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 |
eResearchTechnology, 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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eResearchTechnology,
Inc.
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be Held April 28,
2011
Important Notice Regarding the
Availability of Proxy Materials for the
Annual Meeting of Stockholders
to Be Held on April 28, 2011
The Notice of Annual Meeting,
proxy statement, annual report and proxy card are available at
http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=25241
To the stockholders of eResearchTechnology, Inc.:
We will hold our annual meeting of stockholders at our executive
offices located at 1818 Market Street, Philadelphia, PA 19103,
at 10:00 A.M. on April 28, 2011 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 2011.
3. To approve an amendment to our Amended and Restated 2003
Equity Incentive Plan to increase the number of shares of common
stock reserved for issuance thereunder.
4. To approve, by advisory vote, our executive compensation.
5. To recommend, by advisory vote, the frequency of
stockholder advisory votes on our executive compensation.
6. 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 2, 2011 are entitled to notice of and to vote at the
meeting.
We are mailing our 2010 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
March 9, 2011
Philadelphia, Pennsylvania
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, April 28, 2011 at our executive offices located
at 1818 Market 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 17, 2011. 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;
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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 2011;
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to approve an amendment to our Amended and Restated 2003 Equity
Incentive Plan to increase the number of shares of common stock
reserved for issuance thereunder;
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to approve, by advisory vote, our executive
compensation; and
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to recommend, by advisory vote, the frequency of stockholder
advisory votes on our executive compensation.
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In addition, our management will report on our performance
during 2010 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 2, 2011, 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 48,970,685 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.
1
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.
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 ratification of the appointment of independent
registered public accounting firms, but not on non-routine
matters. Brokers who are members of the New York Stock Exchange
do not have discretionary authority to vote in director
elections or on matters relating to executive compensation,
which include the proposal to amend our Amended and Restated
2003 Equity Incentive Plan and the advisory votes on our
executive compensation and the frequency of future advisory
votes on our executive compensation. 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, 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 2011, for approval of the amendment to our
Amended and Restated 2003 Equity Incentive Plan to increase the
number of shares of common stock reserved for issuance
thereunder, for approval of our executive compensation plan and
to conduct future advisory votes on our executive compensation
on an annual basis.
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. The proposals to
(a) ratify the appointment of KPMG LLP as our independent
registered public accountants for 2011 and (b) approve an
amendment to our Amended and Restated 2003 Equity Incentive Plan
to
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increase the number of shares of common stock reserved for
issuance thereunder will require the affirmative vote of a
majority of the votes that the stockholders present in person or
by proxy are entitled to cast on such proposals.
Similarly, the advisory votes to approve our executive
compensation and to recommend the frequency of future advisory
votes on our executive compensation will also require the
affirmative vote of a majority of the votes that the
stockholders present in person or by proxy are entitled to cast.
Although these advisory votes are not binding upon us, our board
of directors will review the outcome of the voting on these
proposals and take these results into account in making future
decisions with respect to the compensation of our executive
officers and the frequency with which we submit that
compensation to our stockholders for their approval.
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.
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.
3
STOCK
OWNERSHIP
The Stock
Ownership of Our Principal Stockholders, Directors and Executive
Officers
The following table shows the amount and percentage, as of
March 2, 2011, 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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FMR LLC(1)
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5,750,974
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11.7
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Blum Capital Partners L.P(2)
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5,539,377
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11.3
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Columbia Wanger Asset Management, L.P.(3)
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4,323,400
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8.8
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Tocqueville Asset Management LP(4)
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3,908,160
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8.0
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BlackRock Inc.(5)
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3,783,892
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7.7
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Joel Morganroth, MD(6)
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1,544,787
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3.1
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Jeffrey S. Litwin, MD(6)
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370,229
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Michael J. McKelvey, Ph.D(6)
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333,750
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Stephen S. Phillips(6)
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319,482
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Thomas P. Devine(6)
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243,895
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Amy Furlong(6)
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184,857
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Keith D. Schneck(6)
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133,719
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Sheldon M. Bonovitz(6)
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117,454
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Elam M. Hitchner(6)
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98,122
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Gerald A. Faich, MD, MPH(6)
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90,622
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Stephen M. Scheppmann(6)
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65,622
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Michael F. DeMane(6)
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45,622
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Klaus P. Besier(6)
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16,467
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All directors and executive officers as a group
(16 persons)(6)
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3,727,406
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7.3
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Less than 1.0% |
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The information presented in the table and in this footnote is
as reported in a Schedule 13G/A filed with the Securities and
Exchange Commission on February 14, 2011 by FMR LLC
(FMR), Edward C. Johnson
3d (Johnson), Fidelity Management &
Research Company (Fidelity) and Fidelity Advisor
Small Cap Fund (Fidelity Small Cap), all located at
82 Devonshire Street, Boston, MA 02109. FMR is a parent holding
company. Fidelity, a wholly-owned subsidiary of FMR and an
investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of
5,750,974 shares of our common stock at December 31,
2010, of which Fidelity Small Cap, an investment company
registered under the Investment Company Act of 1940, held
3,891,033 shares. FMR and Johnson, through its control of
Fidelity, each has sole power to dispose of the
5,750,974 shares owned by Fidelitys funds. |
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Blum Capital Partners L.P. (Blum L.P.) is located at
909 Montgomery Street, Suite 400, San Francisco,
California 94133. This information is as reported by Blum L.P.
in a Form 4 filed with the Securities and Exchange
Commission on January 4, 2011. The Form 4 was filed by
Blum L.P., a California limited partnership; Richard C.
Blum & Associates, Inc., a California corporation;
Blum Strategic GP II LLC., a Delaware limited liability company;
Blum Strategic GP III, L.L.C., a Delaware limited liability
company; Blum Strategic GP IV, 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. |
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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/A
filed with the Securities and Exchange Commission on
February 10, 2011 by Columbia. |
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Tocqueville Asset Management LP (Tocqueville) is
located at 40 West 57th Street, 19th Floor, New York,
NJ 10019. The information presented in the table and in
this footnote is as reported in a Schedule 13G/A filed with
the Securities and Exchange Commission on January 28, 2011
by Tocqueville. |
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BlackRock Inc. (BlackRock) is located at 40 East
52nd Street, New York, New York 10022. This information is as
reported by BlackRock, BlackRock Japan Co. Ltd., BlackRock
Institutional Trust Company, N.A., BlackRock
Fund Advisors, BlackRock Advisors, LLC, BlackRock
Investment Management, LLC and BlackRock International Limited
in a Schedule 13G/A filed with the Securities and Exchange
Commission on February 4, 2011. |
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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 will be exercisable within 60 days after
March 2, 2011: |
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Name
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Number of options
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Joel Morganroth, MD
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285,813
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Jeffrey S. Litwin, MD
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266,115
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Michael J. McKelvey, Ph.D.
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303,750
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Stephen S. Phillips
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131,212
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Thomas P. Devine
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206,450
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Amy Furlong
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155,901
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Keith D. Schneck
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97,190
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Sheldon M. Bonovitz
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106,212
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Elam M. Hitchner
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86,212
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Gerald A. Faich, MD, MPH
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54,212
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Stephen M. Scheppmann
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61,212
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Michael F. DeMane
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41,212
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Klaus P. Besier
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11,130
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All directors and executive officers as a group
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1,913,170
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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 Securities and Exchange Commission. 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 2010, we believe that all such
filings required during 2010 were made on a timely basis.
ELECTION
OF DIRECTORS
(Proposal No. 1)
Introduction
Our board of directors currently consists of eight 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 2011, 2012
and 2013, respectively.
5
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., 1818 Market 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 5605(a)(2) of The
Nasdaq Stock Market, Inc. (Nasdaq) listing standards.
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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 5605(a)(2) 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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The candidate 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 biopharmaceutical and healthcare organizations is
preferred.
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The candidate must have prior board experience. While public
company board experience is not required, it is highly preferred.
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The candidate must have an excellent business and personal
reputation for accomplishment and integrity. We prefer that our
candidates have personal characteristics that include a
deliberative style and being a good listener, articulate,
direct, succinct and able to accept/respect other board
members opinions.
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The candidate must have personal and business references from
people upon whose recommendations our governance and nominating
committee can rely.
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Candidates 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. The
committee does not have a separate policy with respect to its
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consideration of each of these relevant factors but deems them
collectively as valuable criteria in the nominating process.
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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.
On an annual basis, our governance and nominating committee
undergoes a self evaluation to determine its effectiveness in
nominating candidates using the above standards and
qualifications.
Action By
Our Governance and Nominating Committee
Our governance and nominating committee met on February 24,
2011 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
performance on our board of directors during 2010, personal
qualifications and other individual attributes, our governance
and nominating committee nominated, and our board of directors
thereafter accepted and approved, the individuals named below.
Our governance and nominating committee considered the diversity
of nominees when evaluating its nominations. Specifically, our
governance and nominating committee believes that the diverse
experience, skills and insights each nominee brings to our board
has enhanced our ability to compete successfully in the past.
Our governance and nominating committee expects that the mix of
experience possessed by the nominees will help us succeed in the
future. For additional information regarding the professional
experience of our nominees, as well as our directors continuing
in office, please refer to the biographies below.
On February 26, 2011, Michael DeMane informed us that he
will not be standing for reelection as a director at our 2011
annual meeting and will step down from our board when his
current term expires on that date. Mr. DeMane advised us
that he does not believe that he will have the requisite time to
fulfill his duties as one of our directors for another three
year term. Our governance and nominating committee believes
that, with the recent addition of Klaus Besier and the likely
addition of the individual who is appointed as our new chief
executive officer upon completion of our current search, we do
not need to fill the vacancy that will be created by
Mr. DeManes departure. Based on the recommendation of
our governance and nominating committee, our board of directors
has approved a decrease to seven in the number of directors,
effective on the date of our 2011 annual meeting.
Candidates
for Election
Two directors are to be elected at our annual meeting. The
nominees 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 of the
nominees are 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.
7
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
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Expiration of
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Name
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of March 1, 2011
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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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2014
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Stephen S. Phillips
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65
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2014
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Directors Continuing in Office
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Klaus P. Besier
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2012
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Sheldon M. Bonovitz
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2013
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Gerald A. Faich, MD, MPH
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2013
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Elam M. Hitchner
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2013
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Stephen M. Scheppmann
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2012
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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 2011. 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 interim President and Chief Executive Officer since December
2010 and 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 a Medical Review Officer/Expert for the
U.S. Food and Drug Administration. For these reasons, in
addition to his past service as chairman of our board and his
present position as our interim President and Chief Executive
Officer, Dr. Morganroth has been nominated to serve an
additional term as director on our board.
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 2011. 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. Phillips brings to
ERT his extensive background as legal counselor to businesses in
the health care industry, including his service as General
Counsel of Sofamor Danek Group, Inc., a leading medical
technology company, and his membership on the boards of a number
of private European and U.S. businesses. For these reasons,
in addition to his past service as a director of ERT and the
fact that he is an independent director, Mr. Phillips has
been nominated to serve an additional term as director on our
board.
Mr. Besier has served on our board of directors
since December 2010. Mr. Besier has served as CEO of
RES Software since 2010. From 2008 to 2010, Mr. Besier
served as CEO of Pramata, Inc., a company specializing in
contracts intelligence. From 2006 to 2007, Mr. Besier
served as President and CEO of Neoware, Inc., a software company
which was acquired by HP in 2007. Mr. Besier serves as a
director of ICG Commerce. Mr. Besier brings to ERT his
extensive experience serving as CEO of various software and
information technology companies. For these reasons, in addition
to his past service as a director of ERT and the fact that he is
an independent director, Mr. Besier should continue to
serve as one of our directors.
Mr. Bonovitz has served on our board of directors
since 1999. Mr. Bonovitz is Chairman Emeritus of and
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 has been a director of
Comcast Corporation since March 1979. Mr. Bonovitz also
serves on the advisory boards of several privately-held
companies and on the Board of Trustees of
8
The Curtis Institute of Music, The Philadelphia Museum of Art
and The Barnes Foundation. He also serves on the Board of The
Free Library of Philadelphia Foundation and as a Trustee of the
Christian and Mary Lindbach Foundation and The Dolfinger-McMahon
Foundation. He is President and a Trustee of the Foundation for
Self-Taught American Artists and Chairman of the Board of
Philadelphias Children First Fund. Mr. Bonovitz
brings to ERT his broad legal experience and leadership skills
as CEO and Chairman of Duane Morris LLP, an international law
firm, and a director of Comcast Corporation, a public company
and leading provider of entertainment, information and
communication products and services, as well as directorships
held for other public and private companies over his career. For
these reasons, in addition to his past service as a director of
ERT and the fact that he is an independent director,
Mr. Bonovitz should continue to serve as one of our
directors.
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 2009. 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 a Senior Scholar at the Jefferson
Medical University. Dr. Faich brings to ERT extensive
experience in business, preventive medicine,
pharmacoepidemiology and FDA-regulated research. For these
reasons, in addition to his past service as a director of ERT
and the fact that he is an independent director, Dr. Faich
should continue to serve as one of our directors.
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
brings to ERT his broad legal experience and leadership skills
as partner and legal counselor of Pepper Hamilton LLP, an
international law firm. For these reasons, in addition to his
past service as a director of ERT and the fact that he is an
independent director, Mr. Hitchner should continue to serve
as one of our directors.
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 May 2007, he
served as Executive Vice President and 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
electronics payments processing company. Mr. Scheppmann
brings to ERT his extensive experience as Chief Financial
Officer and board member for several healthcare and high-tech
businesses. For these reasons, in addition to his past service
as a director of ERT and the fact that he is an independent
director, Mr. Scheppmann should continue to serve as one of
our directors.
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 is comprised of eight members, seven of
whom are independent directors. See Director
Independence for further information. The independent
directors are as follows: Klaus P. Besier, Sheldon M. Bonovitz,
Michael F. DeMane, Gerald A. Faich, MD, MPH, Elam M. Hitchner,
Stephen S. Phillips and Stephen M. Scheppmann. The other
director is Joel Morganroth, MD, our interim President and Chief
Executive Officer and Chief Scientific Officer who currently
serves as chairman of our board.
Dr. Morganroth serves as both the chairman of our board of
directors and as our interim President and Chief Executive
Officer. Dr. Morganroth became our interim President and
Chief Executive Officer on December 21, 2010 upon the
retirement of Dr. Michael McKelvey. In reaching its
decision to nominate Dr. Morganroth for the position of
interim President and Chief Executive Officer, the Governance
and Nominating
9
Committee concluded that Dr. Morganroth was uniquely
qualified to assume the combined role of chairman of the board
and President and Chief Executive Officer on a temporary basis
given his previous experience as our Chief Executive Officer
from 1993 to 2001 and his intimate involvement with all aspects
of our operations and strategies. Previously, our board of
directors separated the positions of Chairman and Chief
Executive Officer when Dr. Morganroth stepped down as our
Chief Executive Officer in 2001. The board determined that
Dr. Morganroth should concentrate his efforts on board
leadership and scientific developments and vision while our
Chief Executive Officer would develop and implement our business
plan. Until such time as a replacement is found,
Dr. Morganroth will continue to serve as interim President
and Chief Executive Officer in conjunction with his other
responsibilities as to board leadership and scientific
developments and vision.
Because Dr. Morganroth is not independent in accordance
with Nasdaq Rule 5605(a)(2), the board, at the
recommendation of the governance and nominating committee,
appointed Mr. Hitchner to the role of lead independent
director effective April 28, 2010. Our governance and
nominating committee has established various responsibilities
for our lead independent director, including responsibility for
working with our chairman in support of the management,
development and effective functioning of our board, coordinating
the board and managements roles in corporate governance
and stockholder relations and relationships between management
and our board. Specifically, the lead independent director,
among other things, is responsible for determining the need,
timing and agenda for board meetings and meetings of the
independent directors, working with the various committees of
the board to act in accordance with their respective charters,
facilitating the boards efforts to create and maintain
practices that respond to feedback from stockholders and other
stakeholders and facilitating effective communication between
directors and management. Our governance and nominating
committee may modify or expand our lead independent
directors duties and responsibilities from time to time.
Our Chief Executive Officer reports directly to the board of
directors and is responsible for the
day-to-day
management of our Company, including all material risks. In
addition to reporting to our Chief Executive Officer, our Chief
Financial Officer reports directly to our audit committee and is
responsible for
day-to-day
financial and compliance risk management. Our audit committee is
responsible for oversight of financial and compliance risk
management and obtains information through discussions with our
Chief Financial Officer at each committee meeting. In addition,
both our board and audit committee discuss risk with our
independent registered public accountants prior to and at the
conclusion of the annual audit of financial statements. Our
compensation committee is responsible for the oversight of risk
related to our compensation plans and arrangements. Our
governance and nominating committee is responsible for oversight
of risk associated with board independence, conflicts of
interest and other corporate governance matters. Our board plays
a role in the oversight of overall risk through discussions with
our Chief Executive Officer and Chief Financial Officer at each
board meeting and through reports from the committees of our
board on the risk assessments in their respective areas of
responsibility. In addition, Dr. Morganroth serves on our
executive management team as well as on our board of directors.
In this capacity, Dr. Morganroth meets with our executive
management team on a regular basis to facilitate the exchange of
information regarding material risks and report such information
directly to the board. Our board believes its structure allows
for a free exchange of important information concerning the
risks relevant to our company.
Our board of directors held a total of five meetings during
2010, and our independent directors met in executive session at
each of the meetings. 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 2010, all members of our board
standing for reelection or continuing in office, with the
exception of Dr. Faich, 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 5605(a)(2) of the listing standards of Nasdaq;
(ii) are Non-employee Directors for purposes of
Rule 16b-3
under the Securities Exchange Act of 1934,
10
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 Messrs. Bonovitz, DeMane, Hitchner and
Phillips, held nine meetings during 2010. Mr. DeMane 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 5605(a)(2) of the Nasdaq listing
standards and satisfy the criteria in Rule 5605(c)(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
its 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 Messrs. DeMane, Hitchner and Scheppmann, held
nine meetings during 2010. Messrs. Scheppmann has been
determined by our board of directors to be an audit
committee financial expert as defined in Item 407 of
Regulation S-K.
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 5605(a)(2) 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 Messrs. Bonovitz,
Hitchner and Phillips and Dr. Faich, held four meetings
during 2010. Mr. Phillips serves as chairman of our
governance and nominating committee.
Compensation
Committee Interlocks and Insider Participation
During 2010, Messrs. Bonovitz, DeMane, Hitchner and
Phillips all served on our compensation committee. None of these
individuals is a current or former officer or employee of our
company or any of our subsidiaries. See Related Party
Transactions for a discussion of the legal fees we paid in
2010 to Duane Morris LLP and Pepper Hamilton LLP.
Mr. Bonovitz is Chairman Emeritus and Counsel to Duane
Morris LLP, and Mr. Hitchner is a consultant for Pepper
Hamilton LLP.
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
11
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.
Our board has determined that seven of our eight directors are
independent under these standards. The independent directors are
as follows: Klaus P. Besier, Sheldon M. Bonovitz, Michael F.
DeMane, Gerald A. Faich, MD, MPH, Elam M. Hitchner, Stephen S.
Phillips and Stephen M. Scheppmann. The other director is Joel
Morganroth, MD, our interim President and Chief Executive
Officer and Chief Scientific Officer who currently serves as
chairman of our board. In making the determination of
independence, we considered Messrs. Bonovitzs and
Hitchners status during 2010 as Chairman Emeritus of and
counsel to the law firm of Duane Morris LLP and consultant to
Pepper Hamilton LLP, respectively, both of which perform legal
services for us, but concluded that these relationships did not
interfere with their 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., 1818 Market Street, 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 2010
compensation of the individuals who served as our principal
executive and financial officers during 2010, together with our
three other most highly compensated executive officers.
Throughout this proxy statement, we refer to these individuals
as our named executive officers.
12
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 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, our
compensation committee has engaged third-party compensation
consulting firms to review our executive compensation program.
During 2009, the compensation committee engaged Exequity LLP
(Exequity), an independent executive compensation
advisor, to review our executive compensation program. This
review covered pay levels, annual and long-term incentive
program designs, benefits and perquisites and the material terms
of our employment agreements.
With respect to pay level benchmarking, Exequity compared the
compensation of our executive officers to relevant benchmark
communities by using two different sources: (1) annual
proxy statements filed with the SEC by a specific set of peer
group companies selected by our senior management and approved
by the compensation committee and (2) compensation survey
data. The specific companies studied for the purposes of the
analysis of annual proxy statements (the proxy peer
group) include the following:
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Affymetrix, Inc.
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Kendle International, Inc.
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Albany Molecular Research, Inc.
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Life Sciences Research, Inc.
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Arena Pharmaceuticals, Inc.
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PDI Inc
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Bio Reference Labs
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Pharmanet Development Group, Inc.
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Bioclinica, Inc.
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SYMYX Technologies, Inc.
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Caliper Life Sciences, Inc.
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Tripos Inc.
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Exelixis, Inc.
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Vital Images, Inc.
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Illumina, Inc.
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These 15 publicly-traded (at the time of the proxy filings used
in the study) contract research organizations, life sciences
companies and other organizations represent companies with whom
we might compete for executive talent, and had total annual
revenues and market capitalizations within a range of our total
annual revenues and market capitalization that our senior
management and compensation committee deemed to be acceptable
for the purposes of a compensation benchmarking comparison.
Exequity also reviewed various size and financial performance
indicators for this group of companies including
revenues, one-year and three-year revenue growth rates, market
capitalization, net income, gross profit, EBIT, EBITDA, diluted
EPS excluding extraordinary items, return on equity, return on
assets, return on capital, one-year total shareholder return and
three-year total shareholder return to provide a
framework for assessing how these companies pay levels
aligned with their respective performance. The compensation
survey data used in Exequitys review came from The
Culpepper Executive Survey and The Radford Life Sciences
Survey focusing on specific data that best reflected
the responsibilities and scopes of our executives
positions. Exequity did not review the size and financial
performance indicators for the companies included in the
compensation surveys that were not part of our proxy peer group.
Based on the compensation information collected from the annual
proxy statements and the compensation surveys, Exequity compiled
comparative compensation data for each of our named executives
and selected other executives. In each case, Exequity analyzed
the compensation elements that comprised the primary components
of the compensation for our named executive officers (as
discussed further below), including: 2009 base salary, 2008
13
short-term non-equity incentive compensation (which, together
with base salary, Exequity refers to as total cash compensation)
and 2009 long-term equity incentives. Exequity also incorporated
our 2009 target short-term non-equity incentive compensation
(which, together with base salary, Exequity refers to as target
total cash compensation) into the analysis and compared it to
the benchmark compensation data to assess the then-current
target total compensation levels. Exequity collected this data
at the 25th, 50th and 75th percentiles and compared
the officer positions to benchmark positions based upon similar
position responsibilities. The results of Exequitys
analysis indicated that aggregate pay levels (separately
reflecting 2008 actual bonus and 2009 target bonus) for our
executive officers were within an acceptable range around the
market medians for all comparative sources, particularly in
light of our generally strong financial performance indicators.
Total compensation levels by individual executive officer were
generally close to the market median which the compensation
committee felt to be appropriate when considered together with
all other factors evaluated in establishing compensation for our
executive officers. This analysis served as the basis for our
2010 pay decisions described in detail below.
With respect to the construct of our executive compensation
programs in aggregate, Exequitys study indicated that our
annual bonus program design and the minimal executive benefits
and perquisites provided are consistent with the practices of
the proxy peer group. However, the review of the design of
long-term incentive compensation programs indicated that a
number of companies in our proxy peer group employ more types of
long-term incentive vehicles than we had traditionally employed.
Generally, we had used stock options as the only form of
long-term incentive compensation. A majority of the proxy peer
group grant stock options plus at least one other long-term
incentive compensation vehicle most commonly
restricted stock on an annual basis. Based on this
finding, our compensation committee determined that our 2010
long-term incentive awards would be made 50% by value in each of
stock options and restricted stock.
Elements
of Our Compensation Program
In 2010, 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 and restricted
stock. Dr. Morganroths compensation included each of
these components. In addition, Dr. Morganroths
professional corporation received consulting fees for consulting
services it performed for us. For more information on specific
compensation elements for each named 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.
For 2010, excluding Dr. McKelvey (due to the effect of his
retirement benefits) and Dr. Morganroths consulting
fees, our executive officers base salaries represented
approximately 43% to 49% of their respective total compensation,
the cash incentive plan component represented approximately 20%
to 24% of their respective total compensation and the long-term
equity component represented approximately 26% to 32% of their
respective total annual compensation.
Total Cash Compensation. This is a combination of both
base salary plus annual cash incentives, and, in limited
circumstances, bonus payments. 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. The total cash compensation is based upon
the outcome of the various elements of the collection of
external data described above.
In 2010, we continued to offer a cash 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.
Based on recommendations of management, the compensation
committee established targeted financial goals which were
believed to be aggressive given the deterioration in general
economic conditions and the developing uncertainty in our
market. However, to assure flexibility, provide appropriate cash
incentives and reward performance under these circumstances, the
compensation committee reduced the portion of the cash incentive
compensation program related to individual goals for our
executive officers from between 25% and 40% in 2009 to between
25% and 30% for 2010,
14
with the exception of Dr. Morganroth, whose entire cash
incentive compensation program related to his individual goals.
Each executive officer was eligible to participate in the
program.
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 cash incentive compensation plan, sets goals for
individual performance and finalizes each participants
bonus opportunity. For 2010, we set the cash incentive
compensation opportunities for all of our named executive
officers, with the exception of Dr. McKelvey, at 50% of
base salary based on the market data described above and at the
recommendation of our chief executive officer, with which our
compensation committee concurred. Dr. McKelveys cash
incentive compensation opportunity was set at 75% of base
salary. The quantitative performance targets, as described
below, included revenues, net income and contract bookings
targets.
We identified revenues and net income as the primary
quantitative performance targets 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 net income target than to
the revenue target. For 2010, the initial revenue and net income
targets were $103.0 million $13.4 million,
respectively.
On February 24, 2011, our compensation committee
recommended a series of changes to our 2010 bonus plan.
Following completion of our acquisition of RS, our compensation
committee reviewed various adjustments to the primary
performance targets we used in the 2010 bonus plan
revenues and net income due to the significant
impact of this acquisition on our results of operations. Our
compensation committee recommended an increase in the revenue
and net income targets to $139.0 million and
$13.9 million, respectively. Our compensation committee
also recommended that the calculation of our net income for
purposes of the net income target be adjusted by adding back the
impact of acquisition costs we incurred in the transaction and
amortization expense related to intangible assets we acquired,
as well as the related income tax effect of those adjustments,
because it believed those adjustments would result in a net
income target unaffected by these transaction-specific expenses.
At the same time, our compensation committee recommended changes
to the formula for calculating the incentive payments based on
achieving those performance targets. Historically, our named
executive officers had the potential to achieve between 50% and
150% of the cash incentive compensation opportunity that was
allocable to each performance target, based on the extent to
which we achieved each target. While recognizing the need to
adjust those performance targets as a result of the RS
acquisition, our compensation committee also noted that the
revenue and net income generated in 2010 from our legacy
business fell short of the original targets. As a result, though
we achieved 97% and 120% of the revised revenue and adjusted net
income targets in 2010, respectively, our compensation committee
recommended that the cash incentive payments attributable to
those performance targets be paid at 100% of the aggregate
opportunity allocable to those targets. Our board of directors
approved the changes recommended by our compensation committee
on February 24, 2011.
In addition, for each named executive officer other than
Dr. Morganroth, 25% to 30% of the bonus opportunity was
tied to individual performance objectives, with
Dr. Morganroths entire bonus opportunity being tied
to his individual performance objectives. 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. Our named executive officers continued to be
eligible to achieve up to 100% of the cash incentive
compensation opportunity attributable to their respective
individual performance goals, and our compensation committee
concluded that they achieved between 80% and 100% of those goals
during 2010. For executives with responsibilities which involve
selling efforts, including Dr. Litwin, a portion of their
bonus was tied to the achievement of predetermined contract
revenue targets (Contract Targets).
15
The following table summarizes the bonus opportunity and related
performance targets we set in 2010 for each of our named
executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Bonus Opportunity Based On
|
|
|
Bonus
|
|
|
|
Net
|
|
Contract
|
|
Individual
|
Name
|
|
Opportunity
|
|
Revenues
|
|
Income
|
|
Targets
|
|
Performance
|
|
Joel Morganroth, M.D
|
|
$
|
237,500
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
100
|
%
|
Michael J. McKelvey, Ph.D
|
|
|
386,250
|
|
|
|
15
|
|
|
|
55
|
|
|
|
|
|
|
|
30
|
|
Keith D. Schneck
|
|
|
149,350
|
|
|
|
15
|
|
|
|
55
|
|
|
|
|
|
|
|
30
|
|
Jeffrey S. Litwin, M.D
|
|
|
175,595
|
|
|
|
15
|
|
|
|
40
|
|
|
|
20
|
|
|
|
25
|
|
Amy Furlong
|
|
|
145,000
|
|
|
|
15
|
|
|
|
55
|
|
|
|
|
|
|
|
30
|
|
Thomas P. Devine
|
|
|
137,500
|
|
|
|
15
|
|
|
|
55
|
|
|
|
|
|
|
|
30
|
|
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 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. 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.
Dr. Morganroth was entitled to additional compensation,
which is not included in the discussion or table above.
Dr. Morganroths professional corporation was entitled
to an 80% share of the net revenues we recognized for the ERT
Consulting Group for Dr. Morganroths services to our
customers. For more information on specific compensation
elements for each named executive officer see
Compensation of our Named Executive
Officers below.
Long-Term Incentive in Form of Stock Options and Restricted
Stock. 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. Beginning in 2010, equity-based
compensation also included restricted stock, which our
compensation committee believes further aligns the interests of
our named executive officers with those of our stockholders.
Equity-based compensation may also include stock appreciation
rights, restricted stock units or other long term performance
awards as permitted by our Amended and Restated 2003 Equity
Incentive Plan. Equity awards are typically approved toward the
end of each year or early in the following year, with the grant
date historically having been set shortly after our announcement
of results of operations for the preceding year to ensure that
the value of the awards and the exercise price of options
included as part of the award take 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. Awards of
restricted stock typically have similar terms for the lapse of
restrictions applicable to those shares.
16
Existing
Equity Compensation Plans
The following table presents certain information as of
December 31, 2010 regarding our equity compensation plans:
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|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
4,881,728
|
|
|
$
|
9.07
|
|
|
|
1,738,390
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,881,728
|
|
|
$
|
9.07
|
|
|
|
1,738,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Subsequent to December 31, 2010, the compensation committee
granted additional equity awards such that, as of March 2,
2011, 694,960 shares remain available for future issuance
under our plans. |
Other Benefits. Our named executive officers
also participated in benefit programs in which all of our
employees, or 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 our matching contributions
vest at a rate of 25% for each year of employment after the
first full year of employment, such that 100% of the matching
component is vested after five 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 2010, amounted to an average of
$0.095 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 monthly benefit of $10,000, for
which we pay the premium which, in 2010 amounted to an average
of $0.165 per $100 of monthly salary. All employees are offered
short-term disability insurance at 60% of weekly salary up to a
maximum weekly benefit of $2,000, for which we pay 55% of the
premium, except for Dr. Litwin and Mr. Devine for whom
we pay 100% of the premium. In 2010, these payments amounted to
$0.122 per month per $10 of coverage or, for Dr. Litwin and
Mr. Devine, $0.221 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 our overall compensation and benefit policies. In
establishing or recommending compensation levels and policies,
it is the belief of our compensation committee and our board
that the most effective compensation program is one that
17
provides executives competitive base salaries and significant
incentives to achieve both current and long-term strategic
business goals.
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 own performance, which is 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 November 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. Salary adjustments are generally made effective
as of January 1st each year.
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 2010 did not
exceed the $1,000,000 limit per officer, and our compensation
committee does not anticipate that the non-performance-based
compensation to be paid to our executive officers in the
foreseeable future will exceed that limit.
Compensation
Committee Report
Our compensation committee has reviewed and discussed the
compensation discussion and analysis that appears under the
caption Executive Compensation Compensation
Discussion and Analysis with management and, based on such
review and discussions, our compensation committee recommended
to our board that the disclosure set forth above under the
caption Executive Compensation Compensation
Discussion and Analysis be included in this proxy
statement and incorporated by reference in our annual report on
Form 10-K
for the year ended December 31, 2010.
This report of our compensation committee does not constitute
soliciting material and should not be deemed filed or
incorporated by reference into any other ERT filing under the
Securities Act or the Exchange Act, except to the extent that we
specifically incorporate this report by reference therein.
Michael F. DeMane (Chair)
Sheldon M. Bonovitz
Elam M. Hitchner
Stephen S. Phillips
18
Summary
Compensation Table
The table below summarizes the total compensation paid or earned
by each of the named executive officers for the fiscal years
ended December 31, 2010, 2009 and 2008.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Non-Equity
|
|
|
All Other
|
|
|
|
|
Name and
|
|
|
|
|
Salary
|
|
|
Awards
|
|
|
Awards
|
|
|
Incentive Plan
|
|
|
Compensation
|
|
|
Total
|
|
Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Joel Morganroth, MD(2)
|
|
|
2010
|
|
|
$
|
475,000
|
|
|
$
|
124,999
|
|
|
$
|
125,213
|
|
|
$
|
237,500
|
|
|
$
|
1,243,723
|
(3)
|
|
$
|
2,206,435
|
|
Chairman of the Board and
|
|
|
2009
|
|
|
$
|
202,757
|
|
|
$
|
|
|
|
$
|
149,149
|
|
|
$
|
|
|
|
$
|
1,334,788
|
|
|
$
|
1,686,694
|
|
President and Chief Executive
|
|
|
2008
|
|
|
$
|
196,851
|
|
|
$
|
|
|
|
$
|
142,794
|
|
|
$
|
110,069
|
|
|
$
|
1,659,966
|
|
|
$
|
2,109,680
|
|
Officer and Chief Scientific Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. McKelvey, Ph.D(2)
|
|
|
2010
|
|
|
$
|
500,890
|
|
|
$
|
334,753
|
|
|
$
|
335,316
|
|
|
$
|
|
|
|
$
|
954,551
|
(4)
|
|
$
|
2,125,510
|
|
President and Chief
|
|
|
2009
|
|
|
$
|
515,000
|
|
|
$
|
|
|
|
$
|
479,408
|
|
|
$
|
95,000
|
|
|
$
|
57,737
|
|
|
$
|
1,147,144
|
|
Executive Officer
|
|
|
2008
|
|
|
$
|
500,000
|
|
|
$
|
|
|
|
$
|
523,578
|
|
|
$
|
414,831
|
|
|
$
|
55,963
|
|
|
$
|
1,494,371
|
|
Keith D. Schneck
|
|
|
2010
|
|
|
$
|
298,700
|
|
|
$
|
112,010
|
|
|
$
|
112,203
|
|
|
$
|
138,149
|
|
|
$
|
32,835
|
(5)
|
|
$
|
693,897
|
|
Executive Vice President
|
|
|
2009
|
|
|
$
|
298,700
|
|
|
$
|
|
|
|
$
|
159,803
|
|
|
$
|
47,500
|
|
|
$
|
28,329
|
|
|
$
|
534,332
|
|
and Chief Financial Officer
|
|
|
2008
|
|
|
$
|
117,115
|
|
|
$
|
|
|
|
$
|
568,480
|
|
|
$
|
64,777
|
|
|
$
|
10,139
|
|
|
$
|
760,511
|
|
Jeffrey S. Litwin, MD
|
|
|
2010
|
|
|
$
|
351,190
|
|
|
$
|
105,355
|
|
|
$
|
105,536
|
|
|
$
|
166,815
|
|
|
$
|
33,089
|
(5)
|
|
$
|
761,985
|
|
Executive Vice President
|
|
|
2009
|
|
|
$
|
281,190
|
|
|
$
|
|
|
|
$
|
106,535
|
|
|
$
|
102,500
|
|
|
$
|
30,496
|
|
|
$
|
520,721
|
|
and Chief Medical Officer
|
|
|
2008
|
|
|
$
|
273,000
|
|
|
$
|
|
|
|
$
|
118,995
|
|
|
$
|
202,017
|
|
|
$
|
31,833
|
|
|
$
|
625,845
|
|
Amy Furlong
|
|
|
2010
|
|
|
$
|
290,000
|
|
|
$
|
86,999
|
|
|
$
|
87,148
|
|
|
$
|
145,000
|
|
|
$
|
25,855
|
(5)
|
|
$
|
635,002
|
|
Executive Vice President
|
|
|
2009
|
|
|
$
|
258,940
|
|
|
$
|
|
|
|
$
|
106,535
|
|
|
$
|
47,500
|
|
|
$
|
24,483
|
|
|
$
|
437,458
|
|
Chief Operations Officer
|
|
|
2008
|
|
|
$
|
242,000
|
|
|
$
|
|
|
|
$
|
154,694
|
|
|
$
|
133,852
|
|
|
$
|
24,507
|
|
|
$
|
555,052
|
|
Thomas P. Devine
|
|
|
2010
|
|
|
$
|
275,000
|
|
|
$
|
82,498
|
|
|
$
|
82,641
|
|
|
$
|
137,500
|
|
|
$
|
30,809
|
(5)
|
|
$
|
608,448
|
|
Executive Vice President
|
|
|
2009
|
|
|
$
|
252,788
|
|
|
$
|
|
|
|
$
|
106,535
|
|
|
$
|
47,500
|
|
|
$
|
28,660
|
|
|
$
|
435,483
|
|
and Chief Information Officer
|
|
|
2008
|
|
|
$
|
236,251
|
|
|
$
|
|
|
|
$
|
154,694
|
|
|
$
|
130,672
|
|
|
$
|
28,939
|
|
|
$
|
550,555
|
|
|
|
|
(1) |
|
Reflects the aggregate grant date fair value in accordance with
FASB ASC Topic 718. Amounts for 2008 have been recomputed under
the same methodology in accordance with the SEC rules. See
note 1 to our consolidated financial statements included in
the 2010 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) |
|
Dr. McKelvey served as our President and Chief Executive
Officer until his retirement on December 21, 2010 at which
time Dr. Morganroth began serving as our interim President
and Chief Executive Officer. |
|
(3) |
|
Represents the sum of the dollar value of the insurance
premiums, automobile allowance of $12,000 and parking we paid to
Dr. Morganroth and the $1,228,300 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 2010 Annual
Report on
Form 10-K
for more information about the consulting agreement. |
|
(4) |
|
Represents the retirement benefits we paid to Dr. McKelvey
totaling $902,668, the sum of our 401K Plan contributions, the
dollar value of the insurance premiums of $13,965, parking,
automobile allowance of $12,000 and travel and accommodations
while working in the Philadelphia office of $16,781. |
|
(5) |
|
Represents the sum of our 401K Plan contributions and the dollar
value of the insurance premiums, the automobile allowance and
parking we paid. Total dollar value of insurance premiums for
Mr. Schneck, Dr. Litwin, Ms. Furlong and
Mr. Devine was $13,965, $14,219, $9,265 and $14,219,
respectively. |
19
Grants of
Plan Based Awards
The table below provides certain information with respect to
equity awards granted to our named executive officers during
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Exercise or
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Securities
|
|
|
Base Price of
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
Action Date(1)
|
|
|
Units (#)(2)
|
|
|
Options (#)(2)
|
|
|
($/sh)
|
|
|
Awards ($)
|
|
|
Joel Morganroth, MD
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
|
|
|
|
43,253
|
|
|
$
|
6.05
|
|
|
$
|
125,213
|
|
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
20,661
|
|
|
|
|
|
|
|
|
|
|
$
|
124,999
|
|
Michael J. McKelvey, Ph.D
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
|
|
|
|
115,830
|
|
|
$
|
6.05
|
|
|
$
|
335,316
|
|
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
55,331
|
|
|
|
|
|
|
|
|
|
|
$
|
334,753
|
|
Keith D. Schneck
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
|
|
|
|
38,759
|
|
|
$
|
6.05
|
|
|
$
|
112,203
|
|
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
18,514
|
|
|
|
|
|
|
|
|
|
|
$
|
112,010
|
|
Jeffrey S. Litwin, MD
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
|
|
|
|
36,456
|
|
|
$
|
6.05
|
|
|
$
|
105,536
|
|
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
17,414
|
|
|
|
|
|
|
|
|
|
|
$
|
105,355
|
|
Amy Furlong
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
|
|
|
|
30,104
|
|
|
$
|
6.05
|
|
|
$
|
87,148
|
|
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
14,380
|
|
|
|
|
|
|
|
|
|
|
$
|
86,999
|
|
Thomas P. Devine
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
|
|
|
|
28,547
|
|
|
$
|
6.05
|
|
|
$
|
82,641
|
|
|
|
|
2/26/2010
|
|
|
|
2/23/2010
|
|
|
|
13,636
|
|
|
|
|
|
|
|
|
|
|
$
|
82,498
|
|
|
|
|
(1) |
|
The action date represents the date that the compensation
committee approved the option grants. The grant date was one
business day after our release of our 2009 results of
operations. See -Compensation Discussion and
Analysis Components of Our Compensation
Program Long-Term Incentives in Form of Stock
Options. |
|
(2) |
|
All stock and option awards were made under the terms of our
Amended and Restated 2003 Equity Incentive Plan. All options
become exercisable and all restricted stock vests over four
years, in equal annual increments beginning one year after the
date of grant. The vesting of all options and restricted stock
is 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. |
Compensation
of Our Named Executive Officers
As described above, the core components of 2010 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. Morganroth was the chairman of our board and our Chief
Scientific Officer for the year ended December 31, 2010.
Although he has also served as our interim President and Chief
Executive Officer since December 21, 2010,
Dr. Morganroths compensation was not adjusted as a
result of taking on these additional roles. In 2010, the
compensation committee recommended, and the board of directors
approved, the restructuring of Dr. Morganroths
compensation paid to him and his wholly-owned professional
corporation. Effective for 2010, Dr. Morganroths base
salary was increased to $475,000 for services as a full time
employee and, effective March 1, 2010, he relinquished a
previous personal consulting arrangement which had been in place
in prior years in which he received a base consulting fee. As a
result, Dr. Morganroths base consulting fees declined
from $309,000 in 2009 to $52,000 in 2010. For the year ended
December 31, 2010, Dr. Morganroth also received a
bonus of $237,500 based upon his individual performance and
accomplishments during 2010. In addition, Dr. Morganroth
received a stock option grant of 43,253 stock options valued at
$2.89 per share, or a total of $125,213, at the time of the
grant based upon the Black-Scholes valuation method, and a grant
of 20,661 shares of restricted stock valued at $6.05 per
share,
20
or a total of $124,999, at the time of grant based upon the
closing price of our common stock on the date of grant. In March
2010, we renewed our existing 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 continued to retain
Dr. Morganroths professional corporation to provide
these and other services related to the operation, marketing and
business development of our Cardiac Safety division, including
supporting our existing consulting services. Under this
consulting agreement, we paid the corporation 80% of the net
revenues we recognized for the ERT Consulting Group for
Dr. Morganroths services to our customers. The
professional corporation received a total of $1,228,300 in fees
under this agreement during 2010. The basis for this
compensation was historical consideration for the efforts that
Dr. Morganroth provides to our sales and business
development organizations and the transfer of his historical
consulting clientele, work flow processes and other intellectual
property and trade secrets to our consulting business.
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.
Dr. McKelvey was our President and Chief Executive Officer
from January 1, 2010 until his retirement on
December 21, 2010. Dr. McKelveys base salary did
not change in 2010 from 2009 and remained at $515,000, as
recommended by the compensation committee and approved by the
board of directors. The compensation committee believed that
Dr. McKelveys base salary for 2010 should remain the
same in light of economic conditions and the Exequity analysis.
Additionally, based upon the compensation committees and
the boards review of the Exequity analysis and his
performance, we awarded Dr. McKelvey a grant of 115,830
stock options valued at $2.89 per share, or a total of $335,316,
at the time of the grant based upon the Black-Scholes valuation
method, and a grant of 55,331 shares of restricted stock
valued at $6.05 per share, or a total of $334,753, at the time
of grant based upon the closing price of our common stock on the
date of grant We entered into a retirement agreement with
Dr. McKelvey on December 21, 2010. Under the
agreement, Dr. McKelvey resigned from his positions as our
President and Chief Executive Officer. In consideration of
Dr. McKelveys service to ERT and his delivery of a
general release, on January 3, 2011, we paid
Dr. McKelvey a lump sum cash payment of $902,668, less
applicable tax withholdings and deductions, representing the sum
of (i) one years base salary, (ii) bonus
opportunity for 2010 and (iii) car allowance for the
subsequent twelve months; and we will provide to
Dr. McKelvey until December 21, 2011 standard health,
dental and vision benefits.
Mr. Schneck was our Executive Vice President and Chief
Financial Officer for the year ended December 31, 2010.
Mr. Schnecks base salary did not change in 2010 from
2009 and remained at $298,700, as recommended by the
compensation committee and approved by the board of directors.
The compensation committee believed that Mr. Schnecks
base salary for 2010 should remain the same in light of economic
conditions and the Exequity analysis. For the year ended
December 31, 2010, Mr. Schneck received a bonus of
$138,149 based upon the achievement of the financial goals
described above and his individual performance objectives, which
included enhancing the tax efficiency and cash flow of our
operations, conducting a review of our enterprise risk
management, improving investor relations, improving our planning
and forecasting processes and actively supporting corporate
development activities. Also based upon the compensation
committee and the boards review of the Exequity analysis
and his performance, we awarded Mr. Schneck a grant of
38,759 stock options valued at $2.89 per share, or a total of
$112,203, at the time of the grant based upon the Black-Scholes
valuation method, and a grant of 18,514 shares of
restricted stock valued at $6.05 per share, or a total of
$112,010, at the time of grant based upon the closing price of
our common stock on the date of grant.
Dr. Litwin was our Chief Medical Officer for the year ended
December 31, 2010. At the beginning of the year,
Dr. Litwin received a discretionary increase of 24.9% from
his 2009 salary which increased his 2010 salary to $351,190.
This increase was based upon a review of the Exequity analysis
and Dr. Litwins performance during 2009 as
recommended by the compensation committee and approved by the
board of directors. In addition, Dr. Litwin was previously
entitled to a bonus of up to $70,000 based on our consulting
profits, which he earned in full in 2009, which was in addition
to our standard bonus plan. This separate bonus entitlement was
terminated effective January 1, 2010. For the year ended
December 31, 2010, Dr. Litwin received a bonus of
$166,815 based upon the achievement of the financial goals
described above and the achievement of his individual
performance objectives, which included increasing the
centralization of ECGs, representing us at public meetings and
with
21
sponsors, training other cardiologists to expand our consulting
practice and improving the profitability of our consulting
group. Also based upon the compensation committee and the
boards review of the Exequity analysis and his
performance, we awarded Dr. Litwin a grant of 36,456 stock
options valued at $2.89 per share, or a total of $105,536, at
the time of the grant based upon the Black-Scholes valuation
method, and a grant of 17,414 shares of restricted stock
valued at $6.05 per share, or a total of $105,355, at the time
of grant based upon the closing price of our common stock on the
date of grant.
Ms. Furlong was our Executive Vice President and Chief
Operations Officer for the year ended December 31, 2010. At
the beginning of the year, Ms. Furlong received a
discretionary increase of 12.0% from her 2009 salary which
increased her 2010 salary to $290,000. This increase was based
upon a review of the Exequity analysis and
Ms. Furlongs performance during 2009 as recommended
by the compensation committee and approved by the board of
directors. For the year ended December 31, 2010,
Ms. Furlong received a bonus of $145,000 based upon the
achievement of the financial goals described above and her
individual performance objectives, which included improving the
efficiency of our operations through process and organizational
improvements, increasing centralization of ECGs, integrating
ePRO into the cardiac safety operations and selected areas of
strategic development. Also based upon the compensation
committees and the boards review of the Exequity
analysis and her performance, we awarded Ms. Furlong a
grant of 30,104 stock options valued at $2.89 per share, or a
total of $87,148, at the time of the grant based upon the
Black-Scholes valuation method, and a grant of
14,380 shares of restricted stock valued at $6.05 per
share, or a total of $86,999, at the time of grant based upon
the closing price of our common stock on the date of grant.
Mr. Devine was our Executive Vice President and Chief
Information Officer for the year ended December 31, 2010.
At the beginning of the year, Mr. Devine received a
discretionary increase of 8.8% from his 2009 salary which
increased his 2010 salary to $275,000. This increase was based
upon a review of the Exequity analysis and
Mr. Devines performance during 2009 as recommended by
the compensation committee and approved by the board of
directors. For the year ended December 31, 2010,
Mr. Devine received a bonus of $137,500 based upon the
achievement of the financial goals described above and his
individual performance objectives, which included leading the
technical integration in merger and acquisition activities,
completing the requirements and design phase of an ePRO
capability integrated with EXPERT 2, launching an enterprise
portal, and coordinating requirements related to ECG algorithms
and highly automated workflows. Also based upon the compensation
committees and the boards review of the Exequity
analysis and his performance, we awarded Mr. Devine a grant
of 28,547 stock options valued at $2.89 per share, or a total of
$82,641, at the time of the grant based upon the Black-Scholes
valuation method, and a grant of 13,636 shares of
restricted stock valued at $6.05 per share, or a total of
$82,498, at the time of grant based upon the closing price of
our common stock on the date of grant.
Impact of
Compensation Policies on Risk Management
Our compensation committee reviewed our compensation policies
and practices for our employees and concluded that the risks
arising from our compensation policies and practices are not
reasonably likely to have a material adverse effect on us.
22
Outstanding
Equity Awards at Fiscal Year-End
The table below provides certain information with respect to
equity awards held by our named executive officers at
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Value of
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Shares or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Stock That
|
|
|
Units of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Have Not
|
|
|
Stock That
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Vested
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable(1)
|
|
|
Price ($/sh)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
Vested($)
|
|
|
Joel Morganroth, MD
|
|
|
90,000
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
20,661
|
|
|
$
|
151,858
|
|
|
|
|
37,500
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
7,500
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
$
|
12.00
|
|
|
|
2/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
52,500
|
|
|
$
|
4.60
|
|
|
|
3/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,253
|
|
|
$
|
6.05
|
|
|
|
2/26/2017
|
|
|
|
|
|
|
|
|
|
Michael J. McKelvey, Ph.D(2)
|
|
|
150,000
|
|
|
|
|
|
|
$
|
8.51
|
|
|
|
3/21/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
|
|
|
$
|
7.41
|
|
|
|
3/21/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
$
|
12.00
|
|
|
|
3/21/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
56,250
|
|
|
|
|
|
|
$
|
4.60
|
|
|
|
3/21/2011
|
|
|
|
|
|
|
|
|
|
Keith D. Schneck
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
14.52
|
|
|
|
7/28/2018
|
|
|
|
18,514
|
|
|
$
|
136,078
|
|
|
|
|
18,750
|
|
|
|
56,250
|
|
|
$
|
4.60
|
|
|
|
3/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,759
|
|
|
$
|
6.05
|
|
|
|
2/26/2017
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Litwin, MD
|
|
|
73,750
|
|
|
|
|
|
|
$
|
1.69
|
|
|
|
12/20/2011
|
|
|
|
17,414
|
|
|
$
|
127,993
|
|
|
|
|
52,500
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
27,001
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
5,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
12,500
|
|
|
$
|
12.00
|
|
|
|
2/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
37,500
|
|
|
$
|
4.60
|
|
|
|
3/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,456
|
|
|
$
|
6.05
|
|
|
|
2/26/2017
|
|
|
|
|
|
|
|
|
|
Amy Furlong
|
|
|
5,625
|
|
|
|
|
|
|
$
|
3.01
|
|
|
|
7/23/2012
|
|
|
|
14,380
|
|
|
$
|
105,693
|
|
|
|
|
11,250
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
20,250
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
5,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
12,500
|
|
|
$
|
12.00
|
|
|
|
2/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
37,500
|
|
|
$
|
4.60
|
|
|
|
3/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,104
|
|
|
$
|
6.05
|
|
|
|
2/26/2017
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Value of
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Shares or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Stock That
|
|
|
Units of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Have Not
|
|
|
Stock That
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Vested
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable(1)
|
|
|
Price ($/sh)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
Vested($)
|
|
|
Thomas P. Devine
|
|
|
17,375
|
|
|
|
|
|
|
$
|
4.21
|
|
|
|
10/22/2012
|
|
|
|
13,636
|
|
|
$
|
100,225
|
|
|
|
|
43,688
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
27,000
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
5,000
|
|
|
$
|
7.41
|
|
|
|
2/23/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
12,500
|
|
|
$
|
12.00
|
|
|
|
2/28/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
37,500
|
|
|
$
|
4.60
|
|
|
|
3/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,547
|
|
|
$
|
6.05
|
|
|
|
2/26/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All options become exercisable over four years, in equal annual
increments beginning one year after the date of each grant, with
the exception of the grant of 10,000 options to
Dr. McKelvey at $12.00 per share and 7,500 options to
Ms. Furlong and Mr. Devine at $12.00 per share which
became exercisable in full one year after the date of grant. All
restricted stock vests over four years, in equal annual
increments beginning one year after the date of grant. The
vesting of all options and restricted stock are contingent upon
the officers continued employment with us, subject to
acceleration under certain circumstances in accordance with the
terms of the named executive officers employment agreement
or as determined by our compensation committee as authorized
under the Amended and Restated 2003 Equity Incentive Plan. |
|
(2) |
|
As of result of Dr. McKelveys retirement on
December 21, 2010, 347,080 unvested options expired and the
options that were vested on that date will remain exercisable
only until March 21, 2011. |
Option
Exercises
The following table provides certain information with respect to
stock options exercised by our named executive officers during
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Value Realized
|
|
|
|
|
|
|
|
Name
|
|
On Exercise (#)
|
|
|
On Exercise ($)(1)
|
|
|
|
|
|
|
|
|
Joel Morganroth, MD
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Michael J. McKelvey, Ph.D
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Keith D. Schneck
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Litwin, MD
|
|
|
9,000
|
|
|
$
|
63,630
|
|
|
|
|
|
|
|
|
|
Amy Furlong
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Thomas P. Devine
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
24
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
or she will be entitled to a lump sum cash payment equal to 100%
of his or her then-applicable base salary plus bonus, if any,
together with continuation of benefits for one year, with the
exception of Dr. Morganroth who is not entitled to
continuation of benefits.
For purposes of these provisions, including the change of
control benefits discussed below, benefits means our
standard health, dental and vision insurance benefits as in
force at the time the benefit is calculated through COBRA, if
elected, all of which are subject to applicable premium
co-payments, 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 two additional criteria is
satisfied:
|
|
|
|
|
the executive is terminated other than for cause within
12 months of the change of control; or
|
|
|
|
the executive resigns within six months 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.
|
For purposes of these provisions, a change of control means a
change in the ownership or effective control of the Company or a
change in the ownership of a substantial portion of our assets,
in each case within the meaning of Treasury Regulation
§ 1.409A-3(i)(5).
Under those circumstances, each such executive would be entitled
to the same entitlements as if terminated upon death or
disability or other than for cause, plus we are further
obligated to accelerate vesting of the executives stock
options, such that all stock options held by each executive
immediately prior to the date of the change of control shall
become exercisable in full as of the date of the change of
control. In addition, any restrictions with respect to any
restricted stock or restricted stock units granted to the
executive under the Companys equity incentive plans shall
lapse and any conditions applicable to any long-term performance
award or performance shares granted to the executive under such
plans shall be terminated.
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.
25
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, 2010. The amounts shown also assume that the
criteria for earning a change of control benefit were satisfied
as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
Stock Options
|
|
|
Restricted Stock
|
|
|
|
|
|
401K Plan
|
|
|
Automobile
|
|
Name
|
|
Payment ($)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
Insurance ($)
|
|
|
Match ($)
|
|
|
Allowance ($)
|
|
|
Joel Morganroth, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disability or other than for cause
|
|
$
|
712,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Termination on change of control
|
|
$
|
712,500
|
|
|
$
|
200,604
|
|
|
$
|
151,858
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Keith D. Schneck
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disability or other than for cause
|
|
$
|
436,849
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,965
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Termination on change of control
|
|
$
|
436,849
|
|
|
$
|
205,074
|
|
|
$
|
136,078
|
|
|
$
|
13,965
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Jeffrey S. Litwin, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disability or other than for cause
|
|
$
|
518,005
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,219
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Termination on change of control
|
|
$
|
518,005
|
|
|
$
|
150,518
|
|
|
$
|
127,993
|
|
|
$
|
14,219
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Amy Furlong
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disability or other than for cause
|
|
$
|
435,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,265
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Termination on change of control
|
|
$
|
435,000
|
|
|
$
|
142,260
|
|
|
$
|
105,693
|
|
|
$
|
9,265
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Thomas P. Devine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination on death,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disability or other than for cause
|
|
$
|
412,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,219
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
Termination on change of control
|
|
$
|
412,500
|
|
|
$
|
140,236
|
|
|
$
|
100,225
|
|
|
$
|
14,219
|
|
|
$
|
7,350
|
|
|
$
|
9,240
|
|
|
|
|
(1) |
|
This value was calculated based on the difference between the
closing price of the underlying stock at December 31, 2010
and the exercise price of the applicable stock option or the
fair value of the restricted stock grant, respectively,
multiplied by the number of unvested options or shares of
restricted stock that first would have become vested on
December 31, 2010 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.
In 2008, the compensation committee engaged Hay Group to review
our director compensation. As a result of Hay Groups
review, director compensation was increased effective April
2009. The cash portion of director compensation remained the
same for 2010. In 2010, each eligible director received a fee of
$2,000 for each board meeting attended and $1,000 for each
committee meeting attended. An annual retainer of $25,000 was
paid to each
26
eligible director. An annual retainer of $10,000 was paid to the
chairman of our audit committee and $5,000 each to the chairmen
of our governance and nominating and our compensation committees.
In 2010, each outside director (as defined), with
the exception of Mr. Besier, received an option grant to
purchase 9,212 shares of common stock and a restricted
stock grant of 4,410 shares. Mr. Besier, who was
elected as a director in December 2010 by the board of directors
at the recommendation of the governance and nominating
committee, received an option grant to purchase
11,130 shares of common stock and a grant of
5,337 shares of restricted stock upon his election. Each
director is also reimbursed for
out-of-pocket
expenses incurred in connection with attending meetings and
providing other services as a director.
The table below summarizes the compensation paid by us to our
directors who are not named executive officers for the fiscal
year ended December 31, 2010.
Director
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Total
|
|
Name(1)
|
|
($)
|
|
|
($)(2)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Klaus P. Besier
|
|
$
|
3,715
|
|
|
$
|
32,502
|
|
|
$
|
32,522
|
|
|
$
|
68,739
|
|
Sheldon M. Bonovitz
|
|
$
|
48,000
|
|
|
$
|
32,502
|
|
|
$
|
32,501
|
|
|
$
|
113,003
|
|
Michael F. DeMane
|
|
$
|
54,000
|
|
|
$
|
32,502
|
|
|
$
|
32,501
|
|
|
$
|
119,003
|
|
Gerald A. Faich, MD, MPH
|
|
$
|
38,000
|
|
|
$
|
32,502
|
|
|
$
|
32,501
|
|
|
$
|
103,003
|
|
Elam M. Hitchner
|
|
$
|
67,000
|
|
|
$
|
32,502
|
|
|
$
|
32,501
|
|
|
$
|
132,003
|
|
Stephen S. Phillips
|
|
$
|
53,000
|
|
|
$
|
32,502
|
|
|
$
|
32,501
|
|
|
$
|
118,003
|
|
Stephen M. Scheppman
|
|
$
|
54,000
|
|
|
$
|
32,502
|
|
|
$
|
32,501
|
|
|
$
|
119,003
|
|
|
|
|
(1) |
|
Neither Joel Morganroth, MD nor Michael J. McKelvey, Ph.D was
included in this table because they were employees during 2010
during the time they served on the board of directors and thus
received no compensation for their service as a director. All
compensation received by Drs. Morganroth and McKelvey as
employees, including Dr. McKelveys retirement
benefits, 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 aggregate grant date fair value in accordance with
FASB ASC Topic 718. See note 1 to our consolidated financial
statements included in the 2010 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, 2010, each
individual listed in the table had the following number of
options and shares of restricted stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Options
|
|
|
Restricted Stock
|
|
Name
|
|
(#)
|
|
|
(#)
|
|
|
Klaus P. Besier
|
|
|
11,130
|
|
|
|
5,337
|
|
Sheldon M. Bonovitz
|
|
|
106,212
|
|
|
|
4,410
|
|
Michael F. DeMane
|
|
|
41,212
|
|
|
|
4,410
|
|
Gerald A. Faich, MD, MPH
|
|
|
54,212
|
|
|
|
4,410
|
|
Elam M. Hitchner
|
|
|
86,212
|
|
|
|
4,410
|
|
Stephen S. Phillips
|
|
|
131,212
|
|
|
|
4,410
|
|
Stephen M. Scheppman
|
|
|
61,212
|
|
|
|
4,410
|
|
27
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
80% of the net revenues we recognize for such services to our
clients. This professional corporation received fees for these
services of $1,228,300 for 2010. 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 2010, Messrs. Bonovitz and Hitchner, two of our
directors, was the Chairman Emeritus of and counsel to Duane
Morris LLP and consultant to Pepper Hamilton LLP, respectively,
each of which performs legal services for us. We paid $351,000
and $526,000 in fees to Duane Morris LLP and Pepper Hamilton
LLP, respectively, for their services performed for us in 2010.
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, 2011. 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 believes 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 2011. 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.
28
AUDIT AND
NON-AUDIT FEES
General
During 2009 and 2010, we retained KPMG LLP to provide
professional services in the following categories and amounts:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Audit fees
|
|
$
|
545,800
|
|
|
$
|
878,300
|
|
Audit-related fees
|
|
|
|
|
|
|
345,200
|
|
|
|
|
|
|
|
|
|
|
Audit and audit-related fees
|
|
|
545,800
|
|
|
|
1,223,500
|
|
Tax fees
|
|
|
207,900
|
|
|
|
578,300
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
753,700
|
|
|
$
|
1,801,800
|
|
|
|
|
|
|
|
|
|
|
Audit fees for 2009 and 2010 include fees incurred for
professional services rendered in connection with the audit of
our consolidated financial statements for the years ended
December 31, 2009 and 2010 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 2009 and 2010. In
addition, audit fees for 2009 and 2010 include fees incurred for
professional services rendered in connection with the audit of
our internal control over financial reporting and, in 2010,
audit fees also included audit procedures over the acquisition
of RS. In 2010, audit-related fees were for due diligence work
associated with our acquisition of RS. In 2009 and 2010, tax
fees consisted of federal, state and local tax return
preparation, assistance with tax audits performed by the
regulatory tax authorities in the US and UK and related tax
planning consulting.
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. 61, as amended (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 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.
29
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, 2010.
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)
Michael F. DeMane
Elam H. Hitchner
30
PROPOSAL TO
APPROVE AN AMENDMENT TO OUR
AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN
(Proposal No. 3)
At the Annual Meeting, our stockholders will be asked to approve
an amendment (the Amendment) to our Amended and
Restated 2003 Equity Incentive Plan (Plan), in order
to reserve an additional 3,500,000 shares of common stock
for issuance thereunder. The Plan was originally approved by our
Board of Directors in March 2003 on the recommendation of the
compensation committee and by our stockholders at the 2003
Annual Meeting and thereafter amended by our Board of Directors
in February 2007 on the recommendation of the compensation
committee and by our stockholders at the 2007 Annual Meeting.
Description
of the Plan
Purpose
The purpose of the Plan is to provide a means by which certain
employees and directors of, and others providing services to or
having a relationship with, the Company and its subsidiaries may
be given an opportunity to acquire shares of our common stock or
otherwise receive compensation based on the value of such
shares. The Plan is intended to promote our interests by
encouraging stock ownership on the part of such individuals, by
enabling us and our subsidiaries to secure and retain the
services of highly qualified persons and by providing such
individuals with an additional incentive to advance the success
of ERT and our subsidiaries.
Administration
The Plan is administered by our compensation committee. Our
compensation committee has full and final authority, in its sole
discretion, to interpret the provisions of the Plan and to
decide all questions of fact arising in its application; to
determine the people to whom awards shall be granted under the
Plan; to determine the type of awards to be made and the amount,
size and terms of each such award; to determine when an award
shall be granted; and to make all other determinations necessary
or advisable for the administration of the Plan. The
compensation committee may also establish subplans under the
Plan to the extent it determines it necessary or appropriate to
conform to the applicable requirements of jurisdictions other
than the United States in order to achieve the material purposes
of making awards in those jurisdictions. Notwithstanding the
foregoing, our board of directors may, in its discretion, itself
exercise the authority granted under the Plan to the
compensation committee. The members of the compensation
committee must be Non-Employee Directors (within the meaning of
Rule 16b-3(b)(3)
promulgated under the Exchange Act or any successor provision
thereto) and outside directors within the meaning of
Treasury Regulation § 1.162-27(e)(3).
Eligibility
Persons eligible to receive awards under the Plan are limited to
the directors and such employees and other individuals who
provide services to or otherwise have a relationship with us or
our subsidiaries as the compensation committee determines from
time to time.
Awards
Under the Plan
Options
The terms of options granted under the Plan are determined by
the compensation committee at the time of granting an option.
Each option granted under the Plan is evidenced by a written
stock option award letter from us and is subject to the
following terms and conditions.
Exercise of Options. The compensation
committee determines on the date of grant when options granted
under the Plan become exercisable. Unless otherwise determined
by the compensation committee in its sole discretion and no
option is exercisable until the expiration of at least six
months from the date of grant. An option is exercisable by
giving us written notice of exercise specifying the number of
shares of common stock to be purchased and tendering payment to
us of the purchase price. The acceptable methods of payment for
shares issued upon exercise of an option are set forth in the
option award letter but may include cash, shares of our common
stock
31
(including shares of common stock issuable upon the exercise of
the option) or any combination thereof as determined by the
compensation committee.
Exercise Price. The exercise price of options
granted under the Plan is determined by the compensation
committee. The exercise price of options may not be less than
100% of the fair market value of the common stock on the date of
grant. However, in the case of incentive options granted to an
optionee who owns more than 10% of the voting power of all
classes of our stock, the exercise price must not be less than
110% of the fair market value of the common stock on the date of
grant. For so long as our common stock is listed on the Nasdaq
Global Select Market or another stock exchange, the fair market
value per share will be the closing price on such market or
exchange on the date of grant or, if such date is not a business
day, on the immediately preceding business day. Without
stockholder approval, and except for equitable adjustments in
connection with any stock split, stock dividend, combination or
other reclassification of our common stock, the compensation
committee may not: (i) reduce the exercise price of any
option after it is granted; (ii) cancel any option at a
time when the exercise price exceeds the fair market value of
our common stock in exchange for another option or other award
under the Plan except as permitted by the Plan in connection
with a merger, acquisition, spin-off or similar transaction or
(iii) take any other action that could be treated as a
repricing of the option under accounting principles generally
accepted in the United States.
Termination of Employment. If an optionee
ceases to serve as our employee or that of our subsidiary for
any reason other than death or disability, options may be
exercised within three months (or such other period of time as
is determined by the compensation committee) after such
termination, but only to the extent that the options were
exercisable on the date of termination.
Death or Disability. Upon the death or
disability of an optionee, options may be exercised by the
optionee or his successor or estate within one year (or such
other period of time as is determined by the compensation
committee) from the date of death or disability, but only to the
extent that the options were exercisable on such date.
Term and Termination of Options. Options
expire on the date determined by the compensation committee as
set forth in the award letter, but no option will be exercisable
after ten years from the date of grant. An Incentive Option
granted to an optionee who owns more than 10% of the voting
power of all classes of our stock may not have a term of more
than five years. No option may be exercised by any person after
the expiration of its term.
Limitation on Transferability. No option
granted under the Plan may be transferred other than by will or
the laws of descent and distribution. During the optionees
lifetime, each option will be exercisable only by the optionee
or any permitted transferee.
Acceleration of Options. In the event of a
proposed sale of all or substantially all of our assets, or the
merger of us into another corporation, in the discretion of the
compensation committee, outstanding options may become
immediately exercisable in full. The compensation committee may,
in its discretion in such instances, declare that any
outstanding option will terminate as of a date fixed by the
compensation committee and give each optionee the right to
exercise his option as to all shares subject to the Option.
Other Provisions. The option award letters may
contain such other terms, provisions and conditions not
inconsistent with the terms of the Plan as may be determined by
the compensation committee.
Stock
Appreciation Rights
A stock appreciation right is the right to receive the
appreciation in the fair market value of our common stock over
the initial exercise price between the date of grant and the
exercise date, for that number of shares of our common stock
with respect to which the stock appreciation right is exercised.
We may pay the appreciation in either cash, in shares of our
common stock with equivalent value, or in some combination, as
determined by the compensation committee. Each award of stock
appreciation rights is evidenced by an award letter specifying
the terms and conditions of the award. The compensation
committee determines the exercise price of stock appreciation
rights, the vesting schedule and other terms and conditions of
stock appreciation rights, including the number of shares
granted pursuant to a stock appreciation right. After
termination of service, a participant will be able to exercise
the vested portion of his or her stock appreciation right for
the period of time stated in the award letter. In no event will
a stock appreciation right be exercisable after the expiration
of its term.
32
Restricted
Stock and Restricted Stock Units
Restricted stock and restricted stock units are awards of shares
of our common stock that vest in accordance with terms and
conditions established by the compensation committee. The
compensation committee may impose whatever conditions to vesting
it determines to be appropriate including, if determined
desirable for the award to qualify as performance-based
compensation for purposes of Section 162(m) of the
Code, that the restricted stock will vest based on the
achievement of performance goals. Each award of restricted stock
or restricted stock unit is evidenced by an award letter
specifying the terms and conditions of the award. The
compensation committee will determine the number of shares of
restricted stock or restricted stock units granted to any
participant. Unless the compensation committee determines
otherwise, shares that do not vest typically will be subject to
forfeiture or to our right of repurchase, which we may exercise
upon the voluntary or involuntary termination of the
purchasers service with us for any reason including death
or disability. The compensation committee will determine the
extent, if any, to which, and the conditions under which, a
holder of restricted stock or restricted stock unit shall have
the right to vote such shares or receive any dividends or other
distributions paid on shares of our common stock.
Long-Term
Performance Awards
Long-term performance awards are awards that will result in
payment of cash
and/or
shares of our common stock only if performance goals established
by the compensation committee over not less than a two-year
period are achieved. The compensation committee will determine
the nature, length and starting date of each performance period
as well as the performance objectives to be used in making such
awards, which may be based on company, business unit or
individual performance, or any combination thereof. The
compensation committee also determines the dollar value or
number of shares to which a participant may be entitled under a
long-term performance award, except that no participant shall be
granted a long-term performance award with a value in excess of
$1,000,000 (determined in the case of awards payable in shares
of our common stock at the time the award is granted) for the
performance period to which the award relates. The compensation
committee may revise the performance objectives
and/or
underlying factors and criteria applicable to any long-term
performance award in the event of special or unusual events or
circumstances affecting the application of one or more
performance objectives to an award, to the extent it deems
appropriate in its sole discretion to avoid unintended windfalls
or hardship. The compensation committee shall have the
discretion to determine the extent, if any, to which a
participant is entitled to receive any payment with respect to a
long-term performance award if the participants service
terminates prior to the expiration of the applicable performance
period.
Performance
Shares
Performance shares are awards that will result in a payment to a
participant only if performance goals established by the
compensation committee are achieved or the awards otherwise
vest. The compensation committee will establish performance
goals in its discretion, which, depending on the extent to which
they are met, will determine the number
and/or the
value of performance shares to be paid out to participants. The
performance goals may be based upon the achievement of company,
business unit or individual goals (including solely continued
service), or other basis determined by the compensation
committee. Payment for performance shares shall be made in
shares of our common stock with equivalent value, as determined
by the compensation committee. Performance shares will have an
initial value equal to the fair market value of our common stock
on the grant date. The compensation committee also determines
the number of performance shares granted to any participant and
the performance period with respect to each award. Each
performance share is evidenced by an award letter, and is
subject to the terms and conditions determined by the
compensation committee. The compensation committee shall have
the discretion to determine the extent, if any, to which a
participant is entitled to receive any performance shares if the
participants service terminates prior to the expiration of
the applicable performance period.
Qualified
Performance-Based Compensation
The compensation committee may determine that awards of stock
appreciation rights, restricted stock, restricted stock unit,
long-term performance awards
and/or
performance shares are intended to be performance-based awards
within the meaning of Section 162(m) of the Code. The
compensation committee will establish the
33
criterion or criteria and target(s) on which performance will be
measured. The compensation committee must establish objectively
determinable criteria and targets in advance of applicable
deadlines under the Code and while the attainment of the
performance targets remains substantially uncertain. The
criteria that the compensation committee may use for this
purpose will include one or more of the following: pre- or
after-tax net earnings, sales or revenue, operating earnings,
operating cash flow, return on net assets, return on
stockholders equity, return on assets, return on capital,
stock price growth, gross or net profit margin, earnings per
share, price per share, market share or strategic business
criteria consisting of one or more Company objectives based on
meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets, product
development goals, goals relating to acquisitions or
divestitures or any other objective measure derived from any of
the foregoing criteria. The performance goals may relate to the
performance of the individual participant, his or her business
unit or the Company as a whole, or any combination of the
foregoing. Performance goals need not be uniform as among
participants.
Federal
Income Tax Consequences
The following description, which is based on existing laws, set
forth certain of the federal income tax consequences of awards
under the Plan.
Options
An optionee will not have taxable income upon the grant of an
option. In the case of nonqualified options, the optionee will
recognize ordinary income upon the exercise of the option in an
amount equal to the excess, if any, of the then fair market
value of the shares acquired over the exercise price. The
optionees tax basis in the shares acquired will equal the
exercise price plus the amount taxable as compensation to the
optionee. Upon a sale of the shares acquired upon exercise, any
gain or loss is generally long-term or short-term capital gain
or loss, depending on how long the shares are held. The required
holding period for long-term capital gain is presently one year.
The optionees holding period for shares acquired upon
exercise will begin on the date of exercise.
An optionee who receives incentive options generally incurs no
federal income tax liability at the time of grant or upon
exercise of the options. However, the spread between the
exercise price of an incentive option and the fair market value
of the common stock on the date of exercise will be an item of
tax preference, which may give rise to alternative minimum tax
liability. If the optionee does not dispose of the shares before
the date that is at least two years from the date of grant and
at least one year from the date of exercise, the difference
between the exercise price and the amount realized upon
disposition of the shares will constitute long-term capital gain
or loss, as the case may be. If, within two years from the date
of grant or one year from the date of exercise, the holder of
shares acquired upon exercise of an incentive option disposes of
the shares (a Disqualifying Disposition), the
optionee will generally realize ordinary income at the time of
the Disqualifying Disposition equal to the difference between
the exercise price and the lesser of the fair market value of
the shares on the date of exercise or the amount realized on the
Disqualifying Disposition.
If the purchase price upon exercise of an option is paid with
shares already owned by the optionee, generally no gain or loss
will be recognized with respect to the shares used for payment,
and the additional shares received will be taxed as described
herein. However, if payment of the purchase price upon exercise
of an incentive option is made with shares acquired upon
exercise of an incentive option before the shares used for
payment have been held for the two-year and one-year periods
described above, use of such shares as payment will be treated
as a Disqualifying Disposition as described above.
Stock
Appreciation Rights
No taxable income is reportable when a stock appreciation right
is granted to a participant. Upon exercise, the participant will
recognize ordinary income in an amount equal to the amount of
cash received and the fair market value of any shares received.
Any additional gain or loss recognized upon any later
disposition of the shares would be capital gain or loss.
34
Restricted
Stock, Restricted Stock Unit, Long-Term Performance Awards and
Performance Shares
A participant generally will not have taxable income at the time
a grant of restricted stock, a restricted stock unit, a
long-term performance award or performance shares is made.
Instead, he or she will recognize ordinary income in the first
taxable year in which his interest in the shares underlying the
award becomes either (i) freely transferable or
(ii) no longer subject to substantial risk of forfeiture
(e.g., vested). However, a holder of any such award may elect to
recognize income at the time he or she receives the award in an
amount equal to the fair market value of the shares underlying
the award (less any amount paid for the shares) on the date the
award is granted.
Tax
Consequences to the Company
We generally will be entitled to a tax deduction in connection
with an award under the Plan in an amount equal to the ordinary
income realized by a participant and at the time the participant
recognizes such income (for example, the exercise of a
nonqualified stock option). Special rules limit the
deductibility of compensation paid to our chief executive
officer and to each of our other four most highly compensated
executive officers. Under Section 162(m) of the Code, the
annual compensation paid to any of these specified executives
will be deductible only to the extent that it does not exceed
$1,000,000. However, we can preserve the deductibility of
certain compensation in excess of $1,000,000 if the conditions
of Section 162(m) are met. These conditions include
stockholder approval of the Plan and setting limits on the
number of awards that any individual may receive per year. The
Plan has been designed to permit the compensation committee to
grant awards that qualify as performance-based for purposes of
satisfying the conditions of Section 162(m) of the Code,
thereby permitting us to continue to receive a federal income
tax deduction in connection with such awards.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF
U.S. FEDERAL INCOME TAXATION WITH RESPECT TO THE GRANT AND
EXERCISE OF AWARDS UNDER THE PLAN. IT DOES NOT PURPORT TO BE
COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF AN
INDIVIDUALS DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS
OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH ANY
ELIGIBLE INDIVIDUAL MAY RESIDE.
New Plan
Benefits
No determination has been made with respect to future recipients
of awards under the Plan and it is not possible to specify the
names or positions of the individuals to whom awards may be
granted in the future or the number of shares of common stock to
which such awards will relate.
Amendment
and Termination
The compensation committee may terminate or amend the Plan at
any time, except that without stockholder approval the
compensation committee may not increase the maximum number of
shares which may be issued under the Plan, extend the maximum
period during which any award may be exercised, extend the term
of the Plan, amend the employees or classes of employees
eligible to receive awards under the Plan, change the minimum
Option price or approve any other amendment which would require
stockholder approval pursuant to Treasury Regulations
Section 1.162-27(e)(4)(vi).
The termination or any modification or amendment of the Plan
shall not, without the consent of a participant, affect the
participants rights under an award previously granted. The
Plan terminates upon the earlier of April 21, 2013 or the
date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise or cancellation
of awards granted under the Plan.
Proposed
Amendment
As of March 2, 2011, a total of 7,318,625 shares of
our common stock were authorized for issuance under the Plan, of
which 1,076,460 shares have been issued and
5,547,205 shares are subject to outstanding option grants,
leaving 694,960 shares remaining available for additional
awards. Our compensation committee and our board of directors
believe that the number of shares remaining available for
additional awards will be insufficient to achieve the purpose of
the Plan over its remaining term unless the additional shares
are authorized. The amendment, if approved at the Annual
Meeting, will reserve an additional 3,500,000 shares of
common stock for issuance under the Plan, bringing the total
shares of common stock authorized for issuance under the Plan to
10,825,000, of which
35
4,194,960 shares would be available for additional awards
in addition to any shares that become available as a result of
the expiration of outstanding options or the forfeiture of any
restricted stock awards. Approval of the proposal will require
the favorable vote of a majority of the stockholders present in
person or by proxy and voting at the Annual Meeting. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE AMENDMENT TO OUR AMENDED AND RESTATED 2003
EQUITY INCENTIVE PLAN.
ADVISORY
VOTE ON EXECUTIVE COMPENSATION
(Proposal No. 4)
The recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, or the Dodd-Frank Act, enables our
stockholders to cast an advisory (non-binding) vote on the
compensation of our named executive officers as described in
this Proxy Statement in accordance with the SECs
compensation disclosure rules.
As stated in the section of this Proxy Statement headed
Compensation Discussion and Analysis, our executive
compensation 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.
We are asking our stockholders to indicate their support for our
named executive officer compensation as described in this Proxy
Statement. This proposal, commonly known as a
say-on-pay,
gives our stockholders the opportunity to express their views on
the compensation paid to our named executive officers. This vote
is not intended to address any specific item of compensation,
but rather the overall compensation of our named executive
officers and the philosophy, policies and practices described in
this Proxy Statement. Accordingly, we are asking our
stockholders to vote FOR the following resolution at
the Annual Meeting:
RESOLVED, that the Companys stockholders approve, on
an advisory basis, the compensation of the named executive
officers, as disclosed in the Companys Proxy Statement for
the 2011 Annual Meeting of Stockholders.
Adoption of this resolution will require the affirmative vote of
a majority of the shares present or represented by proxy at the
Annual Meeting and entitled to vote on the matter. Brokers and
other nominee holders do not have discretion to vote
uninstructed shares with respect to this Proposal. Accordingly,
if brokers or other nominee holders do not receive voting
instructions from beneficial owners of the shares, they will not
be able to vote the shares. As a result, abstentions and broker
non-votes will have the same effect as votes against the
proposal.
This
say-on-pay
vote is advisory, and therefore is not binding on us, our
compensation committee or our board of directors. However, our
compensation committee and board of directors value the opinions
of our stockholders and, to the extent there is a significant
vote against the named executive officer compensation as
disclosed in this Proxy Statement, they will consider the
stockholders concerns and will evaluate whether any
actions are necessary to address those concerns.
OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL OF THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT
PURSUANT TO THE SECS COMPENSATON DISCLOSURE RULES (WHICH
DISCLOSURE INCLUDES THE COMPENSATION DISCUSSION AND ANALYSIS,
THE COMPENSATION TABLES AND THE NARRATIVE DISCLOSURES THAT
ACCOMPANY THE COMPENSATION TABLES).
RECOMMENDATION,
BY ADVISORY VOTE, OF THE FREQUENCY OF STOCKHOLDER ADVISORY
VOTES
ON EXECUTIVE COMPENSATION
(Proposal No. 5)
As described in Proposal 4 above, our stockholders are
being provided the opportunity to cast an advisory vote on the
compensation of our named executive officers. The advisory vote
on executive compensation described in
36
Proposal 4 is commonly referred to as a
say-on-pay
vote. The Dodd-Frank Act also enables our stockholders to
recommend how frequently we should seek this advisory
(non-binding)
say-on-pay
vote.
This Proposal 5 affords stockholders the opportunity to
cast an advisory (non-binding) vote on how often we should
include a
say-on-pay
vote in our proxy materials for future annual stockholder
meetings (or a special stockholder meeting for which we must
include executive compensation information in the proxy
statement for that meeting). The proxy card provides our
stockholders with the opportunity to choose among four
alternatives with respect to this proposal (holding the vote
every one, two or three years, or abstaining). The alternative
that receives the greatest number of votes (holding the
say-on-pay
vote every one, two or three years) will be the frequency that
stockholders choose. Brokers and other nominee holders do not
have discretion to vote uninstructed shares with respect to this
proposal. Accordingly, if brokers or other nominee holders do
not receive voting instructions from beneficial owners of the
shares, they will not be able to vote the shares. As a result,
neither abstentions nor broker non-votes will be taken into
account in determining the outcome of the voting on this
proposal.
We are not making a recommendation on the frequency of holding a
say-on-pay vote because we would like to consider the views of
our stockholders before making a determination. The compensation
committee, which makes recommendations to the full board of
directors regarding our executive compensation program, and our
board of directors value the opinions expressed by stockholders
in this vote and will consider the outcome of this vote in
making their decisions regarding the frequency of future
advisory votes on our executive compensation.
OUR BOARD OF DIRECTORS IS NOT MAKING A RECOMMENDATION ON
WHETHER THE
SAY-ON-PAY
ADVISORY VOTE SHOULD OCCUR EVERY ONE, TWO OR THREE YEARS.
37
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 2012 annual meeting of stockholders must deliver such
proposal in writing to our Secretary at our principal executive
offices at 1818 Market Street, Philadelphia, PA 19103 no later
than November 12, 2011. 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 2012 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 February 1, 2012.
OTHER
MATTERS
Our board knows of no other matters that may be presented for
action at the 2011 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,
KEITH D. SCHNECK,
Executive Vice President, Chief Financial Officer
and Secretary
38
ANNUAL MEETING OF STOCKHOLDERS OF
eResearchTechnology, Inc.
April 28, 2011
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 28, 2011:
The Notice of Annual Meeting, proxy statement, annual
report and proxy card
are available at
http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=25241
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
ê Please detach along perforated line and mail in the envelope provided.
ê
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS,
FOR
PROPOSAL 2, FOR PROPOSAL 3 AND FOR PROPOSAL 4
AND
MAKES NO RECOMMENDATION ON PROPOSAL 5.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
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Stephen S. Phillips |
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INSTRUCTIONS:
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individual nominee, mark FOR BOTH EXCEPT and fill in the
circle next to the nominee you wish to withhold, as shown
here:
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To change the address on your account, please check the box
at right and indicate your new address
in the address space above. Please note that changes
to the registered name(s) on the account may
not be submitted via this method.
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Ratification of the appointment of KPMG LLP as independent registered public accountants.
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Amendment to our Amended and Restated 2003 Equity Incentive Plan
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In his or her discretion, the Proxy is authorized to vote upon such other business as may properly come before the meeting.
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You are urged to sign and return your proxy without delay in the return envelope provided for that purpose which requires no postage if mailed in the United States.
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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 give full 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.
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eRESEARCHTECHNOLOGY, INC.
2011
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 and KEITH SCHNECK, or one 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 April 28, 2011, 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; FOR the amendment to our Amended and Restated 2003 Equity Incentive Plan; FOR the
proposal regarding an advisory vote on executive compensation;
ABSTAIN on the proposal regarding an advisory vote on the
frequency of future advisory votes on executive compensation; 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.)