DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

Fate Therapeutics, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

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

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


Table of Contents

LOGO

3535 General Atomics Court, Suite 200

San Diego, CA 92121

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 1, 2020

The Annual Meeting of Stockholders of Fate Therapeutics, Inc. (the “Company”) will be held on Friday, May 1, 2020 at 8:00 a.m. local time, at the offices of Fate Therapeutics, Inc., 3535 General Atomics Court, Suite 200, San Diego, CA 92121, for the following purposes:

 

  1.

To elect three Class I directors, as nominated by the Company’s Board of Directors, to hold office until the 2023 Annual Meeting of Stockholders or until their successors are duly elected and qualified;

 

  2.

To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2020;

 

  3.

To conduct a non-binding advisory vote to approve the compensation of our named executive officers; and

 

  4.

To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

These items of business are more fully described in the Proxy Statement accompanying this Notice.

Proposal 1 relates solely to the election of three Class I directors nominated by the Board of Directors and does not include any other matters relating to the election of directors, including without limitation, the election of directors nominated by any stockholder of the Company.

The Board of Directors has fixed the close of business on Friday, March 6, 2020 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting of Stockholders, or at any adjournments of the Annual Meeting of Stockholders.

In order to ensure your representation at the Annual Meeting of Stockholders, you are requested to submit your proxy as instructed in the Important Notice Regarding the Availability of Proxy Materials that you received in the mail. You may also request a paper proxy card at any time before April 21, 2020 to submit your vote by mail. If you attend the Annual Meeting of Stockholders and file with the Secretary of the Company an instrument revoking your proxy or a duly executed proxy bearing a later date, your proxy will not be used.

All stockholders are cordially invited to attend the Annual Meeting of Stockholders.

By Order of the Board of Directors

Fate Therapeutics, Inc.

/s/ J. Scott Wolchko

J. Scott Wolchko

President and Chief Executive Officer

San Diego, California

March 20, 2020

Your vote is important, whether or not you expect to attend the Annual Meeting of Stockholders. You are urged to vote either via the Internet or telephone, as instructed in the Important Notice Regarding the Availability of Proxy Materials that you received in the mail. Voting promptly will help avoid the additional expense of further solicitation to assure a quorum at the meeting.


Table of Contents

TABLE OF CONTENTS

 

PROXY STATEMENT

     1  

PROPOSAL 1—ELECTION OF DIRECTORS

     5  

PROPOSAL 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     19  

PROPOSAL 3—NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

     21  

EXECUTIVE OFFICERS

     22  

COMPENSATION DISCUSSION AND ANALYSIS

     23  

COMPENSATION OF EXECUTIVE OFFICERS

     38  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     49  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     50  

AUDIT COMMITTEE REPORT

     53  

HOUSEHOLDING OF PROXY MATERIALS

     54  

OTHER MATTERS

     55  


Table of Contents

FATE THERAPEUTICS, INC.

 

 

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS

May 1, 2020

 

 

INFORMATION CONCERNING SOLICITATION AND VOTING

General

This proxy statement (“Proxy Statement”) is furnished in connection with the solicitation of proxies for use prior to or at the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) of Fate Therapeutics, Inc. (the “Company”), a Delaware corporation, to be held at 8:00 a.m. local time on Friday, May 1, 2020 and at any adjournments or postponements thereof for the following purposes:

 

   

To elect three Class I directors, as nominated by the Company’s Board of Directors (“Board of Directors” or “Board”), to hold office until the 2023 Annual Meeting of Stockholders or until their successors are duly elected and qualified;

 

   

To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2020;

 

   

To conduct a non-binding advisory vote to approve the compensation of our named executive officers; and

 

   

To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

The Annual Meeting will be held at the offices of the Company, 3535 General Atomics Court, Suite 200, San Diego, CA 92121. On or about March 20, 2020, we intend to mail to all stockholders entitled to vote at the Annual Meeting a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this Proxy Statement and our 2019 Annual Report on Form 10-K (“Annual Report”).

Solicitation

This solicitation is made on behalf of the Board of Directors. We will bear the costs of preparing, mailing, online processing and other costs of the proxy solicitation made by our Board of Directors. Certain of our officers and employees may solicit the submission of proxies authorizing the voting of shares in accordance with the Board of Directors’ recommendations. Such solicitations may be made by telephone, facsimile transmission, email or personal solicitation. No additional compensation will be paid to such officers, directors or regular employees for such services. We will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in sending proxy materials to stockholders.

Important Notice Regarding the Availability of Proxy Materials

In accordance with rules and regulations of the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record, the Company may furnish proxy materials via the internet. Accordingly, all of the Company’s stockholders will receive a Notice, to be mailed on or about March 20, 2020.

 

1


Table of Contents

On the date of mailing the Notice, stockholders will be able to access all of the proxy materials on the website at www.astproxyportal.com/ast/18615. The proxy materials will be available free of charge. The Notice will instruct you as to how you may access and review all of the important information contained in the proxy materials (including the Annual Report) over the internet or through other methods specified on the website. The website contains instructions as to how to vote by internet or over the telephone. The Notice also instructs you as to how you may request a paper or email copy of the proxy card. If you received a Notice and would like to receive printed copies of the proxy materials, you should follow the instructions for requesting such materials included in the Notice.

Voting Rights and Outstanding Shares

Only holders of record of our common stock as of the close of business on March 6, 2020 are entitled to receive notice of, and to vote at, the Annual Meeting. Each holder of common stock will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting. At the close of business on March 6, 2020, there were 75,937,385 shares of common stock issued and outstanding.

A quorum of stockholders is necessary to take action at the Annual Meeting. Stockholders representing a majority of the outstanding shares of our common stock (present in person or represented by proxy) will constitute a quorum. We will appoint an inspector of elections for the meeting to determine whether or not a quorum is present and to tabulate votes cast by proxy or in person at the Annual Meeting. Abstentions, withheld votes and broker non-votes (which occur when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular matter because such broker, bank or other nominee does not have discretionary authority to vote on that matter and has not received voting instructions from the beneficial owner) are counted as present for purposes of determining the presence of a quorum for the transaction of business at the Annual Meeting.

Votes Required for Each Proposal

To elect our directors and approve the other proposals being considered at the Annual Meeting, the voting requirements are as follows:

 

Proposal

   Vote Required    Discretionary
Voting Permitted?

Election of Directors

   Plurality    No

Ratification of Ernst & Young LLP

   Majority    Yes

Non-Binding Advisory Vote to Approve the Compensation of Our Named Executive Officers

   Majority    No

“Discretionary Voting Permitted” means that brokers will have discretionary voting authority with respect to shares held in street name for their clients, even if the broker does not receive voting instructions from their client.

“Majority” means a majority of the votes properly cast for and against such matter.

“Plurality” means a plurality of the votes properly cast on such matter. For the election of directors, the three nominees receiving the plurality of votes entitled to vote and cast will be elected as directors.

The vote required and method of calculation for the proposals to be considered at the Annual Meeting are as follows:

Proposal One—Election of Directors. If a quorum is present, the director nominees receiving the highest number of votes, in person or by proxy, will be elected as directors. You may vote “FOR” all nominees, “WITHHOLD”

 

2


Table of Contents

for all nominees, or “WITHHOLD” for any nominee by specifying the name of the nominee on your proxy card. This proposal is not considered to be a discretionary item, so if you do not instruct your broker how to vote with respect to this proposal, your broker may not vote on this proposal, and those votes will be counted as broker “non-votes.” Withheld votes and broker non-votes will have no effect on the outcome of the election of the directors.

Proposal Two—Approval of the Ratification of Ernst & Young LLP as Independent Registered Public Accounting Firm. Approval of this proposal requires the affirmative vote of a majority of the votes properly cast for and against such matter. You may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. If you abstain from voting on this matter, your shares will not be counted as “votes cast” with respect to such matter, and the abstention will have no effect on the proposal. This proposal is considered to be a discretionary item, and your broker will be able to vote on this proposal even if it does not receive instructions from you. Accordingly, we do not anticipate that there will be any broker non-votes on this proposal; however, any broker non-votes will not be counted as “votes cast” and will therefore have no effect on the proposal.

Proposal Three— Non-Binding Advisory Vote to Approve the Compensation of Our Named Executive Officers. Approval of this advisory non-binding proposal requires the affirmative vote of a majority of the votes properly cast for and against such matter. You may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. If you abstain from voting on this matter, your shares will not be counted as “votes cast” with respect to such matter, and the abstention will have no effect on the proposal. This proposal is not considered to be a discretionary item, so if you do not instruct your broker how to vote with respect to this proposal, your broker may not vote on this proposal, and those votes will be counted as broker “non-votes.” Abstentions and broker non-votes will have no effect on the outcome of this proposal.

We request that you vote your shares by proxy following the methods as instructed by the Notice: over the Internet, by telephone or by mail. If you choose to vote by mail, your shares will be voted in accordance with your voting instructions if the proxy card is received prior to or at the Annual Meeting. If you sign and return your proxy card but do not give voting instructions, your shares will be voted FOR (i) the election of each of the Company’s three (3) nominees as Class I directors; (ii) the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2020; (iii) the approval, on a non-binding, advisory basis, of the compensation of our named executive officers; and (iv) as the proxy holder deems advisable, in his or her discretion, on other matters that may properly come before the Annual Meeting.

Voting by Proxy over the Internet or by Telephone

Stockholders whose shares are registered in their own names may vote by proxy by mail, over the Internet or by telephone. Instructions for voting by proxy over the Internet or by telephone are set forth on the Notice. The Internet and telephone voting facilities will close at 11:59 p.m. Eastern Time on Thursday, April 30, 2020. The Notice will also provide instructions on how you can elect to receive future proxy materials electronically or in printed form by mail. If you choose to receive future proxy materials electronically, you will receive an email next year with instructions containing a link to the proxy materials and a link to the proxy voting site. Your election to receive proxy materials electronically or in printed form by mail will remain in effect until you terminate such election.

If your shares are held in street name, the voting instruction form sent to you by your broker, bank or other nominee should indicate whether the institution has a process for beneficial holders to provide voting instructions over the Internet or by telephone. A number of banks and brokerage firms participate in a program that also permits stockholders whose shares are held in street name to direct their vote over the Internet or by telephone. If your bank or brokerage firm gives you this opportunity, the voting instructions from the bank or brokerage firm that accompany this Proxy Statement will tell you how to use the Internet or telephone to direct the vote of shares held in your account. If your voting instruction form does not include Internet or telephone information, please

 

3


Table of Contents

complete and return the voting instruction form in the self-addressed, postage-paid envelope provided by your broker. Stockholders who vote by proxy over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers.

Revocability of Proxies

Any proxy may be revoked at any time before it is exercised by filing an instrument revoking it with the Company’s Secretary or by submitting a duly executed proxy bearing a later date prior to the time of the Annual Meeting. Stockholders who have voted by proxy over the Internet or by telephone or have executed and returned a proxy and who then attend the Annual Meeting and desire to vote in person are requested to notify the Secretary in writing prior to the time of the Annual Meeting. We request that all such written notices of revocation to the Company be addressed to Cindy R. Tahl, Secretary, c/o Fate Therapeutics, Inc., at the address of our principal executive offices at 3535 General Atomics Court, Suite 200, San Diego, CA 92121. Our telephone number is (858) 875-1800. Stockholders may also revoke their proxy by entering a new vote over the Internet or by telephone.

Stockholder Proposals to be Presented at the Next Annual Meeting

Any stockholder who meets the requirements of the proxy rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may submit proposals to the Board of Directors to be presented at the 2021 annual meeting. Such proposals must comply with the requirements of Rule 14a-8 under the Exchange Act and be submitted in writing by notice delivered or mailed by first-class United States mail, postage prepaid, to our Secretary at our principal executive offices at the address set forth above no later than November 20, 2020 in order to be considered for inclusion in the proxy materials to be disseminated by the Board of Directors for such annual meeting. If the date of the 2021 annual meeting is moved by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, then notice must be received within a reasonable time before we begin to print and send proxy materials. If that happens, we will publicly announce the deadline for submitting a proposal in a press release or in a document filed with the U.S. Securities and Exchange Commission (the “SEC”). A proposal submitted outside the requirements of Rule 14a-8 under the Exchange Act will be considered untimely if received after February 3, 2021.

Our Amended and Restated Bylaws (“Bylaws”) also provide for separate notice procedures to recommend a person for nomination as a director or to propose business to be considered by stockholders at a meeting. To be considered timely under these provisions, the stockholder’s notice must be received by our Secretary at our principal executive offices at the address set forth above no earlier than January 1, 2021 and no later than January 31, 2021. Our Bylaws also specify requirements as to the form and content of a stockholder’s notice.

The Board of Directors, a designated committee thereof or the chairman of the meeting may refuse to acknowledge the introduction of any stockholder proposal if it is not made in compliance with the applicable notice provisions.

 

4


Table of Contents

PROPOSAL 1

ELECTION OF DIRECTORS

General

Our certificate of incorporation provides for a Board of Directors that is divided into three classes. The term for each class is three years, staggered over time. This year, the term of the directors in Class I expires. Each of our Class I directors will stand for re-election at the Annual Meeting. Our Board of Directors is currently comprised of nine members. If each of the Class I director nominees are elected at the Annual Meeting, the composition of our Board of Directors will be as follows: Class I—Drs. Robert S. Epstein, John D. Mendlein and Karin Jooss; Class II—Drs. Amir Nashat and William H. Rastetter and Mr. Michael Lee; and Class III— Dr. Shefali Agarwal and Messrs. J. Scott Wolchko and Timothy P. Coughlin.

In the absence of instructions to the contrary, the persons named as proxy holders in the accompanying proxy intend to vote in favor of the election of the nominees designated below to serve until the 2023 Annual Meeting of Stockholders and until their successors shall have been duly elected and qualified. Each nominee is currently a director. The Board of Directors expects that each nominee will be available to serve as a director, but if any such nominee should become unavailable or unwilling to stand for election, it is intended that the shares represented by the proxy will be voted for such substitute nominee as may be designated by the Board of Directors. The biographies of our directors and their ages as of March 15, 2020 are set forth below.

 

Name

   Age      Position

J. Scott Wolchko

     49      President, Chief Executive Officer and Director

William H. Rastetter, Ph.D.(1)(3)

     71      Chairman of the Board

John D. Mendlein, Ph.D., J.D.(2)(3)

     60      Vice Chairman of the Board

Timothy P. Coughlin(1)(2)

     53      Director

Robert S. Epstein, M.D., M.S.(1)

     64      Director

Amir Nashat, Sc.D.(3)

     47      Director

Michael Lee

     40      Director

Karin Jooss, Ph.D.(2)

     55      Director

Dr. Shefali Agarwal

     46      Director

 

(1)

Member of the Audit Committee of the Board of Directors (the “Audit Committee”).

(2)

Member of the Compensation Committee of the Board of Directors (the “Compensation Committee”).

(3)

Member of the Nominating and Corporate Governance Committee of the Board of Directors (the “Nominating and Corporate Governance Committee”).

Nominees for Director

Class I:

The Board of Directors recommends that you vote FOR the following nominees.

The persons listed below are nominated for election to Class I of the Board of Directors to serve a three-year term ending at the 2023 Annual Meeting of Stockholders and until their successors are elected and qualified.

Robert S. Epstein, M.D., M.S. has served as a member of our Board of Directors since March 2014. Dr. Epstein is an epidemiologist and strategic consultant to life sciences companies and serves as a director on the boards of Veracyte, Inc., a molecular diagnostic company, Illumina, Inc., a life sciences company, Proteus Digital Health, Inc., a healthcare technology company, and Decipher Biosciences, a urologic cancer diagnostics company. From August 2010 to April 2012, Dr. Epstein served as president of the Medco-UBC Division and Chief Research and Development officer of Medco Health Solutions, Inc. (“Medco”), a managed healthcare

 

5


Table of Contents

company. In this role, Dr. Epstein was responsible for all of Medco’s clinical research initiatives, including the Medco Research Consortium and United BioSource Corporation. Dr. Epstein served as Senior Vice President and Chief Medical Officer from 1997 to August 2010 at Medco and was appointed President of the Medco Research Institute in 2009. Before joining the private sector, Dr. Epstein was trained as an epidemiologist and held various positions in public health and academia. He is a past elected President of the International Society of Pharmacoeconomics and Outcomes Research and has served on the board of directors for the Drug Information Association. In 2008, Dr. Epstein was nominated and elected to the Federal CDC EGAPP (Evaluation of Genomic Applications in Practice & Prevention) Stakeholder Committee, and the AHRQ CERT (Centers for Education and Research on Therapeutics) Committee. Dr. Epstein holds a B.S. and an M.D. from the University of Michigan and an M.S. from the University of Maryland.

The Board of Directors has determined that Dr. Epstein’s extensive operating, commercial, and senior management experience in the biotechnology industry, as well as his expertise in health economics, qualifies him to serve as a member of our Board of Directors.

John D. Mendlein, Ph.D., J.D. has served as our Vice Chairman of the Board of Directors since November 2011 and a director since April 2008. Dr. Mendlein has served as an Executive Partner of Flagship Pioneering, a venture capital firm, since February 2019. Prior to that, Dr. Mendlein served as President, Corporate and Product Strategy, of Moderna, Inc. (formerly known as Moderna Therapeutics, Inc.), a clinical stage biotechnology company, from January 2018 to February 2019. He also previously served as our Chief Executive Officer, as well as the founding Chairman of the Board and Chief Science Officer. Dr. Mendlein also served as a member of the board of aTyr Pharma, Inc., a biopharmaceutical company, from July 2010 to June 2019, as Executive Chairman of its Board of Directors from July 2010 to December 2015 and as its Chief Executive Officer from September 2011 to November 2017. He also holds board positions with The BIO (Biotechnology Industry Organization) emerging companies board and Editas Medicine, Inc., a genome editing company. Dr. Mendlein previously served from 2005 to 2008 as the Chief Executive Officer of Adnexus Therapeutics, Inc., a biopharmaceutical company, which was purchased by Bristol-Myers Squibb (BMY) in 2008. Dr. Mendlein also served on the board of directors of Monogram Biosciences, Inc., an HIV and oncology diagnostic company that was acquired by Laboratory Corporation of America Holdings in 2009. Before that, he served as Chairman and Chief Executive Officer of Affinium Pharmaceuticals Ltd. (acquired by Debiopharm Group) from 2000 to 2005, and board member, General Counsel and Chief Knowledge Officer at Aurora Bioscience Corporation (acquired by Vertex Pharmaceuticals, Inc.) from August 1996 to September 2001. Dr. Mendlein holds a Ph.D. in physiology and biophysics from the University of California, Los Angeles, a J.D. from the University of California, Hastings College of the Law, and a B.S. in biology from the University of Miami.

The Board of Directors has determined that Dr. Mendlein’s extensive business and leadership experience in the biotechnology industry qualifies him to serve as a member of our Board of Directors.

Karin Jooss, Ph.D. has served as a director since March 2019. She has served as Executive Vice President of Research and Chief Scientific Officer of Gritstone Oncology Inc., a clinical-stage biotechnology company developing cancer immunotherapies, since April 2016. Prior to Gritstone, from May 2009 to April 2016, Dr. Jooss served as head of cancer immuno-therapeutics in the vaccine immuno-therapeutics department at Pfizer, Inc., or Pfizer, a public pharmaceutical company, where she was also a member of the vaccine immuno-therapeutics leadership team and served as head of the immuno-pharmacology team. Prior to joining Pfizer, Dr. Jooss served as vice president of research at Cell Genesys, Inc., or Cell Genesys, from June 2005 to April 2009, and as senior director of research at Cell Genesys from July 2001 to June 2005. She is on the editorial board of Molecular Therapy and the Journal of Gene Medicine and is a member of the Immunology and Educational Committee of the American Society of Gene & Cell Therapy and the Industry Task Force of the Society for Immunotherapy of Cancer. Dr. Jooss received her diploma in theoretical medicine and a Ph.D. in molecular biology and immunology from the University of Marburg in Germany, and performed postgraduate work in gene therapy and immunology at the University of Pennsylvania.

 

6


Table of Contents

The Board of Directors believes Dr. Jooss is qualified to serve on our Board of Directors due to her extensive experience in the biotechnology industry.

Class II: Currently Serving Until the 2021 Annual Meeting

Amir Nashat, Sc.D. has served as a director since September 2007. He has served as the Chief Executive Officer of Dewpoint Therapeutics, a company translating the emerging area of biomolecular condensates into drug discovery, since July 2018. Prior to that, Dr. Nashat served as the Chief Executive Officer of Jnana Therapeutics, a company that operates a drug discovery platform focused on solute carrier, since September 2017. He is also a Managing General Partner at Polaris Venture Partners, a venture capital firm. He joined Polaris in April 2002 and focuses on investments in healthcare, consumer products and energy. Dr. Nashat currently represents Polaris as a director of Scholar Rock, Inc., Selecta Biosciences, Inc., Morphic Holding, Inc. and Syros Pharmaceuticals, Inc., all biopharmaceutical companies, as well as a director of several private companies. He previously served on the board of Bind Therapeutics and Receptos Therapeutics. Additionally, Dr. Nashat has served as a director of Adnexus Therapeutics (acquired by Bristol-Myers Squibb Company) and other private companies. Dr. Nashat holds a Sc.D. in chemical engineering from the Massachusetts Institute of Technology with a minor in biology, and an M.S. and B.S. in materials science and mechanical engineering from the University of California, Berkeley.

The Board of Directors believes that Dr. Nashat is qualified to serve on our Board of Directors due to his extensive experience within the field of drug discovery and development, his broad leadership experience on various boards, and his financial expertise with life sciences companies.

William H. Rastetter, Ph.D. has served as a director since November 2011 and as Chairman of the Board of Directors since December 2011. From December 2011 to October 2012, he also served as our interim Chief Executive Officer. He is a Co-Founder of Receptos, Inc., a biopharmaceutical company that is a wholly-owned subsidiary of Celgene Corporation, where he served as a director and Chairman of the Board from 2009 to 2015, and was Acting Chief Executive Officer from May 2009 to November 2010. Dr. Rastetter also served as the Chairman of Illumina, Inc. from 2005 to 2016, as a director of Illumina, Inc. from 1998 to 2016. Dr. Rastetter currently serves as the Chairman of Neurocrine Biosciences, Inc., as a director of Grail, Inc., as a director of Regulus Therapeutics, Inc., and as Chairman of Daré Bioscience, Inc., previously known as Cerulean Pharma, Inc. He also serves as a strategic advisor to SVB Leerink, a healthcare focused investment bank, and as an advisor to Illumina Ventures, a genomics focused venture firm. Dr. Rastetter served as a Partner at the venture capital firm of Venrock from 2006 to February 2013. Prior to that, Dr. Rastetter was Executive Chairman of Biogen Idec, from the merger of the two companies (Biogen and Idec Pharmaceuticals) in 2003 through the end of 2005. He joined Idec Pharmaceuticals at its founding in 1986 and served as Chairman and Chief Executive Officer. Prior to Idec, he was director of Corporate Ventures at Genentech, Inc. and also served in a scientific capacity at Genentech. Dr. Rastetter held various faculty positions at the Massachusetts Institute of Technology and Harvard University and was an Alfred P. Sloan Fellow. Dr. Rastetter holds a Ph.D. and M.A. in chemistry from Harvard University and an S.B. in chemistry from the Massachusetts Institute of Technology.

The Board of Directors believes Dr. Rastetter is qualified to serve on our Board of Directors due to his extensive experience in the biotechnology industry, his broad leadership experience with Idec Pharmaceuticals and on several boards of biotechnology companies, and his experience with financial matters.

Michael Lee has served as a member of our Board of Directors since July 2018. Mr. Lee has served as Co-Founder and Portfolio Manager at Redmile Group, LLC since 2007. Prior to Redmile, Mr. Lee worked as a biotechnology investor at Steeple Capital, and as an analyst at Welch Capital Partners and Prudential Equity Group. Mr. Lee holds a B.S. in Molecular and Cellular Biology from the University of Arizona.

The Board of Directors has determined that Mr. Lee’s extensive business and leadership experience in the biotechnology industry qualifies him to serve as a member of our Board of Directors.

 

7


Table of Contents

Class III: Currently Serving Until the 2022 Annual Meeting

Timothy P. Coughlin has been a director since August 2013. Mr. Coughlin is the former Chief Financial Officer of Neurocrine Biosciences, Inc. (“Neurocrine”), a biopharmaceutical company that has received FDA approval for INGREZZA® (valbenazine) and ORILISSA® (elagolix), both of which were discovered and developed during his tenure at Neurocrine from 2002 to 2018. Mr. Coughlin serves on the board of directors of Retrophin, Inc. and aTyr Pharma, Inc., both biotechnology companies, and also served on the board of directors of Peloton Therapeutics, Inc. prior to its sale to Merck in 2019. Prior to joining Neurocrine, he was with Catholic Health Initiatives, a nationwide integrated healthcare delivery system, where he served as Vice President, Financial Services. Mr. Coughlin also served as a Senior Manager in the Health Sciences practice of Ernst & Young LLP and its predecessors from 1989 to 1999. Mr. Coughlin holds a master’s degree in international business from San Diego State University and a bachelor’s degree in accounting from Temple University. Mr. Coughlin is a certified public accountant in both California and Pennsylvania.

The Board of Directors believes Mr. Coughlin is qualified to serve on our Board of Directors due to his extensive background in financial and accounting matters for public companies and his leadership experience in the biotechnology industry, including his tenure at Neurocrine.

J. Scott Wolchko has served as our President and Chief Executive Officer since December 2015, and as a director since October 2015. Mr. Wolchko has also served as our Chief Operating Officer since February 2013 and as our Chief Financial Officer since the commencement of our operations in September 2007. Mr. Wolchko began his career in 1994 as an investment banker with Morgan Stanley & Co., serving in the firm’s New York City and Menlo Park, California offices. As a member of the firm’s Investment Banking Health Care Group, he assisted emerging growth companies in the life sciences sector complete capital-raising and M&A transactions. Prior to joining us, from July 2001 to September 2007, Mr. Wolchko served as the Chief Financial Officer of Bocada, Inc., an enterprise software company that specializes in data protection management. Mr. Wolchko holds an M.S. in biochemical engineering from the University of Virginia, and a B.S. in biomedical engineering from the University of Vermont.

The Board of Directors believes Mr. Wolchko’s extensive leadership, executive, managerial, business and healthcare industry experience qualifies him to serve as a member of our Board of Directors. In addition, Mr. Wolchko’s day-to-day management and intimate knowledge of our business and operations provide our Board with an in-depth understanding of the Company.

Dr. Shefali Agarwal has been a director since July 2019. Dr. Agarwal currently serves as the Chief Medical Officer of Epizyme, Inc., a clinical-stage company developing novel epigenetic therapies for cancer and other serious diseases, where she leads the global clinical development and regulatory strategy for tazemetostat for the treatment of cancer. Prior to joining Epizyme as Chief Medical Officer in July 2018, Dr. Agarwal served as Chief Medical Officer at SQZ Biotech Inc. between July 2017 and May 2018, where she built and led the clinical development organization, which included clinical research operations and regulatory functions. Dr. Agarwal has also held senior leadership positions at Curis, Inc. from July 2016 to July 2017, where she oversaw the Phase 2 study of its dual HDAC/PI3K inhibitor in diffuse large B-cell lymphoma, and at Tesaro, Inc. from July 2013 to February 2017, where she served as the clinical lead for the New Drug Application and the European Medicines Agency regulatory submissions and supported the commercial launch of ZEJULA® (niraparib) in ovarian cancer. She has also held positions at Covidien (acquired by Medtronic), AVEO Oncology and Pfizer, and led clinical research in the Department of Anesthesiology and Critical Care Medicine at Johns Hopkins University. Dr. Agarwal received her master’s degree in public health from Johns Hopkins University, her M.S. in business from the University of Baltimore, and her medical degree (M.B.B.S.) from Karnataka University.

The Board of Directors believes Dr. Agarwal is qualified to serve on our Board of Directors due to her extensive experience in the biotechnology industry.

 

8


Table of Contents

Required Vote

The nominees for Class I director receiving the highest number of affirmative votes of all the votes properly cast shall be elected as director to serve until the 2023 Annual Meeting of Stockholders or until their successors have been duly elected and qualified.

Recommendation of the Board of Directors

The Board of Directors recommends that the stockholders vote FOR the election of the three nominees for Class I director listed above.

 

9


Table of Contents

CORPORATE GOVERNANCE

Board of Directors’ Role in Risk Management

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to our financial condition, development and commercialization activities, operations and intellectual property. Management is responsible for the day-to-day management of risks we face, while our Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The role of our Board of Directors in overseeing the management of our risks is conducted primarily through committees of the Board of Directors, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees. The full Board of Directors (or the appropriate board committee in the case of risks that are under the purview of a particular committee) discusses with management our major risk exposures, their potential impact on our company, and the steps we take to manage them. When a board committee is responsible for evaluating and overseeing the management of a particular risk or risks, the chairman of the relevant committee reports on the discussion to the full Board of Directors during the committee reports portion of the next board meeting. This enables our Board of Directors and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Board of Directors and Committees of the Board

During 2019, the Board of Directors held a total of four meetings. During the year ended December 31, 2019, each of the directors then in office attended at least 75% of the aggregate of the number of Board of Directors meetings and the number of meetings held by all committees of the Board of Directors on which such director served.

Our Board of Directors has determined that all of our directors, except for Mr. Wolchko, are independent, as determined in accordance with the rules of The Nasdaq Stock Market (“Nasdaq”) and the SEC. In making such independence determination, the Board of Directors considered the relationships that each non-employee director has with us and all other facts and circumstances that the Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our Board of Directors considered the association of our directors with the holders of more than 5% of our common stock. There are no family relationships among any of our directors or executive officers.

The Board of Directors has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Each of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee is composed entirely of independent directors in accordance with current Nasdaq listing standards. Furthermore, our Audit Committee meets the enhanced independence standards established by the Sarbanes-Oxley Act of 2002 and related rulemaking of the SEC. Copies of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters and our corporate governance guidelines are available, free of charge, on our website at http://ir.fatetherapeutics.com/corporate-profile.

Our Board of Directors also has a standing Science & Technology Committee, which is an advisory committee.

 

10


Table of Contents

Audit Committee

Mr. Coughlin, Dr. Rastetter and Dr. Epstein currently serve on the Audit Committee, which is chaired by Mr. Coughlin. Our Board of Directors has designated Mr. Coughlin as an “Audit Committee financial expert,” as defined under the applicable rules of the SEC. The Audit Committee’s responsibilities include:

 

   

appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;

 

   

approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

 

   

reviewing the overall audit plan (both internal, if applicable, and external) with the independent registered public accounting firm and members of management responsible for preparing our financial statements;

 

   

reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

 

   

reviewing the adequacy of our internal control over financial reporting;

 

   

establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

 

   

recommending, based upon the Audit Committee’s review and discussions with management and the independent registered public accounting firm, whether our audited financial statements shall be included in our Annual Report on Form 10-K;

 

   

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

 

   

reviewing and discussing with management and the Board items of enterprise risk beyond financial risk and management of financial statements;

 

   

preparing or overseeing the Audit Committee report required by SEC rules to be included in our proxy statement for our annual meeting of stockholders;

 

   

reviewing all related party transactions for potential conflict of interest situations and approving all such transactions;

 

   

reviewing quarterly earnings releases; and

 

   

reviewing, assessing and considering, in consultation with management and the Board of Directors, as appropriate, our overall risk management policies and procedures.

During 2019, the Audit Committee held four meetings.

Compensation Committee

Dr. Mendlein, Mr. Coughlin and Dr. Jooss currently serve on the Compensation Committee, which is chaired by Dr. Mendlein. During 2019, Dr. Rastetter served on the Compensation Committee prior to Dr. Jooss joining the Board of Directors. The Compensation Committee’s responsibilities include:

 

   

reviewing and approving, or upon the request of the Board of Directors, reviewing and recommending for approval by the Board of Directors, the corporate goals and objectives relevant to the compensation of our Chief Executive Officer and our other executive officers;

 

   

evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and determining and approving, or at the request of the Board of Directors, recommending to the Board of Directors based on such evaluation, the compensation of our Chief Executive Officer;

 

11


Table of Contents
   

reviewing and approving the compensation, including with respect to any cash compensation (including severance), incentive compensation plans, equity-based plans, perquisites and other benefits, of our other executive officers;

 

   

overseeing the Company’s overall compensation structure, policies and programs applicable to directors, executives and employees;

 

   

reviewing management’s aggregate decisions regarding the compensation of our employees, other than executive officers, provided, that the foregoing does not limit or restrict the authority of the Compensation Committee to review and approve compensation for all such employees;

 

   

overseeing and administering our compensation and similar plans;

 

   

evaluating and assessing potential and current compensation advisers in accordance with the independence standards identified in the applicable Nasdaq and SEC rules;

 

   

retaining and approving the compensation of any compensation advisers;

 

   

reviewing and approving our policies and procedures for the grant of equity-based awards;

 

   

reviewing and making recommendations to the Board of Directors with respect to director compensation;

 

   

reviewing and overseeing our overall employee compensation structure, policies and programs, plans, and short and long-term strategies with respect to cash, bonuses, long-term incentives and other compensation plans, and with respect to healthcare-related and other benefit programs; and

 

   

administering and, if determined to be necessary, amending our 401(k) plan, deferred compensation plan, and any other material non-equity-based compensation plan; provided that the Compensation Committee may delegate routine administration of such plans to an administrative committee consisting of one or more of our officers or other employees.

During 2019, the Compensation Committee held five meetings.

Nominating and Corporate Governance Committee

Drs. Rastetter, Mendlein and Nashat currently serve on the Nominating and Corporate Governance Committee, which is chaired by Dr. Rastetter. The Nominating and Corporate Governance Committee’s responsibilities include:

 

   

developing and recommending to the Board of Directors criteria for board and committee membership;

 

   

establishing procedures for identifying and evaluating Board of Director candidates, including nominees recommended by stockholders;

 

   

identifying individuals qualified to become members of the Board of Directors;

 

   

recommending to the Board of Directors the persons to be nominated for election as directors and to each of the board’s committees;

 

   

developing and recommending to the Board of Directors a set of corporate governance guidelines; and

 

   

overseeing the evaluation of the Board of Directors.

During 2019, the Nominating and Corporate Governance Committee held one meeting.

Science & Technology Committee (Advisory)

Our Board of Directors formed a Science & Technology Committee in September 2019. Drs. Agarwal, Jooss and Mendlein and Mr. Lee currently serve on the Science & Technology Committee, which is chaired by

 

12


Table of Contents

Dr. Agarwal. The Science & Technology Committee’s responsibilities include assisting the Board’s oversight of our research and development activities and advising the Board with respect to strategic and clinical considerations.

Board Leadership

The positions of our Chairman of the Board and Chief Executive Officer are presently separated at Fate. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead our Board of Directors in its fundamental role of providing advice to and independent oversight of management. Our Board of Directors recognizes the time, effort and energy that the Chief Executive Officer must devote to his position in the current business environment, as well as the commitment required to serve as our Chairman of the Board, particularly as our Board of Directors’ oversight responsibilities continue to grow. Our Board of Directors also believes that this structure ensures a greater role for the independent directors in the oversight of our Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board of Directors.

While our Bylaws and corporate governance guidelines do not require that our Chairman of the Board and Chief Executive Officer positions be separate, our Board of Directors believes that having separate positions and having an independent outside director serve as Chairman of the Board is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance. Our separated Chairman of the Board and Chief Executive Officer positions are augmented by the independence of eight of our nine directors, and our three entirely independent Board committees that provide appropriate oversight in the areas described above. At executive sessions of independent directors, these directors speak candidly on any matter of interest, without the Chief Executive Officer or other executives present. The independent directors met four times in 2019 without management present. We believe this structure provides consistent and effective oversight of our management and the Company.

Director Nominations

The director qualifications developed to date focus on what our Board believes to be essential competencies to effectively serve on the Board of Directors. The Nominating and Corporate Governance Committee must reassess such criteria annually and submit any proposed changes to the Board of Directors for approval. Presently, at a minimum, the Nominating and Corporate Governance Committee must be satisfied that each nominee it recommends has the highest personal and professional integrity, demonstrates exceptional ability and judgment and shall be most effective, in conjunction with the other nominees to the Board of Directors, in collectively serving the long-term interests of the stockholders.

In addition to those minimum qualifications, the Nominating and Corporate Governance Committee recommends that our Board of Directors select persons for nomination to help ensure that:

 

   

a majority of our Board is “independent” in accordance with Nasdaq standards;

 

   

each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee be comprised entirely of independent directors; and

 

   

at least one member of the Audit Committee shall have the experience, education and other qualifications necessary to qualify as an “Audit Committee financial expert” as defined by the rules of the SEC.

 

13


Table of Contents

In addition to other standards the Nominating and Corporate Governance Committee may deem appropriate from time to time for the overall structure and compensation of the Board of Directors, the Nominating and Corporate Governance Committee considers the following factors when recommending that our Board select persons for nomination:

 

   

whether a nominee has direct experience in the biotechnology or pharmaceuticals industry or in the markets in which the Company operates;

 

   

whether the nominee, if elected, assists in achieving a mix of Board members that represents a diversity of background and experience; and

 

   

achieving diversity within the Board of Directors and adhering to the philosophy of maintaining an environment free from discrimination on the basis of race, color, religion, sex, sexual orientation, gender identity, age, national origin, disability, veteran status or any protected category under applicable law, which would include considering a nominee’s diverse background, skills and experience, including appropriate financial, scientific, medical and other expertise relevant to our business.

The Nominating and Corporate Governance Committee adheres to the following process for identifying and evaluating nominees for the Board of Directors. First, it solicits recommendations for nominees from non-employee directors, our Chief Executive Officer, other executive officers, third-party search firms or any other source it deems appropriate. The Nominating and Corporate Governance Committee then reviews and evaluates the qualifications of proposed nominees and conducts inquiries it deems appropriate; all proposed nominees are evaluated in the same manner, regardless of who initially recommended such nominee. In reviewing and evaluating proposed nominees, the Nominating and Corporate Governance Committee may consider, in addition to the minimum qualifications and other criteria for Board membership approved by our Board from time to time, all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of the proposed nominee, his or her depth and breadth of business experience or other background characteristics, his or her independence and the needs of the Board. This process is designed to provide that the Board includes members with diverse backgrounds, skills and experience, including appropriate financial, scientific, medical and other expertise relevant to the business of the Company. Additionally, the Nominating and Corporate Governance Committee considers whether nominees assist in achieving a mix of Board members that represents a diversity of background and experience, which is not only limited to race, gender or national origin, and is committed to actively seeking out highly qualified women and minority candidates, as well as candidates with diverse backgrounds, skills and experiences, to include in the pool from which Board nominees are chosen. The Nominating and Corporate Governance Committee assesses its own performance on a periodic basis, and in doing so, gives consideration to its implementation of, and the results achieved through, this process.

If the Nominating and Corporate Governance Committee decides to retain a third-party search firm to identify proposed nominees, it has sole authority to retain and terminate such firm and to approve any such firm’s fees and other retention terms.

Each nominee for election as director at the 2020 Annual Meeting is recommended by the Nominating and Corporate Governance Committee and is presently a director and stands for re-election by the stockholders. From time to time, the Company may pay fees to third-party search firms to assist in identifying and evaluating potential nominees, although no such fees have been paid in connection with nominations to be acted upon at the 2020 Annual Meeting.

Pursuant to our Bylaws, stockholders who wish to nominate persons for election to the Board of Directors at an annual meeting must be a stockholder of record at the time of giving the notice, entitled to vote at the meeting, present (in person or by proxy) at the meeting and must comply with the notice procedures in our Bylaws. A stockholder’s notice of nomination to be made at an annual meeting must be delivered to our principal executive

 

14


Table of Contents

offices not less than 90 days nor more than 120 days before the anniversary date of the immediately preceding annual meeting. However, if an annual meeting is more than 30 days before or more than 60 days after such anniversary date, the notice must be delivered no later than the later of the 90th day prior to such annual meeting or the 10th day following the day on which the first public announcement of the date of such annual meeting was made. A stockholder’s notice of nomination may not be made at a special meeting unless such special meeting is held in lieu of an annual meeting. The stockholder’s notice must include the following information for the person making the nomination:

 

   

name and address;

 

   

the class and number of shares of the Company owned beneficially or of record;

 

   

disclosure regarding any derivative, swap or other transactions which give the nominating person economic risk similar to ownership of shares of the Company or provide the opportunity to profit from an increase in the price of value of shares of the Company;

 

   

any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship that confers a right to vote any shares of the Company;

 

   

any agreement, arrangement, understanding or relationship engaged in for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Company;

 

   

any rights to dividends on the shares that are separate from the underlying shares;

 

   

any performance related fees that the nominating person is entitled to, based on any increase or decrease in the value of any shares of the Company;

 

   

a description of all agreements, arrangements or understandings by and between the proposing stockholder and another person relating to the proposed business (including an identification of each party to such agreement, arrangement or understanding and the names, addresses and class and number of shares owned beneficially or of record of other stockholders known by the proposing stockholder support such proposed business);

 

   

a statement whether or not the proposing stockholder will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all shares of capital stock required to approve the proposal or, in the case of director nominations, at least the percentage of voting power of all of the shares of capital stock reasonably believed by the proposing stockholder to be sufficient to elect the nominee; and

 

   

any other information relating to the nominating person that would be required to be disclosed in a proxy statement filed with the SEC.

With respect to proposed director nominees, the stockholder’s notice must include all information required to be disclosed in a proxy statement in connection with a contested election of directors or otherwise required pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected).

For matters other than the election of directors, the stockholder’s notice must also include a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of the stockholder(s) proposing the business.

The stockholder’s notice must be updated and supplemented, if necessary, so that the information required to be provided in the notice is true and correct as of the record date for the meeting and as of the date that is ten business days prior to the meeting.

The Board of Directors, a designated committee thereof or the chairman of the meeting will determine if the procedures in our Bylaws have been followed, and if not, declare that the proposal or nomination be disregarded.

 

15


Table of Contents

The nominee must be willing to provide any other information reasonably requested by the Nominating and Corporate Governance Committee in connection with its evaluation of the nominee’s independence. There have been no material changes to the process by which stockholders may recommend nominees to our Board of Directors.

Stockholder Communications with the Board of Directors

Stockholders may send correspondence to the Board of Directors c/o the Corporate Secretary at our principal executive offices at the address set forth above. The Secretary will review all correspondence addressed to the Board, or any individual Board member, for any inappropriate correspondence and correspondence more suitably directed to management. Such items may not be forwarded to the Board or individual Board member, but will be made available to any non-management director upon request. Stockholders may also communicate online with our Board of Directors as a group by accessing our website (www.fatetherapeutics.com) and selecting the “Investors & Media” tab.

Director Attendance at Annual Meetings

Directors are encouraged to attend the Annual Meeting. Six of our directors attended the 2019 Annual Meeting of Stockholders.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee is, or has at any time during the past fiscal year been, an officer or employee of the Company or had any relationship requiring disclosure under Item 404 of Regulation S-K. None of the members of the Compensation Committee, other than Dr. Mendlein, has formerly been an officer of the Company. Dr. Mendlein served as our Chief Executive Officer from February 2011 to February 2012, and Dr. Rastetter served as our interim Chief Executive Officer from February to October 2012. None of our executive officers serve, or in the past fiscal year, have served as a member of the Board of Directors or Compensation Committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

NON-EMPLOYEE DIRECTOR COMPENSATION

Non-Employee Director Compensation Policy

In August 2013, our Board of Directors adopted a non-employee director compensation policy, which became effective upon the completion of our initial public offering in October 2013, that is designed to provide a total compensation package that enables us to attract and retain, on a long-term basis, high-caliber non-employee directors. In April 2014, May 2016 and May 2018, our Board of Directors adopted amendments to the policy with respect to the equity component of compensation to our non-employee directors, and in September 2019, our Board of Directors adopted amendments to the policy with respect to cash compensation for service on the Science & Technology Committee. Under this policy, as amended to date, all non-employee directors are paid cash compensation for service on the Board of Directors and committees of the Board of Directors as set forth below, prorated based on days of service during a calendar year.

 

Board of Directors

   Annual
Retainer
 

All non-employee members

   $ 40,000  

Additional retainer for Chairperson

   $ 30,000  

 

16


Table of Contents
     Additional
Annual
Retainer
 

Audit Committee:

  

Chairperson

   $ 15,000  

Non-Chairperson members

   $ 7,500  

Compensation Committee:

  

Chairperson

   $ 10,000  

Non-Chairperson members

   $ 5,000  

Nominating and Corporate Governance Committee:

  

Chairperson

   $ 7,000  

Non-Chairperson members

   $ 3,500  

Science & Technology Committee:

  

Chairperson

   $ 10,000  

Non-Chairperson members

   $ 5,000  

In addition, under the policy, each new non-employee director who is initially appointed or elected to our Board of Directors will receive an option grant to purchase 24,000 shares of our common stock, which will vest in equal monthly installments during the three years following the grant date, subject to the director’s continued service on our Board of Directors. Thereafter, on the date of each annual meeting of stockholders, each continuing non-employee director will be eligible to receive an annual option grant to purchase 16,000 shares of our common stock, which will vest in full upon the earlier of the first anniversary of the date of grant or the date of the following annual meeting of stockholders. All of the foregoing options will be granted with an exercise price per share equal to the fair market value of a share of our common stock on the date of grant.

We have agreed to reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending Board and committee meetings.

 

17


Table of Contents

Director Compensation Table—2019

The following table sets forth information with respect to the compensation earned by our non-employee directors during the fiscal year ended December 31, 2019. Mr. Wolchko did not receive compensation for service on the Board of Directors, and the compensation paid to Mr. Wolchko as an employee of the Company is set forth under the heading “Compensation of Executive Officers—Summary Compensation Table” below.

 

Name

   Fees Earned or
Paid in Cash ($)
     Option
Awards ($)(1)
     All Other
Compensation
     Total ($)  

Timothy P. Coughlin(2)

   $ 60,000      $ 190,945      $ —      $ 250,945  

Robert S. Epstein, M.D., M.S.(3)

   $ 47,500      $ 190,945      $ —      $ 238,445  

Michael Lee (4)

   $ 41,538      $ 190,945      $ —      $ 232,483  

John D. Mendlein, Ph.D., J.D.(5)

   $ 55,038      $ 190,945      $ —      $ 245,983  

Amir Nashat, Sc.D.(6)

   $ 43,500      $ 190,945      $ —      $ 234,445  

William H. Rastetter, Ph.D. (Chairman)(7)

   $ 86,194      $ 190,945      $ —      $ 277,139  

Karin Jooss, Ph.D.(8)

   $ 36,754      $ 494,707      $ —      $ 531,461  

Shefali Agarwal(9)

   $ 21,538      $ 372,213      $ —      $ 393,751  

 

(1)

In accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards granted during 2019, computed in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions (“ASC 718”). Such grant date fair values do not take into account any estimated forfeitures related to service-based vesting conditions. Assumptions used in the calculation of these amounts are included in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed in March 2020. These amounts do not reflect the actual economic value that may be realized by the directors upon the exercise of the stock options or the sale of the common stock underlying such stock options.

(2)

Mr. Coughlin held stock options to purchase an aggregate of 125,076 shares of common stock as of December 31, 2019.

(3)

Dr. Epstein held stock options to purchase an aggregate of 122,000 shares of common stock as of December 31, 2019.

(4)

Mr. Lee held stock options to purchase an aggregate of 40,000 shares of common stock as of December 31, 2019. Mr. Lee is Co-Founder and Portfolio Manager at Redmile Group, LLC and pursuant to the internal policies of Redmile Group, LLC, Mr. Lee holds these stock options as a nominee on behalf, and for the sole benefit, of Redmile Group, LLC and has assigned all economic, pecuniary and voting rights in respect of the stock options to Redmile Group, LLC.

(5)

Dr. Mendlein held stock options to purchase an aggregate of 162,023 shares of common stock as of December 31, 2019.

(6)

Dr. Nashat held stock options to purchase an aggregate of 102,000 shares of common stock as of December 31, 2019.

(7)

Dr. Rastetter held stock options to purchase an aggregate of 130,461 shares of common stock as of December 31, 2019.

(8)

Dr. Jooss held stock options to purchase an aggregate of 40,000 shares of common stock as of December 31, 2019.

(9)

Dr. Agarwal held stock options to purchase an aggregate of 24,000 shares of common stock as of December 31, 2019.

 

18


Table of Contents

PROPOSAL 2

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for 2020. Representatives of Ernst & Young LLP will attend the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions.

The Company’s organizational documents do not require that the stockholders ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm, and stockholder ratification is not binding on the Company, the Board or the Audit Committee. The Company requests such ratification, however, as a matter of good corporate practice. Our Board, including our Audit Committee, values the opinions of our stockholders and, to the extent there is any significant vote against the ratification of the selection of Ernst & Young LLP as disclosed in this Proxy Statement, we will consider our stockholders’ concerns and evaluate what actions may be appropriate to address those concerns, although the Audit Committee, in its discretion, may still retain Ernst & Young LLP.

The following table shows information about fees billed to the Company by Ernst & Young LLP for the fiscal years ended December 31, 2019 and 2018:

 

Fees billed by Ernst & Young LLP

   2019      2018  

Audit Fees(1)

   $ 647,448      $ 675,099  

Audit Related Fees

     —          —    

Tax Fees

     61,704        50,540  

All Other Fees

     —          —    
  

 

 

    

 

 

 

Total

   $ 709,152      $ 725,639  
  

 

 

    

 

 

 

 

(1)

Includes fees associated with the annual audit of our financial statements, the reviews of our interim financial statements and the issuance of consent and comfort letters in connection with registration statements.

Audit Committee Pre-Approval Policies

The Audit Committee is directly responsible for the appointment, retention and termination, and for determining the compensation, of the Company’s independent registered public accounting firm. The Audit Committee shall pre-approve all auditing services and the terms thereof and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board), except that pre-approval is not required for the provision of non-audit services if the “de minimis” provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied. The Audit Committee may delegate to the chairperson of the Audit Committee the authority to grant pre-approvals for audit and non-audit services, provided such approvals are presented to the Audit Committee at its next scheduled meeting. All services provided by Ernst & Young LLP during fiscal year 2019 were pre-approved by the Audit Committee in accordance with the pre-approval policy described above, and all audit-related fees, tax fees and other fees during the fiscal year 2019 were approved by the Audit Committee.

Required Vote

The ratification of the selection of Ernst & Young LLP requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting.

 

19


Table of Contents

Recommendation of the Board of Directors

The Board of Directors recommends that the stockholders vote FOR the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2020.

 

20


Table of Contents

PROPOSAL 3

NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Section 14A of the Exchange Act requires that we provide our stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, not less frequently than once every three years, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC. At our 2019 Annual Meeting of Stockholders, our stockholders approved one year as the frequency for holding non-binding advisory votes to approve the compensation of our named executive officers.

Our compensation programs are designed to effectively align our executives’ interests with the interests of our stockholders by focusing on long-term equity incentives that correlate with the growth of sustainable long-term value for our stockholders.

Stockholders are urged to read the section titled “Compensation Discussion and Analysis” in this proxy statement in particular, which discusses how our executive compensation policies and practices implement our compensation philosophy and contains tabular information and narrative discussion about the compensation of our named executive officers, in conjunction with the section titled “Compensation of Our Executive Officers,” which provides additional information on the 2019 compensation of our NEOs. Our Board of Directors and our Compensation Committee believe that these policies and practices are effective in implementing our compensation philosophy and in achieving our compensation program goals.

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC.

Accordingly, we are asking our stockholders to vote on the following resolution at the Annual Meeting:

RESOLVED, that the stockholders hereby approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the SEC, including the compensation tables and the narrative discussions that accompany the compensation tables.

Required Vote

The approval of this advisory non-binding proposal requires the affirmative vote of a majority of the voting power of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions and broker non-votes will have no effect on this proposal.

The vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or our Compensation Committee. To the extent there is any significant vote against our named executive officer compensation as disclosed in this proxy statement, our Compensation Committee will evaluate whether any actions are necessary to address the concerns of stockholders.

Recommendation of the Board of Directors

The Board of Directors recommends that the stockholders vote FOR the approval, on a non-binding advisory basis, of the compensation of the Company’s named executive officers, as disclosed in this proxy statement.

 

21


Table of Contents

EXECUTIVE OFFICERS

The names of the executive officers of the Company, their ages as of March 1, 2020, and certain other information about them are set forth below (unless set forth elsewhere in this Proxy Statement).

 

Name

   Age      Position

J. Scott Wolchko

     49      President, Chief Executive Officer and Director

Bahram Valamehr, Ph.D.

     43      Chief Development Officer

Cindy R. Tahl, J.D.

     47      General Counsel and Corporate Secretary

Daniel D. Shoemaker, Ph.D.

     52      Chief Scientific Officer

The biographies of our executive officers, other than Mr. Wolchko, whose biography is set forth above, appear below.

Bahram Valamehr, Ph.D., has served as our Chief Development Officer since August 2018 and oversees our early development activities including “off-the-shelf” cell therapy product candidates derived from our induced pluripotent stem cell platform. From January 2010 to August 2018, Dr. Valamehr served in roles of increasing responsibility with the Company, most recently from December 2016 to August 2018 as our Vice President of Cancer Immunotherapy where he led the R&D activities associated with the Company’s immuno-oncology franchise. Prior to that, Dr. Valamehr played key scientific roles at Amgen, the Center for Cell Control (a NIH Nanomedicine Development Center), and the Broad Stem Cell Research Center developing novel methods to control pluripotency, to modulate stem cell fate including hematopoiesis and to better understand cellular signaling pathways associated with cancer. Dr. Valamehr received his Ph.D. in molecular and medical pharmacology from the University of California, Los Angeles, his M.B.A. from Pepperdine University, and his B.S. in biochemistry from the University of California, Los Angeles.

Cindy R. Tahl, J.D., has served as our General Counsel and Corporate Secretary since October 2015. She previously served as our Vice President, IP and Senior Corporate Counsel from December 2013 to October 2015. From 2009 to 2013, Ms. Tahl served as our Senior Director, Intellectual Property and Corporate Counsel. From 2007 to 2009, Ms. Tahl was a technology transactions attorney at the law firm of Wilson Sonsini Goodrich and Rosati, P.C, and from 2004 to 2007 practiced intellectual property law in the New York office of Kenyon & Kenyon, LLP. Ms. Tahl received her J.D. from Boston College Law School and her B.S. in biology from the University of California, San Diego.

Daniel D. Shoemaker, Ph.D., has served as our Chief Scientific Officer since May 2015 and oversees our discovery and preclinical research efforts. He previously served as our Chief Research Officer from January 2015 to May 2015, and as our Chief Technology officer from February 2009 to January 2015. From 2003 to 2009, Dr. Shoemaker was Chief Scientific Officer of ICxBiosystems, a biotechnology firm that develops advanced detection technologies for use in biodefense, cancer and prenatal diagnostics. From 1998 to 2003, Dr. Shoemaker held several positions at Merck Research Laboratories, including Director of Target Discovery, Senior Director at Rosetta Inpharmatics and research fellow in the Department of Molecular Neurosciences, where his main focus was on target identification and biomarker discovery. Dr. Shoemaker received his Ph.D. in biochemistry from Stanford University and his B.S. in biochemistry from the University of California, Santa Barbara.

 

22


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

In this Compensation Discussion and Analysis (“CD&A”), we provide an overview of our executive compensation philosophy and objectives as well as a description of the material components of our executive compensation program. This CD&A is intended to be read in conjunction with the tables which immediately follow this section, which provide further historical compensation information.

As of December 31, 2019, the following executive officers constituted our Named Executive Officers (collectively, our “NEOs”):

 

Name

  

Position

  

Tenure

J. Scott Wolchko    President, Chief Executive Officer, Chief Financial Officer and Director   

 

12 years

Bahram Valamehr, Ph.D.    Chief Development Officer    10 years
Cindy R. Tahl, J.D.    General Counsel    10 years
Daniel D. Shoemaker, Ph.D.    Chief Scientific Officer    10 years

We did not have any other individuals serving as executive officers during any portion of the fiscal year ended December 31, 2019.

Executive Summary

2019 Business Highlights

We are a clinical-stage biopharmaceutical company dedicated to the development of programmed cellular immunotherapies for cancer and immune disorders. To date, we have devoted substantially all of our efforts to research and product development. 2019 was an important year for our company, as we continued to make significant progress on our research and development goals, including being the first company to treat a patient with an iPSC-derived cell therapy in the United States and to treat a patient with an engineered iPSC-derived cell therapy in the world. This past year, we have made significant strides in moving closer toward fulfilling our mission of bringing off-the-shelf cellular immunotherapies to patients for the treatment of cancer and immune disorders.

 

LOGO

 

Key 2019 Compensation Items

The Compensation Committee is responsible for reviewing and approving compensation programs for our executive officers, including the NEOs. Aligned with our accomplishments in 2019, and strong company

 

23


Table of Contents

performance as outlined above, the Compensation Committee took several actions related to our pay program for 2019:

 

   

Made modest adjustments to the base salaries of our NEOs, with one executive receiving a larger increase as the result of a promotion and increased responsibilities.

 

   

Maintained 2019 target bonus percentages at historical levels and determined that the company achieved 115% of its goals for the fiscal year related to our annual bonus program, including the determination that the company met or exceeded all goals, with particularly strong outperformance on its manufacturing goals.

 

   

Completed a multi-year adjustment of the “at-risk” equity-related holdings of our Chief Executive Officer (“CEO”), J. Scott Wolchko, since his appointment as our CEO in December 2015.

 

   

Conducted an overall evaluation of our equity compensation program that resulted in the decision to incorporate the use of restricted stock units (“RSUs”) in our annual awards to NEOs as well as other employees. We chose to include RSUs, the value of which depends entirely on the value of our common stock, to further align the interests of our NEOs with those of our stockholders, foster an ownership culture among our employees, and align with competitive practice.

 

   

While increasing the proportion of total value of equity-based compensation to our NEOs, continued to manage award amounts with a goal of maintaining broad-based equity participation aligned with our compensation philosophy, and proactively managing our share usage and dilution during a period of rapid growth.

How We Pay for Performance

Our executive officer compensation program is designed to reward achievement of the specific strategic goals that we believe will advance our business strategy and create long-term value for our stockholders. Consistent with our goal of attracting, motivating and retaining a high-caliber executive team, our executive officer compensation program is designed to pay for performance. We utilize compensation elements that meaningfully align our NEOs’ interests with those of our stockholders to incentivize long-term value creation. The Compensation Committee uses its discretion in determining the appropriate mix of fixed and variable compensation for each NEO. As such, a significant portion of our CEO’s and other executive officers’ compensation is at-risk, performance-based compensation, in the form of long-term equity awards, and annual cash incentives that are only earned if we achieve multiple corporate goals. The balance between these components may change from year to year based on corporate strategy, company performance, market forces and company objectives, among other considerations. For example, in 2019, our CEO had the following target pay mix:

 

LOGO

 

24


Table of Contents

2019 Say-on-Pay Results

At our 2019 annual meeting of stockholders, we held our first non-binding stockholder advisory vote on executive compensation (commonly referred to as a “say-on-pay” vote), which received support from 99% of the votes cast by our stockholders on the matter. Our Board and our Compensation Committee are encouraged by this level of stockholder support for our executive compensation program, and generally view this as an endorsement of our philosophy and how we have structured our compensation program. Given this level of stockholder support, the Compensation Committee concluded that our executive officer compensation program continues to align executive officer pay with stockholder interests and provides competitive pay that encourages retention and effectively incentivizes performance of talented NEOs and executive officers. Accordingly, the Compensation Committee determined not to make any significant changes to our programs as a result of the vote.

In addition, our Board has elected to conduct the say-on-pay vote annually, thereby providing our stockholders the opportunity to provide feedback on the compensation of our NEOs each year. We will be conducting our annual say-on-pay vote as described in Proposal No. 3 of this proxy statement at the 2020 annual meeting of stockholders. We pay careful attention to any feedback we receive from our stockholders about our executive compensation program and are committed to engagement with stockholders to ensure that we continue to understand stockholder feedback about our compensation programs and other key matters of interest to them. Our Compensation Committee will consider the outcome of the say-on-pay vote, as well as feedback received throughout the year, when making compensation decisions for our NEOs and executive officers in the future.

Compensation Philosophy and Determination Process

In order to create value for our stockholders, it is critical to attract, motivate and retain key executive officer talent by providing competitive compensation packages. The market for talented individuals in the life sciences industry is highly competitive and becoming more challenging for employers. Our Board believes our compensation program should align executive interests with the drivers of growth and stockholder returns, and support achievement of the company’s key business mission, goals, and objectives. Consequently, our Board believes the substantial majority of NEO compensation should be at-risk, performance-based pay to facilitate the successful execution of our business strategy.

Role of Compensation Committee

Our Compensation Committee determines the overall compensation structure for our CEO and other NEOs and executives. The Compensation Committee conducts regular reviews of the company’s compensation policies and programs to ensure that these policies and programs enhance shareholder value, align pay and performance, and attract and retain top executive talent. With the assistance of a compensation consultant, the Compensation Committee reviews our compensation practices and policies to help maintain appropriate base salary, annual bonus and equity compensation plans for our executives and determines the target total direct compensation opportunities for our NEOs. The Compensation Committee does not use a single method or measure in developing its recommendations, nor does it establish specific targets for the total direct compensation opportunities for our NEOs; however, the Compensation Committee generally begins its deliberations on cash and equity compensation levels with reference to various percentile levels for cash and equity compensation as reflected in competitive market data.

Pursuant to its charter, the Compensation Committee has the authority to retain compensation consultants to assist in its evaluation of executive and director compensation. The Compensation Committee engaged Radford Consulting, an Aon company (“Radford”), as a compensation consultant to perform compensation advisory services during 2019. Our Compensation Committee will continue to retain a consultant to provide similar information and advice in future years for consideration in determining annual cash, equity and other compensation for our employees, executive officers and directors.

 

25


Table of Contents

Pursuant to our Amended and Restated 2013 Stock Option and Incentive Plan (the “2013 Plan”), the Compensation Committee has delegated to our CEO the authority to approve grants of stock options or RSUs to new hires, subject to certain limitations for each level of employment and an annual aggregate maximum amount of awards that can be granted pursuant to such delegated authority.

Role of CEO & Management

The CEO advises the Compensation Committee on the base salary and target incentive plans for the other NEOs. Such recommendations consider internal pay equity, changes in responsibilities, compensation levels for similar positions in the industry, company performance, total targeted and historical compensation, and personal performance and contributions. The Compensation Committee weighs the CEO’s guidance as a part of a greater assessment of the company’s strategic goals and corporate performance when setting executive officer pay. With respect to our CEO’s compensation, the same considerations are made; however, this process is formalized in the Compensation Committee’s charter, specifying that the CEO cannot be present during voting or deliberations concerning this individual’s compensation.

Use of Independent Compensation Consultant

The Compensation Committee has retained Radford as its independent outside compensation consultant to assist with setting executive compensation. The Compensation Committee has sole authority to retain or replace such independent compensation consultants. The Compensation Committee believes that working with an independent compensation consultant furthers the Company’s objectives to recruit and retain qualified executives, align executive interests with those of shareholders and ensure that executive compensation packages will appropriately motivate and reward ongoing achievement of business goals.

Radford provided the following services to the Compensation Committee with respect to our 2019 compensation matters:

 

   

Reviewed and advised on adjustments to the company’s peer group;

 

   

Conducted an extensive executive compensation assessment;

 

   

Provided key insights on executive and director compensation based on relevant market data; and

 

   

Assisted with certain proxy statement disclosures, including this Compensation Discussion & Analysis section.

The Compensation Committee annually assesses whether the work of Radford as a compensation consultant has raised any conflict of interest, taking into consideration the following factors: (i) the provision of other services, if any, to the company by Radford; (ii) the amount of fees the company paid to Radford; (iii) Radford’s policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of Radford or the individual compensation advisors employed by the firm with an executive officer of the company; (v) any business or personal relationship of the individual compensation advisors with any member of the Compensation Committee; and (vi) any stock of the company owned by Radford or the individual compensation advisors employed by the firm. The Compensation Committee has determined, based on its analysis of the above factors, that the work of Radford and the individual compensation advisors employed by Radford as compensation consultants to the company have not created any conflict of interest.

The Compensation Committee also annually evaluates Radford’s independence and performance under the applicable listing standards of Nasdaq. In 2019, Radford did not provide any other services to the company other than the consulting services to the Compensation Committee with respect to compensation matters.

 

26


Table of Contents

Use of a Peer Group

With the assistance and recommendations of Radford, the Compensation Committee has developed a peer group of companies as a reference group to provide a broad perspective on competitive pay levels and practices. In May 2018, the Compensation Committee approved a peer group for 2019 compensation decisions. The Compensation Committee used the following criteria in determining the appropriate peers:

 

   

IndustryPre-commercial biopharmaceutical companies with a focus on stem cells, small molecule therapeutics, cellular immunotherapeutics or oncology; companies with product candidates in Phase 1 or Phase 2 clinical development.

 

   

Market Capitalization – Range of $250 million—$1.5 billion (approximately 0.3x to 3.0x of our then-current market capitalization).

 

   

Size – Under 150 employees.

Based on a review of the analysis prepared by Radford applying the above criteria, in May 2018, the Compensation Committee approved the following peer group for use in compensation decisions for the remainder of 2018 and for 2019:

2019 Peer Group

 

Athersys

   Audentes Therapeutics    AVEO Pharmaceuticals

Cellular Biomedicine Group

   Corvus Pharmaceuticals    CymaBay Therapeutics

CytomX Therapeutics

   Epizyme    Five Prime Therapeutics

GlycoMimetics

   Intellia Therapeutics    Iovance Biotherapeutics

Jounce Therapeutics

   Kura Oncology    MediciNova

Mirati Therapeutics

   Pieris Pharmaceuticals    Stemline Therapeutics

Verastem

   ZIOPHARM Oncology   

2020 Peer Group

In September 2019, the Compensation Committee approved the peer group for use in making compensation decisions for the remainder of 2019 and for 2020. Due to the Company’s rapid growth, the Compensation Committee updated its criteria for determining companies in our peer group to consider companies with (i) a market capitalization between $500 million and $4.2 billion, and (ii) a range of 50 to 450 employees, which were in line with our market capitalization and employee headcount at the time. Based on these adjusted criteria, a number of additional companies were added to the list, while several companies were removed from the list as they did not meet the adjusted criteria. Accordingly, the Compensation Committee approved the following peer group for use in compensation decisions for the remainder of 2019 and for 2020:

 

Acceleron Pharma

   Allogene Therapeutics    AnaptysBio

ArQule

   Audentes Therapeutics    CRISPR Therapeutics

CymaBay Therapeutics

   CytomX Therapeutics    Epizyme

Gossamer Bio

   Intellia Therapeutics    Iovance Biotherapeutics

Kura Oncology

   Mirati Therapeutics    Odonate Therapeutics

REGENXBIO

   Rubius Therapeutics    Sangamo Therapeutics
   ZIOPHARM Oncology   

 

27


Table of Contents

In setting compensation for our executive officers, including our NEOs, the Compensation Committee uses our compensation peer group as one data point when setting executive pay packages; however, although useful as a reference, the Compensation Committee does not target any percentile within this peer group as a specific objective. Instead, the Compensation Committee also reviews competitive compensation data from an annual total compensation study of the peer group and relevant survey sources to inform its decisions about overall compensation opportunities and specific compensation elements, and bases its compensation decisions on the consideration of many factors, including, but not limited to, individual and company performance, market data, internal equity, experience, and strategic needs. As a result of evaluating compensation based on the criteria described above, total target compensation for our NEOs may in certain circumstances be above or below the median levels of the peer group.

Pay Components

The company’s executive compensation program consists of three primary elements: base salaries, annual cash incentives, and long-term equity awards:

 

Element    Performance Period    Objective    Performance Measured /
Rewarded
Base Salary    Annual    Attract, retain, and reward top talent; reflects a NEO’s responsibilities, performance, and relevant market data   

•  Provides NEOs with fixed compensation that acts as a vehicle to motivate and retain. Rewards executives for key performance and contributions.

Annual Cash

Incentives

   Annual    Reward achievement of annual Company goals, subject to meeting certain performance expectations   

•  Rewards NEOs for their individual performance and the performance of the company over the fiscal year.

•  The corporate goals are prepared in an interactive process between management and the Board based on the company’s business plan and budget for the year. Payments are linked to the attainment of overall corporate goals and may include individual performance targets for each executive officer, or other factors the Committee determines appropriate.

Long-Term Equity Awards (Options)    Long-Term    Support the achievement of strong share price growth; serves as an important retention vehicle   

•  Options vest over four years in monthly installments

•  The ultimate realizable value, if any, depends on the appreciation of our common stock price from the date of grant.

Long-Term Equity Awards (RSUs)    Long-Term    Align the interests of management and stockholders; serves as an important retention vehicle   

•  All NEOs receive time-based RSUs.

•  RSUs granted to the CEO in 2019 vest over four years; half of the award vests on the second anniversary of the grant date, while 25% will vest on each of the third and fourth anniversary.

•  RSUs granted to the other NEOs in 2019 vest over three years in equal installments on the each of the first, second and third anniversary of the grant date.

•  The ultimate value realized varies based on our common stock price.

We design and implement an executive compensation program that combines both cash and incentive elements based on annual performance objectives and long-term equity elements. The Compensation Committee has not, however, adopted any formal or informal policies or guidelines for allocating compensation between current and long-term compensation, between cash and non-cash compensation, or among different forms of non-cash compensation.

 

28


Table of Contents

The Compensation Committee is committed to a strong performance orientation in the company’s compensation program and effective corporate governance practices for a company at our development stage and industry. As such, the Compensation Committee routinely reviews the company’s compensation policies and program design. Our executive compensation program is also designed to incorporate sound practices for compensation governance. Below we summarize such practices:

 

  What We Do

✓  Heavily weight our NEO compensation to long-term “at-risk”

✓  Align compensation with shareholder interests

✓  Align pay with performance

✓ Use multi-year vesting for all executive equity awards

✓ Structure our executive officer compensation program to minimize excessive risk taking

✓ Maintain “Double Trigger” benefits in the case of a Change in Control

 

✓  Maintain balanced pay mix of fixed and variable pay, with higher weighting towards variable pay

✓ Have three independent non-employee directors serve on the Compensation Committee

✓ Maintain robust anti-hedging and pledging policies

✓ Retain an independent compensation consultant

✓ Select peer companies that we compete with for executive officer talent, have a similar business and are of similar size as us, and review their pay practices

 

  What We Don’t Do

X Provide guaranteed bonuses

X Provide excessive severance payments

X Provide excise tax gross-ups

 

X Provide excessive perquisites

X Allow repricing of options without shareholder approval

Base Salary

Base salary is the only fixed component of our executive officers’ total cash compensation and provides competitive pay to attract and retain our executives. Annual salary decisions are made in recognition of competitive data as well as the skills and experience that each individual brings to the company and the performance contributions each makes.

Base salary changes in 2019 varied by executive due either to merit increases or market adjustments. Other factors were considered such as tenure, experience and the role of the individual. Annual base salaries for our NEOs were as follows:

 

    Executive    

   2018    2019    Annual
Increase
 

J. Scott Wolchko

   $516,000    $540,000      4.7

Bahram Valamehr, Ph.D.

   $321,865    $375,000      16.5

Cindy R. Tahl, J.D.

   $350,000    $375,000      7.1

Daniel D. Shoemaker, Ph.D.

   $365,000    $375,000      2.7

In 2018, Dr. Valamehr’s annual base salary increased effective as of July 30, 2018 from $310,000 to $335,000 in connection with his promotion to Chief Development Officer. Dr. Valamehr received a larger merit increase in 2019 due to the fact that there had been no adjustment to his base salary since his promotion to Chief Development Officer in 2018.

Annual Incentives

In January 2015, our Board adopted our Amended and Restated Senior Executive Incentive Bonus Plan (the “Bonus Plan”), which applies to certain key executives, including our NEOs. The Bonus Plan provides for bonus

 

29


Table of Contents

payments based upon the attainment of corporate performance goals established annually by the Compensation Committee (the “Performance Goals”). Any bonuses paid under the Bonus Plan will be based upon objectively determinable criteria that tie such bonuses to one or more performance targets relating to the Performance Goals. The bonus criteria will be adopted in each performance period by the Compensation Committee and communicated to each participating executive, including our NEOs. No bonuses will be paid under the Bonus Plan unless and until the Compensation Committee makes a determination with respect to the attainment of the performance objectives. Notwithstanding the foregoing, the Compensation Committee may adjust bonuses payable under the Bonus Plan based on achievement of individual performance goals or pay bonuses (including, without limitation, discretionary bonuses) to executives, including our NEOs, under the Bonus Plan based upon such other terms and conditions as the Compensation Committee may in its discretion determine. The bonuses payable under the Bonus Plan may be paid in equity or cash.

The Bonus Plan is designed to provide a financial incentive to reward key executives for the achievement of corporate performance objectives. Each executive participating under the Bonus Plan, including our NEOs, will have a targeted bonus opportunity set for each performance period. Payments under the plan are ultimately based on achievement of pre-established company objectives. Actual performance against targets, as set by these pre-established company objectives, funds the incentive payouts.

At the beginning of each year, the Compensation Committee reviews and approves the target annual bonus percentage for our executive officers, including our NEOs. In January 2019, the Compensation Committee reviewed the annual target bonus percentages of our executive officers, including our NEOs, and based on its consideration of multiple factors, particularly market data from the companies in our compensation peer group, approved the following 2019 annual target bonus percentages for our NEOs, which were unchanged from the prior year:

 

Executive

   2019 Annual Target
Bonus Percentage

J. Scott Wolchko

   50%

Bahram Valamehr, Ph.D.

   35%

Cindy R. Tahl, J.D.

   35%

Daniel D. Shoemaker, Ph.D.

   35%

Additionally, in early 2020, the Compensation Committee reviewed the annual target bonus percentages of our executive officers, including our NEOs, and approved annual target bonus percentages of 40% for each of our executive officers, including our NEOs, except that Mr. Wolchko’s annual target bonus percentage for 2020 was maintained at 50%.

At the beginning of each year, the Compensation Committee reviews our performance and the individual performance of each of our executive officers, including our NEOs, to determine the amount of bonuses to be paid with respect to the immediately preceding year. It is at the Compensation Committee’s discretion to grant individual awards at, below, or above target based on the Company’s performance, individual performance and the funding available for awards under the Bonus Plan for a particular year. The total amount of awards cannot exceed the total amount approved by the Compensation Committee to fund the Bonus Plan. Awards are typically paid in the quarter following the close of the performance period.

For 2019, bonuses under the Bonus Plan were determined by the Compensation Committee based upon the achievement of performance metrics related to the Company’s corporate objectives in three broad categories:

 

   

Advancement of clinical programs, demonstrated through meeting certain clinical development goals (50%);

 

   

Rapid development of multiple R&D pipeline assets and establishment of in-house manufacturing capabilities, with performance metrics based on achieving certain preclinical and manufacturing development goals (30%); and

 

   

Attainment of certain corporate, business development and financial goals (20%).

 

30


Table of Contents

In January 2020, the Compensation Committee evaluated our achievement of the 2019 corporate objectives. The Compensation Committee considered whether we had achieved specific goals in each category of our corporate objectives, the weighting established for each category, including the weighting for overachievement, management’s self-assessment, and our overall corporate performance in 2019. Based on these considerations, the Compensation Committee determined that we fully achieved our clinical objectives and our corporate, business development and financial objectives, and overachieved on our pipeline and manufacturing objectives. As a result, the Compensation Committee approved a 115% achievement level of our 2019 corporate objectives, based in particular on the following achievements:

 

   

Initiated clinical trials of our FT500 and FT516 programs;

 

   

Completed full enrollment of our Phase 2 clinical study of ProTmune;

 

   

Presented clinical data at ASH for our off-the-shelf, iPSC-derived NK cell franchise;

 

   

Submitted and cleared IND for FT596;

 

   

Completed in-house GMP production of FT596 and FT500;

 

   

Completed in-house pilot manufacturing run for FT538;

 

   

Secured license to MAD7 CRISPR intellectual property rights; and

 

   

Met expected cash burn and successfully completed a successful public offering of our common stock to strengthen our balance sheet.

The Compensation Committee considered the success in clearing our IND for FT596 in the standard 30-day review period, establishing in-house GMP capabilities, completing in-house GMP production of both FT596 and FT500, and completing a pilot manufacturing run for FT538 as significant factors at arriving at the determination that we overachieved our 2019 objectives.

Based on the above, the Compensation Committee awarded 2019 bonuses, paid in cash during the first quarter of 2020, to our NEOs as follows:

 

Executive

   Annual
Target Bonus
(% of base)
  2019 Base Salary    Corporate Goal
Achievement
  2019
Earned Award

J. Scott Wolchko

   50%   $540,000    115%   $310,500

Bahram Valamehr, Ph.D.

   35%   $375,000    115%   $150,938

Cindy R. Tahl, J.D.

   35%   $375,000    115%   $150,938

Daniel D. Shoemaker, Ph.D.

   35%   $375,000    115%   $150,938

Long-Term Incentives

Our focus on long-term value creation results in our executive compensation program having a heavy weighting toward equity compensation. We rely more heavily on equity compensation to ensure that a significant portion of a NEO’s compensation opportunity is related to factors that directly and indirectly influence stockholder value. Further, equity participation establishes a sense of ownership and aligns executives’ interests with those of other stockholders.

Our annual equity awards to our executives take the form of stock options and RSUs. We believe that stock options, when granted with exercise prices equal to the fair market value of our common stock on the date of grant, are inherently performance oriented and provide an appropriate long-term incentive for our executive officers, since the stock options reward them only to the extent that our stock price increases and stockholders realize value following their grant date. Furthermore, we believe that RSU awards provide tangible value to executive officers and serve as an incentive and retention tool during a difficult operating or volatile business environment, while still being tied to stockholder value. Additionally, RSU awards enable our executive officers to accumulate stock ownership in the company. For these reasons, the Compensation Committee decided to grant

 

31


Table of Contents

RSUs in 2019 after not having granted any in 2018, and intends to continue to grant RSUs in the future as part of the equity incentive portion of pay packages for executives. We believe that the multi-year vesting requirements applicable to both stock options and RSUs encourage employee retention.

Historical Equity Awards

In December 2015, Mr. Wolchko became our Chief Executive Officer. As part of his transition from his former role with the company to Chief Executive Officer, the Compensation Committee undertook a multi-year review of his equity holdings, including outstanding options and common stock owned, in comparison to other chief executive officers of companies similar to us and who had similar tenure in their position. This analysis showed that Mr. Wolchko was significantly below this peer group in equity holdings.

Beginning in 2018, the Compensation Committee and the Board undertook a two-year program to bring Mr. Wolchko’s compensation in-line with this peer group. This approach was necessitated due to certain limitations under our 2013 Plan on the number of stock options that may be granted to any one individual grantee during any one calendar year. This limitation resulted in the company awarding both options and RSUs to Mr. Wolchko during this two-year period. These awards to, and the corresponding equity compensation value for, Mr. Wolchko during this two-year period generally exceeded annual benchmarks due to the size of the awards and the increasing share price of our common stock during the period of the awards, which resulted in increases in the fair value of the stock option awards (as determined using the Black-Scholes model) and the fair value of the RSUs granted to Mr. Wolchko in January 2019. The two-year program was completed in 2019.

2019 Annual Equity Grants

Typically, we have granted equity awards to our executive officers as part of the Compensation Committee’s annual review of executive compensation. To date, the Compensation Committee has not applied a rigid formula in determining the size of these equity awards or mix between options and RSUs. Instead, the Compensation Committee determines the amount of the equity award for each executive officer after taking into consideration a compensation analysis performed by its compensation consultant, peer executive analysis of equity levels, the equity award recommendations of our Chief Executive Officer (except with respect to his own awards), and the amount of equity held by the executive officer.

In January 2019, the Compensation Committee reviewed and approved the option and RSU grants for the NEOs, basing its decision on a market assessment of peer companies utilizing a blend of factors that included value of equity compensation and company ownership. The grants, summarized below, were the same for all of our NEOs, except for our CEO. As discussed in “Historical Equity Awards” above, the 2019 CEO Equity awards were above annual benchmarks to align Mr. Wolchko’s equity holdings with the peer group.

 

Executive

   RSUs      Stock Options
   (#)    ($)      (#)    ($)

J. Scott Wolchko

   250,000    $ 4,137,500      500,000    $5,732,955

Bahram Valamehr, Ph.D.

   45,000    $ 744,750      135,000    $1,547,898

Cindy R. Tahl, J.D.

   45,000    $ 744,750      135,000    $1,547,898

Daniel D. Shoemaker, Ph.D.

   45,000    $ 744,750      135,000    $1,547,898

RSUs

2019 RSU grants to our CEO vest over four years. Half of the award vests on the second anniversary of the date of grant, and 25% of the award vests on each of the third and fourth anniversary of the date of grant. 2019 RSU grants to other NEOs vest in equal annual installments over three years. In all cases, vesting of the RSUs is subject to the executive’s continuing service on each vesting date. The vesting schedule for our CEO as compared to our other NEOs is set over a longer period as a retention tool and as a result of the larger size of the grant to the CEO.

 

32


Table of Contents

Stock Options

2019 Option grants to our executives vest monthly over a four-year period, subject to the executive’s continuing service on each vesting date.

2020 Annual Equity Grants

In January 2020, the Compensation Committee met and awarded the annual cycle grants to the NEOs as follows:

 

     RSUs      Stock Options

Executive

   (#)    ($)      (#)      ($)

J. Scott Wolchko

   66,000    $ 1,451,340        219,000      $3,222,577

Bahram Valamehr, Ph.D.

   25,000    $ 549,750        90,000      $1,324,347

Cindy R. Tahl, J.D.

   25,000    $ 549,750        90,000      $1,324,347

Daniel D. Shoemaker, Ph.D.

   25,000    $ 549,750        90,000      $1,324,347

The 2020 RSUs grants to our NEOs vest annually over a four-year period and the 2020 Option grants vest monthly over a four-year period, and both equity awards are subject to the executive’s continuing service on each vesting date.

Employment, Severance and Change in Control Arrangements with our Named Executive Officers

Employment Agreements with our NEOs

We have entered into a written employment offer letter agreement with each of our NEOs. These agreements set forth the basic terms and conditions of employment, including initial base salary, initial equity awards, eligibility to participate in our standard employee benefits plans, and the at-will employment relationship. These agreements also require that each NEO execute our standard employee confidentiality and assignment agreement.

Our NEOs are also eligible to receive certain change-in-control payments and benefits in accordance with their individual employment contract or our Executive Severance and Change in Control Policy as described below.

For detailed descriptions of the employment arrangements we maintained with our NEOs during 2019, see “Compensation of Executive Officers - Potential Payments on Termination or Change in Control” below.

Executive Severance and Change in Control Policy

We consider it essential to the best interests of our stockholders to foster the continuous employment of our key management personnel. Accordingly, we believe that reasonable and competitive post-employment compensation arrangements are essential to attracting and retaining highly-qualified executives. We further believe that when recruiting executive talent these arrangements are necessary to offer compensation packages that are competitive. The Compensation Committee does not consider the specific amounts payable under these post-employment compensation arrangements, however, when determining the annual compensation of our NEOs.

Effective on January 14, 2018, the Compensation Committee adopted the Executive Severance and Change in Control Policy (“ESCCP”), in which all of our NEOs, except our CEO, participate. It provides certain protections in the event of certain qualifying terminations of employment, including a qualifying termination of employment in connection with a change in control of the company. Our CEO has similar terms included in his employment agreement that were negotiated in conjunction with his appointment as CEO. These arrangements are designed to provide reasonable compensation to the executive officer if their employment is terminated under certain circumstances to facilitate their transition to new employment. Further, in some instances we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing executive officer to sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits.

 

33


Table of Contents

We also believe that these arrangements help maintain our executive officers continued focus and dedication to their assigned duties to maximize stockholder value if there is a potential transaction that could involve a change in control of the company. In this event, these arrangements keep our most senior executives focused on pursuing all corporate transaction activity in the best interests of our stockholders regardless of whether those transactions may result in their own job loss. Thus, these arrangements align the interests of our NEOs and our stockholders when considering our long-term future.

In determining payment and benefit levels under the various circumstances triggering post-employment compensation provisions under the ESCCP and our CEO’s employment agreement, our Board has drawn a distinction between (i) voluntary terminations of employment without good reason or terminations of employment for cause and (ii) terminations of employment without cause or voluntary terminations of employment for good reason. Payment in the latter circumstances has been deemed appropriate in light of the benefits described in the prior paragraph, as well as the likelihood that an executive officer’s departure is due, at least in part, to circumstances not within his or her control. In contrast, we believe that payments are not appropriate in the event of a termination of employment for cause or a voluntary resignation without good reason because such events often reflect either performance challenges or an affirmative decision by the executive to end his or her relationship without fault by the Company.

All payments and benefits in the event of a change in control of the Company are payable only if there is a subsequent loss of employment by an executive officer (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction.

To receive payments and benefits under the ESCCP, or in the case of the CEO, under his employment agreement, an executive officer must execute and not subsequently revoke a severance agreement within 60 days following the date of the termination of employment, including a general release of claims acceptable to us.

For a summary of the material terms and conditions of the post-employment compensation arrangements we maintained with our NEOs during 2019, as well as an estimate of the potential payments and benefits that they would have been eligible to receive if a hypothetical change in control or other trigger event had occurred on December 31, 2019, see “Compensation of Executive Officers – Potential Payments on Termination or Change in Control” below.

Other Employee Benefits

NEOs are eligible to participate in the Company’s employee benefit plans on the same terms as all other full-time employees. These plans include medical, dental and life insurance and eligibility to participate in the Company’s 401(k) Savings Plan.

401(k) Savings Plan and Other Benefits

We have established a 401(k) plan to allow our employees to save on a tax-favorable basis for their retirement. We do not match any contributions made by any employees pursuant to the plan. We also pay, on behalf of our employees, a portion of the premiums for health, life and disability insurance.

Perquisites

Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our executive officers, including our NEOs, except as generally made available to our employees, or in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make him or

 

34


Table of Contents

her more efficient and effective, and for recruitment and retention purposes. During 2019, none of our NEOs received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each individual.

Additional Policies and Practices

Equity Award Grant Policy

We have adopted an Amended and Restated Equity Award Grant Policy that sets forth the process and timing for us to follow when we grant equity awards for shares of our common stock to our employees, including our executive officers, or advisors or consultants to us pursuant to our equity compensation plans. Pursuant to the policy, all grants of equity awards must be approved in advance by our Board, the Compensation Committee or, subject to the delegation requirements in the policy, our CEO. The equity award granting authority delegated to our CEO applies to employees at the vice president level and below who are not (and are not reasonably expected to be upon hiring) officers (as defined in Section 16 of the Exchange Act and Rule 16a-1 promulgated thereunder) and to equity awards within the specific ranges and subject to a maximum annual aggregate amount as may be set forth in the policy, as approved by the Compensation Committee from time to time.

Generally, equity awards are granted on the following regularly scheduled basis as set forth in the policy:

 

   

Equity awards granted by our CEO in connection with the hiring of a new employee or the promotion of an existing employee or the engagement of a new consultant are effective on the first trading day of the month following the later of (i) the date on which such individual’s employment or consulting term begins or promotion occurs or (ii) the date on which such award is approved by our CEO.

 

   

Equity awards granted to existing employees (other than in connection with a promotion) or consultants will generally be granted, if at all, on an annual basis and must be approved by the Board or the Compensation Committee. It is the intention of the Compensation Committee that any such annual grants requiring approval of the Compensation Committee be considered and approved at a meeting of the committee.

In addition, the policy sets forth the manner in which our equity awards will be priced. If the value of a restricted stock or RSU grant is denominated in dollars, then the number of underlying shares will be determined by dividing the dollar value by the closing market price on the Nasdaq Global Market (or such other market on which our common stock is then principally listed) of a share of our common stock on the effective date of grant. The exercise price of all stock options will be at least equal to the closing market price on the Nasdaq Global Market (or such other market on which our common stock is then principally listed) of a share of our common stock on the effective date of grant. If the amount of the stock option award is to be determined by reference to a fair value calculated under Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), then the number of shares to be subject to such stock option shall be determined based on such fair value, the exercise price determined in accordance with the preceding sentence and the approved valuation assumptions, subject to any other limits on the number of shares that may be subject to such stock option.

Hedging and Pledging Prohibitions

Our Insider Trading Policy prohibits our executive officers, the non-employee members of our Board and certain designated employees and consultants who in the course of the performance of their duties have access to material, nonpublic information regarding the Company from engaging in the following transactions:

 

   

selling any of our securities that they do not own at the time of the sale (a “short sale”);

 

   

buying or selling puts, calls, other derivative securities of the Company or any derivative securities that provide the economic equivalent of ownership of any of our securities or an opportunity, direct or

 

35


Table of Contents
 

indirect, to profit from any change in the value of our securities or engaging in any other hedging transaction with respect to our securities at any time without the prior approval of the Audit Committee of our Board (the “Audit Committee”);

 

   

using our securities as collateral in a margin account; and

 

   

pledging our securities as collateral for a loan (or modifying an existing pledge) unless the pledge has been approved by the Audit Committee.

As of the date of this proxy statement, none of our NEOs had previously sought or obtained approval from the Audit Committee to engage in any hedging or pledging transaction involving our securities.

Accounting and Tax Considerations

The Company accounts for equity compensation paid to our employees under the FASB ASC Topic 718, which requires us to estimate and record an expense over the estimated service period of the equity award. Our cash compensation is recorded as an expense at the time the obligation is incurred. The accounting impact of our compensation programs are one of many factors that the Compensation Committee considers in determining the structure and size of our executive officer compensation programs.

The Compensation Committee also considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) in designing, establishing and implementing our executive compensation policies and practices. Section 162(m) of the Code generally prohibits us from deducting any compensation over $1 million per taxable year paid to certain of our named executive officers. The Tax Cuts and Jobs Act (the “Tax Act”) among other changes, repealed the exception from the deduction limit under Section 162(m) of the Code for performance-based compensation effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible, unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017 that are not materially modified after that date.

While the Compensation Committee considers the financial statement expense and deductibility of awards as factors in determining executive compensation, the Compensation Committee also considers other factors in making its decisions and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program.

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

Section 409A of the Code imposes additional significant taxes in the event that an executive officer, director or service provider receives “deferred compensation” that does not satisfy the requirements of Section 409A of the Code. Although we do not maintain a traditional nonqualified deferred compensation plan for our executive officers, Section 409A of the Code does apply to certain severance arrangements, bonus arrangements and equity awards, and we have structured all such arrangements and awards in a manner to be exempt from or comply with the applicable requirements of Section 409A of the Code.

Compensation Risk Assessment

We believe that although a portion of the compensation provided to our executive officers and other employees is performance-based, our executive compensation program does not encourage excessive or unnecessary risk

 

36


Table of Contents

taking. This is primarily due to the fact that our compensation programs are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals, in particular in connection with our pay-for-performance compensation philosophy. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on the Company.

 

37


Table of Contents

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table

The following table provides information regarding the total compensation, for services rendered in all capacities, that was paid or earned by our NEOs during the fiscal years ending December 31, 2019, 2018 and 2017.

 

Name and Principal

Position as of
December 31, 2019

  Year     Salary
($)
    Stock
Awards
($)(1)
    Option
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(3)
    All Other
Compensation
($)
    Total
($)
 

J. Scott Wolchko

   
2019
 
   
540,000
 
   
4,137,500
 
   
5,732,955
 
   
310,500
 
   
—   
 
   
10,720,955
 

President, Chief Executive Officer and Director

   
2018
 
   
516,000
 
   
—   
 
   
2,756,998
 
   
258,000
 
   
—   
 
   
3,530,998
 
   
2017
 
   
480,000
 
   
—   
 
   
668,789
 
   
156,000
 
   
—   
 
   
1,304,789
 

Bahram Valamehr, Ph.D.

    2019       375,000       744,750       1,547,898       150,938       —          2,818,586  

Chief Development Officer (4)

    2018       321,865 (5)      —          2,138,235       117,250       —          2,577,350  

Cindy R. Tahl, J.D.

    2019       375,000       744,750       1,547,898       150,938       —          2,818,586  

General Counsel and Corporate Secretary (4)

    2018       350,000       —          906,465       122,500       —          1,378,965  

Daniel D. Shoemaker, Ph.D.

    2019       375,000       744,750       1,547,898       150,938       —          2,818,586  

Chief Scientific Officer

   

2018

2017

 

 

   

365,000

352,500

 

 

   

—   

—   

 

 

   

842,338

365,604

 

 

   

127,750

80,194

 

 

   

—   

—   

 

 

   

1,335,088

798,298

 

 

 

(1)

In accordance with SEC rules, this column reflects the aggregate grant date fair value of RSUs granted during 2019, 2018 and 2017, computed in accordance with ASC 718. Assumptions used in the calculation of these amounts are included in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed in March 2020. Such grant date fair values do not take into account any estimated forfeitures related to service-based vesting conditions. These amounts do not reflect the actual economic value that may be realized by NEOs upon the vesting or settlement of the RSUs.

(2)

In accordance with SEC rules, this column reflects the aggregate grant date fair value of option awards granted during 2019, 2018 and 2017, computed in accordance with ASC 718. Assumptions used in the calculation of these amounts are included in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed in March 2020. Such grant date fair values do not take into account any estimated forfeitures related to service-based vesting conditions. These amounts do not reflect the actual economic value that may be realized by the NEOs upon the exercise of the stock options or the sale of the common stock underlying such stock options.

(3)

The amounts in this column represent the annual incentive compensation paid for performance during 2019, 2018 and 2017 pursuant to the Bonus Plan. The amounts of these awards were determined based upon the achievement of performance metrics related to the Company’s 2019, 2018 and 2017 corporate objectives, as applicable.

(4)

2017 compensation information is not presented for Dr. Valamehr and Ms. Tahl because they were not NEOs for the fiscal year ended December 31, 2017.

(5)

Dr. Valamehr’s annual base salary increased effective as of July 30, 2018 from $310,000 to $335,000.

 

38


Table of Contents

Grants of Plan-Based Awards for Fiscal Year 2019

The following table sets forth the individual awards made to each of our NEOs during 2019. For a description of the types of awards indicated below, please see our “Compensation Discussion and Analysis” above.

 

Name

  Grant Date     Estimated Future
Payouts Under
Non-Equity
Incentive Plan
Awards(1)
    All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(2)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(3)
    Exercise or
Base Price of
Option
Awards
($/Sh)
    Grant Date
Fair Value of
Stock and
Option
Awards(4)
 
          Target ($)                          

J. Scott Wolchko

      270,000          

J. Scott Wolchko

    January 7, 2019         250,000         $ 4,137,500  

J. Scott Wolchko

    January 7, 2019           500,000       16.55     $ 5,732,955  

Bahram Valamehr, Ph.D.

      131,250          

Bahram Valamehr, Ph.D.

    January 7, 2019         45,000         $ 744,750  

Bahram Valamehr, Ph.D.

    January 7, 2019           135,000       16.55     $ 1,547,898  

Cindy R. Tahl, J.D.

      131,250          

Cindy R. Tahl, J.D.

    January 7, 2019         45,000         $ 744,750  

Cindy R. Tahl, J.D.

    January 7, 2019           135,000       16.55     $ 1,547,898  

Daniel D. Shoemaker, Ph.D.

      131,250          

Daniel D. Shoemaker, Ph.D.

    January 7, 2019         45,000         $ 744,750  

Daniel D. Shoemaker, Ph.D.

    January 7, 2019           135,000       16.55     $ 1,547,898  

 

(1)

The amounts shown reflect the target cash incentive compensation for our NEOs, which are disclosed in the “Target Annual Cash Bonus” column in the “2019 Annual Cash Bonuses” section of the Compensation Discussion & Analysis. The actual amounts paid for 2019 are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. There were no threshold or maximum payout levels for the cash incentive compensation.

(2)

The RSUs are subject to time-based vesting, as described in the footnotes to the “Outstanding Equity Awards at Fiscal Year-End Table” below.

(3)

The stock options are subject to time-based vesting, as described in the footnotes to the “Outstanding Equity Awards at Fiscal Year-End Table” below.

(4)

The amounts reported in this column represent the aggregate grant date fair value of the RSUs and stock options, as applicable, granted to the NEO in the fiscal year ended December 31, 2019, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service-vesting conditions. The valuation assumptions used in determining such amounts are described in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 2, 2020. The amounts reported in this column reflect the accounting cost for these RSUs and stock options, as applicable, and do not correspond to the actual economic value that may be received by the NEOs upon the vesting or settlement of the RSUs or the exercise of the stock options or sale of the shares of common stock underlying such stock options, as applicable.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information with respect to outstanding equity awards as of December 31, 2019 with respect to our NEOs. The equity awards are subject to certain acceleration of vesting provisions as provided (i) in the case of Mr. Wolchko, in his employment agreement, as described in “Compensation of Executive Officers—Potential Payments on Termination or Change in Control”, below, and (ii) in the case of the other NEOs, in the Company’s ESCCP as described in “Compensation of Executive Officers—Potential

 

39


Table of Contents

Payments on Termination or Change in Control” below. Unless otherwise described in a footnote below, the vesting of each equity award is subject to the applicable NEO’s continued employment/service relationship with the Company through such vesting date.

 

    Option Awards     Stock Awards  

Name

  Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock that
have not
Vested (#)
    Market Value
of Shares or
Units of
Stock

that have not
Vested ($)(1)
 

J. Scott Wolchko,

    9,846 (2)      —          7.87       8/12/2023      

President, Chief Executive Officer and Director

           
    85,000 (3)      —          6.62       1/9/2024      
    70,000 (3)      —          4.84       1/5/2025      
    139,600 (3)      —          2.70       1/12/2026      
    36,800 (3)      —          2.70       1/12/2026      
    182,291 (4)      67,709 (4)      2.73       1/4/2027      
    166,750 (5)      181,250 (5)      6.55       1/15/2028      
    53,833 (6)      98,167 (6)      11.03       7/17/2028      
    114,583 (7)      385,417 (7)      16.55       1/6/2029      
            250,000 (8)      4,892,500  

Bahram Valamehr, Ph.D.,

    1,153 (2)      —          1.69       2/10/2020      

Chief Development Officer

           
    3,076 (2)      —          1.69       3/11/2021      
    423 (2)      —          1.37       1/13/2023      
    1,536 (2)      —          7.87       8/12/2023      
    8,500 (3)      —          6.62       1/9/2024      
    10,704 (3)      —          4.84       1/5/2025      
    86,245 (9)      1,835 (9)      2.90       1/7/2026      
    87,500 (4)      32,500 (4)      2.73       1/4/2027      
    102,925 (5)      111,875 (5)      6.55       1/15/2028      
    53,125 (6)      96,875 (6)      11.03       7/17/2028      
    30,937 (7)      104,063 (7)      16.55       1/6/2029      
            45,000 (10)      880,650  

Cindy R. Tahl, J.D.,

    7,385 (2)      —          7.87       8/12/2023      

General Counsel and Corporate Secretary

           
    35,000 (3)      —          6.62       1/9/2024      
    34,560 (3)      —          4.84       1/5/2025      
    50,000 (3)      —          4.89       10/15/2025      
    70,324 (9)      2,825 (9)      2.90       1/7/2026      
    109,375 (4)      40,625 (4)      2.73       1/4/2027      
    95,910 (5)      104,250 (5)      6.55       1/15/2028      
    30,937 (7)      104,063 (7)      16.55       1/6/2029      
            45,000 (10)      880,650  

Daniel D. Shoemaker, Ph.D.,

    31,784 (2)      —          1.63       2/9/2022      

Chief Scientific Officer

           
    19,200 (2)      —          1.63       2/9/2022      
    20,294 (2)      —          1.37       7/24/2022      
    9,846 (2)      —          7.87       8/12/2023      
    85,000 (3)      —          6.62       1/9/2024      
    70,000 (3)      —          4.89       1/5/2025      
    95,700 (9)      3,100 (9)      2.90       1/7/2026      
    109,375 (4)      40,625 (4)      2.73       1/4/2027      
    89,125 (5)      96,875 (5)      6.55       1/15/2028      
    30,937 (7)      104,063 (7)      16.55       1/6/2029      
            45,000 (10)      880,650  

 

40


Table of Contents
(1)

This amount reflects the closing market price of a share of our common stock of $19.57 as of December 31, 2019, multiplied by the amount shown in the column “Stock Awards – Number of Shares or Units of Stock that have not Vested.”

(2)

All outstanding options were fully vested. The options were issued pursuant to the 2007 Equity Incentive Plan (the “2007 Plan”).

(3)

All outstanding options were fully vested. The options were issued pursuant to the 2013 Plan.

(4)

The shares underlying the options vest in equal monthly installments over four years from January 4, 2017 through January 4, 2021. The options were issued pursuant to the 2013 Plan.

(5)

The shares underlying the options vest in equal monthly installments over four years from January 16, 2018 through January 16, 2022. The options were issued pursuant to the 2013 Plan.

(6)

The shares underlying the options vest in equal monthly installments over four years from July 18, 2018 through July 18, 2022. The options were issued pursuant to the 2013 Plan.

(7)

The shares underlying the options vest in equal monthly installments over four years from January 1, 2019 through January 1, 2023. The options were issued pursuant to the 2013 Plan.

(8)

The RSUs will vest 50% on January 7, 2021, and 25% on each of January 7, 2022 and January 7, 2023. The RSUs were issued pursuant to the 2013 Plan.

(9)

The shares underlying the options vest in equal monthly installments over four years from January 8, 2016 through January 8, 2020. The options were issued pursuant to the 2013 Plan.

(10)

The RSUs will vest in equal installments on January 7, 2020, January 7, 2021, and January 7, 2022. The RSUs were issued pursuant to the 2013 Plan.

Option Exercises and Stock Vested in Fiscal Year 2019

The following table sets forth the number of shares acquired and the value realized upon exercises of stock options and vesting of RSUs during the fiscal year ended December 31, 2019 by each of our NEOs:

 

    Option Awards     Stock Awards  

Name

  Number of Shares
Acquired on
Exercise (#)
    Value Realized on
Exercise ($)(1)
    Number of Shares
Acquired on Vesting
(#)
    Value Realized on
Vesting ($)(2)
 

J. Scott Wolchko

    104,335     $ 1,733,959       43,230(3)     $ 611,348(3)  

Bahram Valamehr, Ph.D.

    —          —          17,500     $ 247,275  

Cindy R. Tahl, J.D.

    75,000     $ 1,003,844       20,000     $ 282,600  

Daniel D. Shoemaker, Ph.D.

    50,000     $ 806,740       33,000     $ 466,290  

 

(1)

The value realized upon the exercise of stock options is calculated by (i) subtracting the option exercise price from the market price on the date of exercise to get the realized value per share, and (ii) multiplying the realized value per share by the number of shares underlying options exercised.

(2)

The value realized upon vesting of RSUs is calculated by multiplying the number of RSUs vested by the closing price of common stock on the vesting date.

(3)

Includes 105 shares and value acquired as part of a gift on May 24, 2019.

Potential Payments on Termination or Change in Control

Under the ESCCP (in which all of our NEOs, except our CEO, participate), if a participant is terminated by the Company without “Cause” (as defined below) or resigns for “Good Reason” (as defined below), in each case, following the first anniversary of the participant’s first day of employment with the Company, then the participant will be entitled to the following benefits, subject to his or her execution of an irrevocable release: (i) for all outstanding equity awards containing time-based vesting conditions, nine (9) months of accelerated vesting; provided, however, that for any equity awards that include both a performance-based vesting condition (including the achievement of a specified stock price or market capitalization) and a time-based vesting condition, or any equity awards that vest solely upon the achievement of a performance-based vesting condition, no acceleration of vesting will be provided unless the applicable performance-based vesting condition has been

 

41


Table of Contents

satisfied as of the date of the participant’s termination; (ii) a lump sum cash payment equal to nine (9) months of the participant’s then-current base salary; and (iii) payment of the employer portion of group health care benefits under COBRA for up to nine (9) months.

In addition, if a participant is terminated by the Company without Cause or resigns for Good Reason, in each case within the period beginning three (3) months prior to and ending twelve (12) months following a “Sale Event” (as defined below), then, in lieu of the benefits described above, such participant will be entitled to the following benefits, subject to his or her execution of a an irrevocable release: (i) for all outstanding equity awards containing time-based vesting conditions, full acceleration of vesting; provided, however, that for any equity awards that include both a performance-based vesting condition (including the achievement of a specified stock price or market capitalization) and a time-based vesting condition, or any equity awards that vest solely upon the achievement of a performance-based vesting condition, no acceleration of vesting will be provided unless the applicable performance-based vesting condition has been satisfied as of the date of the participant’s termination; (ii) a lump sum cash payment equal to twelve (12) months of the participant’s then-current base salary; (iii) one (1) times the participant’s annual target incentive compensation for the year of termination; and (iv) payment of the employer portion of group health care benefits under COBRA for up to twelve (12) months.

The payments and benefits provided a participant under the ESCCP may not be eligible for federal income tax deduction for the Company pursuant to Section 280G of the Code. These payments and benefits may also be subject to an excise tax under Section 4999 of the Code. If the payments or benefits payable to a participant would be subject to the excise tax imposed under Section 4999 of the Code, then those payments or benefits will be reduced to the extent necessary so that no portion of such payments or benefits will be subject to such excise tax or loss of tax deduction for the Company.

Participants who are party to an agreement or an arrangement with the Company that provides greater benefits in the aggregate than set forth in the ESCCP are not eligible to receive any payments or benefits under the ESCCP.

Under the ESCCP, the terms above are generally defined as follows:

“Cause” means (i) the participant’s dishonest statements or acts with respect to the Company or any affiliate of the Company, or any current or prospective customers, suppliers, vendors or other third parties with which such entity does business; (ii) the participant’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) any conduct by the participant that would reasonably be expected to result in material injury or reputational harm to the Company or any of its subsidiaries and affiliates if the participant were retained in the participant’s position; (iv) the participant’s failure to perform his or her assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to the participant by the Company; (v) the participant’s gross negligence, willful misconduct or insubordination with respect to the Company or any affiliate of the Company; or (vi) the participant’s material violation of any provision of any agreement(s) between the participant and the Company relating to noncompetition, nonsolicitation, nondisclosure and/or assignment of inventions.

“Good Reason” means (i) a material diminution in the participant’s responsibilities, authority or duties; (ii) a material diminution in the participant’s base compensation except for across-the-board compensation reductions similarly affecting all or substantially all similarly situated service providers of the Company; or (iii) a change of more than twenty-five (25) miles in the geographic location at which the participant provides services to the Company, in each case so long as the participant provides at least sixty (60) days’ notice to the Company following the initial occurrence of any such event, the Company fails to cure such event within thirty (30) days thereafter and the participant terminates his or her employment within thirty (30) days after the end of such cure period. “Sale Event” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders

 

42


Table of Contents

of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

Employment Arrangements with Our Executive Officers

J. Scott Wolchko

Mr. Wolchko commenced employment with us on September 17, 2007, and, in connection with his appointment as our President and CEO, we entered into a new employment agreement with Mr. Wolchko (the “Original CEO Employment Agreement”). The Original CEO Agreement was amended and restated in its entirety by a new employment agreement that Mr. Wolchko entered into with us on January 14, 2018, effective January 1, 2018 (the “CEO Employment Agreement”). The CEO Employment Agreement sets forth Mr. Wolchko’s then-current annual base salary, then-current annual incentive compensation and his eligibility to participate in our benefit plans generally. Pursuant to the CEO Employment Agreement, Mr. Wolchko is eligible to receive annual incentive compensation, for which the target annual incentive compensation will be 50% of his annual base salary, as determined by the Board of Directors or the Compensation Committee.

Mr. Wolchko’s employment is at-will. Upon any termination of his employment, Mr. Wolchko will be entitled to receive (A) the amount of his accrued but unpaid salary and unpaid expense reimbursements and any accrued but unused vacation as of the date of termination, (B) any vested benefits Mr. Wolchko may have under any employee benefit plan, which shall be paid in accordance with the terms of such employee benefit plans, as of the date of termination, and (C) any earned but unpaid incentive compensation from the prior calendar year (clauses (A) through (C) collectively, the “Accrued Benefits”). Pursuant to the CEO Employment Agreement, in the event that Mr. Wolchko’s employment is terminated by the Company without “Cause” (other than due to death or disability) or by Mr. Wolchko for “Good Reason” (as such terms are defined below), in each case outside of the “Sale Event Period” (as defined below), subject to his execution of a nonrevocable separation agreement and release, Mr. Wolchko will be entitled to, in addition to the Accrued Benefits, (i) a lump sum cash payment equal to the sum of twelve (12) months of Mr. Wolchko’s then-current base salary and his annual target incentive compensation for the year of termination, (ii) full acceleration of vesting of all outstanding equity awards containing performance-based vesting conditions, if such performance-based vesting conditions have been satisfied as of the date of termination, (iii) for all outstanding equity awards containing time-based vesting conditions, twelve (12) months of accelerated vesting; provided, however, that for any equity awards that include both a performance-based vesting condition (including the achievement of a specified stock price or market capitalization) and a time-based vesting condition, or any equity awards that vest solely upon the achievement of a performance-based vesting condition, no acceleration of vesting will be provided unless the applicable performance-based vesting condition has been satisfied as of the date of Mr. Wolchko’s termination, and any acceleration provided shall be subject to clause (ii) of this paragraph, and (iv) payment of the premiums for Mr. Wolchko’s and his family’s participation in the Company’s group health care plans, subject to Mr. Wolchko’s copayment amount, for up to eighteen (18) months after such termination.

Pursuant to the CEO Employment Agreement, in the event that Mr. Wolchko’s employment is terminated by the Company without Cause (other than due to death or disability) or by Mr. Wolchko for Good Reason, in each case within the period beginning three months prior to and ending eighteen (18) months following a “Sale Event” (as such term is defined below) (the “Sale Event Period”), subject to his execution of a nonrevocable separation agreement and release, Mr. Wolchko is entitled to, in addition to the Accrued Benefits, (i) a lump sum cash payment equal to the sum of eighteen (18) months of Mr. Wolchko’s then-current base salary (or base salary in

 

43


Table of Contents

effect immediately prior to the Sale Event, if higher) and one and a half (1.5) times his annual target incentive compensation for the year of termination, (ii) full acceleration of vesting of all outstanding equity awards; provided, that for any equity awards that include both a performance-based vesting condition (including the achievement of a specified stock price or market capitalization) and a time-based vesting condition, or any equity awards that vest solely upon the achievement of a performance-based vesting condition, no acceleration of vesting will be provided unless the applicable performance-based vesting condition has been satisfied as of the date of Mr. Wolchko’s termination, and (iii) payment of the premiums for Mr. Wolchko’s and his family’s participation in the Company’s group health care plans, subject to Mr. Wolchko’s copayment amount, for up to eighteen (18) months after such termination.

The payments and benefits provided to Mr. Wolchko under the CEO Employment Agreements in connection with a change of control may not be eligible for federal income tax deduction for the Company pursuant to Section 280G of the Code. These payments and benefits may also be subject to an excise tax under Section 4999 of the Code. If the payments or benefits payable to Mr. Wolchko in connection with a change of control would be subject to the excise tax imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to him.

Under the CEO Employment Agreement, the terms below are generally defined as follows:

“Cause” means, (i) conduct by the employee constituting a material act of misconduct in connection with the performance of the employee’s duties, including, without limitation, misappropriation of funds or property of the Company or any of its subsidiaries or affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (ii) the commission by the employee of (A) any felony; or (B) a misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) any conduct by the employee that would reasonably be expected to result in material injury or reputational harm to the Company or any of its subsidiaries and affiliates if the employee were retained in the employee’s position; (iv) continued material and substantial non-performance by the employee of the employee’s material responsibilities hereunder (other than by reason of the employee’s physical or mental illness, incapacity or disability) which has continued for more than thirty (30) days following written notice of such non-performance from the Board of Directors; (v) a material and substantial breach by the employee of any of the employee’s confidentiality, noncompetition, nonsolicitation or other similar restrictive covenant obligations to the Company; (vi) a material and substantial violation by the employee of any of the Company’s written employment policies; or (vii) failure to cooperate with a bona fide internal investigation by or on behalf of the Board or an authorized committee thereof or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the inducement of others to fail to cooperate or to produce documents or other materials in connection with such investigation.

“Sale Event” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a

majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the common stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

“Good Reason” means that the employee has complied with the appropriate notice process following the occurrence of any of the following events: (i) a material diminution in the employee’s responsibilities, authorities, powers, functions or duties; (ii) a material reduction in the employee’s then-current base salary or

 

44


Table of Contents

target annual incentive compensation, except for across-the-board reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company; or (iii) the relocation of the employee’s principal place of business to a place that is more than twenty-five (25) miles from the employee’s current location of employment as of the effective date of the employment agreement. Notwithstanding the foregoing, none of the following shall be considered good reason: (x) the mere occurrence of a Sale Event; (y) any change in the identity of the surviving corporation in the event of a Sale Event; or (z) any change in the status of the surviving corporation after a Sale Event as a public or private company.

Bahram Valamehr, Ph.D.

Dr. Valamehr is a party to an at-will employment offer letter with us, dated November 20, 2009 (the “Valamehr Offer Letter”). The Valamehr Offer Letter sets forth Dr. Valamehr’s initial annual base salary, initial option grant and his eligibility to participate in our incentive bonus and benefit plans generally. Pursuant to the Bonus Plan, Dr. Valamehr is eligible to receive annual incentive compensation at a target percentage of 35% of his then-current annual base salary, as determined by the Board of Directors or the Compensation Committee.

Dr. Valamehr may be entitled to certain severance payments and other benefits under the ESCCP described below.

Cindy R. Tahl, J.D.

Ms. Tahl is a party to an at-will employment offer letter with us, dated October 17, 2009 (the “Tahl Offer Letter”). The Tahl Offer Letter sets forth Ms. Tahl’s initial annual base salary, initial option grant, and her eligibility to participate in our incentive bonus and benefit plans generally. Pursuant to the Bonus Plan, Ms. Tahl is eligible to receive annual incentive compensation, for which the initial target annual incentive compensation will be 35% of her then-current annual base salary, as determined by the Board of Directors or the Compensation Committee.

Ms. Tahl may be entitled to certain severance payments and other benefits under the ESCCP described below.

Daniel D. Shoemaker, Ph.D.

Dr. Shoemaker is a party to an at-will employment offer letter with us, dated February 11, 2009 (the “Shoemaker Offer Letter”). The Shoemaker Offer Letter sets forth Dr. Shoemaker’s initial annual base salary, initial annual incentive compensation and his eligibility to participate in our benefit plans generally. Pursuant to the Shoemaker Offer Letter and the Bonus Plan, Dr. Shoemaker is eligible to receive annual incentive compensation, for which the initial target annual incentive compensation will be 35% of his then-current annual base salary, as determined by the Board of Directors or the Compensation Committee.

Pursuant to the Shoemaker Offer Letter, Dr. Shoemaker was entitled to certain severance benefits in the event of certain terminations of employment following a change in control, which have been superseded by the severance payments and other benefits under the ESCCP described below.

The following table presents information concerning estimated payments and benefits that would be provided in the circumstances described above for each of the NEOs serving as of the end of the fiscal year ending December 31, 2019. The payments and benefits set forth below are estimated assuming that the qualifying termination or change in control event occurred on the last business day of our fiscal year ending December 31, 2019 using the closing market price of our stock on that date. The market price of a share of our common stock on December 31, 2019 was $19.57. Actual payments and benefits could be different if such events were to occur on any other date or at any other price or if any other assumptions are used to estimate potential payments and benefits.

 

45


Table of Contents

Name

   Termination without
Cause or for Good
Reason not in
Connection with a
Change in
Control(1)

($)
    Termination without
Cause or for Good
Reason in
Connection with a
Change in
Control(2)

($)
 

J. Scott Wolchko

    

Cash Severance Payment

   $ 540,000 (3)    $ 810,000 (4) 

Cash Incentive Bonus Payment

   $ 270,000 (5)    $ 405,000 (6) 

COBRA Premiums

   $ 35,778 (7)    $ 35,778 (7) 

Accelerated Equity Vesting (Time-Based)

   $ 2,887,260 (8)    $ 10,394,900 (9) 
  

 

 

   

 

 

 

Total:

   $ 3,733,038     $ 11,645,678  

Bahram Valamehr, Ph.D.

    

Cash Severance Payment

   $ 281,250 (10)    $ 375,000 (11) 

Cash Incentive Bonus Payment

     —       $ 131,250 (12) 

COBRA Premiums

   $ 10,501 (13)    $ 14,001 (14) 

Accelerated Equity Vesting (Time-Based)

   $ 1,544,053 (15)    $ 4,056,735 (16) 
  

 

 

   

 

 

 

Total:

   $ 1,835,804     $ 4,576,986  

Cindy R. Tahl, J.D.

    

Cash Severance Payment

   $ 281,250 (10)    $ 375,000 (11) 

Cash Incentive Bonus Payment

     —       $ 131,250 (12) 

COBRA Premiums

   $ 17,889 (13)    $ 23,852 (14) 

Accelerated Equity Vesting (Time-Based)

   $ 1,379,354 (15)    $ 3,283,473 (16) 
  

 

 

   

 

 

 

Total:

   $ 1,678,493     $ 3,813,575  

Daniel D. Shoemaker, Ph.D.

    

Cash Severance Payment

   $ 281,250 (10)    $ 375,000 (11) 

Cash Incentive Bonus Payment

     —       $ 131,250 (12) 

COBRA Premiums

   $ 17,889 (13)    $ 23,852 (14) 

Accelerated Equity Vesting (Time-Based)

   $ 1,349,370 (15)    $ 3,192,035 (16) 
  

 

 

   

 

 

 

Total:

   $ 1,648,509     $ 3,722,137  

 

(1)

“not in Connection with a Change in Control” means outside of the applicable Sale Event period.

(2)

“in Connection with a Change in Control” means within the applicable Sale Event period.

(3)

Represents 12 months’ base salary.

(4)

Represents 18 months’ base salary.

(5)

Represents 100% of annual target incentive compensation opportunity.

(6)

Represents 150% of annual target incentive compensation opportunity.

(7)

Represents 18 months of payment of COBRA premiums.

(8)

Represents the value of 12 months of acceleration of vesting of Mr. Wolchko’s unvested time-vesting equity awards.

(9)

Represents the value of full acceleration of vesting of Mr. Wolchko’s unvested time-vesting equity awards.

(10)

Represents 9 months’ base salary.

(11)

Represents 12 months’ base salary.

(12)

Represents 100% of annual target incentive compensation opportunity.

(13)

Represents 9 months of payment of COBRA premiums.

(14)

Represents 12 months of payment of COBRA premiums.

(15)

Represents the value of 9 months of acceleration of vesting of the NEO’s unvested time-vesting equity awards.

(16)

Represents the value of full acceleration of vesting of the NEO’s unvested time-vesting equity awards.

 

46


Table of Contents

Securities Authorized for Issuance under Equity Compensation Plans

The table below sets forth information regarding our equity compensation plans in effect as of December 31, 2019:

 

     Equity Compensation Plan Information  

Plan Category

   Number of
Securities
to be Issued
upon
Exercise of
Outstanding
Options,
Warrants
and Rights
(a)(3)
     Weighted
Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
(b)
     Number of
Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plan
(Excluding
Securities Reflected
in Column (a))
(c)
 

Equity compensation plans approved by security holders: 2007 Plan, 2013 Plan and 2013 Employee Stock Purchase Plan (the “2013 ESPP”)(1)

     8,766,904      $ 9.44        3,609,235 (4) 

Equity compensation plans not approved by security holders(2):

     560,838      $ 13.28        279,178  

Total

     9,327,742           3,888,413  

 

(1)

The number of shares of stock available for issuance under the 2013 Plan will be automatically increased each January 1, beginning on January 1, 2014, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31 or such lesser number as determined by the Compensation Committee of the Company’s Board of Directors.

(2)

Represents 560,838 shares subject to outstanding options granted to non-NEOs as of December 31, 2019 pursuant to the Inducement Plan and 279,178 shares remaining available for future issuance pursuant to the Inducement Plan.

(3)

Excludes 460,000 shares subject to RSUs outstanding as of December 31, 2019 that were issued under the 2013 Plan, and 60,000 shares subject to RSUs outstanding as of December 31, 2019 that were issued under the Inducement Plan.

(4)

This number includes 729,000 shares that are available for issuance under the 2013 ESPP and zero shares subject to purchase during the current purchase period. To date, the Company has not issued any shares pursuant to the 2013 ESPP.

 

47


Table of Contents

COMPENSATION COMMITTEE REPORT

The following Compensation Committee Report is not considered proxy solicitation material and is not deemed filed with the Securities and Exchange Commission. Notwithstanding anything to the contrary set forth in any of our filings made under the Securities Act of 1933 or the Exchange Act that might incorporate our filings under those statutes, the Compensation Committee Report shall not be incorporated by reference into any of our prior filings or into any of our future filings under those statutes.

The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors, and the Board of Directors approved, that the Compensation Discussion and Analysis be included in this Proxy Statement for the Annual Meeting and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

COMPENSATION COMMITTEE

JOHN D. MENDLEIN, PH.D., J.D., CHAIRMAN

TIMOTHY P. COUGHLIN

KARIN JOOSS, PH.D.

 

48


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than the compensation agreements and other arrangements described under “Compensation of Executive Officers” and the transactions described below, since the beginning of the fiscal year ended December 31, 2019, there has not been and there is not currently proposed, any transaction or series of similar transactions to which we were, or will be, a party in which the amount involved exceeded, or will exceed, $120,000 and in which any director, executive officer, holder of five percent or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of the foregoing persons, had, or will have, a direct or indirect material interest.

Public Offering

The following table summarizes the participation in our September 2019 public offering of our common stock by our directors, entities affiliated with our directors, or holders of five percent or more of our voting securities:

 

Name of Investor

   Shares of
Common
Stock
     Aggregate
Purchase
Price Paid
 

Entities affiliated with Redmile Group, LLC

     857,143      $ 15,000,002.50  

Indemnification Agreements

We have entered into indemnification agreements with or have contractual obligations to provide indemnification to each of our directors and intend to enter into such agreements with certain of our executive officers. These agreements require us, among other things, to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of the Company or that person’s status as a member of our Board of Directors to the maximum extent allowed under Delaware law.

Equity Incentive Awards

For information regarding stock option awards and other equity incentive awards granted to our NEOs and directors, see “Election of Directors—Director Compensation” and “Compensation of Executive Officers.”

Procedures for Approval of Related Person Transactions

The Audit Committee conducts an appropriate review of all related party transactions for potential conflict of interest situations on an ongoing basis, and the approval of the Audit Committee is required for all such transactions. The Audit Committee follows the policies and procedures set forth in our Related Person Transaction Policy in order to facilitate such review. The Related Person Transaction Policy is written.

 

49


Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of shares of our common stock by (i) each director, (ii) each named executive officer, (iii) all directors and executive officers as a group, and (iv) each person who we know beneficially owns more than 5% of our common stock as of January 27, 2020.

Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include shares of common stock issuable upon the exercise of stock options that are immediately exercisable or exercisable within 60 days after January 27, 2020, but excludes unvested stock options. Except as otherwise indicated, all of the shares reflected in the table are shares of common stock and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of January 27, 2020, as well as common stock issuable upon the vesting and settlement of RSU awards held by that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Shares beneficially owned include restricted shares of common stock acquired upon any early exercise of stock options granted under our 2007 Plan.

Percentage ownership calculations for beneficial ownership for each person or entity are based on 75,825,238 shares of our common stock outstanding as of January 27, 2020 and, except as set forth in footnote (4) below, do not take into account 13,972,745 shares of common stock issuable upon conversion of all 2,794,549 Preferred Shares outstanding on such date.

 

Name and Address of Beneficial Owner(1)

  Number of
Shares
Beneficially
Owned and
underlying
unvested
Restricted
Stock Units as
of January 27,
2020
    Number of Class A
Convertible
Preferred
Convertible,
Restricted
Stock Units Vesting
or
Stock Options
Exercisable Within
60 Days of
January 27,
2020
    Total     Percentage
of
Common
Stock
 

5% or Greater Stockholders:

       

Entities affiliated with Redmile Group, LLC(2)

    11,216,809       —         11,216,809       14.79

FMR LLC(3)

    6,885,583       —         6,885,583       9.08

Blackrock, Inc.(4)

    5,792,687       —         5,792,687       7.64

Victory Capital Management Inc.(5)

    4,229,154       —         4,229,154       5.58

All 5% Stockholders as a group

    28,124,233       —         28,124,233       46.88

Named Executive Officers and Directors:

       

J. Scott Wolchko(6)

    419,969       945,953       1,365,922       1.78

William H. Rastetter, Ph.D.(7)

    577,632       86,000       663,632       0.87

John D. Mendlein, Ph.D., J.D.(8)

    156,774       117,562       274,336       *  

Timothy P. Coughlin(9)

    56,390       109,076       165,466       *  

Michael Lee(2)(10)

    11,216,809     12,666       11,229,475       14.81

Robert S. Epstein. M.D., M.S.(11)

    —         106,000       106,000       *  

Amir Nashat, Sc.D.(12)

    1,139,783       86,000       1,225,783       1.61

Karin Jooss, Ph.D.(13)

    —         8,000       8,000       *  

Shefali Agarwal(14)

    —         5,333       5,333       *  

Bahram Valamehr, Ph.D.(15)

    86,058       430,447       516,505       *  

Cindy R. Tahl, J.D.(16)

    99,518       470,389       569,907       *  

Daniel D. Shoemaker, Ph.D.(17)

    143,091       597,549       740,640       *  

All executive officers and directors as a group (12 persons)(18)

    13,896,024      
2,974,975
 
    16,870,999       21.41

 

50


Table of Contents
*

Represents beneficial ownership of less than 1% of the shares of common stock.

(1)

Unless otherwise indicated, the address for each beneficial owner is c/o Fate Therapeutics, Inc., 3535 General Atomics Court, Suite 200, San Diego, CA 92121.

(2)

Based on Form 4 filed September 16, 2019, Redmile Group, LLC’s (“Redmile”) beneficial ownership includes 11,216,809 shares of common stock and 13,972,745 shares of common stock issuable upon conversion of 2,794,549 outstanding shares of Class A Convertible Preferred Stock (for which the terms of the Class A Convertible Preferred Stock provide that the holder is limited in the number of shares it may convert into such that it will not own in excess of 9.99% of the then outstanding shares of common stock) owned by certain investment limited partnerships, pooled investment vehicle(s), separately managed accounts, etc. for which Redmile serves as the general partner and/or investment manager. If Redmile elects pursuant to the Certificate of Designations of the Class A Convertible Preferred Stock to increase the percentage of shares of common stock that it, together with its affiliates, may beneficially own to cover the maximum number of shares of common stock issuable upon conversion of all outstanding shares of Class A Convertible Preferred Stock held by Redmile, then Redmile would beneficially own an aggregate of 25,189,554 shares of common stock, representing a beneficial ownership percentage of 28.05%. Redmile, as the general partner and/or investment manager to the limited partnerships, pooled investment vehicle(s), separately managed accounts, etc. and Jeremy Green, as the majority managing member and owner of Redmile, may therefore be deemed to beneficially own the shares owned by such investment limited partnerships, pooled investment vehicle(s), separately managed accounts, etc., insofar as they may be deemed to have the power to direct the voting or disposition of those shares. Each of Redmile and Jeremy Green disclaims beneficial ownership as to the shares, except to the extent of his or its pecuniary interests therein. The mailing address of the beneficial owners is One Letterman Drive, Bldg D, Ste D3-300, San Francisco, CA 94129.

(3)

Based on Schedule 13G/A filed on February 7, 2020. Abigail P. Johnson and FMR LLC, through its control of Fidelity Management & Research Company, and the funds each has sole power to dispose of the 6,885,583 shares owned by the funds. Abigail P. Johnson is a Director, the Chairman and the Chief Executive Officer of FMR LLC. Members of the family of Abigail P. Johnson are the predominant owners of FMR LLC and may be deemed to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (“Fidelity Funds”) advised by Fidelity Management & Research Company, a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Management & Research Company carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees. The mailing address of the beneficial owner is 245 Summer Street, Boston, MA 02210.

(4)

Based on Schedule 13G filed on February 5, 2020. The securities reported herein are beneficially owned by one or more subsidiaries of Blackrock, Inc., which include BlackRock Advisors, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Fund Advisors, BlackRock Asset Management Ireland Limited, BlackRock Institutional Trust Company, National Association, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, BlackRock (Netherlands) B.V., and BlackRock Investment Management (Australia) Limited. The mailing address of the beneficial owner is 55 East 52nd Street, New York, NY 10055.

(5)

Based on Schedule 13 filed on January 31, 2020. The mailing address of the beneficial owners is 4900 Tiedeman Rd. 4th Floor Brooklyn, OH 44144.

(6)

Consists of (i) 103,969 shares of common stock, (ii) 316,000 shares of RSUs and (iii) 945,953 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(7)

Consists of (i) 459,272 shares of common stock held by The Investment 2002 Trust dated November 11, 2001 (the “Investment Trust”), (ii) 118,360 shares of common stock held by The Rastetter Family Trust, dated September 2, 2010 (the “Rastetter Family Trust”), and (iii) options to purchase 86,000 shares of common stock that are exercisable within 60 days of January 27, 2020 held by Dr. Rastetter. William Rastetter is the sole trustee of the Investment Trust and has sole dispositive power over the shares held by this entity. William Rastetter and Marisa Gard Rastetter, as co-trustees of the Rastetter Family Trust, share dispositive power over the shares held by this entity.

(8)

Consists of (i) 156,774 shares of common stock and (ii) 117,562 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(9)

Consists of (i) 56,390 shares of common stock owned of record by Timothy P. Coughlin & Holly Coughlin as co-trustees of Coughlin Family Trust u/a DTD 12/07/2006 who share dispositive power over the shares held by this entity, and (ii) options to purchase 109,076 shares of common stock that are exercisable within 60 days of January 27, 2020 held by Mr. Coughlin.

(10)

Consists of 12,666 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

 

51


Table of Contents
(11)

Consists of 106,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(12)

Based on Form 4 filed on August 2, 2019 by entities affiliated with Polaris Venture Partners V, L.P. (“Polaris Ventures”), Polaris Venture Partners Entrepreneurs’ Fund V, L.P. (“Polaris Entrepreneurs’ Fund”), Polaris Venture Partners Founders’ Fund V, L.P. (“Polaris Founders’ Fund”) and Polaris Venture Partners Special Founders’ Fund V, L.P. (“Polaris Special Founders’ Fund”). Polaris Venture Management Co. V, L.L.C. (“PVM V”) is the general partner of each Polaris Ventures, Polaris Entrepreneurs’ Fund, Polaris Founders’ Fund and Polaris Special Founders’ Fund (collectively, the “Polaris Funds”). PVM V may be deemed to have sole power to vote and dispose of the shares held by the Polaris Funds. Each of Jonathan Flint and Terrance McGuire (collectively, the “Managing Members”) are the managing members of PVM V and may be deemed to share voting and dispositive power with respect to the shares held by the Polaris Funds. Dr. Nashat, a member of our Board of Directors, has a membership interest in PVM V and may be deemed to share voting and dispositive powers with respect to the shares held by the Polaris Fund by virtue of his relationship to PVMV V. Each of PVMV V, the Managing Members and Dr. Nashat disclaim beneficial ownership of all of the shares owned by the Polaris Funds, except to the extent of their respective and proportionate pecuniary interests therein. The address of the Polaris Funds is One Marina Park Drive, 10th Floor, Boston, Massachusetts 02210.

(13)

Consists of 8,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(14)

Consists of 5,333 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(15)

Consists of (i) 31,058 shares of common stock, (ii) 55,000 shares of RSUs and (iii) 430,447 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(16)

Consists of (i) 44,518 shares of common stock, (ii) 55,000 shares of RSUs and (iii) 470,389 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(17)

Consists of (i) 88,091 shares of common stock, (ii) 55,000 shares of RSUs and (iii) 597,549 shares of common stock issuable pursuant to stock options exercisable within 60 days of January 27, 2020.

(18)

Includes the number of shares beneficially owned by the executive officers and directors listed in the above table.

 

52


Table of Contents

The following Audit Committee Report is not considered proxy solicitation material and is not deemed filed with the Securities and Exchange Commission. Notwithstanding anything to the contrary set forth in any of the Company’s filings made under the Securities Act of 1933 or the Exchange Act that might incorporate filings made by the Company under those statutes, the Audit Committee Report shall not be incorporated by reference into any prior filings or into any future filings made by the Company under those statutes.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors has furnished this report concerning the independent audit of the Company’s financial statements. Each member of the Audit Committee meets the enhanced independence standards established by the Sarbanes-Oxley Act of 2002 and rulemaking of the SEC and the Nasdaq Stock Market regulations. A copy of the Audit Committee Charter is available on the Company’s website at http://www.fatetherapeutics.com.

The Audit Committee’s responsibilities include assisting the Board of Directors regarding the oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of the Company’s internal audit function and the independent registered public accounting firm.

In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the Company’s financial statements for the fiscal year ended December 31, 2019 with the Company’s management and Ernst & Young LLP. In addition, the Audit Committee has discussed with Ernst & Young LLP, with and without management present, their evaluation of the Company’s internal accounting controls and overall quality of the Company’s financial reporting. The Audit Committee also discussed with Ernst & Young LLP the matters required to be discussed by the Public Company Accounting Oversight Board and the SEC. The Audit Committee also received the written disclosures and the letter from Ernst & Young LLP required by the Public Company Accounting Oversight Board Rule 3526 and the Audit Committee discussed the independence of Ernst & Young LLP with that firm.

Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, that the audited financial statements be included in the Company’s Annual Report for the fiscal year ended December 31, 2019.

The Audit Committee and the Board of Directors have recommended the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2020.

AUDIT COMMITTEE

TIMOTHY P. COUGHLIN, CHAIRMAN

WILLIAM H. RASTETTER, PH.D.

ROBERT S. EPSTEIN, M.D., M.S.

 

53


Table of Contents

HOUSEHOLDING OF PROXY MATERIALS

We have made available a procedure approved by the SEC known as “householding.” This procedure allows multiple stockholders residing at the same address the convenience of receiving a single copy of our Notice, Annual Report on Form 10-K and proxy materials, as applicable. This allows us to save money by reducing the number of documents we must print and mail, and helps protect the environment as well.

Householding is available to both registered stockholders (i.e., those stockholders with certificates registered in their name) and street name holders (i.e., those stockholders who hold their shares through a brokerage).

Registered Stockholders

If you are a registered stockholder and would like to consent to a mailing of proxy materials and other stockholder information only to one account in your household, as identified by you, we will deliver or mail a single copy of our Annual Report and proxy materials for all registered stockholders residing at the same address. Your consent will be perpetual unless you revoke it, which you may do at any time by contacting the Householding Department of American Stock Transfer & Trust Company, LLC (“AST”), at One Embarcadero Center, Suite 530, San Francisco, CA 94111.

Registered stockholders who have not consented to householding will continue to receive copies of Annual Reports and proxy materials for each registered stockholder residing at the same address. As a registered stockholder, you may elect to participate in householding and receive only a single copy of Annual Reports or proxy statements for all registered stockholders residing at the same address by contacting AST as outlined above.

Street Name Holders

Stockholders who hold their shares through a brokerage may elect to participate in householding or revoke their consent to participate in householding by contacting their respective brokers.

 

54


Table of Contents

OTHER MATTERS

We are not aware of any matters that may come before the meeting other than those referred to in the Notice. If any other matter shall properly come before the Annual Meeting, however, the persons named in the accompanying proxy intend to vote all proxies in accordance with their best judgment.

Accompanying this Proxy Statement is our Annual Report. Copies of our Annual Report are available free of charge on our website at www.fatetherapeutics.com or you can request a copy free of charge by calling Investor Relations at (858) 875-1800 or sending an e-mail request to Investor Relations by accessing our website (www.fatetherapeutics.com), and then selecting “Contact Us.” Please include your contact information with the request.

By Order of the Board of Directors

Fate Therapeutics, Inc.

Sincerely,

/s/ J. Scott Wolchko

J. Scott Wolchko

President and Chief Executive Officer

San Diego, California

March 20, 2020

 

55


Table of Contents

LOGO

0 FATE THERAPEUTICS, INC. Proxy for Annual Meeting of Stockholders on May 1, 2020 Solicited on Behalf of the Board of Directors The undersigned hereby appoints Cindy R. Tahl as proxy, with the power to appoint her substitute, and hereby authorizes her to represent and vote, as designated on the reverse side hereof, all the shares of common stock of Fate Therapeutics, Inc. held of record by the undersigned at the close of business on March 6, 2020 at the Annual Meeting of Stockholders to be held May 1, 2020 at 8:00 a.m. Pacific Time at 3535 General Atomics Court, Suite 200, San Diego, California 92121, and at any adjournment thereof. (Continued and to be signed on the reverse side.) 1.1 14475


Table of Contents

LOGO

ANNUAL MEETING OF STOCKHOLDERS OF FATE THERAPEUTICS, INC. May 1, 2020 GO GREEN e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS: The Notice of Meeting, proxy statement and proxy card are available at http://www.astproxyportal.com/ast/18615/ Please sign, date and mail your proxy card in the envelope provided as soon as possible. Please detach along perforated line and mail in the envelope provided. 20330300000000000000 3 050120 PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x 1. Election of three class I directors: FOR ALL NOMINEES FOR WITHHOLD ALL NOMINEES AUTHORITY FOR (See ALL instructions EXCEPT below) O NOMINEES: Robert S. Epstein, M.D., M.S. O John D. O Mendlein, Ph.D., J.D. Karin Jooss, Ph.D. INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: To indicate change your the new address address on your in the account, address please space check above. the Please box at note right and that changes this method. to the registered name(s) on the account may not be submitted via 2. To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2020. 3. To approve, on a non-binding advisory basis, the compensation FOR AGAINST ABSTAIN of the Company’s named executive officers as disclosed in the proxy statement. 4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting. This proxy, when properly executed, will be voted as directed herein by the undersigned Stockholder. If no direction is made, this proxy will be voted “FOR ALL NOMINEES” in Proposal 1, and “FOR” Proposals 2 and 3. Signature of Stockholder Date: Signature of Stockholder Date: Note: title Please as such. sign exactly If the signer as your is a name corporation, or names please appear sign on full this corporate Proxy. When name shares by duly are authorized held jointly, officer, each giving holder full should title as sign. such. When If signer signing is a as partnership, executor, please administrator, sign in attorney, partnership trustee name or by guardian, authorized please person. give full


Table of Contents

LOGO

ANNUAL MEETING OF STOCKHOLDERS OF FATE THERAPEUTICS, INC. May 1, 2020 PROXY VOTING INSTRUCTIONS - Access “www.voteproxy.com” and follow the on-screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page. TELEPHONE—Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. Vote online/phone until 11:59 p.m. Eastern Time the day before the meeting. MAIL—Sign, date and mail your proxy card in the envelope provided as soon as possible. IN PERSON—You may vote your shares in person by attending the Annual Meeting. GO GREEN—e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. [Graphic Appears Here] COMPANY NUMBER ACCOUNT NUMBER The Notice of Meeting, proxy statement and proxy card are available at http://www.astproxyportal.com/ast/18615/ Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. 20330300000000000000 3 050120 THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR ALL NOMINEES”, AND “FOR” PROPOSALS 2 AND 3. x PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE FOR ALL NOMINEES FOR WITHHOLD ALL NOMINEES AUTHORITY FOR (See ALL instructions EXCEPT below) O Robert S. Epstein, M.D., M.S. O John D. Mendlein, Ph.D., J.D. O Karin Jooss, Ph.D. INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: indicate changes your to the new registered address name(s) in the address on the account space above. may not Please be submitted note that via this method. 2. To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2020. 3. To approve, on a non-binding advisory basis, the compensation FOR AGAINST ABSTAIN of the Company’s named executive officers as disclosed in the proxy statement. 4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting. This proxy, when properly executed, will be voted as directed herein by the undersigned Stockholder. If no direction is made, this proxy will be voted “FOR ALL NOMINEES” in Proposal 1, and “FOR” Proposals 2 and 3. Signature of Stockholder Date: Signature of Stockholder Date: Note: title Please as such. sign exactly If the signer as your is a name corporation, or names please appear sign on full this corporate Proxy. When name shares by duly are authorized held jointly, officer, each giving holder full should title as sign. such. When If signer signing is a as partnership, executor, please administrator, sign in attorney, partnership trustee name or by guardian, authorized please person. give full