the automatic grants to outside directors. Under the revised program, each new outside director is automatically granted a stock option to purchase 20,000 shares of our common stock on the date such person first becomes an outside director. A director who is an employee and who ceases to be an employee, but who remains a director, will not receive such an initial award. In addition, effective as of the 2011 annual meeting of stockholders, each outside director is automatically granted a stock option to purchase 10,000 shares of our common stock on the date of each annual stockholder meeting.

The exercise price of all stock options granted pursuant to the EIP is equal to the fair market value of our common stock on the date of grant. The term of all stock options is ten years. Subject to the adjustment provisions of the EIP, initial awards vest as to 1/3 of the shares subject to such awards on the business day before each date of each annual stockholder meeting following their respective commencement of service, provided such outside director continues to serve as a director through each such date. The annual awards vest as to 100 percent of the shares on the business day prior to the next annual stockholder meeting following the date of grant, provided such outside director continues to serve as a director through such date.

In the event of a “change in control,” as defined in the EIP, with respect to awards granted under the EIP to outside directors, the awards will fully vest, become fully exercisable as to all shares underlying such awards and all restrictions on awards will lapse, and all performance goals or other vesting criteria will be deemed achieved at 100 percent of target level and all other terms and conditions met if the outside director is terminated following the change in control other than by voluntary resignation (unless such resignation is at the request of the acquiror).

The compensation committee, as the administrator of the EIP, may change or otherwise revise the terms of awards granted under the outside director compensation policy in its discretion.

ANNUAL REPORT

Our Annual Report for the year ended December 31, 2011, including financial statements audited by Ernst & Young LLP, our independent registered public accounting firm, and Ernst & Young LLP’s report thereon, is available to our stockholders on the Internet as described in the Notice of Internet availability of proxy materials. In addition, a copy of our Annual Report on Form 10-K for the year ended December 31, 2011, will be sent to any stockholder without charge (except for exhibits, if requested, for which a reasonable fee will be charged), upon written request to Corporate Secretary, Endocyte, Inc., 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268. Our Form 10-K is also available and may be accessed free of charge through the Investor Relations section of our internet website at www.Endocyte.com.

 

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STOCKHOLDER PROPOSALS AT

2013 ANNUAL MEETING

The date by which we must receive stockholder proposals for inclusion in the proxy materials relating to the 2013 annual meeting of stockholders, or for presentation at such meeting, is January 14, 2013. In the event that the 2013 annual meeting of stockholders is called for a date that is not within 30 days before or after May 31, 2013, in order to be timely, we must receive notice by the stockholder not later than the close of business on the later of 120 calendar days in advance of the 2013 annual meeting of stockholders or ten calendar days following the date on which public announcement of the date of the meeting is first made. Stockholder proposals must comply with all of the applicable requirements set forth in the rules and regulations of the Securities and Exchange Commission, including Rule 14a-8, as well as the advance notification requirements set forth in our By-Laws. A copy of the advance notification requirements may be obtained upon request to Corporate Secretary, Endocyte, Inc., 8910 Purdue Road, Suite 250, Indianapolis, Indiana 46268.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act and so, we file periodic reports and other information with the Securities and Exchange Commission. These reports and the other information we file with the Securities and Exchange Commission can be read and copied at the public reference room facilities maintained by the Securities and Exchange Commission in Washington, DC at 100 F Street, N.E., Washington, DC 20549. The Securities and Exchange Commission’s telephone number to obtain information on the operation of the public reference room is (800) SEC-0330. These reports and other information are also filed by us electronically with the Securities and Exchange Commission and are available at its website, www.sec.gov.

INCORPORATION BY REFERENCE

To the extent this proxy statement has been or will be specifically incorporated by reference into any filing under the Securities Act of 1933, as amended, and the Exchange Act, the sections of this proxy statement entitled “COMPENSATION COMMITTEE REPORT” and “REPORT OF THE AUDIT COMMITTEE” should not be deemed to be so incorporated unless specifically otherwise provided in any such filing.

 

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 A 

  Proposals — The Board recommends a vote FOR all nominees and FOR Proposal 2.   
1.  Election of Directors:   For   Withhold     For   Withhold     For   Withhold   +
     01 - Keith E. Brauer   ¨   ¨   02 - Ann F. Hanham, Ph.D.   ¨   ¨   03 - Peter D. Meldrum   ¨   ¨  

 

      For    Against    Abstain                  
2.   

Ratify the appointment of Ernst & Young LLP as our independent Registered Public Accounting Firm for 2012.

  

 

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 B    Non-Voting Items

Change of Address — Please print your new address below.

     Comments Please print your comments below.    Meeting Attendance  
                     Mark the box to the right   ¨
                   if you plan to attend the  
                     Annual Meeting.  

 

 C 

 

 

Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below

     
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.

 

Date (mm/dd/yyyy) — Please print date below.      Signature 1 — Please keep signature within the box.      Signature 2 — Please keep signature within the box.
      /      /                      

 

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Table of Contents

2012 Annual Meeting Admission Ticket

2012 Annual Meeting of

Endocyte, Inc. Stockholders

May 31, 2012, 12:00 p.m. (EDT)

Offices of Faegre Baker Daniels LLP, Suite 600

600 East 96th Street, Indianapolis, Indiana

Upon arrival, please present this admission ticket

and photo identification at the registration desk.

For directions to the meeting, call 317-569-9600 or go to

http://maps.google.com/maps?q=600+E.+96th+Street+Suite+600+Indianapolis%2c+Indiana+46240

 

q  IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.  q

 

 

 

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Proxy — Endocyte, Inc.

 

Notice of 2012 Annual Meeting of Stockholders

Offices of Faegre Baker Daniels LLP, Suite 600

600 East 96th Street, Indianapolis, Indiana

Proxy Solicited by Board of Directors for Annual Meeting — May 31, 2012

P. Ron Ellis, Michael A. Sherman, or either of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Stockholders of Endocyte, Inc. to be held on May 31, 2012 or at any postponement or adjournment thereof.

Shares represented by this proxy will be voted by the stockholder. If no such directions are indicated, the Proxies will have authority to vote FOR all nominees for election and FOR ratification of auditors.

In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.

(Items to be voted appear on reverse side.)