UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE
14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
CUBIST PHARMACEUTICALS, INC.
(Name of Subject Company)
CUBIST
PHARMACEUTICALS, INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $0.001 per share
(Title of Class of Securities)
229678107
(CUSIP Number
of Common Stock)
Thomas J. DesRosier
Executive Vice President, Chief Legal and Administrative Officer
Cubist Pharmaceuticals, Inc.
65 Hayden Avenue
Lexington, Massachusetts 02421
(781) 860-8660
(Name,
Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Christopher D. Comeau
Paul M. Kinsella
Ropes & Gray LLP
Prudential Tower
800
Boylston Street
Boston, Massachusetts 02199
(617) 951-7000
| ¨ |
|
Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. |
| Item 1. |
Subject Company Information. |
The name of the subject company is Cubist Pharmaceuticals, Inc., a
Delaware corporation (the “Company”). The address of the Company’s principal executive offices is 65 Hayden Avenue, Lexington, Massachusetts 02421, and the telephone number of its principal executive offices is
(781) 860-8660.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this “Schedule 14D-9”) relates is the Company’s common stock, par value $0.001 per share (the “Shares”). As of December 4, 2014, there were 76,421,535 Shares
issued and outstanding.
| Item 2. |
Identity and Background of Filing Person. |
The name, business address and business telephone number of the
Company, which is the person filing this Schedule 14D-9 and the subject company, are set forth in Item 1(a) above.
This Schedule 14D-9 relates to the tender offer by Mavec Corporation, a
Delaware corporation (“Purchaser”), a wholly-owned subsidiary of Merck & Co., Inc., a New Jersey corporation (“Parent”), to purchase all of the outstanding Shares at a purchase price of $102.00 per Share net to the
seller in cash, without interest, but subject to any required withholding of taxes (such consideration as it may be amended from time to time pursuant to the terms of the Merger Agreement, the “Offer Price”), upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated December 19, 2014 (the “Offer to Purchase”), and in the related Letter of Transmittal (the “Letter of Transmittal” which, together with the Offer to Purchase,
constitutes the “Offer”). The Offer is described in a Tender Offer Statement on Schedule TO (as amended or supplemented from time to time, the “Schedule TO”) filed by Parent and Purchaser with the Securities and Exchange
Commission (the “SEC”) on December 19, 2014. The Offer to Purchase and the Letter of Transmittal have been filed as Exhibits (a)(1)(A) and (a)(1)(B) hereto, respectively.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of December 8, 2014, by and among Parent, Purchaser and
the Company (the “Merger Agreement”). The Merger Agreement provides that, among other things, subject to the satisfaction or waiver of certain conditions, following completion of the Offer, and in accordance with the General Corporation
Law of the State of Delaware (“DGCL”), Purchaser will be merged with and into the Company (the “Merger”). Following the consummation of the Merger, the Company will continue as the surviving corporation (the “Surviving
Corporation”) and will be a wholly-owned subsidiary of Parent. Because the Merger will be governed by Section 251(h) of the DGCL, no stockholder vote will be required to consummate the Merger. At the effective time of the Merger (the
“Effective Time”), each outstanding Share (other than (1) Shares owned by Parent, Purchaser or the Company or any direct or indirect wholly-owned subsidiary of Parent or the Company, including all Shares held by the Company as
treasury stock, or (2) Shares that are held by any stockholder who is entitled to demand and properly demands appraisal pursuant to, and who complies in all respects with the provisions of, Section 262 of the DGCL with respect to such
Shares) will be converted into the right to receive the Offer Price from Purchaser (or any such higher price per Share as may be paid in the Offer, the “Merger Consideration”). The Merger Agreement has been filed herewith as Exhibit (e)(1)
and is incorporated herein by reference. The Merger Agreement is summarized in Section 11 of the Offer to Purchase.
1
Parent formed Purchaser in connection with the Merger Agreement, the Offer and the Merger. The
Schedule TO states that the principal executive offices of each of Parent and Purchaser are located at 2000 Galloping Hill Drive, Kenilworth, NJ 07033.
| Item 3. |
Past Contacts, Transactions, Negotiations and Agreements. |
Conflicts of Interest
Except as set forth in this Schedule 14D-9 or in the excerpts from the Company’s 2014 Definitive Proxy Statement, dated April 21,
2014 (the “2014 Proxy Statement”), filed as Exhibit (e)(2) to this Schedule 14D-9 (and incorporated by reference into this Item 3), as of the date of this Schedule 14D-9, to the knowledge of the Company, there are no material
agreements, arrangements or understandings and no actual or potential conflicts of interest between the Company or its affiliates and (i) its executive officers, directors or affiliates, or (ii) Parent, Purchaser or their respective
executive officers, directors or affiliates. For further information with respect to these matters, see the 2014 Proxy Statement under the headings: “Management Stockholders”; “Director Compensation”; “Compensation
Discussion & Analysis”; “Summary Compensation Table”; “Grants of Plan-Based Awards in 2013”; “Outstanding Equity Awards at 2013 Fiscal Year End”; “Option Exercises and Stock Vested in 2013”; and
“Termination of Employment and Change-in-Control Agreements.”
| (a) |
Arrangements with Current Executive Officers, Directors and Affiliates of the Company. |
The following is a discussion of all material agreements, arrangements, understandings and any actual or potential conflicts of interest
between the Company and its affiliates that relate to the Offer and the Merger.
Interests of Certain Persons
Certain members of management and the Company’s board of directors (the “Company Board”) may be deemed to have certain interests
in the Offer and Merger that are different from or in addition to the interests of the Company’s stockholders generally. The Company Board was aware of these interests and considered that such interests may be different from or in addition to
the interests of the Company’s stockholders generally, among other matters, in determining to approve the Offer and Merger.
Treatment of
Shares, Stock Options and Restricted Stock Units In Connection with the Offer and Merger
Treatment of Shares
If the directors and executive officers of the Company who own Shares tender their Shares for purchase pursuant to the Offer, they will receive
the same cash consideration for their Shares on the same terms and conditions as the other stockholders of the Company. If the Merger is consummated, any Shares held of record or beneficially owned by a director or executive officer that are not
tendered into the Offer will be converted into the right to receive the Merger Consideration at the Effective Time.
The approximate value
of the cash payments that each director and executive officer of the Company would receive in exchange for his or her Shares in the Offer if they were to tender their Shares is set forth in the table below. This information is based on the number of
Shares held by the Company’s directors and executive officers as of December 4, 2014.
|
|
|
|
|
|
|
|
|
| Name of Executive Officer or Director |
|
Number of Shares |
|
|
Cash Consideration for
Shares ($) |
|
| Michael Bonney |
|
|
183,642 |
|
|
$ |
18,731,484 |
|
| Thomas DesRosier |
|
|
2,301 |
|
|
|
234,702 |
|
| Steven Gilman |
|
|
30,449 |
|
|
|
3,105,798 |
|
| Robert Perez |
|
|
52,337 |
|
|
|
5,338,374 |
|
2
|
|
|
|
|
|
|
|
|
| Name of Executive Officer or Director |
|
Number of Shares |
|
|
Cash Consideration for
Shares ($) |
|
| Michael Tomsicek |
|
|
7,331 |
|
|
$ |
747,762 |
|
| Patrick Vink |
|
|
5,496 |
|
|
|
560,592 |
|
| Kenneth Bate |
|
|
9,615 |
|
|
|
980,730 |
|
| Mark Corrigan |
|
|
7,501 |
|
|
|
765,102 |
|
| Jane Henney |
|
|
4,644 |
|
|
|
473,688 |
|
| Nancy Hutson |
|
|
5,951 |
|
|
|
607,002 |
|
| Alison Lawton |
|
|
4,717 |
|
|
|
481,134 |
|
| Kenneth Martin |
|
|
— |
|
|
|
— |
|
| Leon Moulder, Jr. |
|
|
11,101 |
|
|
|
1,132,302 |
|
| Martin Soeters |
|
|
10,397 |
|
|
|
1,060,494 |
|
Treatment of Stock Options
Each option to acquire Shares (a “Stock Option”) (whether held by directors, executive officers or other employees) that is
outstanding and unvested immediately prior to the time Parent accepts validly tendered Shares for purchase (the “Acceptance Time”) will vest in full at the Acceptance Time. If the Merger is consummated following the Offer, all unexercised
Stock Options outstanding (whether held by directors, executive officers or other employees) immediately prior to the Effective Time will be cancelled, and the holders thereof will receive cash (subject to any applicable withholding of taxes
required by applicable law) equal to the excess, if any, of the Offer Price over the per Share exercise price of the respective Stock Options multiplied by the total number of Shares subject to the unexercised Stock Options they hold immediately
prior to the Effective Time.
The approximate value of the cash payments that each director and executive officer of the Company will
receive in exchange for cancellation of his or her Stock Options (assuming that each such director and executive officer does not otherwise exercise any outstanding and vested stock options prior to the Effective Time) is set forth in the table
below. This information is based on the number of Stock Options held by the Company’s directors and executive officers as of December 4, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Executive
Officer or Director |
|
Number of Shares
Subject to Vested
Stock Option |
|
|
Cash Consideration
for Vested Stock
Options ($) |
|
|
Number of Shares
Subject to Unvested
Stock Options |
|
|
Cash Consideration
for Unvested Stock
Options ($) |
|
|
Total Cash
Consideration for
Stock Options in
Merger ($) |
|
| Michael Bonney |
|
|
1,137,497 |
|
|
$ |
86,227,331 |
|
|
|
302,097 |
|
|
$ |
14,716,299 |
|
|
$ |
100,943,630 |
|
| Thomas DesRosier |
|
|
32,595 |
|
|
|
1,655,269 |
|
|
|
71,045 |
|
|
|
3,234,512 |
|
|
|
4,889,782 |
|
| Steven Gilman |
|
|
161,818 |
|
|
|
11,032,553 |
|
|
|
84,336 |
|
|
|
4,335,823 |
|
|
|
15,368,376 |
|
| Robert Perez |
|
|
463,435 |
|
|
|
33,557,723 |
|
|
|
153,827 |
|
|
|
7,411,597 |
|
|
|
40,969,320 |
|
| Michael Tomsicek |
|
|
71,492 |
|
|
|
4,548,446 |
|
|
|
58,704 |
|
|
|
2,679,420 |
|
|
|
7,227,866 |
|
| Patrick Vink |
|
|
46,136 |
|
|
|
2,494,213 |
|
|
|
67,525 |
|
|
|
3,224,747 |
|
|
|
5,718,960 |
|
| Kenneth Bate |
|
|
155,468 |
|
|
|
11,747,091 |
|
|
|
7,856 |
|
|
|
277,474 |
|
|
|
12,024,565 |
|
| Mark Corrigan |
|
|
43,728 |
|
|
|
2,946,258 |
|
|
|
6,202 |
|
|
|
219,055 |
|
|
|
3,165,313 |
|
| Jane Henney |
|
|
26,216 |
|
|
|
1,506,058 |
|
|
|
7,899 |
|
|
|
319,789 |
|
|
|
1,825,847 |
|
| Nancy Hutson |
|
|
43,728 |
|
|
|
2,946,258 |
|
|
|
6,202 |
|
|
|
219,055 |
|
|
|
3,165,313 |
|
| Alison Lawton |
|
|
27,675 |
|
|
|
1,613,037 |
|
|
|
7,106 |
|
|
|
274,569 |
|
|
|
1,887,607 |
|
| Kenneth Martin |
|
|
6,119 |
|
|
|
230,435 |
|
|
|
14,769 |
|
|
|
541,679 |
|
|
|
772,115 |
|
| Leon Moulder, Jr. |
|
|
60,561 |
|
|
|
4,310,405 |
|
|
|
6,202 |
|
|
|
219,055 |
|
|
|
4,529,459 |
|
| Martin Soeters |
|
|
102,728 |
|
|
|
7,807,428 |
|
|
|
6,202 |
|
|
|
219,055 |
|
|
|
8,026,483 |
|
Treatment of Restricted Stock Units and Performance Restricted Stock Units
If the Merger is consummated following the Offer, under the terms of the Merger all restricted stock units (“RSUs”) outstanding
immediately prior to the Acceptance Time, whether held by directors, executive officers or other employees, will vest in full. The vesting of RSUs subject to performance goals (“PRSUs”) as of the
3
Acceptance Time will be determined assuming that such performance goals have been achieved such that 100% of Shares subject to PRSUs granted in calendar year 2013, and 83.33% of the maximum
number of Shares that may be delivered under the PRSUs granted in calendar year 2014 (the same portion that would be delivered upon achievement at the 100% target level) are earned. At the Effective Time, the Shares issued under any RSUs and PRSUs
will be cancelled and converted into a right to receive the Offer Price (subject to any applicable withholding of taxes required by applicable law).
The approximate value of the cash payments that each director and executive officer of the Company will receive in exchange for cancellation
of his or her RSUs and PRSUs is set forth in the table below. This information is based on the number of RSUs and PRSUs held by the Company’s directors and executive officers as of December 4, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Executive
Officer or Director |
|
Number of
RSUs |
|
|
Cash
Consideration
for RSUs ($) |
|
|
Number of
PRSUs |
|
|
Cash
Consideration
for PRSUs ($) |
|
|
Total Cash
Consideration
for RSUs and
PRSUs in
Merger($) |
|
| Michael Bonney |
|
|
27,000 |
(1) |
|
$ |
2,754,000 |
|
|
|
97,485 |
|
|
$ |
9,943,470 |
|
|
$ |
12,697,470 |
|
| Thomas DesRosier |
|
|
12,032 |
|
|
|
1,227,264 |
|
|
|
4,356 |
|
|
|
444,312 |
|
|
|
1,671,576 |
|
| Steven Gilman |
|
|
21,411 |
|
|
|
2,183,922 |
|
|
|
11,858 |
|
|
|
1,209,516 |
|
|
|
3,393,438 |
|
| Robert Perez(2) |
|
|
37,979 |
|
|
|
3,873,858 |
|
|
|
20,345 |
|
|
|
2,075,190 |
|
|
|
5,949,048 |
|
| Michael Tomsicek |
|
|
16,370 |
|
|
|
1,669,740 |
|
|
|
7,033 |
|
|
|
717,366 |
|
|
|
2,387,106 |
|
| Patrick Vink(3) |
|
|
11,729 |
|
|
|
1,196,358 |
|
|
|
8,725 |
|
|
|
889,950 |
|
|
|
2,086,308 |
|
| Kenneth Bate |
|
|
2,137 |
|
|
|
217,974 |
|
|
|
— |
|
|
|
— |
|
|
|
217,974 |
|
| Mark Corrigan |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| Jane Henney |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| Nancy Hutson |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| Alison Lawton |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| Kenneth Martin |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| Leon Moulder, Jr. |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| Martin Soeters |
|
|
1,687 |
|
|
|
172,074 |
|
|
|
— |
|
|
|
— |
|
|
|
172,074 |
|
| (1) |
On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to the Bonney Separation Agreement (as defined below) to permit Mr. Bonney’s unvested RSUs to remain outstanding
following his retirement on December 31, 2014 until the earlier of (i) their scheduled vesting date and (ii) the consummation of a change in control occurring on or prior to June 15, 2015. 17,500 of such RSUs are scheduled to
vest prior to June 15, 2015, so if a change in control does not occur prior to such date, Mr. Bonney will forfeit 9,500 of the RSUs reflected in the table above. |
| (2) |
In connection with Mr. Perez’s promotion to Chief Executive Officer, effective January 1, 2015, the Company agreed to grant him Stock Options on January 1, 2015 with a grant date value of $2.5
million and a PRSU grant on February 15, 2015 with a grant date value of $2.5 million. On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to Mr. Perez’s agreement, such that he would
receive RSUs with a grant date value of $1.25 million on January 1, 2015, but the remainder of his award, Stock Options with a grant date value of $2.5 million and PRSUs with a grant date value of $1.25 million, would not be granted until
June 15, 2015 and only if the Offer has not been consummated. The RSUs expected to be granted to Mr. Perez on January 1, 2015 are not reflected in the table above. |
| (3) |
In connection with Dr. Vink’s promotion to Chief Operating Officer, effective January 1, 2015, the Company agreed to grant him Stock Options with a grant date value of $1,500,000 and RSUs with a grant
date value of $750,000 on January 1, 2015, as well as a PRSU grant on February 15, 2015 with a grant date value of $750,000. On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to
Dr. Vink’s agreement, such that he would receive RSUs with a grant date value of $750,000 on January 1, 2015, but the remainder his award, Stock Options with a grant date value of $1.5 million and PRSUs with a grant date value of
$750,000, would not be granted until June 15, 2015 and only if the Offer has not been consummated. The RSUs expected to be granted to Dr. Vink on January 1, 2015 are not reflected in the table above. |
4
The following table sets forth the approximate amount of payments that each director and
executive officer of the Company is entitled to receive in connection with the consummation of the Offer and Merger as a result of the Company equity interests held by each director and executive officer as of December 4, 2014. The table does
not include any payments the executive officers may be entitled to if the employment of executive officers is terminated in connection with the Offer. Such payments are detailed below in the section entitled “Employment and Severance
Agreements.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Executive
Officer or Director |
|
Cash Consideration
for Shares |
|
|
Cash Consideration
for Stock Options |
|
|
Cash Consideration
for RSUs and
PRSUs |
|
|
Total Cash
Consideration in
connection with
Offer and Merger
($) |
|
| Michael Bonney |
|
$ |
18,731,484 |
|
|
$ |
100,943,630 |
|
|
$ |
12,697,470 |
(1) |
|
$ |
132,372,584 |
|
| Thomas DesRosier |
|
|
234,702 |
|
|
|
4,889,782 |
|
|
|
1,671,576 |
|
|
|
6,796,060 |
|
| Steven Gilman |
|
|
3,105,798 |
|
|
|
15,368,376 |
|
|
|
3,393,438 |
|
|
|
21,867,612 |
|
| Robert Perez |
|
|
5,338,374 |
|
|
|
40,969,320 |
|
|
|
5,949,048 |
(2) |
|
|
52,256,742 |
|
| Michael Tomsicek |
|
|
747,762 |
|
|
|
7,227,866 |
|
|
|
2,387,106 |
|
|
|
10,362,734 |
|
| Patrick Vink |
|
|
560,592 |
|
|
|
5,718,960 |
|
|
|
2,086,308 |
(3) |
|
|
8,365,860 |
|
| Kenneth Bate |
|
|
980,730 |
|
|
|
12,024,565 |
|
|
|
217,974 |
|
|
|
13,223,269 |
|
| Mark Corrigan |
|
|
765,102 |
|
|
|
3,165,313 |
|
|
|
172,074 |
|
|
|
4,102,489 |
|
| Jane Henney |
|
|
473,688 |
|
|
|
1,825,847 |
|
|
|
172,074 |
|
|
|
2,471,609 |
|
| Nancy Hutson |
|
|
607,002 |
|
|
|
3,165,313 |
|
|
|
172,074 |
|
|
|
3,944,389 |
|
| Alison Lawton |
|
|
481,134 |
|
|
|
1,887,607 |
|
|
|
172,074 |
|
|
|
2,540,815 |
|
| Kenneth Martin |
|
|
— |
|
|
|
772,115 |
|
|
|
172,074 |
|
|
|
944,189 |
|
| Leon Moulder, Jr. |
|
|
1,132,302 |
|
|
|
4,529,459 |
|
|
|
172,074 |
|
|
|
5,833,835 |
|
| Martin Soeters |
|
|
1,060,494 |
|
|
|
8,026,483 |
|
|
|
172,074 |
|
|
|
9,259,051 |
|
| (1) |
On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to the Bonney Separation Agreement to permit Mr. Bonney’s unvested RSUs to remain outstanding following his
retirement on December 31, 2014 until the earlier of (i) their scheduled vesting date and (ii) the consummation of a change in control occurring on or prior to June 15, 2015. 17,500 of such RSUs are scheduled to vest prior to
June 15, 2015, so if a change in control does not occur prior to such date, Mr. Bonney will forfeit 9,500 of the RSUs reflected in the table above. |
| (2) |
In connection with Mr. Perez’s promotion to Chief Executive Officer, effective January 1, 2015, the Company agreed to grant him Stock Options on January 1, 2015 with a grant date value of $2.5
million and a PRSU grant on February 15, 2015 with a grant date value of $2.5 million. On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to Mr. Perez’s agreement, such that he would
receive RSUs with a grant date value of $1.25 million on January 1, 2015, but the remainder of his award, Stock Options with a grant date value of $2.5 million and PRSUs with a grant date value of $1.25 million, would not be granted until
June 15, 2015 and only if the Offer has not been consummated. The grants expected to be made to Mr. Perez on January 1, 2015 are not reflected in the table above. |
| (3) |
In connection with Dr. Vink’s promotion to Chief Operating Officer, effective January 1, 2015, the Company agreed to grant him Stock Options with a grant date value of $1,500,000 and RSUs with a grant
date value of $750,000 on January 1, 2015, as well as a PRSU grant on February 15, 2015 with a grant date value of $750,000. On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to
Dr. Vink’s agreement, such that he would receive RSUs with a grant date value of $750,000 on January 1, 2015, but the remainder his award, Stock Options with a grant date value of $1.5 million and PRSUs with a grant date value of
$750,000, would not be granted until June 15, 2015 and only if the Offer has not been consummated. The grants expected to be made to Dr. Vink on January 1, 2015 are not reflected in the table above. |
Treatment of the Company’s 2014 Employee Stock Purchase Plan
The Company’s 2014 Employee Stock Purchase Plan (the “ESPP”) will continue to operate in accordance with its terms and past
practice for a final option period, which is expected to end on December 31, 2014. Only
5
current participants in the ESPP may continue to participate in the ESPP. The Company will suspend the commencement of any future option periods under the ESPP unless and until the Merger
Agreement is terminated, and the ESPP will terminate as of the Acceptance Time.
The following table sets forth the number of Shares
expected to be purchased by the executive officers under the ESPP at the end of the current option period on December 31, 2014 assuming: (i) the executive officers do not withdraw from the option period prior to such date, and (ii) a
purchase price per Share equal to 85% of the fair market value of a Share at the beginning of the applicable offering period on July 1, 2014:
|
|
|
|
|
| Name of Executive Officer |
|
Number of Shares to be Purchased |
|
| Michael Bonney |
|
|
— |
|
| Thomas DesRosier |
|
|
148 |
|
| Steven Gilman |
|
|
102 |
|
| Robert Perez |
|
|
32 |
|
| Michael Tomsicek |
|
|
— |
|
| Patrick Vink |
|
|
— |
|
Employment and Severance Agreements
The Company is currently a party to retention letters with each of Michael Bonney, Thomas DesRosier, Steven Gilman, Robert Perez, Michael
Tomsicek and Patrick Vink. The retention letters of the executive officers other than Mr. Bonney have a fixed term of three years (but extending for two years following a change-in-control of the Company) and provide for severance payments,
consisting of a lump sum payment equal to 18 months of base salary plus the greater of the target bonus for the year in which the termination occurs and the previous year’s actual bonus payment and reimbursement for the Company-portion of
the medical and dental coverage for 18 months, if the executive officer’s employment is terminated without “cause” or if the executive officer resigns for “good reason” within 24 months following a change-in-control of the
Company. In connection with his appointment as Chief Executive Officer, Mr. Perez is party to a new retention letter effective January 1, 2015 that provides severance payments, consisting of a lump sum payment equal to 24 months of base
salary plus the greater of the target bonus for the year in which the termination occurs and the previous year’s actual bonus payment and reimbursement for the Company-portion of medical and dental coverage for 24 months, if he is terminated
without “cause” or resigns for “good reason” within 24 months after a change-in-control of the Company. Accordingly, the new retention letter will be in effect for Mr. Perez prior to the Acceptance Time. Termination benefits
under the retention letters are not triggered solely by a change-in-control and are therefore considered “double trigger.”
Although Mr. Bonney is party to a retention letter, he is scheduled to retire on December 31, 2014, at which time his retention
letter will terminate, and he will not be entitled to any future severance payments. On October 20, 2014, in connection with the announcement of his retirement, Mr. Bonney entered into a separation agreement with the Company (the
“Bonney Separation Agreement”) pursuant to which his outstanding Stock Option awards will become fully vested and exercisable as of December 31, 2014 to the extent such Stock Option awards are unvested as of such date and will remain
exercisable through the earlier of December 31, 2017 or the expiration date of the relevant Stock Option. In addition, Mr. Bonney’s performance-based restricted stock unit awards held as of December 31, 2014 will be eligible to
be earned and vest in accordance with their respective terms without regard to any service-based vesting conditions. On December 7, 2014, the Compensation Committee of the Company Board approved an amendment to the Bonney Separation Agreement.
The amendment allows Mr. Bonney’s 27,000 unvested restricted stock units to remain outstanding following his retirement on December 31, 2014 until the earlier of (i) their scheduled vesting date and (ii) the consummation of
a change in control occurring on or prior to June 15, 2015, at which time the restricted stock units would vest in accordance with their terms (if a scheduled vesting date or the change in control transaction does not occur by June 15,
2015, any outstanding restricted stock units will be forfeited).
6
The retention letters provide that the equity incentives held by each executive officer will
fully vest in the event the executive officer is entitled to severance payments in connection with a change-in-control of the Company. The retention letters and the Bonney Separation Agreement do not provide for any tax gross-up payments or other
perquisites. As a result, if an executive officer is assessed any excise tax liability under Section 280G of the Internal Revenue Code as a result of payments and benefits received under a retention letter or a separation agreement in
connection with a change-in-control, that executive officer is responsible for the payment of such excise tax.
For further information
with respect to the executive officer’s retention letters and the Bonney Separation Agreement, see the information included in Item 8 under the heading “Additional Information — Golden Parachute Compensation” (which
is hereby incorporated into this Item 3 by reference).
Indemnification of Executive Officers and Directors
The Merger Agreement provides that Parent and Purchaser will cause the Surviving Corporation’s certificate of incorporation and bylaws to
contain provisions no less favorable with respect to rights to exculpation, indemnification and advancement of expenses for acts or omissions occurring at or prior to the Effective Time, existing in favor of the current or former directors, officers
or employees of the Company for a period ending the later of (i) the expiration of the statutes of limitations applicable to such matters and (ii) six years after the Effective Time. The Merger Agreement also provides that after the
Effective Time, Parent and the Surviving Company shall, jointly and severally, to the fullest extent permitted under applicable law, indemnify and hold harmless (and advance funds in respect of each of the foregoing) each current and former
director, officer or employee of the Company against all obligations to pay a judgment, settlement, penalty, and reasonable expenses incurred in connection with any claim, action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, and whether formal or informal, arising out of or pertaining to any action or omission, including any action or omission in connection with the fact that the indemnified party is or was an officer, director, employee,
fiduciary or agent of the Company or its subsidiaries, or of another entity if such service was at the request of the Company, whether asserted or claimed prior to, at or after the Effective Time. The Company will also purchase “tail”
directors and officers liability insurance coverage for a period of six years after the Effective Time that is at least as protective to such directors and officers as the coverage provided by such existing policies, and Parent will cause such tail
coverage to be maintained in full force and effect for its full term.
The foregoing summary of the indemnification of executive officers
and directors and directors’ and officers’ insurance does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which has been filed as Exhibit (e)(1) hereto and is incorporated herein by
reference.
Employment Agreements Following the Merger
As of the date of this Schedule 14D-9, Parent and Purchaser have informed the Company that none of the Company’s current executive
officers have entered into any agreement, arrangement or understanding with Parent, Purchaser or their affiliates regarding employment with the Surviving Corporation. Although it is possible that Parent may enter into employment or consultancy
compensation, severance or other employee or consultant benefits arrangements with the Company’s executive officers and certain other key employees, as of the date of this Schedule 14D-9, no discussions have occurred between the Company’s
executive officers and representatives of Parent, Purchaser or their affiliates regarding any such arrangements, and there can be no assurance that any parties will reach an agreement.
7
Effect of the Merger Agreement on Employee Benefits
The Merger Agreement provides that for the period from the Effective Time until (a) December 31, 2015, in the event the Effective
Time occurs prior to February 28, 2015, and (b) the first anniversary of the Closing Date in the event the Effective Time occurs on or after February 28, 2015 (the “Continuation Period”), Parent will cause the Surviving
Corporation to provide each Company employee employed by the Surviving Corporation at the Effective Time (“Current Employees”) who continues to be employed by the Surviving Corporation during the Continuation Period with (i) base
compensation and annual target cash incentive compensation that is at least as favorable as at the Effective Time, (ii) benefits (excluding severance benefits and equity-based compensation and benefits) that are at least as favorable in the
aggregate as the benefits provided by the Company immediately prior to the Effective Time and (iii) severance benefits that are no less favorable than the severance benefits provided under the Cubist Pharmaceuticals, Inc. 2014 Severance Plan,
effective December 7, 2014. Each Current Employee will receive his or her unpaid 2014 cash bonus under the 2014 Short-Term Incentive Plan (the “STIP”) and the Performance-Based Management Incentive Plan (the “MIP”), as
applicable, determined based on actual performance; provided that the maximum aggregate cash bonus payable will not exceed 125% of the target for all participants in the STIP and the MIP.
Parent will, and will cause the Surviving Corporation to, recognize all service of Current Employees to the Company and its Subsidiaries for
vesting and eligibility purposes (but not for accrual purposes, except for vacation and other paid time off and severance, if applicable) under employee benefit plans of Parent, the Surviving Corporation and its subsidiaries, to the same extent as
such service was taken into account prior to the Effective Time under the corresponding Company plans for these purposes, except to the extent such recognition would result in the duplication of benefits. Current Employees will not be subject to any
eligibility requirements or pre-existing condition limitations under any employee health benefit plan of Parent, the Surviving Corporation or its subsidiaries for any condition for which they would have been entitled to coverage under the
corresponding Company plans in which they participated prior to the Effective Time. Parent has agreed to, and has agreed to cause the Surviving Corporation and its subsidiaries to, give Current Employees credit under such employee benefit plans for
any eligible expenses incurred by them or their covered dependents for purposes of satisfying all corresponding co-payment, co-insurance, deductibles and maximum out-of-pocket requirements applicable in respect of the year in which the Effective
Time occurs.
Section 16 Matters
Pursuant to the Merger Agreement, the Company Board has adopted a resolution so that, to the extent permitted, the disposition of all Company
equity securities pursuant to the Merger Agreement by any officer or director of the Company who is a covered person for purposes of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) will be an exempt transaction
for purposes of Section 16 of the Exchange Act.
| (b) |
Arrangements with Purchaser and Parent. |
Merger Agreement
The summary of the Merger Agreement contained in Section 11 of the Offer to Purchase filed as Exhibit (a)(1)(A) hereto and the
description of the conditions of the Offer contained in Section 15 of the Offer to Purchase are incorporated herein by reference. Such summary and description are qualified in their entirety by reference to the Merger Agreement, which is filed
as Exhibit (e)(1) hereto and is incorporated herein by reference.
The Merger Agreement governs the contractual rights between the
Company, Parent and Purchaser in relation to the Offer and the Merger. The Merger Agreement has been filed as an exhibit to this Schedule 14D-9 to provide you with information regarding the terms of the Merger Agreement and is not intended to modify
or supplement any factual disclosures about the Company or Parent in the Company’s or Parent’s public reports filed with the SEC. In particular, the Merger Agreement and this summary of terms are not intended to be, and
8
should not be relied upon as, disclosures regarding any facts or circumstances relating to the Company or Parent. The representations and warranties have been negotiated with the principal
purpose of establishing the circumstances in which Purchaser may have the right not to consummate the Offer, or a party may have the right to terminate the Merger Agreement, if the representations and warranties of the other party prove to be untrue
due to a change in circumstance or otherwise, and allocate risk between the parties, rather than establish matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those
generally applicable to stockholders.
Confidentiality Agreement
On November 3, 2014, the Company and Parent entered into a confidentiality agreement (the “Confidentiality Agreement”), which
was subsequently amended on November 14, 2014. Under the terms of the Confidentiality Agreement, Parent agreed to keep confidential certain information furnished to Parent concerning the Company’s business in connection with the evaluation
of a possible transaction between Parent and the Company and to use such information solely for the purpose of evaluating, negotiating and, if applicable, consummating the transaction. Parent also agreed, among other things, to standstill provisions
that would automatically terminate following the announcement by the Company that it had entered into a definitive agreement contemplating a change of control transaction for the Company or the initiation of a tender offer for more than 50% of the
Company’s outstanding voting securities.
| Item 4. |
The Solicitation or Recommendation. |
| (a) |
Recommendation of the Company Board. |
After consideration, including review of the terms
and conditions of the Offer in consultation with the Company’s management, as well as the Company’s financial and legal advisors, the Company Board, by unanimous vote at a meeting on December 7, 2014, (a) determined that the
Offer and the Merger are fair to, and in the best interests of, the Company and its stockholders, (b) approved, declared advisable and adopted the Merger Agreement and (c) resolved to recommend that the Company’s stockholders accept
the Offer and tender their Shares into the Offer.
Accordingly, for the reasons described in more detail below, the Company Board
unanimously recommends that the Company’s stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer.
| (b) |
Background and Reasons for the Company Board’s Recommendation. |
Background of the Offer
As part of its normal strategic review process, the Company Board and the Company’s senior management have periodically
reviewed and evaluated strategic alternatives for the Company, and discussed strategic alternatives, valuation matters, and the state of the mergers and acquisitions market in the pharmaceutical industry with its financial advisors. The Company has
also, from time to time in the past, received unsolicited overtures from other pharmaceutical companies expressing interest in a possible acquisition and engaged in discussions with various parties regarding potential business combinations. In the
opinion of the Company’s management, none of those overtures was reasonably likely to be completed at a price that offered an attractive value to the Company’s stockholders, because of the circumstances in which the overtures were made,
the absence of a strategic fit with the Company’s products, the financing and/or mergers and acquisitions markets were not conducive to a transaction, or the value obtainable at the time by the Company’s continued execution of its
strategic plan was greater than the proposed acquisition price.
During the first half of 2014, Parent began participating in the
Company’s process to consider possible partnering arrangements outside of the United States related to ceftolozane/tazobactam. On May 5, 2014, Parent
9
and the Company entered into a confidentiality agreement in connection with those discussions and between May and September 2014, Parent and the Company shared certain confidential information
and held several meetings related to the possible partnership. These discussions did not lead to any arrangement between Parent and the Company.
On October 7, 2014, Kenneth C. Frazier, Parent’s Chairman and Chief Executive Officer, called Mr. Bonney to discuss
Parent’s interest in a potential strategic transaction with the Company. Mr. Frazier and Mr. Bonney agreed to meet in person later in the week to continue their conversation. Promptly following his call with Mr. Frazier,
Mr. Bonney conferred with Kenneth Bate, Chairman of the Company Board, about the call and a potential strategic transaction with Parent, and they determined to discuss Parent’s overture at the October 13, 2014 meeting of the Company
Board.
On October 8, 2014, Mr. Frazier and Mr. Bonney attended a dinner meeting in New York City. Mr. Frazier
expressed Parent’s interest in potentially acquiring the Company at a per Share price in “the high 80’s.” Mr. Bonney responded that, while he would convey that proposal to the Company Board, based on prior discussions of the
Company Board, he was of the opinion that Parent’s proposed price range likely would be considered insufficient to warrant the Company Board authorizing further discussions. Mr. Frazier indicated that Parent’s proposal was preliminary
and based on public information, but that Parent might be able to raise the proposed price based on additional diligence. Following the meeting, Mr. Bonney informed Mr. Bate, Robert J. Perez, President and Chief Operating Officer of the
Company, and Thomas DesRosier, the Company’s Executive Vice President, Chief Legal and Administrative Officer, of the details of his conversation with Mr. Frazier.
On October 9, 2014, Mr. Frazier sent Mr. Bonney an email requesting a management meeting and due diligence calls regarding
patent infringement lawsuits filed by the Company against Hospira, Inc. (“Hospira”), regulatory interactions concerning ceftolozane/tazobactam, and tax matters.
On October 10, 2014, Mr. Bonney held a telephone conference with Mr. Bate, Mr. Perez, Mr. DesRosier, Michael
Tomsicek, the Company’s Chief Financial Officer, representatives of Goldman, Sachs & Co. (“Goldman Sachs”) and Morgan Stanley & Co. LLC (“Morgan Stanley”), the Company’s financial advisors, and a
representative of Ropes & Gray LLP (“Ropes & Gray”), the Company’s legal advisor. The Company requested that Goldman Sachs and Morgan Stanley participate in the meeting because of their prior work with the Company,
industry expertise and substantial experience with life sciences mergers and acquisitions. Mr. Bonney described his meeting and other communications with Mr. Frazier, and the participants in the meeting discussed next steps.
On October 13, 2014, the Company Board held a telephonic meeting attended by each member of the Company Board, certain members of the
Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney described his meeting and other correspondence with Mr. Frazier. The Company’s financial advisors provided
commentary regarding their assessment of Mr. Bonney’s interactions with Parent, and a representative of Ropes & Gray described to the Company Board its fiduciary duties in evaluating Parent’s proposal and other potential
scenarios. The members of the Company Board then discussed potential responses to Parent and considered the impact of the Company’s leadership transition plans and business strategy on the response to Parent. The Company Board determined that,
at this time, the Company was not for sale, but requested that management seek additional information about the possible terms of a transaction with Parent and authorized Mr. Bonney to continue discussing a potential transaction with
Mr. Frazier, including proposed terms required for substantive engagement regarding a potential transaction. In order to expedite the process of evaluating potential strategic transactions and facilitate communications and deliberations, the
Company Board also formed a special committee (the “Special Committee”), comprised of independent directors Mr. Bate, Nancy Hutson, and Kenneth Martin, each of whom has prior mergers and acquisition experience in their capacities as
senior executives and directors of other companies. The Special Committee was charged with overseeing the process of evaluating potential strategic alternatives, reporting on developments to the Company Board, and taking other actions up to, but not
including, entering into a definitive transaction agreement with a third party.
10
On October 16, 2014, Mr. Bonney called Mr. Frazier to discuss the Company
Board’s feedback in response to Parent’s stated interest in a potential strategic transaction. Mr. Bonney explained that it was not an optimal time for the Company to engage in strategic discussions and risk distracting management
from the pending ceftolozane/tazobactam launch and derailing the execution of the leadership transition. Consequently, as instructed by the Company Board, Mr. Bonney informed Mr. Frazier that the Company would continue discussions with
Parent only if Parent was prepared to move quickly, to propose consideration payable to stockholders of the Company in excess of $100.00 per Share, and to provide assurance that any definitive transaction document would not be conditioned on the
outcome of, or include closing conditions based on, the Company’s litigation with Hospira or regulatory decisions about ceftolozane/tazobactam. Mr. Frazier responded that he needed to discuss these terms with Parent’s senior
management and consult Parent’s Board of Directors (the “Parent Board”).
On October 17, 2014, the Special Committee
held a telephonic meeting attended by each member of the Special Committee, certain members of the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney updated the Special
Committee on his recent conversation with Mr. Frazier. The Special Committee then discussed with senior management and the Company’s advisors certain alternatives available to the Company and preparation for such scenarios. The Special
Committee concluded that the Company should be prepared to enter into confidentiality agreements to better understand possible parameters with respect to third party interest in a potential transaction with the Company.
On October 18, 2014, the Company Board held a telephonic meeting attended by each member of the Company Board, as well as
Mr. DesRosier and a representative of Ropes & Gray. The Company discussed the pending Chief Executive Officer and Company Board Chairman transitions. At the conclusion of the meeting, Mr. Bonney provided an update regarding his
discussions about a potential strategic transaction and the Company Board considered how Mr. Bonney should approach future communications with Mr. Frazier.
On October 23, 2014, Mr. Bonney and Mr. Frazier had two telephone conversations to discuss the potential business combination.
Mr. Frazier stated that Parent remained interested in a transaction, and Parent’s senior management team and the Parent Board wanted to continue the discussions. Mr. Frazier described for Mr. Bonney certain of Parent’s
assumptions for the combined businesses and identified certain key areas for further due diligence that Parent would require before signing a definitive agreement, including long-term tax planning, the Company’s pending litigation with Hospira,
and the regulatory dialogue regarding ceftolozane/tazobactam. Mr. Frazier also indicated that Parent was prepared to offer between $95.00 and $100.00 per Share, with a portion of that price contingent on the outcome of the Hospira litigation.
Mr. Frazier indicated that Parent was willing to accept certain regulatory risk in connection with the potential transaction, but was unwilling to assume all of the risk related to the outcome of the Hospira litigation. Mr. Bonney
responded that the deal parameters laid out by Mr. Frazier did not meet each of the conditions set forth by the Company Board, but that he would review Parent’s proposal with the Company Board.
Later on October 23, 2014, the Special Committee held a telephonic meeting attended by each member of the Special Committee, certain
members of the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney reported on his most recent conversations with Mr. Frazier. The financial advisors provided
commentary about Mr. Bonney’s conversation and suggested potential steps to advance the negotiations. The Special Committee, senior management, and the Company’s financial and legal advisors discussed the parameters of
Mr. Bonney’s next interaction with Mr. Frazier. The Special Committee advised Mr. Bonney to explain that Parent’s current proposal did not satisfy the Company Board’s conditions related to price and the transaction not
being conditioned on the outcome of, or including closing conditions based on, the Hospira litigation, so the Company was unable to proceed unless Parent revised its proposal. Members of the Special Committee added that Mr. Bonney should
express the Company’s willingness to facilitate a discussion about the Hospira litigation with the Company’s external patent litigation counsel.
11
On October 25, 2014, Mr. Bonney informed Mr. Frazier that the Special Committee
had discussed Parent’s most recent proposal and considered it inadequate with respect to both price and the proposed contingency associated with the outcome of the Hospira litigation. Mr. Bonney offered to facilitate a discussion between
Parent and the Company’s outside patent litigation counsel regarding the status of the Hospira litigation, subject to Parent first entering into an appropriate confidentiality agreement with the Company.
On October 27, 2014, Mr. Bonney received an unsolicited telephone call from the Chief Executive Officer of Party A who asked whether
the Company may be open to a potential business combination. Mr. Bonney responded that he would address the question with the Company Board and that the Company was always willing to consider proposals that would increase stockholder value.
On October 28, 2014, the Special Committee held a telephonic meeting attended by each member of the Special Committee, certain
members of the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney outlined his plan to provide the Company Board with an updated version of the long-range plan that had been prepared by the Company’s senior management and previously presented to the Company Board in June 2014 and approaches to evaluating the Company’s intrinsic financial value.
Mr. Bonney reported on his most recent conversations with Mr. Frazier, and the Company’s financial advisors commented on the discussions to date between the Company and Parent. The financial advisors also provided preliminary analysis
of the synergies that Parent or a similar counter-party might achieve in a transaction and discussed with the Special Committee the estimates, assumptions, and implications related to their analysis. Mr. Bonney then updated the Special
Committee about a conversation he had with the Chief Executive Officer of Party A, and the Special Committee discussed the interaction, although Party A never provided a specific proposal regarding a potential business combination. The Special
Committee also discussed with the Company’s senior management the expectations for the anticipated meeting between Mr. Bonney and Mr. DesRosier, on the one hand, with Mr. Frazier and Bruce Kuhlik, Parent’s Executive Vice
President and General Counsel, on the other hand, which had been scheduled for November 3, 2014.
Later on October 28, 2014, the
Company sent Parent a draft confidentiality agreement that included standstill provisions in anticipation of a planned in-person meeting between the parties scheduled for November 3, 2014.
On October 31, 2014, the Special Committee held a telephonic meeting attended by each member of the Special Committee, certain members of
the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Each of the Company’s financial advisors provided its preliminary financial analysis to the Special Committee. The Special
Committee received the Company’s updates to the Company’s long-range plan that had been prepared in June 2014 and Morgan Stanley discussed the impact of these revised assumptions on Morgan
Stanley’s approach to valuation. Representatives of Goldman Sachs then summarized Goldman Sachs’ preliminary financial analysis and described certain differences between the approaches of Goldman Sachs and Morgan Stanley with respect to
the financial analysis of the Company. Members of the Special Committee asked questions regarding the presentations and discussed the methodologies used, the comparability of certain precedent transactions referenced in the financial advisors’
discussions, and the likely weighting by a counter-party of particular metrics. The Special Committee and the financial advisors then discussed sensitivities around the Company’s Adjusted Forecasts (as defined in Item 8 under the heading
“Additional Information — Certain Company Management Projections”), including pricing assumptions concerning ceftolozane/tazobactam and the Company’s expectations for a positive outcome in the Hospira litigation, and the Special
Committee and the financial advisors also discussed the potential effects of alternative outcomes in the Hospira litigation. Representatives of Goldman Sachs next presented an analysis regarding the Company’s outstanding convertible notes and
the unwinding of associated hedging arrangements the Company had previously entered into with three counter-parties, and members of the Special Committee inquired about the payments likely to be associated with the unwinding of those hedging
arrangements and Morgan Stanley’s status as one of three counter-parties to those hedging arrangements. After the financial advisors left the meeting, the members of the Special Committee discussed the information provided at the meeting and
determined that the Company should enter into a confidentiality agreement with Parent.
12
On November 3, 2014, the Company and Parent executed a confidentiality agreement, which
included customary standstill provisions that would survive for a period of 12 months. Subsequently, Mr. Bonney and Mr. DesRosier met with Mr. Frazier and Mr. Kuhlik at Parent’s headquarters, with the discussion focused
primarily on the status of the Hospira litigation. Mr. Frazier reinforced his prior statements to Mr. Bonney about the strategic value of a potential combination of the Company and Parent and indicated that Parent was willing to meet the
Company’s condition that the per Share price be in excess of $100.00 and that a definitive agreement would not include conditionality related to the Hospira litigation or the regulatory status of ceftolozane/tazobactam. The parties also agreed
to arrange diligence meetings with their respective teams to discuss certain long-term tax issues and with the Company’s outside patent litigation counsel to discuss the Hospira litigation. Mr. Frazier stated that, if the diligence
meetings were satisfactory, Parent would make a specific, non-binding offer to acquire the Company.
On November 4, 2014,
representatives of the Company and Parent held a telephonic meeting to discuss tax matters relating to the Company.
Later on
November 4, 2014, the Company Board held a telephonic meeting attended by certain members of the Company’s senior management and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney reviewed recent
interactions with Parent, and Mr. Bonney and Mr. Bate described the oversight being provided by the Special Committee with respect to discussions concerning a potential business combination. At the request of the Company Board, Goldman
Sachs and Morgan Stanley described their credentials and reviewed certain investment banking relationships, including certain of their prior work for Parent and the Company, including Morgan Stanley’s position as a counter-party to a portion of
the derivative contracts entered into in connection with the Company’s 2013 convertible note issuance, which derivative contracts would be unwound in connection with the consummation of the Merger, and Morgan Stanley’s prior work for
Parent. Representatives of Morgan Stanley then provided Morgan Stanley’s preliminary financial analysis of the Company. A representative of Goldman Sachs then presented Goldman Sachs’ preliminary financial analysis, described certain
differences between the approaches used by Goldman Sachs and Morgan Stanley, and provided an overview of revenue and cost synergies a purchaser of the Company might expect to achieve. Members of the Company Board asked questions regarding
assumptions and risks inherent to the financial modeling, and the financial advisors and management responded to those questions. The financial advisors next presented their joint assessment regarding parties other than Parent that might have an
interest in acquiring the Company and provided their joint assessment of their potential strategic fit and financial capabilities. Members of management expressed views on potential other bidders, including Parties A — D, and the likelihood
that they would be interested in, and capable of completing, an acquisition of the Company. The Company Board, members of senior management, and the financial advisors then discussed whether the Company should conduct a market check by contacting
certain of those parties, and how such a check might be conducted. The participants addressed the potential benefits, such as the potential introduction of competition and insight into the interest of other companies, as well as the risks, including
potential leaks, the disruption of the business and the planned leadership transition, and the distraction of senior management from the pending ceftolozane/tazobactam launch. The Company Board did not determine at this time whether to pursue such a
market check in the event that Parent made a proposal that the Company Board determined warranted further engagement. A representative of Ropes & Gray advised the Company Board of its fiduciary duties in the event it determined to pursue a
sale. Morgan Stanley then left the meeting, and Goldman Sachs presented an analysis of the treatment of the Company’s convertible notes and the related call spread derivatives in a sale, including payments due to the three institutions,
including Morgan Stanley, that are the counter-parties under contracts associated with those instruments. Goldman Sachs then left the meeting, and the Company Board discussed the incentives of the financial advisors with respect to a potential
transaction, including the potential payment to Morgan Stanley under contracts associated with the call spread derivatives if the derivatives were to be unwound in connection with a transaction, as well as Morgan Stanley’s prior work for
Parent. After discussion, the Company Board reviewed Goldman Sachs’ and Morgan Stanley’s incentives, as well as their experience and expertise and determined that they could provide unbiased advice in connection with a potential
transaction. After Mr. Bonney and Mr. Perez left the meeting, the independent directors discussed the potential considerations that may influence Mr. Bonney, who is expected to retire on December 31, 2014, and Mr. Perez, who
is expected to become Chief Executive Officer of the Company on January 1, 2015.
13
On November 6, 2014, representatives of the Company, external patent litigation counsel to
the Company, and representatives of Parent held a telephonic diligence meeting about the Hospira litigation, including the potential outcome and timing of a district court decision. The Company also presented to Parent language for a definitive
agreement between the parties excluding conditionality regarding the outcome of the Hospira litigation or regulatory action related to ceftolozane/tazobactam.
On November 10, 2014, Mr. Bonney and Mr. Frazier spoke with each other on a telephone call. Mr. Frazier stated that Parent
was prepared to make a non-binding all-cash proposal of $102.00 per Share and would accept the Company’s language presented on November 6, 2014. Mr. Frazier indicated that he would follow up with a letter memorializing that
non-binding proposal.
On November 11, 2014, the Special Committee held a telephonic meeting attended by each member of the Special
Committee, certain members of the Company’s senior management and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney updated the Special Committee on recent interactions with Parent, including
Parent’s intent to deliver a written proposal reflecting a non-binding, all-cash proposal of $102.00 per Share. In light of Parent’s action, the Special Committee considered whether to reach out to other parties, as well as the details of
any such outreach. The Company’s financial advisors and members of senior management provided their views regarding the potential interest of third parties in acquiring the Company and discussed the financial capacity and potential strategic
interest of such potential counter-parties and identified three large-cap pharmaceutical companies that could potentially generate competition, because of their interest in the acute care segment and their
financial resources. Party A was not included in that group because the Special Committee and the financial advisors did not believe that Party A had the financial capacity to compete with an all-cash bid at $102.00 per Share. After discussions
regarding the assessment of the potential for other parties to participate in a transaction, the Special Committee provided guidance on reaching out to the three third-parties previously discussed by the Special Committee. At the conclusion of the
meeting, the Special Committee held an executive session at which the members continued to discuss the process for the transaction. The Special Committee also discussed the fact that two members of Morgan Stanley’s Board of Directors who are
deemed by Morgan Stanley’s Board of Directors to be independent are also members of the Parent Board and the implications of that overlap.
On November 12, 2014, Mr. Frazier delivered a letter to Mr. Bonney memorializing Parent’s non-binding proposal from
November 10, 2014. Parent’s letter proposed a $102.00 per Share cash price with no financing conditions, accepted the Company’s requirements with respect to closing conditionality, and requested to move forward promptly with
management presentations and due diligence. After receiving Parent’s letter, the Company scheduled a management presentation, which was given to Parent in Cambridge, Massachusetts on November 14, 2014.
Later on November 12, 2014, the Special Committee held a telephonic meeting attended by each member of the Special Committee, certain
members of the Company’s senior management, and a representative of Ropes & Gray. Mr. Bonney reviewed his recent interaction with Mr. Frazier, including the non-binding written proposal sent by Mr. Frazier. The
Special Committee members, as well as Mr. Bonney and Mr. Perez, expressed their preliminary views regarding the range of values within which the Company should deviate from its strategic plan and agree to sell the Company. The directors
participating in the meeting did not arrive at a recommendation concerning whether the Company should be sold at this time, nor did any director make a definitive determination as to whether he or she would either vote in favor of a sale above a
particular price or vote against entering into a transaction below a particular price. Mr. Perez commented on the Company’s strategic plan and the risks and potential rewards to the Company’s stockholders of remaining an independent
organization.
Later on November 12, 2014, Mr. Bonney replied to Mr. Frazier by letter, noting that while Parent had
satisfied the Company Board’s price requirement to commence due diligence, the Company Board had not yet agreed to sell the Company at $102.00 per Share, and that Parent would likely need to increase its offer before a deal could be reached.
Mr. Bonney’s letter also confirmed that Parent’s agreement that the definition of “material adverse effect” in any definitive agreement between the Company and Parent would exclude developments with respect to the potential
regulatory approval of ceftolozane/tazobactam and any outcome in the Hospira litigation.
14
On November 13, 2014, at the request of the Special Committee, the Company and its financial
advisors contacted Parties B, C and D to determine whether they might be interested in exploring a potential acquisition of the Company. Each party was advised that the Company was focused on price per Share to be paid to the Company’s
stockholders and deal certainty, so a competitive offer would need to be “well above” $100.00 per Share and should minimize conditionality, including with respect to the approval of ceftolozane/tazobactam or any outcome in the Hospira
litigation. Following an initial conversation with Party B, the Company delivered to it a draft confidentiality agreement, which agreement was later executed, after negotiation of terms, on November 17, 2014. The confidentiality agreement
included customary standstill provisions that would survive for a period of 12 months.
On November 14, 2014, the management teams of
Parent and the Company held a meeting in Cambridge, Massachusetts. At the meeting, the Company and Parent signed an amendment to their existing confidentiality agreement to expand Parent’s access to certain non-competitively sensitive
information related to the Company’s ceftolozane/tazobactam program. The Company management also shared a presentation about the Company’s long-range plans with an emphasis on the Company’s
late-stage assets and discovery programs.
On November 14, 2014, the Company also delivered a draft confidentiality agreement to
Party C, which agreement was later executed, after negotiation of terms, on November 19, 2014. The confidentiality agreement included customary standstill provisions that would survive for a period of 12 months.
On November 15, 2014, the Special Committee held a telephonic meeting attended by each member of the Special Committee, certain members
of the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney provided an overview of the prior day’s management meeting and members of the Company’s management
provided their assessment of the interactions with Parent. Mr. Bonney also described communications with Parties B, C and D and their initial feedback about the Company. The Special Committee also discussed the diligence process.
Later on November 15, 2014, Mr. Bonney had a telephone call with the Chief Executive Officer of Party B. The Chief Executive Officer
of Party B indicated that his company was very interested in participating in the process to explore a potential acquisition of the Company. Also on November 15, 2014, the Company and Party B scheduled a management meeting for November 21,
2014.
On November 18, 2014, Mr. Bonney and Mr. Frazier discussed the diligence process and potential timing of a
transaction between the Company and Parent. Mr. Frazier indicated that Parent desired to announce a transaction by the end of November or early December and that Parent wanted to discuss retention of the Company’s key employees.
Later on November 18, 2014, Mr. Bonney spoke with a senior executive of Party D to assess its interest in a potential acquisition.
The executive reported that Party D was continuing to conduct public diligence and that it would provide feedback to the Company on or before November 24, 2014.
On November 19, 2014, Party C conducted intellectual property due diligence with the Company’s management. Additionally, the Company
made its electronic data room accessible to Parent, Party B and Party C and simultaneously provided each party with a draft merger agreement.
On November 20, 2014, the Company held a management presentation for representatives from Party C.
On November 20, 2014, Mr. Bonney also spoke with Mr. Frazier to discuss Parent’s progress on diligence.
On November 21, 2014, the Company held a management presentation for representatives from Party B.
On November 22, 2014, Party D notified Mr. Bonney that it did not believe that the Company was a strategic fit for its business and
would not pursue an acquisition of the Company.
15
On November 24, 2014, Ropes & Gray had separate discussions with Hughes
Hubbard & Reed LLP (“Hughes Hubbard”), counsel to Parent, and the outside counsel to Party B. The discussions addressed the status of the process, the treatment of the Company’s convertible notes and contingent value rights
in connection with a potential transaction, and other issues presented in the draft merger agreement. Also on November 24, 2014, representatives of Morgan Stanley and Goldman Sachs contacted representatives of J.P. Morgan Securities LLC
(“J.P. Morgan”), Parent’s financial advisor, to inform them that Parent should submit a formal proposal, including a markup of the draft Merger Agreement, by December 1, 2014. Without specificity, J.P. Morgan was informed that a
similar request was being communicated to other potential bidders.
On November 25, 2014, Party C contacted Goldman Sachs to discuss
the Company and to indicate that its preliminary valuation range was between $95 and $110 per Share, and that it would submit a formal proposal on December 1, 2014.
Later on November 25, 2014, Mr. Bonney and the Chief Executive Officer of Party B had a dinner meeting in Boston, Massachusetts and
engaged in a detailed conversation about the Company’s prospects and the strategic process. The Chief Executive Officer of Party B stated that Party B was trying to identify additional value in order to increase the price it was able to offer.
On November 26, 2014, Mr. Bonney spoke with Mr. Frazier. Mr. Frazier reiterated Parent’s interest in acquiring
the Company and committed to submit a formal bid and a marked-up merger agreement on December 1, 2014. Mr. Bonney told Mr. Frazier that the Company’s senior management and the Company Board would reach a decision on whether to
sell the Company or continue on an independent path shortly after December 1, 2014.
On November 28, 2014, Party B notified the
Company that Party B would be withdrawing from the process. Party B stated that, despite its strong desire to acquire the Company, it would be unable to achieve significant synergies in a transaction with the Company and could not offer a price at
or above $100 per Share.
On November 29, 2014, Mr. Frazier contacted Mr. Bonney to request additional assistance regarding
certain aspects of Parent’s diligence, including information about the status of the Company’s discussions with the U.S. Food and Drug Administration regarding labelling of ceftolozane/tazobactam, information relating to the status of
certain manufacturing related items, and the absence of certain agreements from the Company’s electronic data room. Mr. Bonney confirmed that the applicable contracts were in the data room and offered to respond to any other material
diligence requests from Parent.
On November 30, 2014, Mr. Frazier informed Mr. Bonney that Parent remained committed to
completing a transaction.
On December 1, 2014, Party C informed the Company’s financial advisors that it would not be able to
offer a price per Share above the low-90’s, but remained interested in acquiring the Company. The Company informed Party C that its proposed price was significantly below the highest current offer for the Company and that the Company was
terminating discussions with Party C. However, the Company remained open to reengaging if Party C was able to raise its offer price.
Later on December 1, 2014, Parent submitted to Mr. Bonney a non-binding proposal to acquire the Company for $102.00 per Share.
Parent’s proposal requested a response from the Company by Tuesday, December 2, 2014, and asked that the Company commit to working exclusively with Parent to finalize the definitive transaction documentation related to the transaction.
Hughes Hubbard also provided to Ropes & Gray a revised draft of the merger agreement and the Company’s disclosure letter. The revised merger agreement provided, among other things, that the Company would owe Parent a termination fee
equal to 3.5% of the equity value of the transaction (excluding the value of the Company’s outstanding convertible notes) under certain circumstances and would be required to reimburse Parent’s expenses up to 1% of the equity value of the
transaction in the event the merger agreement was terminated due to a failure of holders of more than 50% of the Company’s outstanding common stock to tender into the Offer.
16
Also on December 1, 2014, the Special Committee held a telephonic meeting attended by each
member of the Special Committee, certain members of the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney provided the Special Committee with an overview of the
Company’s interactions with possible counter-parties to a potential business combination and noted that Parties B and C were not willing to offer a price per Share in excess of $100.00 per Share, and that Party D had indicated that it was not
interested in pursuing a potential acquisition of the Company. The members of the Special Committee asked questions, and the participants in the meeting discussed the strategic process and Parent’s proposal. The Special Committee instructed
Mr. Bonney to engage with Mr. Frazier and to attempt to improve on the price previously proposed by Parent. The financial advisors then left the meeting, and the Special Committee considered the proposed terms of their engagements, which
had been negotiated at their direction by the Company’s senior management. The Special Committee also considered the financial advisors’ credentials, as sophisticated investment banks with substantial experience in transactions similar to
the proposed acquisition of the Company, and potential conflicts, such as work previously done on behalf of Parent and the fees to be received in the transaction. In the case of Morgan Stanley, the Special Committee also considered the fact that the
unwinding of the bond hedge and warrant transaction related to the Company’s 2018 and 2020 convertible notes would result in a net payment to Morgan Stanley, and the fact that two members of Morgan Stanley’s Board of Directors who are
deemed by Morgan Stanley’s Board of Directors to be independent are also members of the Parent Board. Following that discussion, the Special Committee determined that the financial advisors could provide unbiased advice in connection with a
potential transaction and approved the terms of the engagements of the financial advisors. Subsequently, the Special Committee discussed the Company potentially adopting a forum selection bylaw provision in connection with possible approval of a
merger agreement.
On December 2, 2014, Mr. Bonney called Mr. Frazier to discuss Parent’s proposal and to inform him
that if Parent were to increase its price to at least $105.00 per Share, he would advocate that the Company Board support a transaction. Mr. Frazier responded that he did not have authority to raise the price over $102.00 per Share, but he
agreed to share Mr. Bonney’s message with the Parent Board and other members of Parent’s management team.
Later on
December 2, 2014, Ropes & Gray and Hughes Hubbard held a telephonic conference to discuss the terms of the proposed merger agreement. Between December 2, 2014 and December 7, 2014, the Company, Parent, and their respective
representatives continued to negotiate various terms of the proposed merger agreement, including the termination fee, the no-shop and termination provisions, and the definition of “Material Adverse Effect,” and to negotiate the
Company’s disclosure letter. Parent and its advisors also continued to submit diligence requests to which the Company responded.
On
December 3, 2014, Mr. Frazier contacted Mr. Bonney and informed him that $102.00 per Share was the highest price that the Parent Board would agree to offer for the Company.
On December 4, 2014, the Company Board held a meeting attended by certain members of the Company’s senior management and
representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney summarized the process to date, including the Company’s outreach to, and responses from, other potentially interested parties. He also described the
recent negotiations with Parent, including the Company’s efforts to increase the proposed price. The Company Board discussed the process and the perspectives on value shared by Party B and Party C, including their desire to pursue an
acquisition of the Company but unwillingness to offer a price equal to or greater than the price offered by Parent. A representative from Ropes & Gray next outlined the Company Board’s fiduciary duties in considering a sales
transaction and outlined the alternative courses of action available. Representatives of Goldman Sachs and Morgan Stanley each in turn described, and the Board discussed, their respective financial analysis of the Company in connection with a
potential transaction. The Company Board asked questions regarding the differences between the financial advisors’ analyses. Each financial advisor then described certain of its investment banking relationships and interests, which had been
previously discussed with the Company Board, and members of the Company Board discussed with Morgan Stanley the expected economics of unwinding the convertible note derivatives and the fact that two members of Morgan Stanley’s Board of
Directors who are deemed by Morgan Stanley’s Board of Directors to be independent
17
are also members of the Parent Board. Goldman Sachs then estimated for the Company Board the total net payment, if the Merger were to be consummated according to its terms on February 1, 2015 and
subject to changes in market conditions. Goldman Sachs noted that such estimate was dependent on volatility assumptions. Morgan Stanley is the Company’s counter-party with respect to 35% of these hedging arrangements. Representatives from
Morgan Stanley noted that the exact payment was dependent on, amongst other factors, relevant volatility assumptions but that Morgan Stanley believed that Goldman Sachs’ analysis was reasonable and that Morgan Stanley anticipated, based on
then-current market conditions, that the volatility input would be no higher than the range that Goldman Sachs had indicated to the Company Board. The financial advisors left the meeting. The Special Committee then discussed the potential conflicts
and determined that Goldman Sachs and Morgan Stanley would be able to present unbiased financial advice. A representative of Ropes & Gray next summarized the key terms in the proposed merger agreement and discussed the open items and
the process and timing for completing a transaction if the Company Board determined to pursue that course. The Company Board discussed alternative courses of action, including remaining an independent company, and the potential risks and benefits of
each option. The Company Board also discussed the possibility of adopting an exclusive forum bylaw and the potential implications on compensation to executives and employees in connection with a potential transaction. At the conclusion of the
meeting, the Company Board instructed senior management and the Company’s legal advisors to inform Parent that the Company Board was willing to pursue Parent’s proposed acquisition at $102.00 per Share subject to the parties continuing to
negotiate the proposed merger agreement in order for the Company Board to be in a position to approve the transaction on December 7, 2014.
On December 7, 2014, the Company Board held a telephonic meeting attended by all of the members of the Company Board, certain members of
the Company’s senior management, and representatives of Goldman Sachs, Morgan Stanley, and Ropes & Gray. Mr. Bonney updated the Company Board on the interactions with Parent following the meeting of the Company Board on
December 4, 2014, and a representative of Ropes & Gray summarized the terms of the proposed merger agreement, focusing on changes from the draft the Company Board reviewed at its December 4, 2014 meeting. The Company Board noted
that the process the Company had conducted following Parent’s initial proposal had not yielded an alternative proposal near Parent’s proposed price and that $102.00 per Share represented a greater value than the Company Board and
management believed could be expected to be achieved for the Company’s stockholders over a reasonable period of time by continuing to execute the Company’s strategy. Representatives from Goldman Sachs updated the analysis they provided to
the Company Board on December 4, 2014 to reflect changes since that date. At the conclusion of their presentation, Goldman Sachs delivered to the Company Board its oral opinion, which opinion was confirmed by delivery of a written opinion dated
December 8, 2014, that, as of such date and based upon and subject to the factors and assumptions set forth in the written opinion, the $102.00 in cash per Share to be paid to holders (other than Parent and its affiliates) of Shares pursuant to
the Merger Agreement was fair from a financial point of view to such holders. Representatives from Morgan Stanley updated the analysis they provided to the Company Board on December 4, 2014 to reflect changes since that date, and, at the
conclusion of their presentation, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the Company Board to the effect that, as of that date and based upon and subject to the assumptions made, procedures
followed, matters considered and qualifications and exclusions and limitations on the scope of review undertaken by Morgan Stanley, as set forth in its written opinion, the $102.00 in cash per Share to be received by the holders of Shares pursuant
to the Merger Agreement was fair from a financial point of view to the holders of such Shares. Thereafter, the Company Board (i) unanimously determined that the terms of the Merger Agreement, the Offer, the Merger and the other associated
transactions were fair to, and in the best interests of, the Company and its stockholders; (ii) approved, declared advisable, and adopted the Merger Agreement; (iii) determined to recommend that the holders of Shares tender their Shares
into the Offer; and (iv) approved the amendment to the bylaws of the Company to implement the forum selection bylaw provision.
On
December 8, 2014, the Company and Parent executed the Merger Agreement. Before the opening of trading on The NASDAQ Stock Market LLC on December 8, 2014, the Company and Parent issued a joint press release announcing the proposed merger.
Also on December 8, 2014, the United States District Court for the District of Delaware issued a ruling in the Hospira litigation, which included a decision adverse to the Company with respect to certain of its patents.
18
Reasons for the Recommendation of the Company Board
The Company Board has reviewed and considered the Offer after consultation with certain members of the Company’s senior management
and financial and legal advisors. After considering its fiduciary duties under applicable law, the Company Board has unanimously determined that the Offer is fair to, and in the best interests of, the Company and its stockholders. Accordingly,
the Company Board recommends that the Company’s stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer.
The Company Board considered each of the following factors, among others, when reaching its recommendation that stockholders accept the Offer
and tender their Shares to Purchaser:
| |
• |
|
The Company’s Operating and Financial Condition; Prospects of the Company. The Company Board considered the Company’s business, financial condition and results of operations, as well as its long-range
plan. The Company Board considered, among other factors, that the holders of the Shares would continue to be subject to the risks and uncertainties of the Company executing on its long-range plan if it remained independent. These risks and
uncertainties included risks relating to litigation involving its Cubicin patent portfolio; the eventual launch of generic versions of daptomycin; risks associated with the Company’s ability to obtain regulatory approval and launch and market
ceftolozane/tazobactam and its other product candidates; potential difficulties and delays in clinical trials of product candidates; regulatory developments involving current and future products and product candidates; and other risks inherent to
its long-range plan. The Company Board also considered other risks and uncertainties discussed in the Company’s filings with the SEC. |
| |
• |
|
Results of Process Conducted. The Company Board considered the results of the process that had been conducted by the Company, with the assistance of the Company’s senior management and financial advisors, to
solicit proposals for alternative transactions, the resulting discussions and negotiations, and the fact that none of these discussions or negotiations resulted in a superior proposal. The Company Board also considered the ability of other bidders
to make proposals at higher prices per Share than the Offer Price. |
| |
• |
|
Transaction Financial Terms. The Company Board considered the relationship of the Offer Price to the historical market prices of the Company’s common stock, and expectations regarding expected trading prices
if the Company remained an independent company. The Company Board considered that the Offer Price of $102.00 per Share represents a premium of (a) 37.2% compared to the closing price of the Company common stock of $74.36 on December 5,
2014, (b) 39.1% compared to the volume weighted average sales price of the Company common stock of $73.35 per Share over the 30 calendar days ended December 5, 2014 and (c) 24.2% compared to the 52-week high sales price of the Company
common stock of $82.12 per Share. |
| |
• |
|
Ability to Respond to Unsolicited Takeover Proposals and Terminate the Merger Agreement to Accept a Superior Proposal. The Company Board considered the provisions in the Merger Agreement that permit the Company,
subject to the terms and conditions of the Merger Agreement, to provide information to, and engage in negotiations with, a third party that makes an unsolicited proposal, and, subject to payment of a termination fee and the other conditions set
forth in the Merger Agreement, to enter into a transaction with a party that makes a superior proposal. |
| |
• |
|
Termination Fee Provisions. The Company Board considered the termination fee provisions of the Merger Agreement and determined that they likely would not be a significant deterrent to a competing offer that might
be superior to the Offer Price. The Company Board believed that the termination fee of $250 million was a reasonable fee to be paid to Parent should a superior offer be accepted by the Company. |
| |
• |
|
Conditions to the Consummation of the Offer and the Merger; Likelihood of Closing. The Company Board considered the conditions to the Offer and
the Merger reasonable and the consummation of the transactions contemplated by the Merger Agreement probable. In particular, the Company Board |
19
| |
considered that the consummation of the transactions is not subject to a financing condition or conditioned on the outcome of the Hospira litigation or regulatory action related to
ceftolozane/tazobactam and that Parent agreed to take all actions necessary to obtain any consents, clearances or approvals under the HSR Act (as defined below) and under foreign laws, regulations or decrees designed to prohibit restraints of trade.
The Company Board also considered the fact that the parties elected to have the Merger Agreement governed by Section 251(h) of the DGCL, which, subject to certain statutory provisions, permits completion of the Merger upon the acquisition by
Purchaser of one Share more than 50% of the number of Shares then issued and outstanding. |
| |
• |
|
Type of Consideration. The Company Board considered the form of consideration to be paid to the Company’s stockholders as cash, which will provide liquidity and certainty of value to stockholders.
|
| |
• |
|
Opinions of the Company’s Financial Advisors. |
Goldman Sachs provided an oral
opinion to the Company Board (subsequently confirmed in writing by delivery of Goldman Sachs’ written opinion dated December 8, 2014) to the effect that, as of December 8, 2014 and based upon and subject to the factors, assumptions
and limitations described in its written opinion, the $102.00 in cash per Share to be paid to holders (other than Parent and its affiliates) of Shares pursuant to the Merger Agreement was fair from a financial point of view to such holders. Goldman
Sachs’ written opinion is described below under “Opinions of the Financial Advisors to the Company Board” and the full text of Goldman Sachs’ written opinion to the Company Board, which sets forth, among other things, the
procedures followed, assumptions made, matters considered and limitations on the scope of the review undertaken, is attached hereto as Annex A. Goldman Sachs’ opinion was provided to the Company Board for its information in connection with its
consideration of the Offer and the Merger. Goldman Sachs’ opinion is not a recommendation as to whether or not any holder of Shares should tender such Shares in connection with the Offer or how any holder of Shares should vote with respect to
the Merger or any other matter.
Morgan Stanley rendered its oral opinion to the Company Board (subsequently confirmed in writing by
delivery of a written opinion dated December 7, 2014) to the effect that, as of December 7, 2014 and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations described on
the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the Merger Consideration to be received by holders of the Shares (other than Shares (x) held in the treasury of the Company or owned by the Company or any
direct or indirect wholly-owned subsidiary of the Company, (y) owned by Parent, Purchaser or any direct or indirect wholly-owned subsidiary of Parent or Purchaser, or (z) as to which dissenters’ rights have been perfected) pursuant to
the Merger Agreement was fair, from a financial point of view, to the holders of such Shares. Morgan Stanley’s written opinion is described below under “Opinions of the Financial Advisors to the Company Board” and the full text of
Morgan Stanley’s written opinion to the Company Board is attached hereto as Annex B. Morgan Stanley’s opinion was directed to the Company Board and did not and does not constitute a recommendation as to whether or not any holder of Shares
should tender such Shares in connection with the Offer or how any holders of Shares should vote or act in connection with the Merger or any other matter.
| |
• |
|
Ability of Stockholders to Determine Whether to Tender. The Company Board considered the fact that the Offer is structured as a tender offer, which can be completed, and the Offer Price can be delivered to
stockholders of the Company, on a prompt basis and at such stockholders’ election, reducing the period of uncertainty during the pendency of the transactions contemplated by the Merger Agreement on stockholders and employees. Furthermore, the
Company Board considered that the Offer would be followed by a second-step merger in which stockholders who do not tender their Shares in the Offer will receive the same cash price payable for the Shares in the Offer. |
| |
• |
|
Appraisal Rights. The Company Board considered the availability of statutory appraisal rights to the Company’s stockholders who do not tender their Shares in the Offer and otherwise comply with all required
procedures for demanding appraisal under the DGCL. |
20
The Company Board also considered a number of uncertainties and risks in their deliberations
concerning the transactions contemplated by the Merger Agreement, including the following:
| |
• |
|
Restrictions; Termination Fee. The Company Board considered the restrictions that the Merger Agreement would impose on the Company actively soliciting competing bids, and the insistence of Parent as a provision
in the Merger Agreement that the Company would be obligated to pay a termination fee of $250 million, and the potential effect of such termination fee in deterring other potential bidders from proposing alternative transactions. |
| |
• |
|
Failure to Close. The Company Board considered that Parent and Purchaser’s obligations to consummate the Offer and the Merger were subject to conditions, and the possibility that such conditions may not be
satisfied, including as a result of events outside of the Company’s control, such as stockholders of the Company failing to tender (and the Company failing to receive) a number of Shares equal to at least one Share more than one-half of all
Shares then outstanding, or a governmental authority issuing an injunction that would prohibit the transaction. The Company Board also considered the fact that, if the Merger was not completed, the market’s perception of the Company’s
continuing business could potentially result in an adverse impact on the Company’s business and the trading price of the Company’s common stock. The Company Board also considered the fact that, if the Merger was not consummated, the
Company’s directors, officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the transaction, and the Company will have incurred
significant transaction costs, attempting to consummate the transaction. |
| |
• |
|
Pre-Closing Covenants. The Company Board considered that, under the terms of the Merger Agreement, the Company agreed that it will carry on its business in the ordinary course consistent with past practice and,
subject to specified exceptions, will not take a number of actions related to the conduct of its business without the prior written consent of Parent. The Company Board further considered that these terms of the Merger Agreement may limit the
Company’s ability to pursue business opportunities that it might otherwise pursue. |
| |
• |
|
No Future Stockholder Participation in Future Earnings or Growth of the Company as an Independent Company. The Company Board considered the fact that, following the consummation of the Merger, the Company will no
longer operate as an independent public company, and former stockholders of the Company will not have the opportunity to participate in its future earnings growth and future profits as an independent company. |
| |
• |
|
Potential Conflicts of Interest. The Company Board was aware of the potential conflicts of interest between the Company, on the one hand, and certain of its executive officers, directors and financial advisors,
on the other hand, as a result of the transactions contemplated by the Merger Agreement. |
The Company Board believed that,
overall, the potential benefits of the Merger to the Company’s stockholders outweigh the risks, and that the Merger Agreement was reasonably likely to represent the most attractive alternative for stockholders of the Company. In analyzing the
Merger, the Company Board and the Company’s management were assisted and advised by legal counsel and financial advisors.
The
foregoing discussion of information and factors considered by the Company Board is not intended to be exhaustive. In light of the variety of factors considered in connection with its evaluation of the Offer and the Merger, the Company Board did not
find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Company Board applied his or her own personal
business judgment to the process and may have given different weight to different factors.
To the best of the Company’s knowledge, after reasonable
inquiry, each executive officer and director of the Company who owns Shares presently intends to tender in the Offer all Shares that he or she owns of record or
21
beneficially. The foregoing does not include any Shares over which, or with respect to which, any such executive officer, director or affiliate acts in a fiduciary or representative capacity or
is subject to the instructions of a third party with respect to such tender.
| (d) |
Opinions of the Financial Advisors to the Company Board |
Opinion of Goldman Sachs
Goldman Sachs was retained as financial advisor to the Company Board in connection with the transactions contemplated by the Merger Agreement,
which are referred to collectively in this section as the “Transaction.” Goldman Sachs rendered its opinion to the Company Board that, as of December 8, 2014 and based upon and subject to the factors and assumptions set forth
therein, the $102.00 in cash per Share to be paid to the holders (other than Parent and its affiliates) of Shares pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated December 8, 2014, which sets forth assumptions made, procedures
followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex A. Goldman Sachs provided its opinion for the information and assistance of the Company Board in connection with its
consideration of the Transaction. The Goldman Sachs opinion is not a recommendation as to whether or not any holder of Shares should tender such Shares in connection with the Offer or how any holder of Shares should vote with respect to the Merger
or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman
Sachs reviewed, among other things:
| |
• |
|
annual reports to stockholders and Annual Reports on Form 10-K of the Company for the five fiscal years ended December 31, 2013; |
| |
• |
|
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company; |
| |
• |
|
certain other communications from the Company to its stockholders; |
| |
• |
|
certain publicly available research analyst reports for the Company; and |
| |
• |
|
certain internal financial analyses and forecasts for the Company prepared by its management, as approved for Goldman Sachs’ use by the Company, including the Adjusted Forecasts (as defined below).
|
Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the
past and current business operations, financial condition and future prospects of the Company; reviewed the reported price and trading activity for the Shares; compared certain financial and stock market information for the Company with similar
information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the biopharmaceutical industry and in other industries; and performed such other studies and
analyses, and considered such other factors, as it deemed appropriate.
For purposes of rendering this opinion, Goldman Sachs, with the
Company’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for
independent verification thereof. In that regard, Goldman Sachs assumed with the Company’s consent that the Adjusted Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management
of the Company. Goldman Sachs did not make an independent evaluation or appraisal of the
22
assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and it was not furnished with any such
evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the expected benefits of the
Transaction in any way meaningful to its analysis. Goldman Sachs has also assumed that the Transaction will be consummated on the terms set forth in the Merger Agreement, without the waiver or modification of any term or condition the effect of
which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion does not address the underlying business decision of
the Company to engage in the Transaction, or the relative merits of the Transaction as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. Goldman
Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Parent and its affiliates) of Shares, as of the date of the opinion, of the $102.00 in cash per Share to be paid to such holders pursuant
to the Merger Agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the Merger Agreement or the Transaction or any term or aspect of any other agreement or instrument contemplated by
the Merger Agreement or entered into or amended in connection with the Transaction, including the fairness of the Transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or
other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the
Transaction, whether relative to the $102.00 in cash per Share to be paid to the holders (other than Parent and its affiliates) of Shares pursuant to the Merger Agreement or otherwise. Goldman Sachs does not express any opinion as to the impact of
the Transaction on the solvency or viability of the Company or Parent or the ability of the Company or Parent to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary market and
other conditions as in effect on, and the information made available to it, as of the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events
occurring after the date of its opinion. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
The following
is a summary of the material financial analyses delivered by Goldman Sachs to the Company Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial
analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular
format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it
is based on market data, is based on market data as it existed on or before December 5, 2014, and is not necessarily indicative of current market conditions.
Illustrative Sum-Of-The-Parts Analysis. Goldman Sachs performed an illustrative sum-of-the-parts analysis on the Company’s core
assets using the Adjusted Product-Level Forecasts (as defined below) to determine a range of per Share equity values for the Company. Goldman Sachs conducted its sum-of-the-parts analysis using estimated unlevered free cash flows (calculated as
after-tax earnings before interest plus depreciation and amortization less increases in net working capital or plus any decrease in net working capital, less capital expenditures and milestone payments) for each of the Company’s core products
and for the Company’s unallocated research and development infrastructure expenses for the fiscal years ending 2014 through 2035. The unlevered free cash flows were discounted to September 30, 2014 by assuming mid-year convention and using
illustrative discount rates ranging from 9.5% to 10.5%, reflecting estimates of the Company’s weighted average cost of capital, which range was derived by application of the Capital Asset Pricing Model (“CAPM”), which takes into
account certain company-specific metrics, including the Company’s target capital structure, the cost of long-term debt, after-tax yield on permanent excess cash, if any, forecast tax rate and historical beta, as well as certain financial
metrics for the United States financial markets generally. Goldman Sachs then discounted the
23
Company’s net operating loss carry-forward to September 30, 2014 by assuming mid-year convention and using an illustrative discount rate of 6.5% which represented the midpoint of a
discount rate range of 6.0% to 7.0%, reflecting estimates of the Company’s cost of debt. Goldman Sachs then aggregated the present values of the illustrative cash flows and the present value of the Company’s net operating loss
carry-forward, and then subtracted the assumed amount of the Company’s net debt as of September 30, 2014 from this amount. Goldman Sachs then divided such present values of illustrative equity values by the number of outstanding Shares on
a fully diluted basis to calculate the illustrative per share equity values. This analysis resulted in a range of implied value indications of $75.64 to $81.43 per Share.
Illustrative Present Value of Future Share Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present
value of the future price per Share, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s estimated future earnings and its assumed price to
future earnings per share multiple. For this analysis, Goldman Sachs used the Adjusted Forecasts for each of the fiscal years 2017 to 2018. Goldman Sachs calculated the implied values per Share as of January 1 of each of 2017 and 2018 by
applying price to forward earnings per share multiples of 15x to 20x earnings per Share to one-year forward estimates prepared by the Company’s management of 2017E and 2018E generally accepted accounting principles (“GAAP”) earnings
per Share for each of fiscal year 2017 and 2018, and then divided this amount by the number of outstanding Shares on a fully diluted basis which was calculated based on information provided by the Company. Goldman Sachs then calculated the present
value of the implied per Share equity values using illustrative discount rates ranging between 9.5% - 11.5%, reflecting an estimate of the Company’s cost of equity, which range was derived by application of the CAPM, which takes into account
certain company-specific metrics, including the Company’s target capital structure and historical beta, as well as certain financial metrics for the United States financial markets generally. This analysis resulted in a range of implied present
values of $68.34 to $98.28 per Share.
Illustrative Discounted Cash Flow Analysis. Goldman Sachs performed an illustrative
discounted cash flow analysis for the Company using the Adjusted Forecasts to determine a range of per Share equity values for the Company. Goldman Sachs conducted its discounted cash flow analysis using estimated unlevered free cash flows
(calculated as after-tax earnings before interest plus depreciation and amortization less increases in net working capital or plus any decrease in working capital, less capital expenditures and milestone payments) for the Company for the fiscal
years ending 2014 through 2023. The unlevered free cash flows were discounted to September 30, 2014 by assuming mid-year convention and using illustrative discount rates ranging from 9.5% to 10.5%, reflecting estimates of the Company’s
weighted average cost of capital, which range was derived by application of the CAPM, which takes into account certain company-specific metrics, including the Company’s target capital structure, the cost of long-term debt, after-tax yield on
permanent excess cash, if any, forecast tax rate and historical beta, as well as certain financial metrics for the United States financial markets generally. Goldman Sachs then calculated an illustrative range of terminal values for the Company and
applying illustrative perpetuity growth rates ranging from 1.0% to 3.0%. Goldman Sachs then discounted these illustrative terminal values using the range of illustrative discount rates, as described above. Goldman Sachs then aggregated the present
values of the illustrative terminal values with the present values of the illustrative cash flows for each of the fiscal years ending 2015 through 2023 and subtracted the assumed amount of the Company’s net debt as of September 30, 2014
based on public filings to calculate the present values of illustrative equity values of the Company as of September 30, 2014. Goldman Sachs then divided such present values of illustrative equity values by the number of shares on a dynamic
dilution basis to calculate the illustrative per Share equity values. This analysis resulted in a range of illustrative value indications of $77.15 to $104.52 per Share.
24
Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to the
following selected transactions in the biopharmaceutical industry since 2008. These transactions were:
|
|
|
|
|
|
|
|
|
| Date of announcement |
|
Acquirer |
|
Target |
|
Premium to 1
day prior to
date of
announcement |
|
Premium
to 52-
Week
High |
| December 2014 |
|
Otsuka Holdings Co. |
|
Avanir Pharmaceuticals Inc. |
|
13% |
|
11% |
| September 2014 |
|
Endo International plc |
|
Auxilium Pharmaceuticals, Inc. |
|
52% |
|
1% |
| August 2014 |
|
Roche Holdings, Inc. |
|
InterMune, Inc. |
|
63% |
|
55% |
| April 2014 |
|
Mallinckrodt plc |
|
Questcor Pharmaceuticals, Inc. |
|
27% |
|
7% |
| December 2013 |
|
The Bayer Group |
|
Algeta ASA |
|
37% |
|
30% |
| November 2013 |
|
Shire plc |
|
ViroPharma Incorporated |
|
84% |
|
59% |
| November 2013 |
|
Salix Pharmaceuticals, Ltd. |
|
Santarus, Inc. |
|
36% |
|
14% |
| August 2013 |
|
Amgen Inc. |
|
Onyx Pharmaceuticals, Inc. |
|
44% |
|
23% |
| July 2012 |
|
GlaxoSmithKline plc |
|
Human Genome Sciences, Inc |
|
99% |
|
(53)% |
| June 2012 |
|
Bristol-Myers Squibb Company |
|
Amylin Pharmaceuticals, Inc. |
|
101% |
|
68% |
| May 2011 |
|
Teva Pharmaceutical Industries |
|
Cephalon Inc. |
|
39% |
|
14% |
| June 2010 |
|
Celgene Corporation |
|
Abraxis BioScience, Inc. |
|
17% |
|
13% |
| May 2010 |
|
Astellas Pharma Inc. |
|
OSI Pharmaceuticals, Inc. |
|
55% |
|
44% |
| October 2008 |
|
Eli Lilly and Company |
|
ImClone Systems Inc. |
|
51% |
|
0% |
For each of the selected transactions, Goldman Sachs calculated and compared, based on information it obtained
from company filings, Datastream Professional, Bloomberg, and Wall Street research (each a data source containing historical market prices) the premium represented by the price paid for the target to the closing price per share of the target one day
prior to the announcement date and to the intra-day high price per share of the target in the 52-week period prior to the announcement date.
While none of the companies that participated in the selected transactions are directly comparable to the Company, the companies that
participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s results, market size and product profile.
Goldman Sachs then calculated, among other things, the 75th and 25th percentile premium represented by the price paid for the target in the
selected transactions to both the closing price per share of the target one day prior to the announcement date and to the intra-day high price per share of the target in the 52-week period prior to the announcement date. The following table presents
the results of this analysis:
|
|
|
|
|
|
|
|
|
| |
|
Premium to 1 day prior |
|
|
Premium to 52-Week High |
|
| High |
|
|
101 |
% |
|
|
68 |
% |
| 75th Percentile |
|
|
61 |
% |
|
|
41 |
% |
| Median |
|
|
47 |
% |
|
|
14 |
% |
| 25th Percentile |
|
|
36 |
% |
|
|
8 |
% |
| Low |
|
|
13 |
% |
|
|
(53) |
% |
Goldman Sachs then applied the ranges for premiums to the closing price per share of the target one day prior
to the announcement date, which Goldman Sachs determined in its professional judgment was the most relevant metric to the Company’s closing stock price of $74.36 per Share as of December 5, 2014 (the last trading day prior to the
announcement). This analysis resulted in a range of illustrative value indications of $101.13 to $119.72 per Share.
25
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In
arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness
on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the contemplated
Transaction.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Company Board as to
the fairness from a financial point of view to the holders (other than Parent and its affiliates) of Shares of the $102.00 in cash per Share to be paid to such holders pursuant to the Merger Agreement. These analyses do not purport to be
appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or
less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Goldman
Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The consideration to be
paid pursuant to the Merger Agreement was determined through arm’s-length negotiations between the Company and Parent and was approved by the Company Board. Goldman Sachs provided advice to the Company during these negotiations. Goldman
Sachs did not, however, recommend any specific amount of consideration to the Company or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the Transaction.
As described above, Goldman Sachs’ opinion to the Company Board was one of many factors taken into consideration by the Company Board in
making its determination to approve the Merger Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by
reference to the written opinion of Goldman Sachs attached as Annex A.
Goldman Sachs and its affiliates are engaged in advisory,
underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and
funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans,
commodities, currencies, credit default swaps and other financial instruments of the Company, Parent, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the Transaction. Goldman Sachs acted as
financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the Transaction. Goldman Sachs has provided certain financial advisory and/or underwriting services to the Company and/or its affiliates
from time to time. During the two year period ended December 8, 2014, the Investment Banking Division of Goldman Sachs has not received any compensation for the services provided to the Company or its affiliates. Goldman Sachs also has provided
certain financial advisory and/or underwriting services to Parent and/or its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as joint
bookrunner with respect to a public offering of Parent’s 0.700% Notes due 2016 (aggregate principal amount $1,000,000,000), Floating Rate Notes due 2016 (aggregate principal amount $500,000,000), 1.300% Notes due 2018 (aggregate principal
amount $1,000,000,000), Floating Rate Notes due 2018 (aggregate principal amount $1,000,000,000), 2.800% Notes due 2023 (aggregate principal amount $1,750,000,000) and 4.150% Notes due 2043 (aggregate principal amount $1,250,000,000) in May 2013 and
has been a participant in Parent’s commercial paper program since January 1990. During the two year period ended December 8, 2014, the Investment Banking Division of Goldman Sachs has received compensation for financial advisory and
26
underwriting services provided to Parent or its affiliates of approximately $2.5 million. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to the
Company, Parent and their respective affiliates for which the Investment Banking Division of Goldman Sachs may receive compensation.
The
Company Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transaction. Pursuant to a letter agreement dated
December 6, 2014, the Company engaged Goldman Sachs to act as its financial advisor in connection with the contemplated Transaction. The engagement letter between the Company and Goldman Sachs provides for a transaction fee that is estimated,
based on the information available as of the date of announcement, at approximately $32 million, of which $2.5 million was payable upon execution of the Merger Agreement and approximately $29.5 million is payable contingent upon completion of the
Offer. In addition, the Company has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain
liabilities under the federal securities laws.
For a description of the terms of Goldman Sachs’ engagement letter as the
Company’s financial advisor, see the discussion set forth in Item 5 below.
Opinion of Morgan Stanley
Morgan Stanley was retained by the Company to act as its financial advisor in connection with the Company’s review of its strategic
alternatives, including a potential sale of the Company, and to render a financial opinion in connection with a possible sale of the Company. The Company Board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s
qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in the Company’s industry and its knowledge of the business and affairs of the Company. On December 7, 2014, Morgan Stanley rendered its oral
opinion, which was subsequently confirmed in writing, to the Company Board to the effect that, as of that date and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the
scope of review undertaken by Morgan Stanley as set forth in its written opinion, the $102.00 in cash per share to be received by the holders of Shares (other than Shares (x) held in the treasury of the Company or owned by the Company or any
direct or indirect wholly owned subsidiary of the Company, (y) owned by Parent, Purchaser or any direct or indirect wholly-owned subsidiary of Parent or Purchaser, or (z) as to which dissenters’ rights have been perfected,
collectively the “Excluded Shares”) pursuant to the Merger Agreement was fair from a financial point of view to the holders of such Shares.
The full text of Morgan Stanley’s written opinion to the Company Board dated December 7, 2014 is attached as Annex B to this
document and is hereby incorporated into this document by reference in its entirety. Holders of Shares should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and
limitations on the review undertaken by Morgan Stanley in rendering its opinion. This summary is qualified in its entirety by reference to the full text of such opinion. Morgan Stanley’s opinion was directed to the Company Board and addressed
only the fairness from a financial point of view, as of the date of the opinion, to the holders of Shares (other than holders of the Excluded Shares) of the $102.00 in cash per share of the Company’s common stock to be received by such holders
pursuant to the Merger Agreement. Morgan Stanley’s opinion did not address any other aspects of the Offer or the Merger and did not and does not constitute a recommendation as to whether or not any holder of Shares should tender such Shares in
connection with the Offer or how any holders of Shares should vote or act in connection with the Merger or any other matter.
In
arriving at its opinion, Morgan Stanley:
| |
• |
|
Reviewed certain publicly available financial statements and other business and financial information of the Company; |
27
| |
• |
|
Reviewed certain Company internal financial statements and other financial and operating data concerning the Company; |
| |
• |
|
Reviewed the Forecasts prepared by the management of the Company; |
| |
• |
|
Discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company; |
| |
• |
|
Reviewed the reported prices and trading activity for the Company’s common stock; |
| |
• |
|
Reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; |
| |
• |
|
Reviewed drafts, dated December 7, 2014, of the Merger Agreement and certain related documents; and |
| |
• |
|
Performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate. |
In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the
information that was publicly available or supplied or otherwise made available to Morgan Stanley by the Company, and formed a substantial basis for its opinion. With respect to the Company’s financial projections, Morgan Stanley assumed that
they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company. See Item 8 under the heading “Additional
Information — Certain Company Management Projections” for a summary of this information. In addition, Morgan Stanley assumed that the Offer and the Merger will be consummated in accordance with the terms set forth in the Merger Agreement
without any waiver, amendment or delay of any terms or conditions and that the definitive Merger Agreement would not differ in any respect material to its analysis from the draft thereof furnished to Morgan Stanley. Morgan Stanley assumed that in
connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Offer and Merger, no delays, limitations, conditions or restrictions will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the proposed Offer and Merger. In its opinion, Morgan Stanley noted that it is not a legal, tax or regulatory advisor and that as a financial advisor, it relied upon, without
independent verification, the assessment of the Company and its legal, tax and regulatory advisors with respect to legal, tax and regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the
compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of Shares in the transaction. Morgan Stanley did not make any independent valuation
or appraisal of the assets or liabilities of the Company, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion does not address the relative merits of the transactions contemplated by the Merger
Agreement as compared to other business or financial strategies that might be available to the Company, nor does it address the underlying business decision of the Company to enter into the Merger Agreement or proceed with any other transaction
contemplated by the Merger Agreement. Morgan Stanley expressed no opinion or recommendation as to how the Company’s stockholders should vote or act in connection with the Offer or the Merger. Morgan Stanley’s opinion was necessarily based
on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, the date of the opinion. Events occurring after the date of the opinion may affect Morgan Stanley’s opinion and the
assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.
Summary of Financial
Analyses
The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion to the Company Board. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its
opinion, nor does the order of analyses described represent
28
the relative importance or weight given to those analyses. Unless stated otherwise, the various analyses below were based on the closing price of $74.36 per share of the Company’s common
stock as of December 5, 2014, and is not necessarily indicative of current market conditions. Some of the financial analyses summarized below include information presented in tabular format. In order to understand fully the financial
analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be
considered as a whole. Assessing any portion of such analyses and of the factors reviewed, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.
Historical Trading Range Analysis.
Morgan Stanley reviewed the historical trading range of Shares for the 52-week period ended December 5, 2014. Morgan Stanley observed
that, as of December 5, 2014, the closing price of the Company’s common stock was $74.36 per share. Morgan Stanley further observed that the consideration per share of the Company’s common stock of $102.00 offered by Parent pursuant
to the Merger Agreement reflects a premium to the trading price of the Company’s common stock on December 5, 2014 and based on the 52-week VWAP and six-month VWAP and the 52-week high, 52-week low, six-month high and six-month low trading
prices of the Company’s common stock. The term VWAP refers to the “volume weighted average price” during a reference period, which is a measure of the average price of a share of stock over a given period of time. VWAP is calculated
as the aggregate dollar value of Shares traded during the given period over the total volume of Shares traded during such period:
|
|
|
|
|
| Reference Date |
|
Share Price1 |
|
| At December 5, 2014 |
|
$ |
74.36 |
|
| 52-Week VWAP |
|
$ |
69 |
|
| At 52-Week High (February 28, 2014) |
|
$ |
82 |
|
| At 52-Week Low (July 23, 2014) |
|
$ |
59 |
|
| Six-Month VWAP |
|
$ |
68 |
|
| At Six-Month High (November 28, 2014) |
|
$ |
77 |
|
| At Six-Month Low (July 23, 2014) |
|
$ |
59 |
|
Equity Research Analysts’ Future Price Targets.
Morgan Stanley reviewed and analyzed the future public market trading price targets for the Company’s common stock prepared and published
by fifteen equity research analysts as of December 5, 2014. These targets reflected each analyst’s estimate as of the date of publication of the future public market trading price of the Company’s common stock and were not discounted
to reflect present values. The range of undiscounted analyst price targets for the Company’s common stock was $64.00 to $97.00, with a median price target of $84.00.
|
|
|
|
|
|
|
| Equity Research Analyst |
|
Date |
|
Price Target |
|
| Aegis Financial |
|
10/22/2014 |
|
$ |
85.00 |
|
| Bank of America Merrill Lynch |
|
10/21/2014 |
|
$ |
89.00 |
|
| Cantor Fitzgerald |
|
10/22/2014 |
|
$ |
64.00 |
|
| Cowen Group |
|
10/22/2014 |
|
$ |
80.00 |
|
| Credit Suisse |
|
11/20/2014 |
|
$ |
77.00 |
|
| Goldman Sachs |
|
10/22/2014 |
|
$ |
70.00 |
|
| Jefferies & Co. |
|
11/19/2014 |
|
$ |
88.00 |
|
| 1 |
All figures other than the December 5, 2014 closing stock price have been rounded to the nearest full dollar amount. |
29
|
|
|
|
|
|
|
| Equity Research Analyst |
|
Date |
|
Price Target |
|
| Mizuho Bank |
|
12/2/2014 |
|
$ |
97.00 |
|
| Morgan Stanley |
|
10/21/2014 |
|
$ |
88.00 |
|
| Oppenheimer |
|
10/21/2014 |
|
$ |
83.00 |
|
| RBC |
|
11/30/2014 |
|
$ |
84.00 |
|
| Robert Baird |
|
10/22/2014 |
|
$ |
66.00 |
|
| SunTrust Banks |
|
11/3/2014 |
|
$ |
88.00 |
|
| UBS |
|
10/21/2014 |
|
$ |
90.00 |
|
| Wedbush Securities |
|
11/3/2014 |
|
$ |
70.00 |
|
|
|
|
|
|
| Mean |
|
$ |
81.27 |
|
| Median |
|
$ |
84.00 |
|
Based on its professional judgment and experience, Morgan Stanley discounted each analyst’s price target
to present value assuming a cost of equity of 9.4%, which discount rate was based on the Capital Asset Pricing Model using a market risk premium of 6%, a risk-free rate of 2.3% and a beta of 1.19 for the Company’s common stock that was
determined by Morgan Stanley using then-available information. This resulted in a discounted analyst price target range for the Company’s common stock as of December 5, 2014, rounded to the nearest full dollar amount, of $59 to $89 with a
median of $76. Morgan Stanley noted that the consideration to be received by the holders of Shares pursuant to the Merger Agreement is $102.00 per share.
The public market trading price targets published by securities research analysts do not necessarily reflect current market trading prices for
Shares and these estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions.
Premiums Paid Analysis
Morgan Stanley
reviewed the premiums paid for selected acquisitions of publicly traded biopharmaceutical companies with marketed products announced during the past six years and with aggregate transaction values of between $2 billion and $15 billion which, in its
professional judgment, Morgan Stanley generally considered relevant for purposes of its premiums paid analysis. The following is a list of the transactions reviewed:
|
|
|
|
|
|
|
|
|
| Selected Transactions |
|
| Announcement
Date |
|
Target |
|
Acquiror |
|
Premium to
Undisturbed
Price |
|
| 02-Dec-14 |
|
Avanir Pharmaceuticals, Inc. |
|
Otsuka Pharmaceutical Co., Ltd. |
|
|
13 |
% |
| 16-Sep-14 |
|
Auxilium Pharmaceuticals, Inc. |
|
Endo International plc |
|
|
52 |
% |
| 24-Aug-14 |
|
InterMune, Inc. |
|
Roche Holdings, Inc. |
|
|
63 |
% |
| 07-Apr-14 |
|
Questcor Pharmaceuticals Inc. |
|
Mallinckrodt PLC |
|
|
27 |
% |
| 19-Dec-13 |
|
Algeta ASA |
|
Bayer AG |
|
|
37 |
% |
| 11-Nov-13 |
|
ViroPharma Incorporated |
|
Shire Pharmaceutical Holdings Ireland Limited |
|
|
84 |
% |
| 07-Nov-13 |
|
Santarus, Inc. |
|
Salix Pharmaceuticals, Ltd. |
|
|
36 |
% |
| 25-Aug-13 |
|
Onyx Pharmaceuticals Inc. |
|
Amgen Inc. |
|
|
44 |
% |
| 16-Jul-12 |
|
Human Genome Sciences, Inc. |
|
GlaxoSmithKline plc |
|
|
99 |
% |
| 29-Jun-12 |
|
Amylin Pharmaceuticals, Inc. |
|
Bristol-Myers Squibb Company |
|
|
101 |
% |
| 02-May-11 |
|
Cephalon, Inc. |
|
Teva Pharmaceutical Industries Ltd. |
|
|
39 |
% |
| 30-Jun-10 |
|
Abraxis BioScience, Inc. |
|
Celgene Corporation |
|
|
17 |
% |
30
|
|
|
|
|
|
|
|
|
| Selected Transactions |
|
| Announcement
Date |
|
Target |
|
Acquiror |
|
Premium to
Undisturbed
Price |
|
| 16-May-10 |
|
OSI Pharmaceuticals, Inc. |
|
Astellas Pharma Inc. |
|
|
55 |
% |
| 06-Oct-08 |
|
ImClone Systems Incorporated |
|
Eli Lilly and Company |
|
|
51 |
% |
Morgan Stanley measured the premia paid in the transactions described above over the closing price of the
target company’s stock on the trading day immediately prior to the earlier of announcement or leak reports of a potential transaction (the “Undisturbed Price”). This review indicated the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High |
|
|
75th Percentile |
|
|
Mean |
|
|
Median |
|
|
25th Percentile |
|
|
Low |
|
| Premium to Undisturbed Price |
|
|
101 |
% |
|
|
61 |
% |
|
|
51 |
% |
|
|
48 |
% |
|
|
36 |
% |
|
|
13 |
% |
Morgan Stanley then selected the 25th and 75th percentile range of implied premia to the Undisturbed Price of 36% to 61% and applied such range to the closing price of the Company’s common stock of $74.36 per share on December 5, 2014.
Morgan Stanley observed that the range of estimated implied values per share of the Company’s common stock based on the 25th and 75th
percentile data points as applied to the closing price of the Company’s common stock of $74.36 per share on December 5, 2014, rounded to the nearest full dollar amount, was $101 to $120.
No company or transaction utilized in the precedent transactions analysis is identical to the Company or the Offer and the Merger. In
evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters that are beyond the control of the Company, such as the
impact of competition on the business of the Company or the industry generally, industry growth and the absence of any adverse material change in the financial condition of the Company or the industry or in the financial markets in general, which
could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared. Mathematical analysis (such as determining the mean and median) is not in itself a meaningful
method of using precedent transaction data.
Sum of the Parts Discounted Cash Flow Analysis.
Morgan Stanley performed a sum-of-the-parts discounted cash flow analysis, which is designed to imply a value of a company in its entirety
based on the separate valuation of the company’s business segments. The purpose of the sum-of-the-parts discounted cash flow analysis of the Company was to determine an illustrative net present value per share of the Company’s common stock
based on the aggregate of the illustrative net present values calculated by Morgan Stanley for each of the Company’s products and pipeline products, the Company’s estimated selling, general and administrative expenses, the Company’s
research and development infrastructure and the net operating loss carryforwards held by the Company. The analysis was based on the following:
| |
• |
|
Morgan Stanley’s analysis was based primarily on two sets of assumptions provided by the Company’s management relating to the Company’s business: (1) a set of assumptions provided by the
Company’s management relating to the Company’s business contained in the Adjusted Forecasts and Adjusted Product-Level Forecasts (see Item 8 under the heading “Additional Information — Certain Company Management
Projections”) referred to as “Management Base Case” and (2) a set of assumptions provided by the Company’s management relating to the Company’s business which includes certain valuation uplifts contained in the Adjusted
Upside Case Forecasts (see Item 8 under the heading “Additional Information — Certain Company Management Projections”) referred to as “Management Upside Case”. |
31
| |
• |
|
Product and pipeline product values included directly allocated costs and impact of unallocated selling, general and administrative expenses. The calculation of the estimated free cash flow of the Company’s
products and pipeline products was modeled through the end of the respective product’s life. The analysis did not include any hypothetical future products and as a result assumed no terminal value and excluded the impact of pre-clinical /
discovery research and development and related selling, general and administrative expenses. The valuation of the Company’s pipeline products reflected probability of success adjustments as provided by the Company. |
| |
• |
|
Morgan Stanley calculated a range of discount rates of 7.9% to 9.7%, reflecting an estimate of the Company’s weighted average cost of capital based on Morgan Stanley’s application of the Capital Asset Pricing
Model, which takes into account certain Company-specific metrics, including the Company’s capital structure, the cost of long-term debt, an assumed tax rate and projected beta, as well as certain financial metrics for the financial markets
generally. |
| |
• |
|
Cash flows were discounted back to December 31, 2014 and the Company’s cash balance was projected as at December 31, 2014, as provided by the Company. |
| |
• |
|
In valuing the net operating loss carryforwards of the Company, Morgan Stanley assumed that the Company’s federal net operating loss carryforwards ($552 million as of December 31, 2013) and federal tax credits
($15 million as of December 31, 2013) would be fully monetized as allowed by the Company’s earnings before taxes assuming a 35% federal tax rate. |
| |
• |
|
All values represented the Company on a stand-alone basis and did not take into account any synergies. |
| |
• |
|
All per share prices in Morgan Stanley’s analysis were rounded to the nearest full dollar amount. |
In performing its analysis, Morgan Stanley added the illustrative present values for the Company’s products and pipeline products and the
Company’s net operating loss carryforwards and subtracted from that total the illustrative net present value of the Company’s research and development infrastructure to arrive at an aggregate value of the Company. Morgan Stanley then
subtracted the Company’s estimated net debt to derive an illustrative total equity value of the Company. For purposes of its analysis, Morgan Stanley divided each of the foregoing illustrative net present values amounts by the number of fully
diluted Shares, as calculated based on information in the Company’s most recent public filings and information provided by the Company with respect to dilutive securities outstanding, to show such amount on a per share basis.
Based on Morgan Stanley’s analysis, Morgan Stanley calculated a range of implied equity values per share for the Company’s common
stock. The following reflects the results of that analysis, as compared to the consideration per share of the Company’s common stock of $102.00 offered by Parent pursuant to the Merger Agreement:
|
|
|
| Net Present Equity
Value Per Share
(Management
Base
Case) |
|
Net Present Equity
Value Per Share
(Management
Upside Case) |
| $83 to $94 |
|
$95 to $108 |
The sum-of-the-parts analysis was prepared for illustrative purposes only and therefore is not a reflection on
the feasibility of a transaction involving the Company’s component parts and does not address certain factors, such as tax inefficiencies, other separation transaction costs and change-of-control restrictions, that would be implicated by a sale
of the component parts of the Company (and were excluded from Morgan Stanley’s sum-of-the-parts analysis).
General
In connection with the review of the Offer and the Merger by the Company Board, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation
32
of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of
all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an
incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company. In performing its analyses, Morgan
Stanley made numerous assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of the Company. These include, among other things, the impact of
competition on the Company’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company, or the industry, or in the financial markets in general.
Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the
consideration to be received by the holders of Shares (other than holders of the Excluded Shares) pursuant to the Merger Agreement and in connection with the delivery of its opinion, dated December 7, 2014, to the Company Board. These analyses
do not purport to be appraisals or to reflect the prices at which shares might actually trade.
The consideration to be received by the
holders of Shares (other than holders of the Excluded Shares) pursuant to the Merger Agreement was determined through arm’s-length negotiations between the Company and Parent and was approved by the Company Board. Morgan Stanley provided advice
to the Company Board during these negotiations but did not, however, recommend any specific consideration to the Company or the Company Board or that any specific consideration constituted the only appropriate consideration for the Offer and the
Merger. Morgan Stanley’s opinion does not address the relative merits of the Offer and the Merger as compared to any alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are
available. In addition, Morgan Stanley’s opinion expressed no opinion or recommendation as to whether the Company’s stockholders should tender Shares into the Offer or how they should vote or act in connection with the Merger or any other
matter.
Morgan Stanley’s opinion and its presentation to the Company Board was one of many factors taken into consideration by the
Company Board in deciding to approve, adopt and authorize the Merger Agreement and the transactions contemplated thereby. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Company Board with
respect to the consideration pursuant to the Merger Agreement or of whether the Company Board would have been willing to agree to different consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking
and other professionals in accordance with Morgan Stanley’s customary practice.
Morgan Stanley is a global financial services firm
engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading,
prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short
positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or for the accounts of their customers, in debt or equity securities or loans of the Company, Parent, or any other company, or any
currency or commodity, that may be involved in the contemplated transactions, or any related derivative instrument.
33
Under the terms of its engagement letter, Morgan Stanley provided the Company Board with
financial advisory services and a financial opinion, described in this section and attached to this Schedule 14D-9 as Annex B, in connection with the Offer and the Merger, and the Company has agreed to pay Morgan Stanley a fee for its services, $5
million of which became payable when the Company entered into the Merger Agreement and approximately $28 million of which is contingent upon control of more than 50% of the Company’s common stock changing hands. The Company has also agreed to
reimburse Morgan Stanley for its expenses, including fees of outside counsel and other professional advisors, incurred in connection with its engagement. In addition, the Company has agreed to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain losses, claims, damages and liabilities, including liabilities under the federal securities laws,
relating to or arising out of Morgan Stanley’s engagement.
In the two years prior to the date hereof, Morgan Stanley provided
financial advisory and financing services to the Company, including acting as financial advisor to the Company in connection with its acquisition of Optimer Pharmaceuticals, Inc. and as an initial purchaser in the Rule 144A offering of the
Company’s 2013 convertible notes, and received approximately $27 million in aggregate fees in connection with such services. In addition, Morgan Stanley is a counter-party to the Company with respect to 35% of the bond hedge and warrant overlay
entered into by the Company in connection with the Company’s 2018 and 2020 convertible notes. The consummation of the Merger will result in the unwinding of such bond hedge and warrant transaction. Pursuant to contracts entered into by the
Company with its counter-parties (including Morgan Stanley) in connection with this bond hedge and warrant transaction, each of the three counter-parties will receive a net payment, which will be calculated at the time of the closing of the Merger.
Morgan Stanley currently estimates that, subject to changes in market conditions or changes to the terms of the Merger and assuming a closing date of February 2, 2015, upon the closing of the Merger, Morgan Stanley will receive a net payment
from the Company resulting from the unwind of the bond hedge and warrant transaction currently estimated to not exceed $18 million as a cancellation payment pursuant to the terms of the derivative contracts. In addition, in the two years prior to
the date hereof, Morgan Stanley provided financial advisory and financing services for Parent, including acting as financial advisor to Parent in connection with the sale of its Consumer Care business, and participating in debt financing and
commercial loan transactions for Parent, and received approximately $35 million in aggregate fees in connection with such services. Two members of Morgan Stanley’s Board of Directors who are deemed by Morgan Stanley’s Board of Directors to
be independent are also members of the Parent Board. Morgan Stanley may also seek to provide such services to Parent and the Company in the future and would expect to receive fees for the rendering of these services.
| Item 5. |
Person/Assets, Retained, Employed, Compensated or Used. |
The Company retained each of
Goldman Sachs and Morgan Stanley to act as its financial advisors in connection with the Offer and, in connection with such engagements, Goldman Sachs and Morgan Stanley each provided their respective opinions described in “Item 4. The
Solicitation or Recommendation — Opinions of the Financial Advisors to the Company Board,” which are filed as Annex A and Annex B hereto and are incorporated herein by reference. The Company Board selected Goldman Sachs and Morgan Stanley
to serve as the Company’s financial advisors because they are each internationally recognized investment banking firms that have substantial experience in transactions similar to the Offer and Merger, their respective reputation in the
investment community and their respective familiarity with the Company and its business.
In connection with Goldman Sachs’ services
as the Company’s financial advisor, the Company has agreed to pay Goldman Sachs an aggregate fee of approximately $32 million, of which $2.5 million was payable upon execution of the Merger Agreement and approximately $29.5 million is payable
contingent upon completion of the Offer. In addition, the Company has agreed to reimburse Goldman Sachs for its expenses, including fees and expenses of counsel, and to indemnify Goldman Sachs and related parties against liabilities, including
liabilities under federal securities laws, arising from Goldman Sachs’ engagement.
In connection with Morgan Stanley’s services
as the Company’s financial advisor, the Company has agreed to pay Morgan Stanley an aggregate fee estimated to be approximately $33 million of which $5 million was payable upon execution of the Merger Agreement and approximately $28 million is
payable contingent upon
34
completion of the Offer. In addition, the Company has agreed to reimburse Morgan Stanley for its expenses, including fees and expenses of counsel, and to indemnify Morgan Stanley’s and
related parties against liabilities, including liabilities under federal securities laws, arising from Morgan Stanley’s engagement.
Except as set forth above, neither the Company nor any person acting on its behalf has or currently intends to employ, retain or compensate
any person to make solicitations or recommendations to the stockholders of the Company on its behalf with respect to the Offer.
| Item 6. |
Interest in Securities of the Subject Company. |
Other than in the ordinary course of
business in connection with the Company’s employee benefit plans, no transactions in the Shares have been effected during the past 60 days by the Company, or, to the best of the Company’s knowledge, by any of the Company’s directors,
executive officers or affiliates or subsidiaries of the Company.
| Item 7. |
Purposes of the Transaction and Plans or Proposals. |
Except as indicated in Items 2, 3
and 4 of this Schedule 14D-9, (a) the Company is not undertaking or engaged in any negotiations in response to the Offer that relate to, or would result in: (i) a tender offer for or other acquisition of the Shares by the Company, any of
its subsidiaries, or any other person; (ii) any extraordinary transaction such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (iii) any purchase, sale or transfer of a material amount of
assets of the Company or any of its subsidiaries; or (iv) any material change in the present dividend rates or policy, or indebtedness or capitalization of the Company and (b) there are no transactions, resolutions of the Company Board or
agreements in principle or signed contracts in response to the Offer that relate to, or would result in, one or more of the events referred to in clause (a) of this Item 7.
| Item 8. |
Additional Information. |
| (a) |
Golden Parachute Compensation. |
The following table sets forth the information required
by Item 402(t) of Regulation S-K regarding the compensation for the Company’s named executive officers as reflected in the 2014 Proxy Statement (“NEOs”) that is based on or otherwise relates to the Offer, assuming that the Offer
was consummated on January 20, 2015 and that the NEO’s employment was terminated by the Company without “cause” or the NEO resigned for “good reason” on the same day. The calculations in the table below include amounts
the NEOs would receive as payment for cancellation of stock awards (RSUs and PRSUs) and Stock Option Awards. The calculation in this table below does not include amounts under contracts, agreements, plans or arrangements to the extent they do not
discriminate in scope, terms or operation in favor of executive officers and that are available generally to all of our salaried employees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Executive(1) |
|
Cash Severance
Payment ($)(2) |
|
|
Value of
Equity ($)(3) |
|
|
Perquisites ($)(4) |
|
|
Total ($)(5) |
|
| Michael Bonney |
|
|
— |
|
|
$ |
113,641,100 |
|
|
|
— |
|
|
$ |
113,661,100 |
|
| Thomas DesRosier |
|
$ |
1,123,700 |
|
|
|
6,561,358 |
|
|
$ |
39,016 |
|
|
|
7,705,057 |
|
| Steven Gilman |
|
|
1,123,700 |
|
|
|
18,761,814 |
|
|
|
39,076 |
|
|
|
19,934,422 |
|
| Robert Perez |
|
|
2,400,000 |
|
|
|
48,242,218 |
(6) |
|
|
58,156 |
|
|
|
50,700,762 |
|
| Michael Tomsicek |
|
|
862,639 |
|
|
|
9,614,972 |
|
|
|
48,617 |
|
|
|
10,526,518 |
|
| (1) |
This table does not include David McGirr, the former Chief Financial Officer of the Company, who was a named executive officer in the 2014 Proxy Statement. Effective May 21, 2014, Mr. McGirr entered into a
separation agreement with the Company pursuant to which his employment terminated and he will receive no compensation related to the Offer. |
35
| (2) |
These amounts represent “double trigger” cash severance amounts equal to base salary as of January 20, 2015 for 24 months for Mr. Perez and 18 months for the other NEOs, plus an amount equal to the
greater of the 2015 target bonus or the 2014 actual bonus payment. |
| (3) |
These amounts represent “single trigger” cash payments in exchange for cancellation of Stock Options, RSUs and PRSUs at the Effective Time. The amounts shown assume that there are no Stock Option exercises
following December 19, 2014. With respect to Stock Options, the amount shown in this column represents the difference between $102.00 and the exercise price for each tranche of unvested Stock Options, multiplied by the number of Shares
underlying such Stock Options, and for RSUs and PRSUs, the amount shown in this column represents the value of each Share underlying each unvested RSU and PRSU award, which was valued using a stock price of $102.00 per Share. |
| (4) |
These amounts represented the “double trigger” reimbursements for the Company-portion of medical and dental coverage for 24 months in the case of Mr. Perez and 18 months for the other executive officers,
subject to certain conditions. Amounts also include outplacement services to be provided for a period of 12 months. |
| (5) |
The retention letters with the NEOs provide that payments that would be subject to the imposition of an excise tax under Section 4999 of the U.S. Internal Revenue Code of 1986, as amended, will be reduced to the
maximum amount that will result in no excise tax, if the net after-tax amount of such reduced payments are greater than the amount that would be received without any such reduction. The amounts shown in the Golden Parachute Compensation Table do not
reflect any such reduction. |
| (6) |
Mr. Perez is entitled to receive RSUs with a grant date value of $1,250,000 on January 1, 2015 in connection with his promotion to Chief Executive Officer of the Company. This table assumes the grant date
price of these RSUs will be $96.31 per Share, the closing price of a Share of the Company’s common stock on December 12, 2014. |
No appraisal rights are available in connection with the Offer.
However, if the Offer is successful and the Merger is consummated, stockholders of the Company who have not properly tendered in the Offer, and who otherwise comply with the applicable procedures for demanding appraisal under DGCL Section 262,
will be entitled to seek appraisal for the “fair value” of their Shares as determined by the Delaware Court of Chancery. Stockholders should be aware that a financial advisor’s opinion as to the fairness, from a financial point of
view, of the consideration payable in a sale transaction, such as the Offer or the Merger, is not an opinion as to, and does not otherwise address, fair value under DGCL Section 262. Any stockholder contemplating the exercise of such appraisal
rights should review carefully the provisions of DGCL Section 262, particularly the procedural steps required to perfect such rights.
Under DGCL Section 262, where a merger is approved under DGCL Section 251(h), either a constituent corporation before the effective
date of the merger, or the surviving corporation within 10 days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of Section 262. The Company Board fixed December 12, 2014
as the record date for purposes of determining the Company stockholders entitled to notice of appraisal rights under Section 262. THIS SCHEDULE 14D-9 CONSTITUTES THE FORMAL NOTICE OF APPRAISAL RIGHTS UNDER DGCL SECTION 262. FAILURE TO FOLLOW
THE STEPS REQUIRED BY DGCL SECTION 262 FOR PERFECTING APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF SUCH RIGHTS. The foregoing summary of appraisal rights under DGCL is not complete and is qualified in its entirety by the full text of DGCL
Section 262, which is attached to this Schedule 14D-9 as Annex C.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE
INFORMATION SET FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO THE ALTERNATIVES AVAILABLE TO STOCKHOLDERS IF THE MERGER IS COMPLETED. STOCKHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH
36
THE MERGER WILL RECEIVE ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS AND THE PROCEDURES TO BE FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING
THERETO.
STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH RESPECT THERETO BUT,
RATHER, WILL RECEIVE THE OFFER PRICE.
| (c) |
Anti-Takeover Statute. |
As a Delaware corporation, the Company is subject to
Section 203 of the DGCL (“Section 203”). In general, Section 203 would prevent an “interested stockholder” (generally defined as a person beneficially owning 15% or more of a corporation’s voting stock) from
engaging in a “business combination” (as defined in Section 203) with a Delaware corporation for three years following the date such person became an interested stockholder unless: (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination, (ii) upon consummation of the transaction which resulted
in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding for purposes of determining the
number of shares of outstanding stock held by directors who are also officers and by employee stock plans that do not allow plan participants to determine confidentially whether to tender shares), or (iii) following the transaction in which
such person became an interested stockholder, the business combination is (x) approved by the board of directors of the corporation and (y) authorized at a meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. In accordance with the provisions of Section 203, the Company’s Board has approved the Merger Agreement and the transactions
contemplated thereby, as described in Item 4 above and, therefore, the restrictions of Section 203 are inapplicable to the Merger and the transactions contemplated under the Merger Agreement.
| (d) |
Regulatory Approvals. |
Antitrust in the United States
Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the related rules
and regulations that have been issued by the Federal Trade Commission (the “FTC”), applicable to the Offer, the acquisition of Shares pursuant to the Offer may be consummated following the expiration of a 15-day waiting period following
the filing by Parent of its Premerger Notification and Report Form with respect to the Offer, unless Parent receives a request for additional information or documentary material from the Antitrust Division of the U.S. Department of Justice (the
“Antitrust Division”) or the FTC or unless early termination of the waiting period is granted. If, within the initial 15-day waiting period, either the Antitrust Division or the FTC requests additional information or documentary material
concerning the Offer, the waiting period will be extended for an additional period of 10 calendar days following the date of Parent’s substantial compliance with that request. Complying with a request for additional information or documentary
material may take a significant amount of time.
Parent and the Company expect to file their respective Premerger Notification and Report
Forms on or before December 31, 2014 with the FTC and the Antitrust Division relating to the proposed acquisition of the Company.
At
any time before or after Parent’s acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC could take such action under antitrust laws as either deems necessary or desirable in the public interest, including seeking to
enjoin the purchase of the Shares pursuant to the Offer or seeking the divestiture of Shares
37
acquired by Parent or the divestiture of substantial assets of the Company or its subsidiaries or Parent or its subsidiaries. State attorneys general may also bring legal action under state
antitrust and consumer protection laws. Private parties may also bring legal action under federal and state antitrust and consumer protection laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust
grounds will not be made or, if such a challenge is made, the result thereof.
Foreign Regulatory Filings
The Company conducts business in a number of foreign countries. In connection with the purchase of the Shares pursuant to the Offer, the laws
of certain of these foreign countries may require the filing of information with, or the obtaining of the approval of, governmental authorities therein. The parties have agreed that it is a condition of the Offer that (i) the transactions
contemplated by the Merger Agreement have been cleared under the Austrian Cartel Act (Kartellgesetz 2005) and (ii) the parties have received confirmation from the French Ministry of Economy (in form and substance reasonably satisfactory
to Parent) that Articles L151-3 and R153-1 et seq. (as modified by Decree n°2014-479 of May 14, 2014) of the French Financial and Monetary Code do not apply to the transactions contemplated by the Merger Agreement or, in the
alternative, requisite authorization without condition of the Ministry of Economy of the transactions contemplated by the Merger Agreement.
| (e) |
Merger without a Vote. |
If the Offer is consummated, the Company will not seek the
approval of the Company’s remaining public stockholders before effecting the Merger. Section 251(h) of the DGCL provides that following consummation of a successful tender offer for a public corporation (the shares of which are listed on a
national securities exchange or held of record by more than 2,000 holders), and subject to certain statutory provisions, if the acquirer holds at least the number of shares of each class of stock of the target corporation that would otherwise be
required to approve a merger for the target corporation, and the other stockholders receive the same consideration for their stock in the merger as was payable in the tender offer, the acquirer can effect a merger without the action of the other
stockholders of the target corporation. Accordingly, if Parent consummates the Offer, Parent and the Company intend to effect the Merger without a vote of the stockholders of the Company in accordance with Section 251(h) of the DGCL.
On December 12, 2014, a putative stockholder class action complaint
was filed in the Court of Chancery of the State of Delaware against the Company, its directors and Parent and Purchaser, captioned as follows: Anne Bradley v. Cubist Pharmaceuticals, Inc., et. al., Case No. 10455-VCN (Del. Ch.).
Three additional cases were filed against the same named defendants on December 17, 2014, also in the Court of Chancery of the State of Delaware, captioned as follows: Kevin Koziatek v. Cubist Pharmaceuticals, Inc., et. al., Case
No. 10465-VCN (Del. Ch.); Lawrence Weinstein v. Cubist Pharmaceuticals, Inc., et. al., Case No. 10466-VCN (Del. Ch.); and John Savarese v. Cubist Pharmaceuticals, Inc., et. al., Case No. 10469-VCN (Del.
Ch.). The complaints allege, among other things, that the Company’s directors breached their fiduciary duties by approving the Merger Agreement, and that the Parent and Purchaser aided and abetted these alleged breaches of fiduciary duty. The
complaints seek, among other things, either to enjoin the proposed transaction or to rescind it should it be consummated, as well as money damages, including attorneys’ and experts’ fees.
| (g) |
Certain Company Management Projections. |
Other than full-year financial guidance
provided to investors, which may cover such areas as revenue, product gross margins and operating expenses, among other items, and which it may update from time to time during the relevant year, the Company does not, as a matter of course, publicly
disclose long-term forecasts or internal projections as to future revenues, earnings or other results, due to, among other reasons, the unpredictability of the underlying assumptions and estimates.
38
In connection with its annual preparation of the Company’s long-range plan, the
Company’s management prepared certain unaudited prospective financial information that was presented to the Company Board in June 2014, including unadjusted base case forecasts, base case forecasts adjusted for the probability of success of the
Company’s portfolio, forecasts reflecting product-level detail adjusted for the probability of success of each product and revenue estimates assuming the achievement of certain targets. In October 2014, the Company Board requested that the
Company’s management update the forecasts to reflect changes to the Company’s business following the Company Board meeting in June 2014. Subsequently, in November 2014, the Company’s management further refined the forecasts to reflect
the 2015 budget with certain other adjustment. The Company’s unadjusted base case forecasts, as updated through November 2014, are referred to herein as the “Base Case Forecasts”; the Base Case Forecasts, as adjusted to reflect the
probability of success of the Company’s products, as updated through November 2014, are referred to herein as the “Adjusted Forecasts”; forecasts reflecting product-level detail adjusted for the probability of success of each product,
as updated through November 2014, are referred to as the “Adjusted Product-Level Forecasts”; and revenue estimates assuming the achievement of certain targets, as updated through November 2014, referred to as the “Adjusted Upside Case
Forecasts”. Collectively, the Base Case Forecasts, the Adjusted Forecasts, the Adjusted Product-Level Forecasts and the Adjusted Upside Case Forecasts are referred to as the “Forecasts”.
The Company’s management provided the Forecasts, as revised in October and November 2014, to the Company Board in November 2014 for
purposes of considering and evaluating Parent’s acquisition proposal and to Goldman Sachs and Morgan Stanley in connection with the rendering of Goldman Sachs’ and Morgan Stanley’s fairness opinions to the Company Board and in
performing their related financial analyses, as described above in Item 4 under the heading “The Solicitation or Recommendation – Opinions of the Financial Advisors to the Company Board.” The Company Board directed Goldman Sachs
and Morgan Stanley to use the Adjusted Forecasts and the underlying Adjusted Product-Level Forecasts in performing their financial analyses in connection with the rendering of their respective fairness opinions. Prior to the execution of the Merger
Agreement, the Company provided a subset of the data contained in the Forecasts to Parent.
The Base Case Forecasts were prepared by the
Company’s management based on assumptions they believed to be potentially achievable. The Base Case Forecasts reflect numerous assumptions based on the Company’s products, including: the Company having market exclusivity for Cubicin until
June 2018 in the United States and 2021 in the rest of the world, Zerbaxa until 2027 in the United States and 2025 in the European Union, Dificid until 2027, Sivextro until 2028 in the United States and 2030 in the European Union, Entereg until 2030
and Surotomycin until 2031; a successful resolution to the Company’s patent litigation against Hospira; the Company making payments to Teva Pharmaceutical Industries Ltd. related to Cubicin sales commencing in June 2018; the Company making $180
million of milestone payments related to Zerbaxa between 2015 and 2018; the Company making no payments on the contingent value rights tied to sales of Dificid and Sivextro; the Company out-licensing Bevenopran after 2017 with no up-front payments
and a royalty rate of 25% from 2018 onward; the Company receiving no revenue from pre-investigational new drug products. The Base Case Forecasts also assumed a cash tax rate of 33% with federal net operating losses and credits valued separately
using present value according to usage pace. The Base Case Forecasts also include estimated revenue in 2021-2023 from currently unidentified products equal to $30 million in 2021, $89 million in 2022 and $229 million in 2023. The Base Case Forecasts
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $MM |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
| Revenue |
|
$ |
1,192 |
|
|
$ |
1,424 |
|
|
$ |
1,803 |
|
|
$ |
2,125 |
|
|
$ |
2,291 |
|
|
$ |
2,257 |
|
|
$ |
2,635 |
|
|
$ |
2,922 |
|
|
$ |
3,244 |
|
|
$ |
3,750 |
|
| GAAP Operating Income |
|
|
146 |
|
|
|
174 |
|
|
|
423 |
|
|
|
821 |
|
|
|
885 |
|
|
|
794 |
|
|
|
1,048 |
|
|
|
1,223 |
|
|
|
1,460 |
|
|
|
1,806 |
|
| Non-GAAP COGS Adjustment |
|
|
97 |
|
|
|
140 |
|
|
|
129 |
|
|
|
129 |
|
|
|
130 |
|
|
|
127 |
|
|
|
126 |
|
|
|
109 |
|
|
|
109 |
|
|
|
106 |
|
| Non-GAAP OP Ex Adjustment |
|
|
(25 |
) |
|
|
12 |
|
|
|
24 |
|
|
|
7 |
|
|
|
3 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| Non-GAAP Operating Income |
|
|
218 |
|
|
|
326 |
|
|
|
576 |
|
|
|
957 |
|
|
|
1,017 |
|
|
|
921 |
|
|
|
1,174 |
|
|
|
1,332 |
|
|
|
1,569 |
|
|
|
1,912 |
|
| EBITDA |
|
|
238 |
|
|
|
345 |
|
|
|
594 |
|
|
|
984 |
|
|
|
1,051 |
|
|
|
955 |
|
|
|
1,208 |
|
|
|
1,366 |
|
|
|
1,603 |
|
|
|
1,946 |
|
| GAAP Net Income |
|
|
51 |
|
|
|
57 |
|
|
|
273 |
|
|
|
541 |
|
|
|
589 |
|
|
|
530 |
|
|
|
705 |
|
|
|
828 |
|
|
|
989 |
|
|
|
1,224 |
|
| GAAP EPS |
|
|
$0.58 |
|
|
|
$0.64 |
|
|
|
$3.07 |
|
|
|
$6.09 |
|
|
|
$6.63 |
|
|
|
$5.97 |
|
|
|
$7.93 |
|
|
|
$9.32 |
|
|
|
$11.13 |
|
|
|
$13.78 |
|
| Unlevered Free Cash Flow |
|
|
96 |
|
|
|
(7 |
) |
|
|
190 |
|
|
|
638 |
|
|
|
546 |
|
|
|
585 |
|
|
|
646 |
|
|
|
734 |
|
|
|
939 |
|
|
|
1,101 |
|
39
The Company management prepared the Adjusted Forecasts to reflect the likelihood of approval of
Zerbaxa for the treatment of hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (“HABP/VABP”) and urinary tract infection and intra-abdominal infections (“UTI/IAI”), Sivextro for the treatment of
HABP/VABP and acute bacterial skin and skin structure infections (“ABSSSI”), Surotomycin and Bevenopran. The Adjusted Forecasts assume lower probability of success for approval of certain of the Company’s products in certain
indications than the Base Case Forecasts, which results in less favorable prospective financial information. The Adjusted Forecasts are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $MM |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
| Revenue |
|
$ |
1,192 |
|
|
$ |
1,424 |
|
|
$ |
1,803 |
|
|
$ |
2,071 |
|
|
$ |
2,184 |
|
|
$ |
2,087 |
|
|
$ |
2,386 |
|
|
$ |
2,589 |
|
|
$ |
2,845 |
|
|
$ |
3,294 |
|
| GAAP Operating Income |
|
|
146 |
|
|
|
174 |
|
|
|
423 |
|
|
|
812 |
|
|
|
867 |
|
|
|
735 |
|
|
|
932 |
|
|
|
1,044 |
|
|
|
1,221 |
|
|
|
1,523 |
|
| Non-GAAP COGS Adjustment |
|
|
97 |
|
|
|
140 |
|
|
|
129 |
|
|
|
129 |
|
|
|
130 |
|
|
|
127 |
|
|
|
126 |
|
|
|
109 |
|
|
|
109 |
|
|
|
106 |
|
| Non-GAAP OP Ex Adjustment |
|
|
(25 |
) |
|
|
12 |
|
|
|
24 |
|
|
|
7 |
|
|
|
3 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| Non-GAAP Operating Income |
|
|
218 |
|
|
|
326 |
|
|
|
576 |
|
|
|
948 |
|
|
|
999 |
|
|
|
862 |
|
|
|
1,058 |
|
|
|
1,153 |
|
|
|
1,330 |
|
|
|
1,629 |
|
| EBITDA |
|
|
238 |
|
|
|
345 |
|
|
|
593 |
|
|
|
973 |
|
|
|
1,032 |
|
|
|
896 |
|
|
|
1,092 |
|
|
|
1,187 |
|
|
|
1,363 |
|
|
|
1,663 |
|
| GAAP Net Income |
|
|
51 |
|
|
|
57 |
|
|
|
273 |
|
|
|
535 |
|
|
|
577 |
|
|
|
491 |
|
|
|
627 |
|
|
|
707 |
|
|
|
828 |
|
|
|
1,033 |
|
| GAAP EPS |
|
|
$0.58 |
|
|
|
$0.64 |
|
|
|
$3.07 |
|
|
|
$6.03 |
|
|
|
$6.49 |
|
|
|
$5.52 |
|
|
|
$7.06 |
|
|
|
$7.96 |
|
|
|
$9.32 |
|
|
|
$11.63 |
|
| Unlevered Free Cash Flow |
|
|
96 |
|
|
|
(7 |
) |
|
|
204 |
|
|
|
655 |
|
|
|
553 |
|
|
|
567 |
|
|
|
593 |
|
|
|
640 |
|
|
|
792 |
|
|
|
929 |
|
40
In connection with preparing the Adjusted Forecasts, the Company also prepared the Adjusted
Product-Level Forecasts as set forth below. Product-level earnings before interest and tax (“EBIT”) reflects the allocation of various expenses to the products. It excludes, however, pre-clinical / discovery R&D expenses and related
SG&A expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $MM |
|
|
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
2031 |
|
|
2032 |
|
|
2033 |
|
|
2034 |
|
|
2035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cubicin |
|
|
Revenue |
|
|
$ |
1,050 |
|
|
$ |
1,173 |
|
|
$ |
1,273 |
|
|
$ |
1,302 |
|
|
$ |
1,092 |
|
|
$ |
596 |
|
|
$ |
479 |
|
|
$ |
236 |
|
|
$ |
86 |
|
|
$ |
86 |
|
|
$ |
86 |
|
|
$ |
86 |
|
|
$ |
86 |
|
|
$ |
86 |
|
|
$ |
86 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
628 |
|
|
|
726 |
|
|
|
914 |
|
|
|
1,085 |
|
|
|
930 |
|
|
|
507 |
|
|
|
415 |
|
|
|
206 |
|
|
|
85 |
|
|
|
85 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Zerbaxa |
|
|
Revenue |
|
|
|
0 |
|
|
|
53 |
|
|
|
207 |
|
|
|
340 |
|
|
|
554 |
|
|
|
795 |
|
|
|
1,033 |
|
|
|
1,254 |
|
|
|
1,430 |
|
|
|
1,599 |
|
|
|
1,747 |
|
|
|
1,846 |
|
|
|
1,612 |
|
|
|
1,212 |
|
|
|
631 |
|
|
|
383 |
|
|
|
221 |
|
|
|
171 |
|
|
|
71 |
|
|
|
18 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
(164 |
) |
|
|
(151 |
) |
|
|
(96 |
) |
|
|
52 |
|
|
|
206 |
|
|
|
368 |
|
|
|
546 |
|
|
|
700 |
|
|
|
812 |
|
|
|
926 |
|
|
|
1,004 |
|
|
|
1,100 |
|
|
|
1,003 |
|
|
|
772 |
|
|
|
403 |
|
|
|
245 |
|
|
|
141 |
|
|
|
108 |
|
|
|
45 |
|
|
|
11 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sivextro |
|
|
Revenue |
|
|
|
9 |
|
|
|
43 |
|
|
|
108 |
|
|
|
156 |
|
|
|
194 |
|
|
|
245 |
|
|
|
286 |
|
|
|
339 |
|
|
|
396 |
|
|
|
445 |
|
|
|
491 |
|
|
|
508 |
|
|
|
542 |
|
|
|
577 |
|
|
|
613 |
|
|
|
146 |
|
|
|
76 |
|
|
|
37 |
|
|
|
10 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
(60 |
) |
|
|
(46 |
) |
|
|
17 |
|
|
|
67 |
|
|
|
109 |
|
|
|
158 |
|
|
|
200 |
|
|
|
257 |
|
|
|
315 |
|
|
|
359 |
|
|
|
398 |
|
|
|
410 |
|
|
|
443 |
|
|
|
474 |
|
|
|
508 |
|
|
|
124 |
|
|
|
64 |
|
|
|
32 |
|
|
|
9 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Entereg |
|
|
Revenue |
|
|
|
59 |
|
|
|
71 |
|
|
|
75 |
|
|
|
83 |
|
|
|
91 |
|
|
|
100 |
|
|
|
109 |
|
|
|
118 |
|
|
|
127 |
|
|
|
137 |
|
|
|
145 |
|
|
|
153 |
|
|
|
162 |
|
|
|
171 |
|
|
|
180 |
|
|
|
190 |
|
|
|
200 |
|
|
|
120 |
|
|
|
40 |
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
9 |
|
|
|
(5 |
) |
|
|
10 |
|
|
|
25 |
|
|
|
37 |
|
|
|
45 |
|
|
|
57 |
|
|
|
69 |
|
|
|
77 |
|
|
|
87 |
|
|
|
95 |
|
|
|
93 |
|
|
|
103 |
|
|
|
117 |
|
|
|
124 |
|
|
|
139 |
|
|
|
152 |
|
|
|
91 |
|
|
|
30 |
|
|
|
9 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dificid |
|
|
Revenue |
|
|
|
72 |
|
|
|
84 |
|
|
|
140 |
|
|
|
189 |
|
|
|
229 |
|
|
|
272 |
|
|
|
306 |
|
|
|
325 |
|
|
|
339 |
|
|
|
352 |
|
|
|
372 |
|
|
|
394 |
|
|
|
419 |
|
|
|
446 |
|
|
|
111 |
|
|
|
48 |
|
|
|
31 |
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
(14 |
) |
|
|
18 |
|
|
|
64 |
|
|
|
114 |
|
|
|
153 |
|
|
|
208 |
|
|
|
241 |
|
|
|
267 |
|
|
|
282 |
|
|
|
294 |
|
|
|
311 |
|
|
|
328 |
|
|
|
352 |
|
|
|
381 |
|
|
|
102 |
|
|
|
44 |
|
|
|
29 |
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Surotomycin |
|
|
Revenue |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
19 |
|
|
|
60 |
|
|
|
131 |
|
|
|
217 |
|
|
|
287 |
|
|
|
341 |
|
|
|
368 |
|
|
|
385 |
|
|
|
404 |
|
|
|
424 |
|
|
|
446 |
|
|
|
468 |
|
|
|
491 |
|
|
|
481 |
|
|
|
342 |
|
|
|
126 |
|
|
|
27 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
(35 |
) |
|
|
(22 |
) |
|
|
(23)/(18 |
)1 |
|
|
(52)/(42 |
)1 |
|
|
(55 |
) |
|
|
(38 |
) |
|
|
6 |
|
|
|
69 |
|
|
|
152 |
|
|
|
198 |
|
|
|
214 |
|
|
|
217 |
|
|
|
234 |
|
|
|
259 |
|
|
|
276 |
|
|
|
304 |
|
|
|
328 |
|
|
|
322 |
|
|
|
229 |
|
|
|
84 |
|
|
|
18 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bevenopran |
|
|
Revenue |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4 |
|
|
|
19 |
|
|
|
43 |
|
|
|
71 |
|
|
|
90 |
|
|
|
105 |
|
|
|
111 |
|
|
|
117 |
|
|
|
124 |
|
|
|
131 |
|
|
|
138 |
|
|
|
146 |
|
|
|
44 |
|
|
|
15 |
|
|
|
7 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
(26 |
) |
|
|
(50 |
) |
|
|
(43 |
) |
|
|
(5)/(4 |
)1 |
|
|
4 |
|
|
|
19 |
|
|
|
43 |
|
|
|
71 |
|
|
|
90 |
|
|
|
105 |
|
|
|
111 |
|
|
|
117 |
|
|
|
124 |
|
|
|
131 |
|
|
|
138 |
|
|
|
146 |
|
|
|
44 |
|
|
|
15 |
|
|
|
7 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| 1. |
The first figure was used in Goldman Sachs’ analysis and the second figure was used in Morgan Stanley’s analysis. The difference between the figures is the result of different applications of the probability
factors provided by the Company’s management to certain expenses. The Company’s management reviewed the figures and directed the financial advisors to use such figures in their respective financial analyses. |
41
The Company’s management also compared Cubicin and Zerbaxa revenue estimates for the years
2014 through 2035 as used in the Adjusted Forecasts against the Adjusted Upside Case Forecasts. With respect to Cubicin, the Adjusted Upside Case Forecasts assumes a more positive return in terms of volume growth than is reflected in the Adjusted
Forecasts. With respect to Zerbaxa, the Adjusted Upside Case Forecasts assumes 20% higher United States and international direct revenue based on a more favorable competitive landscape, among other things, as well as a cost of goods sold margin 10%
below the Adjusted Forecasts and international exclusivity being extended by three years as a result of supplementary protection granted in the European Union.
Cubicin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $MM |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
2031 |
|
|
2032 |
|
|
2033 |
|
|
2034 |
|
|
2035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Base |
|
|
1,050 |
|
|
|
1,173 |
|
|
|
1,273 |
|
|
|
1,302 |
|
|
|
1,092 |
|
|
|
596 |
|
|
|
479 |
|
|
|
236 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Upside |
|
|
1,108 |
|
|
|
1,198 |
|
|
|
1,325 |
|
|
|
1,377 |
|
|
|
1,153 |
|
|
|
625 |
|
|
|
502 |
|
|
|
247 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
86 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Zerbaxa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $MM |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
2031 |
|
|
2032 |
|
|
2033 |
|
|
2034 |
|
|
2035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Base |
|
|
0 |
|
|
|
53 |
|
|
|
207 |
|
|
|
340 |
|
|
|
554 |
|
|
|
795 |
|
|
|
1,033 |
|
|
|
1,254 |
|
|
|
1,430 |
|
|
|
1,599 |
|
|
|
1,747 |
|
|
|
1,846 |
|
|
|
1,612 |
|
|
|
1,212 |
|
|
|
631 |
|
|
|
383 |
|
|
|
221 |
|
|
|
171 |
|
|
|
71 |
|
|
|
18 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Upside |
|
|
0 |
|
|
|
74 |
|
|
|
248 |
|
|
|
407 |
|
|
|
662 |
|
|
|
949 |
|
|
|
1,233 |
|
|
|
1,494 |
|
|
|
1,703 |
|
|
|
1,901 |
|
|
|
2,076 |
|
|
|
2,204 |
|
|
|
2,264 |
|
|
|
2,205 |
|
|
|
1,706 |
|
|
|
1,239 |
|
|
|
597 |
|
|
|
313 |
|
|
|
147 |
|
|
|
56 |
|
|
|
0 |
|
|
|
0 |
|
42
The Forecasts have been prepared based on information from Company management and are the
responsibility of Company management. The Forecasts were not prepared with a view toward public disclosure; and, accordingly, do not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute of
Certified Public Accountants for preparation and presentation of financial forecasts, or GAAP. PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, has not audited, reviewed, compiled or performed any
procedures with respect to the Forecasts and does not express an opinion or any form of assurance related thereto.
The Forecasts, while
presented with numerical specificity, necessarily were based on numerous variables and assumptions that are inherently uncertain and many of which are beyond the control of the Company’s management. Because the Forecasts cover multiple years,
by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the Forecasts were based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory
conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. The Forecasts also reflect assumptions as to certain business decisions that are
subject to change. Important factors that may affect actual results and result in the Forecasts not being achieved include, but are not limited to, the timing of regulatory approvals and introduction of new products, market acceptance of new
products, success of clinical testing, availability of third party reimbursement, impact of competitive products and pricing, the effect of regulatory actions, the impact of legal proceedings, including the outcome of the Company’s litigation
against Hospira, the effect of global economic conditions, the cost and effect of changes in tax and other legislation and other risk factors described in the Company’s annual report on Form 10-K for the year ended December 31, 2013. In
addition, the Forecasts may be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable period.
In light of the foregoing factors and the uncertainties inherent in the Forecasts, Company stockholders are cautioned not to place undue, if
any, reliance on the Forecasts and they should be evaluated, if at all, in conjunction with the Company’s historical financial statements and other information regarding the Company and its public filings with the SEC. The Forecasts speak only
as of the date they were prepared and have not been updated except as described therein. As a result, they do not reflect subsequent events such as the outcome of the Company’s litigation with Hospira or the announcement and pendency of the
transaction with Parent.
| (h) |
Cautionary Note Regarding Forward-Looking Statements. |
This Schedule 14D-9 contains
forward-looking statements that are not historical facts. The Company has identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,”
“possible,” “potential,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “estimate,” “approximate” or “continue,” or the
negative of these words, other terms of similar meaning or the use of future dates. Forward-looking statements may include, without limitation, statements regarding prospective performance and opportunities and the outlook of our business;
statements regarding the anticipated timing of filings and approvals relating to the transaction; statements regarding the expected timing of the completion of the transaction; statements regarding the ability to complete the transaction considering
the various closing conditions; the Forecasts, including revenue and cost projections; statements of expectation or belief; and any statements regarding assumptions underlying any of the foregoing. Investors are cautioned not to place undue reliance
on these forward-looking statements. Actual results could differ materially from those currently anticipated due to a number of risks and uncertainties. Risks and uncertainties that could cause results to differ from expectations include:
uncertainties as to the timing of the Offer and Merger; uncertainties as to how many Shares will be tendered in the Offer; the possibility that competing offers will be made; the possibility that various closing conditions for the transaction may
not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; the effects of disruption from the transaction making it more difficult to maintain
relationships with employees, customers, vendors and other business partners; the risk that stockholder litigation in connection with the Offer and may result in significant costs of defense, indemnification and liability; other business effects,
including the effects of
43
industry, economic or political conditions outside of the Company’s control; transaction costs; actual or contingent liabilities; and other risks and uncertainties discussed in the
Company’s filings with the SEC, including the “Risk Factors” sections of the Company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Copies of the Company’s filings with the
SEC may be obtained at the “Investors” section of the Company’s website at http://www.cubist.com. The Company does not undertake any obligation to update any forward-looking statements as a result of new information, future
developments or otherwise, except as expressly required by applicable law or the rules and regulations of the SEC. All forward-looking statements in this Schedule 14D-9 are qualified in their entirety by this cautionary statement. The Company
acknowledges that forward-looking statements made in connection with the Offer are not subject to the safe harbors created by the Private Securities Litigation Reform Act of 1995, as amended. The Company is not waiving any other defenses that may be
available under applicable law.
The following Exhibits are filed with this Schedule 14D-9:
|
|
|
| Exhibit No. |
|
Description |
|
|
| (a)(1)(A) |
|
Offer to Purchase, dated December 19, 2014 (incorporated by reference to Exhibit (A)(1)(A) to the Schedule TO of Mavec Corporation, filed by Merck & Co., Inc. and Mavec Corporation with the Securities and Exchange
Commission on December 19, 2014 (the “Schedule TO”)). |
|
|
| (a)(1)(B) |
|
Form of Letter of Transmittal (incorporated by reference to Exhibit (A)(1)(B) to the Schedule TO). |
|
|
| (a)(1)(C) |
|
Form of Notice of Guaranteed Delivery (incorporated by reference to Exhibit (A)(1)(C) to the Schedule TO). |
|
|
| (a)(1)(D) |
|
Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (A)(1)(D) to the Schedule TO). |
|
|
| (a)(1)(E) |
|
Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (A)(1)(E) to the Schedule TO). |
|
|
| (a)(1)(F) |
|
Summary Advertisement as published in The New York Times on December 19, 2014 (incorporated by reference to Exhibit (a)(1)(F) to the Schedule TO). |
|
|
| (a)(5)(A) |
|
Joint Press release issued by Cubist Pharmaceuticals, Inc. and Merck & Co., Inc., dated December 8, 2014 (incorporated herein by reference to the Exhibit 99.1 to Cubist Pharmaceutical, Inc.’s Current
Report on Form 8-K filed by Cubist Pharmaceuticals, Inc. on December 8, 2014). |
|
|
| (a)(5)(B) |
|
Opinion, December 8, 2014, of Goldman, Sachs & Co. to the Board of Directors of Cubist Pharmaceuticals, Inc. (incorporated by reference to Annex A attached to this Schedule 14D-9). |
|
|
| (a)(5)(C) |
|
Opinion, December 7, 2014, of Morgan Stanley & Co. LLC to the Board of Directors of Cubist Pharmaceuticals, Inc. (incorporated by reference to Annex B attached to this Schedule 14D-9). |
|
|
| (a)(5)(D) |
|
Press Release, dated December 19, 2014 (incorporated by reference to Exhibit (a)(1)(K) to the Schedule TO). |
|
|
| (e)(1) |
|
Agreement and Plan of Merger, dated December 8, 2014, among Merck & Co., Inc., Mavec Corporation and Cubist Pharmaceuticals, Inc. (incorporated by reference to Exhibit 2.1 to Cubist
Pharmaceutical, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2014). |
|
|
| (e)(2) |
|
Excerpts from Cubist Pharmaceutical Inc.’s Definitive Proxy Statement on Schedule 14A related to the 2014 Annual Meeting of Stockholders as filed with the Securities and Exchange Commission on April 21, 2014. |
|
|
| (e)(3) |
|
Form of Retention Letter between Cubist and its Chief Executive Officer (incorporated by reference to Exhibit 10.1, Quarterly Report on Form 10-Q filed on August 6, 2013). |
|
|
|
| Exhibit No. |
|
Description |
|
|
| (e)(4) |
|
Form of Retention Letter between Cubist and its U.S. Executive Officers other than its Chief Executive Officer (incorporated by reference to Exhibit 10.2, Quarterly Report on Form 10-Q filed on August 6, 2013). |
|
|
| (e)(5) |
|
Amended and Restated 2000 Equity Incentive Plan (incorporated by reference to Exhibit 10.1, Quarterly Report on Form 10-Q filed on May 12, 2008) |
|
|
| (e)(6) |
|
Amended and Restated 2002 Directors’ Equity Incentive Plan (incorporated by reference to Exhibit 10.2, Quarterly Report on Form 10-Q filed on May 1, 2012) |
|
|
| (e)(7) |
|
2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1, Quarterly Report on Form 10-Q filed on November 2, 2011) |
|
|
| (e)(8) |
|
2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.7, Annual Report on Form 10-K filed on February 27, 2013) |
|
|
| (e)(9) |
|
2014 Omnibus Incentive Plan (incorporated by reference to Appendix C to Cubist Pharmaceutical, Inc.’s Definitive Proxy Statement on Schedule 14A filed on April 21, 2014) |
|
|
| (e)(10) |
|
2014 Omnibus Incentive Plan (incorporated by reference to Appendix B to Cubist Pharmaceutical, Inc.’s Definitive Proxy Statement on Schedule 14A filed on April 21, 2014) |
|
|
| (e)(11) |
|
Cubist Pharmaceuticals, Inc. 2014 Severance Plan (incorporated by reference to Exhibit 10.1 to Cubist Pharmaceutical, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on
December 8, 2014). |
|
|
| (e)(12) |
|
Cubist Pharmaceuticals, Inc. 2013 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Cubist Pharmaceutical, Inc.’s Quarterly Report on Form 10-Q filed on May 7, 2013). |
|
|
| (e)(13) |
|
Cubist Pharmaceuticals, Inc. 2014 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.13 to Cubist Pharmaceutical, Inc.’s Annual Report on Form 10-K filed on February 25, 2014). |
|
|
| (e)(14) |
|
Separation Agreement, dated October 20, 2014, by and between Cubist Pharmaceuticals, Inc. and Michael Bonney (“Bonney Separation Agreement”). |
|
|
| (e)(15) |
|
Amendment to Bonney Separation Agreement, dated December 18, 2014. |
|
|
| (e)(16) |
|
Offer Letter issued by Cubist Pharmaceuticals, Inc. to Robert J. Perez on October 18, 2014 (“Perez Offer Letter”). |
|
|
| (e)(17) |
|
Retention Agreement, effective January 1, 2015, between Cubist Pharmaceuticals, Inc. and Robert J. Perez. |
|
|
| (e)(18) |
|
Amendment to Perez Offer Letter dated December 16, 2014. |
|
|
| (e)(19) |
|
Offer Letter issued by Cubist Pharmaceuticals, Inc. to Patrick Vink on November 18, 2014 (“Vink Offer Letter”). |
|
|
| (e)(20) |
|
Amendment to Vink Offer Letter dated December 16, 2014. |
Annex A – Opinion, dated December 8, 2014, of Goldman, Sachs & Co. to the Company Board
Annex B – Opinion, dated December 7, 2014, of Morgan Stanley & Co. LLC to the Company Board
Annex C – Section 262 of the Delaware General Corporation Law
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and
correct.
|
|
|
|
|
| Dated: December 19, 2014 |
|
CUBIST PHARMACEUTICALS, INC. |
|
|
|
|
|
By: |
|
/s/ Thomas J. DesRosier |
|
|
|
|
Thomas J. DesRosier Executive Vice President, Chief Legal and Administrative Officer |
Annex A
PERSONAL AND CONFIDENTIAL
December 8, 2014
Board of Directors
Cubist Pharmaceuticals, Inc.
65 Hayden Avenue
Lexington, MA 02421
Ladies and Gentlemen:
You have requested our opinion as to the
fairness from a financial point of view to the holders (other than Merck & Co., Inc. (“Merck”) and its affiliates) of the outstanding shares of common stock, par value $0.001 per share (the “Shares”), of Cubist
Pharmaceuticals, Inc. (the “Company”) of the $102.00 in cash per Share to be paid to such holders of Shares pursuant to the Agreement and Plan of Merger, dated as of December 8, 2014 (the “Agreement”), by and among
Merck, Mavec Corporation, a wholly owned subsidiary of Merck (“Acquisition Sub”), and the Company. The Agreement provides for a tender offer for all of the Shares (the “Tender Offer”) pursuant to which Acquisition Sub will pay
$102.00 in cash per Share for each Share accepted. The Agreement further provides that, following completion of the Tender Offer, Acquisition Sub will be merged with and into the Company (the “Merger”) and each outstanding Share
(other than Shares held in the treasury of the Company or owned by the Company or any direct or indirect wholly owned subsidiary of the Company or already owned by Merck, Acquisition Sub or any direct or indirect wholly owned subsidiary of Merck or
Acquisition Sub and each Dissenting Share (as defined in the Agreement)) will be converted into the right to be paid $102.00 in cash.
Goldman,
Sachs & Co. and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons
and entities. Goldman, Sachs & Co. and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote
long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, Merck, any of their respective affiliates and third parties, or any currency or
commodity that may be involved in the transaction contemplated by the Agreement (the “Transaction”). We have acted as financial advisor to the Company in connection with, and have participated in certain of the negotiations leading to, the
Transaction. We expect to receive fees for our services in connection with the Transaction, the principal portion of which is contingent upon consummation of the Transaction, and the Company has agreed to reimburse certain of our expenses arising,
and indemnify us against certain liabilities that may arise, out of our engagement. We have provided certain financial advisory and/or underwriting services to the Company and/or its affiliates from time to time. We also have provided certain
financial advisory and/or underwriting services to Merck and/or its affiliates from time to time for which our Investment Banking Division has received, and may receive, compensation, including having acted as joint bookrunner with respect to a
public offering of Merck’s 0.700% Notes due 2016 (aggregate principal amount $1,000,000,000), Floating Rate Notes due 2016 (aggregate principal amount $500,000,000), 1.300% Notes due 2018 (aggregate principal amount $1,000,000,000), Floating
Rate Notes due 2018 (aggregate principal amount $1,000,000,000), 2.800% Notes due 2023 (aggregate principal amount $1,750,000,000) and 4.150% Notes due 2043 (aggregate principal amount $1,250,000,000) in May 2013. We may also in the future provide
financial advisory and/or underwriting services to the Company, Merck and their respective affiliates for which our Investment Banking Division may receive compensation.
In connection with this opinion, we have reviewed, among other things, the Agreement; annual reports to stockholders and Annual Reports on Form 10-K of
the Company for the five fiscal years ended December 31,
A-1
Board of Directors
Cubist Pharmaceuticals, Inc.
December 8, 2014
Page
2
2013; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company; certain other communications from the Company to its stockholders; certain publicly available
research analyst reports for the Company; and certain internal financial analyses and forecasts for the Company prepared by its management, as approved for our use by the Company, including probability of success adjusted Company and product-level
forecasts (such adjusted forecasts, the “Forecasts”). We have also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future
prospects of the Company; reviewed the reported price and trading activity for the Shares; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are
publicly traded; reviewed the financial terms of certain recent business combinations in the biopharmaceutical industry and in other industries; and performed such other studies and analyses, and considered such other factors, as we deemed
appropriate.
For purposes of rendering this opinion, we have, with your consent, relied upon and assumed the accuracy and completeness of all of the
financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, us, without assuming any responsibility for independent verification thereof. In that regard, we have assumed with your consent that the
Forecasts have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. We have not made an independent evaluation or appraisal of the assets and liabilities (including any
contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and we have not been furnished with any such evaluation or appraisal. We have assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the expected benefits of the Transaction in any way meaningful to our analysis. We have assumed that the Transaction will be
consummated on the terms set forth in the Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to our analysis.
Our opinion does not address the underlying business decision of the Company to engage in the Transaction, or the relative merits of the Transaction as
compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. This opinion addresses only the fairness from a financial point of view to the holders (other than
Merck and its affiliates) of Shares, as of the date hereof, of the $102.00 in cash per Share to be paid to such holders pursuant to the Agreement. We do not express any view on, and our opinion does not address, any other term or aspect of the
Agreement or the Transaction or any term or aspect of any other agreement or instrument contemplated by the Agreement or entered into or amended in connection with the Transaction, including, the fairness of the Transaction to, or any consideration
received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers,
directors or employees of the Company, or class of such persons, in connection with the Transaction, whether relative to the $102.00 in cash per Share to be paid to the holders (other than Merck and its affiliates) of Shares pursuant to the
Agreement or otherwise. We are not expressing any opinion as to the impact of the Transaction on the solvency or viability of the Company or Merck or the ability of the Company or Merck to pay their respective obligations when they come due. Our
opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof and we assume no responsibility for updating, revising or reaffirming this opinion based
on circumstances, developments or events occurring after the date hereof. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its
consideration of the Transaction and such opinion does not constitute a recommendation as to whether or not any holder of Shares should tender such Shares in connection with the Tender Offer or how any holder of Shares
A-2
Board of Directors
Cubist Pharmaceuticals, Inc.
December 8, 2014
Page
3
should vote with respect to the Merger or any other matter. This opinion has been approved by a fairness committee of Goldman, Sachs & Co.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the $102.00 in cash to be paid to the holders (other than Merck and
its affiliates) of Shares pursuant to the Agreement is fair from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
(GOLDMAN,
SACHS & CO.)
A-3
Annex B
December 7, 2014
Board of Directors
Cubist Pharmaceuticals, Inc.
65 Hayden Avenue
Lexington, MA 02421
Members of the Board:
We understand that Cubist Pharmaceuticals, Inc. ( “Company”), Merck & Co., Inc. (“Parent”) and Mavec Corporation, a wholly owned
subsidiary of Parent (“Purchaser”), propose to enter into an Agreement and Plan of Merger, substantially in the form of the draft dated December 7, 2014 (the “Merger Agreement”), which provides, among other things, for
(i) the commencement by Purchaser of a tender offer (the “Tender Offer”) for any and all of the issued and outstanding shares of common stock, par value $0.001 per share (the “Company Common Stock”) of the Company for
$102.00 per share in cash, and (ii) the subsequent merger (the “Merger”) of Purchaser with and into the Company. Pursuant to the Merger, the Company will become a wholly owned subsidiary of Parent, and each share of Company Common
Stock issued and outstanding immediately prior to the effective time of the Merger, other than shares of Company Common Stock (x) held in the treasury of the Company or owned by the Company or any direct or indirect wholly owned Subsidiary of
the Company, (y) owned by Parent, Purchaser or any direct or indirect wholly owned Subsidiary of Parent or Purchaser, or (z) as to which dissenters’ rights have been perfected (shares of Company Common Stock referenced in the
foregoing clauses (x), (y) and (z) being referred to herein as the “Excluded Shares”), will be converted into the right to receive $102.00 per share in cash (the “Consideration”). The terms and conditions of the Tender
Offer and the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be received by
the holders of shares of the Company Common Stock (other than the holders of the Excluded Shares) pursuant to the Merger Agreement is fair from a financial point of view to the holders of such shares of the Company Common Stock.
For purposes of the opinion set forth herein, we have:
| 1) |
Reviewed certain publicly available financial statements and other business and financial information of the Company; |
| 2) |
Reviewed certain Company internal financial statements and other financial and operating data concerning the Company; |
| 3) |
Reviewed certain financial projections prepared by the management of the Company; |
| 4) |
Discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company; |
| 5) |
Reviewed the reported prices and trading activity for the Company Common Stock; |
| 6) |
Reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; |
| 7) |
Reviewed the Merger Agreement and certain related documents; and |
| 8) |
Performed such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate. |
We have assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or
otherwise made available to us by the Company, and
B-1
formed a substantial basis for this opinion. With respect to the financial projections, we have assumed that they have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company of the future financial performance of the Company. In addition, we have assumed that the Tender Offer and the Merger will be consummated in accordance with the terms set forth in the Merger
Agreement without any waiver, amendment or delay of any terms or conditions and that the definitive Merger Agreement will not differ in any respect material to our analysis from the draft thereof furnished to us. Morgan Stanley has assumed that in
connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Tender Offer and Merger, no delays, limitations, conditions or restrictions will be imposed that would have a
material adverse effect on the contemplated benefits expected to be derived in the proposed Tender Offer and Merger. We are not legal, tax or regulatory advisors. We are financial advisors only and have relied upon, without independent verification,
the assessment of the Company and its legal, tax, and regulatory advisors with respect to legal, tax and regulatory matters. We express no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s
officers, directors or employees, or any class of such persons, relative to the Consideration to be received by the holders of shares of the Company Common Stock in the transaction. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company, nor have we been furnished with any such valuations or appraisals. This opinion does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to other business or
financial strategies that might be available to the Company, nor does it address the underlying business decision of the Company to enter into the Merger Agreement or proceed with any other transaction contemplated by the Merger Agreement. Morgan
Stanley expresses no opinion or recommendation as to how the shareholders of the Company should vote or act in connection with the Tender Offer or the Merger. Our opinion is necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof may affect this opinion and the assumptions used in preparing it, and we do not assume any obligation to update, revise or reaffirm
this opinion.
We have acted as financial advisor to the Board of Directors of the Company in connection with this transaction and will receive a fee for
our services, a portion of which will be payable when the Company enters into the Merger Agreement and a substantial portion of which is contingent upon control of more than 50% or more of the Company Common Stock changing hands. In the two years
prior to the date hereof, we have provided financial advisory and financing services for the Company and have received fees in connection with such services. In addition, Morgan Stanley is a counterparty to 35% of the bond hedge and warrant overlay
to the Company’s 2018 and 2020 convertible notes and the consummation of the Merger will result in the unwind of such bond hedge and warrant and an expected net payment to be made to Morgan Stanley, in an amount to be calculated at the time of
closing of the Merger. In addition, in the two years prior to the date hereof, Morgan Stanley provided financial advisory and financing services for Parent and received fees in connection with such services. Morgan Stanley may also seek to provide
such services to Parent and the Company in the future and would expect to receive fees for the rendering of these services.
Please note that Morgan
Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Our securities business is engaged in securities underwriting, trading and brokerage activities, foreign
exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or
manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of Parent, the
Company, or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.
This opinion
has been approved by a committee of Morgan Stanley investment banking and other professionals in accordance with our customary practice. This opinion is for the information of the Board of Directors of the Company, in its capacity as such, and may
not be used for any other purpose or disclosed without our prior
B-2
written consent, except that a copy of this opinion may be included in its entirety in any filing the Company is required to make with the Securities and Exchange Commission in connection with
this transaction if such inclusion is required by applicable law.
Based on and subject to the foregoing, we are of the opinion on the date hereof that
the Consideration to be received by the holders of shares of the Company Common Stock (other than holders of Excluded Shares) pursuant to the Merger Agreement is fair from a financial point of view to the holders of such shares of the Company Common
Stock.
Very truly yours,
|
|
|
| MORGAN STANLEY & CO. LLC |
|
|
|
|
/s/ Susan S. Huang |
|
|
| By: |
|
Susan S. Huang |
|
|
Vice Chairman and Managing Director |
B-3
Annex C
§ 262 Appraisal rights.
(a) Any stockholder of a
corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word “stockholder” means a
holder of record of stock in a corporation; the words “stock” and “share” mean and include what is ordinarily meant by those words; and the words “depository receipt” mean a receipt or other instrument issued by a
depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title and, subject to paragraph (b)(3) of this section, § 251(h) of this title), § 252, § 254, § 255, § 256, § 257, §
258, § 263 or § 264 of this title:
(1) Provided, however, that, except as expressly provided in § 363(b) of this title, no
appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the
meeting of stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.
(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section;
or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing paragraphs (b)(2)a., b. and c. of this section.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 251(h), § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
(4) In the event of an amendment to a corporation’s certificate of incorporation contemplated by § 363(a) of this
title, appraisal rights shall be available as contemplated by § 363(b) of this title, and the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as
C-1
practicable, with the word “amendment” substituted for the words “merger or consolidation,” and the word “corporation” substituted for the words “constituent
corporation” and/or “surviving or resulting corporation.”
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of
this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with §
255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholder’s shares shall
deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228, § 251(h), § 253, or § 267 of this title, then either a
constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy
of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to § 251(h) of this
title, within the later of the consummation of the tender or exchange offer contemplated by § 251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal
of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice
did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice or, in the case of a merger approved pursuant to § 251(h) of this title,
later than the later of the consummation of the tender or exchange offer contemplated by
C-2
§ 251(h) of this title and 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice
is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e)
Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to
appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder’s demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder’s written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section,
a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the corporation the statement described in this
subsection.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h)
After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such
proceeding the Court shall determine the fair value of the shares exclusive
C-3
of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the
judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the
judgment. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of
the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder’s certificates of
stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court’s decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, to
be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder’s demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days
after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding
the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this
provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger
or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
(l) The
shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving
or resulting corporation.
C-4
Exhibit (e)(2)
Excerpts from Cubist Pharmaceutical Inc.’s Definitive Proxy Statement on Schedule 14A related to the 2014 Annual Meeting of Stockholders as filed with
the Securities and Exchange Commission on April 21, 2014.
Management Stockholders
The following table sets forth information as of April 8, 2014, as reported to us, with respect to the beneficial ownership of our common
stock by our directors and each Named Executive Officer, or NEO, and by all of our current directors and Executive Officers as a group. The term “Executive Officers” means all of our executive officers who are subject to the reporting
requirements under Section 16 of the Securities and Exchange Act of 1934, or Securities Exchange Act. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. Except as indicated below and pursuant to
applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amount and Nature of
Beneficial Ownership |
|
|
Total
Number |
|
|
Percentage
of Shares
Beneficially
Owned(2) |
|
| Name |
|
Shares
Owned |
|
|
Shares—Right
to Acquire(1) |
|
|
|
| Michael Bonney |
|
|
175,901 |
|
|
|
1,064,297 |
|
|
|
1,240,198 |
|
|
|
1.6 |
% |
| Robert Perez |
|
|
46,674 |
|
|
|
425,965 |
|
|
|
472,639 |
|
|
|
|
* |
| Steven Gilman |
|
|
27,237 |
|
|
|
237,455 |
|
|
|
264,692 |
|
|
|
|
* |
| David McGirr |
|
|
26,810 |
|
|
|
125,618 |
|
|
|
152,428 |
|
|
|
|
* |
| Kenneth Bate |
|
|
7,914 |
|
|
|
157,169 |
|
|
|
165,083 |
|
|
|
|
* |
| Michael Wood |
|
|
8,310 |
|
|
|
127,332 |
|
|
|
135,642 |
|
|
|
|
* |
| Martin Soeters |
|
|
9,293 |
|
|
|
103,832 |
|
|
|
113,125 |
|
|
|
|
* |
| Matthew Singleton |
|
|
4,972 |
|
|
|
93,832 |
|
|
|
98,804 |
|
|
|
|
* |
| Leon Moulder, Jr. |
|
|
9,098 |
|
|
|
61,665 |
|
|
|
70,763 |
|
|
|
|
* |
| Michael Tomsicek |
|
|
4,424 |
|
|
|
58,079 |
|
|
|
62,503 |
|
|
|
|
* |
| Nancy Hutson |
|
|
4,847 |
|
|
|
53,832 |
|
|
|
58,679 |
|
|
|
|
* |
| Martin Rosenberg |
|
|
6,005 |
|
|
|
50,360 |
|
|
|
56,365 |
|
|
|
|
* |
| Mark Corrigan |
|
|
5,498 |
|
|
|
44,832 |
|
|
|
50,330 |
|
|
|
|
* |
| Alison Lawton |
|
|
2,714 |
|
|
|
26,972 |
|
|
|
29,686 |
|
|
|
|
* |
| Jane Henney |
|
|
2,641 |
|
|
|
25,624 |
|
|
|
28,265 |
|
|
|
|
* |
| Thomas DesRosier |
|
|
342 |
|
|
|
22,017 |
|
|
|
22,359 |
|
|
|
|
* |
| Kenneth Martin |
|
|
0 |
|
|
|
3,671 |
|
|
|
3,671 |
|
|
|
|
* |
| All directors and Executive Officers as a group (18 persons) |
|
|
335,951 |
|
|
|
2,624,977 |
|
|
|
2,960,928 |
|
|
|
3.8 |
% |
| * |
Less than 1% of the issued and outstanding shares of our common stock. |
| (1) |
Represents shares of common stock underlying outstanding stock options that are currently exercisable or exercisable within 60 days of April 8, 2014 and restricted stock units, or RSUs, that will lapse within
60 days of April 8, 2014. |
| (2) |
On April 8, 2014, we had 75,298,978 shares of common stock outstanding. In computing percentage ownership of a person, shares of common stock underlying stock options that are currently exercisable or which will
become exercisable within 60 days of April 8, 2014 and RSUs that will lapse within 60 days of April 8, 2014 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage
ownership of any other person. |
Director Compensation
Overview
Mr. Bonney and
Mr. Perez are each a director and an Executive Officer. Mr. Bonney and Mr. Perez receive no additional compensation for serving on the Board. No other director is an employee of the company.
We compensate our non-employee directors with a combination of cash payments, in the form of annual retainers and Board committee meeting
fees, and equity awards in the form of stock options and RSUs. These equity awards align director compensation with the equity compensation we provide to our NEOs. Stock options and RSUs represent a significant portion of director compensation,
which aligns director compensation directly with our long-term performance. Stock options are granted to non-employee directors upon election or appointment, as the case may be, and on an annual basis. RSUs are granted on an annual basis. Our Board
regularly reviews its performance and the performance of its committees.
The Compensation Committee is responsible for reviewing the
compensation of our non-employee directors and making recommendations to the Board about any changes to such compensation. Approximately every two years PM&P provides the Compensation Committee with a competitive assessment of compensation for
our non-employee directors by comparing our director compensation programs and the amount of compensation that we pay our non-employee directors to the same peer group companies that we use to benchmark our executive compensation, as described in
the CD&A section of this Proxy Statement. The assessment compares the total compensation paid to our non-employee directors by position—Chair, Lead Director (if any), director, committee chairs and committee members—and the components
of compensation—retainers, meeting fees and equity compensation—to the compensation paid to directors at our peer group companies. The Compensation Committee evaluates this information and recommends any changes to director compensation to
the Board for approval. This process typically results in the total compensation of our non-employee directors approximating the median total compensation paid to non-employee directors at our peer group companies during the first year after the
evaluation of director compensation and the total compensation of our non-employee directors being lower than the median total compensation paid to non-employee directors at our peer group companies during the second year after the evaluation of
director compensation.
In September 2013, as a result of the review and analysis described above, the Board approved changes to the
compensation to be paid to our non-employee directors, as described in this section, in order to align our directors’ compensation more closely with the compensation paid to directors at our peer group companies.
Retainers
We pay our non-employee
directors an annual retainer on the date of our Annual Meeting of Stockholders for their service on the Board for the period since the previous Annual Meeting of Stockholders. The annual retainer is payable in arrears on a pro-rata basis based on
the number of months that the director was a director or non-executive Chair during this period. Retainers are paid in cash or our common stock, at the director’s election. The retainer for the period from our 2012 Annual Meeting of
Stockholders to the 2013 Annual Meeting was paid on the date of the 2013 Annual Meeting. The retainer for the period from the 2013 Annual Meeting to the 2014 Annual Meeting will be paid on the date of the 2014 Annual Meeting. These annual retainers
are paid in lieu of Board meeting fees.
The annual retainer payable to our non-executive Chair is $70,000. The Board increased the annual
retainer that will be payable to our other non-employee directors at the 2014 Annual Meeting from $50,000 to $60,000. Mr. Bate, who served as our non-executive Chair, was paid a $70,000 retainer on the date of the 2013 Annual Meeting. Our other
then-serving non-employee directors were each paid a $50,000 retainer at the 2013 Annual Meeting.
Meeting Fees
We do not compensate our non-employee directors for attending individual meetings of the Board on a per-meeting basis. Non-chair members of the
Audit Committee are paid $2,000 for each Audit Committee meeting attended, whether in person or by phone, and the chair of the Audit Committee is paid $4,000 for each Audit Committee meeting led. Non-chair members of each other Board committee are
paid $1,500 for each Board committee meeting attended, whether in person or by phone, and the chairs of such Board committees are paid $3,500 for each Board committee meeting led.
Equity Awards
Equity awards to our
non-employee directors are made under our 2012 Plan. If the 2014 Plan is approved by our stockholders at the 2014 Annual Meeting, future equity awards to our non-employee directors will be made under that plan and no more equity awards will be made
under the 2012 Plan. All options granted to non-employee directors have an exercise price equal to the closing price of our common stock on the grant date.
In September 2013, the Board increased the fair value of the initial stock option award that we grant to our newly-elected or appointed
non-employee directors upon first joining the Board from $150,000 to $250,000. As a result, each non-employee director is entitled to an automatic grant of a stock option award with a fair value on the grant date of $250,000, calculated using the
Black-Scholes option-pricing model in accordance with ASC Topic 718, which vests quarterly in equal installments over a three-year period beginning on the grant date. In accordance with this practice, upon appointment to the Board in September 2013,
we granted Mr. Martin a stock option to purchase 14,686 shares of common stock with an exercise price of $64.34, the closing price of our common stock on the grant date.
On the date of our 2013 Annual Meeting, our then-serving non-employee directors (other than the non-executive Chair) automatically received an
annual long-term equity award with a target value of $185,000 comprised of (i) a stock option with a fair value on the date of our Annual Meeting, calculated using the Black-Scholes option-pricing model in accordance with ASC Topic 718, of
$129,500 and (ii) RSUs with a fair value on the date of our Annual Meeting of $55,500. As of our 2013 Annual Meeting, Mr. Bate, our non-executive Chair, automatically received an annual long-term equity award with a target value of
$285,000, comprised of (i) a stock option with a fair value on the date of the Annual Meeting of $199,500 and (ii) RSUs with a fair value on the date of our Annual Meeting of $85,500. These equity awards vest 100% on the earlier of the
first anniversary of the grant date and the date of our 2014 Annual Meeting.
As a result, on June 12, 2013, the day of the 2013
Annual Meeting, we made the following annual stock option and RSU awards to our non-employee directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Director |
|
Number of Shares
Subject to Option Awards
(#) |
|
|
Exercise
Price of
Option
Awards
($) |
|
|
Number of
Shares
Subject to
Stock Awards
(#) |
|
|
Grant Date
Fair Value of
Shares
Underlying
Stock Awards
($) |
|
| Kenneth Bate |
|
|
12,895 |
|
|
|
50.24 |
|
|
|
1,701 |
|
|
|
50.24 |
|
| Mark Corrigan |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Jane Henney |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Nancy Hutson |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Alison Lawton |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Leon Moulder, Jr. |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Martin Rosenberg |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Matthew Singleton |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Martin Soeters |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
| Michael Wood |
|
|
8,370 |
|
|
|
50.24 |
|
|
|
1,104 |
|
|
|
50.24 |
|
In September 2013, the Board increased the target value of the annual long-term equity awards that we grant to
our then-serving non-employee directors, other than our non-executive Chair, to $225,000 and changed the composition of value of the annual long-term equity awards that we grant to all our then-serving non-employee
directors, including our non-executive Chair, to 50% stock options and 50% RSUs. As a result, as of the date of our 2014 Annual Meeting, provided that he or she is still serving as a director on
the close of business on that date, each of our non-employee directors, other than our non-executive Chair, will each automatically receive an annual long-term equity award with a target value of $225,000, comprised of (i) a stock option with a
fair value on the date of our Annual Meeting, calculated using the Black-Scholes option-pricing model in accordance with ASC Topic 718, of $112,500 and (ii) RSUs with a fair value on the date of our Annual Meeting of $112,500. Because
Dr. Rosenberg, Mr. Singleton and Dr. Wood have decided not to stand for re-election to the Board and each intends to resign effective as of immediately prior to the 2014 Annual Meeting, they will not receive an annual long-term equity
award as of our 2014 Annual Meeting date. As of the date of our 2014 Annual Meeting, provided that he is still serving as a director on the close of business on such date, Mr. Bate, our non-executive Chair, will automatically receive an annual
long-term equity award with a target value of $285,000, comprised of (i) a stock option with a fair value on the date of the Annual Meeting of $142,500 and (ii) RSUs with a fair value on the date of our Annual Meeting of $142,500. These
equity awards vest 100% on the earlier of the first anniversary of the grant date and the date of our Annual Meeting for the next year.
Stock
Ownership Guidelines
Our non-employee directors are subject to stock ownership guidelines that require each director to own company
stock, which includes 60% of the value of vested in-the-money stock options, worth three times his or her annual retainer amount. This amount is recalculated whenever there is a change in the annual retainers for our non-employee directors. The
guidelines are designed to align the interests of our non-employee directors with those of our stockholders by ensuring that non-employee directors have a meaningful financial stake in our long-term success. The ownership guidelines were established
by the Compensation Committee after reviewing market practices of our then current peer group companies and determining what would constitute meaningful ownership to align directors and stockholders.
Non-employee directors serving as of the original adoption date were required to be in compliance with the guidelines by January 1, 2009.
Non-employee directors who joined the Board after January 2006 are required to be in compliance with the guidelines within three years of joining the Board.
The guidelines require that any non-employee director who has not met the ownership requirement after the start of the period during which he
or she is required to do so, may only sell vested in-the-money stock options and vested RSUs or PRSUs, provided that he or she retains shares of common stock with a market value at least equal to the net proceeds received as a result of such sale
until such time as the non-employee director meets the requirements of the guidelines. To the extent any non-employee director is not in compliance with the guidelines as of January 1st of any
year after which the director is required to be in compliance, the director will be required to once again be in compliance by January 1st of the immediately succeeding year.
As of January 1, 2014, all non-employee directors who were required to have met the ownership requirement as of that date had met the
requirement.
Other
We reimburse all
of our directors for expenses incurred in connection with their attendance at Board or committee meetings and for participation in director education programs. We also provide director and officer insurance for all directors.
Director Compensation Table
The following table provides information concerning the compensation of our non-employee directors in 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name |
|
Fees Earned
or Paid
in Cash
($) |
|
|
Stock
Awards
($)(1)(2) |
|
|
Option
Awards
($)(2)(3) |
|
|
Total
($) |
|
| Kenneth Bate |
|
|
117,000 |
|
|
|
85,500 |
|
|
|
199,500 |
|
|
|
402,000 |
|
| Mark Corrigan |
|
|
27,000 |
|
|
|
105,500 |
|
|
|
129,500 |
|
|
|
262,000 |
|
| Jane Henney |
|
|
15,000 |
|
|
|
105,500 |
|
|
|
129,500 |
|
|
|
250,000 |
|
| Nancy Hutson |
|
|
79,000 |
|
|
|
55,500 |
|
|
|
129,500 |
|
|
|
264,000 |
|
| Alison Lawton |
|
|
21,000 |
|
|
|
105,500 |
|
|
|
129,500 |
|
|
|
256,000 |
|
| Kenneth Martin |
|
|
42,000 |
|
|
|
— |
|
|
|
250,000 |
|
|
|
292,000 |
|
| Leon Moulder, Jr. |
|
|
25,500 |
|
|
|
105,500 |
|
|
|
129,500 |
|
|
|
260,500 |
|
| Martin Rosenberg(4) |
|
|
66,500 |
|
|
|
55,500 |
|
|
|
129,500 |
|
|
|
251,500 |
|
| Matthew Singleton(4) |
|
|
84,500 |
|
|
|
55,500 |
|
|
|
129,500 |
|
|
|
269,500 |
|
| Martin Soeters |
|
|
9,000 |
|
|
|
105,500 |
|
|
|
129,500 |
|
|
|
244,000 |
|
| Michael Wood(4) |
|
|
63,500 |
|
|
|
55,500 |
|
|
|
129,500 |
|
|
|
248,500 |
|
| (1) |
Reflects the fair value of the annual RSU awards as of the grant date, June 12, 2013. The grant date fair value of each share of common stock underlying the awards of RSUs was $50.24, the closing price of our
common stock on the grant date. |
| (2) |
The aggregate number of options and RSUs outstanding as of December 31, 2013 held by each non-employee director is as follows: |
|
|
|
|
|
|
|
|
|
| Name |
|
Outstanding Options
(#) |
|
|
Outstanding Stock Awards
(#) |
|
| Kenneth Bate |
|
|
171,718 |
|
|
|
1,701 |
|
| Mark Corrigan |
|
|
48,728 |
|
|
|
1,104 |
|
| Jane Henney |
|
|
27,913 |
|
|
|
1,104 |
|
| Nancy Hutson |
|
|
52,728 |
|
|
|
1,104 |
|
| Alison Lawton |
|
|
28,579 |
|
|
|
1,104 |
|
| Kenneth Martin |
|
|
14,686 |
|
|
|
— |
|
| Leon Moulder, Jr. |
|
|
60,561 |
|
|
|
1,104 |
|
| Martin Rosenberg |
|
|
49,256 |
|
|
|
1,104 |
|
| Matthew Singleton |
|
|
92,728 |
|
|
|
1,104 |
|
| Martin Soeters |
|
|
102,728 |
|
|
|
1,104 |
|
| Michael Wood |
|
|
126,228 |
|
|
|
1,104 |
|
| (3) |
All of the annual option awards were granted on June 12, 2013, the day of the 2013 Annual Meeting. In connection with his appointment to the Board in 2013, Mr. Martin received an initial option award on
September 24, 2013. The number of shares of common stock that were the subject of the annual option awards and initial option awards are set forth in the “Equity Awards” section above. The dollar amounts set forth in this column
represent the grant date fair value using the Black-Scholes option-pricing model, in accordance with ASC Topic 718. The June 12, 2013 grant date fair value of the annual option awards listed in the table was $15.47 per share. The grant date
fair value of the initial option award was $17.02. In calculating the grant date fair value, we used the assumptions described in the notes to the consolidated financial statements in our Annual Report on
Form 10-K as of the grant date. |
| (4) |
In anticipation of their potential retirement from the Board immediately prior to the 2014 Annual Meeting, the Compensation Committee and the Board approved an extension to the post-termination of service exercise
period of certain outstanding options granted to Dr. Rosenberg, Mr. Singleton and Dr. Wood under the Amended and Restated 2002 Directors’ Equity Incentive Plan, or Directors’ Plan, 2010 Plan, and 2012 Plan, from 90 days
to one year to provide adequate time to exercise the options. |
Director Independence
In March 2014, the Board determined that all of our directors, other than Mr. Bonney, our CEO, and Mr. Perez, our President and COO,
satisfied the independence requirements of Nasdaq, and the independence requirements of our Amended and Restated Corporate Governance Guidelines, which is available on our website, www.cubist.com. In making this determination, the Board
took into consideration the following relationships:
| |
• |
|
Jane Henney, one of our directors, was a director of AstraZeneca until April 2011. We were a party to a commercial services agreement, or CSA, dated as of July 1, 2008 with AstraZeneca Pharmaceuticals LP, an
indirect wholly-owned subsidiary of AstraZeneca, pursuant to which we promoted and provided other support for MERREM® I.V. in the U.S. The CSA terminated in accordance with its terms in June 2010. In addition, we are a party to an exclusive
licensing agreement dated December 1, 2006 with AstraZeneca AB, an indirect wholly-owned subsidiary of AstraZeneca, pursuant to which AstraZeneca AB is responsible for developing and commercializing CUBICIN in China and certain other countries
in Asia, the Middle East and Africa that were not covered by previously-existing CUBICIN international partnering agreements. We also have an exclusive licensing agreement with AstraZeneca UK Limited, an indirect wholly-owned subsidiary of
AstraZeneca, for the distribution of fidaxomicin, the active pharmaceutical ingredient in DIFICID, in Latin America, Central America, Mexico and the Caribbean. Dr. Henney has been a director of AmerisourceBergen since January 2002.
AmerisourceBergen is a large wholesaler of CUBICIN. In addition, Integrated Commercialization Solutions, or ICS, a wholly-owned subsidiary of AmerisourceBergen, is a third party logistics provider for CUBICIN, DIFICID and ENTEREG. |
| |
• |
|
Martin Rosenberg, one of our directors, is the Chief Scientific Officer and a director of Promega. We purchased a de minimis amount of laboratory supplies from Promega in 2013. |
Our Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee consist solely of independent directors, as
defined by Nasdaq. The members of our Audit Committee also meet the additional SEC and Nasdaq independence and experience requirements applicable specifically to members of the Audit Committee. In addition, all of the members of our Compensation
Committee are “non-employee directors” within the meaning of the rules of Section 16 of the Securities Exchange Act and “outside directors” for purposes of Section 162(m) of the Internal Revenue Code.
Compensation Discussion & Analysis
This Compensation Discussion & Analysis, or CD&A, describes the company’s executive compensation program, philosophy and
objectives as they relate to our 2013 NEOs. Our NEOs for 2013 were the following:
|
|
|
| Name |
|
Position |
| Michael Bonney |
|
Chief Executive Officer, or CEO |
| David McGirr |
|
Senior Advisor to the CEO(1) |
| Michael Tomsicek |
|
Senior Vice President, or SVP, and Chief Financial Officer, or CFO(2) |
| Robert Perez |
|
President and Chief Operating Officer, or COO |
| Thomas DesRosier |
|
Executive Vice President, or EVP, Chief Legal and Administrative Officer and Secretary(3) |
| Steven Gilman |
|
EVP, Research & Development and Chief Scientific Officer, or CSO |
| (1) |
Mr. McGirr resigned as CFO and transitioned to the position of Senior Advisor to the CEO in March 2013. |
| (2) |
Mr. Tomsicek was promoted from SVP and Deputy CFO to SVP and CFO in March 2013. |
| (3) |
Mr. DesRosier was hired in March 2013 as SVP, Chief Legal Officer and Secretary and promoted in February 2014 to EVP, Chief Legal and Administrative Officer and Secretary. |
CEO Compensation and Company Performance
The total compensation of Mr. Bonney, our CEO, increased by 14% in 2013 over 2012. We believe that our 2013 CEO compensation correlates to
the company’s very strong performance in 2012 and 2013, which is reflected in the following:
| |
• |
|
Our total net revenues were $1.1 billion in 2013, $926 million in 2012, and $754 million in 2011, an average annual increase of 18% since 2011. |
| |
• |
|
Our strong total stockholder return, or TSR, as reflected in our stock price increasing from $39.62 to $68.87, an increase of 74% from December 31, 2011 to December 31, 2013. |
| |
• |
|
Our successful acquisitions in 2013 of Optimer Pharmaceuticals, Inc., or Optimer, and Trius Therapeutics Inc., or Trius, which provided us with an existing marketed product and a late-stage product candidate
and represent substantial progress toward our Building Blocks of Growth—our five-year strategic goals that we announced in 2012 related to our 2017 expectations for our annual revenues, annual adjusted operating income and development
activities. |
| |
• |
|
Our completion of enrollment and achieving positive results in 2013 in our ceftolozane/tazobactam pivotal Phase 3 clinical trials in both complicated urinary tract infections and complicated intra-abdominal
infections. |
| |
• |
|
Our execution of an $800 million debt financing that provides us with a capital structure to support our Building Blocks of Growth strategic goals. |
| |
• |
|
Our submission and U.S. Food and Drug Administration, or FDA, acceptance of our New Drug Application, or NDA, for our investigational antibiotic tedizolid phosphate. |
| |
• |
|
Numerous other accomplishments in 2013, including the substantial progress we made in our efforts to integrate Optimer and Trius and expand our international operations, and receiving an expanded label from the FDA
for ENTEREG. |
Pay for Performance
Aligning NEO compensation with high levels of company performance is at the core of our compensation philosophy. Compensation paid to our CEO
is one example of how we adhere to this philosophy. Mr. Bonney’s compensation is competitive when compared to the CEOs in our 2013 peer group established by our Compensation Committee, particularly when taking into account our TSR relative
to our peer group. More information about our 2013 peer group is provided below under the heading “Information Used to Make Compensation Determinations—Compensation Peer Group and Survey Data.”
The following chart shows how Mr. Bonney’s total compensation, as reported below in the Summary Compensation Table of this Proxy
Statement, and our TSR ranked among the 15 companies in our peer group for 2013 and over the three-year period from 2011-2013. For these one- and three-year periods, our TSR was ranked higher among the 2013 peer group companies than
Mr. Bonney’s total compensation.
Rank Among Peers
Mr. Bonney’s total compensation also aligns favorably with our TSR over the past five
fiscal years, as represented in the table below, which compares Mr. Bonney’s total compensation, as reported in the Summary Compensation Table, to our indexed TSR over the past five fiscal years. Indexed TSR was calculated based on an
assumed $100 investment in our common stock on December 31, 2008 and then adjusted for each year based on the return that would have been made on that investment as of December 31 of each year.
| * |
Rounded to the nearest thousand dollars |
Say-on-Pay Feedback from Stockholders
We pay careful attention to any feedback we receive from our stockholders about our executive compensation program, which includes the 94%
support we received from our stockholders on the advisory say-on-pay vote at our 2013 Annual Meeting of Stockholders, or the 2013 Annual Meeting. While our Compensation Committee did not find the need to change any of our compensation programs based
on the support we received, it did and will continue to consider carefully our stockholders’ feedback on our executive compensation programs and practices. We hold an annual advisory vote of our stockholders on our executive compensation
program.
Corporate Governance
Our
pay practices emphasize good governance and market practice. To this end:
| |
• |
|
Pay for Performance: A significant percentage of our NEO compensation is at-risk and may not be realized if corporate and individual goals are not achieved. We do not provide our NEOs with guaranteed annual
salary increases or guaranteed bonuses. |
| |
• |
|
Perquisites: We generally do not provide any perquisites to our NEOs that are not also offered to all employees of the company. |
| |
• |
|
Risk Assessment: We conduct an annual risk assessment of our compensation programs and believe that our programs are structured in a manner to motivate strong performance with appropriate risk taking while
discouraging excessive risk taking. The details of this risk assessment can be found below in a separate section of this Proxy Statement entitled “Corporate Governance.” |
| |
• |
|
Performance-Based Long-Term Incentive Awards: For 2013, approximately 50% of the value of our CEO’s annual equity awards and 25% of the value of our NEOs other than Mr. Bonney, or Other NEOs,
annual equity awards were delivered in the form of performance-based restricted stock unit, or PRSU, awards that vest based on achievement of pre-specified development and financial performance targets and upon completion of a requisite three-year
service period that runs from February 2013 until February 2016. |
| |
• |
|
Stock Ownership Guidelines: We have stock ownership guidelines that require our CEO to own stock valued at five times his base salary, EVPs to own stock valued at three times each of their base salaries, and
our other Executive Officers to own stock valued at one and one half times each of their base salaries. The guidelines are designed to align the interests of our NEOs with those of our stockholders by ensuring that our NEOs have a meaningful
financial stake in the company. As of January 1, 2014, all of our NEOs who are required to be in compliance based on their years of employment with the company were in compliance with our stock ownership guidelines. A more detailed description
of our stock ownership guidelines is described below under the heading “Stock Ownership.” |
| |
• |
|
Clawback/Recoupment Policy: We have a recoupment policy that covers our CEO and CFO. The policy provides that the independent directors of our Board may take any action they deem necessary or appropriate to
remedy fraud, gross negligence or intentional misconduct by our CEO or CFO, including seeking reimbursement of bonus or incentive compensation payments or the cancellation of equity awards. A more detailed description of our recoupment policy is
described below under the heading “Recoupment Policy.” |
| |
• |
|
No Hedging or Pledging: We do not allow any of our employees, including our NEOs, to enter into any hedging-type transactions in our stock or to pledge our stock. |
| |
• |
|
Independent Compensation Consultant: Our Compensation Committee engages an independent consultant to advise it on topics related to Board and executive compensation. |
| |
• |
|
Retention Letters/Double Trigger: We have retention letters with all of our NEOs, other than Mr. McGirr, and a transition agreement with Mr. McGirr, providing each of our NEOs with severance
payments in connection with their departure from the company in certain circumstances. In the case of a change-in-control of our company, severance is only paid in the event of a related involuntary termination, which is a “double trigger”
arrangement. |
| |
• |
|
No Gross-Ups: We do not provide parachute payment tax gross-ups or any other tax gross-ups to our NEOs. |
Compensation Philosophy and Objectives
Our compensation programs are designed to align compensation paid to our NEOs with company and individual performance and our
stockholder’s interests in long-term returns. We provide cash compensation, in the form of salary and annual cash bonuses, to our NEOs based on performance in prior periods. We reserve a majority of NEO pay as long-term equity-based incentives,
which reward our NEOs for their contribution to successful company performance over time, as reflected in our stock price.
All three of
our compensation elements (base salary, annual cash bonus and long-term incentives, or LTIs) support our main compensation objectives, which include aligning pay with performance, providing competitive compensation that differentiates and rewards
overall contribution, attracting and retaining high-quality executive officers and motivating high performance. Our annual cash bonuses and long-term compensation that is tied to our stock price performance promote the additional key objectives of
furthering our short- and long-term strategic goals, promoting the creation and protection of long-term stockholder value and aligning our executives with our stockholders’ interests in long-term results.
We set our NEOs’ pay to be competitive as compared to the median pay of comparable executive officers based on data from our 2013 peer
group and additional data from a broad survey of similarly sized life science companies. The details and selection of our 2013 peer group and the marketplace survey data used by our Compensation Committee are described in more detail below under the
heading “Compensation Peer Group and Survey Data.”
Compensation Mix
We weight a significant portion of our NEOs’ total compensation in LTIs. This weighting aligns our executives’ compensation with
long-term stockholder return, as well as the long-term development and business cycle in the biopharmaceutical industry.
For 2013, the
total compensation of our NEOs, other than Mr. McGirr, was distributed among the three main elements of our compensation, as follows:
|
|
|
| CEO |
|
Average of Other NEOs |
|
|
|
|
|
|
For 2013, Mr. Bonney’s compensation and the average compensation of our Other NEOs, other than
Mr. McGirr, broken down into these three elements, compared to our peer group, were as follows:
| * |
Rounded to the nearest thousand dollars; excludes “All Other Compensation” as set forth on the Summary Compensation Table of this Proxy Statement. |
Compensation Determinations and Use of Compensation Consultant
In 2013, the independent members of the Board, based upon the determination of the Compensation Committee, approved the compensation with
respect to Mr. Bonney. In February 2014, we amended the charter of the Compensation Committee to clarify the authority of the Compensation Committee to approve Mr. Bonney’s compensation for subsequent ratification by the independent
members of the Board. The Compensation Committee also makes all of the compensation determinations with respect to our Other NEOs. In making its determinations relating to the Other NEOs, the Compensation Committee takes into account the
recommendations of Mr. Bonney.
Pursuant to its charter, the Compensation Committee has the authority to select and retain
independent advisors and counsel to assist it with carrying out its duties and responsibilities, and we have provided appropriate funding to the Committee to do so. The Compensation Committee has exercised this authority to engage PM&P as its
independent compensation consultant. PM&P serves as an advisor to the Compensation Committee on topics primarily related to Board and executive compensation. PM&P reports directly to the Compensation Committee Chair, takes direction from the
Compensation Committee, and does not provide us with any services other than the services provided at the request of the Compensation Committee.
The Compensation Committee regularly reviews the services provided by its outside consultants and believes that PM&P is independent in
providing executive compensation consulting services. The Compensation Committee conducted a specific review of its relationship with PM&P in 2013 and determined that PM&P’s work for the Compensation Committee did not raise any
conflicts of interest, consistent with the guidance provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and by the SEC and the NASDAQ Global Market, or Nasdaq. The Compensation Committee continues to
monitor the independence of its compensation consultant on a periodic basis.
Information Used to Make Compensation Determinations
Compensation Peer Group and Survey Data
In
September 2012, the Compensation Committee, after considering the recommendation of PM&P, approved our 2013 peer group based on the pre-defined selection criteria set forth below:
| |
• |
|
industry and product similarity; |
| |
• |
|
annual revenues of between $270 million and $2.4 billion, which is approximately one-third to three times what our revenues were for the prior four quarters of data available at the time the analysis was
conducted on March 31, 2012; and |
| |
• |
|
market capitalization of between $900 million and $8.2 billion, which is approximately one-third to three times what our market capitalization was on March 31, 2012. |
The median revenues and market capitalization for our 2013 peer group was $565 million and $2.5 billion, respectively. Our revenues
and market capitalization for the same period were $803 million and $2.7 billion, representing the 80th and 53rd percentiles,
respectively.
In selecting this peer group, the Compensation Committee also sought to have a group that included enough companies so that
the data would not be skewed if there were one or two outliers on any of the items for which the
peer group was used. The 2013 peer group size remained at 15 companies, as we removed one company and added another. The compensation paid by peer group companies to their respective executive
officers did not factor into the Compensation Committee’s determination of the 2013 peer group.
The peer groups that were approved
by the Compensation Committee for each of 2012 and 2013 and the explanations of any changes are detailed in the following table:
|
|
|
|
|
| 2012 Peer Companies |
|
2013 Peer Companies |
|
Reason for Change |
| Alexion Pharmaceuticals, Inc. |
|
Alexion Pharmaceuticals, Inc. |
|
|
| Alkermes, Inc. |
|
Alkermes, plc(1) |
|
Corporate name change |
| Amylin Pharmaceuticals, Inc. |
|
Amylin Pharmaceuticals, Inc.(2) |
|
|
| Auxilium Pharmaceuticals, Inc. |
|
Auxilium Pharmaceuticals, Inc. |
|
|
| BioMarin Pharmaceutical, Inc. |
|
BioMarin Pharmaceutical, Inc. |
|
|
| Endo Pharmaceuticals, Inc. |
|
Endo Health Solutions, Inc. |
|
Corporate name change |
| Impax Laboratories Inc. |
|
Impax Laboratories Inc. |
|
|
| Medicis Pharmaceuticals Company |
|
Medicis Pharmaceuticals Company(2) |
|
|
| Onyx Pharmaceuticals, Inc. |
|
Onyx Pharmaceuticals, Inc.(2) |
|
|
| PDL BioPharma, Inc. |
|
— |
|
No longer met selection criteria |
|
|
|
| Regeneron Pharmaceuticals, Inc. |
|
Regeneron Pharmaceuticals, Inc. |
|
|
| Salix Pharmaceuticals, Ltd. |
|
Salix Pharmaceuticals, Ltd. |
|
|
| The Medicines Company |
|
The Medicines Company |
|
|
| United Therapeutics Corporation |
|
United Therapeutics Corporation |
|
|
| — |
|
Vertex Pharmaceuticals |
|
Additional company that met criteria |
|
|
|
| ViroPharma, Incorporated |
|
ViroPharma, Incorporated(2) |
|
|
| (1) |
Alkermes, Inc. became Alkermes, plc as a result of a merger between Alkermes, Inc. and Elan Drug Technologies in September 2011. |
| (2) |
Although Amylin Pharmaceuticals, Inc. was acquired in August 2012, Medicis Pharmaceuticals Company was acquired in December 2012, Onyx Pharmaceuticals, Inc. was acquired in September 2013 and ViroPharma,
Incorporated was acquired in January 2014, they all remained part of our peer group for 2013 because they met our peer group criteria and we had 2012 proxy statement data for all of these companies at the time that we compiled data for our 2013 peer
group. |
The Compensation Committee utilized the 2013 peer group to provide context for its compensation decision-making for
2013. After the peer group companies were selected, PM&P prepared and presented a report to the Compensation Committee comparing the compensation of our NEOs to the compensation of executive officers at the peer group companies with similar jobs
as our NEOs utilizing publicly available data from the peer companies, and to the compensation of other executive officers utilizing broad survey data from the Radford Global Life Sciences Survey, or Radford Survey. The Radford Survey data presented
reflected approximately 80 similarly sized life science companies with over 500 full-time employees. Data from the Radford Survey and the 2013 peer companies was combined to develop a market composite based on an average of the Radford Survey data
and 2013 peer company data and we refer to the composite data as “marketplace” data. The Compensation Committee does not rely upon data from any individual company participating in the Radford Survey in making compensation decisions. Each
element of our NEO’s compensation was reviewed separately and each NEO’s aggregate compensation was reviewed as part of this analysis and evaluation.
Compensation Targets
In making our compensation decisions for our NEOs, we aim for the following targets:
| |
• |
|
Base Salaries. We generally target the median of the marketplace. In certain circumstances, we offer starting base salaries higher than the median for positions that require more complex work, have critical
value to the company, are in high demand in the marketplace or have fewer qualified candidates, or in situations where candidates enter the position with extraordinary relevant experience. Higher base salaries may also be paid over time to reflect
superior individual performance. In certain circumstances, we offer starting base salaries below the median if the NEO is new to the position and/or is at the lower end of the experience range for the position. |
| |
• |
|
Annual Cash Performance Awards. We target potential annual cash performance awards that would allow total cash compensation for our NEOs to exceed the median of the marketplace, depending on company and, for
our Other NEOs, individual NEO performance. |
| |
• |
|
LTIs. We generally target at or above the median of the marketplace. We target overall equity awards to account for a significant portion, typically more than 50%, of each NEO’s total annual
compensation. As further discussed in this CD&A, we believe this allocation provides the appropriate incentive to our NEOs to increase stockholder value while encouraging retention and performance with the appropriate level of risk-taking.
|
Other Evaluation Criteria and Factors
Aggregate individual NEO compensation can be above or below the compensation target due to a number of factors, including retention
considerations, individual and corporate performance, relative value of the position within the company as compared to peer companies, length of experience in the role, and internal equity considerations.
As part of making its decisions with respect to Mr. Bonney’s compensation, the independent members of the Board and the Compensation
Committee also utilized the following data and other information:
| |
• |
|
Quantitative evaluations of our performance against our annual corporate goals and objectives; |
| |
• |
|
Qualitative input on Mr. Bonney’s performance from all directors and many of our Executive Officers; |
| |
• |
|
Our and Mr. Bonney’s historical performance; |
| |
• |
|
Retention considerations; and |
| |
• |
|
Mr. Bonney’s total cash compensation as compared to Mr. Perez, our second highest paid NEO based on total cash compensation, in order to determine whether Mr. Bonney’s relative cash compensation
is fair and reasonable in the context of internal equity. |
As part of making its compensation decisions with respect to
Other NEOs, the Compensation Committee took into account:
| |
• |
|
Quantitative evaluations of our performance against annual corporate goals and each Other NEO’s performance against individual goals; |
| |
• |
|
Qualitative evaluations, conducted by Mr. Bonney of each Other NEO’s contribution to our corporate goals and objectives, performance against individual goals and potential future contributions to our
success; |
| |
• |
|
Retention considerations; and |
| |
• |
|
Mr. Bonney’s recommendations. |
Compensation Determinations
Overview of 2013 NEO Compensation
Our NEO
compensation is comprised of the following elements:
| |
• |
|
Base salary. Decisions on 2013 NEO base salary levels were made early in 2013 and, other than for Mr. DesRosier, who was not an employee of the company in 2012, were based on our NEOs’ performance
in 2012. The base salary level for Mr. DesRosier was based on an arm’s length negotiation and his substantial experience, skills and qualifications. |
| |
• |
|
Annual cash performance awards. Decisions on 2013 NEO annual cash performance awards were made after the end of 2013. Mr. Bonney’s award was based entirely, and our Other NEOs’ awards were
based primarily, on the company’s performance in 2013 against objectives approved by the Compensation Committee and the Board early in 2013. Our Other NEOs’ awards were also based on achievement of individual performance as further
described below under the heading “Annual cash performance award—Other NEOs.” |
| |
• |
|
LTIs. Our NEO LTI awards are comprised of stock option and RSU awards and PRSU awards. Grant decisions on NEO LTI awards, other than for Mr. DesRosier, were made in early 2013 and were based on company
and individual performance in 2012, expected future individual performance, and retention considerations. The LTI award granted to Mr. DesRosier was based on an arm’s length negotiation and his substantial experience, skills and
qualifications. Our CEO’s and, other than Mr. DesRosier and Mr. McGirr, our Other NEO’s compensation for 2013 included PRSUs. Approximately 50% of the total value of our CEO’s 2013 equity grants and approximately 25% of the
total value of such Other NEOs 2013 equity grants were comprised of PRSUs. LTIs align the interests of our NEOs with those of our stockholders and reward our NEOs for the long-term performance of the company because their value is tied to our stock
price and they vest over time and in some cases, based on the achievement of company performance targets. Our stock option awards vest ratably on a quarterly basis over four years and our RSU awards vest ratably on an annual basis over four years.
The PRSU awards will be earned if the company achieves certain pre-specified development and financial performance targets and upon completion of a requisite three-year service period that runs from February 2013 until February 2016. Regardless of
when the company achieves performance targets, no PRSU awards will vest until the end of the three-year performance period and the Compensation Committee certifies achievement of the performance targets. |
Base Salary—CEO: The Compensation Committee seeks to maintain Mr. Bonney’s base salary approximately at the median
of the marketplace, based on our 2013 peer group and broader survey market data, in order to emphasize pay for performance and to keep Mr. Bonney’s base salary reasonable and consistent with CEOs in our 2013 peer group and Mr. Perez,
our second highest paid NEO. Mr. Bonney’s 2013 base salary was set at $750,000, which represented a 7% increase from his 2012 base salary of $700,000. Mr. Bonney’s 2013 base salary was at the 45th percentile as compared to the marketplace data used by the Compensation Committee and his 2012 base salary was at the 35th percentile
as compared to such data. In recommending this salary to the Board, the Compensation Committee also considered that Mr. Bonney performed at a very high level in 2012, as evidenced by our strong 2012 performance (89% achievement against
corporate goals), the overall strength of his leadership, his past and potential future contributions to the company, and the marketplace data described above. The Compensation Committee sought to align Mr. Bonney’s 2013 base salary more
closely with the marketplace median. Although Mr. Bonney’s 2013 base salary was still below the marketplace median, his total target cash compensation (base salary and target annual cash performance award) was approximately at the median
of the marketplace.
Base salary—Other NEOs: The Compensation Committee set our Other NEOs’ salaries based upon the
marketplace data and evaluation criteria described above. The 2013 base salaries of these NEOs, other than Mr. McGirr, were, on average, at approximately the 45th percentile, as compared
to the marketplace data used by the Compensation Committee.
The following table details the increases from 2012 to 2013 in the annual base salary of each of
our Other NEOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other NEOs |
|
2012
Base Salary($) |
|
|
2013
Base Salary($) |
|
|
Year Over
Year % Change |
|
| David McGirr(1) |
|
|
414,000 |
|
|
|
425,000 |
|
|
|
2.7 |
% |
| Michael Tomsicek(2) |
|
|
312,500 |
|
|
|
365,000 |
|
|
|
16.8 |
% |
| Robert Perez(3) |
|
|
600,000 |
|
|
|
600,000 |
|
|
|
0.0 |
% |
| Thomas DesRosier(4) |
|
|
— |
|
|
|
475,000 |
|
|
|
N/A |
|
| Steven Gilman |
|
|
460,000 |
|
|
|
475,000 |
|
|
|
3.3 |
% |
| (1) |
The annual base salary of Mr. McGirr was decreased to $212,500 in March 2013 when he resigned from the position of SVP and CFO and transitioned to the position of Senior Advisor to the CEO. The actual amount of
base salary that Mr. McGirr was paid in 2013 was $265,625, which is a blend of his two salary levels. |
| (2) |
The annual base salary of Mr. Tomsicek was increased to $365,000 in March 2013 when he was promoted from SVP and Deputy CFO to the position of SVP and CFO. The actual amount of base salary that Mr. Tomsicek
was paid in 2013 was $358,734, which is a blend of his two salary levels. |
| (3) |
The annual base salary of Mr. Perez was increased to $600,000 when he was promoted from EVP and COO to the new position of President and COO in July 2012. The actual amount of base salary that Mr. Perez was
paid in 2012 was $552,625, which is a blend of his two salary levels. |
| (4) |
Mr. DesRosier was hired in March 2013 with a base salary of $475,000. The actual amount of base salary that Mr. DesRosier was paid in 2013 was $376,042. Because Mr. DesRosier was not employed by us in
2012, there is no calculation for his year over year base salary change. |
The Compensation Committee, based in part on
Mr. Bonney’s input, determined that these base salary increases were justified based on each individual’s performance and the level of each NEO’s base salary as compared to that of similar officers based on the marketplace data
used by the Compensation Committee. Mr. Tomsicek’s percentage increase in base salary from 2012 to 2013 is higher than the base salary increases for Mr. McGirr, Mr. Perez and Dr. Gilman as a result of
Mr. Tomsicek’s promotion to SVP and CFO in March 2013.
Annual cash performance awards
Description of plans: Our CEO and next three most highly compensated Other NEOs, other than our CFO, are subject to our
Performance-Based Management Incentive Plan, or Management Incentive Plan. Our CFO is subject to our Short-Term Incentive Plan, or STIP. In 2013, both the Management Incentive Plan and the STIP conditioned the payment of any annual cash performance
award on the company achieving at least 90% of our 2013 U.S. CUBICIN net revenue goal. In addition, the STIP required us to achieve at least 70% of our corporate goals for any annual performance awards to be paid. If the foregoing thresholds were
achieved, which they were in 2013, the annual cash performance award pool under each of the Management Incentive Plan and the STIP was funded at the maximum 200% level. The actual 2013 annual cash performance awards for the NEOs were then determined
based on a combination of the achievement of our 2013 corporate goals and each individual NEO’s objectives for the year.
Target
awards for our NEOs are expressed as a percentage of base salary as follows:
|
|
|
|
|
| NEO |
|
2013 Target Percentage
(as a percent
of base salary) |
|
| Michael Bonney |
|
|
100 |
% |
| Robert Perez |
|
|
75 |
% |
| Michael Tomsicek |
|
|
60 |
% |
| Steven Gilman |
|
|
60 |
% |
| Thomas DesRosier |
|
|
50 |
% |
Pursuant to the terms of his transition letter agreement, the 2013 target percentage for
Mr. McGirr, our prior CFO until March 2013, was 60% of the amount of salary he received from January 2013 through March 2013 and 50% of the salary he received from April 2013 through December 2013.
The relative weighting of corporate and individual goals for our NEOs are expressed as percentages of the total target award percentage, with
a higher percentage tied to corporate goals the more senior a position the individual holds at the company, as follows:
|
|
|
|
|
|
|
|
|
| NEO |
|
Portion of Award
Tied to Corporate
Results |
|
|
Portion of Award
Tied to Individual
Results |
|
| Michael Bonney |
|
|
100 |
% |
|
|
0 |
% |
| Robert Perez |
|
|
80 |
% |
|
|
20 |
% |
| Michael Tomsicek |
|
|
80 |
% |
|
|
20 |
% |
| Steven Gilman |
|
|
80 |
% |
|
|
20 |
% |
| Thomas DesRosier |
|
|
65 |
% |
|
|
35 |
% |
| David McGirr |
|
|
65 |
% |
|
|
35 |
% |
Corporate goals/achievement against goals: The independent members of the Board, based upon the
determination of the Compensation Committee and after discussion with the Compensation Committee and Mr. Bonney, approved the company’s 2013 corporate goals in early 2013. The corporate goals for 2013 were set at a reasonable level of
difficulty that could be met if our NEOs and the company as a whole performed at the high level that we expect but were sufficiently challenging such that the likelihood of attaining these goals was not assured. Our historical level of achievement
against corporate goals for the past five years is 112% in 2013, 89% in 2012, 135% in 2011, 92% in 2010, and 95% in 2009.
For 2013, our
corporate goals and our detailed achievement against such goals were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate Goal |
|
Weight |
|
|
Achievement
Against Goal |
|
Credit
Received |
|
| 1. Manage the Business |
|
|
35 |
% |
|
Underachieved |
|
|
33.9 |
% |
| A. Total revenues of $1.053 billion, including: |
|
|
20 |
% |
|
$1.054 billion |
|
|
20 |
% |
| $933 million in U.S. CUBICIN net revenues |
|
|
|
|
|
$908 million |
|
|
|
|
| B. Achieve inventory targets for CUBICIN and ENTEREG and cost of goods sold levels |
|
|
10 |
% |
|
Achieved |
|
|
10 |
% |
| C. Non-GAAP adjusted net operating income* of $245 million |
|
|
5 |
% |
|
$190 million |
|
|
3.9 |
% |
|
|
|
|
| 2. Grow the Business |
|
|
50 |
% |
|
Underachieved |
|
|
46 |
% |
| A. Progress ceftolozane/tazobactam development by meeting clinical trial enrollment and NDA targets |
|
|
20 |
% |
|
Underachieved |
|
|
19.5 |
% |
| B. Progress surotomycin development by meeting clinical trial enrollment targets |
|
|
7.5 |
% |
|
Achieved |
|
|
7.5 |
% |
| C. Progress bevenopran development by meeting clinical trial enrollment targets |
|
|
5 |
% |
|
Underachieved |
|
|
3 |
% |
| D. Progress CUBICIN pediatric trials by meeting enrollment targets |
|
|
5 |
% |
|
Underachieved |
|
|
2.5 |
% |
| E. Discovery—File Investigational New Drug Application by 12/31/13 |
|
|
5 |
% |
|
Overachieved |
|
|
6 |
% |
| F. License high-quality clinical stage compound |
|
|
7.5 |
% |
|
Achieved |
|
|
7.5 |
% |
|
|
|
|
| 3. Strategic Imperatives |
|
|
15 |
% |
|
Underachieved |
|
|
13 |
% |
| A. EU launch plan on track and budget by 12/31/13 |
|
|
5 |
% |
|
Achieved |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| B. Increase engagement survey interdepartmental communication scores by 10% |
|
|
2.5 |
% |
|
|
Underachieved |
|
|
|
0 |
% |
| C. Retain top performers |
|
|
2.5 |
% |
|
|
Overachieved |
|
|
|
3 |
% |
| D. Establish key leadership succession plans by 12/31/13 |
|
|
5 |
% |
|
|
Achieved |
|
|
|
5 |
% |
|
|
|
|
| SUBTOTAL |
|
|
|
|
|
|
|
|
|
|
92.9 |
% |
|
|
|
|
| 4. Kicker—Achieve at least 80% of Corporate Goals and deliver a projected $50 million
increase in non-GAAP adjusted net operating income through acquisitions and business development activities |
|
|
1.2x
achievement
of the above |
|
|
|
Achieved |
|
|
|
1.2x |
|
|
|
|
| TOTAL ACHIEVEMENT |
|
|
|
|
|
|
|
112 |
% |
| * |
To derive non-GAAP adjusted net operating income, the company excluded the impact of certain contingent consideration, amortization of acquired intangible assets, fair value step-up of acquired inventory, and
acquisition-related expenses related to its completed acquisitions, including restructuring charges, from GAAP net operating income. |
Annual cash performance award—CEO: Mr. Bonney’s annual cash performance award is determined solely by reference to
our achievement against our corporate goals, with discretion retained by the Compensation Committee to adjust Mr. Bonney’s annual cash performance award down, based on other considerations. Mr. Bonney was awarded a 2013 annual cash
performance award of 112% of his target award, resulting in a bonus payment of $840,000. This performance award was determined based on our achievement of 112% of our 2013 corporate goals. Mr. Bonney’s 2013 actual annual cash performance
award was at the 40th percentile as compared to the marketplace data used by our Compensation Committee. Taken together, the 2013 base salary and actual annual cash performance award paid to Mr. Bonney were at about the 35th percentile as
compared to such marketplace data.
Annual cash performance award—Other NEOs: Our Other NEOs have individual goals, and a
combination of their level of achievement against such goals and the company’s level of achievement against the company goals determine their annual cash performance award. The individual goals for these Other NEOs are presented to the
Compensation Committee for approval by Mr. Bonney and are designed to focus them on individual behaviors that support our overall performance and success. These goals generally consist of both objective and subjective goals that are relevant to
each Other NEO’s responsibilities. Each Other NEO’s level of achievement against his individual goals was initially evaluated by Mr. Bonney. Mr. Bonney then recommended a final level of achievement against individual goals of
each Other NEO to the Compensation Committee, which then can approve or adjust the proposed levels of achievement up or down. The 2013 annual cash performance awards for our Other NEOs were calculated based on individual Other NEO performance
against 2013 individual goals and company performance against 2013 company goals using the relative weighting set forth above. Details of the amounts of the 2013 annual cash performance awards for our Other NEOs can be found in the Summary
Compensation Table in this Proxy Statement. On average, our Other NEOs’ 2013 actual annual cash performance awards were at approximately the 60th percentile as compared to the
marketplace data used by our Compensation Committee. Taken together, the 2013 base salary and actual annual cash performance awards paid to these NEOs were at approximately the
55th percentile as compared to such marketplace data.
The following is a
summary of the 2013 individual goals of our Other NEOs and their aggregate performance against these goals, as approved by the Compensation Committee:
|
|
|
|
|
|
|
|
|
| Other NEO |
|
Summary of 2013 Individual Goals |
|
Weight |
|
|
Achievement |
| David McGirr |
|
1. Ensure successful transition to new CFO |
|
|
50 |
% |
|
Achieved |
|
|
2. Support CEO, CFO and other senior executives, including on various financial and investor relations matters |
|
|
50 |
% |
|
Achieved |
|
|
Total Achievement |
|
|
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Michael Tomsicek |
|
1. Build out strategic sourcing organization and achieve $20 million in savings |
|
|
25 |
% |
|
Partially Achieved |
|
|
2. Provide finance infrastructure to support international expansion plan |
|
|
25 |
% |
|
Achieved |
|
|
3. Further integrate investor relations and public affairs functions |
|
|
15 |
% |
|
Achieved |
|
|
4. Appropriately streamline financial reporting processes |
|
|
15 |
% |
|
Over Achieved |
|
|
5. Improve accuracy of internal business operating forecast |
|
|
10 |
% |
|
Achieved |
|
|
6. Appropriately allocate responsibility for finance operational and strategic functions |
|
|
10 |
% |
|
Achieved |
|
|
Total Achievement |
|
|
|
|
|
105% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Robert Perez |
|
1. Total revenues of $1.053 billion |
|
|
30 |
% |
|
Achieved |
|
|
2. Achieve inventory targets for CUBICIN and ENTEREG by 12/31/13 and on time clinical supplies |
|
|
20 |
% |
|
Over Achieved |
|
|
3. Improve accuracy of internal business operating forecast |
|
|
10 |
% |
|
Achieved |
|
|
4. Develop EU launch plan for ceftolozane/tazobactam that is on plan and budget by 12/13/13 |
|
|
20 |
% |
|
Over Achieved |
|
|
5. Complete two business development deals consistent with the company’s Building Blocks of Growth goals, one of which must
either provide an accretive product in 2014 or increase potential profitability of the ceftolozane/tazobactam planned EU launch |
|
|
20 |
% |
|
Over Achieved |
|
|
Total Achievement |
|
|
|
|
|
150% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thomas DesRosier |
|
1. Increased support of international expansion |
|
|
25 |
% |
|
Over Achieved |
|
|
2. Support business development activities |
|
|
30 |
% |
|
Over Achieved |
|
|
3. Advise senior management committees on appropriate levels of business risk |
|
|
15 |
% |
|
Over Achieved |
|
|
4. Manage all litigation and non-FDA government investigations |
|
|
15 |
% |
|
Achieved |
|
|
5. Recommend to CEO and Board of Directors improvements to Board operations and governance |
|
|
15 |
% |
|
Achieved |
|
|
Total Achievement |
|
|
|
|
|
120% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other NEO |
|
Summary of 2013 Individual Goals |
|
Weight |
|
|
Achievement |
| Steven Gilman |
|
1. Progress ceftolozane/tazobactam development by meeting clinical trial enrollment and NDA targets |
|
|
35 |
% |
|
Over Achieved |
|
|
2. Progress surotomycin, bevenopran and CUBICIN clinical trials, based on achieving goals B, C and D of the company’s
“Grow the Business” corporate goal, and receive FDA approval for ENTEREG Supplemental NDA |
|
|
20 |
% |
|
Over Achieved |
|
|
3. Support Building Blocks of Growth strategic goals through effective Research and Development perspective on business development
opportunities |
|
|
10 |
% |
|
Achieved |
|
|
4. Hire Chief Medical Officer by 09/30/13 |
|
|
10 |
% |
|
Achieved |
|
|
5. File Investigational New Drug/Clinical Trial Application |
|
|
10 |
% |
|
Over Achieved |
|
|
6. R&D leadership development |
|
|
15 |
% |
|
Achieved |
|
|
Total Achievement |
|
|
|
|
|
110% |
|
|
|
|
|
|
|
|
|
Long-term incentive awards
Our LTI program is a broad-based employee retention program that is intended to attract, retain, and motivate our NEOs and align their
long-term interests with those of our stockholders. We use stock options and PRSUs to reward long-term value creation and RSUs as a retention tool and as a way to enable our executives to accumulate stock ownership in the company. We believe that
stock options align the incentives of our executives with the interests of our stockholders and our long-term performance by directly tying a large portion of the value that may be realized from our equity compensation to an increase in our stock
price. In a volatile stock market,
RSUs and PRSUs continue to provide value when stock options may not, which our Compensation Committee and Board believe is useful in retaining talented executives in uncertain economic times. We
believe that our equity program is critical to our efforts to hire and retain the best talent in the extremely competitive biopharmaceutical industry.
For 2013, the mix of equity awards granted to our NEOs, other than Mr. McGirr and Mr. DesRosier, were targeted such that
approximately 50% of the value came from stock options (based on Black-Scholes value calculations) and approximately 50% from RSUs and/or PRSUs (based on grant date fair values). We believe this mix of stock options, RSUs and PRSUs provided an
appropriate balance of incentive and retention for our NEOs in light of our company’s stage of growth. The Compensation Committee, with the assistance of PM&P, reviews this mix each year to ensure that appropriate balance is given to our
retention and incentive objectives and that we remain aligned with the practices of our peer group. Starting in 2013, the independent members of our Board, following the determination of the Compensation Committee, awarded our CEO equity grants
divided approximately equally in value between stock options and PRSUs and the Compensation Committee awarded our Other NEOs, other than Mr. McGirr and Mr. DesRosier, equity grants approximately as follows: 50% stock options, 25% RSUs with
time-based vesting and 25% PRSUs with time- and performance-based vesting.
In 2012 and 2013, the Compensation Committee and the
independent members of the Board authorized grants of stock options, RSUs and PRSUs (for 2013 only) to our NEOs, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2012 Awards |
|
|
2013 Awards |
|
|
|
|
| NEO |
|
Stock Options
(#) |
|
|
RSUs
(#) |
|
|
Total Grant
Value*
($) |
|
|
Stock
Options
(#) |
|
|
RSUs
(#) |
|
|
PRSUs
(#) |
|
|
Total Grant
Value*
($) |
|
|
Year
Over
Year
TGV
%
Change |
|
| Michael Bonney |
|
|
200,000 |
|
|
|
38,000 |
|
|
|
4,466,000 |
|
|
|
184,044 |
|
|
|
— |
|
|
|
60,096 |
|
|
|
5,000,000 |
|
|
|
12 |
% |
| David McGirr(1) |
|
|
37,500 |
|
|
|
6,000 |
|
|
|
798,000 |
|
|
|
— |
|
|
|
4,807 |
|
|
|
— |
|
|
|
200,000 |
|
|
|
-75 |
% |
| Michael Tomsicek(2) |
|
|
25,000 |
|
|
|
8,333 |
|
|
|
719,000 |
|
|
|
35,637 |
|
|
|
8,450 |
|
|
|
3,004 |
|
|
|
1,000,000 |
|
|
|
39 |
% |
| Robert Perez(3) |
|
|
125,000 |
|
|
|
28,500 |
|
|
|
3,025,000 |
|
|
|
62,575 |
|
|
|
10,216 |
|
|
|
10,216 |
|
|
|
1,700,000 |
|
|
|
-44 |
% |
| Thomas DesRosier(4) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
70,207 |
|
|
|
9,509 |
|
|
|
— |
|
|
|
1,455,000 |
|
|
|
N/A |
|
| Steven Gilman(5) |
|
|
75,000 |
|
|
|
15,000 |
|
|
|
1,722,000 |
|
|
|
47,851 |
|
|
|
7,812 |
|
|
|
7,812 |
|
|
|
1,300,000 |
|
|
|
-25 |
% |
| * |
Rounded to the nearest thousand dollars; amounts based on grant date fair values. |
| (1) |
In March 2013, Mr. McGirr resigned from the position of SVP and CFO and transitioned to the position of Senior Advisor to the CEO. |
| (2) |
In February 2013, Mr. Tomsicek received an annual grant of 18,404 stock options, 3,004 RSUs and 3,004 PRSUs in his non-NEO role of SVP and Deputy CFO. In connection with his promotion to SVP and CFO in March 2013,
Mr. Tomsicek received an additional grant of 17,233 stock options and 5,446 RSUs. |
| (3) |
In February 2012, Mr. Perez received an annual grant of 100,000 stock options and 20,000 RSUs in his role as EVP and COO. In connection with his promotion to President and COO in July 2012, Mr. Perez received
an additional grant of 25,000 stock options and 8,500 RSUs in August 2012. These special promotion grants increased the size of Mr. Perez’s 2012 compensation relative to the regular annual grants made in 2013. |
| (4) |
Mr. DesRosier was hired in March 2013 and, therefore, did not receive an LTI award from the company in 2012. In connection with his hiring, Mr. DesRosier received a grant of 70,207 stock options and 9,509
RSUs, which were negotiated at arm’s length. |
| (5) |
The value of Dr. Gilman’s 2013 LTI award decreased compared to 2012 reflecting his particularly strong performance in 2011 and correspondingly high 2012 LTI award. |
In determining the size of the 2013 annual LTI awards to our NEOs in February 2013, the Compensation Committee and the independent members of
the Board considered the equity compensation levels of comparable executives using the marketplace data compiled by PM&P, stockholder dilution, the company’s performance, the NEO’s individual responsibilities and performance relative
to company annual and long-term objectives, the importance of his role to our company and expected future contributions to our performance. The Compensation Committee and the Board increased the value of the annual awards in 2013 relative to the
prior year’s award values, largely in consideration of the company and individual NEO achievements in 2012 and to align our NEOs total compensation at or above the median of the marketplace.
With a grant date fair value of approximately $5 million, Mr. Bonney’s 2013 LTI compensation approximated the 65th percentile compared to the marketplace data used by the Compensation Committee. The independent members of the Board determined this level to be appropriate given Mr. Bonney’s
significant contributions to the company during 2012, his expected future performance, the desire to retain his services into the future, and that a significant percentage of Mr. Bonney’s total compensation is at-risk and may not be
realized if certain pre-specified company performance goals are not achieved.
On average, the grant date fair value of the 2013 LTI
awards to our Other NEOs, other than Mr. McGirr, was approximately $1.4 million, putting their 2013 long-term incentive compensation at about the 65th percentile compared to the
marketplace data used by the Compensation Committee. The Compensation Committee determined this level to be appropriate given the significant contributions of our Other NEOs during 2012, their respective expected future performance, the desire to
retain their respective services into the future, and that a significant percentage of our Other NEOs total compensation is at-risk and may not be realized if certain pre-specified company and individual performance goals are not achieved.
Overall Relative Compensation
The following table shows how our NEOs’ base salary, annual cash-performance awards, LTI awards, and total compensation in 2012 and 2013
compare to our peers, as demonstrated by the percentiles at which our NEOs rank in these categories based on the marketplace data used by the Compensation Committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2012 |
|
|
2013 |
|
| NEO |
|
Base
Salary |
|
|
Annual Cash
Performance
Awards |
|
|
Long-Term
Incentive
Awards |
|
|
Total
Compensation |
|
|
Base
Salary |
|
|
Annual Cash
Performance
Awards |
|
|
Long-Term
Incentive
Awards |
|
|
Total
Compensation |
|
| Michael Bonney |
|
|
50th |
|
|
|
40th |
|
|
|
>75th |
|
|
|
60th |
|
|
|
45th |
|
|
|
60th |
|
|
|
65th |
|
|
|
60th |
|
| David McGirr(1) |
|
|
45th |
|
|
|
35th |
|
|
|
35th |
|
|
|
40th |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Michael Tomsicek(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
<25th |
|
|
|
45th |
|
|
|
40th |
|
|
|
35th |
|
| Robert Perez |
|
|
<25th |
|
|
|
<25th |
|
|
|
35th |
|
|
|
35th |
|
|
|
25th |
|
|
|
>75th |
|
|
|
>75th |
|
|
|
75th |
|
| Thomas DesRosier(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75th |
|
|
|
60th |
|
|
|
75th |
|
|
|
70th |
|
| Steven Gilman |
|
|
55th |
|
|
|
35th |
|
|
|
>75th |
|
|
|
70th |
|
|
|
55th |
|
|
|
60th |
|
|
|
60th |
|
|
|
60th |
|
| (1) |
Mr. McGirr resigned as our SVP and CFO in March 2013. |
| (2) |
Mr. Tomsicek and Mr. DesRosier were not NEOs in 2013. |
Retention Letters and Transition Agreement
In August 2013, we entered into retention letters with all of our NEOs, other than Mr. McGirr, with a fixed term of three years and which
provide for severance payments, consisting of 24 months of salary continuation for Mr. Bonney and 18 months of salary continuation for Mr. Tomsicek, Mr. Perez, Mr. DesRosier and Dr. Gilman, and other benefits if
each NEO is terminated without cause or if the NEO is terminated without cause or resigns for good reason within 24 months after a change-in-control of the company. Termination benefits under the retention letters are not triggered solely by a
change-in-control and are therefore considered “double trigger.”
When Mr. McGirr transitioned to Senior Advisor to the CEO
in March 2013, he entered into a transition agreement with the company that superseded the terms of his then-existing retention letter. The transition agreement, which has a fixed term until June 1, 2014, provides for severance payments and
other benefits if Mr. McGirr is terminated without cause or if he is terminated without cause following a change-in-control of the company.
Among the other benefits included in the retention letters and transition agreement is that the equity incentives held by each NEO will fully
vest in the event the NEO is entitled to severance payments in connection with a change-in-control of the company. The retention letters and transition agreement do not provide for any tax gross-up payments or other perquisites. The retention
letters and transition agreement contain “best after-tax provisions,” which provide for reduced payments and other benefits to our NEOs if the reduced amount would result in an NEO receiving a higher aggregate amount net of all applicable
taxes. Full details of the terms of the retention letters and the transition agreement and the value of the payments to be received thereunder pursuant to various termination scenarios can be found in the section of this Proxy Statement entitled
“Termination of Employment and Change-in-Control Agreements.” We believe that the benefits of the retention letters and the transition agreement outweigh the potential costs in that they, among other things: assist us in attracting and
retaining top executive talent by providing our executives with competitive severance arrangements; encourage frank discourse by our NEOs with Mr. Bonney and the Board, and between Mr. Bonney and the Board, by providing a financial safety
net in order to limit the NEOs’ fear of adverse consequences in response to their opinions; and better enable our NEOs to act in the best interest of our stockholders in a situation involving a potential change-in-control of the company. To
ensure that these agreements remain reasonable and competitive, the Compensation Committee periodically reviews competitive data provided by PM&P, as well as potential costs to the company of the retention letters under various potential
termination scenarios.
Perquisites and Personal Benefits
Our NEOs are eligible to participate in the benefit programs that we provide to all employees at the same level as all other employees. We
generally do not provide any perquisites to our NEOs that are not also offered to all employees of the company.
Stock Ownership
Our Executive Officers, including our NEOs, are subject to the stock ownership guidelines described in the table below. The guidelines are
designed to align the interests of our Executive Officers with those of our stockholders by ensuring that our Executive Officers have a meaningful financial stake in our success. The guidelines were first adopted in January 2006 and updated most
recently in March 2014. The amount of stock required to be held to satisfy ownership requirements, which includes sixty percent of the value of vested in-the-money stock options, was established by the Board upon the recommendation of the
Compensation Committee. In making its recommendation, the Compensation Committee reviewed market practices of our current peer group companies and determined the level of ownership that would best align the interests of our executives with those of
our stockholders. The independent members of the Board are also subject to stock ownership guidelines, which can be found below in the section of this Proxy Statement entitled “Director Compensation.”
|
|
|
|
|
| Group/Name |
|
Ownership Requirement
(Market Value of Stock Held) |
|
Deadline to Meet Requirement |
| Mr. Bonney |
|
5 x Base Salary |
|
By March 2020 |
| EVPs |
|
3 x Base Salary |
|
By March 2020 |
| Other Executive Officers |
|
1.5 x Base Salary |
|
By 6 years after becoming
an Executive Officer |
The guidelines require that any Executive Officer who has not met the ownership requirement after
the start of the period during which he or she is required to do so, may only sell vested in-the-money stock options and vested RSUs or PRSUs, provided that he or she retains shares of common stock with a market value at least equal to the net
proceeds received as a result of such sale until such time as the Executive Officer meets the requirements of the guidelines. To the extent any Executive Officer is not in compliance with the guidelines as of January 1st of any year after which the Executive Officer is required to be in compliance, the Executive Officer will be required to once again be in compliance by January 1st of the immediately succeeding year.
As of January 1, 2014, Mr. Bonney
and our Other NEOs who are required to meet the ownership requirement by January 1, 2014 had achieved the ownership requirement.
Anti-Hedging and
Pledging Policy
As part of our Policy on Insider Trading and Confidentiality, all of our employees, including our NEOs, as well as our
directors and consultants, are prohibited from engaging in speculative transactions in our stock, including short sales, puts/calls, hedging transactions and margin accounts or pledges.
Recoupment Policy
The Board has adopted a
policy providing that, if the independent members of the Board determine, in their reasonable and sole discretion, that any fraud, gross negligence or intentional misconduct by our CEO or CFO caused or contributed to us having to restate all or a
portion of our financial statements, then the independent directors may take any action they deem necessary or appropriate to remedy the misconduct and prevent its recurrence. The policy further provides that the independent directors, to the
fullest extent permitted by law in cases they deem appropriate, will require reimbursement to us by our CEO or CFO of any bonus or incentive compensation awarded to him, effect the cancellation of outstanding equity awards to him and seek
reimbursement of any gains realized by him on the exercise or sale of any equity-based awards if and to the extent that: (a) the amount of the bonus or equity compensation was calculated based upon the achievement of certain financial results
that were subsequently reduced due to a restatement, (b) our CEO or CFO engaged in any fraud, gross negligence or intentional misconduct that caused or contributed to the need for the restatement, and (c) the amount of the bonus or equity
compensation that would have been awarded to our CEO or CFO had the results been properly reported would have been lower than the amount actually awarded. When final regulations regarding recoupment are available under the Dodd-Frank Act, we will
revisit this policy and revise as necessary in accordance with then-existing law.
Impact of Accounting and Tax
The Compensation Committee has considered the impact of accounting and tax treatments on our use of equity incentives as a key retention tool.
The Compensation Committee has determined that the current estimated costs of continuing to use equity incentives, including stock options, RSUs and PRSUs, relative to the benefits we believe these programs provide does not warrant any change to our
current equity incentive framework.
Section 162(m) of the Internal Revenue Code of 1986, as amended, or Internal Revenue Code,
limits the tax deduction for compensation paid to NEOs (with the exception of CFOs) to $1,000,000. This deduction limitation does not apply to compensation that constitutes “qualified performance-based compensation” within the meaning of
Section 162(m) of the Internal Revenue Code and regulations promulgated thereunder, including certain performance-based compensation that has been approved by stockholders. While the Compensation Committee is
mindful of the benefit to our performance of full deductibility of compensation, the Compensation Committee believes that it should not be constrained by the requirements of Section 162(m)
of the Internal Revenue Code where those requirements would impair flexibility in compensating our executive officers in a manner that can best promote our corporate objectives. Therefore, the Compensation Committee has not adopted a policy that
requires that all compensation be deductible and approval of compensation, including the grant of stock options or other “performance-based compensation” to our executive officers, by the Compensation Committee is not a guarantee of
deductibility under the Internal Revenue Code. The Compensation Committee intends to continue to compensate our executive officers in a manner consistent with the best interests of the company and our stockholders. We have in the past, and may in
the future, award compensation that is not fully deductible under the Internal Revenue Code when we view such compensation as consistent with our compensation policies and in the best interests of the company and our stockholders.
Under our retention letters with our NEOs and transition agreement with Mr. McGirr, we do not compensate executives for any excise tax
liability they may incur by reason of payments and benefits received pursuant to the letters. As a result, if an NEO is assessed any excise tax liability under Section 280G of the Internal Revenue Code as a result of payments and benefits
received under a retention letter in connection with a change-in-control, that NEO is responsible for the payment of such excise tax.
Equity Granting
Practices
We have never had a program or policy in place to coordinate equity grants with the release of material, non-public
information. Throughout the year, we issue stock option and RSU awards to our employees and, beginning in 2013, PRSU awards to our NEOs, in connection with hiring, promotion and our annual performance cycle. In addition, the Compensation Committee
has authorized a pool of shares of our common stock from which Mr. Bonney may issue equity awards to certain employees, which does not include our Executive Officers, from time to time during the year in recognition of extraordinary results.
All options are priced no lower than the closing market price of our common stock on the grant date. The Compensation Committee approves guidelines for equity awards issued in connection with hiring, promotion and our annual performance cycle.
Mr. Bonney is required to further approve or delegate authority to approve all individual awards issued in accordance with the foregoing pools and guidelines. In 2013, the Compensation Committee approved all awards of stock options, RSUs and
PRSUs to Executive Officers other than Mr. Bonney and all awards to non-Executive Officers that are made outside of pre-approved guidelines, and the independent members of the Board approved all awards of stock options, RSUs and PRSUs to
Mr. Bonney. Effective as of February 2014, the Compensation Committee approves all awards of stock options, RSUs and PRSUs for all of our Executive Officers, including Mr. Bonney, and all awards to non-Executive Officers that are made
outside of pre-approved guidelines, and the independent members of the Board ratify all awards of stock options, RSUs and PRSUs to Mr. Bonney.
Summary Compensation Table
The following table provides information concerning the compensation of our NEOs for the years covered in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name and Principal Position
(a) |
|
Year
(b) |
|
|
Salary
($)
(c) |
|
|
Bonus
($)
(d) |
|
|
Stock
Awards
($)(1)
(e) |
|
|
Option
Awards
($)(2)
(f) |
|
|
Non-Equity
Incentive
Plan
Compensation
($)(3)
(g) |
|
|
Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($)(4)
(h) |
|
|
All Other
Compensation
($)(5)
(i) |
|
|
Total
($)
(j) |
|
| Michael Bonney |
|
|
2013 |
|
|
|
750,000 |
|
|
|
— |
|
|
|
2,499,994 |
|
|
|
2,499,998 |
|
|
|
840,000 |
|
|
|
— |
|
|
|
16,953 |
|
|
|
6,606,945 |
|
| CEO |
|
|
2012 |
|
|
|
700,000 |
|
|
|
— |
|
|
|
1,590,300 |
|
|
|
2,875,340 |
|
|
|
623,000 |
|
|
|
— |
|
|
|
12,887 |
|
|
|
5,801,527 |
|
|
|
|
2011 |
|
|
|
600,000 |
|
|
|
— |
|
|
|
1,113,440 |
|
|
|
2,197,563 |
|
|
|
810,000 |
|
|
|
— |
|
|
|
12,429 |
|
|
|
4,733,432 |
|
|
|
|
|
|
|
|
|
|
|
| David McGirr(6) |
|
|
2013 |
|
|
|
265,625 |
|
|
|
— |
|
|
|
199,971 |
|
|
|
— |
|
|
|
155,208 |
|
|
|
— |
|
|
|
16,396 |
|
|
|
637,200 |
|
| Former SVP & CFO |
|
|
2012 |
|
|
|
414,000 |
|
|
|
— |
|
|
|
252,540 |
|
|
|
545,261 |
|
|
|
226,541 |
|
|
|
— |
|
|
|
12,887 |
|
|
|
1,451,229 |
|
|
|
|
2011 |
|
|
|
400,000 |
|
|
|
— |
|
|
|
194,852 |
|
|
|
439,513 |
|
|
|
329,832 |
|
|
|
— |
|
|
|
12,429 |
|
|
|
1,376,626 |
|
|
|
|
|
|
|
|
|
|
|
| Michael Tomsicek(7) |
|
|
2013 |
|
|
|
358,734 |
|
|
|
— |
|
|
|
499,904 |
|
|
|
499,994 |
|
|
|
237,421 |
|
|
|
— |
|
|
|
16,779 |
|
|
|
1,612,832 |
|
| SVP & CFO |
|
|
2012 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
2011 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| Robert Perez |
|
|
2013 |
|
|
|
600,000 |
|
|
|
— |
|
|
|
849,971 |
|
|
|
850,000 |
|
|
|
538,200 |
|
|
|
— |
|
|
|
16,953 |
|
|
|
2,855,124 |
|
| President & COO |
|
|
2012 |
|
|
|
552,625 |
|
|
|
— |
|
|
|
1,214,185 |
|
|
|
1,810,543 |
|
|
|
374,875 |
|
|
|
— |
|
|
|
12,887 |
|
|
|
3,965,115 |
|
|
|
|
2011 |
|
|
|
470,000 |
|
|
|
— |
|
|
|
695,900 |
|
|
|
1,255,750 |
|
|
|
395,928 |
|
|
|
— |
|
|
|
12,429 |
|
|
|
2,830,007 |
|
|
|
|
|
|
|
|
|
|
|
| Thomas DesRosier(8) |
|
|
2013 |
|
|
|
376,042 |
|
|
|
— |
|
|
|
436,463 |
|
|
|
1,018,493 |
|
|
|
272,650 |
|
|
|
— |
|
|
|
16,595 |
|
|
|
2,120,243 |
|
| EVP, Chief Legal and
Administrative Officer |
|
|
2012 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
2011 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| Steven Gilman |
|
|
2013 |
|
|
|
475,000 |
|
|
|
— |
|
|
|
649,958 |
|
|
|
649,994 |
|
|
|
318,060 |
|
|
|
— |
|
|
|
16,946 |
|
|
|
2,109,958 |
|
| EVP, R&D & CSO |
|
|
2012 |
|
|
|
460,000 |
|
|
|
— |
|
|
|
631,350 |
|
|
|
1,090,523 |
|
|
|
248,952 |
|
|
|
— |
|
|
|
12,986 |
|
|
|
2,443,811 |
|
| |
|
|
2011 |
|
|
|
430,000 |
|
|
|
— |
|
|
|
487,130 |
|
|
|
879,025 |
|
|
|
354,569 |
|
|
|
— |
|
|
|
12,404 |
|
|
|
2,163,128 |
|
| (1) |
Represents the grant date fair value of each NEO’s 2013 RSU and PRSU awards as of February 15, 2013 for Mr. Bonney, Mr. Tomsicek, Mr. McGirr, Mr. Perez and Dr. Gilman and as of
April 15, 2013 for Mr. Tomsicek in connection with his promotion to CFO in March 2013 and Mr. DesRosier in connection with his hiring in March 2013. The grant date fair value of each share of common stock underlying the awards of RSUs
and PRSUs in 2013 was: (i) $41.60, the closing price of our common stock on the grant date on February 15, 2013; and (ii) $45.90, the closing price of our common stock on April 15, 2013. |
| (2) |
Represents the grant date fair value of each NEO’s 2013 stock option award using the Black-Scholes option-pricing model in accordance with the Financial Accounting Standards Board Accounting Standards Codification,
or ASC, Topic 718. In determining the Black-Scholes value, we used the assumptions described in the notes to the consolidated audited financial statements in our Annual Report on Form 10-K for each of the covered fiscal years as of the grant
date. Mr. DesRosier’s stock options were awarded in April 2013, and an additional grant to Mr. Tomsicek in connection with his promotion to CFO was awarded in April 2013. All other stock options included in this column for 2013 were
awarded in February 2013 during our annual performance cycle. |
| (3) |
Reflects the cash bonus awards earned in the covered year under our STIP or Management Incentive Plan, as applicable, in effect for such year. Payments for awards earned in each covered year were made in the first
quarter of the immediately succeeding year. |
| (4) |
We do not have either a pension plan or a non-qualified deferred compensation plan for any of our U.S. employees. In 2012, we adopted a Swiss retirement plan, or Swiss Retirement Plan, that is similar to a non-qualified
defined contribution plan and under which certain employees of our Swiss subsidiary, Cubist Pharmaceuticals GmbH, are eligible to participate. None of our 2013 NEOs were eligible to participate under the Swiss Retirement Plan. |
| (5) |
All Other Compensation for 2013 for each NEO consists primarily of 401(k) matching contributions of approximately $15,200. |
| (6) |
In March 2013, Mr. McGirr resigned as our CFO and became Senior Advisor to the CEO. |
| (7) |
Mr. Tomsicek was promoted to CFO in March 2013 and was not an NEO in 2011 and 2012. |
| (8) |
Mr. DesRosier was hired in March 2013 and was not an NEO in 2011 and 2012. |
Grants of Plan-Based Awards in 2013
The following table provides information concerning grants of plan-based awards made to our NEOs during 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1) |
|
|
Estimated Future Payouts
Under Equity
Incentive Plan Awards |
|
|
All
Other
Stock
Awards:
Number
of
Shares of
Stock
or
Units
(#)(2)
(i) |
|
|
All Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)(3)
(j) |
|
|
Exercise
or
Base
Price
of
Option
Awards
($/Sh)(4)
(k) |
|
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
($)(5)
(l) |
|
| Name
(a) |
|
Grant
Date
(b) |
|
|
Date of
Board or
Committee
Action
(b-1) |
|
|
Threshold
($)
(c) |
|
|
Target
($)
(d) |
|
|
Maximum
($)
(e) |
|
|
Threshold
(#)
(f) |
|
|
Target
(#)
(g) |
|
|
Maximum
(#)
(h) |
|
|
|
|
|
| Michael Bonney |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annual Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Award |
|
|
— |
|
|
|
— |
|
|
|
600,000 |
|
|
|
750,000 |
|
|
|
1,500,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Stock Option Award |
|
|
2/15/2013 |
|
|
|
2/5/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
184,044 |
|
|
|
41.60 |
|
|
|
2,499,998 |
|
| PRSU Award |
|
|
2/15/2013 |
|
|
|
2/5/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
60,096 |
|
|
|
— |
|
|
|
— |
|
|
|
2,499,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| David McGirr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annual Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Award |
|
|
— |
|
|
|
— |
|
|
|
114,750 |
|
|
|
143,438 |
|
|
|
286,876 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| RSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,807 |
|
|
|
— |
|
|
|
— |
|
|
|
199,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Michael Tomsicek |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annual Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Award |
|
|
— |
|
|
|
— |
|
|
|
167,398 |
|
|
|
209,248 |
|
|
|
418,496 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Stock Option Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,404 |
|
|
|
41.60 |
|
|
|
249,995 |
|
| Stock Option Award |
|
|
4/15/2013 |
|
|
|
2/26/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,233 |
|
|
|
45.90 |
|
|
|
249,999 |
|
| RSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,004 |
|
|
|
— |
|
|
|
— |
|
|
|
124,967 |
|
| RSU Award |
|
|
4/15/2013 |
|
|
|
2/26/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,446 |
|
|
|
— |
|
|
|
— |
|
|
|
249,971 |
|
| PRSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,004 |
|
|
|
— |
|
|
|
— |
|
|
|
124,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Robert Perez |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annual Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Award |
|
|
— |
|
|
|
— |
|
|
|
360,000 |
|
|
|
450,000 |
|
|
|
900,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Stock Option Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
62,575 |
|
|
|
41.60 |
|
|
|
850,000 |
|
| RSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,216 |
|
|
|
— |
|
|
|
— |
|
|
|
424,985 |
|
| PRSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,216 |
|
|
|
— |
|
|
|
— |
|
|
|
424,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thomas DesRosier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annual Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Award |
|
|
— |
|
|
|
— |
|
|
|
190,000 |
|
|
|
237,500 |
|
|
|
475,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Stock Option Award |
|
|
4/15/2013 |
|
|
|
1/3/2103 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,207 |
|
|
|
45.90 |
|
|
|
1,018,493 |
|
| RSU Award |
|
|
4/15/2013 |
|
|
|
1/3/2103 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,509 |
|
|
|
— |
|
|
|
— |
|
|
|
436,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Steven Gilman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annual Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance Award |
|
|
— |
|
|
|
— |
|
|
|
228,000 |
|
|
|
285,000 |
|
|
|
570,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Stock Option Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,851 |
|
|
|
41.60 |
|
|
|
649,994 |
|
| RSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,812 |
|
|
|
— |
|
|
|
— |
|
|
|
324,979 |
|
| PRSU Award |
|
|
2/15/2013 |
|
|
|
2/4/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,812 |
|
|
|
— |
|
|
|
— |
|
|
|
324,979 |
|
| (1) |
The dollar amounts set forth in the threshold, target and maximum columns are calculated in accordance with the 2013 Management Incentive Plan or STIP, as applicable. The actual awards paid in February 2014 to the NEOs
are set forth in the Summary Compensation Table of this Proxy Statement. |
| (2) |
Represents an award of RSUs for all our NEOs and an award of PRSUs for Mr. Bonney, Mr. Tomsicek, Mr. Perez, and Dr. Gilman. All RSU awards, other than Mr. McGirr’s, vest in equal annual
installments over a four-year period and all PRSU awards vest at the end of a three-year performance period and are subject to the company’s achievement of certain pre-specified performance targets. Mr. McGirr’s RSU award, which was
issued in connection with his transition from the position of CFO to Senior Advisor to the CEO, vests 100% at the end of one year. |
| (3) |
All stock option awards have a four-year vesting schedule, vesting equally over 16 quarters, and have a 10-year term. |
| (4) |
The exercise prices reflect the closing price of our common stock on the grant date. |
| (5) |
The fair value of stock option awards represents the grant date fair value of the award using the Black-Scholes option-pricing model. The grant date fair value of stock options for Mr. Bonney, Mr. Tomsicek,
Mr. Perez and Dr. Gilman, granted on February 15, 2013 was $13.58 per share and the grant date fair value of stock options for Mr. Tomsicek and Mr. DesRosier, granted on April 15, 2013 was $14.51 per share. The grant
date fair value of each award of RSUs and PRSUs granted in February was $41.60 for Mr. Bonney, Mr. Tomsicek, Mr. McGirr, Mr. Perez and Dr. Gilman. The grant date fair value of each award of RSUs granted in April for
Mr. Tomsicek and Mr. DesRosier was $45.90. |
Outstanding Equity Awards at 2013 Fiscal Year End(1)
The following tables provide information concerning outstanding equity awards held by each NEO as of December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Option Awards |
|
|
Stock Awards |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
Equity
Incentive
Plan |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Awards: |
|
| |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
Market or |
|
| |
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Payout |
|
| |
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Value of |
|
| |
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Unearned |
|
|
Unearned |
|
| Name
(a) |
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b) |
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
(c) |
|
|
Number of
Securities
Underlying
Unexercised,
Unearned
Options
(#)
(d) |
|
|
Option
Exercise
Price
($)
(e) |
|
|
Option
Expiration
Date(2)
(f) |
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3)
(g) |
|
|
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(4)
(h) |
|
|
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
(i) |
|
|
Shares,
Units or
Other
Rights That
Have Not
Vested
($)
(j) |
|
| Michael Bonney |
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10.84 |
|
|
|
7/1/2014 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10.87 |
|
|
|
2/14/2015 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
80,000 |
|
|
|
— |
|
|
|
— |
|
|
|
21.61 |
|
|
|
1/31/2016 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
125,000 |
|
|
|
— |
|
|
|
— |
|
|
|
19.51 |
|
|
|
2/15/2017 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
150,000 |
|
|
|
— |
|
|
|
— |
|
|
|
18.10 |
|
|
|
2/15/2018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
150,000 |
|
|
|
— |
|
|
|
— |
|
|
|
16.76 |
|
|
|
5/15/2019 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
118,125 |
|
|
|
16,875 |
|
|
|
— |
|
|
|
21.56 |
|
|
|
5/14/2020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
109,375 |
|
|
|
65,625 |
|
|
|
— |
|
|
|
34.80 |
|
|
|
5/13/2021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
87,500 |
|
|
|
112,500 |
|
|
|
— |
|
|
|
42.09 |
|
|
|
2/19/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
34,508 |
|
|
|
149,536 |
|
|
|
— |
|
|
|
41.60 |
|
|
|
2/15/2023 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110,846 |
|
|
|
7,633,964 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| David McGirr |
|
|
20,000 |
|
|
|
— |
|
|
|
— |
|
|
|
23.12 |
|
|
|
8/15/2017 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
18.10 |
|
|
|
2/15/2018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
40,000 |
|
|
|
— |
|
|
|
— |
|
|
|
16.76 |
|
|
|
5/15/2019 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
30,625 |
|
|
|
4,375 |
|
|
|
— |
|
|
|
21.56 |
|
|
|
5/14/2020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
21,875 |
|
|
|
13,125 |
|
|
|
— |
|
|
|
34.80 |
|
|
|
5/13/2021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
16,406 |
|
|
|
21,094 |
|
|
|
— |
|
|
|
42.09 |
|
|
|
2/16/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,982 |
|
|
|
962,940 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| Michael Tomsicek |
|
|
16,250 |
|
|
|
3,750 |
|
|
|
— |
|
|
|
23.50 |
|
|
|
9/15/2020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
11,250 |
|
|
|
6,750 |
|
|
|
— |
|
|
|
34.80 |
|
|
|
5/13/2021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
4,375 |
|
|
|
5,625 |
|
|
|
— |
|
|
|
42.09 |
|
|
|
2/16/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
4,687 |
|
|
|
10,313 |
|
|
|
— |
|
|
|
43.81 |
|
|
|
8/15/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
3,450 |
|
|
|
14,954 |
|
|
|
— |
|
|
|
41.60 |
|
|
|
2/15/2023 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
2,154 |
|
|
|
15,079 |
|
|
|
— |
|
|
|
45.90 |
|
|
|
4/15/2023 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,704 |
|
|
|
1,425,884 |
|
|
|
— |
|
|
|
— |
|
| (1) |
Under some circumstances, the vesting of equity awards may be accelerated in accordance with the terms of the NEO’s retention letter, or in the case of Mr. McGirr, the transition agreement, and the terms of
our Amended and Restated 2000 Equity Incentive Plan, or 2000 Plan, the 2010 Equity Incentive Plan, or 2010 Plan, and the 2012 Plan, which are the plans under which these awards were granted. |
| (2) |
All stock option grants have a four-year vesting schedule, vest equally over 16 quarters and have a 10-year term. |
| (3) |
Represents awards of RSUs and PRSUs. All RSU awards vest in equal annual installments over a four-year period, with the exception of the RSU award granted to Mr. McGirr in February 2013, which vests 100% at the end
of one year. All PRSU awards vest at the end of three years if certain pre-specified performance criteria are met. |
| (4) |
Calculated using a per share price of $68.87, the closing price of our common stock on December 31, 2013. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Option Awards |
|
|
Stock Awards |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
Equity
Incentive
Plan |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Awards: |
|
| |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
Market or |
|
| |
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Payout |
|
| |
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Value of |
|
| |
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Unearned |
|
|
Unearned |
|
| Name
(a) |
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b) |
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
(c) |
|
|
Number of
Securities
Underlying
Unexercised,
Unearned
Options
(#)
(d) |
|
|
Option
Exercise
Price
($)
(e) |
|
|
Option
Expiration
Date(2)
(f) |
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3)
(g) |
|
|
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(4)
(h) |
|
|
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
(i) |
|
|
Shares,
Units or
Other
Rights That
Have Not
Vested
($)
(j) |
|
| Robert Perez |
|
|
20,000 |
|
|
|
— |
|
|
|
— |
|
|
|
22.14 |
|
|
|
6/16/2016 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
19.51 |
|
|
|
2/15/2017 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
25,000 |
|
|
|
— |
|
|
|
— |
|
|
|
23.12 |
|
|
|
8/15/2017 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
21.91 |
|
|
|
9/14/2017 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
40,000 |
|
|
|
— |
|
|
|
— |
|
|
|
18.10 |
|
|
|
2/15/2018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
62,500 |
|
|
|
— |
|
|
|
— |
|
|
|
16.76 |
|
|
|
5/15/2019 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
65,625 |
|
|
|
9,375 |
|
|
|
— |
|
|
|
21.56 |
|
|
|
5/14/2020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
62,500 |
|
|
|
37,500 |
|
|
|
— |
|
|
|
34.80 |
|
|
|
5/13/2021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
43,750 |
|
|
|
56,250 |
|
|
|
— |
|
|
|
42.09 |
|
|
|
2/16/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
7,812 |
|
|
|
17,188 |
|
|
|
— |
|
|
|
43.81 |
|
|
|
8/15/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
11,732 |
|
|
|
50,843 |
|
|
|
— |
|
|
|
41.60 |
|
|
|
2/15/2023 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
54,932 |
|
|
|
3,783,167 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| Thomas DesRosier |
|
|
8,775 |
|
|
|
61,432 |
|
|
|
— |
|
|
|
45.90 |
|
|
|
4/15/2023 |
|
|
|
9,509 |
|
|
|
654,885 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| Steven Gilman |
|
|
25,000 |
|
|
|
— |
|
|
|
— |
|
|
|
18.69 |
|
|
|
3/14/2018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
16,125 |
|
|
|
— |
|
|
|
— |
|
|
|
16.76 |
|
|
|
5/15/2019 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
52,500 |
|
|
|
7,500 |
|
|
|
— |
|
|
|
21.56 |
|
|
|
5/14/2020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
37,500 |
|
|
|
12,500 |
|
|
|
— |
|
|
|
25.23 |
|
|
|
10/15/2020 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
43,750 |
|
|
|
26,250 |
|
|
|
— |
|
|
|
34.80 |
|
|
|
5/13/2021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
32,812 |
|
|
|
42,188 |
|
|
|
— |
|
|
|
42.09 |
|
|
|
2/16/2022 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
8,972 |
|
|
|
38,879 |
|
|
|
— |
|
|
|
41.60 |
|
|
|
2/15/2023 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
36,374 |
|
|
|
2,505,077 |
|
|
|
— |
|
|
|
— |
|
| (1) |
Under some circumstances, the vesting of equity awards may be accelerated in accordance with the terms of the NEO’s retention letter and the terms of the 2000 Plan, the 2010 Plan, and the 2012 Plan, which are the
plans under which these awards were granted. |
| (2) |
All stock option grants have a four-year vesting schedule, vest equally over 16 quarters and have a 10-year term. |
| (3) |
Represents awards of RSUs and PRSUs. All RSU awards vest in equal annual installments over a four-year period. All PRSU awards vest at the end of three years if certain pre-specified performance criteria are
met. |
| (4) |
Calculated using a per share price of $68.87, the closing price of our common stock on December 31, 2013. |
Option Exercises and Stock Vested in 2013
The following table provides information concerning the exercise of stock options and the vesting of RSUs held by each NEO in 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Option Awards |
|
|
Stock Awards(1) |
|
| Name
(a) |
|
Number of
Shares
Acquired on
Exercise
(#)
(b) |
|
|
Value
Realized on
Exercise
($)(2)
(c) |
|
|
Number of
Shares
Acquired on
Vesting
(#)
(d) |
|
|
Value
Realized on
Vesting
($)(3)
(e) |
|
| Michael Bonney |
|
|
165,452 |
|
|
|
5,903,821 |
|
|
|
28,750 |
|
|
|
1,337,933 |
|
| David McGirr |
|
|
85,500 |
|
|
|
3,721,661 |
|
|
|
6,375 |
|
|
|
299,794 |
|
| Michael Tomsicek |
|
|
— |
|
|
|
— |
|
|
|
3,583 |
|
|
|
184,833 |
|
| Robert Perez |
|
|
70,000 |
|
|
|
3,068,012 |
|
|
|
18,375 |
|
|
|
886,902 |
|
| Thomas DesRosier |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Steven Gilman |
|
|
30,125 |
|
|
|
935,104 |
|
|
|
12,250 |
|
|
|
569,983 |
|
| (1) |
Consists of awards of RSUs, which vest in equal annual installments over a four-year period. |
| (2) |
Computed by multiplying the number of options that were exercised by the difference between the market prices of our common stock upon exercise and the exercise prices of the exercised stock options. |
| (3) |
Computed by multiplying the number of shares that vested by the closing fair market value of our common stock on the date of vesting. |
Termination of Employment and Change-in-Control Agreements
Our retention letters with our NEOs provide certain protections to our NEOs in the event their employment is terminated as summarized in the
following table.
|
|
|
|
|
| Key Retention Letter Elements(1) |
|
CEO |
|
Other NEOs(2) |
| Retention Letter Term |
|
Expires in August 2016, except in the case of a change-in-control prior to the expiration date in which case the term extends for two years following the change-in-control. |
|
Expires in August 2016, except in the case of a change-in-control prior to the expiration date in which case the term becomes the later of: (a) three years from the date of the retention letter; and (b) two years following
the change-in-control. |
|
|
|
| Severance |
|
24 months of base salary, if terminated without cause at any time, payable over six months starting 60 days after termination.
24 months of base salary and one year’s annual performance award (higher of
previous year award or current target award), payable in one lump sum payment, if, within 24 months following a change-in-control, the CEO is terminated without cause or resigns for good reason. |
|
18 months of base salary, if terminated without cause at any time, payable over six months starting 60 days after termination.
18 months of base salary and one year’s annual performance award (higher of
previous year award or current target award), payable in one lump sum payment, if, within 24 months following a change-in control, the NEO is terminated without cause or resigns for good reason. |
|
|
|
| Key Retention Letter Elements(1) |
|
CEO |
|
Other NEOs(2) |
| Benefit Continuation (medical and dental insurance only) |
|
The reimbursement, on a monthly basis, for the company portion of medical and dental coverage for 24 months after the CEO becomes entitled to severance payments, as long as the CEO pays the full monthly premium for such
coverage in each such month. |
|
The reimbursement, on a monthly basis, for the company portion of medical and dental coverage for 18 months after he or she becomes entitled to severance payments, as long as the NEO pays the full monthly premium for such
coverage in each such month. |
|
|
|
| Equity Vesting Acceleration |
|
Vesting of equity is accelerated only if, within 24 months following a change-in-control, the CEO is terminated without cause or resigns for good reason. |
|
Vesting of equity is accelerated only if, within 24 months following a change-in-control, the NEO is terminated without cause or resigns for good reason. |
| (1) |
Additional details and definitions can be found in the actual retention letters. Mr. Bonney’s retention letter and a form of the retention letter with our Other NEOs are on file with the SEC. |
| (2) |
Mr. McGirr had a retention letter until March 2013 with the same terms as described in the table above, but when he transitioned to Senior Advisor to the CEO on March 4, 2013, he entered into a transition
agreement with a fixed term expiring June 1, 2014. Pursuant to his transition agreement he is entitled to severance payments in the event of his termination in an amount equal to $637,500, less the amount of his reduced-time base salary
received since March 31, 2013, payable over six months starting 60 days after his termination. Mr. McGirr is also entitled to severance in the event of the termination of his employment, other than for cause, following a
change-in-control, in an amount equal to $637,500 plus the target annual bonus amount for the year in which the change-in-control occurs, payable in a lump sum payment 60 days after his termination. The company will continue to pay, on a
monthly basis, an amount equal to the company portion of medical and dental coverage for Mr. McGirr for 18 months after he becomes entitled to severance payments, as long as Mr. McGirr pays the full monthly premiums for such coverage
in each such month. Vesting of equity is accelerated if Mr. McGirr becomes entitled to severance payments in the event of the termination of his employment, other than for cause, following a change-in-control. |
Receipt of any severance and benefits is conditioned on the NEO signing and not revoking a release of claims within 50 days of his or her
last date of employment with the company. In addition, NEOs will continue to be bound by the obligations set forth in our Employee Confidentiality Agreement. None of our NEOs are entitled to a gross-up associated with taxes, including but not
limited to, any taxes owed on change-in-control payments or parachute payment taxes. The retention letters with our NEOs and the transition agreement with Mr. McGirr do contain “best after-tax provisions,” which provide for reduced
payments or other benefits to our NEOs if doing so would result in the NEO receiving a higher aggregate amount net of all applicable taxes.
The remainder of this section summarizes quantitative disclosures for each NEO regarding estimated payments and other benefits that would have
been received by the NEO or his or her estate if his or her employment terminated as of the last business day of the year, December 31, 2013, under the following circumstances:
| |
• |
|
Termination by us for cause. |
| |
• |
|
Termination by us without cause not following a change-in-control. |
| |
• |
|
Termination by us without cause or by the NEO for good reason following a change-in-control. |
Payments to Michael Bonney Assuming a December 31, 2013 Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Severance |
|
|
|
|
|
Benefits
on
Continuation
($)(3) |
|
|
401(k)
Plan
Balance
($)(4) |
|
|
Total
($) |
|
| |
|
Base Salary |
|
|
Performance
Award |
|
|
Value of
Vested |
|
|
Value of
Accelerated
Unvested |
|
|
|
|
| Circumstances of Termination: |
|
Multiple |
|
|
$ |
|
|
Multiple |
|
|
$ |
|
|
Equity
($)(1) |
|
|
Equity
($)(2) |
|
|
|
|
| Termination for cause |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
49,585,530 |
|
|
|
N/A |
|
|
|
34,887 |
|
|
|
940,174 |
|
|
|
50,560,591 |
|
| Termination without cause not following a change-in-control |
|
|
2.0 |
|
|
|
1,500,000 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
49,585,530 |
|
|
|
N/A |
|
|
|
34,887 |
|
|
|
940,174 |
|
|
|
52,060,591 |
|
| Termination without cause or resignation for good reason following a change-in-control |
|
|
2.0 |
|
|
|
1,500,000 |
|
|
|
1.0 |
|
|
|
750,000 |
(5) |
|
|
49,585,530 |
|
|
|
17,759,089 |
|
|
|
34,887 |
|
|
|
940,174 |
|
|
|
70,569,680 |
|
| (1) |
The per share value for vested option awards is equal to the difference between the option exercise price and $68.87, our closing stock price on December 31, 2013. The per share value for vested RSU awards is based
on our December 31, 2013 closing stock price of $68.87. See the Outstanding Equity Awards at 2013 Fiscal Year End table for the vesting status of Mr. Bonney’s equity awards as of December 31, 2013. |
| (2) |
For the situation where unvested equity would be accelerated (termination without cause or resignation for good reason following a change-in-control), all unvested equity is assumed to have accelerated vesting as of
December 31, 2013. The amount shown in this column represents the difference between $68.87, our closing stock price on December 31, 2013, and the exercise price for each tranche of options multiplied by the number of shares of common
stock underlying options with accelerated vesting in each such tranche plus the value of each share of common stock underlying each unvested RSU award, which was valued using a stock price of $68.87, our closing stock price on December 31,
2013. |
| (3) |
Mr. Bonney’s benefits are continued for 24 months, subject to certain conditions. The cost of benefits includes the employer cost of health and dental insurance only. Mr. Bonney’s monthly cost
of benefits for months 19-24 of the benefit continuation period are assumed to be equal to the cost for months 1-18. In an actual termination situation, the cost of benefits may change in months 19-24 due to the potential expiration of COBRA
benefits coverage as full group insurance rates may apply. |
| (4) |
Represents the entire balance of Mr. Bonney’s 401(k) account. We match 100% of each U.S. employee’s 401(k) contributions up to 6% of the employee’s cash compensation, subject to a statutory cap, in
the form of common stock. All of our U.S. employees are eligible for this match, not just our NEOs. |
| (5) |
The amount shown here is 100% of Mr. Bonney’s annual target award opportunity for fiscal year 2013 because that amount is higher than Mr. Bonney’s 2012 award. |
Payments to David McGirr Assuming a December 31, 2013 Termination(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Severance |
|
|
Equity |
|
|
Benefits
Continuation
($)(4) |
|
|
401(k)
Plan
Balance
($)(5) |
|
|
Total
($) |
|
| |
|
Base Salary |
|
|
Performance
Award |
|
|
Value of
Vested |
|
|
Value of
Accelerated
Unvested |
|
|
|
|
| Circumstances of Termination: |
|
Multiple |
|
|
$ |
|
|
Multiple |
|
|
$ |
|
|
Equity
($)(2) |
|
|
Equity
($)(3) |
|
|
|
|
| Termination for cause |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
7,156,112 |
|
|
|
N/A |
|
|
|
22,962 |
|
|
|
752,340 |
|
|
|
7,931,414 |
|
| Termination without cause not following a change-in-control |
|
|
N/A |
|
|
|
478,125 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
7,156,112 |
|
|
|
N/A |
|
|
|
22,962 |
|
|
|
752,340 |
|
|
|
8,409,539 |
|
| Termination without cause or resignation with good reason following a change-in-control |
|
|
N/A |
|
|
|
637,500 |
|
|
|
1.0 |
|
|
|
143,438 |
|
|
|
7,156,112 |
|
|
|
2,182,053 |
|
|
|
22,962 |
|
|
|
752,340 |
|
|
|
10,894,405 |
|
| (1) |
The table above sets forth payments to Mr. McGirr pursuant to his transition agreement described above. |
| (2) |
The per share value for vested option awards is equal to the difference between the option exercise price and $68.87, our closing stock price on December 31, 2013. The per share value for vested RSU awards is based
on our December 31, 2013 closing stock price of $68.87. See the Outstanding Equity Awards at 2013 Fiscal Year End table for the vesting status of Mr. McGirr’s equity awards as of December 31, 2013. |
| (3) |
For the situation where unvested equity would be accelerated (termination without cause or resignation for good reason following a change-in-control), all unvested equity is assumed to have accelerated vesting as of
December 31, 2013. The amount shown in this column represents the difference between $68.87, our closing stock price on December 31, 2013, and the exercise price for each tranche of options multiplied by the number of shares of common
stock underlying options with accelerated vesting in each such tranche plus the value of each share of common stock underlying each unvested RSU award, which was valued using a stock price of $68.87, our closing stock price on December 31,
2013. |
| (4) |
Mr. McGirr’s benefits are continued for 18 months. The cost of benefits includes our cost of health and dental insurance only. |
| (5) |
Represents the entire balance of Mr. McGirr’s 401(k) account. We match 100% of each U.S. employee’s 401(k) contributions up to 6% of the employee’s cash compensation, subject to a statutory cap, in
the form of common stock. All of our U.S. employees are eligible for this match, not just our NEOs. |
Payments to Michael Tomsicek Assuming a December 31, 2013 Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Severance |
|
|
Equity |
|
|
Benefits
Continuation
($)(3) |
|
|
401(k)
Plan
Balance
($)(4) |
|
|
Total
($) |
|
| |
|
Base Salary |
|
|
Performance
Award |
|
|
Value of
Vested |
|
|
Value of
Accelerated
Unvested |
|
|
|
|
| Circumstances of Termination: |
|
Multiple |
|
|
$ |
|
|
Multiple |
|
|
$ |
|
|
Equity
($)(1) |
|
|
Equity
($)(2) |
|
|
|
|
| Termination for cause |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
1,498,784 |
|
|
|
N/A |
|
|
|
26,096 |
|
|
|
98,136 |
|
|
|
1,623,016 |
|
| Termination without cause not following a change-in-control |
|
|
1.5 |
|
|
|
538,101 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
1,498,784 |
|
|
|
N/A |
|
|
|
26,096 |
|
|
|
98,136 |
|
|
|
2,161,117 |
|
| Termination without cause or resignation with good reason following a change-in-control |
|
|
1.5 |
|
|
|
538,101 |
|
|
|
1.0 |
|
|
|
209,248 |
(5) |
|
|
1,498,784 |
|
|
|
2,989,269 |
|
|
|
26,096 |
|
|
|
98,136 |
|
|
|
5,359,634 |
|
| (1) |
The per share value for vested option awards is equal to the difference between the option exercise price and $68.87, our closing stock price on December 31, 2013. The per share value for vested RSU awards is based
on our December 31, 2013 closing stock price of $68.87. See the Outstanding Equity Awards at 2013 Fiscal Year End table for the vesting status of Mr. Tomsicek’s equity awards as of December 31, 2013. |
| (2) |
For the situation where unvested equity would be accelerated (termination without cause or resignation for good reason following a change-in-control), all unvested equity is assumed to have accelerated vesting as of
December 31, 2013. The amount shown in this column represents the difference between $68.87, our closing stock price on December 31, 2013, and the exercise price for each tranche of options multiplied by the number of shares of common
stock underlying options with accelerated vesting in each such tranche plus the value of each share of common stock underlying each unvested RSU award, which was valued using a stock price of $68.87, our closing stock price on December 31,
2013. |
| (3) |
Mr. Tomsicek’s benefits are continued for 18 months. The cost of benefits includes our cost of health and dental insurance only. |
| (4) |
Represents the entire balance of Mr. Tomsicek’s 401(k) account. We match 100% of each U.S. employee’s 401(k) contributions up to 6% of the employee’s cash compensation, subject to a statutory cap, in
the form of common stock. All of our U.S. employees are eligible for this match, not just our NEOs. |
| (5) |
The amount shown here is 100% of Mr. Tomsicek’s annual target award opportunity for fiscal year 2013 because that amount is higher than Mr. Tomsicek’s 2012 award. |
Payments to Robert Perez Assuming a December 31, 2013 Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Severance |
|
|
Equity |
|
|
Benefits
Continuation
($)(3) |
|
|
401(k)
Plan
Balance
($)(4) |
|
|
Total
($) |
|
| |
|
Base Salary |
|
|
Performance
Award |
|
|
Value of
Vested |
|
|
Value of
Accelerated
Unvested |
|
|
|
|
| Circumstances of Termination: |
|
Multiple |
|
|
$ |
|
|
Multiple |
|
|
$ |
|
|
Equity
($)(1) |
|
|
Equity
($)(2) |
|
|
|
|
| Termination for cause |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
18,116,557 |
|
|
|
N/A |
|
|
|
26,096 |
|
|
|
578,519 |
|
|
|
18,721,172 |
|
| Termination without cause not following a change-in-control |
|
|
1.5 |
|
|
|
900,000 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
18,116,557 |
|
|
|
N/A |
|
|
|
26,096 |
|
|
|
578,519 |
|
|
|
19,621,172 |
|
| Termination without cause or resignation with good reason following a change-in-control |
|
|
1.5 |
|
|
|
900,000 |
|
|
|
1.0 |
|
|
|
450,000 |
(5) |
|
|
18,116,557 |
|
|
|
8,828,106 |
|
|
|
26,096 |
|
|
|
578,519 |
|
|
|
28,899,278 |
|
| (1) |
The per share value for vested option awards is equal to the difference between the option exercise price and $68.87, our closing stock price on December 31, 2013. The per share value for vested RSU awards is based
on our December 31, 2013 closing stock price of $68.87. See the Outstanding Equity Awards at 2013 Fiscal Year End table for the vesting status of Mr. Perez’s equity awards as of December 31, 2013. |
| (2) |
For the situation where unvested equity would be accelerated (termination without cause or resignation for good reason following a change-in-control), all unvested equity is assumed to have accelerated vesting as of
December 31, 2013. The amount shown in this column represents the difference between $68.87, our closing stock price on December 31, 2013, and the exercise price for each tranche of options multiplied by the number of shares of common
stock underlying options with accelerated vesting in each such tranche plus the value of each share of common stock underlying each unvested RSU award, which was valued using a stock price of $68.87, our closing stock price on December 31,
2013. |
| (3) |
Mr. Perez’s benefits are continued for 18 months. The cost of benefits includes our cost of health and dental insurance only. |
| (4) |
Represents the entire balance of Mr. Perez’s 401(k) account. We match 100% of each U.S. employee’s 401(k) contributions up to 6% of the employee’s cash compensation, subject to a statutory cap, in
the form of common stock. All of our U.S. employees are eligible for this match, not just our NEOs. |
| (5) |
The amount shown here is 100% of Mr. Perez’s annual target award opportunity for fiscal year 2013 because that amount is higher than Mr. Perez’s 2012 award. |
Payments to Thomas DesRosier Assuming a December 31, 2013 Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Severance |
|
|
Equity |
|
|
Benefits
Continuation
($)(3) |
|
|
401(k)
Plan
Balance
($)(4) |
|
|
Total
($) |
|
| |
|
Base Salary |
|
|
Performance
Award |
|
|
Value of
Vested |
|
|
Value of
Accelerated
Unvested |
|
|
|
|
| Circumstances of Termination: |
|
Multiple |
|
|
$ |
|
|
Multiple |
|
|
$ |
|
|
Equity
($)(1) |
|
|
Equity
($)(2) |
|
|
|
|
| Termination for cause |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
201,562 |
|
|
|
N/A |
|
|
|
0 |
|
|
|
30,958 |
|
|
|
232,520 |
|
| Termination without cause not following a change-in-control |
|
|
1.5 |
|
|
|
712,500 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
201,562 |
|
|
|
N/A |
|
|
|
0 |
|
|
|
30,958 |
|
|
|
945,020 |
|
| Termination without cause or resignation with good reason following a change-in-control |
|
|
1.5 |
|
|
|
712,500 |
|
|
|
1.0 |
|
|
|
237,500 |
(5) |
|
|
201,562 |
|
|
|
2,065,978 |
|
|
|
0 |
|
|
|
30,958 |
|
|
|
3,248,498 |
|
| (1) |
The per share value for vested option awards is equal to the difference between the option exercise price and $68.87, our closing stock price on December 31, 2013. The per share value for vested RSU awards is based
on our December 31, 2013 closing stock price of $68.87. See the Outstanding Equity Awards at 2013 Fiscal Year End table for the vesting status of Mr. DesRosier’s equity awards as of December 31, 2013. |
| (2) |
For the situation where unvested equity would be accelerated (termination without cause or resignation for good reason following a change-in-control), all unvested equity is assumed to have accelerated vesting as of
December 31, 2013. The amount shown in this column represents the difference between $68.87, our closing stock price on December 31, 2013, and the exercise price for each tranche of options multiplied by the number of shares of common
stock underlying options with accelerated vesting in each such tranche plus the value of each share of common stock underlying each unvested RSU award, which was valued using a stock price of $68.87, our closing stock price on December 31,
2013. |
| (3) |
Mr. DesRosier waived health and dental insurance from the company. |
| (4) |
Represents the entire balance of Mr. DesRosier’s 401(k) account. We match 100% of each U.S. employee’s 401(k) contributions up to 6% of the employee’s cash compensation, subject to a statutory cap,
in the form of common stock. All of our U.S. employees are eligible for this match, not just our NEOs. |
| (5) |
The amount shown here is 100% of Mr. DesRosier’s annual target award opportunity for fiscal year 2013 because Mr. DesRosier was not employed by the company in 2012 and therefore did not receive an award
in 2012. |
Payments to Steven Gilman Assuming a December 31, 2013 Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash Severance |
|
|
Equity |
|
|
Benefits
Continuation
($)(3) |
|
|
401(k)
Plan
Balance
($)(4) |
|
|
Total
($) |
|
| |
|
Base Salary |
|
|
Performance
Award |
|
|
Value of
Vested |
|
|
Value of
Accelerated
Unvested |
|
|
|
|
| Circumstances of Termination: |
|
Multiple |
|
|
$ |
|
|
Multiple |
|
|
$ |
|
|
Equity
($)(1) |
|
|
Equity
($)(2) |
|
|
|
|
| Termination for cause |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
8,829,202 |
|
|
|
N/A |
|
|
|
17,396 |
|
|
|
356,617 |
|
|
|
9,203,215 |
|
| Termination without cause not following a change-in-control |
|
|
1.5 |
|
|
|
712,500 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
8,829,202 |
|
|
|
N/A |
|
|
|
17,396 |
|
|
|
356,617 |
|
|
|
9,915,715 |
|
| Termination without cause or resignation with good reason following a change-in-control |
|
|
1.5 |
|
|
|
712,500 |
|
|
|
1.0 |
|
|
|
285,000 |
(5) |
|
|
8,829,202 |
|
|
|
6,489,896 |
|
|
|
17,396 |
|
|
|
356,617 |
|
|
|
16,690,611 |
|
| (1) |
The per share value for vested option awards is equal to the difference between the option exercise price and $68.87, our closing stock price on December 31, 2013. The per share value for vested RSU awards is based
on our December 31, 2013 closing stock price of $68.87. See the Outstanding Equity Awards at 2013 Fiscal Year End table for the vesting status of Dr. Gilman’s equity awards as of December 31, 2013. |
| (2) |
For the situation where unvested equity would be accelerated (termination without cause or resignation for good reason following a change-in-control), all unvested equity is assumed to have accelerated vesting as of
December 31, 2013. The amount shown in this column represents the difference between $68.87, our closing stock price on December 31, 2013, and the exercise price for each tranche of options multiplied by the number of shares of common
stock underlying options with accelerated vesting in each such tranche plus the value of each share of common stock underlying each unvested RSU award, which was valued using a stock price of $68.87, our closing stock price on December 31,
2013. |
| (3) |
Dr. Gilman’s benefits are continued for 18 months. The cost of benefits includes our cost of health and dental insurance only. |
| (4) |
Represents the entire balance of Dr. Gilman’s 401(k) account. We match 100% of each U.S. employee’s 401(k) contributions up to 6% of the employee’s cash compensation, subject to a statutory cap, in
the form of common stock. All of our U.S. employees are eligible for this match, not just our NEOs. |
| (5) |
The amount shown here is 100% of Dr. Gilman’s annual target award opportunity for fiscal year 2013 because that amount is higher than Dr. Gilman’s 2012 award. |
Exhibit (e)(14)
EXECUTION COPY
October 20, 2014
Via Hand Delivery
Michael W. Bonney
Cubist Pharmaceuticals, Inc.
65 Hayden Avenue
Lexington, MA 02421
| |
RE: |
Confidential Separation Agreement and General Release |
Dear Mike:
This Separation Agreement and General Release (the “Agreement”) sets forth the understanding between you and Cubist Pharmaceuticals,
Inc. (“Cubist”) relating to your voluntary retirement from Cubist as its Chief Executive Officer.
The purpose of this Agreement
is to set forth the terms of your retirement from Cubist, to release Cubist from any claims, and to permit you to receive certain benefits relating to your equity awards. Your right to receive those benefits is subject to your timely and effective
signature and delivery of this Agreement. The date of your retirement will be December 31, 2014 (the “Retirement Date”). You have twenty-one (21) calendar days from your receipt of this letter to consider whether to sign the
Agreement. Once you have signed the Agreement, you will have a period of seven (7) days to revoke the Agreement, and it will not become effective until this revocation period has expired, without revocation.
| |
1. |
Employment Status, Final Payments and Termination of Benefits. |
| |
(a) |
Your retirement will become effective and your employment with Cubist as its Chief Executive Officer will end on the Retirement Date. |
| |
(b) |
Your employee salary and benefits will cease as of the Retirement Date, and any entitlement you have or might have under any Cubist-provided employee benefit program will also end except as required by federal or state
law or as otherwise described below. |
| |
(c) |
You will be paid your bonus under the 2014 Management Incentive Plan for the 2014 fiscal year based on actual performance outcomes in the same manner as if your employment had not terminated. |
| |
(d) |
You will be paid for all wages earned but unpaid through the Retirement Date. |
Michael W. Bonney
October 20, 2014
Page
2
of 7
| |
(e) |
You will be paid for all vacation time accrued and unused through the Retirement Date. |
| |
(f) |
You will be reimbursed for any business expenses incurred and approved through the Retirement Date consistent with Cubist policy, subject to the timely submission of properly documented business expense reports.
|
| |
(g) |
Your rights under the federal law known as COBRA shall attach beginning the first day of the month following your Retirement Date and will entitle you to participate in Cubist’s group health and dental plans or
similar plans if those plans cease to exist, to the same extent you are participating in such plans as of your Retirement Date, for a period of up to eighteen (18) months (this period of time may be extended if you are deemed eligible under the
COBRA statute and meet the statutory requirements). You must complete the COBRA enrollment documents within 60 days of your Retirement Date in order to continue group health and dental plan coverage, and such timely elected coverage will be
retroactive to the first day of the month following the Retirement Date. |
| |
(h) |
After the Retirement Date, you will not be entitled to participate further in any Cubist employee benefit plans, except as noted above in clause (g). For example, you will no longer accrue vacation
benefits, and you will no longer be eligible to participate in Cubist’s 401(k) plan, employee stock purchase plan (“ESPP”), life insurance, or disability plans. Without limiting the generality of the foregoing, you will not be paid
any severance or Company-paid COBRA benefits described in the Retention Letter between you and Cubist dated August 1, 2013 by reason of the termination of your employment. |
| |
(i) |
The Retention Letter between you and Cubist dated August 1, 2013 will terminate on your Retirement Date. |
| |
2. |
Equity Awards. Conditioned upon Cubist’s timely receipt of the Agreement signed by you and the expiration of the 7-day revocation period without timely and effective revocation by you, Cubist will provide
you with the benefits described below, which you agree are above and beyond any benefits to which you would otherwise be entitled under the terms of your employment with Cubist and are not required by law. |
| |
(a) |
All of your outstanding stock options that are unvested as of the Retirement Date will become fully vested and exercisable. |
| |
(b) |
All of your outstanding stock options as of the Retirement Date will remain outstanding and exercisable through the earlier of (1) December 31, 2017 or (2) the expiration date of the relevant stock
option. |
Michael W. Bonney
October 20, 2014
Page
3
of 7
| |
(c) |
Notwithstanding the termination of your employment, your outstanding performance units as of the Retirement Date (the “PRSUs”) will not be forfeited but will remain outstanding and will vest in accordance with
their terms based on actual performance outcomes in the same manner as if your employment had not terminated. |
| |
(d) |
You agree that your stock option and performance unit agreements are hereby, and will be deemed to be, amended to give effect to the provisions set forth in Sections 2(a), 2(b) and 2(c) above. |
| |
3. |
Return of Property. By signing below, you certify that you will return to Cubist all Cubist property that is requested to be returned. |
| |
4. |
Release. By signing below, you make the following promises to Cubist in consideration for your receipt of benefits under this Agreement and the performance of its terms and conditions. Specifically:
|
| |
(a) |
You voluntarily, irrevocably, and unconditionally release and discharge Cubist from any and all complaints, claims, demands, contracts, liabilities, actions, causes of action, promises, or rights of any nature whether
known or unknown and whether in law or in equity which you now own or hold or have at any time owned or held against Cubist arising out of or in any way connected with your employment relationship with or separation from employment at Cubist and any
other transactions, occurrences, acts or omissions or any loss, damage or injury whatever, known or unknown, resulting from any act or omission by or on the part of Cubist committed or omitted on or prior to the date you sign this Agreement. Without
limiting the generality of the foregoing, this release includes all claims under any federal, state or local law or regulation (as any may have been amended) relating in any manner to employment, employment discrimination, harassment or retaliation,
including but not limited to: Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the Americans With Disabilities Act; the National Labor Relations Act; the Family and Medical Leave Act; the Worker Adjustment and
Retraining Notification Act; the Massachusetts Fair Employment Practices Law; the Massachusetts Wage Act (chapters 149 and 150); claims arising under the wage and hour, wage payment, human rights and fair employment practices laws (whether statutory
or common laws) of the state or states and localities in which you have provided services to Cubist; claims arising from any contract, whether oral or written, express or implied; promissory estoppel; any tort, including, without limitation,
misrepresentation; any claim related to equity or other benefits, including claims under federal or state securities laws; any claims arising under the Federal False Claims Act, any state or local false claims act or any federal, state or local qui
tam provisions of false claims or false statements statutes; or any other statutory and/or common law claim. |
Michael W. Bonney
October 20, 2014
Page
4
of 7
| |
(b) |
You specifically and expressly acknowledge that this Agreement is intended to include and extinguish all claims, known and unknown, which exist up to and including the date you sign this Agreement and which arise from
your employment with or separation from employment at Cubist and that no possible claim against Cubist would materially affect or change your complete and voluntary acceptance of this Agreement, even if such claim were unknown at the time you signed
this Agreement and discovered after that signing. |
| |
(c) |
You specifically and expressly acknowledge that you are not aware of any claims against Cubist, or of any violations of law, Cubist’s Code of Conduct, or Cubist policies committed by Cubist employees or agents.
|
| |
(d) |
The payments and benefits set forth above in Sections 1 and 2 will be complete and unconditional payment, settlement, accord and/or satisfaction with respect to all obligations and liabilities of Cubist to you,
including, without limitation, all claims for back wages, salary, vacation pay, draws, incentive pay, bonuses, restricted stock units, stock and stock options, commissions, severance pay, reimbursement of expenses, reimbursement of car lease, any
and all other forms of compensation or benefits, attorney’s fees, or other costs or sums. |
| |
(e) |
Notwithstanding anything to the contrary in this Section 4, this release does not include the release of any rights that cannot by law be released by private agreement, including but not limited those relating to
unemployment compensation benefits, workers’ compensation benefits and vested 401(k) benefits. |
| |
5. |
Waiver of Rights and Claims Under the Age Discrimination in Employment Act of 1967. |
Because you are 40 years of age or older, you are being informed that you may have specific rights and/or claims under the Age Discrimination
in Employment Act of 1967 (ADEA), and by signing this Agreement:
| |
(a) |
you agree that in consideration for the benefits described in Section 2 of this Agreement, which you are not otherwise entitled to receive, you specifically and voluntarily waive such rights and/or claims under the
ADEA you might have against Cubist to the extent such rights and/or claims arose through the date you sign this Agreement; |
| |
(b) |
you acknowledge that you are hereby advised by Cubist of your right to consult with an attorney prior to signing this Agreement, you have had the opportunity to review and reflect on all terms of this Agreement, and you
have not been subject to any undue or improper influence interfering with the exercise of your free will to sign this Agreement; |
Michael W. Bonney
October 20, 2014
Page
5
of 7
| |
(c) |
you further acknowledge that when Cubist presented you with the original draft of this Agreement, you were informed that you had at least twenty-one (21) calendar days within which to consider its terms and to
consult with or seek advice from an attorney or any other person of your choosing; and |
| |
(d) |
you will have seven (7) additional days after you sign this Agreement to revoke it, and this Agreement will not become effective or enforceable until this revocation period has expired without your timely and
proper revocation. If you choose to revoke this Agreement, you must contact Tom DesRosier at (781) 860-1480 to advise him of your decision to revoke the Agreement. You must also send Tom written notice of your decision to revoke the Agreement,
which must be received by him within the seven-day revocation period. If the seven day revocation period ends on a weekend or holiday, the seven day revocation period will be extended to the next business day. |
| |
6. |
Construction. As used in Sections 4 and 5 of this Agreement, “Cubist” includes Cubist Pharmaceuticals, Inc., its former and present owners, parents, stockholders, predecessors, successors, assigns,
agents, insurers, directors, employees, officers, subsidiaries, divisions and affiliates, and all persons acting by, under, or together with any of them. |
| |
7. |
Representations and Governing Law. |
| |
(a) |
You acknowledge that in signing this Agreement you have not relied on any statements, promises or representations made by Cubist except as specifically memorialized in this Agreement. This Agreement is the complete
agreement of the parties on or in any way related to the subject matter addressed in the Agreement and your employment and separation from employment, and it supersedes and cancels all other previous agreements or understandings between the parties,
except for the Cubist Pharmaceuticals, Inc. Agreement you signed regarding your confidentiality, non-solicitation, and intellectual property/developments obligations (referred to as the “Confidentiality
Agreement”), which will remain in full force and effect in accordance with its terms. This Agreement specifically incorporates the Confidentiality Agreement, and nothing herein precludes the continued enforcement of the Confidentiality
Agreement. This Agreement cannot be modified or rescinded except upon the written consent of both you and Cubist. |
| |
(b) |
If any provision of this Agreement (excluding Sections 4 and 5) is held to be unenforceable, such provision will be considered to be distinct and
severable from the other provisions of this Agreement, and such unenforceability will not affect the validity and enforceability of the remaining provisions. If any provision of this Agreement is held to be unenforceable as written but may be made
enforceable by limitation, then such provision will be enforceable to |
Michael W. Bonney
October 20, 2014
Page
6
of 7
| |
the maximum extent permitted by applicable law. The language of all parts of this Agreement will in all cases be construed as a whole, according to its fair meaning, and not strictly for or
against any of the parties. |
| |
(c) |
You represent and warrant that you have the full power, capacity, and authority to enter into this Agreement and have not assigned, pledged, encumbered or in any manner conveyed all or any portion of the potential
claims covered by this Agreement. This Agreement cannot be assigned by you, and it will be binding upon Cubist’s successors and assigns. |
| |
(d) |
The validity, performance and enforceability of this Agreement will be determined and governed by the laws of the Commonwealth of Massachusetts without regard to its conflict of laws principles. This Agreement shall be
deemed to be made and entered into in the Commonwealth of Massachusetts. Any claims or legal actions by one party against the other shall be commenced and maintained in any state or federal court located in such Commonwealth, and you hereby submit
to the jurisdiction and venue of any such court. In any such proceeding you agree to waive trial by jury and consent to have all legal and factual matters decided by a judge. |
| |
(e) |
The existence and execution of this Agreement will not be considered as an admission of any liability, violation, error, or omission by you or Cubist. |
[Remainder of Page Intentionally Left Blank]
Michael W. Bonney
October 20, 2014
Page
7
of 7
If you agree to the foregoing, kindly sign and return the enclosed copy of this letter.
|
| Very truly yours, |
|
| /s/ Kenneth Bate |
|
| Kenneth Bate |
| Non-Executive Chairman of the Board |
|
|
|
| Agreed and accepted: |
|
| /s/ Michael W. Bonney |
| Michael W. Bonney |
|
|
| Date: |
|
October 20, 2014 |
Exhibit (e)(15)
December 18, 2014
Via Hand Delivery
Michael W. Bonney
Cubist Pharmaceuticals, Inc.
65 Hayden Avenue
Lexington, MA 02421
| |
RE: |
Confidential Separation Agreement and General Release |
Dear Mike:
This letter agreement (the “Amendment”) amends the Separation Agreement and General Release (the “Agreement”) between you
and Cubist Pharmaceuticals, Inc. (“Cubist”). All capitalized terms used in this Amendment shall have the meanings ascribed to them in the Agreement unless otherwise expressly provided herein.
In consideration of the mutual promises, terms, provisions and conditions set forth below, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, you and the Company hereby agree as follows:
| |
1. |
Section 2(d) of the Agreement shall be deleted in its entirety and replaced with the following new Section 2(d): |
“Notwithstanding the termination of your employment, your 27,000 outstanding restricted stock units (the “RSUs”) as of the
Retirement Date will remain outstanding until the earlier of (i) the scheduled vesting dates and (ii) the consummation of a change in control on or prior to [May/June] 15, 2015, at which time they will vest in accordance with their terms
in the same manner as if your employment had not terminated. For the avoidance of doubt, if a scheduled vesting date or a change in control does not occur by [May/June] 15, 2015, any outstanding RSUs shall be forfeited.”
| |
2. |
A new Section 2(e) shall be added to the Agreement that reads as follows: |
“You agree
that your stock option, performance unit and restricted stock unit agreements are hereby, and will be deemed to be, amended to give effect to the provisions set forth in Sections 2(a), 2(b), 2(c) and 2(d) above.”
This Amendment may only be amended by a writing signed by you and a duly authorized
representative of the Company. Except as expressly modified herein, the Agreement, and all of its terms and provisions (including without limitation the release and waiver of rights and claims contained therein), shall remain in full force and
effect. This Amendment embodies the entire agreement between the parties with respect to amending your Agreement and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the same. This
Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. The validity, performance and enforceability of this Amendment will
be determined and governed by the laws of the Commonwealth of Massachusetts without regard to its conflict of laws principles. This Amendment shall be deemed to be made and entered into in the Commonwealth of Massachusetts. Any claims or legal
actions by one party against the other shall be commenced and maintained in any state or federal court located in such Commonwealth, and you hereby submit to the jurisdiction and venue of any such court. In any such proceeding you agree to waive
trial by jury and consent to have all legal and factual matters decided by a judge.
If the foregoing is acceptable to you, please sign
this Amendment in the space provided and return it to me. At the time you sign and return it, this Amendment will take effect as a binding agreement between you and the Company on the basis set forth above. The enclosed copy is for your records.
|
| Very truly yours, |
|
| CUBIST PHARMACEUTICALS, INC. |
|
| /s/ Kenneth Bate |
|
| Kenneth Bate |
| Non-Executive Chairman of the Board |
|
|
|
| Agreed and accepted: |
|
| /s/ Michael W. Bonney |
| Michael W. Bonney |
|
|
| Date: |
|
December 18, 2014 |
-2-
Exhibit (e)(16)
October 18, 2014
Robert J. Perez
39 Bowker Drive
Sudbury, MA 01776
Dear Robert,
I am pleased to confirm your promotion to Chief
Executive Officer effective 1/1/15.
Base Salary: Effective 1/1/15 your annual base salary will increase to $800,000.
Bonus: Your annual short-term incentive target will increase under the Management Incentive Plan to 100% of your base salary. All other benefits, such as
accrued vacation time and seniority will remain the same.
Equity: 50% issued as Non-Qualified Stock Options to be granted on January 1, 2015 and 50%
issued as Performance Restricted Stock Units to be granted as part of annual equity incentive award on February 13, 2015.
Confidentiality,
Inventions and Non-Solicitation Agreement: Enclosed you will find two (2) copies of an Agreement regarding confidentiality, inventions, and non-solicitation. Please know that your promotion is contingent upon your signing of this Agreement and
your continued willingness to abide by its terms.
In addition, please know that your employment with Cubist will continue to be at-will (meaning either
you or Cubist may terminate the employment relationship at any time and for any reason without prior notice).
|
| Sincerely, |
|
| /s/ Leon Moulder |
|
| Leon Moulder |
| Compensation Committee, Chair |
Exhibit (e)(17)
EXECUTION COPY
January 1, 2015
BY HAND DELIVERY
Robert J. Perez
Cubist Pharmaceuticals, Inc.
65 Hayden Avenue
Lexington, MA 02421
Re: Retention Letter
Dear Rob:
You are a highly valuable
employee of Cubist. Cubist wishes to retain you as an employee, and is therefore willing to make certain commitments in order to induce you to remain an employee. This letter will confirm the agreement between you and Cubist (“Agreement”)
in that regard and supersedes the Retention Letter between you and Cubist dated August 1, 2013. The Agreement is as follows:
| |
1. |
Definitions. For the purposes of this Agreement, the following definitions apply: |
| |
(a) |
“Cause” means: (i) you commit an act of dishonesty, fraud or misrepresentation in connection with your employment; (ii) you are convicted of, or plead nolo contendere to, a felony or a crime
involving moral turpitude; (iii) you breach any material obligation under any agreement with Cubist you signed regarding your confidentiality, non-solicitation, and developments obligations (referred to as “Confidentiality Agreement”)
or Cubist’s Code of Conduct and Ethics or any similar policy governing your employment with a successor organization; (iv) you engage in substantial or continuing inattention to or neglect of your duties and responsibilities reasonably
assigned to you by Cubist; (v) you engage in substantial or continuing acts to the detriment of Cubist or inconsistent with Cubist’s policies or practices; or (vi) you fail to carry out the reasonable and lawful instructions of your
supervisor or the Cubist Board of Directors that are consistent with your duties. For the avoidance of doubt, “Cause” does not include a termination of employment due to your death or disability. |
| |
(b) |
“Cubist” means Cubist Pharmaceuticals, Inc., its affiliates and any successor organization, except as otherwise specified. |
- 1 -
| |
(c) |
“Good Reason” means, in connection with a Change of Control: (i) the failure of Cubist to employ you in your current or a substantially similar position, without regard to title, such that your duties and
responsibilities are materially diminished without your consent; (ii) a material reduction in your total target cash compensation without your consent (unless such reduction is in connection with a proportional reduction in compensation to all
or substantially all of Cubist’s employees); or (iii) a material change in the geographic location of your primary place of employment from your current site of employment without your consent; provided however, if any of these conditions
purportedly occur, in order to be able to terminate your employment for “Good Reason” hereunder: (x) you are required to provide notice of any such condition to Cubist’s Board of Directors within 60 days of the initial occurrence
of the condition, (y) Cubist will then have 30 days to remedy the purported condition, and (z) if Cubist fails to remedy such condition, you must separate from service not later than 60 days following the end of such thirty-day period.
|
| |
(d) |
“Change of Control” means (1) the closing of (A) any consolidation or merger of Cubist in which Cubist is not the continuing or surviving corporation or pursuant to which shares of Cubist common
stock would be converted into cash, securities or other property, other than a merger or consolidation in which the holders of Cubist common stock immediately prior to the merger or consolidation will have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger or consolidation as before the merger or consolidation, or (B) any sale, lease, exchange or other transfer in a single transaction or a series of related transactions of all or
substantially all of the assets of Cubist, or (2) the date on which any “person” (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than Cubist or a subsidiary
or an employee benefit plan or trust maintained by Cubist or any of its subsidiaries shall become (together with its “affiliates” and “associates,” as defined in Rule 12b-2 under the Exchange Act) the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% or more of the Stock outstanding at the time, with the prior approval of Cubist’s Board of Directors, or of more than 25% of such shares, without the prior
approval of Cubist’s Board of Directors, or (3) a change in the composition of Cubist’s Board of Directors over a period of 36 consecutive months or less such that a majority of the members of the Board (rounded up to the next whole
number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have
been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the
Board. |
Notwithstanding the foregoing, with respect to any award which constitutes “nonqualified deferred
compensation” under, and subject to, Section 409A of the Internal Revenue Code of 1986, as amended and the regulations thereunder (“Section 409A”), to the extent necessary to comply with the requirements of Section 409A, the
term “Change of Control” shall mean an occurrence that both (i) satisfies the requirements set forth above in the definition of Change of Control, and (ii) is a “change in control event” as that term is defined in
Section 1.409A-3(i)(5) of the Treasury Regulations.
For purposes of this Section 1(d), the term “Cubist” shall mean Cubist
Pharmaceuticals, Inc. and shall not include any successor organization.
| |
(e) |
“Bonus” shall mean the greater of either (i) the current year target annual bonus amount or (ii) the previous year’s actual bonus amount. |
| |
2. |
Severance. (a) Except as set forth in Section 2(b) below, in the event that your employment is terminated by Cubist for any reason other than for Cause, then, following, and subject to, receipt by
Cubist of your signed and effective release of claims as more fully described in Section 7 below (and your not revoking such release during any applicable revocation period), Cubist shall pay you starting sixty (60) days following the date
of your employment termination (or on the next succeeding business day if such date is not a business day), an amount equal to the previous year’s actual bonus amount paid to you, to be paid in a one-time, lump-sum payment, plus an amount equal
to twenty-four (24) months of your then-current base salary, with such payment to be made in twelve (12) equal semi-monthly installments, with the first payment retroactive to the day immediately following the date your employment
terminated. |
(b) In the event that, within twenty-four (24) months after a Change of Control, your
employment is terminated either (i) by Cubist for any reason other than for Cause or (ii) by you for Good Reason, then, following, and subject to, receipt by Cubist of your signed and effective release of claims as more fully described in
Section 7 below (and your not revoking such release during any applicable revocation period), Cubist shall make a one-time, lump-sum payment to you equal to twenty-four (24) months of your then current base salary plus Bonus on the
sixtieth (60th) day following the termination of your employment (or on the next succeeding business day if such date is not a business day).
(c) In the event that you become entitled to severance payments under Section 2(a) or 2(b) of this Agreement, Cubist shall
provide you with health insurance assistance for a period of up to 24 months, as described in this paragraph. Subject to (i) your having timely elected continuation coverage under the federal law known as “COBRA”, (ii) your
timely payment of the active employee portion of the monthly COBRA premium for each month during the period described below and (iii) such continuation coverage not having terminated, for a period of up to eighteen (18) months beginning on
the first day of the month after the month in which your employment terminates or, if earlier, until such time as your COBRA coverage terminates, Cubist shall be responsible for the balance of the premium during this period. For the remainder of the
24-month period beginning on the first day of the month after the month in which your employment terminates, (i) if you continue to be eligible for COBRA coverage after such 18-month period, Cubist will continue to pay the employer portion of
your premium as described in the preceding sentence, subject to the conditions set forth therein, and (ii) if you cease to be eligible for
COBRA solely by reason of the 18-month limitation generally applicable under COBRA, Cubist will provide to you, on a taxable basis, reimbursements for substantiated health care premium payments
made by you up to an amount equal to the portion of the monthly COBRA premium covered by Cubist in the last month of such 18-month period.
Notwithstanding any other provision with respect to the timing of payments under this Section 2, in order to comply with
the requirements of Section 409A, if any amount or benefit to be paid to you pursuant to this Agreement as a result of your termination of employment constitutes “deferred compensation” within the meaning of, and subject to,
Section 409A, if you are a “specified employee” (as determined by Cubist in its sole discretion and as defined below) on the date of your termination of employment, any payment or benefit or portion thereof, if any, that is scheduled
to be paid or provided to you hereunder during the first six (6) months following the date of your termination of employment shall not be paid until the date which is the first business day of the seventh month following your termination. For
purposes of the preceding sentence, the term “specified employee” means an individual who is determined by Cubist to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations. Cubist may, but need not, elect in
writing, subject to the applicable limitations under Section 409A of the Code, any of the special elective rules prescribed in Section 1.409A-1(i) of the Treasury Regulations for purposes of determining “specified employee”
status. Any such written election shall be deemed part of this Agreement. For purposes of the Treasury Regulations under Section 409A, each payment described in this Section shall be treated as a separate payment.
For purposes of this Agreement, references to termination of employment, separation from service and similar or correlative
terms mean a “separation from service” (as defined at Section 1.409A-1(h) of the Treasury Regulations) from Cubist and from all other corporations and trades or businesses, if any, that would be treated as a single “service
recipient” with Cubist under Section 1.409A-1(h)(3) of the Treasury Regulations. A termination of employment for Good Reason or by Cubist for any reason other than for Cause under this Agreement is intended to satisfy the meaning of
“involuntary separation from service” (as defined in Section 1.409A-1(n) of the Treasury Regulations).
| |
3. |
Withholding. All payments made by Cubist under this Agreement shall be reduced by any tax or other amounts required to be withheld by Cubist under applicable law. |
| |
4. |
Medical and Dental Benefits. Except for any right you have to continue participation in Cubist’s group health and dental plans under COBRA, all employee benefits shall terminate in accordance with the terms
of the applicable benefit plans as of the date of termination of your employment. The “qualifying event” under COBRA, which triggers your right to continue your health insurance post-employment, shall be deemed to have occurred on the
first day of the month following your termination date. |
| |
5. |
Equity Acceleration. In the event that you become entitled to severance payments under Section 2(b) of this Agreement, then all outstanding unvested equity-based compensation awards granted to you under any
equity plan of Cubist Pharmaceuticals, Inc. prior to the Change of Control shall become exercisable and vested in full, and all restrictions thereon shall lapse, notwithstanding any vesting schedule or other provisions to the contrary in the
agreements evidencing such awards or in the underlying equity plan, and Cubist and you hereby agree that any agreements covering such awards are hereby, and will be deemed to be, amended to give effect to this provision. |
| |
6. |
Excise Tax Provision. Notwithstanding any provision of this Agreement to the contrary: |
| |
(a) |
If at any time it is determined that payment of any or all amounts provided for under this Agreement (the “Benefits”), together with any other payments and benefits payable to you or for your benefit (together
with the Benefits, the “Total Benefits”), would subject you to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (“Section 4999”), and that a reduction in the amount of the unpaid Benefits
would result in the amount of the Total Benefits, net of all federal, state and local income taxes on the Total Benefits and any taxes on the Total Benefits under Section 4999 (such amount, the “Net After-Tax Receipts”), being equal
to or greater than the Net After-Tax Receipts that would result from payment of the unpaid Benefits without reduction, then the aggregate amount of any unpaid Benefits shall be reduced to the smallest amount that results in the Net After-Tax
Receipts being equal to or greater than the Net After-Tax Receipts that would result if the unpaid Benefits were reduced to any other amount. Any such reduction shall be implemented in the following order: first, by reducing cash payments, in
reverse chronological order such that the cash payment otherwise payable on the latest date will be the first cash payment to be reduced; second, by curtailing or cancelling the accelerated vesting of equity-based compensation awards, in reverse
order by date of grant (i.e., the vesting of the most recently granted award will be reduced first); and third, by reducing other benefits, if any, payable to you or for your benefit, in reverse chronological order such that the benefit otherwise
payable on the latest date will be the first such benefit to be reduced. |
| |
(b) |
In the event that you receive payments or benefits that should not have been paid under this Section 6, you agree to repay or reimburse Cubist promptly upon receiving notice that an overpayment has been made.
|
| |
(c) |
Nothing in this Section 6 shall cause Cubist to be responsible for, or to have any liability or obligation with respect to, any excise tax liability under Section 4999. |
| |
7. |
No Contract of Employment. This Agreement is not a contract of employment for a specific term, and your employment is “At Will” and may be terminated by Cubist at any time. |
| |
8. |
Employee Release. Any obligation of Cubist to provide you severance payments or other benefits under this Agreement is expressly conditioned upon your reviewing and signing (and not revoking during any applicable
revocation period) a general release of claims in a form reasonably satisfactory to Cubist within the time period specified in such release (which in all events shall be no later than the fiftieth (50th) calendar day following the date on which
your employment terminates). Cubist shall provide you with the general release promptly after the date on which you give or receive, as the case may be, notice of termination of your employment. |
| |
9. |
Assignment. You shall not make any assignment of this Agreement or any interest in it, by operation of law or otherwise, without the prior written consent of Cubist. Cubist may assign its rights and obligations
under this Agreement without your consent. This Agreement shall inure to the benefit of and be binding upon you and Cubist, and each of our respective successors, executors, administrators, heirs and permitted assigns, including any person or entity
that acquires the business or assets of Cubist Pharmaceuticals, Inc. in a Change of Control. |
| |
10. |
Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision hereof shall be valid and enforceable to the fullest extent
permitted by law. |
| |
11. |
Miscellaneous. This Agreement will commence on the date hereof and will expire on December 31, 2017, unless Cubist Pharmaceuticals, Inc. experiences a Change of Control prior to the expiration of the term of
this Agreement, in which case this Agreement will expire on the later of: (a) December 31, 2017 or (b) two (2) years from the date of the closing of such Change of Control. This Agreement sets forth the entire agreement between
you and Cubist in connection with the subject matter hereof, and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the subject matter hereof, other than any obligations set forth
in your Confidentiality Agreement, which obligations shall remain in full force and effect. In consideration of the payments and benefits provided to you hereunder, you agree that, in the event your employment with Cubist terminates, such payments
and benefits shall be in complete satisfaction of any and all obligations that Cubist may have to you, including under any severance guidelines, practices or policies that Cubist may have in place during your employment or at or after your
employment terminates. Any severance amounts due to you under this Agreement shall be reduced by any notice or pay in lieu thereof that Cubist is required to give under the federal law known as “WARN” or any similar state statute. This
Agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you and an expressly authorized representative of Cubist. This Agreement may be executed in two counterparts, each of which shall be
an original and all of which together shall constitute one and the same instrument. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, without regard to its conflicts of laws principles. |
| |
12. |
Arbitration. Any dispute arising under or relating to this Agreement shall be resolved exclusively by arbitration conducted before a single arbitrator in accordance with the Employment Arbitration Rules of the
American Arbitration Association in effect at the time such arbitration is conducted. All hearings shall be held in Boston, Massachusetts. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The parties shall bear equally the costs of arbitration, including the costs of the arbitrator. |
[Remainder of Page Intentionally Left Blank]
If the foregoing is acceptable to you, please sign both copies of this letter in the space provided, at which time this letter will take
effect as a binding agreement between you and Cubist. Please keep one original for your records and return one original to me.
|
|
|
| Cubist Pharmaceuticals, Inc. |
|
|
| By: |
|
/s/ Kenneth Bate |
|
|
Kenneth Bate |
|
|
Lead Independent Director |
|
|
|
| Accepted and Agreed: |
|
|
| By: |
|
/s/ Robert J. Perez |
| Name: |
|
Robert J. Perez |
| Date: |
|
|
Exhibit (e)(18)
OFFER LETTER AMENDMENT
December 16, 2014
Robert J. Perez
39 Bowker Drive
Sudbury, MA 01776
Dear Robert,
This letter agreement amends the offer letter (the “Offer Letter”) delivered to you by Cubist Pharmaceuticals, Inc. (the
“Company”) on October 18, 2014. Except as modified by this letter agreement, the Offer Letter shall remain in full force and effect; provided, that in the event that any provision in this letter agreement conflicts with the Offer
Letter or any other agreement, policy, plan or arrangement between you and the Company, the terms of this letter agreement shall govern.
By signing this letter agreement, you agree and acknowledge that notwithstanding any other provision of the Offer Letter to the contrary, the
fourth paragraph of the Offer Letter is hereby modified to read in its entirety as follows:
“Equity: You will receive long term
incentive compensation awards with respect to shares of Cubist Pharmaceuticals, Inc. common stock having a total value equal to $5,000,000. Your awards will consist of (i) a grant on January 1, 2015 of restricted stock units
(“RSUs”) with respect to shares that have a grant-date value equal to 25% of your total grant-date value (ii) a grant on [May/June] 15, 2015 of non-qualified stock options (the “Option”) that have a Black-Scholes value,
determined as of [May/June] 15, 2015 equal to 50% of your total grant date value, and (iii) a grant on [May/June] 15, 2015 of performance restricted stock units (“PRSUs”) that have a grant-date value, determined as of [May/June] 15,
2015, equal to 25% of your total grant-date value; provided, however that in the case of (ii) and (iii) above, in the event of a consummation of a change in control prior to [May/June] 15, 2015, neither the Option nor the PRSUs shall be
granted. The Option shall vest in equal quarterly installments over four years from the grant date, provided you remain continuously employed with us through each such vesting date. The RSUs shall vest annually on a pro rata basis over four
years from the grant date, provided you remain continuously employed with us through each such vesting date. The PRSUs will cliff vest after three years, provided you remain continuously employed with us. The Option, RSUs and PRSUs shall
contain other terms and conditions as established by the Compensation Committee of the Company’s Board of Directors. You will receive grant notices and other documents leading up to and following the vesting date, which will govern the
terms and conditions of the Option, RSUs and PRSUs.”
|
| Sincerely, |
|
| /s/ Leon Moulder |
| Leon Moulder |
| Compensation Committee, Chair |
|
| AGREED & ACKNOWLEDGED: |
|
| /s/ Robert J. Perez |
| Robert J. Perez |
Date: December 16, 2014
Exhibit (e)(19)
November 18, 2014
Patrick Vink
Etzelstrasse 20
8707 Uetikon am See
Switzerland
Dear Patrick:
Congratulations! We are very enthusiastic about you becoming the Chief Operation Officer for Cubist Pharmaceuticals, Inc. (“Cubist). Though you will hold
that appointment beginning on January 1, 2015, from January 1-May 31, 2015, you will perform the duties of that role as an employee of Cubist Pharmaceuticals GmbH (“Cubist GmbH”) who is based in Zurich and seconded to
Cubist, as described below. During the Secondment Assignment (see below) and thereafter as a Cubist employee, you will report directly to Rob Perez, Chief Executive Officer. Please note that this is a contingent offer of employment and will be final
only upon you (a) being legally authorized to work in the United States at the conclusion of the Secondment Assignment, (b) signing the Cubist employee confidentiality agreement (described below), and (c) remaining employed by Cubist
GmbH through the Secondment Assignment.
We hereby summarize the principal terms of our offer, as follows:
Secondment Assignment: From January 1, 2015 through May 31, 2015, you will remain an employee of Cubist Pharmaceuticals GmbH (“Cubist
GmbH”) and will be seconded by Cubist GmbH to Cubist to perform the duties of COO (the “Secondment Assignment”). You will remain on the Zurich office payroll and will continue to be eligible for the benefits offered by Cubist GmbH to
its employees. You will continue to work out of the Zurich office, though you may be required, at Cubist’s discretion, to perform some or all of your duties during that time in Cubist’s office in Lexington, Massachusetts.
On or about May 31, 2015, you agree that you will resign your position with Cubist GmbH to join Cubist. Nicolas Hochuli will assist you with transitional
issues in ending your Cubist GmbH employment and commencing your Cubist employment.
Base Salary: Effective January 1, 2015, your compensation
will be CHF 622,839. At the conclusion of the Secondment Assignment and start of Cubist employment, you will be paid US$27,083.33 in base salary per semi-monthly pay period which represents an annual base salary of approximately US$650,000. Under
U.S. and Massachusetts law, this position is exempt, so you will not be eligible for overtime pay.
Performance Bonus: Effective January 1,
2015, you will be eligible to participate in an annual bonus plan, subject to its terms and conditions, with the potential to earn a discretionary bonus equivalent to a target percentage of up to 75% of your bonus-eligible base wage, based upon
achievement of company performance and individual performance. The determination of whether a bonus is awarded and how much bonus, if any, will be paid remains in the discretion of Cubist, and is not considered a wage under U.S. or Massachusetts
law.
Initialed:
Benefits: Upon completion of the Secondment Assignment and start of your Cubist employment, you will be
eligible to participate in Cubist’s comprehensive benefit program provided to our regular, full-time employees, including Health, Dental, Life and Disability Insurance, matching 401(k) Plan, Employee Stock Purchase Plan, etc. As part of your
benefits, you will receive three weeks of paid vacation. Please see the enclosed benefits brochure for further details on the Cubist benefits program. Cubist retains the right to amend, modify, or cancel any benefits program. Where a particular
benefit is subject to a formal plan (for example, medical insurance or 401(k)), eligibility to participate in and receive any particular benefit is governed solely by the applicable plan document. Should you have any questions about the
Company’s benefits, please feel free to request a copy of any applicable plan document and/or make further inquiry from the U.S. Benefits Manager.
Equity Awards: You will receive long term incentive compensation awards with respect to shares of Cubist Pharmaceuticals, Inc. common stock
(“CBST stock”) having a total value, determined as of the grant date, equal to $3,000,000. Your awards will consist of (i) non-qualified stock options (the “Option”) that have a Black-Scholes value, determined as of
January 1, 2015, equal to 50% of your total grant-date value, and (ii) restricted stock units (“RSUs”) with respect to shares that have a grant-date value equal to 25% of your total grant-date value as of January 1, 2015 and
(iii) performance restricted stock (“PRSUs”) that have a grant-date value equal to 25% of your total grant-date value to be issued as part of your annual equity incentive award in February 2015. The Option shall vest in equal
quarterly installments over four years from the grant date, provided you remain continuously employed through each such vesting date. The RSUs shall vest annually on a pro rata basis over four years from the grant date, provided you remain
continuously employed with us through each such vesting date (RSUs vest into an equivalent number of shares of CBST stock). The PRSUs will cliff vest after three years. The Option, RSUs and PRSUs shall contain other terms and conditions as
established by the Compensation Committee of the Cubist Pharmaceuticals Inc.’s Board of Directors. You will receive grant notices and other documents leading up to and following the vesting date, which will govern the terms and conditions
of the Option, RSUs and PRSUs.
Relocation: Cubist will provide you with assistance to smoothly transition to your new job location. You will be
eligible to receive a relocation benefit to assist you in your move from Switzerland to the greater Boston area at the conclusion of the Secondment Assignment and start of your Cubist employment. Enclosed is a detailed relocation program document
outlining the program benefits and rules. The relocation benefit is provided to you on the condition that you commit to remain with Cubist for a minimum period of two years. To receive this benefit, Cubist will require you to sign and agree to the
terms and conditions in the enclosed Relocation Agreement. Please see exhibit A for additional terms regarding your relocation package.
Immigration: Cubist will assist you in obtaining a non-immigrant visa to work in the United States and will cover the costs incurred in connection with
this process. You must have authorization to work in the United States before your relocation.
Taxation: A tax consultant provided by Cubist will
meet with you during the Secondment Assignment and will be available in 2015 to advise you on the tax filing requirements in the U.S. and Switzerland and to assist you with your 2015 annual tax preparation and filings.
You are advised that part of the Equity Awards detailed above is intended to recognize any potential tax consequence you may experience in Switzerland or the
US due to the Secondment Assignment and/or subsequent employment in the US. To the extent any taxes are owed by you to the Swiss and/or US governments, Cubist is not responsible.
Initialed:
Retention Letter: You are eligible for a Cubist Retention Letter upon employment. During the
Secondment Assignment, your current Retention Letter, dated November 5, 2012, will remain in effect.
Confidentiality, Inventions and
Non-Solicitation Agreement: Attached with this offer letter, you will find a copy of an Agreement regarding confidentiality, non-solicitation, and intellectual property (the “Agreement”). This Agreement is fully applicable during the
Secondment Assignment and thereafter. To protect, both in the U.S. and Switzerland, any Cubist entity’s substantial investment of time and money in the creation, maintenance and protection of its Confidential Information and good-will with its
customers, clients, and collaborators, your offer of employment is contingent upon your signing this Agreement and your continued willingness to abide by its terms.
Employment At-Will: While we look forward to a long and mutually beneficial relationship, please know that you are not being offered employment for a
definite period of time and that either you or Cubist may terminate the employment relationship at any time and for any reason without prior notice. Nothing in Cubist’s offer to you of compensation or benefits should be interpreted as creating
anything other than an at-will employment relationship.
The terms and conditions of this offer letter and your employment shall be governed
by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflicts of laws principles thereof, except that any rights or obligations established or conferred by the wage-hour or
discrimination laws of the state where you primarily reside shall be governed by the laws of that state. In addition, you acknowledge and agree that any action, claim or counterclaim concerning this offer or your employment shall be brought either
in a court of competent jurisdiction in Massachusetts or in a court of competent jurisdiction in the state where you primarily reside. You acknowledge that, because Cubist is headquartered in Massachusetts, and you will have regular interaction with
Cubist representatives based in Massachusetts, it is appropriate and reasonable for a dispute to be heard by a court of competent jurisdiction within Massachusetts. By signing below, you agree to be subject to the personal jurisdiction and venue of
the Massachusetts courts. Finally, you agree that any dispute relating to this offer or your employment shall be resolved in a court of competent jurisdiction in by a judge alone, and you waive and forever renounce your right to a trial before
a civil jury.
We are very enthusiastic about you becoming a member of the Cubist US team. If you have any questions, please contact us.
This offer letter, including the Relocation Agreement and your Cubist Confidentiality, Inventions and Non-Solicitation Agreement supersedes any prior
agreements, or other promises or statements (whether oral or written) regarding the offered terms of employment or any aspect of your anticipated employment.
Sincerely,
/s/ Robert Perez
Robert Perez
President & COO
Initialed:
Yes, I accept the terms and conditions of this offer.
|
|
|
|
|
|
|
|
|
| Signed: |
|
/s/ Patrick Vink |
|
|
|
Date: |
|
November 18, 2014 |
|
|
|
|
|
| Start Date: |
|
|
|
|
|
|
|
|
Initialed:
Exhibit (e)(20)
OFFER LETTER AMENDMENT
December 16, 2014
Patrick Vink
Etzelestrasse 20
8707 Uetikon am See
Switzerland
Dear Patrick,
This letter agreement amends the
offer letter (the “Offer Letter”) delivered to you by Cubist Pharmaceuticals, Inc. (the “Company”) on November 18, 2014. Except as modified by this letter agreement, the Offer Letter shall remain in full force and effect;
provided, that in the event that any provision in this letter agreement conflicts with the Offer Letter or any other agreement, policy, plan or arrangement between you and the Company, the terms of this letter agreement shall govern.
By signing this letter agreement, you agree and acknowledge that notwithstanding any other provision of the Offer Letter to the contrary, the
paragraph of the Offer Letter titled “Equity Awards” is hereby modified to read in its entirety as follows:
“Equity Awards. You will receive long term incentive compensation awards with respect to shares of Cubist
Pharmaceuticals, Inc. common stock having a total value equal to $3,000,000. Your awards will consist of (i) a grant on January 1, 2015 of restricted stock units (“RSUs”) with respect to shares that have a grant-date value
equal to 25% of your total grant-date value (ii) a grant on [May/June] 15, 2015 of non-qualified stock options (the “Option”) that have a Black-Scholes value, determined as of [May/June] 15, 2015 equal to 50% of your total grant date
value, and (iii) a grant on [May/June] 15, 2015 of performance restricted stock units (“PRSUs”) that have a grant-date value, determined as of [May/June] 15, 2015, equal to 25% of your total grant-date value; provided, however that in
the case of (ii) and (iii) above, in the event of a consummation of a change in control prior to [May/June] 15, 2015, neither the Option nor the PRSUs shall be granted. The Option shall vest in equal quarterly installments over four years
from the grant date, provided you remain continuously employed with us through each such vesting date. The RSUs shall vest annually on a pro rata basis over four years from the grant date, provided you remain continuously employed with us
through each such vesting date. The PRSUs will cliff vest after three years, provide you remain continuously employed with us. The Option, RSUs and PRSUs shall contain other terms and conditions as established by the Compensation Committee of
the Company’s Board of Directors. You will receive grant notices and other documents leading up to and following the vesting date, which will govern the terms and conditions of the Option, RSUs and PRSUs.”
|
| Sincerely, |
|
| /s/ Leon Moulder |
| Leon Moulder |
| Compensation Committee, Chair |
|
| AGREED & ACKNOWLEDGED: |
|
| /s/ Patrick Vink |
| Patrick Vink |
Date: December 16, 2014