def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by
the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
eResearch Technology, 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):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Per unit or other underlying value of transaction computed pursuant to Exchange Act
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
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Form, Schedule or Registration Statement No.: |
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eResearchTechnology,
Inc.
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be Held May 1,
2008
To the stockholders of eResearchTechnology, Inc.:
We will hold our annual meeting of stockholders at our executive
offices located at 30 South 17th Street, Philadelphia, PA
19103, at 10:00 A.M. on May 1, 2008 for the following
purposes:
1. To elect two directors to serve terms of three years and
until their successors are elected.
2. To ratify the selection by our audit committee of our
board of directors of the firm of KPMG LLP as our independent
registered public accountants for 2008.
3. To transact any other business that may properly come
before the meeting or any adjournment, postponement or
continuation thereof.
Stockholders of record as of the close of business on
March 4, 2008 are entitled to notice of and to vote at the
meeting.
We are mailing our 2007 annual report, which is not part of our
proxy soliciting material, to stockholders of record together
with this notice.
It is important that you vote your shares at our annual meeting.
Whether or not you plan to attend the meeting, please complete,
date and sign the enclosed proxy card and return it in the
enclosed envelope. Your proxy may be revoked at any time prior
to the time it is voted.
By order of the board of directors,
JOEL MORGANROTH, MD
Chairman of the board of directors
Philadelphia, Pennsylvania
March 11, 2008
eResearchTechnology,
Inc.
PROXY STATEMENT
These proxy materials are furnished in connection with
solicitation of proxies by the board of directors (the
board of directors or the board) of
eResearchTechnology, Inc., a Delaware corporation, for the
annual meeting of stockholders to be held at 10:00 A.M. on
Thursday, May 1, 2008 at our executive offices located at
30 South 17th Street, Philadelphia, Pennsylvania 19103, and
any adjournment, postponement or continuation of such meeting.
These proxy materials are being mailed to stockholders on or
about March 18, 2008. Unless the context indicates
otherwise, all references in this proxy statement to
we, us, our, eRT
or the Company mean eResearchTechnology, Inc.
CONTENTS
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OUR
ANNUAL MEETING
What
is the purpose of our annual meeting?
At our annual meeting, stockholders will act upon the matters
outlined in the notice of meeting on the cover page of this
proxy statement, including:
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the election of two directors; and
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the ratification of the selection by our audit committee of our
board of directors of the firm of KPMG LLP as independent
registered public accountants for 2008.
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In addition, our management will report on our performance
during 2007 and respond to appropriate questions from
stockholders.
What
should I do now?
You should first read this proxy statement carefully. After you
have decided how you wish to vote your shares, you should
complete, properly sign and return the accompanying proxy card
to us in the enclosed postage-paid return envelope. The proxies
will vote your shares as you direct. If your shares are
registered in your name, you may also attend our annual meeting
and either deliver your completed proxy in person or vote in
person. If your shares are held in street name and
you wish to vote them at the annual meeting, you will need to
obtain a signed proxy from the nominee in whose name your shares
are registered.
VOTING
Who is
entitled to vote at our annual meeting?
Holders of record of our common stock at the close of business
on the record date, March 4, 2008, are entitled to receive
notice of and to vote at our annual meeting, and any
adjournment, postponement or continuation of our annual meeting.
A complete alphabetical list of the record holders of our common
stock entitled to vote at our annual meeting will be available
for inspection at our principal executive offices during normal
business hours for any purpose germane to our annual meeting for
a period of ten days prior to the date of our annual meeting. As
of the record date, there were 50,663,969 outstanding shares of
our common stock.
What
are the voting rights of our stockholders?
Each share of common stock outstanding as of the record date is
entitled to one vote on each matter that may be brought before
the annual meeting.
Who
can attend our annual meeting?
All stockholders as of the record date, or their duly appointed
proxies, may attend our annual meeting. Even if you currently
plan to attend our annual meeting, we recommend that you also
submit your proxy so that your vote will be counted if you later
decide not to attend, or are unable to attend, our annual
meeting.
If you hold your shares in street name, that is,
through a broker or other nominee, you will need to bring a copy
of a brokerage statement reflecting your stock ownership as of
the record date and check in at the registration desk at our
annual meeting.
What
constitutes a quorum?
The presence at our annual meeting, in person or by proxy, of
the holders of a majority of the total votes entitled to be cast
by the holders of our common stock outstanding on the record
date on a particular issue will constitute a quorum for the
purpose of considering such matter. Proxies received but marked
as abstentions and broker non-votes will be included in the
calculation of the number of shares present at our annual
meeting.
2
How do
I vote in person?
If your shares are registered in your name and you attend our
annual meeting and wish to vote in person, we will provide you
with a ballot before voting commences at our annual meeting.
How do
I vote if my shares are held in street name?
If you are not a stockholder of record, but you are a
beneficial owner, meaning that your shares are
registered in a name other than your own, such as a
brokers name, you must either direct the holder of record
of your shares as to how you want to vote your shares or obtain
a form of proxy from the holder of record that you may then vote.
What
if I fail to instruct my broker?
Brokers normally have discretion to vote on routine matters,
such as director elections and ratification of the appointment
of independent registered public accounting firms, but not on
non-routine matters. Because the proposals identified in this
proxy statement involve only routine matters, your broker may
either use its discretion to vote your shares on the matters
described in this proxy statement or leave your shares un-voted.
We encourage you to provide voting instructions to your broker
by completing the voting instruction card or proxy that it sends
to you.
May I
change my vote after I return my proxy card?
Yes. Even after you have returned your proxy card, you may
change your vote at any time before your proxy is exercised by
filing either a notice of revocation or a duly executed proxy
bearing a later date with our secretary. The proxy holders will
not vote your proxy if you attend our annual meeting in person
and request the revocation of your proxy, although your
attendance at our annual meeting will not by itself revoke your
proxy.
What
are the recommendations of our board of directors?
Unless you provide contrary instructions on your proxy card, the
persons named as proxy holders on the proxy card will vote in
accordance with the recommendations of our board of directors.
Our board of directors recommends that you vote for the election
of our two nominees for director and for the ratification of the
selection by our audit committee of our board of directors of
the firm of KPMG LLP as independent registered public
accountants for 2008.
What
vote is required?
Election of Directors. Election of directors
will be by plurality of the votes cast. Accordingly, the two
candidates who receive the highest number of For
votes cast by the holders of our common stock will be elected as
directors. A properly executed proxy card marked Withhold
Authority will not be voted with respect to the nominee or
nominees so indicated although the votes represented by the
proxy card will be counted for the purposes of determining
whether a quorum is present. Our certificate of incorporation
and by-laws do not authorize cumulative voting in the election
of directors.
Other Matters. Any other proposal, including
the proposal to ratify the appointment of KPMG LLP as our
independent registered public accountants for 2008, will require
the affirmative vote of a majority of the votes that the holders
of shares present in person or by proxy are entitled to cast on
such proposal.
Abstentions and shares held by brokers and nominees as to which
we have not received voting instructions from the beneficial
owner of, or other person entitled to vote, such shares and as
to which the broker or nominee does not have discretionary
voting power, i.e., broker non-votes, are considered shares of
outstanding stock entitled to vote and such shares are counted
in determining whether a quorum or a majority is present. An
abstention or a broker non-vote will therefore have the
practical effect of voting against approval of any matter that
properly comes before our annual meeting other than the election
of directors because each abstention or broker non-vote will not
represent a vote for approval of the matter.
3
Who
will pay the costs of soliciting proxies on behalf of our board
of directors?
We will pay the entire cost of this proxy solicitation,
including preparing and mailing this proxy statement on behalf
of our board of directors. In addition, we may make arrangements
with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to the
beneficial owners of stock, and we may reimburse expenses for
doing so. Our directors, officers or regular employees may
solicit proxies in person or by telephone, but will not receive
additional compensation for doing so.
STOCK
OWNERSHIP
The Stock
Ownership of Our Principal Stockholders, Directors and Executive
Officers
The following table shows the amount and percentage, as of
March 4, 2008, of our common stock that is beneficially
owned by (i) each of our directors, director nominees and
named executive officers; (ii) our directors and executive
officers as a group; and (iii) each person whom we know to
own beneficially more than 5% of our common stock.
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Shares
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Beneficially
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Percentage
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Name of Beneficial Owner
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Owned
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Owned
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Blum Capital Partners, L.P.(1)
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7,428,769
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14.7
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Royce & Associates, LLC(2)
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5,356,650
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10.6
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RS Investment Management Co.LLC(3)
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3,961,132
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7.8
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Joel Morganroth, MD(4)(5)
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3,058,975
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5.9
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Columbia Wanger Asset Management, L.P.(6)
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3,000,000
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5.9
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Robert S. Brown(5)
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325,155
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Stephen S. Phillips(5)(7)
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277,700
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Jeffrey S. Litwin, MD(5)
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263,001
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David D. Gathman(5)
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97,200
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Sheldon M. Bonovitz(5)
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71,832
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Elam M. Hitchner(5)
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52,500
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Gerald A. Faich, MD, MPH(5)
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45,000
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Stephen M. Scheppmann(5)
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20,000
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Michael J. McKelvey, Ph.D(5)
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60,000
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Richard A. Baron(5)
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27,500
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John H. Park(8)
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All directors and executive officers as a
group(16 persons)(5)(8)
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4,755,606
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9.0
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Less than 1.0% |
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Blum Capital Partners, L.P. (Blum L.P.) is located
at 909 Montgomery Street, Suite 400, San Francisco,
California 94133. The information presented in the table and in
this footnote is as reported in a Schedule 13D/A filed on
January 3, 2008 by Blum L.P., a California limited
partnership; Richard C. Blum & Associates, Inc., a
California corporation; Blum Strategic GP II, L.L.C., a Delaware
limited liability company; Blum Strategic GP III, L.L.C., a
Delaware limited liability company; and Saddlepoint Partners GP,
L.L.C., a Delaware limited liability company. Blum L.P.s
principal business is acting as general partner for investment
partnerships and providing investment advisory services. Blum
L.P. is an investment advisor registered with the Securities and
Exchange Commission. John H. Park is one of our directors and is
a partner of Blum L.P. |
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Royce & Associates, LLC (Royce) is located
at 1414 Avenue of the Americas, New York, New York 10019. This
information is as reported by Royce in a Schedule 13G/A
dated January 28, 2008 filed with the Securities and
Exchange Commission. |
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RS Investment Management Co. LLC (RS Investment) is
a Delaware limited liability company with an address at 388
Market Street, Suite 1700, San Francisco, CA 94111.
The information presented in the table and in this footnote is
as reported in a Schedule 13G/A filed on February 8,
2008 with the Securities and Exchange Commission by RS
Investment, The Guardian Life Insurance Company of America
(Guardian Life), Guardian Investor Services LLC
(Guardian Investor) and RS Partners Fund (RS
Partners). RS Investment, Guardian Life and Guardian
Investor each reported beneficial ownership of these shares,
while RS Partners reported beneficial ownership of 3,235,047 of
these shares. RS Investment is a registered investment advisor
whose clients have the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of,
the reported shares. RS Partners is the only client of RS
Investment that holds more than 5% of the outstanding shares of
our common stock. Guardian Investor is the parent company of RS
Investment, and Guardian Life is the parent company of Guardian
Investor and RS Investment. |
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Dr. Morganroths address is 30 South 17th Street,
Philadelphia, Pennsylvania 19103. Includes 985,225 shares
directly owned by Dr. Morganroth, as to which he has sole
voting and dispositive power and 1,125,000 shares held in
three separate trusts, the trustee of which is
Dr. Morganroths wife and the beneficiaries of which
are Dr. Morganroths children, as to which
Dr. Morganroth disclaims beneficial ownership. The trusts
entered into 10b5-1 plans in the form of variable prepaid
forward agreements with an unaffiliated securities brokerage
firm with respect to such shares, all of which were pledged to
such firm to secure the trusts obligations under such
agreements. |
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Includes the following shares issuable with respect to options
granted pursuant to our 1996 Stock Option Plan and our Amended
and Restated 2003 Equity Incentive Plan, which are currently
exercisable or exercisable within 60 days after
March 4, 2008: |
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Name
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Number of Options
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Joel Morganroth, MD
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948,750
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Stephen S. Phillips
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90,000
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Robert S. Brown
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287,918
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Jeffrey S. Litwin, MD
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219,501
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David D. Gathman
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90,000
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Sheldon M. Bonovitz
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65,000
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Michael J. McKelvey, Ph.D.
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50,000
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Elam M. Hitchner
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45,000
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Gerald A. Faich, MD, MPH
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35,000
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Richard A. Baron
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27,500
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Stephen M. Scheppmann
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20,000
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All directors and executive officers as a group
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2,335,412
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Columbia Wanger Asset Management, L.P. (Columbia) is
located at 227 West Monroe Street, Suite 3000,
Chicago, Illinois 60606. The information presented in the table
and in this footnote is as reported in a Schedule 13G filed on
January 22, 2008 by Columbia and Columbia Acorn Trust filed
with the Securities and Exchange Commission. |
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Includes 2,700 shares owned by Mr. Phillips
minor children, for whom Mr. Phillips acts as custodian. |
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Excludes 7,428,769 shares owned by Blum Capital Partners,
L.P., as to which a board member, Mr. Park, is a partner.
See Footnote(1). |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, or
the Exchange Act, requires that our officers and directors, as
well as persons who own 10% or more of a class of our equity
securities, file reports of their ownership of our securities,
as well as statements of changes in such ownership, with us and
the SEC. Based upon written representations we received from our
officers, directors and 10% or greater stockholders, and our
review of the statements of beneficial ownership changes our
officers, directors and 10% or greater stockholders filed during
2007, we believe that all such filings required during 2007 were
made on a timely basis except for filings by two of
5
our officers. David Laky, our Senior Vice President, eClinical,
filed his Form 3 report 17 days late and filed two
Form 4 reports, each reporting one transaction,
15 days and one day late, respectively. Gregory Sadowski,
our Senior Vice President, ePRO, filed his Form 3 report
17 days late and filed one Form 4 report, reporting
one transaction 15 days late.
ELECTION
OF DIRECTORS
(Proposal No. 1)
Introduction
Our board of directors currently consists of nine members. Each
director is elected for a three-year term and until the
directors successor has been duly elected. The current
three-year terms of our directors expire in the years 2008, 2009
and 2010, respectively.
John H. Park will not be standing for reelection at the annual
meeting. Mr. Park has served as a director since 2005 and
has advised the governance and nominating committee that he does
not wish to stand for reelection due to obligations with other
boards on which he serves. Mr. Park has advised us that he
has great confidence in both the quality of management and the
current composition of the board. The governance and nominating
committee has concluded that the interests of the stockholders
would be appropriately represented by a board consisting of
eight members and, as a result, at the governance and nominating
committees recommendation, the board of directors decided
at its meeting on February 19, 2008 to reduce the number of
directors from nine to eight effective at the annual meeting.
At the recommendation of our governance and nominating
committee, our board of directors has invited Blum Capital, L.P.
(or Blum) to continue their involvement with the company
as non-voting observers at its meetings. Mr. Park and
Nadine Terman, a partner with Blum, who has regularly attended
our board meetings as an invited guest since April 2005, (or
other representative of Blum Capital, L.P. subject to our
reasonable approval) will be the initial designated observers to
the board. We believe that Mr. Park and Ms. Terman
have both provided meaningful input over the past three years in
their roles as a director and observer, respectively, and that
their continued presence at our board meetings will be valuable
to our board of directors. Blum has signed confidentiality
agreements regarding information that may be provided to them as
observers. Our board of directors retains the discretion to
modify this arrangement, including termination of their observer
status, at any time if it decides that a change is necessary or
desirable.
Nominating
Procedures
In accordance with the policy of our governance and nominating
committee, a stockholder desiring to propose a candidate for our
board of directors to our governance and nominating committee
should submit a written recommendation, together with
biographical information concerning the individual, to our
chairman of our governance and nominating committee at
eResearchTechnology, Inc., 30 South 17th Street,
Philadelphia, PA 19103. While recommendations may be submitted
for consideration at any time, we request that recommendations
be received prior to November 15 in any year for consideration
in connection with the nomination and election of directors at
our next annual meeting of stockholders. Once our governance and
nominating committee has identified a prospective nominee,
including candidates proposed by stockholders, it makes an
initial determination as to whether to conduct a full evaluation
of the candidate. This initial determination is based on
whatever information is provided to our governance and
nominating committee with the recommendation of the prospective
candidate, as well as our governance and nominating
committees own knowledge of the prospective candidate,
which may be supplemented by inquiries to the person making the
recommendation or others. The preliminary determination is based
primarily on the need for additional board members to fill
vacancies or expand the size of our board and the likelihood
that the prospective nominee can satisfy the evaluation factors
described below. If our governance and nominating committee
determines, in consultation with the chairman of our board and
other board members as appropriate, that additional
consideration is warranted, it will then evaluate the
prospective nominee against the standards and qualifications it
has established, including:
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Except as noted below, the director candidate must be
independent in accordance with Rule 4200(a)(15) of The
Nasdaq Stock Market, Inc. (Nasdaq) listing standards.
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6
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Our board of directors will consider appointing a limited number
of individuals who are not independent to serve as directors. We
currently have, and historically have had, directors who are or
were not independent in accordance with Rule 4200(a)(15) of
the Nasdaq listing standards. The consideration of these
individuals will include consideration of the items listed below
while also maintaining an appropriate level of management
service on our board of directors.
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Must have business experience that includes leading or occupying
a senior position in the operations of a significant business or
occupying a senior executive or advisory position in business
strategy, investing or mergers and acquisitions of a significant
business. While not required, experience in health care,
particularly pharmaceuticals, biotechnology or medical devices,
is preferred.
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Must have prior board experience. While public company board
experience is not required, it is highly preferred.
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Must have an excellent business and personal reputation for
accomplishment and integrity. Personal characteristics that
include a deliberative style and being a good listener,
articulate, direct, succinct and able to accept/respect other
board members opinions are preferred.
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Must have personal and business references from people upon
whose recommendations our governance and nominating committee
can rely.
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Must be able to commit adequate time to our board of directors
and our committees to attend at least 75% of board and committee
meetings in person and to be a significant contributor to each.
At a minimum, this means, on average, not less than one full day
every month for ordinary matters, a full day for regularly
scheduled quarterly meetings and occasional unscheduled hours of
accessibility. Living or working within 90 minutes of
Philadelphia is not required but is highly preferred.
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Our board of directors will also consider, in its choice of
candidates, the need for specific expertise needed for service
with its various committees such as the governance and
nominating, compensation and audit committees. Such expertise
would include experience serving on such committees on other
boards of directors or specific experience with the substantive
responsibilities of those committees.
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Our governance and nominating committee also considers such
other relevant factors as it deems appropriate, including the
current composition of our boards committees, expertise,
diversity and the evaluations of other prospective nominees.
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In connection with the evaluation of prospective nominees, our
governance and nominating committee determines whether to
interview the prospective nominee. If warranted, one or more
members of our governance and nominating committee, and others
as appropriate, interview prospective nominees in person or by
telephone. After completing this evaluation and interview, our
governance and nominating committee makes a recommendation to
the full board as to the persons who should be nominated by our
board, and our board determines the nominees after considering
the recommendation and report of our governance and nominating
committee. We do not currently employ an executive search firm,
or pay a fee to any other third party, to locate qualified
candidates for director positions.
In addition to evaluating nominees to fill vacancies, the
governance and nominating committee annually reviews incumbent
directors whose terms are expiring. The governance and
nominating committee solicits feedback from members of the board
and members of management in making its recommendations
regarding board nominees, whether they be incumbent directors or
new nominees.
Action by
Our Governance and Nominating Committee
Our governance and nominating committee met on December 20,
2007 for the purpose of evaluating the performance and
qualifications of the members of our board of directors and
nominating candidates for election as directors by our
stockholders at our annual meeting. After considering the
performance and qualifications of the members of our board of
directors during 2007, our governance and nominating committee
nominated the persons named below. On February 19, 2008,
our board of directors accepted the report of our governance and
nominating committee and approved the nomination by our
governance and nominating committee of the persons named below.
7
Candidates
for Election
Two directors are to be elected at our annual meeting. The
nominees for election as directors are Joel Morganroth, MD and
Stephen S. Phillips, both of whom currently serve on our board.
Unless otherwise instructed, the proxies solicited by our board
of directors will be voted for the election of the two nominees.
In the event either nominee is unable or declines to serve as a
director at the time of our annual meeting, the proxies intend
to vote for a substitute nominee designated by our board of
directors. We have no reason to believe that either nominee is
unable or will decline to serve as a director if elected. Any
vacancy occurring on our board of directors for any reason may
be filled by a majority of our directors then in office until
the expiration of the term of the class of directors in which
the vacancy exists.
OUR BOARD
OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ELECTION OF DR. MORGANROTH AND MR. PHILLIPS.
The names of our nominees for director and directors who will
continue in office after our annual meeting until the expiration
of their respective terms, together with certain information
regarding them, are as follows:
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Year of
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Age as of
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Expiration of
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Name
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3/1/08
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Term as Director
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Nominees for Election
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Joel Morganroth, MD
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62
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2011
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Stephen S. Phillips
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62
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2011
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Directors Continuing in Office
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Sheldon M. Bonovitz
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70
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2010
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Gerald A. Faich, MD, MPH
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65
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2010
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David D. Gathman
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60
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2009
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Elam M. Hitchner
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61
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2010
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Michael J. McKelvey, Ph.D
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55
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2009
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Stephen M. Scheppmann
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52
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2009
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Dr. Morganroth has been nominated by our board of
directors, with the recommendation of our governance and
nominating committee, to serve as a member of our board for a
three-year term beginning in April 2008. Dr. Morganroth has
served as the chairman of our board of directors since 1999 and
a member of our board of directors since 1997. He has served as
our Chief Scientific Officer since April 2006. Prior to that, he
served as our Chief Scientist from March 2001 to December 2005
and our Chief Executive Officer from 1993 to March 2001. In
addition, Dr. Morganroth has consulted for us since 1977.
Dr. Morganroth is a globally recognized cardiologist and
clinical researcher. Dr. Morganroth served for over ten
years as an external Medical Review Officer/Expert for the
U.S. Food and Drug Administration.
Mr. Phillips has been nominated by our board of
directors, with the recommendation of our governance and
nominating committee, to serve as a member of our board for a
three-year term beginning in April 2008. Mr. Phillips has
served on our board of directors since August 2002.
Mr. Phillips has served as Special Counsel to Medtronic,
Inc. since 1999. Mr. Phillips was the Executive Vice
President, General Counsel and Secretary of Sofamor Danek Group,
Inc., a manufacturer of spinal implants and cranial navigation
systems used in neurosurgery, before its acquisition in 1999 by
Medtronic. Mr. Phillips serves on the advisory boards of
several privately-held companies.
Mr. Bonovitz has served on our board of directors
since 1999. Mr. Bonovitz is Chairman Emeritus of and of
counsel to Duane Morris LLP, having stepped down as Chairman and
Chief Executive Officer in January 2008 after serving ten years
in those positions. Mr. Bonovitz is also a director of
Comcast Corporation. In addition, he serves on the advisory
boards of several privately- held companies and he serves on the
board of Trustees of The Curtis Institute of Music, The
Philadelphia Museum of Art and The Barnes Foundation. He also
serves on the Boards of The Free Library of Philadelphia
Foundation and The Philadelphia Orchestra.
8
Dr. Faich has served on our board of directors since
2004. Dr. Faich has served as Senior Vice President of UBC
Epidemiology and Risk Management since June 2005. He served as
the President of Pharmaceutical Safety Assessments, a consulting
firm, from 1994 until June 2005. Dr. Faich co-chaired the
original CIOMS International Adverse Reaction Working Group and
was a founding board member of the International Society of
Pharmacoepidemiology. Dr. Faich is a Fellow of the American
Colleges of Physicians, Preventive Medicine and Epidemiology and
has authored over 90 scientific papers and received numerous
awards. He is currently an Adjunct Scholar for the Center for
Clinical Epidemiology at the University of Pennsylvania.
Mr. Gathman has served on our board of directors
since 2003. Since February 2008, Mr. Gathman has served as
the Chief Financial Officer of SunGard Public Sector Group, Inc.
a wholly-owned subsidiary of SunGard Data Systems, Inc. From May
2004 to January 2007, he served as Senior Vice President and
Chief Financial Officer for SunGard Higher Education, Inc.
Mr. Gathman provided consulting services for Targeted
Diagnostics & Therapeutics, Inc. from December 2003
until May 2004 and served as its Vice President and Chief
Financial Officer from May 2002 until December 2003.
Mr. Hitchner has served on our board of directors
since 2004. Mr. Hitchner was a partner in the law firm of
Pepper Hamilton LLP from May 1992 to June 1999, and returned to
the firm in January 2001 as a partner and, subsequently, counsel
through 2004. Commencing in 2005, Mr. Hitchner began
providing consulting services to the firm. Mr. Hitchner is
also a director of Mothers Work, Inc., for which he has served
on the audit committee since 1993, including as chairman of that
committee since 2000.
Dr. McKelvey has served as our President and Chief
Executive Officer since June 2006 and has served on our board of
directors since July 2006. Prior to joining us,
Dr. McKelvey was employed by PAREXEL International, one of
the largest biopharmaceutical outsourcing organizations in the
world, for five years where he served as Corporate Senior Vice
President, Clinical Research Services.
Mr. Scheppmann has served on our board of directors
since January 2006. Since September 2007, Mr. Scheppmann
has served as Executive Vice President and Chief Financial
Officer of Teradata Corporation, a data warehousing and
enterprise analytics company. From May 2006 until September
2007, he served as Chief Financial Officer for Per-Se
Technologies, Inc., a healthcare business services and
information technology company and a wholly-owned subsidiary of
McKesson Corporation. From May 2000 to May 2006,
Mr. Scheppmann served as Executive Vice President and Chief
Financial Officer for NOVA Information Systems, Inc., a leading
payments processing company. Mr. Scheppmann is a certified
public accountant.
There are no family relationships among our directors, our
director nominees and our executive officers.
CORPORATE
GOVERNANCE MATTERS
Our Board
of Directors and Its Committees
General
Our board of directors held a total of eleven meetings during
2007, including the opportunity at the four regularly scheduled
quarterly meetings to meet in executive session. Each director
attended more than 75% of the meetings of our board of directors
and of any committee of which he was a member. Our board has not
adopted a formal policy regarding board member attendance at our
annual meeting of stockholders, but our board highly encourages
all board members to attend such meetings. In April 2007, all
members of our board standing for reelection or continuing in
office were present at the annual meeting of stockholders.
Our board of directors has a compensation committee, an audit
committee and a governance and nominating committee.
Compensation
Committee
Our compensation committee is currently composed of four members
of our board of directors, all of whom, in the judgment of our
board, (i) are independent in accordance with
Rule 4200(a)(15) of the listing standards of Nasdaq;
(ii) are Non-employee Directors for purposes of
Rule 16b-3
under the Securities Exchange Act of 1934,
9
as amended (the Exchange Act); and
(iii) satisfy the requirements of an outside
director for purposes of Section 162(m) of the
Internal Revenue Code. Our compensation committee is primarily
responsible for determining or making recommendations to our
board of directors regarding the compensation payable to our
executive officers and directors. In addition, our compensation
committee is responsible for making recommendations to our board
of directors regarding additions, deletions and alterations with
respect to the various employee benefit plans and other fringe
benefits that we provide. Our compensation committee also is
primarily responsible for administering our equity compensation
plans and making determinations or recommendations to our board
of directors with respect to awards of equity compensation to
our employees and the terms and conditions on which the equity
compensation is awarded. See Executive
Compensation Compensation Discussion and
Analysis for further information. Our compensation
committee has the responsibility and authority described in its
written charter, which has been adopted and approved by our
board of directors and made available on our website at
www.ert.com. Our compensation committee, which currently
consists of Dr. Faich, Mr. Hitchner, Mr. Park and
Mr. Phillips, held seven meetings during 2007.
Mr. Hitchner serves as chairman of our compensation
committee.
Audit
Committee
Our audit committee, which was established in accordance with
Section 3(a)(58)(A) of the Exchange Act, is currently
composed of three members of our board of directors, all of
whom, in the judgment of our board, are independent in
accordance with Rule 4200(a)(15) of the Nasdaq listing
standards and satisfy the criteria in Rule 4350(d)(2) of
the Nasdaq listing standards. Our audit committee is primarily
responsible for engaging and approving the services performed by
our independent registered public accountants and reviewing and
evaluating our accounting principles and reporting practices and
our system of internal accounting controls. Our audit committee
has the responsibility and authority described in its written
charter, which has been adopted and approved by our board of
directors and made available on our website at www.ert.com. Our
audit committee, which currently consists of Mr. Gathman,
Mr. Hitchner and Mr. Scheppmann, held nine meetings
during 2007. Mr. Scheppmann serves as the chairman of our
audit committee.
Governance
and Nominating Committee
Our governance and nominating committee is currently composed of
four members of our board of directors, all of whom, in the
judgment of our board, are independent in accordance with
Rule 4200(a)(15) of the Nasdaq listing standards. Our
governance and nominating committee is primarily responsible for
recommending to our board governance policies for our Company,
the appropriate size, function and needs of our board to perform
that governance and qualified candidates for our board. Our
governance and nominating committee has the responsibility and
authority described in its written charter, which has been
adopted and approved by our board and made available on our
website at www.ert.com. Our governance and nominating
committee, which currently consists of Mr. Bonovitz,
Mr. Hitchner, Mr. Park and Mr. Phillips, held
five meetings during 2007. Mr. Phillips serves as chairman
of our governance and nominating committee.
Compensation
Committee Interlocks and Insider Participation
During 2007, our compensation committee was composed of
Messrs. Hitchner, Park and Phillips and Dr. Faich.
None of these individuals is a current or former officer or
employee of our Company or any of our subsidiaries, nor had they
had any other relationship requiring disclosure by us under
Item 404 of
Regulation S-K.
Director
Independence
Our board recognizes the importance of director independence. We
are subject to the listing standards of Nasdaq, which require
that a majority of our directors be independent. Under the
Nasdaq listing standards, a director is independent if he is not
an executive officer or employee of our Company and does not
have any relationship that, in the opinion of our board of
directors, would interfere with his exercise of independent
judgment in carrying out his responsibilities as a director. The
listing standards also identify a variety of relationships that,
if they exist, prevent a director from being considered
independent.
10
Our board has determined that seven of our nine directors are
independent under these standards. The independent directors are
as follows: Sheldon M. Bonovitz, Gerald A. Faich, David D.
Gathman, Elam M. Hitchner, John H. Park, Stephen S. Phillips and
Stephen M. Scheppmann. The other two directors are Michael J.
McKelvey, Ph.D, our current President and CEO, and Joel
Morganroth, MD, our Chief Scientific Officer who currently
serves as chairman of our board. In making the determination of
independence, we considered Mr. Bonovitzs status as
Chairman and Chief Executive Officer of the law firm of Duane
Morris LLP during 2007, which performs legal services for us,
but concluded that this relationship did not interfere with his
exercise of independent judgment.
In addition, each of the directors serving on the audit,
compensation and governance and nominating committees is one of
the independent directors noted above.
On an annual basis, each director and executive officer is
obligated to complete a director and officer questionnaire which
requires disclosure of any transactions with us in which the
director or executive officer, or any member of his or her
immediate family, has a direct or indirect material interest.
Directors have an affirmative obligation to notify our board of
any material changes in their relationships, which may affect
their independence status as determined by our board. The
obligation encompasses all relationships between directors and
us or members of senior management and their affiliates.
Code of
Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct that
applies to our Chief Executive Officer, Chief Financial Officer
(who serves as our principal financial and principal accounting
officer) and other employees and directors. The Code of Ethics
and Business Conduct is available on our website at
www.ert.com. We intend to post amendments to or waivers
of our Code of Ethics and Business Conduct, to the extent
applicable to our Chief Executive Officer and Chief Financial
Officer, at that location on our website.
Stockholder
Communications with our Board of Directors
Stockholders who wish to communicate with our board of directors
or with a particular director may send a letter to our secretary
at eResearchTechnology, Inc., 30 South 17th Street, Eighth
Floor, Philadelphia, PA 19103 or post a question via
www.ethicspoint.com. Any communication should clearly
specify that it is intended to be made to the entire board of
directors or to one or more particular director(s). Our audit
committee reviews all such correspondence submitted via
www.ethicspoint.com. Our secretary reviews all other
correspondence and will forward to our board of directors a
summary of all such correspondence and copies of all
correspondence that, in the opinion of the secretary, deals with
the functions of our board of directors or committees thereof or
that he otherwise determines requires their attention. If there
is a question regarding an item of correspondence and the
distribution of the communication to a member of our board, the
secretary will consult with the chairman of our board or the
chairman of the applicable committee to establish the
appropriate distribution. Directors may at any time review a log
of all correspondence received by us that is addressed to
members of our board of directors and request copies of any such
correspondence. Concerns relating to accounting, internal
accounting controls or auditing matters are immediately brought
to the attention of the chairman of our audit committee and
handled in accordance with procedures established by our audit
committee with respect to such matters. A copy of our audit
committees procedures for the submission and handling of
complaints or concerns regarding accounting, internal accounting
controls or auditing matters is available within our Code of
Ethics and Business Conduct on our website at www.ert.com.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following discussion and analysis focuses on the 2007
compensation of our principal executive and financial officers,
together with our three other most highly compensated executive
officers. Throughout this proxy statement, we refer to these
five individuals as our named executive officers. You should
read this discussion and analysis together with the compensation
tables and related disclosures set forth below. This discussion
contains forward-looking statements that are based on our
current plans, considerations, expectations and determinations
11
regarding future compensation programs. Actual compensation
programs that we adopt may differ materially from currently
planned programs as summarized in this discussion.
Our
Compensation Philosophy
Our compensation philosophy was developed to balance and align
the goals of executive management and our stockholders. The
program is intended to attract, motivate, reward and retain the
management talent required to achieve our corporate objectives
and increase stockholder value, while at the same time making
the most efficient use of stockholder resources. To this end,
the compensation philosophy puts a strong emphasis on pay for
performance, to correlate the long-term growth of stockholder
value with managements most significant compensation
opportunities.
Review
of External Data
Periodically, as part of the annual review of compensation, we
have engaged third party compensation consulting firms to
establish guidelines for our executive officers. During 2006,
the compensation committee engaged Mercer Human Resource
Consulting LLC (Mercer), an outside global human
resources consulting firm, to review our executive officer
compensation policies and the material terms of the related
employment agreements. Mercer compared the compensation of our
executive officers with two different sources: (1) an
established group of peer companies using publicly available
proxy statement data to measure compensation value that Mercer
developed for the purpose of this survey, and (2) an
analysis of broader published survey data based on functional
responsibility. The companies Mercer included in our peer group
were:
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Advisory Board Co.
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PDI Inc
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Albany Molecular Research Inc.
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Phase Forward Inc.
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Alfacell Corp
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PRA International
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Bio Imaging Technologies, Inc.
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SYMYX Technologies Inc.
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Bio Reference Labs
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Tripos Inc.
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Kendle International, Inc.
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Vital Images Inc.
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Our peer group consisted of 12 public Contract Research
Organizations and other companies that had sales in the range of
those of the company for 2006. These sales ranged from
$52 million to $326 million. They also had net profit
margin and market value in a similar range to that of the
company.
Mercer developed the survey data using two proprietary databases
(the Mercer Americas Executive Remuneration Database and the
Watson Wyatt Data Services Report on Top Management) and a
library of published compensation sources, from which it
compiled comparative compensation data for each of our named
executive officers. For purposes of this discussion, we refer to
the data Mercer developed from its review of the peer group
compensation information and the survey data as market data.
Mercer reviewed the publicly available proxy data for our peer
group to compare the compensation of our executive officers to
their individual respective peers in the peer group. Mercer also
used the survey data to make compensation comparisons for each
executive in the study. In each case, Mercer analyzed the
compensation elements that comprise the primary components of
the compensation for our named executive officers as discussed
further below: base salary, short-term non-equity incentive
compensation (which, together with base salary, Mercer refers to
as total cash compensation) and long-term equity incentives.
Mercer analyzed this data for the three-year period 2003 to 2005
using the following financial metrics: sales percent change,
EBITDA growth, return on invested capital, gross profit margin
and total stockholder return. Mercer collected this data at the
25th, 50th and 75th percentiles and compared the
officer positions to survey positions based upon similar
position responsibilities. Where necessary, Mercer made
adjustments to the market data to account for differences in the
complexity and scope of our comparable executive officers
position. Mercer advised us that these adjustments were
consistent with its typical practice.
The results of both of these analyses indicated that our
executive officers were generally in the range between the
median and the 75th percentile of our peer group with
respect to total cash compensation. For the peer group review,
most executive officers were above the median but below the
75th percentile. For the survey data, the target
12
total cash compensation was generally above the 75% target, with
two positions the President and CEO and the
Executive Vice President and CFO being below the 75%
target. In addition, Mercer reported that the compensation of
our executive officers was comparable at the same percentile
level when normalized for the financial metrics presented above.
Based on these results, our Compensation Committee concluded
that the total cash compensation of our named executive officers
was competitive with our peer group.
The information provided during this process helped establish
guidelines for compensation within the performance levels of our
company. For 2007, our compensation committee relied upon the
prior Mercer analysis to conclude that no adjustments to
compensation levels were necessary to respond to market
conditions. Accordingly, we set our compensation levels for our
named executive officers at levels consistent with the prior
year, with an increase commensurate with both our performance
and that of the individual executive officer.
Elements
of Our Compensation Program
In 2007, the basic components of named executive officer
compensation consisted of base salary, a cash incentive bonus
plan with both Company and individual performance objectives and
long-term incentives in the form of stock options.
Dr. Morganroths compensation included each of these
components and, in addition, consisted of consulting fees
relating to Dr. Morganroths initiation of a company
consulting practice. For more information specific compensation
elements for each executive officer see
Compensation of our Named Executive
Officers below.
The relative weighting of each of the three basic components is
designed to reward both short-term and long-term performance.
Excluding Dr Morganroths consulting fees, base salary for
2007 represented approximately 50% to 55% of total compensation.
For 2007, the cash incentive plan component represented
approximately 16% to 22% of total compensation and the long-term
equity component was approximately 16% to 25% of total annual
compensation.
Total Cash Compensation. This is a combination
of both base salary plus annual cash incentives. We face
competition for qualified employees, and our compensation
committee believes it is important that executive officer
compensation levels be competitive with contract research
organizations and other comparable companies. We target the
total cash compensation pay at the 75th percentile of our
peer group. The total cash compensation is based upon the
outcome of the various elements of the collection of external
data described above. The base salary and incentive compensation
is set based on the benchmarks contained in the sources cited
above for the position as based upon the criteria established in
the section called Review of External Data above.
Incentive Compensation Program. This along
with the total cash compensation is an element of the total
direct compensation for each executive. In 2007, we continued to
offer a non-equity incentive compensation program permitting our
executive officers to earn cash bonuses based on achieving
targeted financial goals as well as individual performance. We
designed this program to reward participants for achieving
financial, operating and individual goals that are key to the
success of our business and aligned with the near- and long-term
interests of our stockholders. Each executive officer was
eligible to participate in the program. This element of the
compensation program plus base salary, or total cash
compensation, are targeted at the 75th percentile for our
peer group.
At the beginning of each fiscal year, our board, at the
recommendation of the compensation committee, working with our
chief executive officer, sets the quantitative performance goals
under our bonus plan, sets goals for individual performance and
finalizes each participants bonus opportunity. For 2007,
we set the bonus opportunities for all of our named executive
officers at 50% of base salary based the market data described
above and at the recommendation of our chief executive officer,
with which our compensation committee concurred. Each named
executive officer has the potential to achieve between 50% and
150% of this opportunity, depending upon the extent to which the
various performance targets and objectives described below were
achieved or exceeded.
Using the same process, we identified revenues and pre-tax
income as the primary quantitative performance measures because
these were the two key measures which would influence our
financial performance and on which we wanted our named executive
officers to focus. Given the importance of managing our business
to the bottom line profit goals, we gave greater weight to the
pre-tax income target than to the revenue target. In addition,
for each named executive officer, with the exception of
Mr. Brown, 20% of the bonus opportunity was tied to
individual
13
performance. These individual performance objectives generally
included up to four specific objectives based on the
officers area of responsibility as well as a subjective
assessment of the officers overall performance. For
executives with responsibilities which involve selling efforts,
including Dr. Litwin and Mr. Brown, a portion of their
bonus is tied to the achievement of predetermined sales metrics,
including the value and mix of new contracts into which we enter
with customers during the applicable bonus period
(bookings).
The following table summarizes the bonus opportunity and related
performance targets we set in 2007 for each of our named
executive officers:
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Percentage of Bonus Opportunity Based on
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Bonus
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Pre-Tax
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Individual
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Name
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Opportunity
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Revenues
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Income
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Bookings
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Performance
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Michael J. McKelvey, Ph.D.
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$
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185,000
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20
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%
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60
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%
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20
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%
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Richard A. Baron
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137,500
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20
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60
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20
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Joel Morganroth, M.D.
|
|
|
94,640
|
|
|
|
20
|
|
|
|
60
|
|
|
|
|
|
|
|
20
|
|
Jeffrey J. Litwin, M.D.
|
|
|
130,000
|
|
|
|
25
|
|
|
|
35
|
|
|
|
20
|
%
|
|
|
20
|
|
Robert S. Brown
|
|
|
117,500
|
|
|
|
30
|
|
|
|
30
|
|
|
|
40
|
|
|
|
|
|
We establish financial and operating performance targets that we
believe are reasonably attainable based on information available
to us when the targets are approved. If our named executive
officers and we perform to as we expect, we anticipate that
participants will achieve 100% of their bonus opportunity.
Bonuses are payable based on the extent to which targets are
achieved. Bonuses are normally payable within ninety days after
the end of the year in which the bonuses are earned.
Additionally, if minimum requirements for sales and pre-tax
income are not met then no bonuses are paid for the year for any
bonus categories. Our compensation committee retains the
discretion to adjust the amount of any bonus paid under the
plan, regardless of the extent to which any of the performance
targets is achieved.
Long-Term Incentive in Form of Stock
Options. Our compensation committee believes that
appropriate management ownership of our stock is an effective
tool to assist in the process of building stockholder value.
Additionally, we use this compensation tool to assist in
aligning the interests of management and our stockholders. Our
compensation committee has used stock options, rather than other
forms of long-term incentives, because they create value for the
executive only if stockholder value is increased through an
increased share price. In the future, due to changes in the
stock option plan as approved by shareholders in 2007,
compensation may include stock appreciation rights, restricted
stock or other long term performance awards as permitted by the
Amended and Restated 2003 Equity Incentive Plan. Awards of
options are typically approved in February of each year, with
the grant date being set as the second business day following
our announcement of results of operations for the preceding year
in order to make sure that the exercise price takes into account
any impact of the public disclosure of information regarding our
results of operations for the prior year. In addition, new
executive officers may receive a grant of long-term equity
incentives as part of their negotiated compensation package.
Options are granted at a per share exercise price equal to the
market price of our common stock on the date of grant. All
options typically become exercisable over four years, in equal
annual increments beginning one year after the date of grant,
contingent upon the officers continued employment with us.
14
Existing
Equity Compensation Plans
The following table presents certain information as of
December 31, 2007 regarding our equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to be
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Number of Securities
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Remaining Available for
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Future Issuance
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,109,611
|
|
|
$
|
8.44
|
|
|
|
3,928,453
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,109,611
|
|
|
$
|
8.44
|
|
|
|
3,928,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Subsequent to December 31, 2007, the Committee granted
additional options such that, as of the date of this proxy
statement, 3,254,353 shares remain available for future
issuance. |
Other Benefits. Our named executive officers
also participated in benefit programs in which all of our
employees, or all employees in certain categories of employees
that included our named executive officers, were eligible to
participate. All employees in the United States were eligible to
participate in the 401K Retirement Savings Plan (the 401K
Plan). The 401K Plan is a tax-qualified retirement savings
plan pursuant to which all United States-based employees were
able to contribute the lesser of up to 25%, or in the case of
highly compensated employees, which would include all of our
named executive officers, up to 9% of their annual salary or the
limit prescribed by the Internal Revenue Service to the 401K
Plan on a before-tax basis. We matched 50%, of the first 6% of
pay that was contributed to the 401K Plan. Except for
Dr. Morganroth, all of our named executive officers
participated in the 401K Plan. All employee contributions to the
401K Plan vested immediately upon contribution and all Company
matching contributions vest at a rate of 25% per year such that
they are fully-vested after four years of service with us. All
employees at the level of vice president and higher, which
included all of our named executive officers, received a monthly
car allowance of $770 per month except for Dr. McKelvey and
Dr. Morganroth, who each received a monthly car allowance
of $1,000. All employees are offered life insurance at two times
their respective salary, up to a maximum of $450,000, for which
we pay the premium which, in 2007, amounted to $0.13 per month
per $1,000 of coverage for each employee. All employees are
offered long-term disability insurance at 60% of monthly salary
up to a maximum benefit of $10,000, for which we pay the premium
which, in 2007 amounted to $0.17 per month per $100 of monthly
salary. All employees are offered short-term disability
insurance at 60% of weekly salary up to a maximum benefit of
$2,000, for which we pay 55% of the premium which, in 2007
amounted to $0.30 per month per $10 of coverage. All employees
are offered health insurance for which we pay a portion of the
premium. We have entered into employment agreements with all of
our executive officers which include change of control and
severance payments under certain circumstances that are designed
to promote stability and continuity of senior management. For
further information regarding amounts paid or payable under such
agreements for the named executive officers, see
Potential Payments Upon Termination or Change
of Control.
The
Role of Our Compensation Committee and Chief Executive
Officer
The compensation committee of our board of directors has the
authority to determine, but may also recommend to our board for
a final decision, the compensation for our executive officers,
including our named executive officers. Our compensation
committee also makes recommendations to our board of directors
concerning compensation and benefit policies for our Company. In
establishing or recommending compensation levels and policy, it
is the belief of our compensation committee and our board that
the most effective compensation program is one that provides
executives competitive base salaries and significant incentives
to achieve both current and long-term strategic business goals.
15
Both our chief executive officer and our compensation committee
have utilized outside compensation consultants to assist in
establishing base-lines for salary, bonuses and non-cash
compensation for the executive officers. See
Review of External Data for more
information about the role of compensation consultants in
developing our compensation programs. Our chief executive
officer annually reviews the performance of each named executive
officer (other than his performance and that of our chairman and
chief scientific officer, which are reviewed by our compensation
committee). Our chief executive officer presents his conclusions
and recommendations based on these reviews, including his
proposed salary adjustments, incentive compensation and annual
equity award amounts, to our compensation committee. After our
compensation committee reviews the recommendations with the
chief executive officer, our compensation committee exercises
its discretion in accepting or modifying any recommended
adjustments or awards to executives and either makes a final
determination regarding the compensation of our executive
officers or delivers its recommendations to our board for final
determination.
The aforementioned process generally is performed annually in
the December through February time frame. Toward the end of this
time-frame, our compensation committee also assesses the extent
to which the performance objectives under the bonus plan have
been achieved for the prior year and either determines or makes
a recommendation to the board with respect to the bonus to be
paid, if any, for the prior year. As part of this process, the
compensation committee reviews the extent to which our chief
executive officer achieved his individual performance goals, and
our chief executive officer reports to our compensation
committee on the extent to which our other named executive
officers achieved their respective individual performance goals.
After our compensation committee makes its final decisions with
respect to salary, bonus and non-cash compensation
recommendations, it presents them for our boards
consideration at the February board meeting. Salary adjustments
approved in February are generally made retroactive to January
first of the year of the meeting.
Tax
Considerations
Section 162(m) of the Internal Revenue Code disallows a tax
deduction to publicly held companies for compensation paid to
certain of their executive officers, to the extent that
compensation exceeds $1,000,000 per covered officer in any
fiscal year. The limitation applies only to compensation that is
not considered to be performance-based which, for purposes of
Section 162(m), does not include the consulting fees we pay
to Dr. Morganroths professional corporation that are
included in his total compensation for purposes of this
compensation discussion and analysis. Non-performance-based
compensation paid to our executive officers for 2007 did not
exceed the $1,000,000 limit per officer, and our compensation
committee does not anticipate that the non-performance-based
compensation to be paid our executive officers in the
foreseeable future will exceed that limit.
Compensation
of Our Named Executive Officers
As described above, the core components of 2007 compensation for
each of our named executive officers consisted of base salary,
cash incentive bonus and long-term incentive equity awards. The
level for each of these components was determined by our
compensation committee consistent with the principles described
in this Compensation Discussion and Analysis.
Dr. McKelvey was our President and Chief Executive Officer
for the year ended December 31, 2007. At the beginning of
the year, Dr. McKelvey received a discretionary increase of
5.7% from his 2006 salary which increased his 2007 salary to
$370,000. This increase was based upon a review of the market
data and Dr. McKelveys performance during 2006 as
recommended by the compensation committee and approved by the
board of directors. For the year ended December 31, 2007,
Dr. McKelvey received a bonus of $137,335, which was based
upon the achievement of 67.8% of the financial goals (both
revenue and income goals combined) and the full achievement of
the 20% related to his individual performance. Additionally,
also based upon the compensation committees and the
boards review of the market data and his performance, we
awarded Dr. McKelvey a grant of 50,000 stock options valued
at $3.34 per share, or a total of $166,855 at the time of the
grant based upon the Black-Scholes valuation method.
Mr. Baron was our Executive Vice President and Chief
Financial Officer for the year ended December 31, 2007. At
the beginning of the year, Mr. Baron received a
discretionary increase of 5.8% from his 2006 salary which
16
increased his 2007 salary to $275,000. This increase was based
upon a review of the market data and Mr. Barons
performance during 2006 as recommended by the compensation
committee and approved by the board of directors. For the year
ended December 31, 2007, Mr. Baron received a bonus of
$102,072, which was based upon the achievement of 67.8% of the
financial goals established for the company (both revenue and
income goals combined) and the full achievement of the 20%
related to his performance goals. Additionally, also based upon
the compensation committees and the boards review of
the market data and his performance, we awarded Mr. Baron a
grant of 35,000 stock options valued at $3.34 per share, or a
total of $116,799 at the time of the grant based upon the
Black-Scholes valuation method.
Dr. Morganroth was the chairman of our board and our Chief
Scientific Officer for the year ended December 31, 2007. At
the beginning of the year, Dr. Morganroth received a
discretionary increase of 4.0% from his 2006 salary which
increased his 2007 salary to $189,280. In addition, we decided
to enter into a new consulting agreement with Joel Morganroth,
MD, P.C., a professional corporation owned by
Dr. Morganroth. Certain of our diagnostic testing and
clinical research contracts require that specified medical
professional services be provided. We have retained
Dr. Morganroths professional corporation to provide
these and other services related to the successful operation,
marketing and business development of our Cardiac Safety
division, including a new consulting product line for which we
paid the corporation between 80% and 90% of the revenues we
received in 2007 for this product line. The professional
corporation received a total of $1,409,025 in fees under this
agreement. The basis for this compensation was historical
consideration for the efforts that Dr. Morganroth provides
to our sales and business development organizations.
Dr. Morganroth is an important part of our efforts to
market our services to our various clients, and his consultative
skills and reputation in the marketplace are important factors
in our ability to win new contracts and retain existing clients.
In addition, Joel Morganroth MD, P.C., received a bonus of
$70,256, which was based upon the achievement of 67.8% of the
financial goals established for the company (both revenue and
income goals combined). In addition, Dr. Morganroth
received a stock option grant of 30,000 stock options valued at
$3.34 per share, or a total of $100,113 at the time of the grant
based upon the Black-Scholes valuation method.
Dr. Litwin was our Chief Medical Officer for the year ended
December 31, 2007. At the beginning of the year,
Dr. Litwin received a discretionary increase of 4.0% from
his 2006 salary which increased his 2007 salary to $260,000.
This increase was based upon a review of the market data and
Dr. Litwins performance during 2006 as recommended by
the compensation committee and approved by the board of
directors. For the year ended December 31, 2007,
Dr. Litwin received a bonus of $101,541, which was based
upon the achievement of 67.8% of the financial goals established
for the company (both revenue and income goals combined), 90.4%
of the bookings goals established for the company and the full
achievement of the 20% related to his performance goals.
Additionally, also based upon the compensation committee and the
boards review of the market data and his performance, we
awarded Dr. Litwin a grant of 20,000 stock options valued
at $3.34 per share, or a total of $66,742 at the time of the
grant based upon the Black-Scholes valuation method.
Mr. Brown was our Senior Vice President, Strategic
Marketing, Planning and Partnerships for the year ended
December 31, 2007. At the beginning of the year,
Mr. Brown received a discretionary increase of 2.2% from
his 2006 salary which increased his 2007 salary to $235,000.
This increase was based upon a review of the market data and
Mr. Browns performance during 2006 as recommended by
the compensation committee and approved by the board of
directors. For the year ended December 31, 2007,
Mr. Brown received a bonus of $89,135 which was based upon
the achievement of 67.8% of the financial goals established for
the company (both revenue and income goals combined) and 90.4%
of the bookings goals established for the company. Additionally,
also based upon the compensation committees and the
boards review of the market data and his performance, we
awarded Mr. Brown a grant of 20,000 stock options valued at
$3.34 per share, or a total of $66,742 at the time of the grant
based upon the Black-Scholes valuation method.
Compensation
Committee Report
Our compensation committee has reviewed and discussed the
compensation discussion and analysis that appears under the
caption Executive Compensation Compensation
Discussion and Analysis with management and, based on such
review and discussions, our compensation committee recommended
to our board that the disclosure set forth above under the
caption Executive Compensation Compensation
Discussion and Analysis
17
be included in this proxy statement and incorporated by
reference in our annual report on
Form 10-K
for the year ended December 31, 2007.
This report of our compensation committee does not constitute
soliciting material and should not be deemed filed or
incorporated by reference into any other eRT filing under the
Securities Act or the Exchange Act, except to the extent that we
specifically incorporate this report by reference therein.
Elam M. Hitchner (Chair)
Gerald A. Faich, MD, MPH
John H. Park
Stephen S. Phillips
Summary
Compensation Table
The table below summarizes the total compensation paid or earned
by each of the named executive officers for the fiscal years
ended December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Non-Equity
|
|
All Other
|
|
|
Name and
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Incentive Plan
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
($)
|
|
Michael J. McKelvey, Ph.D
|
|
|
2007
|
|
|
$
|
370,000
|
|
|
$
|
|
|
|
$
|
182,842
|
|
|
$
|
137,335
|
|
|
$
|
57,391
|
(2)
|
|
$
|
747,568
|
|
President and Chief
|
|
|
2006
|
|
|
$
|
176,346
|
|
|
$
|
150,000
|
|
|
$
|
77,469
|
|
|
$
|
|
|
|
$
|
7,130
|
|
|
$
|
410,945
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Baron
|
|
|
2007
|
|
|
$
|
275,000
|
|
|
$
|
|
|
|
$
|
116,985
|
|
|
$
|
102,072
|
|
|
$
|
30,473
|
(3)
|
|
$
|
524,530
|
|
Executive Vice President
|
|
|
2006
|
|
|
$
|
158,000
|
|
|
$
|
|
|
|
$
|
53,874
|
|
|
$
|
|
|
|
$
|
7,995
|
|
|
$
|
219,869
|
|
and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joel Morganroth, MD
|
|
|
2007
|
|
|
$
|
189,280
|
|
|
$
|
|
|
|
$
|
126,716
|
|
|
$
|
70,256
|
|
|
$
|
1,426,192
|
(4)
|
|
$
|
1,812,444
|
|
Chairman of the Board
|
|
|
2006
|
|
|
$
|
182,000
|
|
|
$
|
|
|
|
$
|
147,548
|
|
|
$
|
|
|
|
$
|
294,507
|
|
|
$
|
624,055
|
|
and Chief Scientific Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Litwin, MD
|
|
|
2007
|
|
|
$
|
260,000
|
|
|
$
|
|
|
|
$
|
76,159
|
|
|
$
|
101,541
|
|
|
$
|
30,473
|
(3)
|
|
$
|
468,173
|
|
Executive Vice President
|
|
|
2006
|
|
|
$
|
249,999
|
|
|
$
|
|
|
|
$
|
98,033
|
|
|
$
|
22,201
|
|
|
$
|
17,247
|
|
|
$
|
387,480
|
|
and Chief Medical Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Brown
|
|
|
2007
|
|
|
$
|
235,000
|
|
|
$
|
|
|
|
$
|
76,159
|
|
|
$
|
89,135
|
|
|
$
|
30,638
|
(3)
|
|
$
|
430,932
|
|
Senior Vice President,
|
|
|
2006
|
|
|
$
|
230,000
|
|
|
$
|
|
|
|
$
|
98,033
|
|
|
$
|
|
|
|
$
|
24,912
|
|
|
$
|
352,945
|
|
Strategic Development & Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the dollar amount recognized for financial statement
reporting purposes, exclusive of the effect of estimated
forfeitures, for the fiscal year ended December 31, 2007 in
accordance with SFAS No. 123R, and thus includes
amounts from awards granted in and, where applicable, prior to
2007. See note 1 to our consolidated financial statements
included in the 2007 annual report on
Form 10-K
for more information about our accounting for stock-based
compensation arrangements, including the assumptions made in
valuing such option awards. |
|
(2) |
|
Represents the sum of our 401K Plan contributions and the dollar
value of the insurance premiums and the automobile allowance we
paid and the $25,121 that we paid for Dr. McKelvey travel
and accommodations while working in the Philadelphia office. |
|
(3) |
|
Represents the sum of our 401K Plan contributions and the dollar
value of the insurance premiums and the automobile allowance we
paid. |
|
(4) |
|
Represents the sum of the dollar value of the insurance premiums
and the automobile allowance we paid and the $1,409,025 in
consulting fees we paid to Dr. Morganroths
wholly-owned professional corporation in accordance with our
consulting agreement. See Related Party Transactions
and note 10 to our consolidated financial statements included in
the 2007 Annual Report on
Form 10-K
for more information about the consulting agreement. |
18
Grants of
Plan Based Awards
The table below provides certain information with respect to
stock options granted to our named executive officers during
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise or
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Base Price of
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Option Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
Action Date(1)
|
|
|
Options (#)(2)
|
|
|
($/sh)
|
|
|
Awards ($)
|
|
|
Michael J. McKelvey, Ph.D
|
|
|
2/23/2007
|
|
|
|
2/15/2007
|
|
|
|
50,000
|
|
|
$
|
7.41
|
|
|
$
|
166,855
|
|
Richard A. Baron
|
|
|
2/23/2007
|
|
|
|
2/15/2007
|
|
|
|
35,000
|
|
|
$
|
7.41
|
|
|
$
|
116,799
|
|
Joel Morganroth, MD
|
|
|
2/23/2007
|
|
|
|
2/15/2007
|
|
|
|
30,000
|
|
|
$
|
7.41
|
|
|
$
|
100,113
|
|
Jeffery S. Litwin, MD
|
|
|
2/23/2007
|
|
|
|
2/15/2007
|
|
|
|
20,000
|
|
|
$
|
7.41
|
|
|
$
|
66,742
|
|
Robert S. Brown
|
|
|
2/23/2007
|
|
|
|
2/15/2007
|
|
|
|
20,000
|
|
|
$
|
7.41
|
|
|
$
|
66,742
|
|
|
|
|
(1) |
|
The action date represents the date that the compensation
committee approved the option grants. The grant date was two
business days after our release of our 2006 results of operation
and 2007 financial guidance. See Compensation
Discussion and Analysis Components of Our
Compensation Program Long-Term Incentives in Form of
Stock Options. |
|
(2) |
|
All stock option awards were made under the terms of our Amended
and Restated 2003 Equity Incentive Plan. All options become
exercisable over four years, in equal annual increments
beginning one year after the date of grant, contingent upon the
officers continued employment with us, subject to
acceleration under certain circumstances in accordance with the
terms of the named executive officers employment agreement
or as determined by our compensation committee as authorized
under the plan. The options expire seven years following the
date of the grant or 90 days from the date the executive
terminates employment. |
19
Outstanding
Equity Awards at Fiscal Year-End
The table below provides certain information with respect to
stock options held by our named executive officers at
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
|
Unexercised
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Option
|
|
|
|
Options (#)
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
(1)
|
|
|
($/sh)
|
|
|
Date
|
|
|
Michael J. McKelvey, Ph.D
|
|
|
37,500
|
|
|
|
112,500
|
|
|
$
|
8.51
|
|
|
|
6/23/2013
|
|
|
|
|
|
|
|
|
50,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Baron
|
|
|
18,750
|
|
|
|
56,250
|
|
|
$
|
9.90
|
|
|
|
5/17/2013
|
|
|
|
|
|
|
|
|
35,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joel Morganroth, MD
|
|
|
84,375
|
|
|
|
|
|
|
$
|
1.13
|
|
|
|
2/4/2009
|
|
|
|
|
168,750
|
|
|
|
|
|
|
$
|
1.39
|
|
|
|
12/1/2009
|
|
|
|
|
421,875
|
|
|
|
|
|
|
$
|
0.75
|
|
|
|
5/21/2011
|
|
|
|
|
101,250
|
|
|
|
|
|
|
$
|
1.69
|
|
|
|
12/20/2011
|
|
|
|
|
90,000
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
37,500
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
7,500
|
|
|
|
22,500
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffery S. Litwin, MD
|
|
|
36,250
|
|
|
|
|
|
|
$
|
1.02
|
|
|
|
3/5/2011
|
|
|
|
|
73,750
|
|
|
|
|
|
|
$
|
1.69
|
|
|
|
12/20/2011
|
|
|
|
|
52,500
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
27,001
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
5,000
|
|
|
|
15,000
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
20,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Brown
|
|
|
156,417
|
|
|
|
|
|
|
$
|
1.93
|
|
|
|
1/25/2010
|
|
|
|
|
30,625
|
|
|
|
|
|
|
$
|
1.02
|
|
|
|
3/5/2011
|
|
|
|
|
50,625
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
20,251
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
5,000
|
|
|
|
15,000
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
20,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
(1) |
|
All options become exercisable over four years, in equal annual
increments beginning one year after the date of grant,
contingent upon the officers continued employment with us,
subject to acceleration under certain circumstances in
accordance with the terms of the named executive officers
employment agreement or as determined by our compensation
committee as authorized under the Amended and Restated 2003
Equity Incentive Plan. |
20
Option
Exercises
The following table provides certain information with respect to
stock options exercised by our named executive officers during
2007.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired
|
|
|
Value Realized
|
|
Name
|
|
on Exercise (#)
|
|
|
on Exercise ($)(1)
|
|
|
Michael J. McKelvey, Ph.D
|
|
|
|
|
|
$
|
|
|
Richard A. Baron
|
|
|
|
|
|
$
|
|
|
Joel Morganroth, MD
|
|
|
67,500
|
|
|
$
|
352,350
|
|
Jeffrey S. Litwin, MD
|
|
|
|
|
|
$
|
|
|
Robert S. Brown
|
|
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Value realized equals the fair market value of the shares on the
date of exercise less the exercise price. |
Potential
Payments Upon Termination or Change of Control
We have entered into employment agreements with each of our
named executive officers under which we may be obligated to pay
certain severance and other benefits under certain circumstances
following termination of employment or changes of control of our
Company.
For the named executive officers, the agreements provide two
potential benefits: one payable in connection with terminations
upon death or disability or other than for cause, and one
payable under certain circumstances in connection with a change
of control of our Company.
Termination Upon Death or Disability or Other than For
Cause. If any such officers employment is
terminated upon death or disability or other than for cause, he
will be entitled to a lump sum cash payment equal to a multiple
of his then-applicable base salary plus bonus, if any, together
with continuation of benefits for a period specified in his
agreement. Dr. Morganroths employment agreement for
2007 does not provide for a bonus; his multiple was 2.3 times
his base salary plus continuation of benefits for a period of
2.3 years. For Dr. McKelvey and Mr. Baron, the
multiple is one times their respective base salaries and bonus
plus continuation of benefits for a period of one year. For
Dr. Litwin and Mr. Brown, the multiple is 50% of their
respective base salaries and bonus plus continuation of benefits
for a period of six months.
For purposes of these provisions, including the change of
control benefits discussed below, benefits means our
standard health, dental, disability, life and accident insurance
benefits as in force at the time the benefit is calculated
together with the executives automobile allowance. In
addition, any bonus is calculated as if the executives
entire bonus opportunity was achieved and then pro-rated based
on the number of days of service during the applicable incentive
period.
Change of Control. Upon a change of control in
our Company, the named executive officers are entitled to
certain benefits only if one of three additional criteria is
satisfied:
|
|
|
|
|
the executive is terminated other than for cause;
|
|
|
|
the executive resigns within 60 days after the change of
control because neither we nor the other party to the change of
control transaction (the Buyer) offers the executive
a position with comparable responsibilities, authority, location
and compensation; or
|
|
|
|
for each such executive other than Dr. McKelvey, the
executive remains employed by us or the Buyer (or any of its
divisions or subsidiaries) for one year after the change of
control.
|
For purposes of these provisions, a change of control means any
of the following:
|
|
|
|
|
a change of control of a nature that would be required to be
reported in our proxy statement under the Exchange Act;
|
21
|
|
|
|
|
the approval by our board of directors of a sale, transfer or
disposition of all or substantially all of our assets and
business to an unrelated third party and the consummation
thereof; or
|
|
|
|
the approval by our board of directors of any merger,
consolidation or similar business combination or reorganization
of our Company that, if consummated, would have the effect
described in either the foregoing bullet points, and the
consummation thereof.
|
Under those circumstances, each such executive would be entitled
to a lump sum payment equal to a multiple of his salary and
bonus, if any, plus continuation of benefits for a specified
period of time and the acceleration of vesting for any stock
options that were not otherwise exercisable.
Dr. Morganroths employment agreement does not provide
for a bonus; his multiple is 2.3 times his base salary plus
continuation of benefits for a period of six months. For
Dr. McKelvey, the multiple is one times base salary plus
bonus plus continuation of benefits for a period of two years.
For Mr. Baron, the multiple is one times base salary plus
bonus plus continuation of benefits for a period of one year.
For Dr. Litwin and Mr. Brown, the multiple is 50% of
base salary plus bonus plus continuation of benefits for a
period of six months.
Conditions on Payment. Each named executive
officers agreement includes a customary confidentiality
covenant that survives termination of service together with a
one-year (two-year for Dr. Morganroth) noninterference and
nonsolicitation covenant with respect to vendors, customers,
suppliers, employees and agents of our Company and a one-year
(two-year for Dr. Morganroth) covenant not to compete with
us in the United States or in any foreign country in which any
customer to which we are providing services or technology is
located. Under the terms of the agreements, any breach of these
covenants results in the forfeiture of any payments we may be
obligated to make as described above after the occurrence of the
breach.
Tabular
Presentation
The table below reflects the amount of compensation to each of
our named executive officers in the event they become entitled
to the benefits described above. The amounts shown assume that
they became entitled to such benefits effective as of
December 31, 2007. The amounts shown also assume that the
criteria for earning a change of control benefits were satisfied
as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of
|
|
|
Other Benefits
|
|
|
|
Cash
|
|
|
Stock Options
|
|
|
|
|
|
401K Plan
|
|
|
Automobile
|
|
Name
|
|
Payment ($)
|
|
|
($)(1)
|
|
|
Insurance ($)
|
|
|
Match ($)
|
|
|
Allowance ($)
|
|
|
Michael J. McKelvey, Ph.D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
disability or other than for cause
|
|
$
|
555,000
|
|
|
$
|
|
|
|
$
|
11,483
|
|
|
$
|
6,750
|
|
|
$
|
12,000
|
|
Change of control
|
|
$
|
555,000
|
|
|
$
|
592,875
|
|
|
$
|
22,966
|
|
|
$
|
6,750
|
|
|
$
|
24,000
|
|
Richard A. Baron
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
disability or other than for cause
|
|
$
|
412,500
|
|
|
$
|
|
|
|
$
|
11,483
|
|
|
$
|
6,750
|
|
|
$
|
9,240
|
|
Change of control
|
|
$
|
412,500
|
|
|
$
|
262,350
|
|
|
$
|
11,483
|
|
|
$
|
6,750
|
|
|
$
|
9,240
|
|
Joel Morganroth, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
disability or other than for cause
|
|
$
|
435,344
|
|
|
$
|
|
|
|
$
|
4,984
|
|
|
$
|
|
|
|
$
|
27,600
|
|
Change of control
|
|
$
|
435,344
|
|
|
$
|
132,300
|
|
|
$
|
1,083
|
|
|
$
|
|
|
|
$
|
6,000
|
|
Jeffrey S. Litwin, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
disability or other than for cause
|
|
$
|
195,000
|
|
|
$
|
|
|
|
$
|
5,741
|
|
|
$
|
6,750
|
|
|
$
|
4,620
|
|
Change of control
|
|
$
|
195,000
|
|
|
$
|
88,200
|
|
|
$
|
5,741
|
|
|
$
|
6,750
|
|
|
$
|
4,620
|
|
Robert Brown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
disability or other than for cause
|
|
$
|
170,000
|
|
|
$
|
|
|
|
$
|
5,824
|
|
|
$
|
6,750
|
|
|
$
|
4,620
|
|
Change of control
|
|
$
|
170,000
|
|
|
$
|
88,200
|
|
|
$
|
5,824
|
|
|
$
|
6,750
|
|
|
$
|
4,620
|
|
22
|
|
|
(1) |
|
This value was calculated based on the difference between the
closing price of the underlying stock at December 31, 2007
and the exercise price of the applicable stock option multiplied
by the number of unvested options that first would have become
exercisable on December 31, 2007 as a result of this
benefit. |
Director
Compensation
We do not compensate any director who is either (a) one of
our employees, (b) the beneficial owner of 10% or more of
our outstanding common stock (a Significant Holder)
or (c) a stockholder, member or partner of any entity which
itself is a Significant Holder. Each other director receives a
fee of $1,500 for each board meeting attended, $1,000 for each
audit committee meeting attended and $500 for each compensation
committee and governance and nominating committee meeting
attended. In addition, each such director receives an annual
retainer of $7,500, the chairman of our audit committee receives
an additional annual retainer of $4,000 and the chairman of our
governance and nominating committee and our compensation
committee each receives an additional annual retainer of $1,500.
Upon the initial election of any outside director
(as defined), such individual receives at the time of election
an automatic one-time option grant to purchase
10,000 shares of common stock, and each outside director
receives a fixed annual option grant to purchase
10,000 shares of common stock. Each director is also
reimbursed for out-of-pocket expenses incurred in connection
with attending meetings and providing other services as a
director.
The table below summarizes the compensation paid by us to our
directors who are not named executive officers for the fiscal
year ended December 31, 2007.
Director
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Option
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Awards
|
|
|
Total
|
|
Name(1)
|
|
($)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Sheldon M. Bonovitz
|
|
$
|
25,000
|
|
|
$
|
35,838
|
|
|
$
|
60,838
|
|
Gerald A. Faich, MD, MPH
|
|
$
|
24,500
|
|
|
$
|
35,838
|
|
|
$
|
60,338
|
|
David D. Gathman
|
|
$
|
33,000
|
|
|
$
|
35,838
|
|
|
$
|
68,838
|
|
Elam M. Hitchner
|
|
$
|
37,500
|
|
|
$
|
35,838
|
|
|
$
|
73,338
|
|
John H. Park(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stephen S. Phillips
|
|
$
|
30,000
|
|
|
$
|
35,838
|
|
|
$
|
65,838
|
|
Stephen M. Scheppmann
|
|
$
|
32,500
|
|
|
$
|
35,838
|
|
|
$
|
68,338
|
|
|
|
|
(1) |
|
Michael J. McKelvey, Ph.D, President and Chief Executive
Officer, and Joel Morganroth, MD, our chairman of the board and
Chief Scientific Officer, are not included in this table because
they are employees and thus receive no compensation for their
service as directors. All compensation received by
Drs. McKelvey and Morganroth as employees of our Company
and by Dr. Morganroths professional corporation
pursuant to its consulting agreement with us is shown in the
Summary Compensation Table. See Executive
Compensation Summary Compensation Table. |
|
(2) |
|
Reflects the dollar amount recognized for financial statement
reporting purposes, exclusive of the effect of estimated
forfeitures, for the fiscal year ended December 31, 2007 in
accordance with Statement of Financial Accounting Standards
No. 123R, Share-Based Payment
(SFAS No. 123R), and thus includes amounts
from awards granted in 2007, and where applicable, prior to
2007. See note 1 to our consolidated financial statements
included in the 2007 Annual Report on
Form 10-K
for more information about our accounting for stock-based
compensation arrangements, including the assumptions made in
valuing such option awards. As of December 31, 2007, each
individual listed in the table had the following number of
options outstanding: Sheldon M. Bonovitz-65,000; Gerald A.
Faich, MD, MPH-35,000; David D. Gathman-90,000; Elam M.
Hitchner-45,000; Stephen S. Phillips-90,000; John H. Park -0;
and Stephen M. Scheppmann-20,000. |
|
(3) |
|
John H. Park is a partner of Blum Capital Partners, L.P. and is
therefore not considered an outside director (as
defined) and thus is not eligible for compensation paid to
outside directors. |
23
RELATED
PARTY TRANSACTIONS
Under the terms of the charter of our audit committee, we
require prior audit committee approval of all related party
transactions because we recognize that they present a heightened
risk of conflicts of interest and can create the appearance of a
conflict of interest. We review for items in which an employee
may be a related party. Our Code of Ethics and Business Conduct
defines related parties to include the following: an
organization of which an employee of the company is an officer
or partner; the employee is a beneficial owner of ten percent
(10%) or more; any trust in which the employee has a substantial
interest, or serves as a trustee or in a similar fiduciary
capacity; and any immediate family member of an employee who may
significantly influence or be influenced by a business
transaction with an organization of which he or she is an
officer, director or partner. Such proposed transactions require
disclosure to and approval of an executive officer or director
and the audit committee. The audit committee reviews for related
party transactions at each of its quarterly meetings.
Certain of our diagnostic testing and clinical research
contracts require that specified medical professional services
be provided by Joel Morganroth, MD, our Chairman and Chief
Scientific Officer. We have retained Joel Morganroth,
MD, P.C., a professional corporation owned by
Dr. Morganroth, to provide these and other services related
to the successful operation, marketing and business development
of our Cardiac Safety division, which include consulting
services that Dr. Morganroths professional
corporation provides for us to our clients for which he received
between 80% and 90% of the fees we received from our clients for
such services. This professional corporation received fees for
these services of $1,479,281 for 2007, which included a bonus
award of $70,256. The consulting agreement continues on a year
to year basis unless terminated. See Executive
Compensation Compensation Discussion and
Analysis Compensation of Individual Named Executive
Officers for more information about
Dr. Morganroths consulting agreement.
During 2007, Sheldon M. Bonovitz, one of our directors, was the
Chairman and Chief Executive Officer of Duane Morris LLP, which
performs legal services for us. We paid $896,476 in fees to
Duane Morris LLP for their services performed for us in 2007.
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
(Proposal No. 2)
Our audit committee has designated KPMG LLP to be our
independent registered public accountants for the year ending
December 31, 2008. Our board of directors will offer a
resolution at our annual meeting to ratify this designation.
KPMG LLP has served as our independent registered public
accountants since July 2002. Our organizational documents do not
require that our stockholders ratify the selection of KPMG LLP
as our independent registered public accountants. We are doing
so because our board of directors believe it is a matter of good
corporate practice. If our stockholders do not ratify the
selection, our audit committee will reconsider whether or not to
retain KPMG LLP, but still may retain them. Even if the
selection is ratified, our audit committee, in its discretion,
may change the appointment at any time during the year if it
determines that such a change would be in the best interests of
us and our stockholders.
Approval of the proposal will require the favorable vote of a
majority of the stockholders present in person or by proxy and
entitled to vote at the annual meeting. OUR BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
RATIFICATION OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS FOR FISCAL 2008. We anticipate that
representatives of KPMG LLP will be present at the meeting to
respond to appropriate questions and, if they desire, to make a
statement.
24
AUDIT AND
NON-AUDIT FEES
General
During 2006 and 2007, we retained KPMG LLP to provide
professional services in the following categories and amounts:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Audit fees
|
|
$
|
597,000
|
|
|
$
|
643,800
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit and audit-related fees
|
|
|
597,000
|
|
|
|
643,800
|
|
Tax fees
|
|
|
125,000
|
|
|
|
107,300
|
|
All other fees
|
|
|
191,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
913,000
|
|
|
$
|
766,100
|
|
|
|
|
|
|
|
|
|
|
Audit fees for 2006 and 2007 include fees incurred for
professional services rendered in connection with the audit of
our consolidated financial statements for the years ended
December 31, 2006 and 2007 that are customary under
auditing standards generally accepted in the United States or
that are customary for the purpose of rendering an opinion on
the consolidated financial statements, and for the review of the
consolidated financial statements included in the quarterly
reports on
Form 10-Q
required to be filed during fiscal years 2006 and 2007. Audit
fees for 2006 and 2007 also include fees incurred for
professional services rendered in connection with the audit of
our internal control over financial reporting. In addition, the
2007 audit fees included $93,000 for services related to the
Covance Cardiac Safety Services, Inc. acquisition. In 2006 and
2007, tax fees consisted of federal, state and local tax return
preparation, including the preparation and work related to the
determination and support of research and development tax
credits available to us for those years. All other fees in 2006
and 2007 consisted primarily of services rendered in connection
with due diligence procedures that we requested in relation to
proposed transactions.
Our audit committee has considered all of the above services
performed by KPMG LLP and has determined that the provision
thereof is compatible with maintaining auditor independence. All
services rendered by KPMG LLP were permissible under applicable
laws and regulations and were pre-approved by our audit
committee. In accordance with its charter, our audit committee
pre-approves all audit and permissible non-audit services
provided by our independent registered public accountants. In
addition, it is our audit committees procedure to approve
any engagement or accounting project involving the independent
registered public accountants, and the related fees, prior to
commencement of the engagement or project.
Audit
Committee Report on Audited Consolidated Financial
Statements
The audit committee of our board of directors assists our board
with the oversight of our system of internal control, integrity
of financial reporting, adequacy of disclosures and compliance
with legal and regulatory requirements. Our audit committee is
directly responsible for the engagement, compensation, oversight
and evaluation of our independent registered public accountants
and, once retained, consults with and reviews recommendations
made by our independent registered public accountants with
respect to our consolidated financial statements, financial
records and financial controls.
Accordingly, our audit committee has (i) reviewed and
discussed our audited consolidated financial statements with
management and our independent registered public accountants;
(ii) discussed with our independent registered public
accountants the matters required to be discussed by Statement on
Auditing Standards No. 114 (Communications with Audit
Committees); (iii) received the written disclosures and the
letter from our independent registered public accountants
required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees); and
(iv) discussed with our independent registered public
accountants its independence from management and us, including
the matters in the written disclosures required by the
Independence Standards Board. Our audit committee also discussed
with our independent registered public accountants the overall
scope and plans for our audit. Our audit committee met both
separately and jointly with management and our
25
independent registered public accountants to discuss the results
of our accountants examination, their evaluation of our
internal control over financial reporting and the overall
quality of our financial reporting.
Based on the review and discussions referred to above, and
subject to the limitations of its role, our audit committee
recommended to our board of directors that our audited
consolidated financial statements be included in our annual
report on
Form 10-K
for the year ended December 31, 2007.
This report of our audit committee does not constitute
soliciting material and should not be deemed filed or
incorporated by reference into any other eRT filing under the
Securities Act of 1933, as amended (the Securities
Act), or the Exchange Act, except to the extent that we
specifically incorporate this report by reference therein.
Stephen M. Scheppmann (Chair)
David D. Gathman
Elam H. Hitchner
26
STOCKHOLDER
PROPOSALS
Any stockholder who, in accordance with and subject to the
provisions of
Rule 14a-8
of the proxy rules of the Securities and Exchange Commission,
wishes to submit a proposal for inclusion in our proxy statement
for our 2009 annual meeting of stockholders must deliver such
proposal in writing to our secretary at our principal executive
offices at 30 South 17th Street, Philadelphia, PA 19103 no
later than November 7, 2008. Such proposals may be included
in next years proxy statement if they comply with certain
rules and regulations promulgated by the Securities and Exchange
Commission.
In accordance with
Rule 14a-4(c)
promulgated by the Securities and Exchange Commission pursuant
to the Exchange Act, the holders of proxies solicited by our
board of directors in connection with the 2009 annual meeting
may vote such proxies in their discretion on certain matters as
more fully described in such rule, including without limitation
on any matter coming before the meeting as to which we do not
have notice on or before January 21, 2009.
OTHER
MATTERS
Our board knows of no other matters that may be presented for
action at the 2008 annual meeting. However, if any other matter
properly comes before the annual meeting, the proxy holders will
vote in accordance with their judgment on such matter.
We urge you to vote, sign and return the enclosed form of proxy
promptly in the enclosed envelope.
By Order of Our Board of Directors,
RICHARD A. BARON,
Executive Vice President, Chief Financial Officer and Secretary
27
ANNUALMEETING OF STOCKHOLDERS O FeResearchTechnology, Inc.May 1, 2008Please date, sign and
mailyour proxy card in theenvelope provided as soonas possible.Signature of
StockholderDate:Signature of StockholderDate:Note:Please sign exactly as your name or names appear
on this Proxy. When shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please givefull title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by authorized person.To change the
address on your account, please check the box at right andindicate your new address in the address
space above. Please note thatchanges to the registered name(s) on the account may not be submitted
viathis method.1.Election of Directors:OJoel Morganroth, MDOStephen S. Phillips2.Ratification of
the appointment of KPMG LLPas independentregistered public accountants.3.In his or her discretion,
the Proxy is authorized to vote upon such other businessas may properly come before the meeting.You
are urged to sign and return your proxy without delay in the returnenvelope provided for that
purpose which requires no postage if mailed inthe United States.FORAGAINSTABSTAINFOR
ALLNOMINEESWITHHOLDAUTHORITYFOR ALLNOMINEESFOR ALLEXCEPT(See instructions below)INSTRUCTION:To
withhold authority to vote for any individual nominee(s), mark FOR ALLEXCEPTand fill in the
circle next to each nominee you wish to withhold, as shown here:NOMINEES:THE BOARD OF DIRECTORS
RECOMMENDS AVOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSAL2.PLEASE SIGN, DATE AND RETURN
PROMPTLYIN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERExPlease
detach along perforated line and mail in the envelope provided. |
PROXY PROXY eRESEARCHTECHNOLOGY, INC. 2008 ANNUAL MEETING OF STOCKHOLDERS PROXY FOR HOLDERS OF
COMMON STOCK Proxy Solicited on Behalf of the Board of Directors The undersigned hereby appoints
JOEL MORGANROTH, MD, MICHAEL MCKELVEY, and RICHARD BARON, or any of them, with full power of
substitution, the proxy of the undersigned to represent the undersigned at the Annual Meeting of
Stockholders of eResearchTechnology, Inc. to be held on May 1, 2008, or any adjournment or
postponement thereof, and to vote the number of shares of the Common Stock of eResearchTechnology,
Inc. which the undersigned would be entitled to vote if personally present. This proxy when
properly executed will be voted in the manner directed herein by the undersigned stockholder. If no
direction is made, shares of the Common Stock represented by this proxy will be voted FOR the
election of the nominees listed on the reverse side; FOR ratification of KPMG LLP as independent
registered public accountants; and in the discretion of the proxy holders on any other matter which
comes before the meeting. This proxy may be revoked at any time prior to the time it is voted.
(Continued and to be signed on the reverse side.) |