Albany Molecular Research
ALBANY MOLECULAR RESEARCH INC (Form: DEF 14A, Received: 04/19/2017 16:41:23)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

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



 
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ALBANY MOLECULAR RESEARCH, INC.
26 Corporate Circle
Albany, New York 12203

April 19, 2017

Dear Stockholder:

You are cordially invited to attend the 2017 Annual Meeting of Stockholders of Albany Molecular Research, Inc. to be held on Wednesday, May 31, 2017 at 10:00 a.m., local time, at the Company’s corporate offices located at 26 Corporate Circle, Albany, New York 12203.

The attached proxy statement, with formal notice of the meeting on the first page, describes the matters expected to be acted upon at the meeting. We urge you to review these materials carefully. Following the formal portion of the meeting, we will review our operations, report on 2016 financial results and discuss our plans for the future.

Your vote is important to us. We hope that you will be able to attend the meeting. Whether or not you plan to attend the meeting, we ask that you please complete, date, and sign the enclosed proxy card and return it as promptly as possible in the envelope provided or vote by telephone or the Internet pursuant to the instructions provided in the proxy materials. If you attend the meeting, you may vote in person if you wish, even if you have previously returned your proxy card.

Sincerely,

[GRAPHIC MISSING]

William S. Marth
President and Chief Executive Officer


 
 

ALBANY MOLECULAR RESEARCH, INC.
26 Corporate Circle
Albany, New York 12203

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 31, 2017

To the Stockholders of Albany Molecular Research, Inc.,

NOTICE IS HEREBY GIVEN that the 2017 Annual Meeting of Stockholders of Albany Molecular Research, Inc., a Delaware corporation (the “Company” or “AMRI”), will be held on Wednesday, May 31, 2017 at 10:00 a.m., local time, at the Company’s corporate offices located at 26 Corporate Circle, Albany, New York 12203 (including any adjournments or postponements thereof, the “Annual Meeting”) for the following purposes:

1. To elect two Class I Directors of the Company, each to serve until the 2020 Annual Meeting of Stockholders and until his successor is duly elected and qualified or until his earlier resignation or removal;
2. To ratify the Company’s selection of KPMG LLP as the independent registered public accounting firm for the 2017 fiscal year;
3. To approve the Company’s Fifth Amended 2008 Stock Option and Incentive Plan;
4. To approve the Company’s Fourth Amended 1998 Employee Stock Purchase Plan;
5. To hold an advisory vote to approve the compensation of the Company’s named executive officers;
6. To hold an advisory vote on the frequency of future non-binding stockholder votes on the compensation of the Company’s named executive officers; and
7. To consider and act upon any other matters that may properly come before the Annual Meeting and any adjournments or postponements thereof.

Only holders of record of the Company’s Common Stock, par value $.01 per share, at the close of business on April 13, 2017 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof.

All stockholders are cordially invited to attend the Annual Meeting in person. However, to assure your representation at the Annual Meeting, we urge you, whether or not you plan to attend the Annual Meeting, to complete, sign, date and mail promptly the enclosed proxy card which is being solicited on behalf of the Board of Directors or vote by telephone or the Internet pursuant to the instructions provided in the proxy materials so that your shares will be represented at the Annual Meeting.

In the event there are not sufficient shares to be voted in favor of any of the foregoing proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies.

By Order of the Board of Directors,

[GRAPHIC MISSING]

Lori M. Henderson
Senior Vice President, General Counsel and Secretary

Albany, New York
April 19, 2017


 
 

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR TO CAST YOUR VOTE BY TELEPHONE OR THE INTERNET. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY VOTED.


 
 

ALBANY MOLECULAR RESEARCH, INC.
26 Corporate Circle
Albany, New York 12203

PROXY STATEMENT
 
ANNUAL MEETING OF STOCKHOLDERS
 
To Be Held on May 31, 2017

April 19, 2017

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Albany Molecular Research, Inc., a Delaware corporation (the “Company”), for use at the Annual Meeting of Stockholders of the Company to be held on Wednesday, May 31, 2017 at 10:00 a.m., local time, at the Company’s corporate offices located at 26 Corporate Circle, Albany, New York 12203 or at any adjournments or postponements thereof (the “Annual Meeting”). The Annual Report of the Company, including financial statements for the fiscal year ended December 31, 2016, is being mailed together with this proxy statement to all stockholders of the Company entitled to vote at the Annual Meeting. The Notice of Annual Meeting of Stockholders, Proxy Statement and proxy card are first being mailed to stockholders of the Company on or about April 27, 2017 in connection with the solicitation of proxies for the Annual Meeting.

At the Annual Meeting, stockholders will be asked to consider and vote upon the following matters:

1. To elect two Class I Directors of the Company, each to serve until the 2020 Annual Meeting of Stockholders and until his successor is duly elected and qualified or until his earlier resignation or removal;
2. To ratify the Company’s selection of KPMG LLP as the independent registered public accounting firm for the 2017 fiscal year;
3. To approve the Company’s Fifth Amended 2008 Stock Option and Incentive Plan;
4. To approve the Company’s Fourth Amended 1998 Employee Stock Purchase Plan;
5. To hold an advisory vote to approve the compensation of the Company’s named executive officers;
6. To hold an advisory vote on the frequency of future advisory votes on the compensation of the Company’s named executive officers; and
7. To consider and act upon any other matters that may properly come before the Annual Meeting and any adjournments or postponements thereof.

Only holders of record of the Company’s common stock, par value $.01 per share (the “Common Stock”) at the close of business on April 13, 2017 (the “Record Date”) will be entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 42,931,977 shares of Common Stock were issued, outstanding and entitled to vote at the Annual Meeting.

The holders of Common Stock outstanding as of the Record Date are entitled to one vote per share on any proposal presented at the Annual Meeting. Stockholders may vote by proxy by completing, signing, dating and returning the accompanying proxy card in the postage-prepaid envelope enclosed for that purpose, or by telephone or the Internet. Execution of the proxy will not in any way affect a stockholder’s right to attend the Annual Meeting and vote in person. If your shares are held in street name through a broker, bank or other intermediary, your broker, bank or other intermediary should give you instructions for voting your shares.

Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before the taking of the vote at the Annual Meeting. Proxies may be revoked by (1) filing with the Secretary of the Company before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than such stockholder’s proxy, (2) duly executing a later-dated proxy relating to the same shares and delivering it to the Secretary of the Company, or voting by telephone or the Internet in accordance with the instructions in the proxy materials, before the taking of the vote at the Annual Meeting, or (3) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not in and of itself

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constitute a revocation of a proxy). Any written notice of revocation or subsequent proxy should be delivered to Albany Molecular Research, Inc., 26 Corporate Circle, Albany, New York 12203, Attention: Lori Henderson, Secretary, before the taking of the vote at the Annual Meeting. If you hold your shares in street name and would like to change your voting instructions, please follow the instructions provided to you by your broker, bank or other intermediary.

The presence, in person or by proxy, of a majority of the total number of outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum for the transaction of business at the Annual Meeting. Shares that reflect abstentions or “broker non-votes” (i.e., shares represented at the Annual Meeting held by brokers or nominees as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which the broker or nominee does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the Annual Meeting.

Stockholders of the Company are requested to complete, date, sign and return the accompanying proxy card in the enclosed envelope or to vote by telephone or the Internet, in accordance with the instructions in the proxy materials. The persons named as attorneys-in-fact in the proxies, William S. Marth and Lori M. Henderson, were selected by the Board of Directors of the Company (the “Board of Directors”) and are officers of the Company. Shares of Common Stock represented by properly executed proxies received by the Company and not revoked will be voted at the Annual Meeting in accordance with the instructions contained therein. If instructions are not given, properly executed proxy cards will be voted “FOR” each of Proposals 1 through 5 and for the “1 YEAR” option on Proposal 6. It is not anticipated that any matters other than those described herein will be presented at the Annual Meeting. If other matters are presented, proxies will be voted in accordance with the discretion of the proxy holders.

A representative from Computershare will serve as the Inspector of Elections and will count all votes and ballots.

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PROPOSAL 1
 
ELECTION OF DIRECTORS

The Board of Directors of the Company currently consists of ten (10) members and is divided into three classes, with four Class I Directors (Kenneth P. Hagen, Anthony J. Maddaluna, Arthur J. Roth, CPA and Una S. Ryan, Ph.D., O.B.E.,), three Class II Directors (William S. Marth, Fernando Napolitano and Kevin O’Connor) and three Class III Directors (Thomas E. D’Ambra, Ph.D., David H. Deming and Gerardo Gutiérrez). Directors serve for three year terms with one class of directors being elected by the Company’s stockholders at each Annual Meeting.

Fernando Napolitano was appointed to the Board of Directors on July 12, 2016. Una S. Ryan, Ph.D., O.B.E. and Arthur J. Roth, CPA, have informed the Company of their intention to retire from the Board of Directors and the Board committees on which each serves, at the expiration of their current terms on May 31, 2017 and therefore will not stand for re-election at the Annual Meeting.

At the Annual Meeting, two Class I Directors will be elected to serve until the 2020 Annual Meeting of Stockholders and until his successor is duly elected and qualified or until his earlier resignation or removal. The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has nominated Kenneth P. Hagen and Anthony J. Maddaluna for re-election as Class I Directors. Unless otherwise specified in the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy for the re-election of Kenneth P. Hagen and Anthony J. Maddaluna as Class I Directors. Mr. Hagen and Mr. Maddaluna have agreed to stand for re-election and to serve, if elected, as directors. However, if a person nominated by the Board of Directors fails to stand for election or is unable to accept election, the proxies will be voted for the election of such other person or persons as the Board of Directors may recommend.

Vote Required For Approval

Directors are elected by a plurality of the votes cast, in person or by proxy, at the Annual Meeting. The nominees who receive the highest number of affirmative votes of the shares present or represented and voting on the election of directors at the Annual Meeting will be elected to the Board of Directors. Shares present or represented and not so marked as to withhold authority to vote for a particular nominee will be voted in favor of a particular nominee and will be counted toward such nominee’s achievement of plurality. Votes withheld will be excluded entirely from the vote and will have no effect. Broker non-votes will also have no effect on the outcome of the election of directors.

Recommendation

The Board of Directors of the Company unanimously recommends a vote FOR the election of its nominees as Class I Directors of the Company.

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The following table sets forth the nominees to be elected at the Annual Meeting and the other current directors, the year each such nominee or director was first elected a director, the positions with the Company currently held by the nominee or director, the year each nominee’s or director’s current term will expire and each nominee’s or director’s age and current class.

     
Name   Position with the Company   Age   Year First
Became
Director
Class I — Nominees for Election
              
Kenneth P. Hagen (2) (3)   Director   69   2016
Anthony J. Maddaluna (1) (2)   Director   64   2016
Class II — Term Expires in 2018
              
William S. Marth   Director, President and Chief Executive Officer   62   2012
Fernando Napolitano (1)   Director   52   2016
Kevin O’Connor (1) (3)   Director   62   2000
Class III - Term expires in 2019
              
Thomas E. D’Ambra, Ph.D.   Chairman of the Board of Directors   61   1991
David H. Deming (2) (3)   Director   64   2016
Gerardo Gutiérrez   Director   63   2015
Class I — Term Expires in 2017
              
Arthur J. Roth, CPA (1) (2) (4)   Director   77   2003
Una S. Ryan, Ph.D., O.B.E (1) (3) (4)   Director   75   2006

(1) Member of Nominating and Corporate Governance Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Mr. Roth and Dr. Ryan have informed the Board of Directors that they intend to retire at the expiration of their current terms on May 31, 2017 and therefore will not stand for re-election at the 2017 Annual Meeting.

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DIRECTORS AND EXECUTIVE OFFICERS

The Company’s executive officers are appointed on an annual basis by, and serve at the discretion of, the Board of Directors. The directors and executive officers of the Company are as follows:

   
Name   Age   Position with the Company
William S. Marth   62   President and Chief Executive Officer, Director
Milton Boyer   55   Senior Vice President, Drug Product
Christopher M. Conway   41   Senior Vice President, Discovery, Development & Analytical Services
Margalit Fine   65   Executive Vice President, API
Steven R. Hagen, Ph.D.   56   Senior Vice President, Quality and Compliance
Lori M. Henderson   55   Senior Vice President, General Counsel and Head of Business Development
Felicia I. Ladin   45   Senior Vice President, Chief Financial Officer and Treasurer
George Svokos   59   Chief Operating Officer
Thomas E. D’Ambra, Ph.D.   61   Chairman of the Board of Directors
David H. Deming   64   Director
Gerardo Gutiérrez   63   Director
Kenneth P. Hagen*   69   Director
Anthony J. Maddaluna*   64   Director
Fernando Napolitano   52   Director
Kevin O’Connor   62   Director
Arthur J. Roth, CPA**   77   Director
Una S. Ryan, Ph.D., O.B.E.**   75   Director

* Nominee for re-election.
** Mr. Roth and Dr. Ryan have informed the Board of Directors that they intend to retire at the expiration of their current terms on May 31, 2017, and therefore will not stand for re-election at the 2017 Annual Meeting.

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BIOGRAPHICAL INFORMATION

Nominees for Election as Class I Directors for Terms to Expire in 2020

Kenneth P. Hagen has served as one of our directors since May 2016. Mr. Hagen joined Pricewaterhouse Coopers in 1975 and became a tax partner in 1986, serving a wide range of pharmaceutical, industrial and technology clients. Since 2000 and until his retirement in 2011, Mr. Hagen was the Partner-in-Charge of PwC’s Mergers and Acquisition tax practice in Philadelphia. In addition, Mr. Hagen served as principal tax advisor for over a decade to one of the world’s leaders in generic pharmaceuticals. He also advised other clients on tax issues associated with large and diverse corporate transactions. Mr. Hagen holds a B.S. in Accounting from Pennsylvania State University and a Masters in Taxation from Villanova University. Mr. Hagen’s expertise in taxation, equity financing, mergers and acquisitions, and knowledge of our industry make him a valuable member of the Company’s Board of Directors.

Anthony J. Maddaluna has served as one of our directors since February 2016. In November 2016, Mr. Maddaluna announced his retirement as the Executive Vice President of Pfizer, Inc. and President of the global pharmaceutical manager, Pfizer Global Supply, where he focused on plant network strategy, capturing global advantage, business process redesign, and other transformational initiatives. His career with Pfizer spanned more than 40 years, having joined Pfizer in 1975 in the Minerals, Pigments, and Metals Division. Subsequently he worked in the Pharmaceutical Division at Pfizer, as a Plant Manager, and as a General Plant Manager before becoming a Vice President of Strategy and Supply Network Transformation in 2008, and Senior Vice President in 2009. Prior to joining Pfizer, he worked at the U.S. Environmental Protection Agency and at Johnson & Johnson as an engineer. Mr. Maddaluna currently represents Pfizer on the National Association of Manufacturers (NAM), the largest manufacturing association in the United States. He also serves on the NAM board as a member of the Executive Committee. He holds a B.S. in Chemical Engineering from Northeastern University and an M.B.A. in Management and Organizational Development from Southern Illinois University. Mr. Maddaluna’s leadership ability, knowledge of our industry and significant business acumen make him a valuable member of the Company’s Board of Directors.

Incumbent Class II Directors — Terms Expiring 2018

William S. Marth has served as one of our directors since May 2012 and became our President and Chief Executive Officer in January 2014, after briefly serving as the Company’s non-executive Chairman since 2013. In 2013, Mr. Marth served as senior advisor to Teva Pharmaceuticals, a manufacturer of specialty and generic pharmaceuticals, following his retirement in 2012 as President and Chief Executive Officer of Teva —  Americas. He had previously served as President and Chief Executive Officer of Teva North America from January 2008 to June 2010, as President and Chief Executive Officer of Teva USA from January 2005 to January 2008 and Executive Vice President and Vice President of Sales and Marketing for Teva USA. In addition, Mr. Marth worked with several large equity firms providing guidance on their healthcare investments. Mr. Marth is recognized as an industry leader with an unparalleled record of commercial success. He was a key strategist in establishing Teva as a leading specialty pharmaceutical company and being ultimately recognized as the premier worldwide producer of generic pharmaceuticals. He was a member of Teva’s global executive management team and Teva Americas’ board of directors from 2007 to 2012. His experience was global in all core functional areas including Strategic Planning, investor relations, R&D, Supply Chain Management and Regulatory. He also served as the architect of the $6.8 billion Cephalon and $7.4 billion Barr Laboratories acquisitions and integrations. Prior to joining Teva USA, he held various positions with the Apothecon division of Bristol-Myers Squibb. Mr. Marth earned his B.Sc. in Pharmacy from the University of Illinois in 1977 and his M.B.A. in 1989 from the Keller Graduate School of Management, DeVry University. He is a licensed pharmacist and is currently the Chairman of the Board of Directors of Sorrento Therapeutics, and a director at Galmed and the University of Illinois at Chicago College of Pharmacy (UIC). Previously, Mr. Marth served as the Chairman of the Board of the Generic Pharmaceutical Association (GPhA) in 2008 and 2009 and the American Society for Health-System Pharmacists (ASHP) in 2010, and on various other boards and committees, including the University of the Sciences in Philadelphia and the Board of Ambassadors for John Hopkins’ Project RESTORE. Mr. Marth’s industry and commercial leadership expertise benefit the Company significantly.

Fernando Napolitano has served as one of our directors since July 2016. Mr. Napolitano was designated for nomination to the Board by Lauro Cinquantasette S.p.A., pursuant to the stockholders agreement entered

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into in connection with the Company’s acquisition of Prime European Therapeuticals S.p.A. — Euticals. He currently serves as founder and Chief Executive Officer of the New York-based Italian Business & Investment Initiative, which is focused on fostering business relationships between the United States and Italy. From 1990 to 2011, Mr. Napolitano served as Senior Vice President and Managing Director of Booz & Company (formerly Booz Allen Hamilton) in Italy, where he led the Organization and Strategy practice, specializing in leadership, organization and strategy for clients in the telecommunications, media, aerospace and energy sectors. Mr. Napolitano serves as a member of the Board of Directors of Mediaset S.p.A. in Milan. He also serves on a number of advisory boards, including Innogest, a Turin, Italy-based venture capital fund; the Mind the Bridge Foundation in San Francisco; Bologna Business School in Bologna, Italy; and the Office of Innovation & Entrepreneurship at the Stevens Institute of Technology in New York. He is also a member of the USA-Italy Council through the Economic Club of New York. Mr. Napolitano graduated with honors in Economics and Business Administration from the University of Naples Federico II, Naples, Italy in 1987 and obtained a Master of Science in Management of Technology from Brooklyn Polytechnic, in New York (now known as NYU — Polytechnic School of Engineering) in 1990. Mr. Napolitano also completed Harvard Business School’s Advanced Management Program and received a diploma from the Chamber of Commerce in Paris, France. Mr. Napolitano’s experience at Booz & Company and broad business background are assets to the Company’s Board of Directors.

Kevin O’Connor has served as one of our directors since March 2000. Mr. O’Connor serves as the Chief Executive Officer of the Albany Consulting Group, which he founded in 2013 and which provides telecommunications and information technology advisory services. Prior to that, Mr. O’Connor served as Chief Executive Officer of First Light (formerly Tech Valley Communications), a telecommunications company, since July 2000. Mr. O’Connor previously served as the President of the Center for Economic Growth, Inc., a business-sponsored economic development organization, from 1992 through 2000. Mr. O’Connor also served as a Deputy Commissioner for the New York State Department of Economic Development from 1987 to 1992, as a Program Associate for the New York State Governor’s Office from 1984 to 1987 and held various positions in the New York State Division of the Budget and the New York State Department of Health from 1980 to 1984. Mr. O’Connor also serves as a director of several private companies and non-profit organizations. Mr. O’Connor holds a B.A. in history and an M.A. in public administration from the State University of New York College in Brockport. Mr. O’Connor’s experience as a chief executive officer provides him with skills related to management, finance, compensation, information technology and corporate governance. His government experience provides him with unique insights into economic development, which enables him to make valuable contributions in the Board’s deliberation process, especially in the areas of business strategy, competition, and the marketplace.

Incumbent Class III Directors — Terms Expiring in 2019

Thomas E. D’Ambra, Ph.D., co-founded the Company in 1991 and served as President and Chief Executive Officer until his retirement in 2013. In January 2014, Dr. D’Ambra resumed the role of Chairman of the Board of Directors and currently serves in that capacity. In February 1, 2016, Dr. D’Ambra resumed employment with the Company in a non-executive capacity. In August 2014, Dr. D’Ambra was appointed to the Albany College of Pharmacy and Health Sciences’ (ACPHS) Board of Trustees and in October 2014 was appointed to the Albany Palace Theater and Performance Arts Center Board of Trustees. Prior to co-founding the Company, Dr. D’Ambra served as the Vice President, Chemistry and co-founder of Coromed, Inc., a traditional development contract research organization, from 1989 to 1991 and Group Leader and Senior Research Chemist with Sterling Winthrop, Inc., a pharmaceutical company, from 1982 to 1989. Dr. D’Ambra holds a B.A. in chemistry from the College of the Holy Cross and a Ph.D. in organic chemistry from the Massachusetts Institute of Technology. His entrepreneurial skills, strategic vision, leadership ability and in-depth knowledge of our business strategy, industry, products, research and development, operations and employees have been critical to the growth experienced by the Company since its inception.

David H. Deming has served as one of our directors since February 2016. Mr. Deming founded TAG Healthcare Advisors in 2014. Prior to that, Mr. Deming was Principal at Deming & Co., LLC, a company that advised private companies on business strategy, business plans and financing strategies, from September 2012 to March 2013, and Chief Executive Officer of Dimensional SmartNest LLC, a customized retirement solution which Mr. Deming developed and successfully sold to Dimensional Fund Advisors. Previously, Mr. Deming

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spent over 27 years at JP Morgan Chase and JP Morgan, where he led the healthcare investment banking group for twelve years. He has over 35 years of experience in investment banking, and has focused on the healthcare industry for over 15 years. Mr. Deming also serves on the boards of directors of IRX Therapeutics, a clinical-stage bioresearch company, since May 2014, and Sorrento Therapeutics, an antibody-centric, clinical stage biopharmaceutical company, since April 2015. Mr. Deming graduated from Hobart College with a BA in Economics with Highest Honors, where he served as Chair of the Board of Trustees from 2006 to 2012. Mr. Deming’s broad background in the healthcare industry and prior experience in senior leadership roles at international investment banking firms will directly benefit the Company as we continue to grow both organically and via acquisition.

Gerardo Gutiérrez has served as a director since July 2015, following the Company’s acquisition of Gadea Grupo Farmacéutico, S.L. Since 1991, Mr. Gutiérrez had been leading Gadea Grupo Farmacéutico, S.L. as Founder, President and Chief Executive Officer. From 1989 to 1991, Mr. Gutiérrez was R&D Director of Química Sintética S.A. in Madrid. From 1981 to 1989, he served as Technical Services Manager at Lilly S.A. in Madrid. In addition, Mr. Gutiérrez serves as the President of Social Council of University of Valladolid, and served as the President of Family Business Association in Castilla y León, from 2012 to 2014 and the President of Pharmaceutical Cluster in Castilla y León, from 2011 to 2013. Mr. Gutiérrez earned his B.Sc. in Chemistry from the Complutense University of Madrid, and his Masters in Production, Operations & Technology Management from the ICADE Business School. Mr. Gutierrez brings to the Board of Directors his extensive knowledge of the life sciences industry.

Incumbent Class I Directors — Terms Expiring in 2017

Arthur J. Roth, CPA, has served as one of our directors since October 2003 and served as Lead Director beginning in 2012 through June 2013. Mr. Roth served as a tax consultant to the international law firm of Mayer Brown LLP, a position he held from December 2011 to October 2016. Previously, from 2003 to 2011 he was a tax consultant to the law firm of Hodgson Russ LLP. Mr. Roth served on the Board of Directors and as the Chair of the Audit Committee of First Albany Capital Inc. from October 2003 until August 2006 and served as Commissioner of the New York State Department of Taxation and Finance from 1999 to 2003. Prior to his appointment as Commissioner, Mr. Roth was Deputy Commissioner for Operations, New York State Department of Taxation and Finance from 1996 until 1999. Mr. Roth was a senior consulting director with Coopers and Lybrand from 1992 to 1996 and a founder and managing director of Roth Nobis & Company, a certified public accounting firm serving the manufacturing and service industries, from 1968 to 1992. Mr. Roth serves as a director for MVP Healthcare, and Chair of its Audit Committee. Mr. Roth is a certified public accountant and holds a B.A. from Syracuse University. Mr. Roth’s term as a director expires at the Annual Meeting and he is not standing for re-election.

Una S. Ryan, Ph.D., O.B.E., has served as one of our directors since October 2006. Dr. Ryan is Managing Director Golden Seeds (Silicon Valley), an angel investment firm that seeks above market returns through the empowerment of women entrepreneurs. She is also a partner in Astia Angel, investing in women-led ventures, and a limited partner in Breakfast Ventures. She is the founder of ULUX, a fine art company that creates art based on science. Previously, Dr. Ryan was President and CEO of Diagnostics for All, Inc. (DFA), developing inexpensive diagnostics for global health and agriculture and President and CEO of Waltham Technologies, Inc., a cleantech/energy start-up. She was also formerly President and CEO of AVANT Immunotherapeutics, Inc. (now Celldex), a company developing vaccines and immunotherapeutics. Dr. Ryan’s board positions also include RenovoRx. She is on the Board of Directors of BayBio and was Chair of MassBio, as well as the Biotechnology Industry Organization (BIO), New England Healthcare Institute, Board of Associates of the Whitehead Institute, Strategy & Policy Council of the MIT Center for Biomedical Innovation, the Massachusetts Life Sciences Collaborative Leadership Council and Management Sciences for Health (MSH). Dr. Ryan holds a Ph.D. in Cellular and Molecular Biology from Cambridge University and B.S. degrees in Zoology, Microbiology and Chemistry from Bristol University. She received an Honorary Doctor of Science degree from Bristol University in 2009. In 2007, Dr. Ryan received the Albert Einstein Award for outstanding achievement in the life sciences. In 2002, Her Majesty Queen Elizabeth II awarded Dr. Ryan the Order of the British Empire (OBE) for services to biotechnology. Dr. Ryan’s term as a director expires at the Annual Meeting and she is not standing for re-election.

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Executive Officers who are not Directors

Milton Boyer currently serves as our Senior Vice President, Drug Product. Mr. Boyer has more than 25 years of experience within the chemical and pharmaceutical industry with assignments of increasing responsibility in technical, commercial, and executive roles. Mr. Boyer joined the Company in 2014, following its acquisition of Oso Biopharmaceuticals, where he served as President and Chief Executive Officer and was also a member of the Board of Directors since 2011. For the past 18 years, his positions have been focused in contract manufacturing for both pharmaceuticals and biopharmaceuticals, developing experience and expertise for both drug substance and drug product. Mr. Boyer is very active in trade groups and educational institutions that support the pharmaceutical and biopharmaceutical industry. He has served on the Board of Directors of Drugs, Chemicals & Allied Trades (DCAT) and currently serves on the Executive Committee as President. He also serves on the External Advisory Board for the Department of Chemistry and Biology for the University of New Mexico. He has been a member of other professional organizations, including the American Association of Pharmaceutical Scientists (AAPS), the Parenteral Drug Association (PDA) and the Society of Chemical Manufacturers and Associates (SOCMA). Mr. Boyer holds a B.S. in Chemistry/Physics from Hardin-Simmons University and an M.S. in Biochemistry from Texas Tech University.

Christopher M. Conway currently serves as Senior Vice President, Discovery, Development & Analytical Services, a position he has held since September 2015. Mr. Conway joined the Company in 2008 as Manager of Business Development and has held six positions of increasing responsibility culminating in the position held prior to his current position, Senior Vice President of Global Sales & Marketing. Prior to joining the Company, Mr. Conway held sales, marketing and leadership positions of increasing responsibility at Johnson and Johnson where he completed the Leadership Development Program and received both Johnson and Johnson’s Global Standards of Leadership and Global Innovation Awards. Mr. Conway was also awarded the Capital District’s Forty under Forty award in 2013. Mr. Conway currently sits on the Siena College Board of Advisors as well as the Albany College of Pharmacy & Health Sciences President’s Advisory Council and has been involved with several additional boards including the American Cancer Society’s Corporate Council and the American Cancer Society’s Coaches vs. Cancer. In addition, Mr. Conway has worked closely with the national Alzheimer’s Association, as well as the Cure Huntington’s Disease Initiative, and was previously involved as a member of the Albany Epilepsy Foundation Advocacy Board. Mr. Conway holds a B.S. in Marketing and Management from Siena College.

Margalit Fine currently serves as Executive Vice President, API, a role she has held since July 2016. Ms. Fine has an extensive background in the pharmaceutical and API industry that spans the course of over twenty years, having held multiple leadership positions at various large-scale corporations. Ms. Fine served as the Chief Executive Officer of Prime European Therapeuticals S.p.A. (“Euticals”) for over two years, prior to its acquisition by the Company in July 2016. Before joining Euticals in 2014, she held various roles at Teva Pharmaceuticals, most recently leading API European operations, which expanded its geographic footprint through the acquisitions of several API businesses, and ultimately as Chief Procurement Officer, where she drove initiatives to centralize Teva’s procurement activities. Ms. Fine also served as the Managing Director and member of the Board of Directors at Sicor. Ms. Fine received a B.S. in statistics as well as an M.S. in operations research, both from Tel Aviv University.

Steven R. Hagen, Ph.D. currently serves as Senior Vice President, Quality and Compliance. Prior to that , he served as our Senior Vice President, Manufacturing, Pharmaceuticals and Operations from 2012 to 2015 and as our Senior Vice President, Head of Global Operations from 2015 to 2016. Dr. Hagen is responsible for the Company’s quality and regulatory affairs as well as technical operations. Previously, Dr. Hagen was responsible for API and Drug Product manufacturing operations globally, including chemical and pharmaceutical development activities. Dr. Hagen joined the Company in 2005 as Senior Director of analytical quality services. Prior to joining the Company, Dr. Hagen served as a research scientist at Pfizer, Inc. Before Pfizer, Inc., Dr. Hagen was an analytical biochemist with Ribi ImmunoChem Research, Inc. Dr. Hagen received a B.A. in Biology from Lawrence University, as well as an M.A. in Botany and a Ph.D. in Biochemistry, both from the University of Idaho.

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Lori M. Henderson has served as the Company’s Senior Vice President, General Counsel and Corporate Secretary since 2011 and in 2015 assumed an additional role as the Head of Business Development. Ms. Henderson is responsible for leading all of the Company’s legal and business development activities for the Company’s locations worldwide, including the United States, Europe and Asia. From 2008 to 2010, she served as General Counsel, Corporate Secretary and Chief Administrative Officer for Rand Worldwide, Inc., a technology company, where she oversaw its legal, human resource and IT departments. From 1999 through 2008, she held increasing positions of responsibility and served as General Counsel, Corporate Secretary and Chief Administrative Officer for Moldflow Corporation, a company operating in the CAD/CAE business with global operations. At Moldflow, Ms. Henderson was responsible for the legal, human resources and IT functions, and was part of the management team that completed the successful sale of Moldflow to Autodesk in June 2008. Ms. Henderson also served as Corporate Counsel and Secretary at C.P. Clare Corporation and prior to that was an associate at Goodwin Procter LLP, specializing in corporate transactions. Ms. Henderson holds a B.A. from Gordon College and a J.D. from George Washington University.

Felicia I. Ladin joined the Company as Senior Vice President, Chief Financial Officer and Treasurer in February 2015. Ms. Ladin brings more than 20 years of finance, accounting and tax management experience to the Company. A CPA by training, Ms. Ladin has spent the majority of her career in the pharmaceutical industry, formerly as Senior Vice President, CFO, Global Specialty Medicines at Teva Pharmaceuticals Industries, Ltd. Between 2008 and 2014, Ms. Ladin held positions of increasing responsibility directing Teva’s financial planning and analysis operations, and from 2002 to 2008 was tax director for the U.S. During her 12 year tenure at Teva, Ms. Ladin was instrumental in developing and implementing financial systems and infrastructure through a number of acquisitions, and driving consistency and efficiencies across locations, supporting the Specialty Medicine division’s growth into an $8 billion global business. Ms. Ladin holds a B.S. in Accounting from the University of Delaware and an M.S. in Taxation from Seton Hall University.

George Svokos serves as the Company’s Chief Operating Officer, a position he has held since February 2015. Previously, Mr. Svokos had served as our Chief Commercial Officer, Senior Vice President Sales and General Manager API since January 2014. Prior to joining the Company, Mr. Svokos had been with Teva Pharmaceuticals Industries Ltd. for over 30 years and most recently, he was Senior Vice President of Product and Portfolio Selection, and Business Development, responsible for strategic planning, portfolio selection, new product introductions and business development. From 2011 to 2012, Mr. Svokos was Senior Vice President, US Technical Operations, responsible for strategic planning, manufacturing, supply chain, regulatory and legal compliance, and safety for eleven U.S. dosage form manufacturing facilities, as well as supply of branded and generic products to the U.S. market from overseas plants in Europe, the Middle East, China and India. Before this role, he served as Executive Vice President of Commercial Operations, Teva API, leading the global sales and marketing of Teva’s API division, including a global sales force, with multibillion-dollar sales. Mr. Svokos served in a leadership role for the Drug, Chemical & Associated Technologies Association (DCAT) for over 5 years and served as President of DCAT from November 1, 2014 to October 31, 2015. Mr. Svokos earned an M.B.A. from the University of Missouri and a B.S. in Chemical Engineering from Columbia University.

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PROPOSAL 2

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Audit Committee of our Board of Directors has selected KPMG LLP as our independent registered public accounting firm for the 2017 fiscal year. The Board of Directors has further directed that management submit the selection of KPMG LLP for ratification by the stockholders at the Annual Meeting. KPMG LLP has audited our financial statements since 2005. Representatives of KPMG LLP are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and are expected to be available to respond to appropriate questions.

Stockholder ratification of the selection of KPMG LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. However, the Board of Directors is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether to retain KPMG LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our stockholders.

Vote Required For Approval:

A quorum being present, the affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote on this Proposal is necessary to ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year 2017. A vote to abstain will have no effect on the vote for this Proposal 2. Ratification of our independent registered public accounting firm is a “routine” matter for which a broker does not need voting instructions in order to vote a stockholder’s shares.

Recommendation:

The Board of Directors of the Company unanimously recommends a vote FOR the ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year 2017.

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PROPOSAL 3
 
APPROVAL OF FIFTH AMENDED
2008 STOCK OPTION AND INCENTIVE PLAN

The Board of Directors believes that stock options and other stock-based incentive awards can play an important role in the success of the Company by encouraging and enabling the employees, officers, non-employee directors and other key persons of the Company and its subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. The Board of Directors anticipates that providing such persons with a direct stake in the Company will assure a closer alignment of the interests of such individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

On April 13, 2017, the Compensation Committee of the Board of Directors, subject to stockholder approval, approved the Fifth Amended 2008 Stock Option and Incentive Plan (as amended, the “2008 Plan”), to increase the aggregate number of shares authorized for issuance under the 2008 Plan by 2,000,000 shares to 9,700,000 shares of Common Stock. This amendment was designed to enhance the flexibility of the Compensation Committee to grant equity awards to our officers, employees, non-employee directors and other key persons and to ensure that the Company can continue to grant equity awards to such persons at levels determined to be appropriate by the Compensation Committee. The Company is growing rapidly and has an expanded management team and employee base who are critical to the success of the business. In addition, the Compensation Committee, in recommending these changes, considered the fact that new executives and staff added as part of acquired businesses need to receive appropriate incentives to ensure the success of those transactions. A copy of the 2008 Plan is attached as Appendix A to this proxy statement and is incorporated herein by reference.

As of March 31, 2017, there were stock options to acquire 2,109,073 shares of Common Stock outstanding under our equity compensation plans, with a weighted average exercise price of $12.13 and a weighted average remaining term of 7.14 years. In addition, as of March 31, 2017, there were 1,327,193 unvested full value awards, 1,152,626 with time-based vesting and 174,567 with performance vesting, outstanding under our equity compensation plans. Other than the foregoing, no awards under our equity compensation plans were outstanding as of March 31, 2017. As of March 31, 2017, there are 42,931,977 common shares outstanding and 1,729,815 shares remaining available for issuance under the 2008 Plan.

(a) Summary of Material Features

Certain material features of the 2008 Plan as proposed to be amended are:

The maximum number of shares of Common Stock available for awards under the 2008 Plan is increased by 2,000,000 shares from 7,700,000 shares to 9,700,000 shares.
Shares of Common Stock that are forfeited, cancelled, reacquired by the Company prior to vesting, satisfied without the issuance of Common Stock or otherwise terminated (other than by exercise) are added back to the shares of Common Stock available for issuance under the 2008 Plan.
Shares tendered or held back for taxes will not be added back to the reserved pool under the 2008 Plan. Upon the exercise of a stock appreciation right, the full number of shares underlying the award will be charged to the reserved pool.
Shares of Common Stock reacquired by the Company on the open market will not be added to the reserved pool under the 2008 Plan.
The award of stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock awards, restricted stock units, deferred stock awards, unrestricted stock awards, cash-based awards, performance share awards and dividend equivalent rights is permitted.
Minimum vesting periods are required for restricted stock awards, restricted stock units, deferred stock awards and performance share awards granted to employees.

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No dividends or dividend equivalents may be paid on full value shares subject to performance vesting until such shares are actually earned upon satisfaction of the performance criteria.
Without stockholder approval, the exercise price of stock options and stock appreciation rights will not be reduced and stock options and stock appreciation rights will not be otherwise repriced through cancellation in exchange for cash, other awards or stock options or stock appreciation rights with a lower exercise price.
To the extent required by the relevant securities exchange or the Internal Revenue Code of 1986 (the “Code”), amendments to the 2008 Plan will subject to approval by our stockholders.
No grants of awards pursuant to the 2008 Plan can be made after May 31, 2027.

Based solely on the closing price of our Common Stock as reported by The NASDAQ Global Market on April 13, 2017, the maximum aggregate market value of the 2,000,000 shares of Common Stock constituting the proposed increase described herein that could potentially be issued under the 2008 Plan is $30,900,000. The shares we issue under the 2008 Plan will be authorized but unissued shares or shares that we reacquire.

(b) Qualified Performance-Based Compensation under Code Section 162(m)

To ensure that certain awards granted under the 2008 Plan to a “Covered Employee” (as defined in Code) qualify as “performance-based compensation” under Section 162(m) of the Code, the 2008 Plan provides that the Compensation Committee may require that the vesting of such awards be conditioned on the satisfaction of performance criteria that may include any or all of the following: (1) earnings before interest, taxes, depreciation and amortization, (2) net income (loss) (either before or after interest, taxes, depreciation and/or amortization), (3) changes in the market price of Common Stock, (4) economic value added, (5) funds from operations or similar measure, (6) sales or revenue, (7) acquisitions or strategic transactions, (8) operating income (loss), (9) cash flow (including, but not limited to, operating cash flow and free cash flow), (10) return on capital, assets, equity, or investment, (11) stockholder returns, (12) return on sales, (13) gross or net profit levels, (14) productivity, (15) expense, (16) margins, (17) operating efficiency, (18) customer satisfaction, (19) working capital, (20) earnings (loss) per share of Common Stock, (21) sales or market shares and (22) number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group, and any of the above may be applicable to the organizational level specified by the Compensation Committee, including the Company or a unit, division or group or subsidiary of the Company. The Compensation Committee will select the particular performance criteria within 90 days following the commencement of a performance cycle. Subject to adjustments for stock splits and similar events, the maximum award granted to any one individual that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code will not exceed 500,000 shares of Common Stock for any performance cycle and options or stock appreciation rights with respect to no more than 500,000 shares of Common Stock may be granted to any one individual during any calendar year period. If a performance-based award is payable in cash, it cannot exceed $1,000,000 for any performance cycle.

(c) Rationale for Share Increase

The 2008 Plan is critical to our ongoing effort to build stockholder value. Equity incentive awards are an important component of our executive and non-executive employees’ compensation. Our Compensation Committee and the Board of Directors believe that we must continue to offer a competitive equity compensation program in order to attract, retain and motivate the talented and qualified employees necessary for our continued growth and success.

We manage our long-term stockholder dilution by limiting the number of equity incentive awards granted annually. The Compensation Committee carefully monitors our annual net burn rate, total dilution and equity expense in order to maximize stockholder value by granting only the number of equity incentive awards that it believes are necessary and appropriate to attract, reward and retain our employees. Our compensation philosophy reflects broad-based eligibility for equity incentive awards for high performing employees. By doing so, we link the interests of those employees with those of our stockholders and motivate our employees to act as owners of the business.

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Burn Rate

The following table sets forth information regarding historical awards granted for the 2014 through 2016 period, and the corresponding burn rate, which is defined as the number of shares subject to equity-based awards granted in a year divided by the weighted average number of shares of Common Stock outstanding for that year:

     
Share Element   2016   2015   2014
Stock Options Granted     295,000       266,000       327,000  
Full-Value Awards Granted     604,000       470,000       691,000  
Total Awards Granted (1)     899,000       736,000       1,018,000  
Weighted average common shares outstanding during the fiscal year     38,304,000       33,169,000       31,526,000  
Annual Burn Rate     2.35 %       2.22 %       3.23 %  
Three-Year Average Burn Rate (2)     2.60 %              

(1) Total Awards granted represents the sum of Stock Options Granted and Full-Value Awards granted.
(2) As illustrated in the table above, our three-year average burn rate for the 2014 – 2016 period was 2.60%.

If our request to increase the share reserve under the 2008 Plan by an additional 2,000,000 shares is approved by stockholders, we will have approximately 3,729,815 shares available for grant after the Annual Meeting, which is based on 1,729,815 shares available for grant under the Fourth Amended 2008 Stock Option and Incentive Plan on March 31, 2017 and the 2,000,000 shares subject to this proposal. Our Compensation Committee determined the size of the requested share increase based on projected equity awards to anticipated new hires and projected annual equity awards to existing employees. We anticipate that if our request to increase the share reserve is approved by our stockholders, assuming modest growth, it will be sufficient to provide equity incentives to attract, retain, and motivate employees through our 2019 annual meeting of stockholders.

(d) Vote Required for Approval

The affirmative vote of a majority of shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote on this Proposal is required for the approval of the amendment to the 2008 Plan. An abstention will have the same effect as a vote “against” the Proposal. Broker non-votes will have no effect on the Proposal.

Recommendation

Our Board of Directors unanimously recommends a vote FOR the approval of the Fifth Amended 2008 Stock Option and Incentive Plan.

(e) Summary of the 2008 Plan

The following description of certain features of the 2008 Plan is intended to be a summary only. The summary is qualified in its entirety by the full text of the 2008 Plan, a copy of which is attached hereto as Appendix A.

Plan Administration .  The 2008 Plan is administered by the Compensation Committee. The Compensation Committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2008 Plan. The Compensation Committee may delegate to our Chief Executive Officer the authority to grant stock options to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act and not subject to Section 162(m) of the Code, subject to certain limitations and guidelines.

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Eligibility .  Persons eligible to participate in the 2008 Plan will be those full or part-time officers, employees, non-employee directors and other key persons of the Company and its subsidiaries as selected from time to time by the Compensation Committee in its discretion. Approximately 2,540 individuals are currently eligible to participate in the 2008 Plan, which includes 8 executive officers, 2,524 employees who are not officers, and 8 non-employee directors.

Plan Limits .  Taking into account the proposed increase described herein, 3,729,815 shares are available for issuance under the 2008 Plan. The maximum award of stock options or stock appreciation rights granted to any one individual will not exceed 500,000 shares of Common Stock (subject to adjustment for stock splits and similar events) for any calendar year period. If any award of restricted stock, restricted stock units, deferred stock award or performance shares granted to an individual is intended to qualify as “performance-based compensation” under Section 162(m) of the Code, then the maximum award shall not exceed 500,000 shares of Common Stock (subject to adjustment for stock splits and similar events) to any one such individual in any performance cycle. If any cash-based award is intended to qualify as “performance-based compensation” under Section 162(m) of the Code, then the maximum award to be paid in cash in any performance cycle may not exceed $1,000,000. In addition, no more than the number of shares reserved and available for issuance under the 2008 Plan may be issued in the form of incentive stock options.

Stock Options .  The 2008 Plan permits the granting of (1) options to purchase Common Stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. Options granted under the 2008 Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and key persons. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the Common Stock on the date of grant. Fair market value for this purpose will be the last reported sale price of the shares of Common Stock on The NASDAQ Global Market on the date of grant. The exercise price of an option may not be reduced after the date of the option grant other than to appropriately reflect changes in the Company’s capital structure.

The term of each option will be fixed by the Compensation Committee and may not exceed ten years from the date of grant. The Compensation Committee will determine at what time or times each option may be exercised. Options may be made exercisable in installments and the exercisability of options may be accelerated by the Compensation Committee. In general, unless otherwise permitted by the Compensation Committee, no option granted under the 2008 Plan is transferable by the optionee other than by will or by the laws of descent and distribution, and options may be exercised during the optionee’s lifetime only by the optionee, or by the optionee’s legal representative or guardian in the case of the optionee’s incapacity.

Upon exercise of options, the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the Compensation Committee or by delivery (or attestation to the ownership) of shares of Common Stock that are beneficially owned by the optionee and that are not subject to restrictions under any Company plan. Subject to applicable law, the exercise price may also be delivered to the Company by a broker pursuant to irrevocable instructions to the broker from the optionee. In addition, the Compensation Committee may permit non-qualified options to be exercised using a net exercise feature, which reduces the number of shares issued to the optionee by the largest whole number of shares with a fair market value that does not exceed the exercise price.

To qualify as incentive options, options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options that first become exercisable by a participant in any one calendar year.

Equity Grants to Non-Employee Directors .  The 2008 Plan allows the Compensation Committee to issue equity grants to each non-employee director at its discretion from time to time. Stock options granted to non-employee directors will have an exercise price per share equal to the fair market value of the Common Stock on the date of grant and, unless otherwise determined by the Compensation Committee, expire ten years after the date of grant. The administrator, in its discretion, may also grant additional equity awards to non-employee directors.

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Stock Appreciation Rights .  The Compensation Committee may award stock appreciation rights subject to such conditions and restrictions as the Compensation Committee may determine. Stock appreciation rights entitle the recipient to shares of Common Stock equal to the value of the appreciation in the stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of the Common Stock on the date of grant. The term of a stock appreciation right may not exceed ten years.

Restricted Stock and Restricted Stock Units .  The Compensation Committee may award shares of Common Stock to participants subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals (as summarized above) and/or continued employment with the Company through a specified restricted period. The 2008 Plan provides minimum vesting periods for grants of restricted stock and restricted stock units to employees.

Deferred Stock Awards .  The Compensation Committee may grant deferred stock awards to any participant. Deferred stock awards are awards of phantom stock units that are ultimately payable in the form of shares of Common Stock and may be subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals (as summarized above) and/or continued employment with the Company through a specified vesting period. In the Compensation Committee’s sole discretion, it may permit a participant to make an advance election to receive a portion of his or her future cash compensation otherwise due in the form of a deferred stock award, subject to the participant’s compliance with the procedures established by the Compensation Committee and requirements of Section 409A of the Code. During the deferral period, the deferred stock awards may be credited with dividend equivalent rights. The 2008 Plan provides minimum vesting periods for grants of deferred stock awards to employees.

Unrestricted Stock Awards .  The Compensation Committee may also grant shares of Common Stock which are free from any restrictions under the 2008 Plan. Unrestricted stock may be granted to any participant in recognition of past services or other valid consideration and may be issued in lieu of cash compensation due to such participant.

Cash-Based Awards .  The Compensation Committee may grant cash-based awards under the 2008 Plan to participants. The cash-based awards may be subject to the achievement of certain performance goals (as summarized above).

Dividend Equivalent Rights .  The Compensation Committee may grant dividend equivalent rights to participants which entitle the recipient to receive credits for dividends that would be paid if the recipient had held specified shares of Common Stock. Dividend equivalent rights may be granted as a component of another award (other than a stock option or stock appreciation right) or as a freestanding award. Dividend equivalent rights may be settled in cash, shares of Common Stock or a combination thereof, in a single installment or installments, as specified in the award.

Change of Control Provisions .  The 2008 Plan provides that upon the effectiveness of a “Sale Event,” as defined in the 2008 Plan, except as otherwise provided by the Compensation Committee in the award agreement, and at the discretion of the Administrator of the 2008 Plan, stock options and stock appreciation rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event, all other awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event, unless the parties to the Sale Event agree that such awards will be assumed or continued by the successor entity. Upon the effectiveness of a sale event, the 2008 Plan and all awards thereunder will terminate, unless the parties to the sale agree that such awards will be assumed or continued by the successor entity. In the event of such termination, (i) the Company may make or provide for a cash payment to participants holding options and stock appreciation rights, in exchange for the cancellation thereof, equal to the difference between the per share cash consideration in the sale event and the exercise price of the options or stock appreciation rights or (ii) each participant shall be permitted, within a specified period of time prior to the consummation of the sale event, as determined by the Compensation Committee, to exercise all outstanding options and stock appreciation rights held by such participant.

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Adjustments for Stock Dividends, Stock Splits, Etc .  The 2008 Plan requires the Compensation Committee to make appropriate adjustments to the number of shares of Common Stock that are subject to the 2008 Plan, to certain limits in the 2008 Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events.

Tax Withholding .  Participants in the 2008 Plan are responsible for the payment of any federal, state or local taxes upon the exercise of options or stock appreciation rights or vesting of other awards. The Company withholds and remits the payments of any federal, state or local taxes as required by law (minimum tax withholding obligations). Subject to approval by the Compensation Committee, participants may elect to have the minimum tax withholding obligations satisfied by authorizing the Company to withhold shares of Common Stock. Participants are not permitted to elect share withholdings in excess of the minimum tax withholding obligations.

Amendments and Termination .  The Board may at any time amend or discontinue the 2008 Plan and the Compensation Committee may at any time amend or cancel any outstanding award for the purpose of satisfying changes in the law or for any other lawful purpose. However, no such action may adversely affect any holder’s rights under any outstanding award without such holder’s consent. To the extent required under the rules of the NASDAQ, any amendments that materially change the terms of the 2008 Plan will be subject to approval by our stockholders. Amendments shall also be subject to approval by our stockholders if and to the extent determined by the Compensation Committee to be required by the Code to preserve the qualified status of incentive options or to ensure that compensation earned under the 2008 Plan qualifies as performance-based compensation under Section 162(m) of the Code.

Effective Date of 2008 Plan .  The Board initially adopted the 2008 Stock Option and Incentive Plan on February 7, 2008, it was subsequently approved by our stockholders and became effective on June 4, 2008. The Board approved the Amended 2008 Stock Option and Incentive Plan on March 22, 2011, which became effective upon stockholder approval on June 1, 2011. The Board approved the Second Amended 2008 Stock Option and Incentive Plan on January 31, 2013, which became effective upon stockholder approval on June 5, 2013. The Board approved the Third Amended 2008 Stock Option and Incentive Plan on February 27, 2015 to add an additional 2,000,000 shares and make certain other changes to the 2008 Plan, which became effective upon stockholder approval on June 3, 2015. The Board approved the Fourth Amended 2008 Stock Option and Incentive Plan, which became effective on February 8, 2017. The Compensation Committee approved the Fifth Amended 2008 Stock Option and Incentive Plan on April 13, 2017 to add an additional 2,000,000 shares to the 2008 Plan, and such amendment will be effective upon approval of this Proposal by our stockholders. Awards of incentive options may be granted under the 2008 Plan until the date that is 10 years from the date of Compensation Committee approval of the Fifth Amended 2008 Stock Option and Incentive Plan. No other awards may be granted under the 2008 Plan after the date that is 10 years from the date of stockholder approval of the Fifth Amended 2008 Stock Option and Incentive Plan.

(f) New Plan Benefits

Because the grant of awards under the 2008 Plan is within the discretion of the Compensation Committee, the Company cannot determine the dollar value or number of shares of Common Stock that will in the future be received by or allocated to any participant, including our directors. Accordingly, in lieu of providing information regarding benefits that will be received under the 2008 Plan, the following table provides information concerning the benefits that were received by the following persons and groups during 2016: each named executive officer; all current executive officers, as a group; all current directors who are not executive officers, as a group; and all employees who are not executive officers, as a group.

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  Options   Restricted Stock Units
Name and Position   Dollar value   Number of
Units
  Dollar Value   Number of
Units
William S. Marth, President and CEO   $ 15.77       54,498     $ 19.24       71,338  
Steven R. Hagen, Senior Vice President, Quality and Compliance   $ 15.77       22,889     $ 18.37       9,988  
Lori M. Henderson, Senior Vice President, General Counsel and Secretary   $ 15.77       29,066     $ 18.37       12,682  
Felicia Ladin, Chief Financial Officer   $ 15.77       31,609     $ 18.37       13,792  
George Svokos, Chief Operating Officer   $ 15.77       42,145     $ 18.37       18,390  

       
  Options   Restricted Stock
Name and Position   Dollar value   Number of
Units
  Dollar Value   Number of
Units
Executive Officer Group   $ 15.77       218,355     $ 18.58       157,836  
Non-Executive Director Group   $ 15.77       39,240     $ 15.77       17,124  
Non-Executive Officer Employee Group   $ 15.77       30,882     $ 15.80       429,080  

(g) Summary of Federal Income Tax Consequences

The following is a summary of the principal federal income tax consequences of certain transactions under the 2008 Plan. It does not describe all federal tax consequences under the 2008 Plan, nor does it describe foreign, state or local tax consequences.

Incentive Options .  No taxable income is generally realized by the optionee upon the grant or exercise of an incentive option. If shares of Common Stock issued to an optionee pursuant to the exercise of an incentive option are sold or transferred after two years from the date of grant and after one year from the date of exercise, then (i) upon sale of such shares, any amount realized in excess of the option price (the amount paid for the shares) will be taxed to the optionee as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) the Company will not be entitled to any deduction for federal income tax purposes. The exercise of an incentive option will give rise to an item of tax preference that may result in alternative minimum tax liability for the optionee.

If shares of Common Stock acquired upon the exercise of an incentive option are disposed of prior to the expiration of the two-year and one-year holding periods described above (a “disqualifying disposition”), generally (i) the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares of Common Stock at exercise (or, if less, the amount realized on a sale of such shares of Common Stock) over the option price thereof, and (ii) the Company will be entitled to deduct such amount. Special rules will apply where all or a portion of the exercise price of the incentive option is paid by tendering shares of Common Stock.

If an incentive option is exercised at a time when it no longer qualifies for the tax treatment described above, the option is treated as a non-qualified option. Generally, an incentive option will not be eligible for the tax treatment described above if it is exercised more than three months following termination of employment (or one year in the case of termination of employment by reason of disability). In the case of termination of employment by reason of death, the three-month rule does not apply.

Non-Qualified Options .  No income is realized by the optionee at the time the option is granted. Generally (i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price and the fair market value of the shares of Common Stock on the date of exercise, and we receive a tax deduction for the same amount, and (ii) at disposition, appreciation or depreciation after the date of exercise is treated as either short-term or long-term capital gain or loss depending on how long the shares of Common Stock have been held. Special rules will apply where all or a portion of the exercise price of the non-qualified option is paid by tendering shares of Common Stock. Upon exercise, the optionee will also be subject to Social Security taxes on the excess of the fair market value over the exercise price of the option.

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Other Awards .  The Company generally will be entitled to a tax deduction in connection with an award under the 2008 Plan in an amount equal to the ordinary income realized by the participant at the time the participant recognizes such income. Participants typically are subject to income tax and recognize such tax at the time that an award is exercised, vests or becomes non-forfeitable, unless the award provides for a further deferral.

Parachute Payments .  The vesting of any portion of an option or other award that is accelerated due to the occurrence of a change in control (such as a sale event) may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non-deductible to the Company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

Limitation on Deductions .  Under Section 162(m) of the Code, the Company’s deduction for certain awards under the 2008 Plan may be limited to the extent that the Chief Executive Officer or other executive officer whose compensation is required to be reported in the summary compensation table (other than the Principal Financial Officer) receives compensation in excess of $1 million a year (other than performance-based compensation that otherwise meets the requirements of Section 162(m) of the Code). The 2008 Plan is structured to allow certain awards to qualify as performance-based compensation.

(h) Equity Compensation Plan Information

The following table provides information about the securities authorized for issuance under our equity compensation plans as of December 31, 2016:

     
Plan category   Equity Compensation Plan Information
  Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights
  Weighted
Average
exercise
price of
outstanding
options,
warrants
and rights
  Number of
securities
remaining
available for
future issuance
under equity
compensation
plan (excluding
securities
referenced in
column (a)
     (a)   (b)   (c)
Equity compensation plans approved by security holders (1) :     1,577,871     $ 9.93       3,155,889 (2)  
Equity compensation plans not approved by security holders:     N/A       N/A       N/A  
Total     1,577,871     $ 9.93       3,155,889  

(1) Consists of the Company’s 1998 Stock Option and Incentive Plan, the 2008 Stock Option and Incentive Plan, as amended, and the 1998 Employee Stock Purchase Plan, as amended (“ESPP”). Does not include purchase rights accruing under ESPP because the purchase price (and therefore the number of shares to be purchased) will not be determined until the end of the purchase period.
(2) Includes 2,691,756 shares available under the 2008 Stock Option and Incentive Plan, as amended, and 464,133 shares available under the ESPP as of December 31, 2016.

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PROPOSAL 4
 
APPROVAL OF FOURTH AMENDED
1998 EMPLOYEE STOCK PURCHASE PLAN

The Company’s 1998 Employee Stock Purchase Plan (as amended to date, the “ESPP”) was adopted by our stockholders at a special meeting of stockholders held on July 1, 1998. As of April 13, 2017, a total of 1,600,000 shares of our Common Stock were authorized for issuance under the ESPP, of which approximately 411,100 remained available and reserved for issuance. In 2011, the Board of Directors approved the Amended 1998 Employee Stock Purchase Plan to increase in the number of shares available under the ESPP by 400,000 shares, increasing the total from 600,000 shares to 1,000,000 shares. In 2013, the Board approved the Second Amended 1998 Employee Stock Purchase Plan to increase in the number of shares available by an additional 400,000 shares, increasing the total from 1,000,000 shares to 1,400,000 shares. In 2015, the Board approved the Third Amended 1998 Employee Stock Purchase Plan to increase the number of shares available by an additional 200,000 shares, increasing the total from 1,400,000 shares to 1,600,000 shares.

We believe that the availability of an adequate reserve of shares for issuance under the ESPP will benefit us by providing employees with an opportunity to acquire shares of our Common Stock and will enable us to attract, retain and motivate valued employees. On April 13, 2017, the Compensation Committee unanimously approved the Fourth Amended 1998 Employee Stock Purchase Plan to make certain administrative updates and to increase the number of shares of our Common Stock reserved for issuance under the ESPP by 400,000 shares to a total of 2,000,000 shares. Such increase is subject to stockholder approval at the Annual Meeting.

Based solely on the closing price of our Common Stock reported on The NASDAQ Global Market on April 13, 2017, the maximum aggregate market value of the 400,000 shares subject to the proposed increase described herein that could potentially be issued under the ESPP is $6,180,000.

Vote Required for Approval:

The affirmative vote of a majority of shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote on this Proposal is required for the approval of the Fourth Amended 1998 Employee Stock Purchase Plan. An abstention will have the same effect as a vote “against” the Proposal. Broker non-votes will have no effect on the Proposal.

Recommendation:

Our Board of Directors unanimously recommends a vote FOR the approval of the Fourth Amended 1998 Employee Stock Purchase Plan.

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Summary of the Material Provisions of the ESPP

The following description of certain provisions of the ESPP is intended to be a summary only. The summary is qualified in its entirety by the full text of the ESPP, a copy of which is attached hereto as Appendix B. It is our intention that the ESPP qualify as an “employee stock purchase plan” under Section 423 of the Code.

Any employee of the Company or of any present or future subsidiary of the Company is eligible to participate in the ESPP so long as the employee is customarily employed for at least 20 hours per week. No person who owns or holds, or as a result of participation in the ESPP would own or hold, Common Stock or options to purchase Common Stock, together equal to 5% or more of the Company’s total outstanding Common Stock is entitled to participate in the ESPP. No employee may exercise an option granted under the ESPP that permits the employee to purchase our Common Stock having a value of more than $25,000 (determined using the fair market value of the stock at the time such option is granted) in any calendar year.

Participation in the ESPP is limited to eligible employees who authorize payroll deductions (within ranges specified by the Compensation Committee, with a minimum of 1% and a maximum of 10% of the employee’s eligible compensation for the applicable pay period) pursuant to the ESPP. There are currently approximately 1,685 employees eligible to participate in the ESPP, of whom approximately 314 are participating. Once an employee becomes a participant in the ESPP, that employee will automatically participate in successive offering periods, as described below, until such time as that employee withdraws from the ESPP, becomes ineligible to participate in the ESPP, or his or her employment ceases.

Each offering of our Common Stock under the ESPP is for a period of six months, which we refer to as an “offering period.” New offering periods begin on January 1 and July 1 of each year. Shares are purchased on the last business day of each exercise period, in June and December, with that day being referred to as an “exercise date”. The Compensation Committee may establish different offering periods or exercise dates under the ESPP.

On the first day of an offering period, we grant to employees participating in that offering period an option to purchase shares of our Common Stock. On the exercise date of each offering period, the employee is deemed to have exercised the option, at the exercise price, to the extent of accumulated payroll deductions. The option exercise price is an amount equal to 85% of the fair market value per share of our Common Stock on either the first day of the offering period or the exercise date, whichever is lower. The maximum number of shares of Common Stock that may be issued to any employee under the ESPP in any offering period is 2,000, subject to adjustments by our Board of Directors or the Compensation Committee from time to time.

Subject to certain limitations, the number of shares of our Common Stock a participant purchases in each exercise period is determined by dividing the total amount of payroll deductions withheld from the participant’s compensation during the exercise period by the option exercise price. In general, if an employee is no longer a participant on an exercise date, the employee’s option, which would have been automatically exercised on that date, will be automatically terminated, and the amount of the employee’s accumulated payroll deductions will be refunded.

A participant may elect to decrease (but may not increase) the amount of his or her payroll deductions at any time during an offering period, subject to the minimum of 1% and a maximum of 10% of eligible compensation. A reduction in the amount of a participant’s payroll deductions will be effective 15 business days after we receive written notice from the participant and will apply to the first full pay period commencing after that date. A participant may withdraw from an offering period at any time without affecting his or her eligibility to participate in future offering periods. If a participant withdraws from an offering period, that participant may not again participate in the same offering period, but may enroll in subsequent offering periods. An employee’s withdrawal will be effective as of the business day following the employee’s delivery of written notice of withdrawal under the ESPP.

The ESPP is administered by the Compensation Committee. The ESPP will continue until terminated by our Board of Directors.

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Since participation in the ESPP is voluntary, we are unable to determine the dollar value and number of options or amounts that will be received by or allocated to any of our executive officers, those officers as a group, or employees who are not executive officers as a group, as a result of the increase in the number of shares subject to purchase under the ESPP.

Our Board of Directors may, in its discretion, at any time, terminate or amend the ESPP. Upon termination of the ESPP, all amounts in the accounts of participating employees will be refunded.

Summary of Federal Income Tax Consequences

The following is only a summary of the effect of the United States income tax laws and regulations upon an employee and the Company with respect to such employee’s participation in the ESPP. This summary does not purport to be a complete description of all federal tax implications of participation in the ESPP, nor does it discuss the income tax laws of any municipality, state or foreign country in which a participant may reside or otherwise be subject to tax.

A participant in the ESPP recognizes no taxable income either as a result of participation in the ESPP or upon exercise of an option to purchase shares of our Common Stock under the terms of the ESPP.

If a participant disposes of shares purchased upon exercise of an option granted under the ESPP within two years from the first day of the applicable offering period or within one year from the exercise date, which we refer to as a “disqualifying disposition,” the participant will realize ordinary income in the year of that disposition equal to the amount by which the fair market value of the shares on the date the shares were purchased exceeds the purchase price. The amount of ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares will be a capital gain or loss. A capital gain or loss will be long-term if the participant’s holding period is more than 12 months, or short-term if the participant’s holding period is 12 months or less.

If the participant disposes of shares purchased upon exercise of an option granted under the ESPP at least two years after the first day of the applicable offering period and at least one year after the exercise date, the participant will realize ordinary income in the year of disposition equal to the lesser of (1) the excess of the fair market value of the shares on the date of disposition over the exercise price or (2) the excess of the fair market value of the shares on the first day of the applicable offering period over the exercise price. The amount of any ordinary income will be added to the participant’s basis in the shares, and any additional gain recognized upon the disposition after that basis adjustment will be a long-term capital gain. If the fair market value of the shares on the date of disposition is less than the exercise price, there will be no ordinary income and any loss recognized will be a long-term capital loss.

If the participant still owns the shares at the time of death, the lesser of (1) the excess of the fair market value of the shares on the date of death over the exercise price or (2) the excess of the fair market value of the shares on the first day of the offering period in which the shares were purchased over the exercise price will constitute ordinary income in the year of death.

The Company is generally entitled to a tax deduction in the year of a disqualifying disposition equal to the amount of ordinary income recognized by the participant as a result of that disposition. In all other cases, the Company is not allowed a deduction.

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PROPOSAL 5
 
ADVISORY VOTE REGARDING COMPENSATION OF
THE COMPANY’S NAMED EXECUTIVE OFFICERS

In accordance with Section 14A of the Exchange Act, the Company is providing stockholders with the opportunity to vote on the compensation of the Company’s named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K. This is commonly known as a “say-on-pay” vote. At the 2011 Annual Meeting of Stockholders, the Company’s stockholders voted, on a non-binding advisory basis, for the Company to hold future, non-binding advisory votes on the compensation of the Company’s named executive officers on an annual basis. In light of this result and after a discussion of the Board of Directors, the Board of Directors determined that the Company would hold future non-binding, advisory votes on executive compensation on an annual basis until the next required non-binding advisory vote on the frequency of future non-binding, advisory votes on executive compensation which shall occur at the Annual Meeting. At the Annual Meeting, the Company is presenting to stockholders the following non-binding, advisory resolution regarding the approval of the compensation of the Company’s named executive officers:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.

Although the vote is non-binding, the Compensation Committee and the Board of Directors value your opinion and will consider the outcome of the vote in establishing compensation philosophy and making future compensation decisions.

As described more fully in the “Compensation Discussion & Analysis” and in the Summary Compensation Table and subsequent tables found herein, the Company’s named executive officers are compensated in a manner consistent with our business strategy, competitive practice, sound compensation governance principles, and stockholder interests and concerns.

Vote Required For Approval:

The affirmative vote of a majority of the shares of the Company’s Common Stock present or represented by proxy and entitled to vote at the Annual Meeting is required for approval of this Proposal. An abstention will have the same effect as a vote “against” the Proposal. Broker non-votes will have no effect on the Proposal.

Recommendation:

Our Board of Directors unanimously recommends a vote FOR the approval of this Proposal 5 regarding compensation of the Company’s named executive officers.

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PROPOSAL 6
 
ADVISORY VOTE REGARDING FREQUENCY OF FUTURE NON-BINDING STOCKHOLDER
VOTES ON THE COMPENSATION OF NAMED EXECUTIVE OFFICERS

In addition to seeking a stockholder vote on the compensation of our named executive officers, in accordance with Section 14A of the Exchange Act, the Company is presenting this Proposal 6, which gives stockholders the opportunity to vote, on a non-binding basis, on the frequency of future advisory votes on the compensation of the Company’s named executive officers. Under Section 14A(a)(2), generally, each public company must submit this advisory proposal to its stockholders not less than every six years, and this proposal was last submitted to the Company’s stockholders at the 2011 annual meeting. Stockholders may choose to recommend that future say-on-pay proposals be held (i) every year (“1 YEAR” on the proxy card), (ii) every two years (“2 YEARS” on the proxy card) or (iii) every three years (“3 YEARS” on the proxy card). In addition, stockholders may choose to abstain from voting on this Proposal. Since 2011, the Company has held an advisory vote on executive compensation annually, consistent with the frequency receiving the majority of votes cast on such proposal at our 2011 annual meeting of stockholders. Accordingly, the Board has proposed the following resolution regarding such advisory vote:

RESOLVED, that the option of 1 year, 2 years, or 3 years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which Albany Molecular Research, Inc. is to hold future advisory stockholder votes to approve the compensation of the named executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules (including the Compensation Discussion and Analysis, compensation tables and narrative discussion).

The Company believes that the stockholder non-binding vote to approve executive compensation should occur every one year. An annual vote allows our stockholders to provide us with regular and comprehensive input on important issues such as our executive compensation programs and practices as disclosed in the Company’s proxy statement each year. The Company values and considers stockholder input on corporate governance matters and on our executive compensation program and practices and we look forward to hearing from our stockholders on this Proposal.

Vote Required For Approval:

The frequency of future non-binding stockholder votes on the compensation of named executive officers shall be the option that receives the most stockholder votes. Abstentions and broker non-votes will be excluded entirely from the vote and will have no effect on this Proposal.

Recommendation:

The Board of Directors of the Company unanimously recommends a vote for every “1 YEAR” as the frequency of future non-binding stockholder votes on the compensation of the Company’s named executive officers.

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CORPORATE GOVERNANCE AND BOARD MATTERS

The Board of Directors and its Committees

The Board of Directors currently consists of ten (10) members. Veronica G.H. Jordan, Ph.D. retired from the Board of Directors on June 1, 2016, and Fernando Napolitano joined the Board of Directors on July 12, 2016. Arthur J. Roth, CPA and Una S. Ryan, Ph.D., O.B.E. have informed the Company of their intention to retire from the Board of Directors and the Board committees on which each serves at the expiration of their current terms on May 31, 2017, and therefore will not stand for re-election at the Company’s 2017 Annual Meeting.

The Board of Directors is divided into three classes and each year one of those classes must stand for election. The Board of Directors of the Company held seven (7) formal meetings and two (2) voluntary meeting/conference calls during 2016. During 2016, each of the incumbent directors then serving attended 100% of the total number of formal meetings of the Board of Directors. The Board of Directors has established an Audit Committee (the “Audit Committee”), a Compensation Committee (the “Compensation Committee”), and a Nominating and Corporate Governance Committee (the “Nominating Committee”). Each of the incumbent directors then serving attended 100% of the total number of committee meetings of which they were members. The Board is invited to attend the annual meetings of stockholders and Thomas E. D’Ambra, Ph.D., David H. Deming, Anthony J. Maddaluna, William S. Marth, Kevin O’Connor and Arthur J. Roth were in attendance at the Company’s 2016 Annual Meeting of Stockholders.

Independence of Members of the Board of Directors

The Board of Directors has determined that certain of the Company’s non-employee directors, David H. Deming, Kenneth P. Hagen, Anthony J. Maddaluna, Fernando Napolitano, Kevin O’Connor, Arthur J. Roth, and Una S. Ryan, are independent within the meaning of the director independence standards of The NASDAQ Stock Market, Inc. (“NASDAQ”) and the director independence standards of the Securities and Exchange Commission (“SEC”). Furthermore, the Board of Directors has determined that each member of the Audit and Compensation Committees is independent within the meaning of the applicable director independence standards of NASDAQ and the SEC. Thomas E. D’Ambra, Ph.D. became a non-employee director on January 1, 2014 when he retired as the Company’s Chief Executive Officer. On February 1, 2016, Dr. D’Ambra again became an employee of the Company in a non-executive role. Given Dr. D’Ambra’s current shareholdings as well as his former and current employee status, the Board of Directors does not consider Dr. D’Ambra independent within the meaning of the NASDAQ and SEC director independence standards. As the Company’s President and Chief Executive Officer, William S. Marth is also not deemed by the Board of Directors to be independent within the meaning of the NASDAQ and SEC director independence standards. Gerardo Gutiérrez was the Founder, President and Chief Executive Officer of Gadea Grupo Farmacéutico, S.L., which was acquired by the Company in July 2015. Given his former status and his current shareholdings, the Board of Directors does not consider Mr. Gutiérrez independent within the meaning of the NASDAQ and SEC director independence standards.

Board Leadership Structure

Dr. D’Ambra currently serves as the Chairman of the Board of Directors. The Company believes the appointment in 2014 of Mr. Marth as President and Chief Executive Officer of the Company and Dr. D’Ambra as the Chairman of the Board of Directors is appropriate and effective given Dr. D’Ambra’s long and successful history as a founder of the Company and his continued commitment to, and strong leadership of, the Company.

Our business affairs are managed under the direction of our Board. The Board has an active role, as a whole and also at the committee level, in overseeing management of our risks. The Board focuses on the key risks facing us and our risk management strategy and seeks to ensure that risks are consistent with the level of risk that is appropriate for the Company and the achievement of our business objectives and strategies.

The Audit Committee

The Audit Committee appoints the independent registered public accounting firm to audit the Company’s financial statements and to perform services related to such audit, reviews the scope and results of the audit with the independent registered public accounting firm, reviews the Company’s year-end operating results with

25


 
 

management and the independent registered public accounting firm, considers the adequacy of the internal accounting procedures and considers the effect of such procedures on the accountants’ independence. The Audit Committee has the right to retain outside independent consultants. The Audit Committee currently consists of Mr. Hagen (Chair), Mr. Roth, Mr. Deming and Mr. Maddaluna, each of whom is independent as defined by the applicable rules of NASDAQ and the SEC, and as affirmed by the Board of Directors. The Board of Directors has determined that Mr. Hagen qualifies as an “audit committee financial expert” as such term is defined by the rules adopted by the SEC. The Audit Committee held eight (8) meetings during 2016. A copy of the Audit Committee Charter is available on the Company’s website at www.amriglobal.com under the Investor Relations section.

The Compensation Committee

The Compensation Committee reviews and recommends the compensation arrangements for executive officers, including the Chief Executive Officer, and reviews general compensation levels for other employees as a group, determines equity-based awards to be granted to eligible persons under the Company’s 2008 Stock Option and Incentive Plan, as amended, and the Senior Executive Cash Incentive Bonus Plan and takes such other action as may be required in connection with the Company’s compensation and incentive plans. The Compensation Committee also reviews and recommends compensation for the Board of Directors. The Compensation Committee currently consists of Mr. Deming (Chair), Mr. Hagen, Mr. O’Connor and Dr. Ryan, each of whom is independent as defined by the applicable rules of NASDAQ and the SEC, and as affirmed by the Board of Directors. The Compensation Committee held eight (8) meetings during 2016. A copy of the Compensation Committee Charter is available on the Company’s website at www.amriglobal.com under the Investor Relations section.

The Compensation Committee has the right to retain and dismiss outside independent consultants. The Company engaged an independent compensation advisor, F.W. Cook (“Cook”), to advise the Compensation Committee during the evaluation of 2016 compensation. In consultation with Cook, the Compensation Committee made certain determinations discussed below regarding 2016 full year compensation levels for executive officers and Board members. The Compensation Committee assessed the independence of Cook pursuant to SEC rules and determined that no conflict of interest existed during their engagement with the Company that would prevent Cook from independently advising the Compensation Committee. As described below under “Compensation Discussion and Analysis,” in 2016, the Compensation Committee engaged Willis Towers Watson (“WTW”) as its independent compensation advisor for the 2017 annual compensation planning. The Compensation Committee assessed the independence of WTW pursuant to SEC rules and determined that no conflict of interest exists that would prevent WTW from independently advising the Compensation Committee.

The Nominating and Corporate Governance Committee

The Nominating Committee currently consists of Mr. O’Connor (Chair), Mr. Napolitano, Mr. Maddaluna, Mr. Roth and Dr. Ryan, each of whom is independent as defined by the applicable rules of NASDAQ and the SEC. The Nominating Committee is responsible for the implementation of the Company’s Corporate Governance Guidelines. The Nominating Committee evaluates the performance of the Chief Executive Officer and the Board of Directors. In addition, the Nominating Committee makes recommendations to the Board of Directors of candidates for election to the Board of Directors. In evaluating and determining whether to recommend a person as a candidate for election as a director, the Nominating Committee considers the minimum qualifications set forth in the Nominating Committee Charter including:

the highest personal and professional integrity;
demonstrated exceptional ability and judgment;
effectiveness, in conjunction with the other members of the Board, in collectively serving the long-term interests of the Company’s stockholders;
the nominee shall be highly accomplished in his or her respective field, with superior credentials and recognition;

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the nominee shall have sufficient time and availability to devote to the affairs of the Company, particularly in light of the number of other boards on which the nominee may serve; and
to the extent such nominee serves or has previously served on other boards, the nominee shall have a demonstrated history of actively contributing at board meetings.

The Nominating Committee may employ a variety of methods for identifying and evaluating nominees for director including retaining outside independent consultants. While the Company does not have a formal diversity policy for Board membership, the Board of Directors seeks directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. The Nominating Committee considers, among other factors, diversity with respect to viewpoint, skills, experience and community involvement in its evaluation of candidates for Board membership. Such diversity considerations are discussed by the Nominating Committee in connection with the general qualifications of each potential nominee.

The Nominating Committee may assess the size of the Board of Directors, the need for particular expertise on the Board, the upcoming election cycle of the Board of Directors and whether any vacancies are expected, due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating Committee will consider various potential candidates for director which may come to the Nominating Committee’s attention through current directors, professional search firms, stockholders or other persons. The Nominating Committee will consider candidates recommended by stockholders, when the nominations are properly submitted, under the criteria summarized above. For a stockholder to make any nomination for election to the Board of Directors at an annual meeting, the stockholder must provide notice and certain information about the recommending stockholder and the Board nominee, which notice must be submitted to the Company not less than 75 calendar days nor more than 120 calendar days prior to the anniversary of the date on which the Company’s proxy statement was released to stockholders in connection with the previous year’s annual meeting. Submissions must be in writing and addressed to the Nominating Committee, care of the Company’s Secretary. Following verification of the stockholder status of persons proposing candidates, the Nominating Committee makes an initial analysis of the qualifications of any recommended candidate pursuant to the criteria summarized above to determine whether the candidate is qualified for service on the Board of Directors before deciding to undertake a complete evaluation of the candidate. The same identifying and evaluating procedures apply to all candidates for director nomination, including candidates submitted by stockholders.

The Nominating Committee held four (4) meetings during 2016. A copy of the Nominating Committee Charter is available on the Company’s website at www.amriglobal.com under the Investor Relations section.

Board Performance Self-Assessment

Each year the Board of Directors evaluates its performance and effectiveness. Each director completes an evaluation form developed by the Nominating Committee to solicit feedback on specific aspects of the role of the Board of Directors, its organization, and meetings. The collective ratings and comments are compiled by the Company’s Secretary and presented to the full Board of Directors. Each board committee conducts an annual performance self-assessment through a similar process.

Stockholder Communication

The Board of Directors welcomes the submission of any comments or concerns from stockholders and any interested parties. Communications should be addressed to Lori M. Henderson, Secretary, Albany Molecular Research, Inc., 26 Corporate Circle, Albany, New York 12203 and marked to the attention of the Board of Directors or any of its committees or individual directors.

Code of Ethics and Business Conduct Guidelines

The Company has adopted a Code of Ethics and Business Conduct Guidelines, which is applicable to all directors, officers and employees of the Company. The Code of Ethics and Business Conduct Guidelines is available on the Company’s website, www.amriglobal.com , under the Investor Relations section. Certain amendments to, or waivers of, the Code of Ethics and Business Conduct Guidelines which apply to certain of our executive officers will be disclosed on our website within four business days following the date of such amendment or waiver.

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

The aim of our executive compensation program is to provide a competitive total compensation package to our management team through a combination of base salary, annual cash incentives, long-term equity incentive grants, a broad-based benefits program, competitive employment agreements and, in some instances, non-recurring perquisites. In 2016, our stockholders voted on an advisory basis with respect to the compensation of our named executive officers. Of the votes cast (excluding abstentions and broker non-votes), over 99% were cast in support of the proposal. In light of this, in reviewing the executive compensation program for 2016, the Compensation Committee decided to retain the general overall program design, which ties a significant portion of the executives’ pay closely with our performance. In the future, the Compensation Committee will continue to consider the executive compensation in light of changing circumstances and stockholder feedback. This Compensation Discussion and Analysis explains our compensation philosophy and policies and practices with respect to our Chief Executive Officer, Chief Financial Officer, and the other three most highly-compensated executive officers for the year ended December 31, 2016, who are collectively referred to as the named executive officers. Our named executive officers for 2016 were William S. Marth, Felicia I. Ladin, Steven R. Hagen, Lori M. Henderson and George Svokos.

In early 2016, the Compensation Committee awarded each executive an increase in base salary, which increases were effective April 1, 2016 and were generally based on moving the base salaries of our named executive officers to a position where such base salaries were broadly in line with the median of the peer group used at the time of evaluation. Although the Company established a cash bonus program for 2016, no payments were made to our named executive officers with respect to 2016 as the Company’s financial results did not meet the threshold performance levels. As outlined in more detail below, the annual cash bonus plan for named executive officers other than the Chief Executive Officer is based on achievement of a combination of financial objectives and qualitatitive or quantitative management business objectives (“MBOs”). In spite of achievement by many executives of their MBOs in 2016, none of the named executive officers received a cash bonus in relation to 2016 performance to recognize and reflect the pay-for-performance philosophy that underpins our executive compensation framework. As in prior years, the Compensation Committee determined to continue the grants of equity awards to the named executive officers, in keeping with the evaluation done by the outside advisors to the Compensation Committee of the relative levels of compensation of our executives compared to executives in our chosen peer group and in broader based compensation surveys. These awards are described fully in this proxy statement. Lastly, during 2016, the Company made no material changes to the employment agreements, benefit plans, or other perquisites available to the named executive officers. In early 2017, there were changes made to the executive employment agreements based on the annual review of executive compensation that took place in early 2017. These modifications are described in this proxy statement.

The Objectives of our Executive Compensation Program

The Compensation Committee is composed of independent directors. The primary purpose of the Compensation Committee is to review, oversee, and evaluate our executive compensation policies, strategies and programs.

Our executive compensation programs are designed to achieve the following objectives:

Attract and retain key executive talent by providing compensation and benefit opportunities that are comparable to those offered by life science, biotech, pharmaceutical, research and other technology industry companies of similar size.
Provide a competitive total compensation package based on an executive meeting or exceeding annually defined short- and long-term business goals that align with the creation of stockholder value.
Recognize and reward overall business results to align our executives’ goals with those of our stockholders.
Foster a shared commitment among executives to meeting departmental and company goals while promoting the Company’s shared core values.

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Compensation Philosophy and Principles

It is the philosophy of the Compensation Committee that the executive compensation program be both performance- and market-based, and that a significant portion of compensation be allocated to short- and long-term variable performance-based compensation instruments. We strive to attract and retain executives with the ability and the experience necessary to lead and deliver strong performance to our stockholders by providing a total compensation package that is competitive. Our compensation philosophy for our executive officers is to target a competitive range around the median of the relevant comparator market, taking into account variation for performance, experience and skills.

In setting individual compensation, actual base salaries may vary from this generally targeted position based on the performance, tenure, experience and contributions of the individual. Actual annual cash incentives will vary with the annual performance of the Company. Actual total cash compensation can therefore be less than or greater than the median of the market, based on these factors. To balance both short- and long-term objectives and to align the executives with stockholders, long-term incentives are awarded and may vary based on performance, market levels, and expected contributions. All of these elements, including base salary, target cash bonus and long term incentives are reviewed together both individually and in a combined fashion by reviewing total target direct compensation. Each element, along with the total target direct compensation, is benchmarked against the chosen peer group as well as relevant industry norms.

We seek, to the extent possible, to benchmark our salary, target incentive levels and practices, as well as performance results, in relation to other comparable industry companies of similar size in terms of revenue, number of employees and market capitalization. In late 2015 the Company engaged independent compensation advisor, F.W. Cook (“Cook”), to advise the Compensation Committee during the evaluation of 2016 compensation. The Company worked with Cook during 2014 to establish a relevant peer group for compensation purposes (the “2014 Peer Group”). During late 2015 and early 2016, the Compensation Committee, in consultation with Cook, determined that the 2014 Peer Group continued to constitute an adequate representation of the size and scale of the Company at that time, and therefore the Compensation Committee and Cook used the 2014 Peer Group to benchmark compensation for the 2016 year. However, in late 2016, due in part to the transformative acquisitions that were completed by the Company, the Compensation Committee determined to engage a new independent compensation advisor and conducted a review of firms providing such services. Following an evaluation of such firms, the Compensation Committee engaged Willis Towers Watson (“WTW”) as its independent compensation advisor for the 2017 annual compensation planning that was conducted during the fourth quarter of 2016 and the first quarter of 2017. As part of the engagement of WTW and reflecting on the Company’s larger revenue and operating income profile, expanded geographic footprint and larger employee base, the Compensation Committee reviewed and adopted a new peer group for 2017 compensation planning (the “2017 Peer Group”). While the 2017 Peer Group was not used for 2016 compensation planning, we do believe that it is more representative of the Company’s current size, market profile and industry focus than that of the 2014 Peer Group.

Because we maintain a balanced compensation approach featuring a variety of elements designed to achieve the Company’s short- and long-term objectives, we do not believe that our compensation policies are structured to promote inappropriate risk-taking by our executives, nor do we believe that a focus on near-term challenges in 2017 will ultimately detract from our ability to progress toward our long-term objectives. We believe that our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. Our program has always been designed to ensure that long-term incentives are an important element of core compensation. In addition, we believe specific elements of our compensation policies operate to moderate risk-taking behavior. For instance, our annual cash incentive award program has maximum limits of payout that can be attained.

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Comparative Consideration/Peer Group

The 2014 Peer Group is comprised of a mix of higher growth life sciences tools, health care equipment/supplies, and pharmaceutical companies with a manufacturing emphasis in the generic space. Pure pharmaceutical companies were not included in the 2014 Peer Group as the Compensation Committee and Cook both felt those companies were not appropriate comparisons at the time as they tend to have different business models and compensation practices in place.

2014 Peer Group:

Abiomed, Inc.
Akorn, Inc.
AngioDynamics, Inc.
Cambrex Corp.
Charles River Laboratories International, Inc.
Endologix, Inc.
Genomic Health, Inc.
HeartWare International Inc.
Lannett Co. Inc.
Luminex Corp.
Meridian Bioscience, Inc.
Merit Medical Systems, Inc.
NuVasive, Inc.
NxStage Medical, Inc.
Quidel Corp.
Sagent Pharmaceuticals, Inc.
Sequenom, Inc.
Volcano Corp.

As discussed above, in late 2016 a comprehensive new peer group review was undertaken in order to ensure that the set of companies against which the Compensation Committee compares the Company’s executive pay levels and pay practices remains appropriate. Development of the 2017 Peer Group included collecting information on companies with which we compete for market share and talent, as well as screening potential peer companies based on relevant scoping criteria such as revenue, market capitalization and headcount. The 2017 Peer Group, which was approved by the Compensation Committee and was used for 2017 compensation planning, is set forth below.

2017 Peer Group:

Aceto Corporation
Achillion Pharmaceuticals, Inc.
Acorda Therapeutics, Inc.
AMAG Pharmaceuticals, Inc.
Amphastar Pharmaceuticals, Inc.
AngioDynamics, Inc.
ANI Pharmaceuticals, Inc.
Cambrex Corporation
Catalent, Inc.
Charles River Laboratories International, Inc.
Eagle Pharmaceuticals, Inc.
Endo International plc
Lannett Company, Inc.
Momenta Pharmaceuticals, Inc.
Patheon N.V.
West Pharmaceutical Services, Inc.

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In addition to the proxy data collected from our peer group, established published surveys of life sciences, biotechnology, research and other technology industries are used to assess our estimates of competitive market pay levels and practices. The benefit of supplementing proxy data with published survey data is the relatively larger sample size of incumbents within companies of similar size and industry. The larger sample size, relative to publicly disclosed compensation data of our peers, increases the reliability of the data and helps to avoid significant year-on-year swings in the summary statistics.

We reviewed an array of compensation levels for executives in our peer group and companies represented in the surveys, but we did not set specific target ranges related to industry peers for individual executive compensation decisions.

With respect to 2016 compensation, each position in the senior executive team including the Chief Executive Officer, Chief Financial Officer, and the other named executive officers was benchmarked against the 2014 Peer Group, as well as other industry indices as described herein.

Key Compensation Elements and Determinants

Factors Used in Determining Pay

The table below provides an overview of the elements, purpose and determination factors of the three core compensation elements used in our current compensation program.

     
Compensation Element   Purpose   Determinations and
Adjustments
  Deliverable
Base Salary and Benefits   Attract and retain executive officers through competitive pay and benefit programs   Individual performance, experience, tenure, competitive market data and trends, internal equity among positions within the Company with similar responsibilities, executive potential and the Company’s business outlook   Base salary — fixed
bi-weekly cash payments
 
Benefits — annual health and welfare insurance, retirement savings programs and stock purchase programs
Annual Non-Equity Incentive Award   Create an incentive
for the achievement of pre-defined annual business objectives
  For target non-equity percentages — competitive market data and trends and internal equity among positions within the Company with similar responsibilities
 
For actual non-equity
payouts — performance against pre-established criteria in the annual cash incentive plan
  Annual variable cash payout, payable, if earned, late in the first quarter of the following year

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Compensation Element   Purpose   Determinations and
Adjustments
  Deliverable
Long-Term Incentive Plan   Align the interests of executive officers over a multi-year period directly with the creation and preservation of
long-term stockholder value while creating appropriate recruiting and retention incentives through the use of
multi-year vesting schedules and performance-based vesting schedules
  Annual award — individual performance, Company performance, internal equity among positions within the Company with similar responsibilities and executive potential
 
New hire, promotion and special awards — internal equity among positions within the Company with similar responsibilities and market data and trends
  Annual award — delivered using a combination
of time- and
performance-based restricted stock and stock options, generally awarded in the first quarter
 
New hire, promotion and special awards — 
time-based restricted stock awards and stock option awards

Each element of compensation outlined above is considered both individually and collectively when considering compensation matters. Compensation adjustments also consider the interrelation between each compensation element to ensure that the entire program is appropriately aligned. In addition, the Compensation Committee may apply discretion in determining specific compensation levels of individual executives to account for other factors such as performance, tenure, degree of responsibility and other factors that the Compensation Committee considers appropriate. The compensation program is evaluated annually taking into consideration evolving changes to the existing business strategy and plans of the Company.

The Compensation Committee considers recommendations regarding the level of compensation paid to executive officers when compared to competitive market data, and seeks input from the Chief Executive Officer and the Compensation Committee’s independent compensation consultant. In addition, the Chief Executive Officer assesses each executive officer’s contributions to the business and his or her ability to execute on our long-term strategy when making recommendations to the Compensation Committee regarding compensation, but cannot unilaterally implement compensation changes for any executives reporting directly to him. The Chief Executive Officer does not participate in any discussions involving the determination of his own compensation. The Compensation Committee regularly evaluates the Chief Executive Officer’s performance and reviews its discussions regarding our Chief Executive Officer’s performance and compensation with the full Board prior to communicating compensation decisions to our Chief Executive Officer.

Base Salary

It is our objective to set base salaries for our named executive officers that are competitive and fairly compensate our officers for their roles at the Company. Executives are considered for periodic merit and competitive pay increases, generally on an annual basis, in the first quarter of the fiscal year. Each of our named executive officers entered into an employment agreement with the Company which, among other things, establishes a minimum base salary. In early 2017, the Compensation Committee evaluated executive base salaries using the 2017 Peer Group and in general, set 2017 base salaries broadly in line with the median of similarly situated executives in the companies that make up the 2017 Peer Group.

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The following table provides information regarding base salaries provided to our named executive officers in 2016 and the base salaries that will be paid during 2017, based on actions taken by the Compensation Committee early in 2017:

       
Name   Amount of
2016
Base Salary
Adjustment
  2016
Base Salary
(Effective
April 1, 2016)
  Amount of
2017
Base Salary
Adjustment
  2017
Base Salary
(effective
April 2017)
William S. Marth     7.7 %     $ 700,000       3.0 %     $ 721,000  
Felicia I. Ladin     3.7 %     $ 415,000       3.0 %     $ 427,000  
Steven R. Hagen Ph.D.     3.0 %     $ 376,000       3.1 %     $ 387,500  
Lori M. Henderson     3.8 %     $ 405,000       3.0 %     $ 417,000  
George Svokos     18.2 %     $ 487,000       3.1 %     $ 502,000  

The average base salary increase of approximately 3% for our named executive officers was in line with the average base salary increases provided to the broader employee population in 2017.

Annual Non-Equity Incentive Plan Awards

Our compensation program provides for the opportunity for each named executive officer to earn an annual non-equity incentive award that is linked to Company performance. The purpose of this program is to provide additional compensation for individuals based on attaining or exceeding pre-established financial and strategic goals and milestones. Non-equity incentive awards are earned for achieving target performance levels with potential to earn greater or lesser amounts depending upon actual performance and are designed to motivate the executive team to achieve or exceed performance goals to receive an award. Goals and objectives for the executive officers for the fiscal year are recommended by the Chief Executive Officer and approved by the Compensation Committee. Specific goals and objectives for the Chief Executive Officer are set by the Compensation Committee in consultation with the full Board of Directors. The structure of this plan is such that no non-equity incentive is awarded if threshold performance goals are not met.

At the beginning of 2016, our Compensation Committee approved the corporate goals under the non-equity incentive program and using competitive market practices as a guide in consultation with Cook, established the potential non-equity incentive payouts for each named executive officer at threshold, target and superior performance levels. The following table outlines the 2016 threshold, target and superior payout opportunity (expressed as a percentage of base salary).

2016 Potential Non-Equity Incentive Payouts (% of Base Salary)

     
  Threshold   Target   Superior
William S. Marth     32.5 %       65 %       130 %  
Felicia I. Ladin     30 %       50 %       100 %  
Steven R. Hagen Ph.D.     30 %       50 %       100 %  
Lori M. Henderson     30 %       50 %       100 %  
George Svokos     30 %       50 %       100 %  

In early 2016, the Company established aggressive goals related to growth in revenue and Adjusted EBITDA, which were communicated to our stockholders in the form of annual financial guidance. Adjusted EBITDA is a measure that is defined by the Company generally as operating profit from continuing operations less taxes, depreciation and amortization. In addition, this measure adjusts out for other non-recurring expenses of the Company during the period and as such reflects a measure that is useful to investors in evaluating the day-to-day operations of the Company.

In light of the financial targets set out by management, the Compensation Committee and the Chief Executive Officer agreed that given the recent changes in the Company’s size and operations, the bonus plan metrics for 2016 would include (i) total revenue including royalties, (ii) Adjusted EBITDA, and (iii) for each executive other than the Chief Executive Officer, a MBO specific to each executive. In addition, in light of the Company’s historical and future acquisition strategy, the Compensation Committee and management, with the advice of Cook, developed an adjustment mechanism that would be used to modify the financial targets if the Company completed any further acquisitions during the performance period.

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Corporate performance goals for 2016 were set based on total revenue, including all royalties and excluding the impact of foreign exchange movements, and Adjusted EBITDA, to be calculated before the bonus accrual and excluding the impact of foreign exchange movements. After discussions with Cook, the Compensation Committee agreed that Adjusted EBITDA represents a more accurate representation of the Company’s performance than operating income, and as such it was a more appropriate metric for measuring overall performance for 2016. For the Chief Executive Officer, the Compensation Committee placed equal weighting on the Adjusted EBITDA and revenue targets, with each goal being weighted 50% for calculation of the cash bonus pool. For the other named executive officers and members of the executive team, the Compensation Committee agreed on a 35% weighting for revenue; 40% weighting for Adjusted EBITDA and 25% weighting for the agreed upon MBO. Further, the Compensation Committee agreed that the relevant MBOs were to be achieved on a binary basis, either zero or 100%, but with respect to the entire calculation of any cash bonus payments, linear interpolation would be applied in order to derive payouts, if appropriate, between threshold, target and superior. Following the acquisition of Prime European Therapeuticals, S.p.A in July 2016, the Compensation Committee adjusted the revenue and Adjusted EBITDA targets to include the stated expectations for the added businesses, while keeping the weighting levels the same.

Notwithstanding the progress made by the Company in 2016, the Company’s financial results did not meet the “Threshold” target in either measurement category and therefore there were no cash incentive payments made to our named executive officers relating to the 2016 performance period.

Long Term Incentive Compensation

We maintain a long-term incentive program that provides for periodic awards of restricted common stock and option awards. Grants are typically made on an annual basis as recommended by the Chief Executive Officer (for all executives other than the Chief Executive Officer) and approved by the Compensation Committee. The objective of the program is to align compensation for the named executive officers over a multi-year period directly with the interests of our stockholders. In addition, this program is an important tool in the recruiting and retention of key employees. The program rewards the creation and preservation of long-term stockholder value.

We review the mix of long-term incentives, base salary and non-equity incentive payments with competitive market compensation data provided by our independent compensation consultant, particularly with respect to the Company’s peer group. There is no specific fixed percentage of compensation targeted as long-term compensation.

The Compensation Committee delegated authority to the Chief Executive Officer to allocate equity awards to employees who are not executive officers with limits on the number of shares that can be granted to any one individual without Compensation Committee approval. In general, certain newly hired employees, including executive officers, are granted restricted stock units and/or other equity awards on an established day as determined in accordance with the Company’s Equity Award Grant Policy, with the options having an exercise price equal to the fair market value of our Common Stock on the date of grant.

Executives may also be awarded stock options or other equity award grants as a means of long-term incentive compensation outside of the scheduled annual distribution. Grants of this nature above a stated level, as with the annual grant, must be recommended by the Chief Executive Officer and reviewed and approved by the Compensation Committee, and are generally awarded for specific exceptional performance, recognition, promotion, retention of a key employee, new employment packages or other extraordinary circumstances.

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In determining the appropriate use and mix of long-term incentive instruments for 2016, the Compensation Committee considered the following factors:

The ‘at risk’ nature of the grant — Non-qualified stock options drive an executive to contribute to the creation of stockholder value through an increase in stock price in order to recognize any income at the time of exercise. This puts the option holdings at risk of generating no value if stockholders do not also recognize an increase in stock price.
The dilutive impact of the grant, as restricted stock awards require fewer shares to be granted to provide the same competitive value as options, and therefore the dilutive effect on earnings per share is generally lower with restricted stock.
The accounting impact of equity award expensing.
The tax implications to the Company and executive.
The value of each form of equity grant to the executive as a motivation and/or retention tool.
The number of shares granted to an executive relative to industry and peer group comparables and in light of the value of the award in evaluating total target direct compensation for each executive.

The equity awards provided to each executive in 2016 are detailed in the Grants of Plan-Based Awards Table and are described more fully below.

Mix of Restricted Stock and Stock Options

The provisions of our stock incentive plan provide for the distribution of a number of potential equity incentive awards; however we have primarily utilized only non-qualified stock options and restricted stock grants to date. During the planning for 2016 compensation, the Compensation Committee, with the advice of Cook, targeted an equity grant that would be valued at approximately the 50 th percentile of the relevant market data, based on the peer group and market data analysis performed by Cook and discussed with the Compensation Committee. In 2016, the Compensation Committee approved a long-term incentive grant for executives that represented a mix of time-based restricted stock units; performance-based restricted stock units and non-qualified stock options. The distribution of these awards is set forth below:

     
Role   Performance-Based
RSUs
  Time-Based
RSUs
  Non-Qualified
Stock Options
CEO     50 %       25 %       25 %  
All other executives     25 %       25 %       50 %  

Performance Vesting for Restricted Stock Units

In keeping with the Compensation Committee’s decision to utilize performance criteria for a portion of the equity awards made to the named executive officers, the Compensation Committee adopted performance criteria for the performance-based restricted stock units granted to the executive team. The 2016 performance-based units will vest either in full or in part on the third anniversary of the grant, contingent upon the Company’s relative total stockholders return as compared to the Russell 2000 stock index for the performance period. The Compensation Committee set the following vesting schedule for the 2016 performance-based awards:

30 th percentile or less = 0 shares vest
Greater than 30 th percentile to the 60 th percentile = 50% of shares vest
Greater than 60 th percentile to the 80 th percentile = 100% of shares vest
Greater than 80 th percentile = 200% of shares vest

In the event that the Company experiences negative total shareholder return during the 3-year performance period, regardless of the overall percentile ranking during the performance period, the vesting percentage of the performance-based awards will be capped at 100%.

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Employment Agreements

We have entered into employment agreements with each of our named executive officers: Mr. Marth, Ms. Ladin, Ms. Henderson, Dr. Hagen, and Mr. Svokos. These agreements provide for a certain level of severance in the event of a termination of employment by us without cause or by the executive for good reason. In return, each executive agrees, during the term of employment and for a period of time thereafter, not to compete with us or solicit or hire our employees and independent contractors. We have also entered into Employee Non-Disclosure, Proprietary Information, Inventions and Non-Solicitation Agreements with each of our named executive officers. We believe that these agreements together are fair to our executives and to our stockholders because these agreements provide severance in exchange for the restrictive covenants which protect us. Further, because the severance level is negotiated up front, it makes it easier for our Board to terminate executives for any reason without the need for protracted negotiations.

The employment agreements with our named executive officers also provide additional protection to the officers in the event of a change in control, including severance payments if they are terminated within a certain time period following a change in control, and the equity award agreements with our named executive officers provide for accelerated vesting of equity awards in the event of a change in control of the Company (for additional details, please see the “Potential Payments upon Termination or Change-in-Control” table). Consistent with industry practice, our Compensation Committee believes it is fair to provide severance protection and accelerated vesting of equity grants upon a change in control. By agreeing up front to provide such protection, our Compensation Committee believes we can reinforce and encourage the continued attention and dedication of senior management to their assigned duties without distraction in the face of an actual or threatened change in control and ensure that management is motivated to negotiate the best merger consideration for our stockholders. The employment agreements are described in more detail in this proxy statement.

Insider Trading Policy

Under our insider trading policy, no director, officer or employee of the Company may: trade in our securities, including Common Stock, stock options, and any other type of securities that the Company may issue, while in possession of material, non-public information about the Company; disclose material, non-public information concerning the Company to others who may trade on the basis of that information; provide trading advice about the Company while possessing material, non-public information; or trade in the securities of any other public company while possessing material, non-public information about such company obtained in the course of service as a director, officer or employee of the Company. In addition, certain of our employees, including all of our executive officers and directors, are restricted from engaging in the following transactions with respect to our securities: short sales, hedging transactions, standing orders and holding Company securities in margin accounts or pledging Company securities as collateral.

Tax Considerations

Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that public companies may deduct in any one year with respect to certain of its named executive officers. Certain performance-based compensation approved by stockholders is not subject to this deduction limit. Our Compensation Committee’s strategy in this regard is to be cost and tax efficient. Therefore, whenever possible, the Compensation Committee intends to structure compensation programs to qualify compensation as performance-based under Section 162(m) of the Code, while maintaining the flexibility in the future to approve arrangements that it deems to be in our best interests and the best interests of our stockholders, even if such arrangements are subject to the deduction limitations imposed by Section 162(m) of the Code and do not always qualify for full tax deductibility.

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COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors has reviewed and discussed with management the foregoing Compensation Discussion and Analysis and, based on such review and discussions, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Compensation Committee
 
David H. Deming, Chair
Kenneth P. Hagen
Kevin O’Connor
Una S. Ryan, Ph.D., O.B.E.

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COMPENSATION OF EXECUTIVE OFFICERS
 
Summary Compensation Table

The following table summarizes, for the fiscal years indicated in the table, the compensation awarded or paid to, or earned by, any person serving as our “principal executive officer” or “principal financial officer” in the year ended December 31, 2016 and our three other highest paid executive officers whose total compensation in fiscal year 2016 exceeded $100,000 and who were serving as executive officers on December 31, 2016 (our “Named Executive Officers”):

               
Name and Principal Position   Year   Salary   Bonus   Stock
Awards (3)
  Option
Awards (4)
  Non-Equity
Incentive Plan
Compensation (5)
  All Other
Compensation (6)
  Total
William Marth, President & CEO     2016     $ 686,539     $     $ 1,372,307     $ 325,898     $     $ 15,949     $ 2,400,693  
    2015     $ 650,000     $     $ 760,703     $     $ 211,250     $ 17,464     $ 1,639,417  
    2014     $ 632,500     $ 350,000 (1)     $ 1,767,625     $     $     $ 14,814     $ 2,764,939  
                                                                 
Felicia I. Ladin,
Senior Vice President, CFO and Treasurer
    2016     $ 410,962     $     $ 253,359     $ 189,022     $     $ 2,078     $ 855,421  
    2015     $ 350,769     $ 123,211 (2)     $ 549,948     $ 607,020     $ 120,000     $ 82,818     $ 1,833,766  
                                                                       
Lori M. Henderson,
Senior Vice President, General Counsel and Secretary
    2016     $ 400,961     $     $ 232,968     $ 173,815     $     $ 14,582     $ 822,326  
    2015     $ 372,308     $     $ 254,726     $ 149,720     $ 114,000     $ 13,367     $ 904,121  
    2014     $ 343,121     $     $ 134,829     $ 141,752     $     $ 12,742     $ 632,444  
                                                                       
Steven R. Hagen, Ph.D.,
Senior Vice President, Quality and Compliance
    2016     $ 373,039     $     $ 183,480     $ 136,876     $     $ 15,572     $ 708,967  
    2015     $ 345,414     $     $ 208,825     $ 106,471     $ 105,510     $ 15,662     $ 781,882  
    2014     $ 331,755     $     $ 115,563     $ 121,500     $     $ 12,742     $ 581,560  
                                                                       
George Svokos,
Chief Operating Officer
    2016     $ 466,808     $     $ 337,824     $ 252,027     $     $ 36,703     $ 1,093,362  
    2015     $ 408,769     $     $ 324,048     $ 124,770     $ 123,600     $ 78,132     $ 1,059,319  
    2014     $ 384,616     $ 240,000 (7)     $ 439,929     $ 624,752     $     $ 67,387     $ 1,756,684  

(1) Pursuant to the terms of his employment agreement with the Company, in 2014, Mr. Marth was paid a relocation bonus in the amount of $350,000.
(2) Ms. Ladin joined the Company on February 11, 2015. Ms. Ladin was paid a sign-on bonus in the amount of $123,211.
(3) This column represents the aggregate grant date fair value of time-based and performance-based restricted stock awards and restricted stock units with respect to the 2016, 2015, 2014 fiscal year granted to each executive officer in accordance with FASB ASC Topic 718. For time-based restricted stock awards or restricted stock units, the grant date fair value is calculated using the closing price of our stock on the date of the grant. For performance-based restricted stock awards or restricted stock units, the grant date fair value is calculated in accordance with FASB ASC Topic 718 based on probable outcome.
(4) This column represents the aggregate grant date fair value of option awards with respect to the 2016, 2015 or 2014 fiscal year granted to each of the named executives in accordance with FASB ASC Topic 718. For stock options, fair value is calculated using the Black-Scholes calculated value on the date of the grant. See Note 9 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 regarding assumptions underlying the valuation of these equity awards.
(5) This column represents earnings derived from payments pursuant to our annual incentive program. Each named executive was eligible to receive a payment based on the achievement of personal, departmental and corporate goals set for 2016, 2015, or 2014. The 2016 corporate goals were not achieved and payments were not made to the named executive officers with respect to the year ended December 31, 2016.
(6) See the All Other Compensation table below for additional detailed information.
(7) Mr. Svokos joined the Company on January 6, 2014. Mr. Svokos was paid a sign-on bonus in the amount of $240,000.

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All Other Compensation

           
  Year   Payments
Related to
401(k)
Match (1)
  Value of Life
Insurance
Premiums (2)
  Health
Insurance
Opt-Out
Payment (3)
  Other
Reimbursements
  Total
William S. Marth     2016     $ 12,385     $ 3,564     $     $     $ 15,949  
    2015     $ 13,250     $ 3,564     $ 650     $     $ 17,464  
    2014     $ 11,011     $ 3,153     $ 650     $     $ 14,814  
Felicia I. Ladin     2016     $ 1,538     $ 540     $     $     $ 2,078  
    2015     $     $ 416     $     $ 82,402 (4)     $ 82,818  
Lori M. Henderson     2016     $ 12,260     $ 2,322     $     $     $ 14,582  
    2015     $ 12,077     $ 1,290     $     $     $ 13,367  
    2014     $ 11,500     $ 1,242     $     $     $ 12,742  
Steven R. Hagen, Ph.D.     2016     $ 13,250     $ 2,322     $     $     $ 15,572  
    2015     $ 13,250     $ 2,412     $     $     $ 15,662  
    2014     $ 11,500     $ 1,242     $     $     $ 12,742  
George Svokos     2016     $ 13,250     $ 2,322     $     $ 21,131 (5)     $ 36,703  
    2015     $ 13,250     $ 2,322     $     $ 62,560 (5)     $ 78,132  
    2014     $ 11,308     $ 1,965     $     $ 54,114 (5)     $ 67,387  

(1) This column reports Company matching contributions to the named executives officers’ 401(k) savings accounts. Subject to caps imposed by the IRS, the Company provides matching contributions equal to 100% of the participant’s contributions for each payroll period up to the first 4%. The Company then matches 50% on the next 2% of plan compensation, to a maximum Company match of 5%.
(2) This column represents taxable value of premiums made on the part of the Company to cover term life insurance for each of the named executive officers in the amount of two (2) times their base salary for the prior calendar year.
(3) The Company maintains a $650 annual incentive for employees who opt out of health and dental insurance if proof of other coverage is provided to the Company.
(4) In accordance with the terms of the employment agreement with Ms. Ladin, the Compensation Committee approved the payment of a temporary housing allowance in the amount of $37,230 and reimbursement of moving expenses in the amount of $45,172 in 2015.
(5) In accordance with the terms of the employment agreement with Mr. Svokos, the Compensation Committee approved the payment of a temporary housing allowance in the amount of $21,131 in 2016, $62,560 in 2015 and $46,701 in 2014 as well as reimbursement of moving expenses in the amount of $7,413 in 2014.

39


 
 

Grants of Plan-Based Awards

The following table provides information pertaining to equity awards granted to the named executive officers in 2016 as well as the non-equity incentive award potential for the named executive officers for the attainment of an incentive payout at the listed level, as explained in “Annual Non-Equity Incentive Awards” section of the Compensation Discussion and Analysis.

                     
                     
Name     Estimated Future Payouts
Under Non Equity
Incentive Plan Awards (1) :
  Estimated Future Payouts
Under Equity
Incentive Plan Awards (2)
  Option and Stock Awards
  All other
Stock
Awards:
Number
of Shares
of Stock
or Units
  All other
Option
Awards:
Number
of
Securities
Underlying Options
  Exercise
or Base
Price of
Option
Awards
($/Share)
  Grant Date
Fair Value
of Stock
and Option
Awards (4)
  Grant
Date
  Threshold
($)
  Target
($)
  Maximum
($)
  Threshold
(#)
  Target
(#)
  Maximum
(#)
  (#) (3)   (#) (3)
(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)   (k)   (l)
William S. Marth     2/4/2016                                                                      54,498       15.77     $ 325,898  
    2/4/2016                                                             23,779                       $ 374,995  
    2/4/2016                                  23,779       47,559       95,118                                $ 997,312  
           $ 227,500     $ 455,000     $ 910,000                                                                 
Felicia I. Ladin     2/4/2016                                                                      31,609     $ 15.77     $ 189,022  
    2/4/2016                                                             6,896                       $ 108,750  
    2/4/2016                                  3,448       6,896       13,792                                $ 144,609  
           $ 124,500     $ 207,500     $ 415,000                                                                 
Lori M. Henderson     2/4/2016                                                                      29,066     $ 15.77     $ 173,815  
    2/4/2016                                                             6,341                       $ 99,998  
    2/4/2016                                  3,171       6,341       12,682                                $ 132,971  
           $ 121,500     $ 202,500     $ 405,000                                                                 
Steven R. Hagen, Ph.D.     2/4/2016                                                                      22,889     $ 15.77     $ 136,876  
    2/4/2016                                                             4,994                       $ 78,755  
    2/4/2016                                  2,497       4,994       9,988                                $ 104,724  
           $ 112,800     $ 188,000     $ 376,000                                                                 
George Svokos     2/4/2016                                                                      42,145     $ 15.77     $ 252,027  
    2/4/2016                                                             9,195                       $ 145,005  
    2/4/2016                                  4,598       9,195       18,390                                $ 192,819  
           $ 146,100     $ 243,500     $ 487,000                                                                 

(1) Columns (c), (d), and (e) reflect the named executive officers’ potential payments for the levels “Threshold,” “Target” or “Maximum” for attainment of their 2016 goals and objectives. Payments actually made are reflected in the Summary Compensation Table and reflect the Company’s actual performance against the 2016 goals and objectives. For a discussion on the attainment of 2016 goals and objectives, see the “Compensation Discussion and Analysis – Annual Non-Equity Incentive Plan Awards” section of this proxy statement.
(2) Columns (f), (g) and (h) reflect the named executive officers’ potential payments for attaining the levels “Threshold,” “Target” or “Maximum” (50%, 100% and 200%, respectively), in terms of number of restricted stock units that may vest. The 2016 performance-based restricted stock units will vest either in full or in part on the third anniversary date of the grant and require that the Company achieve certain goals in respect to the Company’s share price compared against the Russell 2000 Stock Index over a three-year period in order to vest.
(3) Time-based restricted stock units and non-qualified stock options vest 25% per year over four years.
(4) The grant date fair value of the non-qualified stock options is calculated using the Black Scholes valuation on the day of grant and multiplying it by the number of shares. For time-based restricted stock units, fair value is calculated by multiplying the number of shares granted by the closing price of our stock on the date of the grant. For performance-based restricted stock units, fair value is calculated in accordance with FASB ASC Topic 718 based on probable outcome.

40


 
 

Option Exercises and Stock Vested

The following table sets forth certain information regarding restricted stock awards vested during 2016 for the named executive officers and options exercised during 2016 by the named executive officers.

       
  Option Awards   Stock Awards
Name   Number of
Shares
Acquired on
Exercise
  Value
Realized on
Exercise
  Number of
Shares
Acquired on
Vesting
  Value Realized
on Vesting
     (#)   ($) (1)   (#)   ($) (2)
William S. Marth         $       24,802     $ 500,008  
Felicia I. Ladin         $       7,353     $ 112,983  
Lori M. Henderson         $       8,771     $ 137,583  
Steven R. Hagen, Ph.D.     9,000     $ 32,850       7,505     $ 117,685  
George Svokos     __     $       15,426     $ 270,649  

(1) Value realized is calculated on the basis of the difference between the closing market price of our Common Stock as reported on NASDAQ on the date of the exercise and the exercise or base price of the options, multipled by the number of shares of Common Stock acquired on exercise.
(2) Value realized is calculated on the basis of the closing price of our Common Stock as reported on NASDAQ on the date of vesting, multiplied by the number of shares of Common Stock that vested.

41


 
 

Outstanding Equity Awards at 2016 Fiscal Year End

The following table provides information on the holdings of stock options and stock awards by the named executive officers on December 31, 2016. This table includes unexercised and unvested options and unvested restricted stock and restricted stock units. Each equity grant is shown separately for each named executive officer. The vesting schedule for each grant is based on the option or stock award grant date, as described in more detail in the footnotes to the table.

The market value of the stock awards is based on the closing market price of AMRI stock as of December 30, 2016 of $18.76.

                     
                     
    Option Awards   Stock Awards
       Number of
Securities
Underlying
Unexercised
Options
Exercisable
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)
  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (1)
  Option
Exercise
Price
  Option
Expiration
Date (2)
  Stock Grant
Date
  Number of
Shares or
Units of
Stock That
Have Not
Vested (1)
  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (1)
  Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
Name   Grant Date   (#)   (#)   (#)   ($)   (#)   ($)   (#)   ($)
William Marth                                                           01/01/2014       49,603       930,552                    
                                                          02/04/2014                         95,238       1,786,665  
                                                          03/02/2015                         58,651       1,100,293  
    02/04/2016                54,498                15.77       02/04/2026       02/04/2016       23,779       446,094       47,559       892,207  
Felicia I Ladin     02/17/2015       18,750       56,250                16.70       02/17/2025       02/17/2015       18,750       351,750                    
    03/02/2015       4,770       14,308                17.05       01/31/2025       03/02/2015       3,309       62,077       4,412       82,769  
    02/04/2016                31,609                15.77       02/04/2026       02/04/2016       6,896       129,369       6,896       129,369  
Lori M. Henderson     02/04/2011       50,000                         4.87       02/04/2021                                               
    06/02/2011       17,500                         5.25       06/02/2021                                               
    02/17/2012       26,250                         2.93       02/17/2022                                               
    01/31/2013       21,875       4,375       4,375       5.99       01/31/2023       01/31/2013       1,456       27,315       1,456       27,315  
    02/04/2014       14,584       14,583                10.43       02/04/2024       02/04/2014       3,646       68,399       7,292       136,798  
    03/02/2015       5,724       17,169                17.05       03/02/2025       03/02/2015       3,970       74,477       5,294       99,315  
                                                          11/02/2015       3,750       70,350                    
    02/04/2016                29,066                15.77       02/04/2026       02/04/2016       6,341       118,957       6,341       118,957  
Steven R. Hagen     02/17/2012       3,750                         2.93       02/17/2022                                               
    01/31/2013       7,500       3,750       3,750       5.99       01/31/2023       01/31/2013       1,250       23,450       1,250       23,450  
    02/04/2014       7,500       12,500                10.43       02/04/2024       02/04/2014       3,124       58,606       6,250       117,250  
    03/02/2015       4,070       12,210                17.05       03/02/2025       03/02/2015       2,823       52,959       3,765       70,631  
                                                          11/02/2015       3,750       70,350                    
    02/04/2016                22,889                15.77       02/04/2026       02/04/2016       4,994       93,687       4,994       93,687  
George Svokos (3)     01/06/2014       66,667       33,333                10.25       01/06/2024       01/06/2014       10,000       187,600                    
    02/04/2014       14,583       14,583                10.43       02/04/2024       02/04/2014       3,646       68,399       7,292       136,798  
    03/02/2015       4,770       14,308                17.05       03/02/2025       03/02/2015       3,309       62,077       4,412       82,769  
                                                          11/02/2015       7,500       140,700                    
    02/04/2016                42,145                15.77       02/04/2026       02/04/2016       9,195       172,498       9,195       172,498  

(1) The 2016 equity awards to the named executive officers consisted of time-based stock options and both performance- and time-based restricted stock units. The 2016 performance-based restricted stock units will vest either in full or in part on the third anniversary of the grant date, contingent upon the Company’s relative total stockholders return as compared to the Russell 2000 stock index for the performance period. The time-based equity awards granted in 2016 vest 25% per year over four years. The 2015 stock award to Mr. Marth is performance-based, and the 2015 equity awards to other named executive officers were time-based stock options and both performance- and time-based restricted stock.

42


 
 

The 2015 performance-based shares will vest either in full or in part on the third anniversary of the grant date, contingent upon the Company’s achievement of certain goals in respect to the Company’s share price compared against the Russell 2000 Stock Index over such three-year period. The time-based equity awards granted in 2015 vest 25% per year over four years. Fifty percent (50%) of the 2014 restricted stock award to the named executive officers was performance-based, except for Mr. Marth’s 2014 restricted stock award, which was 100% performance-based. The 2014 performance-based shares will vest either in full or in part of the third anniversary of the grant date, contingent upon the Company’s achievement of certain goals in respect to the Company’s share price compared against the Russell 2000 Stock Index over such three-year period. The time-based equity awards granted in 2014 vest 25% per year over four years. Fifty percent (50%) of the 2013 equity awards to the named executive officers were performance-based and require that the Company achieve certain goals in respect to contract operating margin in each year in order to vest. The earned portion of these equity awards, along with the time-based equity awards, vest 25% per year over four years.
(2) Except as otherwise noted, the stock options and restricted stock granted in 2011, 2012, 2013 and 2014 that are not performance-based, contain a vesting schedule that provides for 25% vesting on each anniversary date of the grant.
(3) The January 6, 2014 grants to Mr. Svokos are time-based and vest 33.3% on each anniversary date of the grant as provided in his employment agreement.

Agreements with Named Executive Officers

The Company is party to employment agreements with Mr. Marth, Ms. Ladin, Ms. Henderson, Dr. Hagen and Mr. Svokos, which were amended by the Company in February 2017. The terms of the employment agreements are substantially similar, except with respect to stated minimum annual base salary, and with respect to benefits payable upon termination of employment following a change of control. The following description sets forth the material terms of the agreements, as amended, with the named executive officers.

Agreement with Mr. Marth

Mr. Marth’s employment agreement provides for a minimum base salary of $650,000. Under the employment agreement with Mr. Marth, if his employment is terminated (a) by the Company for any reason other than for cause (as defined in the employment agreement) or due to his death or disability, or (b) by him for good reason (as defined in the employment agreement), Mr. Marth is entitled to the following payments and benefits: (i) continued payment of base salary for two years following termination, (ii) an amount equal to Mr. Marth’s non-equity incentive award paid for the year prior to the year of termination, payable in monthly installments over the two-year period following termination, (iii) a pro-rated bonus (to the extent earned) for the year of termination, (iv) up to 12 months of outplacement support services at the Company’s expense, and (v) health and dental insurance continuation for 24 months following termination. Receipt of these severance payments and benefits is conditioned upon Mr. Marth executing a general release of claims, confidentiality, non-disparagement and return of property agreement (a “Release”) and such Release becoming irrevocable and Mr. Marth’s continued compliance with the non-competition, non-solicitation and confidentiality provisions of his employment agreement. If there was a change of control (as defined in the employment agreement) and within two (2) years following such change in control Mr. Marth’s employment is terminated by the Company without cause or Mr. Marth resigns for good reason (as defined in the employment agreement), then Mr. Marth would be entitled to receive the following payments and benefits: (i) full vesting of all Company contributions made to the 401(k) plan on his behalf, (ii) a pro-rated target bonus for the year of termination, (iii) an amount equal to two times the sum of: (x) his annual base salary, and (y) his target bonus for the year in which termination occurred, payable in a lump sum, (iv) up to 12 months of outplacement support services at the Company’s expense, and (v) health and dental insurance continuation for 24 months following termination. Receipt of such payments and benefits is conditioned upon Mr. Marth executing a Release and such Release becoming irrevocable.

43


 
 

Agreements with the other Named Executive Officers

Under the employment agreements with each of Ms. Henderson, Ms. Ladin, Dr. Hagen and Mr. Svokos, if the executive’s employment is terminated (a) by the Company for any reason other than for cause (as defined in the employment agreements) or due to the executive’s death or disability, or (b) by the executive for good reason (as defined in the employment agreement), each executive is entitled to the following payments and benefits: (i) continued payment of base salary for 12 months following termination, (ii) an amount equal to the executive’s non-equity incentive award paid for the year prior to the year of termination, payable in monthly installments over the one-year period following termination, (iii) up to 12 months of outplacement support services at the Company’s expense, and (iv) health and dental insurance continuation for 12 months following termination. Receipt of these severance payments and benefits is conditioned upon the executive’s execution of a Release. If there was a change of control (as defined in the employment agreements), the Company will pay the executive a lump sum equal to the executive’s pro rata target cash bonus for the year in which the change of control occurred, within thirty (30) days of such change of control. If within two (2) years following a change in control, the executive’s employment is terminated by the Company without cause or the executive resigns for good reason (as defined in the employment agreements), then the executive would also be entitled to receive the following payments and benefits: (i) an amount equal to 1.5 times the sum of (x) the executive’s annual base salary, plus (y) the executive’s target bonus for the year in which termination occurred, payable in a lump sum, (ii) up to 12 months of outplacement support services at the Company’s expense, (iii) health and dental insurance continuation for 18 months following termination, and (iv) full vesting of all Company contributions made to the 401(k) plan on the executive’s behalf. Receipt of such payments and benefits is conditioned upon the executive executing a Release and such Release becoming irrevocable. In addition under Ms. Ladin’s employment agreement, in the event that Ms. Ladin’s employment is terminated (a) by the Company for any reason other than for cause or due to the executive’s death or disability, or (b) by Ms. Ladin for good reason (as defined in the employment agreement), Ms. Ladin is entitled to full vesting of her new hire equity award.

In addition, each of the employment agreements with the named executive officers provide for full vesting of all equity awards upon a change of control. The employment agreements require that payments and benefits to each named executive officer will be reduced only if the executive would receive a greater after-tax amount with the reduction.

The Company has also entered into Employee Non-Disclosure, Proprietary Information, Inventions and Non-Solicitation Agreements with its named executive officers which outline responsibilities relating to confidentiality and non-solicitation of the Company’s employees for a certain period.

44


 
 

Potential Payments Upon Termination or Change-in-Control

The table below details the potential payments to the named executive officers under the circumstances of termination that is listed. The amounts listed in the table represent the total payment to be made for that compensation/benefit element, not an annual amount. In accordance with the rules of the Securities Exchange Commission, the table below is prepared as if the relevant event occurred on December 31, 2016; based on the compensation arrangements in place for each named executive officer as of that date.

               
Payments and Benefits   Name   Voluntary   Involuntary
  Employee
Termination
Without
Good Reason
  Employee
Termination
for Good
Reason
  Termination
Without
Cause
  Termination
for Cause
  Termination
upon
Death or Disability (5)
  Change of
Control
Without
Termination (6)
  Termination
after Change-
in-Control (7)
Cash Severance (1)     Marth             1,400,000       1,400,000                         1,400,000  
       Ladin             415,000       415,000                         622,500  
       Henderson             405,000       405,000                         607,500  
       Hagen             376,000       376,000                         564,000  
       Svokos             487,000       487,000                         730,500  
Bonus Component (1)     Marth                                           422,500  
       Ladin                                     207,500       240,000  
       Henderson                                     202,500       228,000  
       Hagen                                     188,000       211,020  
       Svokos                                     243,500       247,200  
Stock Options (2)     Marth                                     162,949       162,949  
       Ladin             115,875       115,875                   234,853       234,853  
       Henderson             __       __                   349,480       349,480  
       Hagen                                     289,217       289,217  
       Svokos             283,664       283,664                   555,620       555,620  
Restricted Stock (2)     Marth                                     5,155,811       5,155,811  
       Ladin             351,750       351,750                   755,334       755,334  
       Henderson             __                         741,883       741,883  
       Hagen                                     604,072       604,072  
       Svokos             187,600       187,600                   1,023,339       1,023,339  
Health Care Benefits (3)     Marth             26,520       26,520             12,750             26,520  
       Ladin             9,211       9,211             9,211             9,211  
       Henderson             12,750       12,750             12,750             12,750  
       Hagen             12,750       12,750             12,750             12,750  
       Svokos             12,750       12,750             12,750                12,750  
Outplacement (4)     Marth             12,000       12,000                         12,000  
       Ladin             12,000       12,000                         12,000  
       Henderson             12,000       12,000                         12,000  
       Hagen             12,000       12,000                         12,000  
       Svokos             12,000       12,000                         12,000  
Total     Marth             1,438,520       1,438,520             12,750       5,318,760       7,179,780  
       Ladin             903,836       903,836             9,211       1,197,686       1,873,897  
       Henderson             429,750       429,750                12,750       1,293,863       1,951,613  
       Hagen             400,750       400,750                12,750       1,081,289       1,693,059  
       Svokos             983,014       983,014                12,750       1,822,460       2,581,410  

(1) For details relating to the employment agreements with our named executive officers, see the “Agreements with Named Executive Officers” section above. These agreements were amended in February 2017, as described above. The amendments are not reflected in this table.
(2) This amount represents the intrinsic value (that is, the value based upon the Company’s stock price on December 30, 2016 of $18.76 per share), and in the case of options minus the exercise price of equity awards that would become exercisable as of December 31, 2016. Ms. Ladin has a provision in her employment agreement which requires accelerated vesting of certain options and restricted stock granted

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in the event her employment is terminated under certain circumstances. For additional details relating to the employment agreements with our named executive officers, see the “Agreements with Named Executive Officers” section above.
(3) The amounts indicated are equal to the cost to the Company minus employee paid premiums for the executive’s health and dental insurance premiums.
(4) The amount shown in this row represents the value of services provided by a third party to assist the executives in obtaining a new position. The Company utilizes a global employment transition service firm to provide outplacement job search assistance to terminated executives. The fee listed reflects the negotiated outplacement fee to assist a senior executive in his or her job search for a period of one year.
(5) Each named executive officer’s employment agreement provides that “upon death or disability,” the executive would receive a pro rata non-equity incentive award based on the number of days the executive worked in the year prior to death or disability.
(6) Upon a change of control without termination, each named executive officer’s employment agreement contains a provision wherein all outstanding stock options, restricted stock, or other equity awards immediately vest. In addition, each executive, except Mr. Marth, is entitled to receive upon the change of control a lump sum equal to the executive’s pro rata target cash bonus for the year in which the change of control occurred (as such cash bonus may be set forth in the Company’s bonus plan for such year and calculated assuming target achievement of corporate and personal goals); such pro rata amount to be determined based on the actual date of the closing of such change of control transaction.
(7) Each executive’s employment agreement contains a “double-trigger” provision wherein a change-in-control event coupled with a termination within twenty-four (24) months results in the amounts reflected in this column.

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COMPENSATION OF DIRECTORS

Our Chief Executive Officer who is also a director receives no additional compensation for his services as a director. Our directors are compensated in accordance with a compensation policy that has been approved by the Compensation Committee of the Board of Directors. A summary of 2016 director compensation is as follows:

Director Annual Compensation

 

Annual Stock/Option Grant divided equally between restricted stock and options

  $ 90,000  

Grant of non-qualified stock options of Common Stock with an exercise price equal to the fair market value on the date of grant

        

Grant of restricted stock with a vesting period of one year from the date of grant

        

Board Member Annual Fee

  $ 45,000  

Annual fee includes up to 8 meetings per year

        

For more than 8 board meetings per year, an additional:

        

$2,000 will be paid for meetings, and an additional

        

$1,000 will be paid for teleconference calls

        

Board Chairman Annual Fee

  $ 55,000  
Committee Chair Compensation

 

Audit Committee Chairman Annual Fee

  $ 20,000  

Compensation Committee Chairman Annual Fee

  $ 15,000  

Nominating/Governance Committee Chairman Annual Fee

  $ 15,000  

Annual fee for each committee includes up to 7 meetings per year

        

For more than 7 committee meetings (per committee), an additional $1,000 will be paid for meetings, and an additional $500 will be paid for teleconference calls.

        
Committee Member Compensation (Non-Chair)

 

Audit Committee Annual Fee

  $ 10,000  

Compensation Committee Annual Fee

  $ 7,500  

Nominating/Governance Committee Annual Fee

  $ 7,500  

For more than 7 committee meetings (per committee), an additional $1,000 will be paid for meetings, and an additional $500 will be paid for teleconference calls.

        

All directors, other than our Chief Executive Officer, are also reimbursed for reasonable expenses incurred in attending Board of Directors and Committee meetings. Directors receive no additional compensation for informal board or committee meetings. From time to time, special committees of the Board of Directors are formed and directors may receive fees for their service on such committees.

The Board of Directors requires directors, other than our Chief Executive Officer, to own Common Stock of the Company. The Board of Directors adopted a policy requiring that the annual fee paid to each such director will be paid half in cash and half in a grant of Common Stock of the Company until such time as such director holds Common Stock of the Company having a fair market value of at least $100,000. At that time, the director may receive a greater portion of his or her annual retainer fee in the form of cash. At any time, the director may choose to receive a greater portion of their annual retainer fee in the form of Common Stock.

The Company does not provide termination or change of control agreements for directors, nor are any perquisites or life insurance premium payments offered to the non-employee directors.

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In 2017, WTW presented information to the Compensation Committee regarding each component of compensation and information regarding total compensation versus the competitive market using the Company’s 2017 Peer Group. Based on this review, the Compensation Committee made the following changes with respect to the director compensation set forth above, which will apply to director compensation for 2017.

Board Member Annual Fee increased by $5,000 to $50,000.
Annual Stock/Option Grant increased from $90,000 to $140,000, and vesting adjusted to a three-year period.
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